Posts

Posted on

Doing Outsourcing Right

In a previous post, “Don’t Lose How To Make Things,” I discussed some of the perils of outsourcing either your production or your production technology.

Yet there are many successful companies that manage to do just that. One of the most successful is Apple.

We all know Apple as a cutting-edge innovator. Their products have created, and destroyed, entire industries and changed social paradigms.

What is behind that cutting-edge innovation, though, is one of the best (if not the best) supply chain management systems on Earth. Lets look at a couple of key characteristics of how they do this, and you can compare them to the more common mindsets about outsourcing.

First, Apple understands intimately how an iPhone works and how to make one. While they may outsource actual production, they do not outsource their core knowledge. They know their product and their process.

But what really got my attention (and inspired me to write this) was a fascinating anonymous response to a question about a logical strategic investment for Apple.

The comment describes how Apple uses their resources and supply chain knowledge to stay on top of the cutting edge and maintain competitive advantage.

When new component technologies (touchscreens, chips, LED displays) first come out, they are very expensive to produce, and building a factory that can produce them in mass quantities is even more expensive. Oftentimes, the upfront capital expenditure can be so huge and the margins are small enough (and shrink over time as the component is rapidly commoditized) that the companies who would build these factories cannot raise sufficient investment capital to cover the costs.

What Apple does is use its cash hoard to pay for the construction cost (or a significant fraction of it) of the factory in exchange for exclusive rights to the output production of the factory for a set period of time (maybe 6 – 36 months), and then for a discounted rate afterwards.

He goes on to describe how Apple first has exclusive access to the latest technology, then as it becomes commoditized, maintains cost advantage as they are searching for the next paradigm shift.

What I think this does is allow Apple to use their supply chain savvy to change things up faster than their competitors can respond.

Apple is not just crushing its rivals through superiority in design, Steve Jobs’s deep experience in hardware mass production (early Apple, NeXT) has been brought to bear in creating an unrivaled exclusive supply chain of advanced technology literally years ahead of anyone else on the planet. If it feels like new Apple products appear futuristic, it is because Apple really is sending back technology from the future.

Here is the bottom line: If you want to outsource, that is actually OK. But only if you are using that as an opportunity to continuously improve your process of supply chain management while striving to become the best in the world.

If it is a short term ROI problem, rather than working hard to develop a key strategic advantage, well, good luck with that.

Posted on

Continuously Improving

The term “continuous improvement” has been around a long time. The truth is most companies don’t do continuous improvement at all, rather they schedule improvements in batches and projects.

The effect of batch improvements is that “improvement” is not “business as usual” and people learn what they do every day, not what they do intermittently. That is one reason why it is usually necessary to precede a kaizen event with a training session.

But there is a deeper ramification here that challenges the very goal of the process.

We all assume (myself included up to this point) that the goal is continuous process improvement.

Maybe it is.

But we also say it is about developing people.

Processes come and go with new technology, new products, reorganizations, etc. The people are the only constant.

Let me float this idea out there –

How would your continuous improvement process change if you thought of its  primary objective as continuously improving the capability of your people?

Process improvement would be a vehicle for people development. In effect, your success at process improvement would be an indicator of how well you were developing people.

To paraphrase a common expression, process improvement is the shadow of how well you develop your people.

That would mean if your process of continuous improvement is targeted at anything other than the capability of people, you are trying to move a shadow by pushing on it.

Its about the people.

hmmmm.

Thoughts?

Posted on

Pushing Innovation

3P – the Production Preparation Process – is often used to develop a complete “reboot” of a process. The term kaikaku is often applied.

Like many of the lean tools, subtle points sometimes get lost in rote application.

Here are a couple of thoughts from some experience:

Developing and Exploring Target Conditions

One of the obvious characteristics of 3P in its early stages is mock-ups of the product and processes. The purpose of these mock-ups is to explore various concepts, gain understanding, surface and propose solutions to problems before anything expensive is actually built.

The result of this process is a fairly well defined target condition.

That is, we understand the performance the product, and the process, must deliver in order to meet the goal. And we know what they need to look like in order to meet those goals.

The mock-ups give much more definition to “how the process needs to work” than any sketch or CAD drawing can provide. They give the team confidence that, at the minimum, they understand what problems must be solved to turn this proposal into reality.

As the 3P continues, these mock-ups should be morphing into functioning prototypes, and finally into full-scale production. At each step there should be a verification that the team is converging onto the goal.

Any time there is divergence from the goal is time to symbolically pull the andon, huddle, reset to a known point, and reestablish a track to success.

Keeping the Solution Space as Wide as Possible

One common mistake that teams make is to focus too quickly on a single solution. This is a result of trying to quickly solve the “big problem” rather than seeking first to gain much deeper understanding.

The evaluation process is not about picking winners. The goal in 3P is to keep as many viable solutions in play for as long as possible.

At each iteration of exploration the team learns what problem must be solved next to keep this solution alive. If that problem seems too big and overwhelming, you are likely working on more than one thing. Time to decompose the process to its basic elements (again) and tackle things one-by-one.

Plan B

While you are exploring alternatives, you always want to have something in your hip pocket that will, as a minimum, work. It might not be elegant, as cheap as you want, but it delivers. Having a viable Plan B in play gives the rest of the team much more freedom to push the envelope and explore.

The Plan B team is working continuously to improve from the baseline. Often they can develop some quite radical improvements. But they always start from something that works.

The beauty of this approach is that elements of the true innovation teams’ work can often be incorporated back into the baseline for even higher performance of the baseline.

Posted on

Nancy Bruner: “Do They Really Want a Change Agent?”

Nancy Bruner blogs on Word | Rap. Her first (and as of this writing, only) post is titled Do They Really Want a Change Agent. Since most lean practitioners are, rightly or wrongly, expected to be change agents, the points she makes caught my eye.

The harsh reality of this is summed up in her second key point:

2. You will spend more time convincing the very people who hired you to make the changes they hired you to make than you will spend competing in the market.

I recall visiting a company a couple of years ago. As I spoke with a number of people, they all had the same question: “How can we go faster?” Yet they already had (have) a world-class expert on staff. “All you need to do,” I told them, “is listen to him and do what he says.”

And there was the rub. The company, while wanting to alter their results, was (is) struggling with the idea that the leaders themselves must change the way they manage and lead if they want a different outcome.

This is a common problem.

The other common problem is that the practitioners, while clear on the tools and methods of “lean” are far less clear on exactly what leaders need to do differently other than a vague notion of “support the changes.”

The literature, until recently, has not done much to help with this problem. The practice of leaders is starting to get more definition, but the lean community itself still has a huge inertia behind implementation methods that have been proven, again and again, to fail.

There are change agents within the lean community as well. Not surprisingly, they are finding the same resistance that the practitioners in the field complain about.

Posted on

Don’t Lose “How To Make Things”

One of the catch phrases in the Toyota culture is “the art of making things.” Everything I have read, and everyone I know who has worked there suggests that “making things” is a passion there that goes beyond a means to make money.

In today’s finance / MBA driven world, I think too many companies are losing sight of the difference between truly creating value vs. simply gathering wealth. They are not the same.

The “makers” of the world are the ones who are creating the incredible breakthroughs we are reading about every day. Making things is a skill that must be practiced, nurtured, focused. With the pace of technology today, the second you are complacent, you are obsolete.

But that isn’t what I am writing about. I want to discuss the consequences.

A company that works to truly create value has to grasp the process of doing so. They have to continuously seek to understand better ways to do it. They gain competitive advantage not merely from making things, but from improving how they make things. Their focus for improvement is a drive toward building the deep skill within the organization.

Finance driven organizations build different skills. They become skilled at developing accounting models, and analyzing them. And those skills may very well serve them for a long time.

But something is lost. When a company’s understanding of its own manufacturing technology becomes superficial, they may very well still make money. The question is whether or not they retain the ability to achieve a breakthrough when one is necessary.

A number of companies out there are well known for a key product breakthrough. Often, though, behind that key product’s success is another breakthrough that enabled that product to be produced economically.

On the other extreme, many a breakthrough invention has failed in the marketplace, not because it was a bad idea, but because the inventor couldn’t make them.

If you are a company that creates value through the conversion of material into products to sell – manufacturing – take a long hard look at the process of making. Are you experts? Do you, or could you design and build your own production equipment? Those skills, that knowledge, once gone is extraordinarily difficult to rebuild.

The alternative is to becoming beholden to the open market’s ability to meet your needs. This might well work if you have a superb relationship with those suppliers. Most companies don’t.

What is your competitive advantage? How do you create the value that is the foundation for all of your profits? How well do you understand that process? Can you fix it when it breaks? Are you making it better every day? Or are you counting on tomorrow being like yesterday?

Posted on

People Kaizen

Tommy raised an interesting question in his comment to Internalizing Outside Knowledge. He said:

In my company we are working with the developing people concept. Our objective is to make ourselves redundant, but it is hard. What are the best ways of developing people? How do you do it?

How do you do it indeed?

I don’t know the specific situation he is facing, but I can ask some questions that are pretty universal.

What, exactly, are you striving to achieve with your people development? What do you want people to be able to do that they are not doing now? What would that look like if you were to observe it? How would they be interacting with the process, with each other?

If you observe today, what do you actually see? How does that differ from what you described above?

What is the gap between what you want and what you have?

I ask these questions because often we talk about “developing people” but we don’t get specific about what we expect as a result. It is easy to set objectives for kaizen of processes, quality, output, cycle time, etc. But when we talk about people, we get squishy about it.

But the process of improvement remains the same, no matter what (or who) you are trying to improve. And the first step is to know two things:

  • The direction you are trying to move – the ideal, the True North.
  • The next target you are trying to hit now which will move you in that direction.
  • When you expect to be there.

Once you have that, it is time to take a look at what you are actually doing and ask how, exactly, that effort is expected to advance you toward your target.

If the answer to that question is not crystal clear, it is time to step back and reassess your approach. Likely your approach is general and broad-brushed, rather than focused.

What never works is telling people about improvement and expecting them to get excited enough by that message to fill in the details on their own. The idea that “once they grasp the true vision they will engage on their own” is a common one.

But consider this analogy. We all know that mathematics is a wonderful tool. I can tell you all about the great discoveries and engineering feats that mastery of mathematics has enabled. I can show you dozens of examples, even take you through demonstrations of how others have used mathematics to solve problems.

At the end, you might be fired up about math, but you still can’t do it. I may have motivated, but I have not developed anyone.

If I want you to actually use mathematics, I have to assess where their current skills are, establish the next step for them, and construct a situation where they must practice and struggle a bit, but not too much, to “get” the next understanding.

That is called “practice.”

So – back to the original question.

You want to develop people.

What are you having them practice for a little while every day?

How are you providing them immediate feedback on success or failure, and coaching them?

How are you checking your results against the results you intend? What are you doing to develop and improve your own process of people development?

PDCA

Posted on

NPR: Hospitals New Face Pressure to Reduce Infection Rates

This article on NPR is chiefly about the dilemma that hospital administrators are facing as escalating government reporting requirements are being tied to their Medicare payments. (For my non-US readers, Medicare is the U.S. government medical insurance program for seniors and retirees. It pays a huge portion of hospital’s revenue, and thus, its policies carry a lot of weight).

The article’s lead does a good job of summing up the issue:

Under laws in more than two dozen states and new Medicare rules that went into effect earlier this year, hospitals are required to report infections — risking their reputations as sterile sanctuaries — or pay a penalty. That’s left hospital administrators weighing the cost of ‘fessing up against the cost of fines.

So, in effect, the administrators are faced with weighing the financial impact of lost Medicare payments vs. the financial impact of telling the truth about their infection rates. This is, in my mind, yet another symptom of the General Motors style of management that is taught by every MBA program in the world.

It also suggests that there is a viable alternative of continuing to maintain the illusion that it is not a problem.

Is it a problem? Hospital infections kill about 90,000 people a year in the USA. Compare that with the 40,000 or so that are killed in traffic accidents, and you get the idea.

Add to that the fact that the patient ends up getting billed (and usually insurance pays the bulk) for the treatment of these infections.

Fundamentally this is about quality, and the problem is certainly not limited to health care. (it is just that lives are at stake)

How does your company respond when there is a known issue that is impacting quality?

If you deliver a defective product or service, do you charge your customers for the rework? This is not a facetious question. Some companies do.

Do you avoid collecting information for fear of revealing the true magnitude of a problem?

Do your workers fear bringing it up when they are directed to carry out inappropriate actions, or actions which violate the company’s written policies and procedures?

Is it OK to improvise outside of your known process in order to get the part out the door?

Back to the hospital – we know how to tackle this problem. It is merely extremely difficult. That doesn’t make it impossible. I am glad it is getting attention. I am disappointed that it takes government generated threats of visibility to get action.

Posted on

Internalizing Outside Knowledge

Continuing on a theme – a kaizen event should be primarily about learning, using the real-world improvement opportunity as a vehicle.

Outside consultants (some style themselves as “sensei”) can be a good way to bootstrap this process by bringing in existing experience so you can develop your own more quickly. (Full disclosure here – Right now I am one of those consultants, though I have played on both sides of the game and learned a lot from others.)

But it is important to use them the right way.

The way that doesn’t work is to bring in an outside consultant to lead improvement for you. Typically this means that the company assembles a working team, delegates the improvement to that team, and hires a consultant to lead them.

Once the event or activity is over, it might be repeated again with a different group of people, on a different project, even with a different consultant.

Though this can be somewhat effective at dealing with individual issues, the company’s capability to do this themselves is never developed.

Learning might occur within the company, but it will be a random event.

On the other hand, if the client company puts together a team that has an internally designated leader, and that leader is also charged with capturing knowledge, and there is some continuity from one event to the next, then a working relationship develops.

In my opinion, this is a legitimate role of a Kaizen Promotion Office, and is likely why a lot of consultants (at least the ones with the clout to impose conditions on their clients) insist on the company forming one.

The people in the KPO have two roles.

  • To capture and internalize the cutting edge of skill and knowledge for the company.
  • To practice that skill and knowledge by teaching others.

I have personally experienced both situations – where I am asked to be a substitute leader, and where I have the opportunity to develop people in the company. I can tell you that the later is a lot more fun, and the former is mostly frustrating.

I also see a difference in follow-up. Where there is no internal leadership, it is much tougher for the team to stay on the game and push the changes to a point where they are ingrained and sustain.

If you are interested in some expanded thoughts on this topic, I invite you to read the white paper “Getting the Most From Lean Consultants” on the “Resources Page.”

Posted on

Toyota Kata Handbook

Mike Rother has made some significant revisions to his Improvement Kata Handbook.

 

  • The role of “True North” is much better defined as the context of improvement.
  • He has filled in a lot of valuable detail for “Grasping the Current Condition” and setting Target Conditions.
  • The structure for the PDCA cycle has been tightened up.
  • And the time, place and method of coaching is much more explicit.

Even if you took a look earlier, get the latest and study it.