Kevin Meyer

Life and leadership at the nexus of lean and zen.

Let’s put this myth in its own coffin already.

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In this month's edition of the  Atlantic Monthly, there's a short piece on how Batesville Casket is using lean to remain competitive. It's a well-written article providing a nice snapshot of the challenges the company faces (Chinese imports, increases in cremation) and how lean is helping it compete.

But then there's the obligatory opposing view of why lean is bad for workers:

How such a lean refitting affects workers on the factory floor receives far less attention. Batesville’s management has guaranteed that no employees will lose their jobs because of a “kaizen event,” an activity in which workers are encouraged, through various exercises, to demonstrate how they themselves could be made superfluous. But Mike Parker, a labor writer who has described lean production as “management by stress,” told me the Toyota Way fixates on efficiency and productivity at the expense of workers. “There’s no place to consider whether some very narrowly defined, de-skilled job offers any satisfaction.”

Now, let me say first that I've never worked on an assembly line a day in my life (unless you count doing dishes at home). It can't be a day at the beach — but of course, that's why it's called "work." However, I'm not sure that there are any jobs, anywhere, that are stress-free. Whether you're running your own small-town soda fountain or leading the global marketing team at Boeing, there's going to be stress. Pressure to improve performance is ubiquitous. If you or your company doesn't feel that pressure, you've either got a cushy monopoly or you're going out of business and you just haven't realized it yet. 

More importantly, though, Mike Parker's contention that lean leads to a "narrowly defined, de-skilled job" without any satisfaction is wildly off the mark. As near as I can tell — and again, I've not worked in a factory — by providing workers the opportunity to make the work itself better ((even expecting it), employers are also giving people the chance to use all of their experience and their creativity — in short, their minds. That's hardly a "de-skilled" job. Yes, there's repetitive scut work, but there's also a very rich component of intellectual challenge. And most significantly, that intellectual contibution is welcomed and rewarded by management.

I'm not sure what Mike Parker think a better system might be. Hanging around the plant, working at your own pace, not allowing line workers the opportunity to contribute to the design of their own work? That sure turned out well for GM's Fremont plant before NUUMI, right?

Saying Goodbye To Long Waits At The Airport

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The days of multi-hour delays at the airport aren't gone by a long shot, but things at JFK at least are considerably better than they were. The Wall Street Journal writes about the new software system the airport is using to reduce the lineup of planes on the tarmac.

In contrast to European airports, which assign specific takeoff times to each flight, the FAA has always allowed planes to depart first come, first served. Consequently, if flights didn't leave the gate and get in line on the taxiway, they didn't go. That's why you had to spend 90 minutes in seat 22K with the screaming children instead of the Admiral's Club.

Essentially, the airports were treating the departing planes as one giant batch. (At least that's interpretation, but I'm not an industrial engineer.) With the new software, however, they're working with small batch sizes:

Now, airlines file flight plans with the Federal Aviation Administration indicating what time they want to take off. A metering program compiles requests, and takeoffs are scheduled in 15-minute blocks of time. Airplanes don't leave the gate until their assigned time. And as a result, the conga line of 40 jets lined up at the end of a runway has been reduced to six to eight.

Okay, this doesn't really eliminate the delays — it just shifts them from the tarmac to the airport terminal. But that's good for passengers, who really don't want to spend any more time than absolutely necessary in the plane, and it's good for the airline, who save money on fuel costs:

Airlines get a big bonus, too, in fuel and maintenance savings. Engines can burn lots of fuel idling and revving up to move forward in line. And engine maintenance is often scheduled and paid for by the hour, so taxiing for an extra hour each day can significantly run up maintenance costs.

And by having smaller batch sizes on the taxiway, logistics for the airlines and the airport are far easier:

when shifting winds force takeoffs and landings onto different runways. With fewer planes in line, it doesn't take as long to re-arrange the airport.

Managing the flow of traffic is still a staggeringly complex process. Even with this new software and system, airplane mechanical problems and sudden weather changes will wreak havoc. But it's nice to see how smaller batches can pay off in yet another arena.

Now, if they could only make a larger batch size for seat legroom.

Outsourcing actually lowers (!) profits.

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In news guaranteed to make Bill Waddell smile, new research from business school professors at Stanford and Wharton (yes, those pointy-headed academics) shows that fashion companies are best off when they manufacture close to home.

As Bill and Kevin have written about often, outsourcing to China — or any other distant country, for that matter — lengthens the supply chain, ties up working capital in inventory, and creates all kinds of product liability risks (melamine, anyone?). But for fashion companies, the longer lead times are particularly deadly, because once the new "it" design has been on the street for awhile, it moves quickly to the closeout bin.

By getting goods into shoppers' closets when they are in demand, and
not producing leftover unneeded inventory that will be dumped onto a
sale rack, retailers are more likely to get customers to buy early at
full retail price. The profit margin increase under this combined
scenario is exponential.

And it's the large production batches and the long lead time that's the killer. When you're forecasting demand and producing so far out, you're almost guaranteed to get it wrong:

Using the more traditional outsourcing models requires long production
lead times — generally six to nine months — handicapping success
because producers may miss trends or changes in consumer tastes. By
timing production to take place a few weeks before the selling season
rather than half a year or more, a firm can capitalize on more accurate
estimates of demand.

Researchers find that when both rapid production and enhanced design
are done together — allowing the latest merchandise to get into the
hands of consumers quickly and with little overstock — a firm's
profits increase by up to twice the sum of the extra profits
that would have been earned from each activity alone.

Retailers increase their profitability, too, because they have a greater likelihood of having inventory of the product their customers want, and they don't have to discount large quantities of merchandise to move it off the floor.

The authors point to the fashion brand Zara, which makes most of its clothing in expensive European and North African factories. Zara can move from design to delivery in just a few weeks. If they outsourced to China, the whole process would take six months or more. The report states that this approach

allows them to anticipate, spot, and take advantage of
consumer needs and trends, and tag production to actual demand. They do
very, very well using this strategy.

I spent about six years in the athletic footwear industry back in the
1990s. Our products weren't on the cutting edge of fashion, but we faced
many of the same pressures. I still remember the pain of having
container loads of shoes with blue stripes en route from China when our
retailers were asking for more of the shoes with the black stripes. Before the shoes even cleared customs, we had to negotiate discounts with our retail customers.

Who knows, Bill — maybe next Harvard Business School will start publishing research that says respect for people can actually increase profits!

The absurdity of executive bonuses.

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Maybe pigs really can fly. Maybe hell will freeze over. Today I finally read something in the Wall Street Journal that didn't make me feel like I was trudging through some never-ending serialization of one of Ayn Rand's doorstops novels. Henry Mintzberg's attack on the absurdity of executive bonuses is enough to make me renew my subscription to the WSJ for another year.

Mintzberg is refreshingly blunt. (In fact, he sounds suspiciously like our very own Bill Waddel):

These days, it seems, there is no shortage of recommendations for
fixing the way bonuses are paid to executives at big public companies. Well, I have my own recommendation: Scrap the whole thing. Don't pay any bonuses. Nothing.

This
may sound extreme. But when you look at the way the compensation game
is played—and the assumptions that are made by those who want to reform
it — you can come to no other conclusion. The system simply can't be
fixed. Executive bonuses — especially in the form of stock and option
grants — represent the most prominent form of legal corruption that has
been undermining our large corporations and bringing down the global
economy. Get rid of them and we will all be better off for it.

Mintzberg isn't the first kid on the block to point out that bonuses might not be the ticket for eliciting outstanding performance. (Check out Dan Pink's talk here, John Hunter's thoughtful posts here, and Mark Graban's take on it here.) He's also not known for his expertise in lean. But his analysis of why bonuses are just plain wrong could come straight from the lean manager's playbook.

As he points out, bonuses are based on several faulty assumptions, among them that the CEO, with a few other senior executives, is primarily responsible for the company's performance. And this assumption is poison to a company:

In something as complex as the contemporary large corporation, how
can success over three or even 10 years possibly be attributed to a
single individual? Where is teamwork and all that talk about people
being "our most important asset?"
More important, should any company even try to attribute
success to one person? A robust enterprise is not a collection of
"human resources"; it's a community of human beings. All kinds of
people are responsible for its performance. Focusing on a few—indeed,
only one, who may have parachuted into the most senior post from the
outside—just discourages everyone else in the company.

Kevin and Bill have written eloquently and often about employees being more than just a pair of hands. A lean company engages their hearts and minds as well. It's refreshing to see Mintzberg addressing this human element — and the effect bonuses have on real people — in the ongoing debate over compensation.

Actually, Mintzberg thinks that bonuses do have an important role to play:

Actually, bonuses can serve one purpose. It has been claimed that if
you don't pay them, you don't get the right person in the CEO chair. I
believe that if you do pay bonuses, you get the wrong person
in that chair. At the worst, you get a self-centered narcissist. At the
best, you get someone who is willing to be singled out from everyone
else by virtue of the compensation plan. Is this any way to build
community within an enterprise, even to foster the very sense of
enterprise that is so fundamental to economic strength?

Accordingly, executive bonuses provide the perfect tool to screen
candidates for the CEO job. Anyone who insists on them should be
dismissed out of hand, because he or she has demonstrated an absence of
the leadership attitude required for a sustainable enterprise.

Community, sustainability, leadership: this sounds suspiciously like lean management. Let's just hope that someone in the C-suite is paying attention.

Not another outsourcing lemming

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With all the grief that Bill and Kevin give the US government about its misguided interventions in the free market (quite often deservedly), it's also important to note when the government should be more activist in order to help rebuild American manufacturing.

In today's NY Times Tom Friedman tells a disheartening story about Applied Materials. Since 2004 they set up 14 factories to manufacture the machines that make solar panels. Unfortunately,

Not a single one is in America.

Let’s see: five are in Germany, four are in China, one is in Spain, one is in India, one is in Italy, one is in Taiwan and one is even in Abu Dhabi. I suggested a new company motto for Applied Materials’s solar business: “Invented here, sold there.”

As a result,

our federal and state subsidies for installing solar systems are largely paying for the cost of importing solar panels made in China, by Chinese workers, using hi-tech manufacturing equipment invented in America.

Friedman doesn't consider Applied Materials an outsourcing lemming. As he says, in reference to the company's new research center opening in China, "Gotta go where the customers are." He lays the blame at the feet of the US government:

The reason that all these other countries are building solar-panel industries today is because most of their governments have put in place the three perquisites for growing a renewable energy industry: 1) any business or homeowner can generate solar energy; 2) if they decide to do so, the power utility has to connect them to the grid; and 3) the utility has to buy the power for a predictable period at a price that is a no-brainer good deal for the family or business putting the solar panels on their rooftop.

Unfortunately, the fragmented and stuttering solar subsidies in the US make those three requirements far from certain. And that makes it financially impractical for Applied Materials to build a factory here.

I know that many people don't think that the government has a role to play in industrial policy. But we wouldn't have today's computer industry if the government (NASA and the Air Force) in the 1960s didn't commit to buying all the semiconductors from no matter how expensive. We wouldn't have the internet if it weren't for DARPA. Hell, we wouldn't have an interstate highway system that allows for inexpensive and rapid transport of goods if it weren't for the government.

So, if it's fair to attack the government for its stupid market interventions, it's also fair to give credit when its due. Its also important to point out places where some intervention would be a good thing. Even if solar power isn't yet cost effective compared to fossil fuels, it will be eventually. And it would be good to have those jobs — and those manufacturing skills — here.

Bob Nardelli “feels good.” Welcome to Bizarro world.

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Sigh. Bob Nardelli "feels good."

Those of you with elephantine memories will remember that I'm no fan of Bob Nardelli. The erstwhile CEO of Home Depot drove away customers by cutting back on full-time, experienced staff and replacing them with less knowledgeable part-timers. After torpedoing revenue, he then he spent money on customer service improvement programs (which would have been unnecessary had he just kept the original staff) and tried re-hiring the same sort of experienced staff he sacked earlier. For his efforts in destroying shareholder value, Nardelli was awarded a pink slip — and a $214 million severance package.

Fast forward to today's Chrysler bankruptcy. In a statement that boggles the imagination, Nardelli told the NYTimes that

“I got us here [into bankruptcy],” he said. “And I feel good about getting us here.”

The article goes onto point out that

In his relatively short time at the top of Chrysler, Mr. Nardelli did fulfill much of the agenda laid out for him by Cerberus. He streamlined the company and significantly lowered its costs, although tens of thousands of jobs were eliminated in the process. 

Hmm.  Sounds a lot like Home Depot, doesn't it? Lowering costs by laying off staff?

Look, I'm no business guru. I've never run a company larger than four people. And now I make my living as a consultant, because I don't have the skills or experience to do a real job like making stuff that people will pay for. Frankly, I can't even begin to comprehend the difficulty of managing a company as large and complex as an auto maker.

And yet.

And yet I do know that there's no secret to cutting expenses. Close a few plants, fire a bunch of people, reduce production, and presto! Your costs have gone down. It's hard for me to fathom how lowering costs is considered to be some sort of managerial brilliance, a leadership tour de force. And in Nardelli's case, it's pretty much the same playbook that he used at Home Depot.

Now, I'm not suggesting that Chrysler was a paragon of efficiency, or that plant closings and layoffs were out of line. When your cars are seriously unpopular and no one is buying them, well, you're going to have to do something about costs. But it's hard to believe that anyone could feel good about steering a company into bankruptcy. Hell, Kiichiro Toyoda resigned in shame when he had to layoff 25% of his employees and his company nearly went bankrupt in 1950. But Nardelli "feels good" about steering the company into bankruptcy? Am I missing something?

Stay tuned for Part III of my Nardelli screed. I'll post that when we read about his severance package in the next month or so. Any guesses on how much money he'll walk away with?

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