America's Manufacturing Future

A Wake-up Call From Asia by Patricia Panchak:

China and India very aggressively are pursuing advanced manufacturing. Increasingly, China's exports to the U.S. are composed of advanced-technology products.
...
J.P. Morgan said it would add 4,500 employees in India by the year 2007, mainly by setting up operations in Bangalore to support its growing structured finance and derivatives businesses globally. Such jobs are not the simple, low-value call-center work that up to now we've associated with this developing economy. And J.P. Morgan isn't alone; UBS and Goldman Sachs earlier made similar announcements.

From my previous post, Relative Engineering Economic Positions:

The hope some retained that the United States would retain the highest end work and others would work on the less complex work is not what the future holds. The future will prove to be an international marketplace where the United States is a significant but not dominant player. That future can still be bright but it requires a different vision than one in which American dominance is taken as a given.

The challenges to USA manufacturing will continue. The best hope, as I see it, for retaining manufacturing leadership in the USA is through increasing the adoption of management improvement methods including lean manufacturing.

Even so, I believe it will be very difficult for the USA to remain the leading manufacturing economy; China seems poised to take that position. Still that is not a certainty, even though many act as though it happened long ago. And even if China were to take over the number one position, it is still possible for the US manufacturing economy to grow.

From 1990 - 2001 China's manufacturing output grew by 251%, while world manufacturing output grew by 22%. still the US manufacturing economy grew by 39% meaning we gained a larger share over those 11 years of total world manufacturing - World Bank data)


Related posts:

• Companies Not Countries
  
• Manufacturing and the Economy
  
• Toyota Chairman Comments on India and Thailand
  
• Hopeful About India's Manufacturing Sector
  

Quality, SPC and Your Career

Topic: Management Improvement

Lead To Succeed (pdf document) by Stephen S. Prevette:

* Succeed as a quality professional by branding yourself and providing a service or product your manager and organization deem worth paying for.
* Lead your manager "your customers" by providing the data they need in a form they can understand.


This is a great article on how to apply quality (Deming, Statistical Process Control, Six Sigma, Lean Manufacturing) ideas and move forward professionally; even when those ideas are not always shared by the organization.

I caused this increase by using tried and true quality techniques that are more than 75 years old. My work at Hanford has been noticed favorably by people at the Fluor Corp. They believe I am cutting edge. Hmmm.

I will say yes, I am making use of modern computers and software to implement these 75-year-old techniques.

Of course, I like to see my beliefs cast in a positive light. I believe far too often we look for the newest ideas and miss all the great ideas that have been known for decades but are not practiced widely. The key to success is applying good ideas well - not just applying new ideas.

Transforming managers so they are willing to use SPC is not easy. My first interaction with a Fluor manager resulted in my hearing, "We don't know why Westinghouse employed a statistician. Fluor doesn't do statistics."

Success is not as easy as we might hope. Just discovering the ideas of Deming or Toyota or Ackoff is not enough. The great ideas don't, by themselves, convince managers to try a new way of managing. There is a great deal of education needed for most organizations to get to the point where they realize they could improve by applying "old" ideas such as: control charts, lean thinking, spc, not tampering...

The application of SPC and other quality tools can be rewarding. It can provide both financial and professional fulfillment. I believe my application of Deming's management theories has been crucial to Fluor Hanford's success.

More articles by Stephen Prevette.

Rebirth of American Industry

William Waddell excellent posts on the Evolving Excellence blog are always an interesting read. He, and Norman Bodek, have published a new book, Rebirth of American Industry. Read the full Excerpt from the book. The Evolving Excellence blog also has a post: A New Must-Read Book - From Our Own Bill Waddell.

Norman Bodek has also written: Kaikaku, The Idea Generator: Quick and Easy Kaizen (with Bunji Tozawa) and The Idea Generator: Quick and Easy Kaizen (Workbook) (with Bunji Tozawa). He also recently started his own blog: Kaikaku.

Articles by Norman Bodek:

• The Best Factory in the World, from his book, Kaikaku: "Pictures of areas of the factory or the office hung throughout the plant. Workers were encouraged to look at the pictures and talk about them together, then to make improvements."


• Lean Six Sigma - A Perspective, "Lean focuses on identifying value as perceived by the customer and then eliminating everything that isn�t value, the waste, out of the process. Lean comes from the industrial engineering discipline, whereas Six Sigma comes out of the statistical quality control discipline. Six Sigma focuses on reducing variability in the key output variables that are important to the customer."

Should GM be Removed from the DJIA?

Topic: Investing

Should Dow boot GM? by Chris Isidore, CNNMoney.com:

GM's market capitalization has fallen to about $11 billion, less than half that of the next smallest Dow stock...

"It is coming," he said of the idea of a foreign Dow component. "This whole globalization situation is making that more and more likely."

He said he doubts that GM would be replaced as long as it is still the world's leading automaker, but Toyota could claim that title from GM as soon as 2006.

"That would be the time to replace it, not before," said Hirsch.

I agree removing GM makes sense, though I see no reason to wait. Whether to replace it with Toyota (market cap: $167 Billion), DaimlerChrysler or something else is an interesting question. Of course the whole idea of the Dow Jones Industrial Average pretty much outlived its usefulness decades ago. The S&P 500 has long been far better measure of the stock market but still the dow has retained its status as news worthy, for some reason (View the current dow stocks).

As for the S&P 500 it looks like my guess that Google would be added to the S&P 500 by the end of this year is going to be incorrect. I must admit I think that failure was really a mistake by S&P, and not just because it makes me wrong. The market capitalization, trading and import of Google make it an obvious choice for the S&P 500. But I would rather be wrong about that and right to have bought it, than the other way around. Google's market cap: $126 Billion.

I will post more details soon but if you are interested the "10 stocks for 10 years fund" I am managing via Marketocracy has performance results available online.

Investment related:

• Annual Report by Warren Buffett
• Curious Cat Investment Books
• Curious Cat Investment Dictionary
• Curious Cat Investment Library
• Beginning of the End of Housing Bubble?
• 30 Year Fixed Rate Mortgage Rates
  

Planet Kaizen

Toyota has a section on their web site called Planet Kaizen: "what happens when you dig a little deeper and peel back the sheet metal to discover what makes a Toyota a Toyota."

It requires flash to view Planet Kaizen. I think it has amazingly bad visual controls (as do many flash applications). I can't figure out why it would be done in flash - other than some marketing person, or IT person, thought it would be cool. I certainly don't see how kaizen practices could have produced such an application. It seems to me one of the examples of how far Toyota still has to go.

Of course, as an automobile manufacturer failing to develop web applications well, is better than failing at manufacturing cars well. I would guess that this "planet kaizen" was not created by Toyota employees but instead outsourced to someone else. If it was done internally, I think Toyota's management of marketing with technology may be in as much need of help as GM's entire management is. In any case the non-manufacturing parts of Toyota, while some are managed well, still have plenty of room to improve.

• New Toyota CEO's Views
• Flash: Flash: 99% Bad - Flash and Web-Based Applications

Joel Management

Topic: Management Improvement, Lean Thinking

Joel Spolsky writes the excellent Joel on Software blog and runs Fog Creek Software. Recently he has been writing about process improvement of the order fulfillment process for a movie on the experience of interns at Fog Creek Software, How to Ship Anything by Joel Spolsky

Shipping an international order now takes about 35 seconds, down from 3 minutes, and can be done by anyone, whether or not they have SQL and Mail Merge skills. Domestic orders are even faster since they don't need customs forms. Most of all, it's all really fun.

Joel is a great writer and tells a interesting story about of how they improved the process. This is one of a series of articles on the process improvement around order fulfillment for the documentary made of "project Aardvark":

Four interns are brought into Manhattan and given 12 weeks to design, develop, debug and ship a program that will change the way computer geeks around the world fix their friends' computers. Boondoggle Films presents a journey through the world of software development from the perspective of a unique upstart, four quirky interns, and the world of The Geek.

Shipping Update: "We discovered that 2 people working in tandem can ship an order every 12 seconds using the new system."

The level of detail in his posts is great. Aardvark'd DVDs Ship; Final P&L:

Incremental Expenses (per unit)

$2.00 - DVD production and delivery
$5.00 - Royalty to filmmaker
$0.30 - Envelope for shipping
$2.52 - Postage (weighted average)
$0.20 - Other supplies for shipping (labels, paper for packing slips, toner, boxes, etc)
$1.00 - Shipping labor (estimate, since most labor came from Fog Creek employees on the payroll anyway).

Total per unit: $11.02. Since we're selling at $19.95 that's $8.93 gross profit.

Fixed Expenses:

$5,000 - Stipend paid to Boondoggle Films
$5,000 - expense reimbursement to Boondoggle Films
...
So we need to sell 1694 copies to break even. As of today, we've sold 2595, so we made a profit on the movie of about $8048.

And he really understands the value of the movie to his company, which I agree with:

Not bad! I was hoping to break even on the movie, and make a "profit" through more applications to our summer internship program from people who saw the movie and were inspired to work for Fog Creek.

I want to work for them. More reasons to work for them:

• Fog Creek Software Management Training Program - our previous post on the Management Training Program


• Fog Creek Compensation
  
• Bionic Office


• Incentive Pay Considered Harmful - "If you're in this position, the only way to prevent teamicide is to simply give everyone on your team a gushing review. But if you do have any choice in the matter, I'd recommend that you run fleeing from any kind of performance review, incentive bonus, or stupid corporate employee-of-the-month program."
  
• The Joel Test: 12 Steps to Better Code

Engineering Education: China, India and the USA

Topic: Engineering Education, curiouscat.com

I just added a post, USA Under-counting Engineering Graduates, to our Curious Cat Science and Engineering Blog on a new report from Duke concerning data on engineering degrees from China, India and the USA: Framing the Engineering Outsourcing Debate. I think it is a great report. If you have any interest in this topic I strongly recommend it.

Related posts:

• Worldwide Science and Engineering Doctoral Degree Data
• Engineering Education and Innovation
• Joint Singapore MIT Degree Programs
• USA Science and Engineering Doctorates Hold Steady
• Engineering in America
• GAO Report: Federal Science, Technology and Engineering Trends
• 200,000 science and engineering doctorates in China by 2010?
• Science and Engineering Doctoral Degrees Worldwide

Poka-Yoke Assembly

Got Boondogle asks, Do you Read Instructions Carefully Before Assembly? Nope, I don't. I expect I can make a quick judgment if I really need to or I basically get it and can put things together well enough. I expect the supplier to make very obvious anything critical.

I am much less likely to read instructions that seem to be written by a lawyer, as I imagine are many others. If they provide simple, clear instructions I will use them (like Ikea provided for this desk I am using now). I find many good instructions require almost no words (they use pictures very well).

As Mike Wroblewski stated in his post:

Good manufacturers will recognize that there exists in our world this great divide between the instruction readers and the intuitive assemblers. Great manufacturers will put a system in place to prevent operator errors for both groups.

Poka-Yoke (mistake-proofing) is one of my favorite ideas. I just love the idea of not only making something that works well but making something that is difficult to have work badly. I encourage you to follow Mike's advice: "Look at your processes and products. How can operator errors occur? Think how a simple poka-yoke can eliminate the error and make it mistake proof."

Web site: John Grout's Mistakeproofing Site provides some everyday examples.

Book: Poka-Yoke : Improving Product Quality by Preventing Defects by Nikkan Kogyo Shimbun.

Carnival of Lean Leadership #4

Carnival of Lean Leadership #4. As usual there are a ton of great links and this one includes links to all the posts from project kaizen.

Enjoy,

Innovate or Avoid Risk

The Xooglers blog has some really interesting posts. In one, "But, but, that's just crazy talk!", Doug Edwards discusses a great example of what true leadership is about.

In my defense, my background conspired against me. Past public relations debacles had taught me always to evaluate worst-case scenarios before considering the possible benefits of any new initiative. "First, do no harm" had become my mantra.

This is the reality of many people. There are many reasons why avoiding risks is smart and should be encouraged. But when avoiding risks stifles innovation it the risks to the organization are huge.

And I took a notion that maybe I should be more open-minded about big ideas that, on the face of them, seemed ludicrous. I would have many opportunities to test this resolve in the years to come.

A great lesson. The hard part is that stupid decisions can easily be made when knowledge is lacking. There is no substitute for knowledge - W. Edwards Deming.

Quote from Lion of Lean, interview with Jim Womack:

So this guy, who was around 60, gives me an incredibly frosty look and says, "Because I know everything." Everything? "That's my job," he says.

You have to read the article to understand that quote.

Related Links:

• Management Training Program
  
• Deming on Management
  
• Data Based Decision Making
  
• Google: Experiment Quickly and Often
  

Data Based Decision Making

Topic: Management Improvement

Acumen visits Google:

As a first step, we hope to collaborate with interested Googlers to find better ways to learn what works around the world. Identifying powerful solutions to poverty that are useful to people in different settings, and that are market-driven, scalable, and sustainable, is our greatest challenge. Second, we're hoping to strengthen how the world measures both social and financial returns to investments in delivering critical goods and services to the poor. Like Google, we hold a deep belief in the power of measuring everything we can.

Google has done a fantastic job of using data to make decisions. In fact so much so, that some think they may go overboard trying to find an algorithm for everything. My dinner with Sergey:

It was a classic Google moment. Your S.A.T. score was the measure of your intellectual capability; your GPA represented the numerical summary of your ability to execute on that potential. Your value to Google could be plotted using those two data points.

Sergey's desire to reduce every decision to an equation would cause me a fair amount of frustration in the years to come. While it forced a discipline on me that was likely lacking in my career up to that point, it also went against my deeply-held conviction that some things are not expressible simply by deriving the correct algorithm. A lot of engineers at Google would dispute that with religious conviction, though they might admit that deriving the correct algorithm would be "non-trivial."

I believe you can't measure everything that is important. I also believe in most organizations the amount of stuff you can't measure usefully and realistically is quite a bit higher than it is for Google. Having highly intelligent, skilled and experienced people who can derive complex formulas effectively does greatly expand the effective use of measurements.

Still there are limits, and those limits are much lower for most organizations that have neither, thousands of phd level mathematicians, rocket scientists, software engineers etc. nor a anything approaching Google's percentage of such people.

Still I think we will benefit from the innovation that will continue to take place at Google. The are making great strides in using data to inform their decision making process.

Performance of People and Appraisal

The Statistical and Scientifc Thinking blog has several interesting posts on the Performance of People:

Why can'’t performance be numerically rated and ranked? It can'’t be defined operationally, it can'’t be measured with any degree of precision, it canÂ’t be separated from other effects, and it is destined to vary over time in any case. Any one of these factors present significant (if not insurmountable) problems itself. Combined the problems create an impossible barrier.

Performance of People III:

This essentially ended the practice of raise administration as a '‘zero sum'’ game. Many (if not most) companies make a total figure available for raises. That figure is then stated in terms of a percentage of total salaries. Each supervisor is instructed to average’ that percentage in administering raises among his or her employees. Thus, a given employee can only receive more than the average if another employee within the same supervisory unit receives less. This fosters competition within small units of the company. That is disastrous.

Related Links:

• Deming on Management: performance appraisal
  
• Performance without Appraisal post
  

Gary Hamel's Idea Hatchery

Gary Hamel's Idea Hatchery by Whitney Sparks:

Q: So how do you hope to change the standard approach to management?
A: Sometimes innovation is about creating a whole new class structure. Hierarchies are not very good at getting the best out of people. Communities are where people are most likely to give their gifts, bound not by economic dependency but [with] dreams.

I'd like to make business more humane. How do you create organizations where people can bring all of their humanity?

I advocate a system in which executives have to re-earn their power, [in which] their ideas have to compete with everybody else's ideas. [Not based upon] outdated Henry Ford attitudes. Work life has not become more interesting or compelling over the past few decades.

I don't think he is talking about lean manufacturing ideas of Henry Ford.

I admire his desire to learn where management is headed and to improve management education. I do think our management education needs to improve.

Gary Hamel articles and books

Excessive Executive Pay

Topic: Management Improvement

Via Christian Sarkar, Too Many Turkeys, The Economist:

Executive compensation in America - —already far ahead of the rest of the world, despite the best efforts of overseas managers to catch up - —is now rising inexorably again. In fiscal year 2004 the total compensation of the median American company boss rose in every industry... according to a new report by the Conference Board, a research organisation. In the big companies that comprise the S&P 500 index, median total chief-executive compensation increased by 30.2% last year, to $6m, compared with a 15% rise in 2003

Christian Sarkar asks, can we outsource the CEO to a low-cost country? That is exactly what will happen at the ludicrous levels pay has risen to. If the United States were to lock into a payscale that is unsustainable globally US companies will be no be able to compete. My guess is plenty of people in the USA will be glad to compete against the brooks brothers bureaucrats but if not, others will.

The excesses are so great now they will either force companies to:

1. take huge risks to justify such pay and then go bankrupt when such risks fail (and some will succeed making it appear that they pay was deserved rather than just the random chance of taking a large risk and getting lucky).
   
2. make it impossible to compete with companies that don't allow such excesses and slowly go out of business to those companies that don't act so irresponsibly
   
3. hope that competitors adopt your bad practice of excessive pay (this does have potential as most people are corrupted by power, even across cultural boundaries). However, my expectation is the competitive forces of capitalism going forward are going to make such a hope unrealistic. People will see the opportunity provided by such poor management and compete with them.
   

As long as the pay packages were merely large, and didn't effect the ability of a company to prosper that could continue (slicing up the benefits between the stakeholders is not an exact science). The excesses recently have become so obscene as to become unsustainable.

Companies will not be able to compete if they allocate huge portions of the benefits provided by the operations of the company to the few sitting on top of the bureaucracy. On the other hand large pay for Directors alternatively is sustainable as it hardly impacts the overall results of the company directly. The poor performance of boards that may well be caused by directors feeling more obligated to the top bureaucrats for their large pay is a different matter.

Companies that provide huge benefits to those few at the expense of investors, the rest of the employees, customers, suppliers... will find the other stakeholders find it better to go elsewhere and interact with those companies that are more equitable.

Because those that are taking excess portions of the benefits of corporations have power to determine whether those companies stop providing excessive benefits to themselves I am sure many will slowly go out of business all the while blaming other factors. With the current system the most likely force to stop such abuse are those representing the investors.

Those taking excessive gains for themselves have learned how to block the interests of the owners fairly effectively, turning boards into pawns of the top bureaucrats instead of the owners. Those bureaucrats have advantages in the battle to allocate the gains fairly but I believe they are overplaying that advantage and over time the tide will change. But time will tell what actually happens.

Related posts:

• CEO Pay: Obscene
  
• Toyota Manufacturing Powerhouse "In a reflection of Toyota's team-oriented approach, its executive pay is paltry by U.S. standards. Analyst Ron Tadross at Banc of America Securities estimates the total annual compensation of Toyota's CEO at under $1 million - about as much as a vice president at GM or Ford Motor Co. makes in a good year."
  
• The Economist on Drucker
  
• Carl Icahn Sees Red Over Blockbuster Chief's Pay