Goring the Lean Critics

by BILL WADDELL

Digging for facts to support our opinions and preconceived beliefs is not the same thing as learning, yet that is what most of us do.  Conservatives only listen to Rush Limbaugh and watch Fox News to get their daily ammunition, while liberals restrict their news input to MSNBC and CNN. Their goal is not to expand their views but to continually be able to better defend their existing views.  We have an extraordinary knack for finding data to prove ourselves correct, to ignore data that proves us wrong, and to rationalize as an anomaly unavoidable data that proves us wrong.  We still believe our team is the best in the country even though they lost by 20 in the first round of the NCAA tournament.  We convince ourselves that the refs were bad, our star player was off that night, or the team was jet-lagged … but if we only had another chance everyone would see that we are really the best.

Real learning implies an acknowledgment that what we thought to be true in the past was incomplete, if not outright wrong.  That can be hard on fragile egos, whereas gathering more data to better support our views means we are right, and always have been right.

In 1965, Bill Gore – William Gore, actually, as in W.L. Gore – was taking a gemba walk (long before anyone, least of all him, knew the term 'gemba walk') and it occurred to him that the plant was so big he no longer knew everyone's name.  So Gore made a momentous decision – no plants bigger than 200 people.  If Gore needed a thousand people's worth of production they would just have to build five plants.  With all of the plants scaled such that everyone knew everyone else, hierarchical organizational structures no longer made sense, so the Gore 'lattice organization' – basically Gorespeak for no formal organizational structure – became the rule. The rest, as they say, is history. Economy of scale was merely the first domino to fall, leading to an entirely different way of effectively managing a manufacturing business.  Lots of little Gore plants all over the place – some standing alone and some in clusters – and Gore making lots and lots of money.

Whether he knew it and didn't care, or didn't know it at all, Bill Gore stood economy of scale thinking on its ear.  He disproved a basic principle of economics.  The success of Gore proved that the productivity stemming from a great culture trumps the economic benefits of leveraging fixed costs.  Shingo helped  drive a stake through the heart of economies of scale with SMED facilitating small lot sized production, enabling machines to still be highly utilized without having to build big batches of stuff and carry lots of inventory.

 The earthquake and tsunami in Japan have the lean critics braying like so many jackasses, and the risk management experts spewing their foolish drivel.  Mostly, they are defending the old model of business – multiple suppliers and lots of inventory are the only safe bets, they say.

But if W.L. Gore were your supplier you wouldn't need multiple sources or lots of inventory.  Same is true if Pella were your sole source. They have lots of small plants too. These are very lean companies hell-bent on preserving and strengthening their cultures – and in doing so they prove that economy of scale is a hardly a universal principle of manufacturing economics.

When the critics of lean and the risk management folks criticize the principle of sole sourcing with a strategic partner, and they proclaim 'aha – I told you so' when companies have too little inventory to protect against supply chain disruption, they are foolishly assuming economy of scale to be alive and well.  The evidence disproving that assumption has been squarely in the face of the 'experts' for a long time – since 1965, in fact – but they have ignored it, or written it off as an oddity or a freak of business because it does not fit their theory.

The risk does not arise from having a sole, strategic source.  It arise from having that sole source produce in one behemoth plant – especially when that plant is in some risky area a long way from you.  An earthquake, a tsunami, a tornado or a hurricane could shut down a Gore or a Pella plant and their customers would not be in much trouble.  It wouldn't require a lot of inventory to cover things until one of their other factories could pick up the slack.

Having one supplier and carrying little inventory does not make a company lean.  We have beaten the 'looking lean versus actually being lean' horse to death many times over in Evolving Excellence.  The companies offered up as proof of the failure of lean thinking – GM most notably – are hardly lean manufacturers simply because they have shoved all of the inventory back on their suppliers.  The critics who have built that criticism on an assumption of the infallibility of economy of scale have missed the mark.  The tsunami has GM and the others in trouble because they are poorly managed companies – not because they are lean.  They are in trouble because they have stone aged purchasing and accounting policies that lead them to source from one cheap Asian factory they can foist all of the inventory on and beat to death with volume pricing – the antithesis of lean thinking.

Toyota may also be in some supply trouble as a result of the Japanese disaster – but it is due to their most glaring non-lean weakness.  As great as they have been, they have always been too Japan centered.  They have too long had an ugly aspect of their culture that believed that Japan was not only the land of the rising sun, but also the setting sun and, in fact, the only place the sun really shines at all. The tail of their global supply chains is far too often in one faraway place - Japan - and they are paying the price for failing to develop enough local suppliers.

The writers, the economists, the academics and the rest see the havoc of the Japanese disaster as a repudiation of lean and a validation of their long-held theories because they have not been learning from the likes of Gore. They have filtered out the facts that don't support their basic beliefs in globalization and economies of scale to get stuff cheap. They never looked any deeper into lean thinking than JIT, because they did not see anything to it that re-enforced their beliefs, and re-enforcement is all they have sought. They have only absorbed facts that confirm their wisdom; now they are shaping new facts to support that wisdom; and they could not be more wrong as a result.