Ordinary Challenges for On Time Delivery (Part I)

This is the first part in a multi-part series about on-time delivery. If you are familiar with manufacturing (light machining and assembly), all the topics in this post will seem quite mundane. But they deserve to be mentioned because ordinary problems with ordinary solutions can still be part of the chaos even when there are some special causes, which will be discussed in Part II.

I spent a significant amount of time trying to help one company improve its on-time delivery.  My primary responsibility was to identify causes for late deliveries. Some of the causes were pretty straightforward:

  • Inventory inaccuracy resulting in component shortage
  • Quality non-conformance requires rework or scrapping part
  • Traffic jams in production processes
  • Supplier late delivering to factory

Since the nature of these problems was pretty ordinary, possible improvements are also not hard to imagine. Inventory accuracy could be greatly improved by locking up inventory and restricting access to authorized personnel who are trained and held accountable to always update the system on how much inventory was released and for what purpose. Although there was a fairly limited number of people who were “usually” responsible for transferring inventory from storage to point of use, there was quite a large set of people who might do it to help out – on second or third shift, when many assembly lines all needed replenishment at the same time, or for any number of other real or imagined reasons. Consequences of restricting access might include delaying some assembly lines if the demand for parts at a given point in time were too great for the authorized staff to handle, or paying authorized staff to stand around and do nothing during periods when demand for materials were lower than peak.

There were also a surprising number of cases where inventory accuracy was hampered by material packaging and presentation deficiencies: pieces dumped in bulk into plastic bags with no clear indication of count, or a count indicated but no corresponding weight with which to check the count. Some parts were packed in bulk even though they were highly prone to hooking and catching on one another, making it quite easy to take more than needed and drop some during handling. More often than not, it was difficult or impossible to tell how many parts were supposed to be in a container at any point in time. Imposing packaging requirements would likely result in an increased component cost.

Quality issues for parts produced in house were, like most quality issues, the result of process variation. Contributing causes might include the condition of the tools or fixtures, contamination of fluids, or unfinished components not to specification. Standard practices for quality control were known and discussed, but the recurrence of issues is a telling indication that corrective actions did not reach to actual root causes. Symptoms of not addressing the root cause include if the corrective action involves rebuking an individual, increasing manual inspections with the addition or alteration of inspection methods or tools, or other changes which would cause the process to take longer and must be done by the worker (not automated equipment) without any change to the way the worker’s performance is measured or evaluated by their immediate supervisor. In other words, instructing the worker to get the same amount of production but follow steps that take longer to do.

Traffic jams occur when the cascading effect of a problem affects later jobs which themselves have no problem, but are started late and finish late due to the problems on other jobs.

Supplier issues, whether late delivery or poor quality, generally have the same types of causes and possible solutions. Much as with internal employees, the main thing that matters in the long run is how suppliers are held accountable. Informing suppliers that you are displeased will have little result if there are not increasing consequences, starting with charges for nonconforming material and ending with discontinuation of the business. Dropping a supplier for quality or on time delivery issues can result in higher costs for buying from higher performing suppliers.

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Reducing possibilities to decisions

Hierarchy has a purpose: to remove uncertainty.

Often the purpose of hierarchy is confused with meritocracy. In a hierarchy, some people hold authority over others. In a meritocracy, people deserve the authority they have because they use the authority well. Ideally the two are perfectly combined, and people in higher positions fully merit the authority that they hold. But as we all know from our own infallible opinions, not everyone who has authority deserves to have it; not every hierarchy is a meritocracy.

Even a hierarchy which is not a meritocracy can be useful.

Imagine four passengers survive a plane crash in the wild. Each has equal survival skills and each is equally uncertain about where the closest civilization can be found. Each guesses a different direction. What would be best for the group? Travelling one hour in a single direction under one leader before switching out and travelling in another direction under another leader? Obviously the group would be better off picking one direction and sticking with it.

This is the fundamental purpose of hierarchy: to remove uncertainty by reducing possibilities to decisions.

Hierarchy cannot accomplish this unless the hierarchy is known and respected. It is the function of the hierarchy itself that must be respected, not the capabilities of each person in it. That the person higher up the hierarchy makes the decision in any cases of dispute or uncertainty is intrinsically necessary for hierarchy to have any value in removing uncertainty.

When hierarchy is not followed, uncertainty proliferates. I watched one CEO hire managers but continue to give instructions directly to employees, without passing it through their manager. Employees learned that any instruction given by their manager could be overridden at any time with new instructions, so they regarded instructions as one possible course of action among many unless the instruction came from the CEO. Employees who had been around for a while were used to this pattern, so new managers never had a chance – all they could do was add more possible courses of action to the ones employees were already considering. The employees all had a notion of what it means to be a manager, so they would generally try to comply with manager directions if it seemed possible; but any time the demands were too many or too contradictory they would default to either what they knew for certain the CEO wanted or what in their own judgement seemed best.

A senior manager who bypasses a middle manager forces that middle manager to be worse than useless. A useless person adds nothing; a worse than useless person subtracts something. A manager who is bypassed by his boss cannot reduce uncertainty for his employees but adds to it by giving additional input that may or may not be let stand by the senior manager, and takes up his employee’s time asking them what they have been told to do by the senior manager.

In another organization, the general manager of a factory had reporting responsibility to a vice president of manufacturing and a vice president of sales. These two VPs had different priorities. For one, the highest priority was increasing on-time delivery; for the other, the highest priority was reducing cash tied up in inventory. A very high-performing organization can accomplish both, but the fastest way to make progress on either of those goals is to sacrifice the other. Over the course of several years the factory would whiplash back and forth, approximately once a quarter: a few months of squeezing out inventory wherever possible, which resulted in deliveries slipping out when the least unexpected event caused components to be unavailable; then a few months pushing for delivery on schedule, causing accumulation of inventory to account for unexpected disruptions.

A matrix organization is a fundamentally bad idea because it reverses the most useful function of a hierarchy. Rather than having a single superior to resolve uncertain situations, additional uncertainty is produced by the possibility of disagreement between authorities. The matrix organization was invented out of a recognition that sometimes engineering skills are needed to accomplish sales goals, and it was somehow imagined that the only way to have access to skills within an organization is to be the boss of a person having those skills. But this is immature at all levels; respectful people who communicate clearly can obtain assistance from people whom they do not control. This ought to be even more true of people at higher levels in the organization; if your VP of Engineering is useless at supporting your VP of Sales, why is he your VP of Engineering at all?

Furthermore, the matrix organization solution doesn’t scale, as there are quite often more than two relevant interests. If making everyone with a legitimate interest a “dotted line” supervisor helped, an organization would become a dense thicket of “dotted line” responsibility and most employees would find that they must treat anyone higher up in the hierarchy as if they were their own manager. Too often employees do feel this way; but in such organizations very little real change occurs, and the organization survives on the inertia it gathered in leaner days to keep producing enough value to survive.

Hierarchy has a specific and real value, and it is a mistake to think of hierarchy as merely a reward system: you do a good job, you get a promotion. A job well done can be rewarded with more pay, or in other ways. A hierarchy is not necessary to have a reward system. Likewise, if merit were equally obvious to all, a hierarchy would not be necessary because people would spontaneously agree on the best option. And a hierarchy does not require that all possible decisions be decided at a higher level than the question originated; generally, an organization will work faster and more effectively if decisions are made lower in the hierarchy.

But at some point uncertainty is inevitable; there will be significant doubt about which choice is best, and the consequences will be significant. It will be impossible or grossly ineffective to attempt more than one option. Perhaps more than one choice will be effective. The only way you reduce the infinite possibilities to decisions, actions and results is by allowing one person in a group to have the final say in decision making.

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Marketing Should Own Inventory

I’ve seen Marketing expected to manage these business success metrics:

  • Market share
  • Profit margin
  • Sales forecasting

To support these goals, Marketing is generally supported out of the following costs:

  • Payroll for employees
  • Media & collateral
  • Public Relations
  • Trade Shows
  • Training
  • Advertising

In two of the companies I have worked with, Marketing felt hampered in its efforts to reach its goals due to product lead times. In both cases “Lead Time” was not formally considered a Marketing Metric, and in both cases “Inventory” was not considered a Marketing cost.

This seems to me to be a fundamental organizational defect. Delivery lead time is a competitive consideration in many markets (I might dare say most markets), and it’s widely recognized that inventory can be substituted for lead time, and lead time for inventory. This equivalence is a fundamental theory of the Toyota Production System.

It’s true that the need for inventory below the shippable SKU level is partly determined by the manufacturing process capability. Manufacturing clearly owns the responsibility to continually improve the reliability and speed of the manufacturing process. But it still seems quite achievable for the responsible Marketing representative to say, “We have X inventory position in order to support Y delivery expectation.” If challenged as to why so much of X inventory is in WIP (not yet shippable), it should be fairly straightforward to show the inventory required to buffer against the supply chain performance.

As all production and supply chain managers know, a great deal of the need for inventory comes from variance between the demand forecast and the actual demand. It’s also sometimes been my experience that Marketing (or Sales) wishes to divert inventory that was built for Customer B in order to satisfy Customer A – but will still sometimes unabashedly complain about the lateness of fulfilling Customer B’s order. Sometimes these sacrifices have to be made; but Marketing should be paying out of their own pocket.

Simply put, Production and Supply Chain should have fiscal responsibility for inventory covering supply chain and manufacturing process variance, and Marketing should have fiscal responsibility for inventory covering demand variance. Somewhere out in the wide world I’m sure it is so; but I wonder why it is not the rule everywhere.

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Cheap Justice

Writing about the opening of an Amazon fulfillment center, The Economist says:

Alas, the influx of jobs has not boosted wages for the region’s forklift drivers and order-fillers. In the years since Amazon opened its doors in Lexington County, annual earnings for warehouse workers in the area have fallen from $47,000 to $32,000, a decline of over 30%

In a story from its January 2018 print edition, The Economist takes Amazon to task for underpaying its employees, probably. What “underpaying” means is unclear, coming from a publication founded, one assumes, on economic principles. In the online edition the article carries the suggestive sub-head “Is the world’s largest online retailer underpaying its employees?” Then, after five paragraphs of implying that Amazon somehow systematically causes people to lose income, The Economist finally allows that:

Another possible explanation for Amazon’s pay is its reliance on unskilled workers with minimal qualifications. David Neumark of the University of California, Irvine, who has written about the impact of Walmart’s growth on retail wages, says Amazon’s highly automated warehouses may not require as many workers who can, say, operate a pallet jack.

Hmmm, maybe.

A forklift carrying a load can total about eight tons (16,000 lbs or about 7,200 kg). The actual weight can vary quite a bit depending on what’s on the pallet and how high the pallet will need to be lifted, among other things, but just to get a sense of the weight, that would be around four times the average car in the USA. Heavier objects are harder to stop, and forklifts often move in spaces where there are literally only inches (two or three) to spare between the vehicle and something that isn’t meant to be hit. Forklifts do move much more slowly than cars on public roads, but when it comes to damaging things, 16,000 lbs will crush most things even if it is moving slowly.

Forklifts are mainly used to move pallet loads, and pallets are usually stacked with cases or cartons.

Amazon is in the business of shipping usually small quantities of diverse things going to diverse places. While Amazon might consolidate parcels going to the same distribution point on a shared pallet as the last stage in the shipping process before loading onto a truck, most of the handling of objects in an Amazon warehouse involves people handling the items directly, one at a time or one case at a time. Rather than sending a forklift to go fetch a pallet of corn chips to be sent to a corner store, Amazon will dispatch a person to pick one fitness tracking band and one pair of earbuds.

In short, Amazon’s warehouses will be designed mainly for human traffic. E-commerce and the mail order catalogs of yesteryear will general have this human-traffic based warehouse design.

But most of our warehouses have been built for traditional supply chains, which mostly move pallet loads of goods: pallets upon pallets of frozen chickens from the slaughterhouse to the grocery distribution warehouse, and then from there one pallet for this store, one pallet for that store, etc, etc.

So it is quite likely, not just possible, that on average, Amazon employs fewer forklift drivers than the pre-Amazon average warehouse.

It is also quite likely that a person required to safely operate a 16,000 lb vehicle in tight space would be paid more than a person required to walk, read labels, and pick things up.

The complain that Amazon lowers wages for “warehouse workers” is like complaining that McDonald’s lowers wages for chefs, because after a McDonald’s opened on the same block as Le Snootier’s, average wages for restaurant workers on that block went down. Nobody at Le Snootier’s got paid any less; but people who were not qualified to work at Le Snootier’s got paid more than they were getting before.

This sort of insinuation that Amazon is somehow taking away from people something that they already had is familiar work for rabble-rousing, any time someone needs a rabble roused, but it is particularly deplorable for a publication calling itself The Economist. That highly relevant possibility that perhaps apples are being compared with oranges was admitted somewhere in the article does not absolve them of headlining the question and leading off with all kinds of spurious facts.

The “average” wage for warehouse workers may have been lowered because of the increase in the number of workers who are doing jobs that have always been priced at the lower end of the range. If you are trying to examine the effect that Amazon has on “warehouse workers,” why not look at the total wages paid to all warehouse workers after Amazon opened a warehouse in a given area? Or if you are trying to examine the effect on the community, why not look at total count of people employed, or average income per capita? Those measures may very well have gone up. But we don’t know, because The Economist didn’t consider them worth examining.

Is Amazon virtuous in all of its dealings? I hardly think so. But let it be found guilty of crimes it has committed, rather than being found guilty because it has done well for itself.

Imagine that Bob’s truck has gone missing. “I think Frank stole Bob’s truck,” I say.

“Why do you think Frank did it?” you ask.

“Well, Frank buys cheap boots. A guy that buys cheap boots seems like the kind of guy that would steal a truck,” I answer.

Maybe Frank did steal the truck! But the evidence offered is utterly irrelevant to the charge.

The Economist should be heartily ashamed of printing such insinuation-mongering.

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Victoria’s Not-So-Secret

Owing to what I consider the unfathomable mysteries of consumer taste, I’ve never wanted to get involved in retail (or at least trend-driven retail, which is where all the newsmakers are). Marketing – perception – is an important factor in the sale of anything, but its importance does vary in degree. There are some products that are purchased mainly for their utility or convenience, and for which perception matters little: roofing nails, gas station bottled water, generic aspirin. And there are other things which sell (or do not) for almost entirely reasons of perception: art, fashion, entertainment. On this end of the spectrum I am out of my league; I have no knack for predicting when and why pants with extra holes added will become popular, or when people will finally stop rewarding comic book to movie conversions more than original stories.

Nevertheless I enjoyed reading The Wall Street Journal’s profile of the defiant Leslie Wexner, who continues opening retail stores in malls and is talking about peak smart phone use. I like his long-term perspective; I like his candid admission that he missed the trends that powered several rivals (Nike, Under Armor, Lululemon). I want him to be right, because he’s the contrarian underdog.

Yet every king is mortal and every empire crumbles. Several of Wexner’s theories, as presented in the Journal, seem potentially misapplied.

“‘It’s the merchandise, stupid,’ he often tells people” does not entirely jive with “‘If the store environment is exciting,’ he says, ‘I’m convinced people want to go to the store.'” The two statements can be reconciles with textbook branding – the brand must be carried through the product and the store environment. Boilerplate branding stuff. But what’s not in his favor is that the mall itself throws shade on the brand experience. The mall has come to mean consumerism, and nobody is a consumer; just ask them. Consumers are ugly gross people who too much – eat too much, shop too much, waste too much. I and all my friends are discerning people of good taste and proportion.

Of course, I and all my friends do indeed consume. But “naked,” guilty consumerism is done privately, online, or hurriedly, as the gas station or fast food drive through. Mere consumption is less and less a thing we would invite our friends to join in. Wexner is certainly right in saying that “people want to be with other people,” but that’s not the same as saying that people want to go to malls; there are bars, cafes, coffee shops, gyms, yoga studios, and so on. There are Apple stores; Apple is very much a brand with which you can signal your social credentials. Nobody would be embarrassed to Be Seen in an Apple store! (Well, some people would; but there is no universal brand.)

The death of the mall has probably been exaggerated, and the death of the physical store certainly has; and probably so has the hardship of a company that has “six times the share of the next closest rival.” Wexner’s doing all right so far. But what about the future? For all that the desire for companionship, for the presence of other people, is a human constant that Wexner can rely on, the expression of that desire is vulnerable to subversion. When we are offered more choices, we have less in common, because we choose differently; when there are more places to shop, the places that we want to shop overlap less with the choices of our friends. And when it is easy to share we are less willing to sacrifice for the purpose of sharing; we can take the edge off our need to share through Instagram, and then it doesn’t seem quite worth it to drive out for a meet-up. Is Instagram “the same” as meeting in person? No. Is it as fulfilling, as emotionally rich? No. But our appetites can be diverted by superficial satisfaction.

So how might one capitalize on the valid points of Mr. Wexner, without his uncompromising dismissal of contemporary culture?

If indeed our appetites can be conned, by fast food and TV drama and social media friends, then the canny move is to keep the con going. There certainly can be a social aspect to shopping, particularly if the items being shopped are perceived as being “worthy” of patronage, of adoption (not consumption!). Victoria’s Secret is, or was, such a brand. What if you could take your friends along?

The key here is that the user feel that they are in control of how and with whom their experience is shared. Shopping malls as they have always existed are public; so are movie theaters. “Social media” began as online cliques, evolved rapidly into online public space, and is now finding its way back toward cliques. Curated publicity, or the perception of it; privately public.

Imagine a spacious dressing room with a secure door and cameras at several angles – cameras you as the customer control. You turn them on and off as you please and, crucially, you can share the camera view with whomever you please. Your Instagram friends, your Snapchat friends, your Whisper friends. The camera feed is secured; the security mechanism would likely be a practical use of the faddish blockchain (digital currency) technology. A screen in the room shows you the names of everyone who is watching (and their faces, if they choose to video link).

This is so far outside my own preferences that I almost cringe to write it – and yet still I think it has enough resonance with the spirit of our age that it may almost be inevitable. It is practical for those people who already seek input from others (wives, girlfriends, shopping buddies, mothers or otherwise). And it is “social” in the modern sense of the word — sensational, titillating, intimate and fleeting, meaningless and private. We keep hearing about people who have done things with their phones or with their social medai accounts that they somehow imagine to be entirely private. In factual terms this is an error; but in marketing terms, it is a marketable perception.

With a little further technological development — not truly ready today, but not so far off — the article of clothing being worn could be modified in real time with virtual augmentation, changing the color, adding a hypothesized accessory, perhaps on suggestion from the audience. It is shopping with friends, sharing the experience, even if those friends are away chasing their own choice on the menu of unlimited uniquity.

Would I set up a store like this? No. Nor I have I patronized a Victoria’s Secret store, no do I expect to do so. But not everyone in the world buys what I buy or likes what I like.

Would I set up a store like this if I wanted to succeed in fashion retail? Yes.

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The Matrix Can’t Read Your Mind

One of the typical tools for facilitating product portfolio management is a decision matrix – some kind of multi-factor analysis that might include, for example, market size, market growth, and expected margin. Many also include subjective criteria such as “fit with strategy.”

I had the privilege of building one such matrix. I chose to use only qualitative factors since one of the main reasons for the project was to provide objectivity to a decision making process that was regarded as arbitrary and subjective. Although I did have a factor for strategic fit, in that particular case an established industry trade group provided a market breakdown that corresponded closely with the company’s own strategic classification.

After setting up some nice formulas in an Excel workbook I was ready to show my work. I demonstrated to the project sponsor that the criteria weighting could be easily adjusted: if market share were set to the highest priority, Option A emerged as the strongest; if profit margin were the top priority, Option B became the most compelling; and if long-term strategy were most important, Option C took the top spot

All that was needed, then, was clear input on the business priorities, and from that new product development priorities could be clearly, consistently, and rationally defined.

Consequently the tool was never used.

A major part of the reason the existing process was perceived as arbitrary and subjective was that the strategic priorities were not clearly defined in the first place; in fact the official vision statement of the corporation, if actually practiced, would have resulted in direct competition with the parent company of the corporation – with the end result of the child overthrowing the parent!

In a world in which we can measure sub-atomic particles, objective quantifiable data is available without limit. Data can never tell you what to do unless it is filtered through a purpose; you must already know what your intentions are before information can help you understand how to achieve them. Purpose makes the difference between bricks and mud, between surgery and assault, between chaos and progress. You cannot make data-driven decisions until you know where you want to go.

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Waste, Want, and the failure of the Toyota Production System

The fundamental genius of the Toyota Production System is bringing the focus on the customer into consideration for any and every process. The Toyota Production System does not always have the most convenient tool to directly address a particular problem, but many other methodologies lack the fundamental centering on the customer. Six Sigma is a set of tools to reduce variation, for example, but it does not intrinsically ask you whether the product you reliably produce is what your customer wants. Six Sigma will cheerfully coexist with the waste of over-processing.

When the Toyota Production System was first being hailed as the panacea for American manufacturing, the common stereotype was that American manufacturing was designed to produce as much as possible, regardless of whether anyone wanted it. American manufacturing managers care about machine utilization – the more, the better! And this attitude has not entirely gone away; or rather, it has largely not gone away at all, and only gone underground. This Monday a friend told me that his father, and old-timer at a local factory, preferred working on the third shift, away from all the nonsense about Toyota production, where he could produce three times as much as the first shift.

People of all occupations speak in short-hand, so for a man to boast of his production quantity does not necessarily prove he is overproducing, or producing with any more defects than his first-shift neighbor. And those on the first shift, where “Toyota production” is blamed for slowing things down, may be trying to drape Toyota-inspired charts and graphs over the same attitudes and goals and incentives as they’ve always had—which can only result in more inefficiency, not less. “Overproduction” shifts from being solely a problem of the commercial product and becomes the production of charts that nobody wants, needs, uses or cares about, charts which are always updated when a manager from Corporate is scheduled to visit but never updated when there’s a push on to hit the end of month production target. But someone involved in this story has definitely lost track of what Toyota Production System is fundamentally about.

I was once involved with a major event, featuring a Genuine Actual Real Toyota Engineer, meant to apply Toyota Production principles to one of the production lines in a century-old factory that had second and third generation employees. One of these old salts, Tom, was responsible for scheduling production on the line—not his first job at the company, and not his first year in that job.

Tom didn’t take very kindly to being told how to do his job, but he didn’t rely on the strength of his own opinions. He got data – the orders for the product that ran on that line – and he charted it. He printed the chart on the plotter so that it was three feet tall, so that he could show on the chart the enormous spike in demand he’d recently dealt with. It was quite out of the bounds of the typical run rate, and made a terrific illustration.

The Genuine Actual Real Toyota Engineer from Japan thought that it must be a stock order, and through his interpreter he asked about that. “No,” Tom said, “it’s not an order for stock; it is an order from a customer, a shippable order. If we ship it we can invoice for it and get paid.” The Engineer was amazed, shaking his head and muttering “Very difficult, very difficult.”

As it happens, they were both right. As Tom said, it was a shippable, invoiceable order, and Tom’s boss, and his boss, and all the bosses all the way up the multinational diversified corporate ladder wanted him to build, ship, and recognize revenue, as soon as possible but at least in time to be in the next quarterly investor update. But it was stock, too; stock to be held by a distributor, stock that would not tie up our capital but would sit in the “customer’s” warehouse for months being gradually sold off; stock purchased at a pretty discount because it allowed a sales person to save the quarter.

American business managers caught on quickly to Toyota’s anti-inventory message, because inventory ties up capital and that makes investors fidget. Inventory is bad! Down with inventory!

But the Toyota Production System also emphasizes takt time, which is to say the amount of time it takes to complete a step in the manufacturing process – or better put, the amount of time it takes to complete every step in the manufacturing process, so that the whole entire process moves ahead in synch, like a clock, to the tempo of the takt time. To conventional thinking, this is arbitrary and silly; some days you have to work harder and faster than others, that’s just the way it is. Slowing everything down so it will look pretty and synchronized makes as much sense as telling soldiers who are being shot at to walk slowly and not muss their uniforms.

Who, though, is the enemy? Under the Toyota Production System, the enemy is waste in all of its forms, including producing more than is wanted or producing defective products that are not wanted. Defects are unexpected, of course, and unexpected things happen when there is a lot of change, a lot of variation, too much going on to keep track of it all. If we know exactly how long a step in the process should take, than we know that if it took more or less time something changed. The change could be a good thing, increased efficiency, in which case we should learn from it and apply that improvement wherever we can, but it could also be a bad thing: a missed step, a defect.

The pell-mell rush to ship everything possible in time to invoice it in this fiscal quarter is the right approach if this quarter is the only quarter that matters, if we never have to improve our quality or productivity or efficiency, if God is going to stop time and give us all eternal rewards based on our production numbers this month. But, if you take a slightly longer view, and consider it more important that you know how to get better, then takt time becomes important because it is yet another way in which variation—and the likelihood of defects, of time and effort spent on unwanted results—becomes visible. If those metaphoric bullets are coming from the CEO and the shareholders toward anyone who didn’t help make the profit target for the month, takt time will not save you. If the enemy is waste, then takt time is not a silly ineffectual dress rehearsal; it is the scrupulous elimination of any possibility that the enemy could be hidden from view.

The Genuine Actual Real Toyota Engineer wanted Tom to run the production line at the same speed (takt time), producing at the same steady level (Heijunka). Tom proved it was impossible to do that given the variability in the customer demand, so the Genuine Actual Real Toyota Engineer was stumped. He couldn’t tell Tom to disregard the customer demand as that would violate the fundamental principles of the Toyota Production System.

But what did that customer really want? As a distributor, they were not going to put the product immediately to use if it all showed up on one day. They would be reselling gradually over time. The customer wanted the discount they were able to wrangle out of their sales representative by placing such a larger order. With the discount in hand, they would have been perfectly happy to receive the products at a steady pace over a much longer period of time.

What did the sales rep want? He wanted the commission from booking the deal. It was a large enough deal that probably his manager had promised him some special extra compensation if he landed it. Nothing in the incentives or instructions offered to that sales rep made it his responsibility to learn when the customer actually needed to have the product in hand, so nothing in the incentives offered to the customer encouraged them to spread the deliveries out over time.

Nobody in the room that day with Tom – nobody in the building—had the authority to fix the problem. The root cause of that problematic order spike was that the sales rep did not know what his customer wanted, and in fact did not even know who his customer was.

“The Customer Is Always Right!” has become so hackneyed that it is hard to find it in use today without irony. But it is not wrong; it is right enough as far as it goes. It is simply insufficient, and fails to properly define who the customer is. The customer is the one who is willing to pay for the product you offer. If you run a hair salon and someone calls asking for pizza, that person is not your customer. If you run a car factory and someone calls asking for pizza, that person is not your customer. And if you run a car factory that can produce a car in four days and someone calls asking for a car in four seconds, that person is not your customer.

When someone with money asks for something you cannot deliver, that person is not your customer.

There are potential customers who will ask for something which may be difficult to deliver, and then the business managers must decide if it is worth the risk of failure and the extra cost to satisfy the challenging delivery; they must decide whether to accept the customer. A business that never adapts to meet new requests will not change as its customers change, and eventually all the customers it once had will no longer exist. But money on offer does not by itself define a customer. It must be matched to a capability to provide.

A capability for which nobody will pay is not good business (it is overproduction), but payment for something you are not capable of providing is also not good business (the result will be defective).

The order that the sales rep booked for an excessive quantity of product from Tom’s line could not be met by the date on the order. Since the capacity to provide was not available, the order should have been refused, or negotiated to something achievable.

But the order that was booked did not adequately represent what the customer wanted to pay for. The customer understood that the order would not likely all arrive by the date requested, but there was no penalty, surcharge or inconvenience for requesting it for immediate delivery. If it had been delivered all at once it would probably have caused a storage problem in the distributor’s warehouse (although very likely there was no penalty or negative feedback that would reach the person placing the order, any more than for the sales rep). The low price that the buyer wanted would have no adverse effect on the factory operations, while the short delivery time adversely affected a large number of other customers. The customer who booked the larger order would not have been willing to pay a surcharge for the harm to the rest of the factory’s business, but, being offered the convenience without any consequence, they were happy to take it.

“Customers” will take many things for free, but true customers pay for what they get. This crucial distinction is often hard to keep in view during new product development; Henry Ford is reported to have said that his customers would only have asked for a faster horse before he gave them the choice of a car. Those customers are using “horse” as a word to mean “fast, reliable, low-cost transportation,” and eventually “car” became a better term for that than “horse.”

When I was a product manager in a forklift company we had an inside joke that if you asked a forklift user what he wanted, he would tell you he wanted a radio and a place for his drink; and if you asked the forklift operator’s boss he would tell you that operators are not allowed drinks or radios while they work. The customer, as it turns out, is not the person who drives the forklift, but the person who pays for it. A certain amount of comfort for the operator reduces operator fatigue, improves productivity, and is good for everyone. But a forklift operator’s supervisor wants pallets to be moved in a safe, clean, efficient and attentive manner, and a forklift operator wants to watch football and forget he is at work.

It turns out, though, that forklift operator supervisors are not much more help. They will tell you they want the forklift to break less; but that is, like a faster horse, a trifle obvious, and if your warranty and service data is any good you already know what is breaking and don’t need to be told by the supervisor.

While the supervisor is telling you that he would like the forklifts to break down less often, however, you might notice that the operators are standing idly by their trucks, waiting for the third-party computer system to boot back up. It takes a while to boot up but must do so after every break, because while on break the operator unplugs the forklift from its only power source (a giant lead acid battery) in order to recharge it. If you could eliminate the need to unplug the battery (and power off the computer) in order to charge it, you would save the forklift supervisor down time on every single shift after every single break, far more time than he is losing to the relatively infrequent breakdowns. What he wants is not what he is saying.

To follow the Toyota Production System in the development of new products, it is necessary to apply the Toyota Production System analysis to your customer. For what activity is your customer paid? If you sell to a consumer and your customer is not paid for using your product, how is he rewarded? What is the actual cause of pleasure or reward, and what is getting in the way of achieving it? When you understand what the customer actually wants, you will understand what the customer will actually pay for. There is very little point in asking him what he wants (you’ll probably hear about faster horses and free pizza), but if you need to you might ask why he is doing as he is—you might even ask him five times to get to the root of it.

But you must know who your customer is – who you wish your customer was, to become more like what they want, and who is the customer that will pay you today for what you can do today. And this is why so many companies have struggled to implement the Toyota Production System: they don’t know who their customers are.

At the factory where Tom worked, we thought the customer was the end user of the product, or at least the distributor who ordered it from us. But we were wrong. The business was not run to satisfy that customer. That customer would not care at all whether the factory shipped the product this month or that month, this fiscal quarter or that fiscal quarter. The all-out effort to maximize shipments in a fiscal period was done for the actual customer, the one who cared about that result: and that is the shareholder.

As it turns out, the shareholder pays the CEO.

The shareholder may pay the CEO indirectly, through the board of directors, by means of the shareholder vote; or the shareholder may pay the CEO directly, in the form of stock options and grants. As the stock value goes up, the CEO gains wealth. What activity will make the stock price go up? That becomes the value-add activity.

And now in the factory things become very confused for the factory worker, because he is told that Toyota Production System is “customer focused” and will make the “customer” happy, but he is reprimanded if he does not make the shareholder happy. And some of the things he is told to do for Toyota Production System seem to make sense for the “customer,” like never make any defective products, but some of the things he is told do not seem to make any difference to the “customer” at all – such as that it is very important to ship on June 30 and not July 1. And so it seems like Toyota Production System is a bunch of nonsense that doesn’t actually make his boss happy, and so he treats it like nonsense, and before too long it goes away. And then another CEO wonders why Toyota Production System doesn’t work for his company, and he finds something different to try to promise his shareholders as a panacea.

And that CEO will never understand that the Toyota Production System does not consider inventory wasteful because it ties up your capital. If you can get paid to tie up your capital in inventory, by all means do it! (And thus warehousing exists as a profitable business.) Toyota Production System views inventory as waste because it hides waste. Inventory is a time buffer, and a time buffer exists to hide a variation in process time, and variation in process time exists because the worker does not know what to do or because the worker needs to fix a defect. And that is a much more serious problem than the negligible amount of overhead expense allocated to storing inventory.

The Toyota Production System is not a panacea. It is fundamentally designed to improve processes, and not everything worth doing is a process. But the Toyota Production System has “failed” far more often from being misunderstood, misconstrued and misapplied than it has from any real deficiency in its basic philosophy, which is to understand what your customer wants, and do that.

[Note: Tom is an alias.]

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Ice Cream: A New Hope

Which of these two approaches would you expect to be more successful?

Contestant 1:



And we’re not joking. While Halo Top is low-calorie, high-protein, and low-sugar, we use only the best, all-natural ingredients to craft our ice cream so that it tastes just like regular ice cream. We know it sounds too good to be true, so don’t just take our word for it – dig in and see for yourself just how good healthy ice cream can be!

Contestant 2:

Indulgence without all the guilt! Introducing Breyers® delights – a delicious new ice cream with 20g of Protein & 260-330 calories per pint! Try one today!


I could go on for a while about the differences here (and I will), but it’s all anchored in that first word from Halo Top: “Finally!”

What does that say?

It says you haven’t had this before, but you’ve been wanting it.

Oh? Which of my long-unmet desires are you meeting today?

“Healthy Ice Cream.”

Then a long list of happy goodness words. Happiness all around! No need to think or analyze – it’s “all-natural,” it’s crafted, it’s “healthy ice cream.” Just go with it!

And how does Unilever, giant global corporate-parent of Breyers, respond?

By measuring calories and grams. And reminding you about “all the guilt!” What a paralipsis!

Besides calling up some of the most negative associations possible for ice cream, Unilever seems not to understand what is happening here with Halo Top. The only way that “Finally!” has any emotional resonance with the audience is if they buy in to this idea that they have been searching and searching for this Great Thing, and it just wasn’t there – it didn’t exist – there had to be something New!

And this does resonate, because people have been searching for zero-consequences indulgence, and they have had no luck at all finding it. They have categorically ruled out all the familiar things.

So, Unilever, why did you try to answer Halo Top with an established brand? The whole myth Halo Top is selling is a new-to-the-world solution to an age-old problem, the Messiah in ice-cream from.

Why did you try to match the gold halo over white with the institutional black?

Halo Top is marketing not just to the desire for unrelentingly cheerful ice cream, but also to the profound uneasiness with the established order. The Sexual Revolution didn’t fix everything. The end of the Cold War didn’t fix everything. Silicon Valley didn’t fix everything. The new diet didn’t fix everything. Nothing’s working out the way it was supposed to. We need something totally new and different.

Hence Icelandic yogurt and Himalayan salt.

No, you can’t leverage your brand equity; your brand is your problem, in this case. Your incumbency is a fault. Simply by existing you became part of the disappointing past.

You could try buying up the hip cool brands, but I wouldn’t recommend it. Since these brands are mainly built on novelty their shelf life, as brands, will probably not be long.

Rather than paying a premium for the starry-eyed potential future of a young brand, it would probably be more economically sound to generate a new brand: go to your labs and get some fresh-faced multicultural food science grads with pets to design an ice cream safe for their pets, call it “Kittens and Cream,” and include biographies of various young sciency team members’ pets on the side of the carton.


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Toyota’s chance to score twice on a single play

Developers of autonomous driving software should realize that there is a precursor market for their technology in the material handling world—specifically for forklifts.

While the industry chatter could lead you to believe automated forklifts are available and capable today, experience behind the scenes reveals that most forklifts are not automated and most automated forklifts can only be trusted with the cleanest, clearest, least variable pallet handling tasks.

Automotive technology is rapidly advancing far beyond the limitations of current warehouse offerings. While Waymo’s automation software is making guesses about the future path of a bicyclist and driving through construction zones, automated forklifts struggle to figure out how to get forks in a pallet if the pallet is not presented with mechanical precision.

Forklifts are designed to move pallets; pallets are designed to provide a common handling interface for a virtually unlimited range of goods. In theory this should make pallets an excellent aid to automated handling. But reality gets messy.

Pallets can sag under load, to a degree that it becomes difficult to insert and remove the broader, thicker forks of most horizontal-transport lift trucks. Pallets are loaded unevenly, double-stacked, wedged together, and sometimes broken. Commonly used stretch wrap (think industrial grade version of kitchen plastic wrap) sometimes covers the fork pockets in a way that would make some sensors believe the pockets are blocked; human operators know to punch right through.

But all these challenges, and others like them, could be easily overcome with judicious use of sensors and the kind of learning algorithms, commonly called Artificial Intelligence (AI), which do best when the same basic task is performed again and again. Repetition allows the algorithm to iteratively refine its definition of what the core task is, which variations are acceptable, and which factors lead to failure—and forklift failures can be expensive.

It makes sense that major players in automated vehicles are not focusing on forklifts. The forklift market is vanishingly small compared to the automotive market. The Industrial Truck Association reports about 200,000 lift trucks shipped in North America in 2015. Automation technology replaces the operator, and it is “widely accepted that the operator makes up about 70% of the total cost of ownership of any lift truck,” according to trade publication Modern Materials Handling. Glassdoor.com reports that operators earn $30,000 annually on average. Assume that benefits will double the business cost to $60,000.

Not every forklift is doing a job that makes sense to automate; some are used only occasionally, or for moving a wide variety of non-standard and even unpalletized loads. Let’s assume that it only makes sense to automate half of the forklifts, or 100,000 units per year. If on average and operator costs are about $60,000 each, that’s a $6 billion annual market opportunity.

That’s not even on the radar of the automotive market, which the Wall Street Journal reports at $570 billion in 2015 sales for the USA. And that’s for the car itself, not for paying the operator.

But trying get the material handling market alone to pay off the R&D of autonomous driving is applying the wrong analysis to the opportunity. Automating forklifts is a secondary market – or more accurately, a precursor market – providing an opportunity to teach AI about the behavior of pedestrians and human drivers in a structured, controlled-access facility. Although some adaptations of the AI would be required for pallet engagement and lifting loads to the 40 foot heights of modern warehouses, these are minor tweaks on the core task of avoiding collisions and predicting human behavior.

Much like public roads, most warehouses have clear rules about where people should be walking and where vehicles may travel. But, also as can happen on the road, these rules are often subject to temporary exceptions. This provides an excellent opportunity to extensively test basic maneuvering and collision together with anticipating human behavior in a context where it is only semi-predictable. Warehouses are for the most part lacking significant grades (seeing “over” a hill is a problem for a scrupulously safe automated car) and they lack weather, which means that a warehouse environment is not a perfect test environment in all respects. At the same time, removing these complexities means a lower technical hurdle to get the automation truly ready for full hands-off.

Today only Toyota Industries has a stake in both the automotive and forklift markets. Toyota is lagging in the autonomous driving segment, but starting to push harder. Toyota can leverage the same investment twice, sending its automotive technology over to its forklift division – or it can wait for a start-up that originally aimed at road navigation to pivot to forklifts, as happened with fuel cells and lithium ion batteries.

Out on the open road, the big opportunity is replacing paid drivers, typically truck drivers, for the same reason as in forklifts: other than fuel, drivers are virtually the entire cost. Also, they’re getting harder to find. The chance to automate both tasks is the opportunity to dominate the logistics segment like Amazon, Google, or Apple in their respective domains.

Automation cannot and will not entirely do away with the need for humans in logistics for some time to come; they will need to work as caretakers, facilitators, and troubleshooters alongside the automatic equipment. No prior automation, from the industrial loom to the horseless carriage, ever arrived on the scene fully capable without human attention. But the well-proven preference people have for lower prices, and the increasing difficulty finding people to work in logistics jobs, means automation is inevitable, and the question is only who will be most successful in providing it.

Some businesses find themselves in the lucky position of having a marketable by-product on the way toward the product they set out to deliver. Gasoline started as waste from oil refining. Amazon’s cloud service started as a repackaging of a tool developed for internal needs. Now the opportunity exists for one of the companies on the path to autonomous driving to get some early revenue and real-world feedback — an off-highway alternative market for autonomous driving tech. Will Toyota seize their advantage? Or will it take a start-up to put things together in an unconventional yet effective combination?

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Excuses Enabling Waste

I first began learning about “Lean Manufacturing” in 2006, and since then I’ve had many opportunities to see this philosophy misunderstood and misapplied. Most recently I saw a variation on basic Lean terminology in a class meant to teach Lean Six Sigma principles for process improvement.

I’ve never been formally credentialed in Lean Manufacturing and it presently seemed like a good time to cross it off the list. I am taking an online program mainly consisting of recorded lectures, which means I did not have the opportunity to object when the professor started explaining the concept of “Value-Enabling Activity.”

In classical Lean Manufacturing (substantially derived from the Toyota Production System), an activity is classified as either Value Adding (VA) or Non-Value Adding (NVA). The simple rule of thumb is: would a customer reasonably pay you more money to do more of this activity?

In the case the professor was discussing, the setting was health care. Time spent in the waiting room was classified as Non-Value Adding, since nobody wants more time in the waiting room. Time spent with the physician was classified as Value Adding, since that’s the essential service that people are seeking.

But for check-in activity the professor had a category previously unknown to me, “Value-Enabling”. The idea is that the health care provider cannot safely provide care without going through the check-in activity—checking for medical allergies, other health conditions, and so on. Even though it would be hard to find a customer willing to pay more for more time spent on check-in, this activity is considered essential and not properly described as “waste,” the other term for Non-Value Adding activity.

This is a basic perversion of the meaning and purpose of classifying activity as Value Adding or waste.

While it may be true that with today’s laws, customs, and technology there might not be at present any way to eliminate the check-in activity, the fact that the patient do not enjoy this activity and would happily be rid of it should never be forgotten. That is the entire purpose of classifying activities very simply as either value-adding or waste.

It is no defense to say that the activity is necessary. It is currently necessary to ship cars from the car factory to the customer – and typical to ship them not to the customer, but to the dealership. Transportation is absolutely one of the seven wastes. Transporting the car from the factory to the dealership is waste, because no customer would pay extra to have the car shipped back and forth several more times. It is necessary but unwanted – just like the waste you flush away every day.

A reflective person will realize that, really, the only way to have no waste is if the product materializes immediately upon the customer’s first realization that they want it. Anything else involves delays and is wasteful.

More specifically, consider the case of a chunk of metal being shaped into a widget. Modern CNC (Computer Numerical Control) machines can automatically switch between several different tools to shape a part. The process of switching between tools is Motion, and therefore waste.

In most analyses, the time a chunk of metal spends in a machine is all Value-Add time. Many people would balk at the idea of being so hyper-sensitive as to classify the time switching tooling as waste. Nevertheless it is true that if you somehow had one tool which could do it all, and therefore did not need to switch tools, the process would take less time; your machine would be more efficient and therefore more productive.

The correct reason not to worry about the time a machine spends automatically changing its tooling is that this small amount of time may not be where your real problems lie. And this is perfectly consistent with the principles of Lean Manufacturing; no practitioner of Lean Manufacturing would suggest chasing a waste of a few seconds when there are problems costing you hours of time you could resolve. There is absolutely no shame in working on the biggest problems first; the only way it might not be best to work on the biggest problem is if you are not actually capable of influencing it. Otherwise, always go for the biggest problem. If it’s too complex, figure out the major causes and pick the most significant; repeat as needed until you’ve got a problem you can work on.

Going back to the health care scenario, check-in time might currently be necessary. But what if a quick scan of your retina were enough to bring up your complete medical record and verify that it is really you? This would virtually eliminate the Non-Value time and leave only the valuable part of the check-in process.

Someone might object that in this particular case, there may be a potentially viable technology solution, but that, in general, there are some things that just have to be done in order to get to the good stuff, and those things are Value-Enabling. But that category allows you to justify and excuse activity your customer dislikes, turning a blind eye toward your own inefficiency and becoming systematically indifferent to what your customer wants.

Consider that it is still necessary today for products to be shipped from the factory to the consumer. If everybody just shrugged and said “Can’t be helped,” Amazon would not be the force in commerce that it is today. On the contrary, Amazon has patented anticipatory shipping – shipping you something before you tell them you want it, so that the shipping time gets even closer to zero. Service technicians do this all the time, keeping commonly needed replacement parts in their vans, but Amazon is the first major company to realize that this basic concept could be extended across the entire range of things ordinary retail consumers might want shipped to their house.

It’s not clear whether Amazon has actually implemented this idea yet. But, with delivery drones and delivery lockers and delivery to your trunk, it is very clear that Amazon hasn’t declared the time it takes to delivery an order “Value Enabling” and thus beyond criticism. Transportation is waste. Get rid of it whenever possible.

There is no business or process anywhere in the world that has achieved fully zero waste. Some of the causes of waste are laws of physics and some of the causes are laws of governments. It should never bother you to have some part of your process described as waste; if your feelings are hurt, you’ve misunderstood the message completely. And it’s easy to test: if you are right and it’s not waste, charge more for it; do it more often; increase the amount of it you have in proportion to the other parts of your process. If it’s actually valuable you’ll make more money. But if it will increase your costs – then yes, Virginia, it is waste.

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