The responses to my recent posts concerning GE, as well as my overflowing email inbox, have caused me to realize that many Evolving Excellence readers have not been reading it as long as Kevin and I have been writing it. It seems to me that the whole Delphi brouhaha was only yesterday, but it has actually been almost five years since I wrote "The lesson is that looking lean is not the same as being lean" in a blog post on the subject of the Delphi bankruptcy. If you look at the Superfactory articles and Evolving Excellence blog posts from that time you will see that the lean community was broadly engaged in the 'looking versus being' question and it really was a time in which our understanding of lean underwent a significant evolutionary step.
The lessons learned from the Delphi experience seem to me to apply directly to the GE situation, in which a number of people – mostly people from GE – are sincerely convinced that the fact that "a group of passionate lean thinkers have used lean tools to reduce the lead time of producing locomotives," and that "GE has been doing lean and working with Shingijutsu since at least 1991" makes them a lean company.
What happened with Delphi nearly five years ago was that they filed for bankruptcy after having been on the receiving end of 19 of the 45 Shingo Prizes that had been awarded up to that point. The conventional thinking was that, of course Delphi was as lean as Toyota and they had the Shingo hardware to prove it, but their legacy costs were simply too overwhelming and being very, very lean was not enough to overcome that burden. Kevin's and my collective response was that Delphi was never a particularly lean company, Shingo Prizes not withstanding - they just looked lean. The Shingo Prize was awarded for deploying lots of lean tools on the factory floors, but the essence of lean is that it is a fundamentally different business and economic model. Being lean is not about the superficial tools and tricks, but about how the business is managed. We pointed out that deploying all of those Shingo Prize winning lean tools had not made any material improvement to Delphi's costs or their inventory turns.
The tools handed down from Shingo, Ohno and others at Toyota were developed to support their business model and their management objectives – the elimination of expenses that do not add value and the continuous compression of cycle time. Using those tools to pursue other, more traditional objectives – reducing headcount and labor costs for the most part – may well make the factory look good but adds little or nothing to the bottom line.
It was around that same time that Cliff Ransom said that his study while working for State Street Research in Boston indicated that 98% of the companies that had announced lean strategies had little or nothing to show for it five years later. They had all deployed lean tools in a misguided effort to try to better reach traditional objectives. Delphi was part of the 98%, as is current GE.
Perhaps the article I cited was poorly researched, but the lean circuit on which I travel is the one focused on the management processes that support lean – lean accounting, value stream organizational structures, radically different approaches to factory scheduling and supply chain management and the like. I see lots of people from lots of companies in those sessions – but never anyone from GE. On the other hand I read quite a bit from GE about their continued obsession with reducing headcount and direct labor costs through outsourcing. If you are not doing anything a week from Monday I will gladly give up my ticket to see GE folks at the Chicago Marriott who, along with the Changzhou Municipal government, will be extolling the virtues of manufacturing in that lovely city. Don't look for anyone from GE – or Delphi for that matter – at the Lean Accounting Summit, however.
GE still thinks inventory is an asset, and that the hourly cost of direct labor is a important. So long as that is the case, having the senseis from Shingijutsu help legions of GE staff mock up models of factory layouts, crank out value stream maps and deploy the tools of lean will not add much to GE's bottom line. It is more of the looking lean, rather than being lean situation. That is the case with most – 98% I suppose – of the public companies.
Panu Kinnari says
… and that the hourly cost of direct labor is a important…
I have been thinking about this issue a lot. But in our case I always come to conclusion that for us it is really important, ~30% of our expenses are from production wages. How could I not think they are important. Not that they are only important issue, but still.
“We are different” :)
Paul Todd says
I agree that the Delphi bankruptcy was a milestone for the lean community, as well as for my own understanding. In addition to the Shingo Prizes, Delphi was a founding sponsor of the Lean Enterprise Institute, so here you had the shining example of two very influential lean organizations revealed as a failed company. That identity crisis forced a fundamental rethinking of what it means to be lean. Jim Womack’s writings now focus much more on management than tools, and the heavily revised Shingo criteria is built around a clear evolution of Tools, Systems, and Principles.
I suspect that GE mostly sat out that discussion because they were up to their ears in Six Sigma projects, but I hope they are beginning to talk about it now. Maybe the once-forgotten folks in Louisville can lead the way.