Forget Bankers… Think About Lean

NAM, The Manufacturing Institute, and RSM McGladrey just published a 62 page report on The Future Success of Small and Medium Sized Manufacturers.  We’ve railed on NAM in the past for how they blame all problems on (pick one or more) unions, high labor costs, lack of trained employees, high regulatory burdens, unfair foreign competition, a plethora of bored lawyers looking for someone to sue, the estate tax, and the ban on drilling for oil off the coast or in Alaska. 

RSM McGladrey, who executed the study leading to the report, "… serves small and medium sized manufacturers… by offering a combination of complementary corporate and individual tax, audit, accounting and consulting services."  I wonder if they’ve even seen Womack’s Lean Thinking, let alone thought about what lean really is.

Doubtful.  According to the report, here are the top 15 best practices of successful small and medium sized manufacturers.  Warning: those of you in the successful lean world will need a stiff drink to make it through the list without laughing or banging your head against the wall.

1. Stay in touch with customers
2. Differentiate products and services
3. Devote time and energy to marketing
4. Go global
5. Ensure your cost system is helping contain cost increases
6. Look for a long-term relationship with a banker
7. Invest at least 3 percent of payroll in training
8. Explore how MEP experts can help you
9. Appoint a majority of outsiders to your board of directors
10. Develop a plan for management succession
11. Monitor your company’s viability and competitiveness daily
12. Weigh quantitative and qualitative factors when making capital investments
13. Look for opportunities to delegate
14. Speak out to government representatives
15. Stay abreast of regulatory and policy developments

Now you can guess why NAM teamed up with these jokers.  Bankers?  Delegation?  Management succession?  Is this for real?  Yes some of those are important… but how could they have completely missed the truly critical success factors… and opportunities?

Just for kicks I did a search on "lean manufacturing" in the report, and the term was deep in the comments from some of the manufacturers they surveyed.  Some great manufacturers, by the way.  But apparently McGladrey didn’t recognize it.  That’s what is almost mind-boggling… the nuggets of true success were given to them by many of the successful manufacturing companies they surveyed, but they completely missed the impact. 

Buried in the report are some great comments, with the following being but a few:

• "To be competitive a SMM (small/medium manufacturer) can offer fast turnaround time and is willing to take orders for small production runs that would be uneconomical for a buyer to contract overseas."
• "Proximity to the customer is critical."
• Diamond Casting and Machine discussed how when their sales dropped during the recession they didn’t lay off, "we worked hard and spent money to train."
• Vermeer Manufacturing discussed how they work with their customers to identify and remove waste points "similar to our own kaizen events".
• The Glove Corporation discussed the lean manufacturing activities, including conversion to cell production and value stream mapping.

As expected there were several comments from companies that complained about unfair tariffs, high energy costs, and the lack of trained employees.  Interestingly enough, these were not the same companies that talked about their lean programs.  Coincidence?  I think not.

If I had to come up with my own list of the best practices of highly successful small and medium sized manufacturers, completely unscientific but drawing on my experience and contact with a large number of companies (as well as some of the comments in the McGladrey report), I’d suggest:

1. A complete understanding of your true cost structure, regardless of how current reporting regulations compells you to think.  Begin with inventory being a cost, not an asset.
2. A culture of relentless focus on identifying and destroying wasteful activities. 
3. A culture of relentless focus on perfection through continuous improvement.
4. Employees really are your most important asset.  Knowledge and experience are valuable, and are leveraged for improvement and competitive advantage.  People aren’t laid off simply because they’re a cost, and the training and experience in an assembler is worth more than the off-the-shelf capability of a fixed cost like an accountant.
5. The organizational structure is oriented around being responsible for complete value streams instead of functional activities.
6. Suppliers, customers, and the entire extended value chain are considered true partners.  Knowledge is shared to help improve overall value and reduce cost… instead of simply pounding on suppliers for lower prices.
7. Strategic planning, policy deployment, goals, metrics and performance is shared to everyone, probably visually.  Information is power.

Obviously there are more.  But after you get those first few done, then you can start to think about long term relationships with bankers… if you still need one.