Category Archives: Manufacturing

Manufacturing Jobs Increasing for First Time Since 1998 in the USA

Surprise! Blue collar jobs are coming back

Manufacturing employment began its decline long before the recession, losing jobs every year since 1998. But since the start of this year, there’s been a 1.6% gain in manufacturing jobs — about twice the pace of growth in other private sector jobs.

The unemployment rate for manufacturing workers has also shown much greater improvement than for workers overall, dropping to 9.5% in August from 13% in December. That compares to a far more modest improvement to 9.6% from 10% for the overall labor force.

Gains so far have been concentrated in four industries — automotive, fabricated metals, primary metals and machinery

This is good news for the economy. I believe it is partially due to more companies rethinking off-shoring practices which are flawed and adopting lean manufacturing ideas. As I have written for years USA manufacturing output has continued to increase and still remains by far the largest manufacturer. China is making huge gains by growing their output dramatically (not by the USA’s output decreasing). Manufacturing employment in the USA (and everywhere else – including China) has been decreasing for 20 years. The main stories are not jobs moving but jobs being eliminated by productivity improvement and China growing manufacturing output not a decline in manufacturing output in the USA.

Related: Worldwide Manufacturing Employment Data – 1979 to 2007Manufacturing in the USA, and Why Organizations Often Don’tTop Manufacturing Countries in 2005

Manufacturing in the USA, and Why Organizations Often Don’t

Manufacturing in the USA continues to do well. But it could do better. There are reasons manufacturing that could be located in the USA is not. And addressing those can increase USA manufacturing. Some reasons are sensible, based on the existing economics and realities of comparative advantage. Some reasons are just flawed thinking, such as the “spreadsheet management” taught at many business schools that Deming and lean thinkers can understand the flawed thinking that leads to outsourcing.

Typical wall street thinking (also driven by “spreadsheet management think” rather than an actual understanding of value stream of a potential investment) also hampers raising investment capital for USA manufacturing. The broken USA health care system also is a big problem driving up costs of doing business in the USA enormously.

Fighting for ‘made in the USA’

Safer and longer-lasting than conventional lithium-ion car batteries, the 52-year old MIT professor’s invention packs 600 cells into a case the size of an airplane carry-on bag. His technology has transformed the batteries used in many cordless power tools. So why are Chiang and his company, A123 Systems, having trouble moving to full-scale commercial production and creating thousands of new American jobs with his better mousetrap?

Despite the promise of Chiang’s batteries, many on Wall Street and in Silicon Valley were incredulous when he and other leaders at A123 asked for capital to build factories in America — Asia, yes, but Michigan, why would you want to?

Even more daunting, nearly all of the world’s battery manufacturing industry is in Asia, where plants can be built faster and supplies and equipment are much easier to get than in the United States. These days, it’s hard to find Americans who even know how to build a battery factory.

That’s why A123 had to give in and build its first plants in China, where the company could move into production quickly to show auto industry customers that it could deliver on future contracts.

“Without question, we would rather have done it all in the U.S.,” said Chiang, who left Taiwan as a 6-year-old with his family, earned degrees at MIT and has been a materials science professor there since the mid-1980s. “I’m an American citizen. We’re an American company. It’s an American-born technology.”

Despite the obstacles, A123 and a few other advanced battery producers are building plants in Michigan and other states, thanks to massive government support that has offset Wall Street’s skepticism and should help domestic producers narrow cost disadvantages with Asian rivals.

A123 is getting $250 million in aid from the Obama administration’s stimulus program as well as tax incentives from Michigan. Its first U.S. plant opens in June in an abandoned brick building near Detroit that once made VHS tapes for Disney.

A123 has five plants in China, coincidentally located in Chiang’s father’s hometown of Changzhou, about two hours’ drive west of Shanghai. Bart Riley, an A123 co-founder and chief technology officer, figured it took about nine months to get a Chinese factory up and running, one-third the time typical for the U.S.

The quicker launch helped A123 make a name for itself through Black & Decker, which in early 2006 began putting A123 batteries in its DeWalt power tools.

Since then, A123 has been supplying batteries and battery systems for New York City buses built by Daimler, among other customers, and the company has agreements to develop products for Chrysler, Navistar and American green-car maker Fisker Automotive.

By the end of next year, A123 expects to have two plants in Michigan employing 400 people, with plans to go up to 2,000 workers able to produce about 30,000 battery systems a year. The company’s sales reached $91 million last year, and it has about 1,700 employees, two-thirds in Asia.

The success of science and engineering university based research is still a huge advantage to the USA. Though other countries have seen the value in this and have invested in building their own capacity. The economic value of such is increased many fold by manufacturing the innovations created in your country.

Related: Manufacturing and the EconomyEconomic Strength Through Technology LeadershipRhode Island ManufacturingBig Failed Three, Meet the Successful EightToyota in the US Economy

The Toyota Way – Two Pillars

Toyota is receiving plenty of criticism now, much of it for good reason. There is also a large amount of psychology involved. From what I have seen, the insurance companies still see better claims history (fewer and lower cost claims) against Toyota than other manufacturers. And there is another strain that seems to enjoy criticizing what has been praised. Toyota does need to improve. But that is improvement of the existing management system, not a need to radically change the management of the company.

I think Toyota, even with the problems, is a fantastic example of a very well managed company. Yet even with all the study of lean manufacturing even basic ideas are overlooked. For example, the two main pillars of the Toyota way are “continuous improvement” and “respect for people.” For all of us, it is valuable to refocusing on core principles. We are too often looking for the next new idea.

This is one way of looking at the pillars of the Toyota Production System, from the Toyota Technical Center – Austrailia

Image of Toyota's pillars of management: respect for people and continuous improvement

Continuous Improvement means that we never perceive current success as our final achievement. We are never satisfied with where we are and always improve our business by putting forth our best ideas and efforts: we are keen to create better alternatives, question our accomplishments and investigate future definitions of success.

There are three building blocks shaping our commitment to Continuous Improvement:

1. Challenge – we form a long term vision, meeting challenges with courage and creativity to realize our dreams;
2. Kaizen – we improve our business operations continuously, always driving for innovation and evolution
3. Genchi Genbutsu – we go to the source to find the facts to make correct decisions, build consensus and achieve goals.

Respect For People refers to our own staff as well as the communities and stakeholder groups that surround us and we are part of. We respect our people and believe the success of our business is created by individual efforts and good teamwork.

Respect For People is translated in:

1. Respect – we respect others, make every effort to understand each other, take responsibility and do our best to build mutual trust
2. Teamwork – we stimulate personal and professional growth, share the opportunities of development and maximize individual and team performance.

These elements combined define our corporate DNA, provide a way of operating that is recognised by each and every Toyota-member around the globe and enables us to sustain our success in the future.

Back to Basics for Toyota by Akio Toyoda

When my grandfather brought Toyota into the auto business in 1937, he created a set of principles that has always guided how we operate. We call it the Toyota Way, and its pillars are “respect for people” and “continuous improvement.” I believe in these core principles. And I am convinced that the only way for Toyota to emerge stronger from this experience is to adhere more closely to them.

While recent events show Toyota obviously needs to improve, that has been true all along (it is just more obvious lately). Some may see this as an indication that these lean manufacturing ideas based on Toyota’s practices are no better than other management practices. I don’t believe this. I feel just as strongly about the value of lean management as ever. I think that the recent events show you that no matter how well an organization in managed there is plenty of room to improve. Toyota never was close to perfection. They have much to improve, but they are still one of the best managed companies in the world.

My comments in 2005:

I think the instances of such failures are just a sign that even Toyota still has quite a bit to improve. I think this announcement likely is a result of common cause variation (it is the natural result of the current system). The natural result (of the system) is not that they have this particular failure, but that this recall is consistent with the % of vehicles that required a recall of this general character. I believe they are getting better over time but they still have a long way to go. With a result based on common cause you want to look at the entire system when designing an improvement plan not at the root cause of the seat belt issue. See Responding to Variation online and the book, Forth Generation Management, by Brian Joiner.

Related: Toyota Stops Lines – Lots of LinesAkio Toyoda’s Message Shows Real LeadershipDeming CompaniesRespect for People Does Not Mean No Criticism

And my comments in 2007:

I don’t agree that they need to rethink their purpose in life (I have a feeling that is taken out of context). They need to maintain and maybe even increase their commitment to their purpose in life.

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Improving Education with Deming’s Ideas

This interview (link broken, so removed) with David Langford discusses how to improve education using ideas from Deming. Along with Alfie Kohn, David have long been the learning and management experts I find most valuable.

I have long remembered is his idea that he was the CEO of his classroom. On hearing Deming discuss how critical it was to have the CEO active in a management improvement effort to achieve success he tried to get those above him in the organization chart to change. Which didn’t work very well. Seeing that method was not successful he took a new look and decided to view the problem in a different way.

He looked for what he was in charge of and decided he could decide how to run his classroom. I think this is a very valuable idea for anyone looking to improve their organization. What is your sphere of control? Focus on how you can improve there. Don’t just try to change others. See how you can change and improve what you can.

The interview provides a good insight into the great ideas David has.

  • “Make changes that let all kids get good grades.”
  • That comes from the theory (incorrect theory) grades motivate students.
  • There is no level of education sub-quality that is acceptable. Success or need to work more, which category are you in. B, C, D does not make sense.
  • People keep trying things we have proven over and over again don’t work, like pay for performance schemes for individual teachers.

Anyone interested in improving education should listen to this interview and search out more ideas from David Langford and Alfie Kohn. I really like David’s capacity matrix.

Related: Orchestrating Learning With Quality by David P. Langford and Barbara A. Cleary – K-12 Educational ReformDeming on being Destroyed by Best Efforts

Toyota Stops Lines – Lots of Lines

The practice of stopping (either the machine automatically detecting a problem and stopping or a person stopping) the line when a problem is detected is part of Jidoka. Jidoka is also highlighting and making problems visible. Jidoka and Just in Time are the two pillars of the Toyota Production System. Today Toyota practiced Jidoka on a large scale: Toyota Halts Sales of Eight Models After Recall

Toyota Motor, still struggling to resolve a problem with accelerator pedals, said Tuesday it would temporarily stop selling and building eight models in the American market, including the popular Camry and Corolla sedans

“This action is necessary until a remedy is finalized,” Robert S. Carter, a Toyota group vice president, said in a statement. “We’re making every effort to address this situation for our customers as quickly as possible.”

Toyota said it would immediately stop selling the Camry, Corolla and Avalon sedans, Matrix wagon, RAV4 crossover, Tundra pickup, and Highlander and Sequoia sport utility vehicles. It will also stop building those models the week of Feb. 1. All of the vehicles are assembled in the United States or Canada, at a total of five plants.

The models affected accounted for more than a million sales in 2009, 57 percent of Toyota’s American total for the year.

The most recent recalls follow what Toyota insisted was a companywide effort to improve quality that was started by Katsuaki Watanabe, who served as its president before he was replaced last year by Akio Toyoda, grandson of the company’s founder.

My guess is there are quite a few people in Toyota that are getting a frustrated that they continue to have problems that they have been unable to successfully address. This strikes is as the kind of action initiated near the top of the organization chart to remind the organization that problems must be addressed immediately. It is not ok to continue business as usually when problems have not been addressed in the Toyota Production System. Toyota is capable of failing to live up to the principles of lean manufacturing. But they also seem to understand this risk and continue to strive to improve. To succeed though they need to improve results – intentions alone are not enough.

Related: Cease Mass Inspection for QualityRecalls at Toyota and SonyReacting to Product ProblemsWorkplace Management by Taiichi Ohno

Prophet Unheard: Dr. W. Edwards Deming – 1992

[embedded webcast links removed because they have been removed from YouTube. To see video with W. Edwards Deming see the Deming Institute YouTube channel.]

This is an interesting video on Deming and American management (by the BBC in 1992): Prophet Unheard. It includes some nice old footage of Deming in Japan. The importance of respect for people is clear and the video also touches on the idea the danger of relying on data (when you do not understand variation and that many important matters and unmeasurable). The video features many snippets of Dr. Deming speaking and includes Don Peterson, Ford CEO; Clare Crawford Mason, If Japan Can, Why Can’t We producer; and Myron Tribus.

Related: Dr. Deming Webcast on the 5 Deadly DiseasesRed Bead Experiment WebcastPerformance without Appraisalmanagement webcasts

Part two of the documentary explores the Deming Prize, understanding data and the PDSA cycle: [removed]

Part 3 explores the efforts at Florida Power and Light, the first USA Deming Prize winner: [removed]

The Biggest Manufacturing Countries in 2008 with Historical Data

Once again the USA was the leading country in manufacturing for 2008. And once again China grew their manufacturing output amazingly. In a change with recent trends Japan grew output significantly. Of course, the 2009 data is going to show the impact of a very severe worldwide recession.

Chart showing percent of output by top manufacturing countries from 1990 to 2008Chart showing the percentage output of top manufacturing countries from 1990-2008 by Curious Cat Management Blog, Creative Commons Attribution.

The first chart shows the USA’s share of the manufacturing output, of the countries that manufactured over $185 billion in 2008, at 28.1% in 1990, 27.7% in 1995, 32% in 2000, 28% in 2005, 28% in 2006, 26% in 2007 and 24% in 2008. China’s share has grown from 4% in 1990, 6% in 1995, 10% in 2000, 13% in 2005, 14% in 2006, 16% in 2007 to 18% in 2008. Japan’s share has fallen from 22% in 1990 to 14% in 2008. The USA has about 4.5% of the world population, China about 20%. See Curious Cat Investment blog post” Data on the Largest Manufacturing Countries in 2008.

Even with just this data, it is obvious the belief in a decades long steep decline in USA manufacturing is not in evidence. And, in fact the USA’s output has grown substantially over this period. It has just grown more slowly than that of China (as has every other country), and so while output in the USA has grown the percentage with China has shrunk. The percentage of manufacturing output by the USA (excluding output from China) was 29.3% in 1990 and 29.6% in 2008. The second chart shows manufacturing output over time.

charts showing the top manufacturing countries output from 1990-2008Chart showing the output of the top manufacturing countries from 1990-2008 by Curious Cat Management Blog, Creative Commons Attribution.

The 2008 China data is not provided for manufacturing alone (the latest UN Data, for global manufacturing, in billions of current USA dollars). The percentage of manufacturing (to manufacturing, mining and utilities) was 78% for 2005-2007 (I used 78% of the manufacturing, mining and utilities figure provided in the 2008 data). There is a good chance this overstates China manufacturing output in 2008 (due to very high commodity prices in 2008).

Hopefully these charts provide some evidence of what is really going on with global manufacturing and counteracts the hype, to some extent. Global economic data is not perfect. These figures are an attempt to capture the economic reality in the world but they are not a perfect proxy. This data is shown in 2008 USA dollars which is good in the sense that it shows all countries in the same light and we can compare the 1995 USA figure to 2005 without worrying about inflation. However foreign exchange fluctuations over time can show a country, for example, having a decline in manufacturing output in some year when in fact the output increased (just the decline against the USA dollar that year results in the data showing a decrease – which is accurate when measured in terms of USA dollars).

If the dollar declines substantially between when the 2008 data was calculated and the 2009 data is calculated that will give result in the data showing a substantial increase in those countries that had a currency strengthen against the USA dollar. At this time the Chinese Renminbi has not strengthened while most other currencies have – the Chinese government is retaining a peg to a specific exchange rate.

Korea (1.8% in 1990, 3% in 2008), Mexico (1.7% to 2.6%) and India (1.4% to 2.5%) were the only countries to increase their percentage of manufacturing output (other than China, of course, which grew from 3.9% to 18.5%).

Related: posts on manufacturingGlobal Manufacturing Data 2007Global Manufacturing Employment Data – 1979 to 2007Top 10 Manufacturing Countries 2006Top 10 Manufacturing Countries 2005lean manufacturing resources

Lean Inventories Do Not Excuse Failing to Deliver

Low inventory levels do not mean failing to have products available for customers. Now, if you manufacturing in huge batches and can’t respond to customer feedback then it might mean failure to predict customer demand does mean failure to deliver. But lean thinking has shown how to avoid this problem. People need to adopt lean manufacturing practices and gain the benefits of low inventory levels without the costs of failing to deliver what customers want.

Sorry Santa, We’re Out of Stock

The “it” gifts this year could swiftly vanish from store shelves, as retailers, with nightmares of Christmas 2008 markdowns dancing in their heads, have slashed inventories to some of the leanest levels in recent memory.

Retailers themselves are battle-scarred by last year’s fourth-quarter fiasco. Following the financial meltdown of September 2008 and amid the most severe economic crisis since The Great Depression, consumers retrenched.

That’s when stores hit the markdown panic button, slashing prices upwards of 75 percent. The result was the worst holiday selling season since 1970, according to The International Council of Shopping Centers.

But although leaner inventory levels should drive profit margin gains this holiday, “retailers might not have enough inventory to fully satisfy demand,” said Citigroup retail analyst Deborah Weinswig, in a research note. It is a risk they are willing to take.

“They would rather lose a sale than take the markdowns they had last year,” said Goldman Sachs analyst Adrianne Shapira.

The retailers need to design their systems with lean thinking in mind (not lean – as in cut expenses without thought). And they need to work with suppliers using lean manufacturing principles.

Related: Be Thankful for Lean ThinkingGuess What? Manufacturing in the USA is a Good IdeaTesco: Lean ProvisionZara Thrives by Ignoring Conventional WisdomOperational Excellencelean manufacturing articles

Akio Toyoda’s Message Shows Real Leadership

Speech by Akio Toyoda

Since the birth of Toyota, the company’s philosophy has always been to “contribute to society.”

“Contributing to society” at Toyota means two things. First, it means, “to manufacture automobiles that meet the needs of society and enrich people’s lives.” And second, “to take root in the communities we serve by creating jobs, earning profits and paying taxes, thereby enriching the local economies where we operate.”

Toyota has overcome many challenges during its seven decades of business. What has made this possible is the way we make our cars under our “customer first” and “genchi genbutsu” principles

Rather than asking, “How many cars will we sell?” or, “How much money will we make by selling these cars?” we need to ask ourselves, “What kind of cars will make people happy?” as well as, “What pricing will attract them in each region?” Then we must make those cars.

Through these processes, I would like to make Toyota’s product development and product lineup more region-focused. We will change our policy from achieving “a full lineup everywhere” to “a lineup necessary to meet the needs of each region”. We will also launch new vehicles that anticipate consumer needs and are exciting to drive.

At the press conference in January, I talked about my desire to become “a president who is closest to the frontlines, or gemba.” I believe that the essence of management lies in the gemba, and Toyota employees play a vital role there.

Once again Toyota shows they are the type of management I want to invest in. In my last post I discussed another: Jeff Bezos at Amazon. Google management is another management system I am glad to invest in. Toyota, Amazon and Google are 3 of my 12 stocks for 10 year portfolio.

Toyota continues to show they are an exceptional company that doesn’t waver due to short term pressures. They know the management system they have in place is excellent. They always try to improve. And they react to evidence that shows they have room to improve. They then access the situation and move forward.

via: Toyoda on Toyota: A New Regime, A New Future

Related: New Toyota CEO’s Views (2005)Interview with Toyota President (2006)Deming Companies“2007 has been a difficult year for Toyota”No Excessive Senior Executive Pay at ToyotaWebcast on the Toyota Development Process

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Penske to Buy Saturn from GM

Penske to Buy Saturn from GM

“When Saturn launched in the 1980s, it was the new, new thing, with the best dealer service and no-haggle pricing that put customers at ease,” said independent marketing consultant Dennis Keene. “But in recent years, it has just been another GM division, operating the same as Chevy or Pontiac, with nothing to differentiate it and a marketing message that keeps changing, so that people haven’t been able to get a handle on what the brand is supposed to be.”

First off, he won’t own any manufacturing plants. Saturn will continue to buy today’s vehicles from GM for at least two years. Penske will talk to other auto manufacturers in Europe and Asia about supplying new products after that. “We are going to be a sales, service, and marketing company, not an OEM [original equipment manufacturer],” he said. Eventually, Penske explained, he wants at least some Saturn vehicles to once again be manufactured in the U.S., though that may not be the case in the short run after the agreement with GM runs out.

I thought Saturn was the worst management failure at GM, among many (NUMMI, and GM’s Failure to Manage Effectively, for example). They really did some great things early on with rethinking the system of manufacturing and selling cars. But GM failed to take care of the innovative division. I hoped that Saturn would gain a new, better, management that build Saturn toward the potential it has. Contracting out manufacturing however, is a horrible idea, I believe. Unfortunately I think this ends the hope for a great Saturn.

Saturn still have the potential to do ok, given how bad the dealership experience is for most other companies. The dealer experience, even for Toyota and Lexus is still not at all congruous with the customer focus principles of lean (for example, motivating sales people to make as bad a deal for customers as they can – paying them more the more they get for the dealership at the expense of the customer). And other car companies have quite a bit to learn from the sales practices of Saturn and Car Max.

Related: Big Failed Three, Meet the Successful EightHonda has Never had Layoffs and has been Profitable Every YearPeople: Team Members or CostsInvest in New Management Methods Not a Failing Company, 1986