"Lean Factories Find It Hard to Cut Jobs"

…even in a slump, or so says an article in today’s Wall Street Journal. It’s an unfortunate title with a collection of half-truths about lean manufacturing, some contradictory, that leaves one unsure at the end whether lean manufacturing is friend or foe of the either the worker or the corporation.

The article cites labor statistics that the job cuts in manufacturing are not as deep as one would expect, considering the fact that the drop in customer demand has been deeper than in past recessions. Why? The CEO of the Bona fide lean manufacturer Parker Hannifin tells us:

“Because of productivity gains, every one of my people carries more dollars in sales today,” says Donald Washkewicz, Parker’s chief executive. In 2000, the average Parker worker represented about $125,000 a year in sales. Today, that figure tops $200,000. “If I need to cut back, I have to cut back fewer people to achieve the same goal.”

Rephrased, Don Washkewicz is saying that for every $1 million drop in sales he now needs to cut only 5 people at today’s productivity levels (at $200,000 per person) versus 8 people ($125,000 per person in 2000).

“…workers are safer than in many other industries because cutting a full-time employee has become quite costly.”

What exactly does that mean? One of the assumptions of this article is that it was easier “before lean manufacturing” to cut employees in a downturn because people were single-skilled. Several examples are given to illustrate this, but not convincingly.

But deeper changes in manufacturing are also playing a role. A decade ago, most factories tended to do “batch” work, with large groups of employees churning out endless runs of the same pieces. Since many workers did identical tasks, it was easier for companies to cut people during downturns.

That doesn’t make any sense. The whole idea of cross-training to develop multi-skilled workers is that more people know how to do a particular task. The paragraph above would be true whether workers were single-skilled or multi-skilled, if the production capacity in terms of labor was greater than customer demand. The implied statement is that cross-training means “fewer people can do any given job” and that if Mr. A who knows jobs X, Y and Z is cut, we no longer have anyone who can do those jobs. This has nothing to do with lean manufacturing and is simply a question of succession planning and the depth of cross-training (number of people trained in any given job) instead of the breadth (number of skills trained per person).
And this statement seems to be a complete non sequitur to the idea that when a company applies lean manufacturing it becomes harder to cut jobs:

“When you get down to where we are now, where manufacturing is less than 10% of the employed population, there just isn’t that much more you can cut,” says Kurt Karl, chief U.S. economist at Swiss Re. Mr. Karl says manufacturers are especially eager to hold on to workers who are trained to operate their increasingly sophisticated equipment.

Essential Mr. Karl is saying that less jobs are being cut because there are less jobs, and that employers are reluctant to cut highly trained equipment. What does this have to do with lean manufacturing?

Reduced inventory through lean manufacturing has “made it hard” for Parker Hannifin to cut jobs.Taken positively, Mr. Washkewicz is saying that having less inventory secures jobs. Taken as “lean factories” are “finding it hard to cut jobs” one could think that having more inventory could make it easier to cut jobs, which is not true.

Another factor saving jobs thus far is smaller inventories. A decade ago, Parker, like many other companies, structured its factories so that workers were building large batches of goods at each stage of production. That often led to huge stockpiles and made it harder to adjust when a downturn hit. There might have been six months or more of goods on Parker’s shelves before the signal finally came to reduce production.
Parker’s plants today have been largely restructured to create smaller production clusters. Seals for aerosol cans, for example, are only made in numbers that match the flow of orders. Mr. Washkewicz says those big stockpiles of yesteryear used to mean he had to cut more people, much faster. “In the past, we were trying to adjust to past sins, as well as the current drop,” he says.

The following information from The Toro Company, from another fine lean manufacturer, is a great testament to the value of stopping overproduction, synchronizing supply closely with demand through just in time production, and getting a true feeling for the customer demand signal.

Some companies say tighter inventories helped them notice a dropoff in orders more quickly than they might have in years past. “We saw the economy changing early last year and started cutting back,” says Rick Olson, who oversees four of Toro Co.’s plants in the northern U.S.

But this contradicts the message of the article since “lean factories” with less inventories can cut jobs earlier.
In in summary, why do “lean factories find it hard to cut jobs?”

1. There are just fewer jobs in manufacturing to be cut
2. People have been cross trained and are more “costly” to cut
3. A cross-trained workforce is less flexible in a downturn
4. Less inventory means less cutting to offset the cost of excess stock
5. Less inventory means feeling the downturn sooner and cutting sooner

This is the sort of exposure that sets understanding of lean manufacturing (or even basic economics) back by a few years, as people who have been living in the caves of traditional manufacturing come out and wave their new sheets, “See? The Wall Street Journal said lean manufacturing will make it harder to cut cost!” I can’t believe this article made it to the front page.

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