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Offshore Hazards

When doing the financial analysis of “low cost labor” off-shore production or outsourcing, some simple assumptions are often made.

One of those assumptions is that a country that has a history of political stability will continue to do so.

While those of us in the USA may not be all that aware, Tunisia has been a popular location for offshore production for companies in France. On the surface, it makes a lot of sense. The overwhelming majority of educated Tunisians, and a large percentage of the population, speak French.

I can only imagine, in one company in particular, the scramble going on as critical parts of an already weak supply chain are being disrupted by the sudden political upheaval there.

Then, of course, there is China. As my long time readers know, I spent a great deal of time there a few years ago, and started to develop a better sense of what they are about. The USA and China will be sorting out their relationship for the next few decades because China is changing fast.

And that is the point. Those careful financial analyses tend to assume that the future will be much like the present, or at least there will be a linear progression.

Of course the Chinese themselves are interested in moving things along much more quickly, but in their own way.

The government takes a much more active role in the economy, and we are seeing a new model emerge – “government sponsored capitalism” for lack of a better term. There is a clear industrial policy, and bluntly, a stable supply of cheap plastic “stuff” for U.S. consumers is only a side effect, not the purpose.

So it did not surprise me to read this story:

American businesses are nervous about the Chinese New Year

 

There are a couple of key points, the gist of the article is about the annual two week shutdown of just about everything in China as factory workers go home for the holidays.

This time, though, the concern is that many of them will not return as there are new government incentives for rural workers to remain in rural areas.

The low-cost factories that sprung up everywhere in the run-up to the recession died off just as quickly when we stopped buying stuff. The infinite capacity model no longer holds.

But the long-term ramifications are actually at the end of the article:

Manufacturing of high-margin clothing goods such as denim and swimwear is growing in southern California.

"Ordering these items from China can take 12 to 16 weeks," Cohen said. But by making these items domestically, retailers can replenish their inventory much faster.

Some electronics manufacturers are shifting some production to Mexico. Others are bringing production of household goods back to the United States.

The Container Store is looking for alternatives to China, including Vietnam, Indonesia, India and Thailand.

"We also source 30% of our plastic products in the United States," said Williams.

"We want the best quality products. Sometimes that’s still only found in China," she said. "But for us, a delay in shipment, or no shipment is also a serious problem."

What we are seeing is businesses starting to wake up to some realities. Unit cost means nothing if you can’t get the stuff when you need it. And three and four month lead times means your sales and operations planning had better be dead-on, because you HAVE to sell what you predicted.

If you are relying on your supply chain management to substitute for the bulk of your production, then your supply chain management had better be world class. Sadly, companies with weak production management – the ones who see offshore as the “solution” tend to also have weak supply chain management.

We can also see Chinese companies quickly starting to emerge in their own rights, designing and selling innovative products rather than just being a contract manufacturer. They are learning, and learning fast… much faster than the Japanese learned in the time leading up to the late 1970’s when “Made in Japan” came to mean all of the best stuff.

What this means for business in the USA and Europe is that they, too, have to learn fast how to (again) stand and compete on our own – they have to decide to become good at operations rather than pretending they can simply design something, and have someone else make it for them to sell. If they are competing against another company that can design AND produce, they will be at a disadvantage because most of the value is created in production.

The next ten years will be interesting times. I’d suggest taking a page or two from a global company that, while it has certainly had its problems lately, succeeds while building product in the same labor market where they sell it.

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The Flow of Improvement

Mike Rother shared an overview presentation on the “Improvement Kata.”

 

Introduction to the Improvement Kata

View more presentations from Mike Rother.

The words on one graphic really jumped out at me:

batch-improvement

Aside from his intended point that you never get good at anything but “business as usual” if “business as usual” is what you do most of the time, there are some other implied questions.

First of all, if there were only 15 days between improvement events, that would be overwhelmingly better than what I normally see. Typically a particular area can see months go by between scheduled improvement events.

Most organizations (how about yours?) seem to believe that once an improvement event (or a “belt project”) is concluded, that people should just “follow the new process” to hold the gains.

No wonder we see the advice to “fix it again!” We have to fix it again just to restore it to where it was after it erodes.

But there is a deeper question here.

What kind of “improvement processing” is this? Are we moving toward “one by one flow of improvements” or are we running improvements in batches?

This is batch improvement. We are doing a changeover, running the improvement process, then doing another changeover, and running business as usual.

Unless business as usual includes a robust and reliable process for detecting small problems, responding immediately, clearing them, and solving them, nobody but the event facilitators are learning how to do improvements. People may be learning about improving, but unless they are doing it every day, they are not getting particularly good at it.

Want to see evidence of this? What happens between the events? Do things get better or worse? If “business as usual” includes improvement, things will get progressively better, and you can stop reading this because your organization gets it.

So here are a few questions for you.

Assuming you want to strive for true, daily, continuous improvement, what is the next step you plan to take in that direction?

How will your “business as usual” operate when you take that step?

How is it operating now? What is the gap?

What is stopping you from doing that now? If nothing, then do it now, and cycle back to the first question.

Which of those problems are you working on next?

When are you going to be able to check your results and learn what the next incremental target is?

Now – head down to your work area and ask yourself how you expect problems to be handled. Then watch and see what is actually happening when problems are encountered.

In other words, let’s manage improvements the same way we are asking everyone else to manage production.

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Firefighting Kata

27 months ago I wrote a piece about a “firefighting culture” where I described the actual process used to fight fires – following PDCA.

I have learned a few things since then, and I want to tighten my analogy a bit.

What is the core thinking behind true firefighting? This is actually closer to home than you may think. Many companies have situations that are on fire – in that they are destructively out of control.

I recall Mr. Iwata lecturing a group of managers in a large aerospace company in Seattle. He listened patiently to their grand plans about how the transformed operation would look. Then his remarks cut to the chase.

“Your house is on fire. This is not the time to be thinking about how you will decorate it.”

The question is – does urgency force a change in the thinking or approach?

I say it does not. However urgency does stress people’s skills and capabilities to deal with the situation to the limit – and beyond. Thus, it is best if those skills are thoroughly developed before there is a crisis, when the stakes are not so high. This is how high-risk professions train. They work to develop ingrained habits and skills for handling chaos before it is real.

So let’s go to our hypothetical burning building and look at what happens – as a matter of routine – even though every situation is different.

The target condition is a generally a given: The fire is extinguished, things are cooled down enough that there will be no re-ignition.

What is the current condition? Yes, the building is on fire. (doh!) But there is more to it than that.

What is stopping us from putting this fire out right now?

What is the layout of the building? Its construction? Where are the air shafts, sources of fuel, oxygen? Are there hazards in the building? Is there a basement under the main floor? Is there anyone inside?

Because they are (hopefully) skilled and practiced, gaining this information is routine, and hopefully they are getting most of it on the way.

The fire chief on site is going to develop an overall strategy for attacking the fire, and deploy his forces accordingly.

One thing they do not do – they don’t go creating action item lists, they don’t go hunting for fires, and they don’t just go into reaction mode.

Neither do they have a detailed “action plan” that they can blindly follow. Simply put, they are in an vague situation with many things that are still not known. These things will only be revealed as they progress.

What is the first problem?

The initial actions will be more or less routine things that help the effort, and gain more information. They are going to ventilate the roof to clear smoke, and they are going to first work to rescue any people who are trapped.

This is their initial tactical target condition.

As they move toward that target, they will simultaneously gain more knowledge about the situation, decide the next objective, and the actions required to achieve it.

Cycle PDCA

As they carry out those actions, either things will work as predicted, and the objective will be achieved or (more likely) there will be surprises. Those surprises are not failures, rather they are additional information, things that were not previously understood.

Because this is dangerous work, if things get totally strange, they are going to back-out and reassess, and possibly start over.

As they go, they will work methodically but quickly, step by step, never leaving fire (unsolved problems) behind them, always having an escape path.

And, at some point along the way, what must be done to accomplish the original objective, put out the last of the fire will be come apparent.

Why are they so good at this?

Simple. They practice these things all of the time, under constant critical eyes of trainers. Every error and mistake is called out, corrected, and the action is repeated until they routinely get it right. Even though they are very good at what they do, they know two things:

  1. They can get better.
  2. Their skills are perishable.

So, although each fire is different, they have kata that they practice, continuously – from basic drills to training in more complex scenarios. They are putting these things to use now that there is real urgency.

What about the rest of us?

In business, we tend to assume that crisis will either not occur, or when it does will be within our domain of being able to handle it… but we often get surprised and our problem solving skills are stretched to the breaking point.

Why?

Because we have never really practiced those skills, and if we have, we have not been critical enough of how we went about solving routine problems, and we are sloppy.

When there is no urgency, we can get away with being sloppy. When method is not critical, anything more or less works. But when things are complicated, messy, and right now, there isn’t time to practice. “You go to war with what you’ve got.” What that really means is that, however ill-prepared you are, you now have to deal with reality.

Problem solving is as important to a business (and I include any human enterprise, profit or not in this) as it is to the firefighters. Business has technical skills, as firefighters have handling hoses, operating their equipment, etc. But no matter how competent firefighters are at their technical tools, they are lousy firefighters if they have not practiced quickly solving problems related to putting out fires.

Likewise, no matter how good you are at keeping your books straight, managing your order base, scheduling production, whatever routine things you do, if you have not practiced problem solving skills on a daily basis, you are likely not very good at it. Daily kaizen is practice solving problems. The side-benefit is your business gets better as a result.

The difference is that firefighters know it is important, so they practice, subject themselves to the critical eye of professional trainers and coaches. In business, nobody teaches “problem solving” except in the most vague way.

 

“All we do is fight fires.”

Hopefully you wish you were that good.

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What Can You Do For Me?

I have probably written around this question in the past, but it comes up often enough that I wanted to address is specifically.

One of the challenges facing the lean practitioner is the “What can you do for me?” boss (or client).

This manager wants to know the expected ROI and outcome of your proposal before he agrees to make the investment in improvement.

This style of proposal-evaluation-decision management is exactly what is taught in every business school in the world. The process of management is a process of deciding between alternative courses of action, including no action at all.

This approach actually creates “no action” as the baseline. Any change is going to disrupt the status-quo and incur some kind of cost. Therefore, the thinking goes, the change better be worth it. “Am I going to get enough back?”

“What can you do for me?” implies a general sense of satisfaction with the status quo.

The lean thinker reverses this model. The status quo is a stagnant and dangerous place.

There is always an improved state that we are striving for.

Rather than measuring progress from the current state, we are measuring remaining gap to the target, and we must close that gap.

There are problems in the way.

Proposed solutions to those problems are evaluated on (among many other things) cost to see if the solution is an acceptable one, or if more work is required to find a better solution. But maintaining the status quo is not on the table. The decision has already been made to advance the capability of the organization. The only decision is around how to do it, not whether to do it.

So when a legacy GM style manager asks “What can you do for me?” the question must be changed to “What are you striving to achieve?”

Challenging the complacency of the status quo is our biggest hurdle.

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Recovering the Reasons for 5S

5S has become an (almost) unchallenged starting point for converting to lean production. Although the basics are quite simple, it is often a difficult and challenging process.

After the initial push to sort stuff out and organize what remains, sustaining  often usually almost always becomes an issue.

Again, because of early legacy, the most common response is what I call the 5×5 audit. This is a 5×5 grid, assigning 5 points across each of the “S” categories. It carries an assumption that managers will strive for a high audit score, and thus, work to sustain and even improve the level of organization.

Just today I overheard a manager trying to make the case that an audit score in his area ought to be higher. It was obvious that the objective, at least in the mind of the manager, was the audit score rather than solving problems.

The target condition had become abstract, and 5S had become a “program” with no evident or obvious purpose other than the general goodness that we talk about upon its introduction.

If the audit score is not the most important thing, then why do we emphasize it so much? What is our fascination with assigning points to results vs. looking at the actual results we are striving to achieve?

To digress a bit, many will say at this point that this is an example of too much emphasis on audits. And I agree. But this is more common than not, so I think of this as an instance of a general problem rather than a one-off exception.

Our target condition is a stable process with reduced, more consistent cycle times as less time is spent hunting for things. Though we may see a correlation between 5S audit scores and stability, it is all to easy to focus on the score and forget the reason.

Shop floor people tend to be intelligent and pragmatic types. They do not deal in a world of abstraction. While the correlation might make sense to a manager used to dealing in an abstract world of measurements and financials, that is often not the case where the work is actually done.

The challenge is: How do we make this pragmatic so it makes sense to pragmatic people?

Let’s start by returning the focus to pragmatic problems. Instead of citing general stories where people waste time looking for things so we can present a general solution of 5S, let’s keep the focus on specifics.

What if (as a purely untried hypothetical), we asked a team member to put a simple tick mark //// on a white board when he has to stop and hunt for something, or even dig through a pile to get something he knows is in there? If you multiply that simple exercise times all of the people in the work area, add up the tick marks every day, and then track the trend, you may just get more valuable information than you would with the 5×5 audit done once a month.

What if we actually track stability and cycle times. Isn’t this avoiding these wastes the case we make for 5S in the first place?  So perhaps we should track actual results to see if out understanding is correct, or if it has gaps (which it does, always).

What if we taught area leaders to see instability, off-task motions, and to see those things as problems. Let them understand what workplace dis-organization causes.

How about tracking individual problems solved rather than a general class of blanket countermeasure?

How many sources of work instability did we address today? I’d like to see what you learned in the process. What sources of instability did you uncover as you fixed those? What is your plan to deal with them? Great!

No problems today? OK – let’s watch and see if we missed anything. OH! What happened there? Why did we miss that before? Could we have spotted that problem sooner? What do we need to change so we can see it, and fix it, before it is an issue with the work?

These are all questions that naturally follow a thorough understanding of what 5S actually means.

But we have had 5S freeze dried and vacuum packed for easy distribution and consumption. At some point along the way, we seem to have forgotten its organic state.

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Coffee + Electrical Panels = 7500

A reader, Josh, sent me this link.

Spilled coffee in 777 cockpit leads to inadvertent hijack warning, FAA-mandated sippy cups look likely

The more compete, technical version, is here.

The short version is:

  1. Airline pilot spills coffee on cockpit panel.
  2. Coffee (or scalded pilot) causes airplane to send out the HIJACK transponder code.
  3. Many people become involved quickly.
  4. Frankfurt bound plane returns diverts to Toronto, passengers are returned (it doesn’t say how) to Chicago, which the author considers a bad thing.

tippy-cup

Given that even highly improbable events are nearly certain given enough opportunities, I am actually rather surprised this hasn’t happened already, given the sheer number of opportunities calculated by (#flights x #pilots x #cups of coffee) over, say, a ten year period.

So, given that we have an undesirable outcome (though perhaps not quite as embarrassing as the .45 hole in the cockpit floor from a few years ago), what is the root cause, and what is the countermeasure?

Whatever we do, we should probably have it cost somewhat less than scrambling F-15’s to go ask what the problem is.

(Yes, I am being somewhat serious here, but also struggling just a little to keep a straight face.)

Many companies respond to a similar problem opportunity by banning drinks altogether in the work areas. My guess is that if we wanted to continue to have pilots operate the airplanes, we might consider something else.

f-15-sparrowI will leave my readers to ponder the thought, and remind you that there are worse outcomes than returning to Chicago via Toronto.

 

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Forcing Compliance or Leader Development?

“Are we trying to force compliance or develop leaders?”

The answer to this question is going to set your direction, and (in my opinion) ultimately your success.

It comes down to your strategy for “change.”

When people talk about “change” they are usually talking about “changing the culture.” Digging down another level, “changing the culture” really means altering the methods, norms and rituals that people (including leaders) use to interact with one another.

In a “traditional” organization, top level leaders seek reports and metrics. Based on those reports and metrics, they ask questions, and issue guidance and direction.

The reports and metrics tend to fall into two categories.

  • Financial metrics that reflect the health of the business.
  • Indicators of “progress” toward some kind of objective or goal – like “are they doing lean?”

Floating that out there, I want to ask a couple of key questions around purpose.

There are two fundamental approaches to “change” within the organization.

You can work to drive compliance; or you can work to develop your leaders.

Both approaches are going to drive changes in behavior.

What are the tools of driving compliance? What assumptions do those tools make about how people are motivated and what they respond to?

What are the tools of leader development? What assumptions do those tools make about how people are motivated and what they respond to?

Which set of tools are you using?

We all say “respect for people.”

Which set of assumptions is respectful?

Just some questions to think about.

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Biggest ERP Failures of 2010

pc pointed out a great little article in a post on the discussion forum.

The article touches lightly on why ERP implementations are so hazard prone, and then lists the “Biggest Failures” of 2010.

Of note is that the majority of the listed failures are governments. I can see why. Governments, by their nature, have a harder time concealing the budget over runs, process breakdowns and other failures that are endemic with these implementations.

A corporation can have the same, or even a worse, experience, but we are unlikely to know. They are going to make the best of it, work around it, and make benign sounding declarations such as “the ERP implementation is six months behind schedule” if for no other reason than to protect themselves from shareholders questioning their competence.

Does anybody have any of their own stories to share?

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Keep Visual Controls Simple

In this world of laser beams and ultrasonic transducers, we sometimes lost sight of simplicity.

Remember- the simplest solution that works is probably the best. A good visual control should tell the operator, immediately, if a process is going beyond the specified parameters.

Ideally the process would be stopped automatically, however a clear signal to stop, given in time to avoid a more serious problem, is adequate.

So, in that spirit I give you (from Gizmodo) the following example:

Warning Sign

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Motivation, Bonuses and Key Performance Indicators

I have posted a few times about the “management by measurement” culture and how destructive it can be. This TED video by Daniel Pink adds some color to the conversation.

Simply put, while traditional “incentives” tend to work well when the task is rote and the solution is well understood, applying those same incentives to situations where creativity is required will reduce people’s performance.

We saw this in Ted Wujec’s Marshmallow Challenge video as well, where an incentive reduced the success rate of the teams to zero.

This time of year companies are typically reviewing their performance and setting goals and targets for next year.

It is important to keep in mind that there is overwhelming evidence that tying bonuses to key performance indicators is the a reliable way to reduce the performance of the company.