Article 15. Bringing Life to a Manufacturing Company’s Dead Zone

Manufacturing's Dead Zone is either unknown or ignored by 90% of companies. 

Every city that invites a company into its community should discuss the following Lean Enterprise implementation with their top management.  The reason a company that operates with high efficiency  is less likely to close its doors and move off shore when a severe economic down turn comes.

In order to analyze a manufacturing company’s potential for investment I prefer to break it apart into four zones. The company’s future success is tied closely to its performance in these four zones: the Management Steering Zone, the Product Development Zone, The Manufacturing Zone and the Dead Zone (the most inefficient part of the company).

A. The Steering Zone consists of Top Management and those high level decision makers that directly influence the course of the company namely: its strategic direction, in what products it manufactures, product advertising and company expansion and mergers.

When Warren Buffett invests it’s the Steering Zone that gets the acid test. Failure in performance or more precisely the promise of high performance gets a no vote. But he will also look at new product development and manufacturing before a final decision.  Case in point Warren Buffett, who is 78, was intrigued by the entrepreneur behind BYD, a Chinese electric car manufacturer headed by a man named Wang Chuan-Fu. The company itself is frugal. Until recently, executives always flew coach. He was appalled when he learned that Ford, which lost billions last year, had staged a gala at the Hotel George V during the Paris auto show. By contrast, the last time BYD executives traveled to the Detroit auto show they rented a suburban house to save the cost of hotel rooms. Last fall Berkshire Hathaway bought 10% of BYD for $230 million mainly because of its CEO.
Ref. Marc Gunther money.cnn.com/technology/gunther_electric.fortune/2009/04/13/Warren Buffett takes charge .

B. Product Development Zone or more accurately termed new product development. Its best measure of efficiency is the “time from concept to market” similar to a skunk works.

C. The Manufacturing Zone should include all the relevant Japanese quality tools and techniques for achieving the highest efficiency in the flow of raw materials to manufacturing and delivery of products to distributors. Most successful manufacturing companies do a reasonably good job in this zone.

 D. The Dead Zone; the below the radar, the in the swamp zone consisting of everything not in the above three zones. Nearly 90% of all manufacturing companies have this dead zone. When you examine the development of large manufacturing companies you will find that the original bureaucratic functions are still in place in the offices of the company. This often overlooked inefficient bureaucratic section of the company may be responsible for a company’s inability to compete in the market place especially if it is large in comparison with the rest of the company.

Most manufacturing companies have bureaucratic management that is no different from that found in government. Unaware of the need for reforming its 19th century management practices the poorly managed company looks only at two factors raw material costs and factory labor costs. Unable to control its raw material costs it seeks the lowest world wide labor cost it can find. Labor costs are union labor costs which are diligently measured using Work Measurement (time-study). But they never measure overhead employees and instead allow unnecessary over staffing with multiple layers of management in its bloated dead zone bureaucracy.

In contrast the competition Toyota and Honda use the Total Quality Management form of organization even in its offices to get innovation throughout its work force. Yes they have unions but the members realize that their fate is closely tied to the fortunes of the company they work for. When sales are not so good the union may even forgo asking for a raise. Most of their corporate leaders use mass transit to get to work rather than chauffeured limos.

The point is that there are serious problems in the way many American companies are managing their dead zones most are using the 19th century bureaucratic organization with all its flaws. The most poorly managed companies are more likely try to solve their financial problems by seeking cheap labor abroad rather than reforming themselves.

Here is how I propose to bring new life to this dead zone 
Companies should be implementing Lean Teams, using Work Measurement for staffing its overhead employees and reduce the levels of bureaucratic management. I advocate the replacement of the Bureaucratic Organization with a Management Steering Teams and Functional Teams. The following steps describe the process for making this reform.

A. Top Management Support and understanding of the problem.
This is a critical step for without top management support this reform is going no place.

 B. Lean Training
Lean training is widely given throughout the organization both to the top managers and lower level employees as well. The focus of Lean is on making the process flows of the organization more efficient. Outside training consultants may have to be brought in to train the internal trainers in Lean methods. Value Stream Mapping is the primary useful Lean tool in offices. Value stream mapping is a Lean manufacturing technique used to analyze the flow of materials, documents and information required to bring a product or service to a consumer.

 C. Organize Lean Teams
Organize Lean Teams where recognized process flows exist within office areas both for high level cross functional process flows and low level process flows within a function. The high level Lean Teams are made up of personnel who actually work in cross functional management and the Functional Lean Teams are from the work place where the function’s processes are performed. The best people to do an analysis of processes is Lean trained employees who actually do the work whether this is a high level skilled team or employees just loading trucks it is up to the team to define the best practices for doing the job.

D. Lean Team Meetings
I recommend flexibility in meeting times for busy managers this may be one hour before work while they are fresh in the morning or the setting of a half day during the week. In any case the Lean Management Team should meet at least one time a week. The first order of business is to get organized by electing a leader of the Team by secret ballot.

Low level Functional Lean Teams may require the services of a Lean trained facilitator to assist in getting the team organized and electing its leader. I would suggest that these teams meet for at least one hour each week. I have found that the best way to study process flows by these teams is on a large Value Stream Map taped to the wall of the conference room with each process taped to the wall chart. This provides a flexible way of making changes to the chart during its construction. The method should start with the current process flow and after that is completed the improved process flow is added to the wall chart.

E. Top Managements Role
Top management’s role is to encourage the implementation of Lean by being supportive of the Teams. They should send representatives at times to the Team meetings showing complete management support.

F. Costing-out the New Lean Process Flow Method
A Lean trained Budget Analyst will cost-out the savings between the old method and the new method and identify the staffing and other budget costs associated with the new method. Once this is done the budget including the staffing is established for this set of processes. The new method with the savings is presented to top management.

Value Stream Mapping provides a record of the costs associated with each process. If a process were to be eliminated all of its costs are also eliminated. A VSM is done for each Function and if a Function were to be removed all of its budget will also be removed. The Budget Analyst will document the improved VSM and all its related cost information in a spread sheet.

What you have now is the real budget for doing the companies office functions. True, you must add in the cost of managing the functions but now for the first time you know what that cost is. This is a bottom-up budget with actual costs for doing the work known. All other costs are for management and fluff (which can be significant). This is an example of Work Measurement in my experience in industry most unmeasured office areas are over staffed by 10% or more. Once you know what the real costs are for doing the company’s work and top management is working closely with the Teams the management reform process can begin. The reduction in staff can be significant remember you have removed all of the employee wait time between tasks and consolidated the employee functional teams.

G. Replacing the Bureaucracy with Steering Management and Functional Management
First the Lean Management Team is combined with the new Steering Management Team headed by the company’s top manager as team leader. The Steering Management Team has the role of guiding and steering the organization. Some but not all of mid management may become part of the Steering Management Team but most mid level managers between the Functional management and Steering Management will become redundant.

Where do savings come from in this reform? If the dead zone office areas have never had Work Measurement performed and most have not, the minimum savings is at least 10% plus the savings from all the Lean activities this may be a minimum of 5% or more plus the reduction in management personnel which could be another 10% for a total of 25%.  Given the cost of a company building a plant in China and transporting the manufactured items back to the US there is a good chance for a reformed company that the move may not be economically feasible.