Late last year we told you about Whirlpool… laying off over a thousand workers in the U.S. just to rehire a similar number at other plants. Traditional accounting methods said it made sense, but we know otherwise…
So let me get this straight… tens of thousands of years of manufacturing knowledge are being disposed of in Evansville and Fort Smith, huge hiring and training costs in Clyde, Mason, and Amana to bring workers up to a few weeks of manufacturing knowledge, it’s "too expensive to retool" the Evansville plant but easy to swallow a hundred million bucks of severance charges. A few bucks an hour savings in Mexico is worth a much longer multinational supply chain that requires more oversight, longer transportation of thousands of heavy objects a day, far more training expenditure to handle a foreign language in an area notorious for extremely high turnover, and the resulting quality problems from such a lack of long-term manufacturing knowledge.
That is some wacky accounting. Actually it is traditional accounting, and it makes sense to a traditional accountant. But not from a real-world perspective, does it? Experienced employee knowledge and creativity doesn’t show up on the balance sheet. A severance charge is easier to sell to short-term shareholders than a long-term investment. Turnover costs are always underestimated. A pair of hands with a day’s experience is worth the same (if not more… they "cost" less) than a pair of hands doing the job for ten years. Some companies are realizing that this is bizarre and not the real world, which is why lean accounting is starting to take root.
Sorry about the long quote, but it’s a point that needs to be driven home again and again. And if you’re really interested in how lean manufacturing can fly in the face of traditional accounting, take a couple days and go to the Lean Accounting Summit in Orlando later this month.
Similarly we’ve taken SAP and other large ERP systems to task. They exude unnecessary complexity, and usually that complexity is forced upon the unknowing customer, which can destroy the potential for lean. We even suggested that a whiteboard can be more beneficial than an ERP system.
While passing through the Chicago airport last week I finally made the connection:
Yes, Whirlpool proudly runs SAP. I hate to ask what that implementation cost… in pure dollars but also indirectly. How many lean processes were changed to conform to SAP’s "best methods," how many kaizen events were stymied when they required a change in transactional procedures that was then met with a "we’d need a wizard to make that code change." I wonder where it captures the value of knowledge, experience, and creativity. But it does do a good job of calculating the best factory to manufacture a product, even optimizing the supply chain convolutions required to get parts and subassemblies moved around the world to accomodate cheaper direct hourly labor costs. Oh that’s right… I forgot that in the lean world people are an asset, not a cost.
But the brightly-lit advertisement at O’Hare needs to be put in some additional context, so let’s zoom out a bit.
Yes, that Whirlpool Runs SAP ad is right next to a men’s restroom, with a "Caution: Wet Floor" sign in the entrance, and above a rack of cheap tabloids. A virtual cornucopia of metaphors!
Perhaps it’s easy to slip and slide while implementing SAP? Does it create a lot of moaning and groaning? It’s probably not a good idea to sit and tap your shoes while waiting for the task to be accomplished. Is the statement that Whirlpool runs SAP similar to the headlines of the tabloids below… about aliens abducting Oprah and cats the size of cows? And I won’t even suggest that something might be a load of crap. Oops… guess I sorta did. I’m sure there are more metaphors out there, but my brain is a little tired from too much travel.
I’m not suggesting SAP is better or worse than their competition… they just happened to advertise outside of a popular men’s room. And ERP systems do have their place. Coordinating supply chains and raw materials and processes can be very complex.
But before jumping to a software solution, take some time to really understand and improve your processes. If you moved to one piece flow and cell-based processes, implemented kanbans with vendors and customers, and improved quality and training… what would happen? Raw and finished inventories would dry up, WIP would dry up, cycle times would fall dramatically. So what would be left to manage? Perhaps a whiteboard would be enough… it is at some $100 million companies I know of. Perhaps you’d decide you still need an ERP system… but make sure it is agile and flexible to support your ever-evolving and improving processes.
Improvements driven by the knowledge, creativity, and experience of your employees. Which is why they are an asset, not a cost.