It is about to become painfully, crystal clear: The essential innovation Toyota made was SMED – Single Minute Exchange of Dies. Nothing else about the Toyota Production System comes close in significance. The rest is all just cost reduction and quality improvement, but SMED is changing the global economy. Those who cannot see the forest for the trees can quibble all they want over what Ohno did and what Shingo did, and exactly what Shingo’s relationship with the Toyota Production System was. They all agree that Shingo fathered SMED, however, which puts him in a league entirely of his own. It will also make fools out of the Nobel Prize people who said his work was not worthy of consideration.
SMED is so important because it killed economy of scale. You can check the math:
Let’s say the factory has $4 million in fixed overhead costs. To keep the math simple, let’s say the plant’s maximum capacity is 4,000 hours per year. That means it costs $1,000 an hour to run the plant, regardless of volume. If it takes two hours to set up the machines in the plant, the capacity cost of changing over from one product to another is $2,000. The total cost to the company is:
(Number of products) X (Number of set ups each) X $2,000
Economy of scale is based on this arithmetic. The lowest total cost depends on spreading the fixed capacity cost over the greatest number of products. One way to do this is to control the "number of set ups" variable: fewer setups means bigger production lot sizes, or batches, which means carrying more inventory. The other way is to minimize the "number of products" variable – make fewer product variations: One size fits all.
Henry Ford drove costs down by making the "number of products" variable = 1, which made the "number of sets ups" = 0. That is where, "The customer can have any color he wants so long as it is black" came from. Model T’s actually came in five versions the year he said that – all black, all with the same machined components. That is because machining and paint required setups. The other components that went into the five variations did not require set ups and Ford had no objection to offering them.
Alfred Sloan knew next to nothing about manufacturing, but he was smarter than Henry Ford when it came to marketing. He knew that the customers would not sit still for the "number of products" to equal 1, so the "number of setups" variable had to be minimized. As I pointed out, that meant that a good deal of inventory would result. So the principle that inventory was a good thing – an asset – was formalized on the rationalization that it would theoretically minimize long term, overall costs.
If you are a regular reader, you have often read my assertions that lean manufacturing is based on a different economic model than traditional manufacturing. The different economic model is the result of Toyota recognizing that Ford’s economy from continuous flow was the lowest cost way of producing, but his one model principle was all wrong.
They realized that Sloan’s multiple model principle was correct, but his assumption that the resulting inventory kept cost down was wrong. The brilliance of the Toyoda family, Ohno and Shingo was in realizing that the only way to get the manufacturing benefit of Ford’s flow efficiency and the marketing benefit of Sloan’s model variation was to make set up time = 0.
(No matter how many different products) X (no matter how many setups) X 0 = $0 fixed capacity cost lost. When set up time = 0, it does not matter whether the company makes 10,000 of 1 product; or 1 each of 10,000 products. The cost per product is the same, and it is the minimum amount it can be. In the words of the great philosopher, Foghorn Leghorn, "That’s mathematics, son. You can argue with me but you can’t argue with figures."
Economy of Scale is based on the assumption that making more than one of something is always cheaper than making only one. Shingo and SMED invalidated the theory.
What drives me to jump up on my soapbox and lecture on this particular point at this particular time is a press release from LEI about Tesco. Tesco is a big UK based retailer who (1) is beating Walmart in head to head competition, (2) is moving into the US, and (3) is doing so on the strength of their understanding that economy of scale is dead and that lean is a more effective economic model.
To the dinosaurs who insist their is still breath in economy of scale’s lungs: Tesco has lower costs, lower prices and better margins in convenience stores than Walmart has in superstores.
Last Fall, the Japanese owners of 7-Eleven took them private because they did not want to mess around with Wall Street and the American financial community’s ignorance of the death of economy of scale. As a private company they can strategically reconfigure 7-Eleven without having to cope with outdated drivel from financiers and economists.
In JIT Is Flow, Hiroyuki Hirano said, "The net effect of this new era of a consumer driven, linear economy has on business – especially manufacturing – is increased pressure to make small quantities fast. It is the direct opposite of the old economy of scale model. Where manufacturers once looked for profits through scale, or volume, they must now look for profits from flexibility, or their ability to respond to changing customer requirements." As an example, he pointed out that, in Japan, small convenience stores with multiple locations have replaced big grocery stores in few locations. This is what the strategic reconfiguration of 7-Eleven is all about.
The 7-Eleven model will be the same as the Tesco model described in the LEI press release: "Tesco’s lean provision system combines point-of-sale data, cross-dock distribution centers, and frequent deliveries to many stores along "milk-runs" to stock the right items in a range of retail formats." It takes a supply chain of producers with setup times near zero to feed this retail model.
Unless they figure it out soon, you are seeing in Walmart today what you saw in General Motors thirty years ago: A great commercial empire at its peak; and what is coming is the same long, inevitable, downhill slide. Just as the Japanese decimated Western manufacturing by their ability to see that economy of scale is dead long before the West (in fact, most still don’t understand), a new generation of retailers is emerging that will finish the job.
Too many American and European manufacturers have avoided facing up to the fundamental economic change represented by lean by selling to retailers and OEM’s that still hung on to the old paradigms. Those ‘mass merchandisers’ are doomed and they will take their ‘mass production’ supply chains down with them. The pace of this change is starting to pick up.
Bob Lutz at GM and Mark Fields at Ford are searching for the economy of scale Holy Grail – the superstar product they can make in staggering quantities. The only practical scale issue left to remotely justify this is tooling, which is becoming cheaper and more flexible all the time. Walmart has driven the invention of Super Pan’s – container ships so big they have to slather ’em with K-Y Jelly to get through the Panama Canal bringing Walmart quantities to market. They are monuments to last century thinking. In the very near future, manufacturers and retailers alike, along with economists and investors, will reach the watershed. The lean will prosper while the economy of scalers will die.
Barber McHair says
What Mark Fields should be searching for is a haircut.
J. Wilson says
This post summarized in about 20 paragraphs what it usually takes me over an hour to put in to words. I know you have a pretty large readership, but it’s too bad that this won’t make it in to the hands of everyone.
Eric H says
Sorry, Bill, but I can’t follow you that far. If economy of scale is dead, why did our favorite style of management come from two manufacturers who make thousands or even tens of thousands of nearly identical products each year instead of a little job shop in a sleepy village? Applying lean to a low volume, wide variety place is famously difficult, so it’s no surprise that lean came out of the larget industry known to man. And with 12 million club card holders, Tesco ain’t exactly a mom & pop store, is it?
Besides, it’s SMED, not ZMED (or 0MED). There is something to learning by doing, and good thing because the first time around it’s probably 10MED, even in the Lexus division.
I recall a story (can’t remember where, perhaps Bodek’s Kaikaku) where Ohno was showing them around the parts manufacturer where they set him out to pasture. He had a machine that was making a dozen or so of whatever it was at one time. When asked about batch processing in his own plant, Ohno’s reponse was something like, I am interested in efficiency, not in following rules for the sake of following rules. As I recall, Toyota even aimed the Prius price at a point lower than cost because they knew they would eventually learn enough to cut costs through kaizen and learning by doing to make them profitably.
Economy of scale is as dead as the imperial measurement system. Now I’m going back to my pint of ale!
Bill Waddell says
Eric, you should have written before you started on the pint.
For one, the Toyota Production System was started and honed when Toyota looked and operated a lot more like “little job shop in a sleepy village” than like the mega-manufacturer it is today. The ‘design parameters’, if you will, under which the system was created were to create a low cost automobile manufacturing system that provided a range of products to compete with anything Ford or GM might bring to Japan, but to do so for a market that was assumed to be 10% of the size of the U.S. market. The driving concept was, and still is, to learn how to make cars one at a time, with each one independent of the one before or after it.
Operating under this premise – one at a time, rather than EOQs at a time – is why Toyota’s RIP inventory turns 50% fater than Ford or Toyota. It really doesn’t matter to Toyota whether the next car down the line is a Camry or an Avalon, or which engine or transmission it takes. The fact that many of them are Camry’s with the same 4cylinder engine are a function of demand – not manufacturing expediency.
You say that, “Applying lean to a low volume, wide variety place is famously difficult.” If one were to spend a lot of time on JSLean (Job Shop Lean) I can see how one would come to that conclusion. That, however, seems to be more due to the philosophy of that particular forum. It reads to me as though it is a gathering of people for the express purpose of proving that lean does not work in Job Shops, rather than a group working to understand how to make it work.
Again, turn to Toyota for proof. A much overlooked element of Toyota’s manufacturing success is Toyota’s machine tool plant in Kanya, Japan. It makes machines both for Toyota and for the external market, and manufacturing doesn’t get much leaner or more profitable than that plant is. Those who believe lean does not work in job shops are typically the folks who don’t know lean principles from lean tools. When challenged to defend their position, the usual response has to do with the difficulty of applying kanbans or value stream mapping.. ‘Kanban’ and ‘lean’ are not synonyms.
The difference between lean and mass producers is not measured in volume. Because lean businesses are so much more cost effective, it stands to reason that they will all sooner or later have a whole lot of customers. Toyota will run 400,000 cars through Georgetown this year because they are very cost effective. They are not cost effective because they will run 400.000 cars.
Tesco has 12 million card holders because they have learned to be cost and service effective in multiple, small retail outlets, as well as in big stores. Walmart will have many more customers than that, but they will only be cost effective by herding them through mammoth, megastores.
Finally, the Ohno story came from Bodek, and it is probably acurate. There are few absolutes in this world, and lean versus batch production is not one of them. There is a level of lean improvement that provides diminishing returns.
In its purset form, lean strives for perfect mixed model scheduling – heijunka, as the kimono wearing crowd calls it, which demands zero set up times. As I described in a previous post, shortening the production schedule time increments forces heijunka. The plant goes from making its sales mix every month to making the mix for each week – that forces smaller batches, which in turn puts pressure on set up times. Then the plant strives to meet the sales mix every day; raising the heijunka pressure on set ups even higher. Then the plant strives to make the mix every hour – then every half hour …
All of that is theoretically wonderful, and it drives setup times from hours to minutes or less. However, you reach a point at which the reality of demand renders it silly. Setup times may be a matter of a minute or two, but the market does not order the perfectly blended mix every half hour. There is little to be gained at the bottom line by further set up reduction.
In the anecdote from Bodek, Ohno was answering a question that Bodek posed about cutting hoses to length and doing so in batches, rather than one at a time. Ohno probably thought it was a stupid question. The 50 or 60 hoses in the batch represented an hour or so of demand, and hose comes from its original production process in long lengths. There would be no conceivable economic benefit from reducing the hose cutting set up time any further in pursuit of the theory of perfect heijunka. Do not for a minute, however, think that Toyota was not perfectly capable of chopping that hose cutting setup time in half and reducing the hose batches accordingly if they thought it was worth their time to do so.
The bottom line is, you are right – economy of scale is not dead. All of the horses did not die the day Henry Ford rolled out the first Model T either. The hand writing was on the wall, though, just as it is now.
Finally, over at Grim Reader, you recently blogged about power generation, and economy of scale was an element of your discussion. I suggest that economy of scale exists largely because of the preconceived notion that it is better, rather than on any hard facts. If there never were any central power generation systems and distribution networks – if Thomas Edison’s original idea had been to invent a stand alone generating system for each building in New York, rather than a central power station with wires running to each building – how might things be different? What if all of the money and engineering know-how over the last 100 years that has gone into hydro-electric, coal powered, oil fired and nuclear power plants, and all of the money and engineering over that time frame that went into power lines and grids and transfer stations and the rest …. What if all of that had been devoted to relentlessly pursuing cheaper and more efficient and more environmentally friendly boxes that could sit in the back yard of each house or building that provided all of the energy that building needed? … And if that had been the case, do you think economy of scale could possibly justify scrapping all of those stand alone power generation boxes and replacing them with trillions of dollars worth of massive central power plants and millions of miles of wire strung from one end off the world to another?
Of course no one can answer that hypothetcal question. The point is that economy of scale in the energy business – and in manufacturing – is cost effective because someone decided it was a long time ago; no one challenged the paradigm, and a vast amount of intellectual and financial wealth has been poured into improving the efficiency of the systems based on the economy of scale assumption. The driver of Toyota getting into the machine business was that they were tired of having to buy off the shelf machines, then kaizening them to make then SMED capable. Contrary to of economy of scale, Toyota knows it is cheaper to make SMED based machines to start with.
Eric H says
That’s a good example about Toyota and Tesco starting small, but the fact remains that these are enormous enterprises*. Economy of scale implies that C(X1+X2…Xn)
Eric H says
Crap, that should have read
Economy of scale implies that
C(X1+X2+…+Xn) < C(X1) + C(X2) + ... + C(Xn) where C is cost, Xi is the ith part up to n of them, and the left side is making many of them in some unified way (mass or lean production), while the right side is making each independently. As long as the cost of designing and producing jigs and dies is greater than 0, and those costs can be amortized over the entire production run, scale will be viable. That too is mathematics. Further, Toyota has not achieved ZMED, so at best you can only say that changeover approaches zero, not is identical to it. When Toyota switches to building 100% customized vehicles, I will agree that scale is dead. Don't know why the html interpreter cut it off, preview is your friend I guess.
Graham says
Economy of scale is prevelant no matter what.
If you are building one car yourself – asking a supplier to drop off the engine JIT at exactly 10:31 you’ll be told to sod-off.
Spend $10,000,000 with that supplier and they’ll bend over backwards to meet with your requirements, because it’s valueable to do so.
Economy of scale nails me when i desperately need displays for the telephones we repair but the Last Time Buy is for the equivalent of 10 years worth of product.
Richard says
I agree with Graham. You’ve got some additional homework to do Bill.
Bill Waddell says
Of course Graham’s experience is common. We all see that – except the “sod off” part – I can’t say anywone has ever said that to me although I am sure I have heard the American equivalent.
Most manufacturers still operate by economy of scale – and they are being destroyed by overseas competition. Where ever you are from Richard and Graham – your company cannot beat the Asians or any cheap labor competitor at the ‘economy of scale’ mass production game. You can only win by playing the lean manufacturing – mass cutomization game. The game of ‘buy $10 million or sod off’ is the only game the Asians can play becasue of logistics.
Certainly the guy who told Graham to ‘sod off’ when he wanted a quantity of one is there and doing business. Ten years from now, however, if he still has a business plan as Graham describes – customers who want one can ‘sod off’ and great srvice and volume discounts to anyone who will spend $10 million – will be bankrupt. With those terms, an Asian can deliver for $9 million. They wil be whining about unfair practices, unions, environmental regulations, high energy costs and the littany of excuses we hear from manufacturers who simply cannot let go of their outdated business model,
The $10 million a year customers are becoming lean and learning that they can find suppliers who will make and sell that quantity to them one at a time, when they want it, how they want it. And there will be no additional cost for that service.
Tim says
Bill,
With all due respect, your observation about EofS no longer being a viable business model is quite comical, to say the least. Your assertion that a ” stake is being driven through it ” could not be further from the truth. You make a dramatic error in your statement that EofS attempts to claim that producing more than one of something is ALWAYS cheaper than making only one. Your error is in the use of the word ALWAYS. Nobody is saying it’s the cure all, end all, perfect business model. It has its merits, in certain industries, in specific markets, where it can effectively be utilized, to generate an excellent return on investment. The electronics industry is but one example, where EofS was employed, to create both consumer and commercial products, in mass quantities, driving down unit costs, while also allowing those mfgs. to make huge profits. And please don’t attempt to use the exploitation of cheap Asian labor as a counter argument. Many electronic mfgs. gained from EofS processes that allowed them to streamline production efforts even further, making their ROI even more impressive. It often had nothing to do with cheap labor. Improvements in production techniques allowed for improved profitablitiy. VCRs, personal computers, compact discs, computer chips, and more, are all perfect examples of maximizing production capacity, in relation to market demand. Today many of those same industries are now utilizing Lean mfg. techniques to become even more efficient. And yet, many of them would not have even survived, had they not employed the concept of EofS in creating those new markets for their products.
Another example would be the food industry. Prices for food here in the U.S., relative to inflation are extremely low, thanks to EofS techniques, employed by large ag-based corporations. I don’t like the fact that they have put several smaller companies out of business, yet EofS was and is, THEIR competitive advantage. The EofS model can still be used within certain industries, for certain economic regions. Lean is merely an extension of how to make a business operation even more profitable. Yet, to say it will soon replace all competitive production strategies, is absurd. As I said, EofS can be employed at various levels, in different scenarios, and still be quite efficient.
A third example is the idea behind the Airbus A380.
It is in simple terms a perfect EofS technique. It is based on X number of passengers versus Y amount of fuel consumption. The ratio is pure maximization of an EofS model. Don’t make the mistake Bill of declaring improved utilization of resources always trumps profitability. It’s not an ALWAYS proposition, as you claim about EofS.
Let me pose a question to you. Which company generates more gross profit dollars, corporation A, who has a 25 % gross margin on their products, or their direct competitor, corporation B, who operates in the same industry and yet can only generate a 20% gross margin on the same commodity items ?
I know this is a simplified analogy, but at first blush, most people would say corporation A, of course. Yet, that’s not always true. The correct answer is not enough information, since the level of sales revenue is not known. What if company A can only generate 100 million in revenue, giving them 25 million in gross profit dollars, and yet company B does 200 million in revenue, providing them with 40 million gross profit dollars. Again, this is a simple analogy, but it proves a point. If an organization can produce mass quantities of goods, that reduces unit cost dramatically, and then have an effective sales strategy, combined with adequate market share, they can often then turn that inventory 12 times per year, maybe even more. This is where EofS still has merit. If mass production and storage of goods, drastically outweighs their inventory holding costs, they can still come out way ahead, in terms of profitability, effeciency and or ROI. Therefore, try not to make the assertion, that EofS has a stake in it. Quite the contrary. It can still be part of select business models, not always, but in specific industries, it can still provide more than adequate ROI while at the same time maximize the utilization of all resources.
Bill Waddell says
Tim,
I think I can safely say that you missed the point completely. The fact that you cited lean as something mass producers have added that enhanced the efficiency of their mass production/EOS model demonstrates that fact.
Second, no one will quarrel with your examples of profitable E of S business models in the past. Virtually every successful manufacturer over the last 80 years did so on the basis of E of S. The point is that few of them – especially electronics – will not survive with an E of S model in the future, and any who are still relying on E of S today are struggling. I suggest you look into the business model Solectron or Flextronics are deploying, or any of the big contract manufacturers who are increasingly dominating electronics manufacturing.
Your financial analysis is a tad off. I thought you were on the right track when you mentioned return on investment, which for all my carping abut its weaknesses when inventory is included in the investment for manufacturing companies, is the only relevant metric of overall performance. Then you tried to explain how one company can be proven to be more successful than another using only margin and sales volume as your data points. I suggest that you still don’t know whether your Company A or Company B is te better performer since you still have not addressed what the capital investment was in either company to get the margins. You have logically defined the numerator in the ROI equation, but completely skipped over the denominator.
You need to do some homework in Ag. Of course it has always been the classic E of S example, however, technolgy is rapidly changing that. With GPS guided systems, farmers can and are differentiating within a field as much as they want to. Each row or section – faot that matter each plant, can be different depending on what the market wants. It may look like a field of corn to you or me, but it is in fact whatever product mix the farmer chooses to grow. Even Ag realizes that a field devoted to a single strain or hybrid is not economically optimal any more.
Although Airbus is hardly an example of manufacturing success, I do not disagree that transportation and logistics are still E of S driven for the most part. I have never asserted otherwise, and in fact have offered that as the basis for lean manufacturing opportunity. Whether it is people in an A300, or widgets in a container on board a ship from Asia, shipping in bulk is cheaper. A company geographically closer to its customers is not bound by this constraint. You will note that this is why Toyota usually selects plant sites based on proximity to customers, rather than where it can find cheap labor.
Other than your misunderstanding of the lean economic model, your weak grasp of business finance, and your outdated electronics and agriculture examples, your analysis was right on the mark. Thanks for the comment.
Tim says
Bill,
Thanks for the response. However, a little housekeeping is in order. I tried to keep things in the discussion as simple as possible. Yet, I now realize that with simpletons like yourself, it remains to be a challenge. Therefore, a little clarification might help.
1. I never said that Lean is now being used to simply supplement the mass production, EofS companies. It IS replacing it in many cases, particularly in mature industries. And that is a good thing. That is a positive attribute.
It does not apply however,to EVERY SINGLE industry, at all times, as the ONLY possible, viable business model.
2. Next, you suggested I take a peek at your two darling examples of Flextronics and Solectron. You later claimed that I was lacking in the area of finacial analysis. Let’s see. Flextronics – Has shown a steady decrease in gross profit dollars over the last 4 years. In addition, Return on Assets over the last 5 years, has been Ho-Hum, at best.
Solectron – An even worse performance. Has posted some of the worst Return on Assets over the last SEVERAL years. In addition, it also has very low profit margins. Last, this company has seen its competitors revenue continue to grow over the last 3 years. In contrast, Solectron has seen a steady DECREASE in its revenue growth over the last 5 years.
Hardly the champions of how to best run a corporation. Sorry Bill, I think it’s yourself who might be in drastic need of some current, up to date, financial education.
3. My company A versus company B example. It wasn’t ment to include things like capital investment, or contribution margin or productivity ratios or anything else. It was a simple discussion of gross profit dollar generation, nothing more. Simple cash flow. It was ment to show how SOME companies can still use mass production, EofS techniques, IF and only IF, it can still be a viable business proposition. Not in all cases, but SOME.
4. My knowledge of the Agriculture market. Sorry again Mr. Bill. It’s the industry I grew up in, so I do know a thing or two about agricultural production in the United States. I happen to be working in the field of Marketing, at present, and have for quite some time. However, since Lean is always best when it comes to Ag, according to YOU, I decided to contact some friends in the Pork production business. They said they had spoken to you about getting Lean. The plant manager said YOU told them ” LEAN is the ONLY way to go. What you have to do is cut inventory, no more EofS, that does not work in today’s economy. Simply tell those sows to reduce their litter sizes down to 2 or 3, each and everytime. Less mouths to feed. And, reduce the gestation period from 114 days, down to 2 weeks. LEAN man, get LEAN. ”
So, I asked the plant manager, how it was going. He responded, ” Well, it all sounds good on paper. Problem is, we can’t seem to get the pigs to cooperate.” I told him, Good Luck. Afterall, consumer demand could change 18 seconds from now, and everyone in America might stop eating pork, so the last thing you want to have around is a bunch of excess, outdated inventory.
5. Finally Mr. Bill, always try to remember that Lean mfg. is a good concept.
It has wonderful benefits. However, it needs to be applied with common sense, within specific industries, based on the maturity level of their industry. It is not the CURE-ALL, END-ALL solution for every single business model. EofS still has its merits. And EofS models will still be viable for decades to come, again, not a cure-all either, but relevant in specific applications. This is why many mfgs. in China are currently working with the TQM model. They are not yet ready for total, 100 % conversion to Lean. They have to get the whole Six Sigma thing down first.
If customers perceive them to be producing an inferior quality product, Lean mfg. doesn’t mean jack-squat to them. They won’t sell enough product to begin with. And, in many cases, mass production, EofS models are needed to complete the quality process. Sometimes you need to identify defects and thus make improvements, over large production runs. It’s kinda hard to make it happen consistently, with the low volume, Lean production techniques. Not always, mind you, but sometimes, it IS necessary.
Thanks for the discussion forum. Please continue your work ; just be careful about it. Making bold statements about EofS being driven to extinction, are far from reality. Bye-Bye.
Bill Waddell says
Quite the diatribe, Tim. I’m not in the habit of dignifying personal insults with a reply. However, for the record, if anyone in the “pork production business” told you they talked to me about lean manufacturing, they are either mistaking me for someone else, or lying. I have never met or spoken to anyone in the pork business about lean manufacturing or anything else in my life.
Tim says
Sorry Bill, I guess double-standards often come in handy for people like yourself.
You can dish out the personal insults, from your original post to me, on June 21-06 above, yet you can’t handle them in return. What a shame.
I also find it comical that you couldn’t respond to my rebuttals. Figures.
I will continue to embrace the qualities of Lean mfg. techniques. However, I will also continue to be careful about potential sources of information, especially from folks like yourself.
Barry "aka the Hillbilly" says
Hello Tim,
Well it looks as though Bill is not going to respond to your last posting. So I guess I will.
Tim, we apparently have something in common, we both grew up around farms. I grew up shoveling sh**t out of barns, milking cows, building fence and using old tractors and equipment. We were rather poor, so we didn’t have much new stuff. And the farm life seems to have sensitized me so that I know when I am near Cowsh****t !
Your posts immediately set off my alarms.
You obviously have only a very superficial understanding of what Lean manufacturing is all about. You spoke of LEAN Techniques. You seemed to imply that it was something that could be tacked onto an Economy of Scale business about any time someone wanted to do so. The Toyota Production System isn’t about Techniques. It’s not a bunch of band aids (techniques) that can be chosen to use at a time that some senior manager (No doubt a former Accountant, MBA, or Marketing Guru) finds convenient to his liking.
By the way the Toyota Production system is what is commonly referred to in the West as Lean Manufacturing, just in case you don’t know this. You are completely off mark in nearly all of your assertions. But I find your opinions are probably in line with most Americans, particularly someone from a non-technical background. And just because you are a technical person, doesn’t mean you will get it either. I have ran across plenty of technical people who don’t understand what it’s all about either. But I will admit, it’s the liberal arts people who show the most ignorance when it comes to understanding what the Toyota production system is all about. I would include in this group the MBA’s, the Accountants, and the Sales/Marketing people. I think most of the poor performance of American Companies and most of the failures with the implementation of the Toyota Production System (i.e., LEAN – There’s that word again Tim) in this Country are caused by these groups and their Conventional Wisdom as Onosan called it. Suffice it to say that this group along with the clowns of Wall Street has created an environment that focuses upon the short term to such an extent that there is no patience for any kind of long term commitments that might be required to ensure excellent long term performance. That would mean something like doing the engineering work on all of the parts to figure out how to improve their reliability while at the same time reducing their cost Tim. This would be an Auto Example, just to keep it simple for you. I even bet you think the 5 years of financial results you looked up on the two companies Bill mentioned is long term! What a Joke ! This would be a clear illustration of the problem of short term thinking that so plagues many American businesses today.
It would be hard to know the amount of Waste and Harm that this group of short term thinkers has caused to this Country. I suppose the true number is unknowable. Bill attributes the rise of this group to Sloan and Dupont. At this point I can’t disagree with that assertion. Bill is older and wiser than me, so I trust him on this. Regardless of how it got started, it has been a devastating detour. And with American business clearly in the clutches of this group (Dare I say Thieves) I am not optimistic that it will get better any time soon. Many of our Japanese friends (Particularly the Toyota’s) have not had this problem and have created a system that in general delivers excellent, reliable products and at low costs. The bloated American companies lead by their MBA’s and guided by a bunch of Marketing Idiots are no match in most cases for the Japanese. And the American companies, who are, usually have a competitive advantage based upon some technical and engineering prowess, rather than anything that an MBA, Accountant or Sales/Marketing person may have done. If there are American companies that do have an Advantage who are led by this Group of short term thinkers, you can be sure that if they aren’t already taking advantage of low cost manufacturing in Asia or other parts of the Globe (I might say exploitation), then they soon will. You see that’s how this cocktail of MBA’s/Accountants/ and Marketing people view the world.
If you are really interested, Taiichi Ono wrote three books that have been translated into English. If you want to know what LEAN as Americans call it really means, then you might want to get a hold of those books and do some reading. Bill has even suggested that I go back further than that and so I am currently reading Henry Ford’s book.
Thanks for bringing up the pigs though Tim. I was around that sh***t also. Although its pretty lame of you to expect some LEAN effort to have anything to do with being able to reduce the gestation period of a Hog or to be able to adjust litter size. Maybe Genetic engineering and science might be able to do that some day, but it has nothing to do with LEAN. Better luck next time with your examples Tim.
And don’t get me started on the Economy of Scale Farming that is suppose to be so wonderful (i.e., Confined Feeding operations) and such. Suffice it to say, that doesn’t impress me much and I think there are a lot of negative environmental and other problems associated with that practice. I am not of the opinion that creating meat through confined feeding and Economy of Scale while pumping a bunch of anti-biotics into animals yields anything like the taste of the Country ham I used to eat at Grandma’s place. And I don’t think it’s particularly healthy to consume the Economy of Scale Pigs either. It may be good for some Agricultural Marketing Guy, so he can make some fat salary, but I don’t think it provides as healthy a product to consume for the American public. The people of Japan still outlive Americans and they don’t rely upon this Economy of Scale Farming. They’re probably better off relying upon their lean farming, at least then they don’t have to worry about some Agricultural Marketing fees being included as deadweight in the price they pay for their food. They just provide a decent pittance for their neighborhood farmers (That would be the guy really adding the value Tim, just in case you didn’t learn that in your Graduate level Marketing Classes).
I think in some ways the ability to grasp the concepts of the Toyota Production System is very similar to the ability to grasp the concepts of Value Investing. Warren Buffett has said that he has found that a person either immediately understands that you might have good things happen to you when you buy dollar bills for 0.40 cents or you never do. Warren says he has never found that someone could come to understand the concept over a long period of time; you either understand it immediately or nothing. Coincidentally, the risk is actually lower buying dollars for 0.40 cents than it is buying them for 0.75 cents, that is if you have done your homework like Warren does. But all of the Professors, with their models of risk will tell you just the opposite. It’s funny how the people who are doing the teaching aren’t right all of the time and when they are wrong, they are really wrong. Unfortunately these guys are teaching tens of thousands and the consequences can be devastating. Warren Buffett (Just in case you don’t know who Warren is Tim, he’s one of the top 5 richest people in the world) and Taiichi Ono have demonstrated quite well the effects of following the Herd who have been taught by professors who are WRONG !
So if you have enough gumption to find, buy, and read Taichi Ono’s books and then you find that you still don’t understand, then you probably never will and you should just give up and go back to your Agricultural Marketing. Whatever the hell that means. Did you come up with the slogan “The Other White Meat” Tim. How clever. How are pork sales recently ? I remember they really tanked about 10 years ago and a lot of farmers lost their shirts. But I am sure the Agricultural Marketing community didn’t feel any of that pain now did they Tim. Coincidentally Tim, the marketing emphasis recently for the pork producers is upon pork being a LEAN (There’s that Word again Tim) Meat. Kind of Ironic how an Economy of Scale Industry can decide to market one of its products based upon it being LEAN isn’t it.
And don’t think you will get everything you need to understand lean just by reading books written by Americans, because you won’t. Onosan and Shigeo Shingo are very clear about what they did and what the Toyota Production System is all about. Do some homework before you assert that the Economy of Scale Model is efficient, uses less resources, and worst of all is sometimes required to produce a Quality Product. This assertion is absolutely comical.
Tim, don’t be afraid to respond to my post. Today must be your lucky day, because unlike Bill who probably has a level of distinction and class about him due to his upbringing, I’m just a Hillbilly and have no compuction about going all the way to the gutter with anyone if they so choose. So any insult you care to sling is fine with me.
Take it easy !
Tim says
Barry boy,
I try not to waste my time with folks like you, yet sometimes it’s a pleasure, responding to self-ordained business experts.
Obviously, when YOU worked ” around ” farms shoveling dung, you neglected to educate yourself about the ” fun stuff ” you claim to have handled. Now I know the source of your credentials Barry boy, aka the hillbilly with shit for brains.
You’ve gotten so much incorrect with your post, it will be a joy to now expose your blatant ignorance. You attempted to claim the following :
1.) That I somehow implied the Lean system to be merely a bandage, that business managers try and tack onto existing EofS models. WRONG. You might want to invest into some additional reading material. May I suggest Yoko Ono’s Reading Comprehension Course, volume 101. I never implied ANYTHING.
For the 12th time, I embrace the Lean concepts, the Lean system, the Lean philosophy, or whatever game of semantics you feel like playing with the subject. It is a great system. My original beef Barry boy, was with Mr. Bill and his claim that EofS is on its deathbed. Then, after jousting with another fellow reader, he began back-peddling, when he could not support his position any longer. Like yourself and about 25 other people on the planet, he trys to claim that Lean is the ONLY viable way to run a profitable business venture, going forward. He says nobody can ever again run a profitable corporation, based on mass production, EofS based operations. WRONG AGAIN. Thousands upon thousands of companies are doing it right now, and, will continue to do so for several years to come.
2.) You continued your projectile-vomiting, by claiming I am a marketing executive for some Ag-based food company. WRONG AGAIN, shit for brains ! RE-READ my POST. I stated that it’s the industry I grew up in. I now work in the area of industrial equipment manufacturing, and have been a marketing executive in this arena for several years.
3.) Next, you state that western business managers are all narrow-minded, short-term thinking individuals.
They need to be more like our ” Japanese friends ” and concentrate only on long term ideas. Five years of financial analysis is not enough, right Barry boy ?
How about 50 years, would that give a company like Mr. Bill’s beloved Solectron to get THEIR shit together ? This zombie-like devotion must be part of the reason why the Japanese economy was stuck in a major recession for ump-teen years, right Barry boy ? Truth is, you wouldn’t know the first thing about how to run a profitable business venture. You see, one has to BALANCE long term planning together with short term goals. The near term concerns involve a few things like ” CASH FLOW ” for instance. It comes in handy now and then, to pay for minor things like raw materials, machinery, R and D investment, employees, etc. etc. etc. Yet, in Barry’s wonderful fantasy world, these short term goals are not important, right Mr. shit for brains ? WRONG AGAIN. You might want to pull your nose out of those books you love to reference and your head out of your ass a little more often.
4.) I happen to love the Toyota model.
I embrace the Lean system, as I have stated previously. I currently drive one of their Camry LEs. Is Lean a great concept ?
You bet. However, is it the catch-all, fix-all, cure-all, end-all solution for each and every company, big or small, worldwide venture, like you and Mr. Bill claim it to be ? HELL NO ! It is NOT ! That’s my point, jackass ! It’s not a cookie-cutter business plan, thus the reason for my Pork production example, for instance. It’s not always the only viable system of business efficiency. There are too many different kinds of industrial production, across too many economies of the world, each with different and diverse varibles of market structure, that come into play. This also defines my other EofS examples, that Mr. Bill had to back peddle from as well. He stated ” well yes, the bulk method of transporting goods across vast distances may come in handy and make mass production more economical, I guess, however, blah blah blah …….. ” right, shit for brains ? Therefore, once again, you are proven INCORRECT with your bogus observation.
5.) You then try to offer up a lame attempt at equating Toyota’s production philosophy together with Warren Buffet’s investment philosophy.
Big Mistake, shit for brains.
You see, Mr. Buffet and his gang at BRKA, are very good themselves, at that balancing act, i.e. managing short term goals and long term planning. However, according to idiots like yourself, the short term thinking is detrimental to business survival. We all need to think long term, like the folks at Flextronics and Solectron, right Barry boy ? Wrong again. You see, shit for brains, Mr. Buffet has a fetish for investing in ventures like insurance companies, among other things. Why ? Because they do a great job of generating a lot of free cash flow.
No wait ! That is short-term thinking.
All of the western-based business organizations, including Mr. Buffet’s company, cannot possibly survive, by ever considering the short term things in life, right jackass ?
So, before you offer up ANOTHER lame attempt at promoting yourself to be the ultimate Lean-Geek, you might first want to spend some time researching the ENTIRE history of industrial production. Not only have American based business organizations continued to produce high quality products at afforable prices, many others have as well. The Germans, the Swiss, the Brits and dozens of other cultures, all have their own success stories. In recent years, the Chinese have developed a number of efficient business propositions as well. They know better, than to try and mold each and every venture after their oriental cousins, simply because the Japanese would like them to. Many of them are not candidates as of yet for the Lean system of thinking, thus their continued devotion to other models, like TQM for instance. Maybe the folks at Flextronics and Solectron could learn a thing or two from other nations, on proven ways to run an effective, profitable corporation. Sorry shit for brains. Not everything seems to fit the cookie-cutter model as you would like it to. Bill and his fellow Leaners HAVE to discount all other models. This helps fuel their consulting opportunities, as self proclaimed experts in world of business efficiency.
The sad part is, there’s probably not that many job options left for hillbillys like yourself. Most clients don’t respond well to the mindless dribble from a
tooth-less wonderboy.
Sorry shit for brains. However, I’m sure somebody out there will always be in the need for a genius like you, with tons of experience, to scoop shit from their stables. Good luck, Barry boy !
Barry "aka the Hillbilly" says
Bill,
I am going to respond to this posting. But I am going to be gone much of the weekend. It will take me until Monday.
Cesar says
Econmies of scale
Phil C says
I am a business student and six sigma green belt certified. While I understand the premise of the article you have submitted, it seems a bit arbitrary in assigning a 0 time value to a variable and expecting the real world to follow this nominal, mathematical model.
In addition, as I have learned it, the economy of scale simply stated is the larger the manufacturing firm the lower the cost of manufacturing of goods. As such the small businessman is likely to fail in a startup enterprise in the same arena as the large manufacturing firm.
So really what I am questioning is should the concept of your article be more geared toward the expansion of the gap that the economy of scale produces? The very name of the process implies a set up time of a minute, and 1x any number is the number, not zero.
As I have stated earlier in this reply, I am a new business student and am just trying to fully grasp economies of scale, lean manufacturing, and the concepts associated with them.
Bill Waddell says
Phil,
On a purely intellectual level you are correct. Your reference to the “real world”, however, is a bit off the mark. In the very ‘real world’ of factories, one minute exchange of dies means that setups are virtually irrelevant, and scale is meaningless. You will learn soon enough, when factories become real places, rather than the mathematical abstracts in which they are viewed by academia, that one rounds off close enough to zero.
If only the problems of traditional manufacturers were as small as a one minute gap in a mathematical model.