Rarely Has Ranting Been This Good

Blogger BDG123 at Rantings on Markets, Economics and Business Strategy is an electrical engineer and mathematician by training, one-time corporate consultant and corporate sales and marketing executive in the information technology and business consulting, and securities trader, according to his profile.
Last week he asked some questions on the industrial economy and followed up today on the issue of whether in the grand scheme of things the pursuit of low manufacturing wage means a thing. He invoked Shigeo Shingo and Henry Ford while peeling off a rant:
The reality is manufacturing efficiency and the ultimate end product cost contains many variables beyond labor rates. Cost is more about a maniacal focus on continuously optimizing efficiency, quality and lowering labor’s input into the final output. Labor’s input into final output is not wage rate but continuous improvement of doing more with less via technology and business process improvement. And, a great industrial company never rests as it pertains to continuous improvement. Always questioning how to do more with less, even questioning if I need a skilled worker to do unskilled labor. Or whether my skilled labor would serve my client better by focusing on higher value work. So, where does this notion that people must make piddly salaries come from? Is this a reflection of too many finance minded executives infiltrating all sectors of our economy? Because I can assure you, most of what is taught at Toyota would require you to throw what was taught at Wharton Business School. Manufacturing and operations related segments of the economy are not about spreadsheets, they are about real commitment to rolling up your sleeves and understanding how you make something and continuously make it better.
Amen. He lists the seven types of waste plus information, then continues:
Do you see wage rates in the above list of lean manufacturing focus areas? If I pay someone $25 an hour or $10 an hour, how does that fact improve the processes above? To the contrary, doesn’t the fact that I pay higher wages mean that I should be able to attract a more qualified worker and a more committed work force? That I should theoretically find employees more capable of adding more intellectual value to my organization and thus finding continuous answers to the never ending innovative improvements required in a competitive world? And, in the end, wouldn’t that allow me to reduce the labor cost per unit of output? Part of excellence in any organization is to encourage all teammates to provide continuous feedback on how to improve operations regardless of what their role is in the organization. When was the last time your organization asked you to participate in such an exercise? At Toyota it is a condition of employment. It is processized. It is demanded and expected that you use your brain regardless of what your job title is, be it janitorial services or CEO.

He asks
What is the only variable between those four companies? Senior management’s commitment to their company, the success of their products and their employees?
but takes it a step further
May I ask what the difference is between a country who has a poor record of human rights and a company which only values the bottom line at the expense of associate welfare? Is there a difference?
and makes a case that this is a matter both of social responsibility and a matter of pro-business, when he asks
In the end, as a shareholder or customer or consumer, is that an environment you endorse?
There’s a lot more ranting where that came from. Also check out his Quotes for Daily Reflection, Self-Improvement and Success along the left margins of his blog. There are one or two reflections in there for everyone.

4 Comments

  1. BDG123

    February 13, 2007 - 6:23 am

    Ohayo Goizamasu!
    I saw a link come up to my post and your reference. I appreciate the post. I’ve toodled around your site and you are doing some amazing work. I applaud your efforts and wish you continued success.

  2. Joe W

    February 13, 2007 - 6:35 am

    Excellent insight. It does bring something up that bugs me when people talk about lean. People use the phrase “doing more with less” as a definition or goal of a lean business. To me, that seems pretty arbitrary and not really true to TPS principles, as I understand them. Isn’t it really about the process of exactly meeting customer demand with the minimum amount of resources and steps needed to produce the value? I guess the way I look at it, if you are currently meeting customer demand and use lean methods and attrition to reduce the resources needed to meet customer demand, then you are doing the same with less. If you use lean to grow your business and maintain your workforce, then you are doing more with the same. If you make more with the same resources, regardless of demand, then you are overproducing and if you use lean tools as a way to reduce headcount and get rid of the excess, then you are a traditional manufacturer who is either on their way or already chasing their way to China.
    Any thoughts? Am I over-thinking this one?

  3. Jon Miller

    February 13, 2007 - 8:27 am

    Good insight Joe. You are right. Lean is “doing the same with less” or really “what is needed, when it is needed, in the amount needed” at a lower and lower cost. Often the way the math works out, production output increases while inputs go down. As long as the output is not more than needed, this can work out to “more with less.”

  4. Jon Nett

    February 13, 2007 - 2:01 pm

    Sometimes I think it is easier to understand the “more with less” concept if you look at it more through a supplier – customer relationship. Say Company A makes a widget for $5.00 and pays its workers $10/hour and Company B makes an identical widget for $4.90 and pays its workers $5.00/hour. The customers don’t really care about how much the workers at Company A or Company B make. They are going to buy the widget that is the best value to them — in this case the $4.90 widget from Company B.
    If company A can make efficiency improvements to reduce the part cost to $4.80 by reducing scrap, eliminating inventory and part handling, and improving tool life, the customers will want to buy their lower cost widget and demand increases. Thus company A is “doing more” (making more widgets to meet increased demand) “with less” (less material, less energy, fewer tools,etc) without necessarily reducing its workforce. So lean manufacturing methods can be used to maintain workforce positions and keep higher paying jobs. This philosophy is more important in an international business market with cheap overseas labor because in order to compete with companies that have lower labor costs, American industry has to be more efficient in all other aspects of manufacturing.