Featured Article - May 2006
Blind to the Opportunities
By Bill Waddell
An excerpt from Rebirth of American Industry
Reprinted with permission.
During
the heyday of post World War II American manufacturing, management was
a club for men only and every man wore a suit and tie to work,
regardless of his level within the company. In Cincinnati, Ohio, the
place for all of the managers, junior and senior, to buy the
appropriate uniform was a chain of men’s clothing stores called
Burkhardt’s. The fellow who did the buying for Burkhardt’s waited to
make his big decisions every year until the Proctor and Gamble annual
report was released. Cincinnati is the headquarters location for
P&G and Burkhardt’s customer base included thousands of P&G
managers. If the senior executives pictured in the report were wearing
blue shirts or pinstripe suits, he tilted the stores’ inventories to
blue and pinstripes. If the executives wore white shirts or plaid
suits, he stocked up on white or plaid. He knew that middle and lower
level managers would follow the executive lead in lock step. The other
huge concentration of manufacturing managers in town was at General
Electric’s sprawling aircraft engine facility, but those customers
required no such market research. GE managers, without exception, year
after year, wore white shirts.
Creativity
had been so thoroughly driven from the big manufacturers that even the
wrong color shirt rocked the boat. There was one way to dress, one way
to manage, and one way to manufacture. Anything different was risky,
and the American companies had become incredibly risk averse. Risk was
a product of engineering. These companies all had their roots in
innovative technologies dreamed up by engineers in the early days, but
Sloan had relegated technical people to second class status.
There
are two paths leading to the employment office at the big
manufacturers. One path meanders through business school, and the other
through engineering school. When Sloan and Brown created modern
American management, they gave all of the control to those who came in
holding business degrees. Decision making was by the numbers –
financial numbers – and the business school graduates were masters of
the numbers. They owned the playing field and set the rules. Engineers
seeking to try something different or innovative stood no chance. The
discussion was never about technology. It was about “internal rates of
return” and “discounted cash flow”, all derivatives of DuPont’s ROI. In
Sloan companies the burden was never on the numbers people to
understand the technologies around which the business existed. Rather,
the onus was on the engineers to master the financial equations.
It
is somewhat ironic that both Sloan and Brown [Donaldson Brown – a GM
senior manager under Sloan, ragarded as the ‘father of modern cost
accounting’. He is discussed at length in previous chapters] were
engineers by training, although neither of them actually worked in an
engineering role. Sloan was a lifelong administrator and Brown had been
a salesman before becoming an accountant. Perhaps they concocted a
system that so stifled the technical people due to a fatal combination
of theoretical knowledge without practical experience. They may have
thought they knew more about engineering than they actually did.
In
any event, manufacturing engineering was reduced to the exclusive
pursuit of labor savings perceived to be attainable only through faster
machines. Never mind that faster machines build inventory faster, as
well.
While much of the
talk concerning lean manufacturing revolves around the elimination of
non-value adding waste, lean manufacturers, in general, and Toyota, in
particular, reduce direct labor costs at rates that leave Sloan
companies in the dust. The critical technology to cutting direct labor
hours by fifty percent or more is better than sixty years old. Electric
motors, small enough and powerful enough to drive a machine tool had a
negligible impact on productivity in America, but a huge impact in
Japan
When belt drives came off of machines, and each 
machine
was powered by its own electric motor, the door opened up to a
productivity improvement equal to that realized by Henry Ford with the
advent of the assembly line. To companies viewing inventory as an
asset, the productivity opportunity this opened up was very hard to
see. With creative thinking all but driven out of the company, no one
even went looking for it.
To
look at an old photograph of a pre-World War II machine shop was to see
a forest of leather belts, one arising from each machine, looping
around a long metal shaft running the length of the shop. Early
machines had no independent source of power. Machines were driven by
the belts, which were driven by the long shafts, which were driven by
power plants, usually steam, located just outside the factory. If Henry
Ford did not do much tinkering with creating the assembly lines, it was
due in part to the fact that he spent a lot of his time tinkering with
the huge power plant that drove the machines at Highland Park. He loved
the Model T, but he loved power generation technology just as much. One
has only to look at the gleaming power plant he built to run things at
his mansion to see where his heart and mind were.
One
offshoot of this system was that machines had to be aligned in long
rows. The turning shafts were a hundred feet or more long, with
machines lined up directly beneath the shaft. A man could possibly run
two machines at once, but even that was difficult. To run three or
more, a man would have to be on roller skates, racing up and down the
row of machines. For the most part, however, the arrangement was one
man to one machine. While the power from the belt turned the cutting
tool, it still was largely a manual operation before the War, requiring
full time attention to feeding material to the cutting tool, or
engaging the tool once it started spinning.
To
give Frederick Taylor his due, it was this belt drive technology that
formed the basis of his early work and he did some pretty good
engineering work when it came to belts. Prior to his day, engineers
were expected to focus only on technology, without regard to dollars
and cents. Such base concerns as money were seen as beneath the dignity
of a technical expert. He conducted a detailed study of the cost of
very sturdy leather belts that would last a long time versus cheaper
belts that would require more frequent repair and replacement. The
expensive, sturdy belts were the better deal, according to Taylor.
Taylor
aside, the day came in the evolution of electrical technology that each
machine could be equipped with its own motor. Motors were powerful
enough, small enough and cheap enough for the shafts and belts to go by
the wayside, and Taylor’s study became moot. Without dependence on the
shafts, machines could be placed anywhere.
To
American thinking, this was not much of an event. Sloan’s system was
firmly entrenched by the time the shafts and belts were eliminated.
Economy was perceived to result exclusively from running machines as
fast as possible, making big batches at a time. There was still one man
to one machine, for the most part, and maximizing the output from that
man’s labor cost was the objective. Whether machines were lined up in
rows, or scattered at random around the factory did not make much
difference to the results of that equation.
Shigeo
Shingo presented a paper at a technical conference conducted by the
Japan Management Association in 1946 entitled “Production Mechanism of
Process and Operation”. It was based on the principle that optimizing
the overall production process – the complete sequence of operations
that take a product from raw material to completion – is the key to
manufacturing. To quote Shingo, “Improvement of process must be
accomplished prior to improvement of operation.” While the Americans
saw manufacturing as a set of isolated operations, all linked by
sizeable inventories, the Japanese saw manufacturing as a flow. Where
the machines are is a big deal to people concerned about flow, while it
matters little to people concerned only with isolated operations. To
Shingo, the flexibility to put machines anywhere he wanted opened the
door to fantastic productivity improvements.
To
a thinker like Taylor, and all of his modern American descendents, if a
machine can produce a part every thirty seconds, it must be run at that
rate in order to be efficient. That means that an operator must be
there every thirty seconds to pull a completed part out and feed
another part to the machine. If one believes in the principle that the
lowest labor cost can only be obtained from running each machine at the
fastest speed possible, then there are really only two ways to improve
the efficiency, or productivity, of workers. One way would be to figure
out a way to make the machine run faster. If it can be made to produce
a part every twenty seconds, for example, the operator can produce a
few hundred parts much faster than he could at thirty seconds each. The
other possibility is the Holy Grail of American productivity
improvements. If the machine can be fully automated – say, with a robot
– then the operator would not be needed at all.
Shingo
and Ohno saw a third way that was only visible by challenging the heart
of the American economic assumption. They came to the conclusion that,
just because a machine and a person can produce a part in thirty
seconds, it is not necessarily economical to do so.
The
word ‘takt’ is the German word for the baton that an orchestra
conductor uses to regulate the speed, beat or timing at which musicians
play. The Japanese took it to mean something like ‘pace’ and many
Americans took it from the Japanese and are still scratching their
heads wondering what it means at all. To Toyota it means the time
interval necessary to meet customer demand. If the customers want 100
per day, and the plant works 500 minutes per day, then the ‘takt is
five minutes. Takt is the number that creates a perfectly level flow
through the factory that meets customer demand.
To
Shingo’s way of thinking, making a part every thirty seconds simply
because a machine was capable of doing so was not necessary if the
demand was for a part every five minutes. In fact, running a part every
thirty seconds was a problem because it wedded the worker to the
machine. If that machine were to produce a part every five minutes –
exactly as demand required – that worker would have four and a half
minutes between parts to do something else. That ‘something else’ was
to run another machine. In fact, by bringing all of the machines in a
process together, that worker would probably still have time left over
to run a third machine, too, or maybe even a fourth.
The
key was to not have a random group of machines clustered together, but
to have all of the machines in the same process with the same takt
together. When the shafts and belts were replaced with individual
electric motors, machines were placed in the shape of a ‘U’ and the
possibility opened up for one worker to be no more than a step or two
from several machines. The fact that the machines ran at different
speeds was fine, so long as all of them ran at or below takt.
In
one fell swoop, the number of workers required to run several machines
dropped by a huge number. Not only was an enormous reduction in direct
labor possible, but the machines needed were cheaper. While American
engineers were driven to find machines that could reduce the time to
make a part from thirty seconds to twenty seconds – which invariably
meant a more expensive machine – it was OK with Shingo to replace the
thirty second machine with one that could only produce a part in sixty
seconds – a cheaper machine.
To
put the last dollop of icing on the cake, running everything at takt
meant that parts could be made one at a time. One piece flow, rather
than the batches that resulted from the high speed operational focus,
meant less inventory. Less inventory meant less material handling and
less floor space.
Stubbornly
clinging to Taylor and Brown’s principles, the big American
manufacturers still chase the original two options believed to be open
to them. When driving machine to faster speeds is no longer feasible,
the alternative is to find a cheaper worker. However, one person
working on one machine, going hell bent for leather to produce as fast
as possible, still cannot compete with one American or Japanese person
working in the middle of a cell running four, five, or even more
machines, even if that one person on his one machine is working for
Chinese or Malaysian wages. While American companies outsource, Toyota
puts machines on wheels so it can keep moving them around to reduce
labor even more.
The
second option, eliminating labor all together through automation, is
still an objective that draws American managers like moths to a flame.
Toyota, however, sees pursuit of full automation as a fool’s errand,
for the most part. Just about every automation project ends up still
requiring people. Perhaps they no longer run the machine, but they are
needed to monitor it, move material to or from it, or keep tabs on the
quality. For whatever reason, there is generally still a labor
component after the expensive automation investment is made. They have
learned that semi-automation with one person in the middle of several
machines gets the same result with far less expensive machines.
The
ability to see such a staggering opportunity to reduce labor content
from something as bland as swapping belt drives for electric motors
requires a fair amount of initiative and creative thinking, as well as
a strong sense of the integrated nature of manufacturing. It is far
beyond that which can be expected from people who must worry about
being the only one at the meeting with a blue shirt. In most companies,
any engineer who dared to challenge the status quo and the
unquestionable truth behind the accounting principles with a proposal
such as Shingo’s would certainly have faced rejection. In some
companies, such thinking would have branded the person making such a
suggestion as a sort of an incompetent trouble maker. Sadly, the state
of American manufacturing had become such that it was incumbent upon
the technical people to conform to accounting principles, rather than
have the accounting people adapt to evolving technologies.
We
are going to China to save labor costs when one-piece-flow, properly
implemented, will cut labor costs drastically. Recently, I visited a
plant where five people were standing in what looked like a
one-piece-manufacturing cell, But, the workers stood in front of their
machines waiting for a part to be handed to them. If the workers were
multi-skilled and simply walked along the cell, they easily could have
reduced the number of people from five to two without having to go to
China to save labor. Toyota discovered that focusing on improving labor
productivity, within the constraint of takt, was much more advantageous
than focusing on machine efficiency.
