A regular reader recently pointed me to a post on Carrie’s Nation which then pointed to a post on the Mutualist Blog which had a long review of Bill Waddell’s Rebirth of American Industry. Long-time readers will remember Bill as a regular contributor to Evolving Excellence, up until he quit the consulting business and got a real job. Real jobs have a habit of getting in the way of the fun, don’t they?
Kevin Carson at the Mutualist Blog apparently has a lot of time on his hands, far more than most of us, as the review is incredibly detailed and incredibly long. When I say "long" I mean pages and pages and pages. And Bill beware, a lot of the material will be included in an org theory book Mr. Carson is writing. One of my favorite bloggers, Eric of Grim Reader, is also featured in some of the commentary.
To put the review in perspective, we must first consider the viewpoint. The tagline of the Mutualist Blog is:
Free Market Anti-Capitalism – To dissolve, submerge, and cause to disappear the political or governmental system in the economic system by reducing, simplifying, decentralizing and suppressing, one after another, all the wheels of this great machine, which is called the Government or the State. –Proudhon, General Idea of the Revolution.
Ok… as much as that tickles my libertarian proclivities, hmmm… But good for him. Everyone has the right to a viewpoint, I appreciate people that have the guts to pontificate on whatever theirs is no matter how controversial, and I believe we can learn from everyone. Mr. Carson does a great job, beginning with the overall premise of the book.
Waddell and Bodek contrast the Sloan system to the Toyota Production System, or lean manufacturing, which measures profitability by revenue stream. If there’s more money coming in this week than going out, the operation is profitable. Assets are of interest only when applying for a loan or liquidating the enterprise. Inventory that isn’t bringing in real cash from outside is a cost, not an asset. The best way to reduce costs is to fully utilize equipment and reduce cycle time through increased flow, to avoid waste and rework through designing defects out of the production process rather than inspecting for quality after the fact, and to minimize inventory through just-in-time production. And these things are all achieved mainly with the help of the company’s chief asset, its human capital.
Which is contrasted to the traditional "Sloan system."
The Sloan system (or DuPont/Sloan/Brown system), on the other hand, attempts to maximize Return on Investment (ROI), which translates into share value: i.e., the book value of the company divided by the number of shares. The larger the sum that could be raised by auctioning off the company’s assets in the event of bankruptcy, the better managed it was. [pp. 68-69]
Yes, page number references. Like I said, regardless of your viewpoint or whether you agree with Mr. Carson’s analysis, you will have to agree that this is an exceptionally well-done review. Although many of us do believe reading a Bodek or a Waddell is very similar to a religious experience. I can see it now: "so sayeth Bill." Mr. Carson retells some of Bill’s great stories.
In one of the greatest ironies in American business history, the Chrysler Corporation at one point had over 400,000 finished cars in finished goods inventory. Not only did they report a profit that year, they rented the abandoned Ford plant at Highland Part–the birthplace of lean manufacturing–to store many of them…. Yet the professional managers, confident in their mastery of the Sloan model and their money making prowess, recorded the figures in the ‘good’ column and collected their bonuses. [p. 97]
And we have new positive appreciation for Mr. Carson as he has the right perspective on Jack Welch, not to mention truly getting the inherent problems of traditional accounting.
On the other hand, the first stages of implementing lean production (the real thing, not the Jack Welch crap) show up as bad numbers.
When a plant has a Kaizen Blitz, and makes substantial improvements in cycle time, the short term financial numbers can get clobbered. Converting inventory to cash makes book profit look worse. [p. 130]
As Waddell and Bodek put it, Sloan management culture inevitably results in kind of bastardization of lean production that occurred at General Electric under Jack Welch, who "turned Six Sigma into the strategy to outsource and offshore everything."
Mr. Carson then spends a large portion of his review obviously drawing comparisons and contrasts to his particular philosophy of decentralized localized economies.
At the time, I expressed some curiosity as to whether the Toyota Production System could be scaled down for decentralized manufacturing in a local economy. I’ve since concluded, in fact, that the TPS system is ideally suited to such an economy. The Toyota system, applied to a local network of small cooperative manufacturers like that in Emilia-Romagna, will have found its true purpose.
The present association of "just-in-time" supply chains, whether in industry or in Wal-Mart’s wholesale distribution model, with "warehouses on wheels" (or in container ships), is just one example of the way lean production is distorted by the larger state capitalist system within which it operates. It would be far more in the spirit of the lean system if it were organized around local supply chains. The "warehouses on wheels" supply model is really just a way of smuggling Sloanism, in disguised form, into the Toyota Production System. The whole point of the TPS’s just-in-time supply chain operations is to reduce inventory costs to zero.
Very interesting, and right on the money. Mr. Carson eventually concludes with a ringing endorsement of Bill’s book.
Johnson recommended, in fact, that I read the discussion of lean production in Natural Capitalism. I had already read it, actually; but when I first read the book, unfortunately, I wasn’t yet fully prepared to grasp the significance of lean production. Reading Rebirth of American Industry was what made it all click together for me.
I can’t recommend it strongly enough to anyone who’s interested in this sort of thing.
Mr. Carson’s full review is a great read, and it’s obvious he understands many of the nuances, and especially the potential, of lean manufacturing.