Curious Cat Management Improvement Blog

Management Improvement Carnival #35

John Hunter — Thu, 15 May 2008 14:50:25 +0000

Kevin Meyer is hosting Management Improvement Carnival #35 on the Evolving Excellence blog, some of the highlights include

Hidden Problems from TPM Log. "We must encourage people to speak up and identify problems. We must
also develop avenues for people to do so in a comfortable manner."
It’s the People, Not Just the Tools from Shmula. “what most folks forget is that ‘Kaizen’ was truly build upon the philosophy that ‘Toyota builds people and then cars’ - that is, Kaizen came from the notion that the collective intelligence of your line workers is valuable and that people, if given the training and the
chance, can truly do amazing things.”
True Work, Apparent Work, and Busy Work from Gemba Panta Rei. “True work is of course the small amount of work in any process which changes form, fit or function as the customer desires.”
Innovation on the Edge from Edge Perspectives. “Why bother about the edge when everyone knows that all the profit is in the core?”
Why Do Employees Underperform? from the Lean Six Sigma Academy. “Muri means to overburden equipment or operators. In many cases, muri can be avoided by the implementation of some basic forms of standard work.”

Read past management carnivals.

Fed Funds Rate Changes Don’t Presage Mortgage Rate Changes

John Hunter — Tue, 13 May 2008 13:45:00 +0000

The recent drastic reductions again emphasize (once again) that changes in the federal funds rate are not correlated with changes in the 30 year fixed mortgage rate. In the last 4 months the discount rate has been reduced nearly 200 basis points, while 30 year fixed mortgage rates have fallen 18 basis points.

I have update my article showing the historical comparison of 30 year fixed mortgage rates and the federal funds rate. The chart shows the federal funds rate and the 30 year fixed rate mortgage rate from January 2000 through April 2008 (for more details see the article).

It is surprising to me how incorrect beliefs about what predicted federal funds rate cuts will mean for mortgage rates are so common when the data makes it clear that such beliefs (I should wait because the fed is going to cut the fed funds rate and so if I wait my mortgage rate will be lower) are unwarranted. But I should not be this type of behavior goes on all the time, inside organization and outside them.

There is not a significant correlation between moves in federal funds rate and 30 year mortgage rates that can be used for those looking to determine short term (over a few days, weeks or months) moves in the 30 year fixed mortgage rates. For example if 30 year rates are at 6% and the federal reserve drops the federal funds rate 50 basis points that tells you little about what the 30 year rate will do. No matter how often those that should know better repeat the belief that there is such a correlation you can look at the actual data in the graph above to see that it is not the case.

If you haven’t been reading about how mortgage rates might change because the federal funds rate might change and you look at this graph you might think why bother with this post. Well year after year financial web sites, magazines, television commentators mention that federal funds rates presage mortgage rate changes.

Since this post will likely be seen for years you may be reading this long after such myths have been dropped from the conventional wisdom. If so, great. But given how widespread this misconception is I don’t know how likely that is.

Want more data? See graphs of the federal funds rate versus mortgage rates for 1980-1999.

China Outsourcing Manufacturing to USA

John Hunter — Thu, 08 May 2008 12:44:27 +0000

Chinese firms bargain hunting in U.S.

Liu is investing $10 million in the Palmetto State, building a printing-plate factory that will open this fall and hire 120 workers. His main aim is to tap the large American market, but when his finance staff penciled out the costs, he was stunned to learn how they compared with those in China.

Liu spent about $500,000 for seven acres in Spartanburg — less than one-fourth what it would cost to buy the same amount of land in Dongguan, a city in southeast China where he runs three plants. U.S. electricity rates are about 75% lower, and in South Carolina, Liu doesn’t have to put up with frequent blackouts.

About the only major thing that’s more expensive in Spartanburg is labor. Liu is looking to offer $12 to $13 an hour there, versus about $2 an hour in Dongguan, not including room and board. But Liu expects to offset some of the higher labor costs with a payroll tax credit of $1,500 per employee from South Carolina.

“I was surprised,” said the 63-year-old president of Shanxi Yuncheng Plate-Making Group. “The gap’s not as large as I thought.” Liu is part of a growing wave of Chinese entrepreneurs expanding into the U.S. From Spartanburg to Los Angeles they are building factories, buying companies and investing in business and real estate.

True this is still a relatively small macro economic factor. However, it is growing. The primary push so far is economic - not a move to lean manufacturing (as far, as I can tell) to put manufacturing close to the customer. What is the biggest factor? The USA is spending more than $400 billion every year more than it produces. The only way to consume more than you produce is to borrow (and take an obligation to pay back those that lend you money) or sell the stuff you own to those that are producing more than they are consuming. China is producing more than $200 billion more than it consumes every year.

For decades foreigners have taken debt from Americans that promise to pay back later (to pay for what they consumed). Now many are deciding that these debts are not attractive investments and are looking to own productive assets in the USA (companies, factories…). Which is smart on there part in my opinion.

Should we continue to run current account deficits comparable to those now prevailing, the net ownership of the U.S. by other countries and their citizens a decade from now will amount to roughly $11 trillion. And, if foreign investors were to earn only 5% on that net holding, we would need to send a net of $.55 trillion of goods and services abroad every year merely to service the U.S. investments then held by foreigners. At that date, a decade out, our GDP would probably total about $18 trillion (assuming low inflation, which is far from a sure thing). Therefore, our U.S. “family” would then be delivering 3% of its annual output to the rest of the world simply as tribute for the overindulgences of the past. In this case, unlike that involving budget deficits, the sons would truly pay for the sins of their fathers.

From the original article:

But the Beijing government’s $5-billion stake in Morgan Stanley and $3-billion investment in the private equity firm Blackstone Group brought China’s overall investments in U.S. firms to $9.8 billion in 2007, up from $36 million the year before, according to Thomson Financial.

By comparison, U.S. investment in China was $2.6 billion last year, down from $3 billion in 2006, said China’s Ministry of Commerce. But many Chinese entrepreneurs prefer to keep a low profile, and experts say those figures don’t include a lot of investment activity happening under the official radar.

This is showing how low investment in companies in the USA by Chinese has been. Hundreds of billions of dollars has been invested in USA debt each year (largely US government debt). Another thing I like about the original article is the positive view the investor has of manufacturing in the USA. From our previous post, New Look American Manufacturing:

And does National Association of Manufacturers think the USA is good at nothing? Don’t manufacturers here benefit from being the USA? What cost advantages does that give them? I think being a manufacturer in the USA offers huge advantages as well as some challenges. The prospects are good.

Toyota Execution Not Close to Being Copied

John Hunter — Wed, 07 May 2008 11:44:34 +0000

The Open Secret of Success

Toyota’s innovations, by contrast, have [focused] on process rather than on product, on the factory floor rather than on the showroom. That has made those innovations hard to see. But it hasn’t made them any less powerful.

At the core of the company’s success is the Toyota Production System, which took shape in the years after the Second World War, when Japan was literally rebuilding itself, and capital and equipment were hard to come by. A Toyota engineer named Taiichi Ohno turned necessity into virtue, coming up with a system to get as much as possible out of every part, every machine, and every worker. The principles were simple, even obvious - do away with waste, have parts arrive precisely when workers need them, fix problems as soon as they arise. And they weren’t even entirely new - Ohno himself cited Henry Ford and American supermarkets as inspirations. But what Toyota has done, better than any other manufacturing company, is turn principle into practice. In some cases, it has done so with inventions, like the andon cord, which any worker can pull to stop the assembly line if he notices a problem, or kanban, a card system that allows workers to signal when new parts are needed.

Very true, except one thing. Toyota’s innovation is not limited to process and execution. Toyota’s long term vision results in very dramatic innovation (that granted is not getting the press today - check back in 20 years, I think you will be reading about it then). For some examples see: Toyota’s Partner Robot, Toyota as Homebuilder, Toyota Engineers a New Plant: the Living Kind and The Birth of Prius.

A company truly driven by a focus on continual improvement, respect for all employees and reasonable executive compensation might be a company serious about adopting Deming and Toyota management principles. It is hard for me to imagine such a situation that doesn’t truly seek, as the primary aim of the organization, to benefit many stakeholders (workers, owners, suppliers, customers…) not just executives (or just executives, board and owners…).

I Don’t Know

John Hunter — Mon, 05 May 2008 12:28:22 +0000

Guest post by David Kerridge (originally posted to the Deming Electronic Network):

This is part of a series in which I recall striking or thought-provoking things that W. Edwards Deming said, but did not put into his books.

I remember taking a manager to his first Deming 4-day seminar. Afterwards my friend said to me “I was very impressed with that man. He said ‘I don’t know.’”

Something in our culture makes us ashamed to admit ignorance. We expect quick, slick answers, whether from politicians, managers, or consultants.

Deming said “I don’t know” more often than anyone I have ever known. Sometimes you heard the answer about two years later, in his seminar.

I also remember him saying “I have learned more in the last six months than in the previous ten years.”

Maybe one quotation explains the other.

Clifton Gorge State Nature Preserve in Ohio

John Hunter — Sun, 04 May 2008 18:18:54 +0000

The Clifton Gorge State Nature Preserve in Ohio is quite a nice short hike. Photos by John Hunter. If anyone knows what the green beetle is please add a comment.

I visited the preserve last year. Other sites from the trip include: Rocky Gap State Park, Maryland and Coopers Rock State Forest, West Virginia.

More photos: Rocky Mountain National Park - Mount Rainier National Park - Capital Crescent Trail (Washington DC) - travel photo directory

Management Improvement Carnival #34

John Hunter — Thu, 01 May 2008 12:44:17 +0000

Please submit your favorite management posts to the carnival. Read the previous management carnivals.

Introduction to Factorial Designs by Jonathan Mendez - “I like the idea of velocity in marketing — test, learn, test, learn, test. Instead of one large test I prefer focusing attention on certain areas or elements to achieve deeper understanding.”
MIT’s Message about Lean Enterprise Transformation by Mark Edmondson- “1. Market leaders are good at embracing enterprise change; 2. Enterprise change requires a holistic approach that engages all stakeholders. This includes employees, suppliers, customers, unions, and investors/owners”
Two Types of Bottleneck by David J. Anderson - “I now teach that there are two types of bottleneck: capacity constrained resources CCRs; and non-instant availability resources”
Oranges, Pebbles, and Sand by Ron Pereira - “In this video my daughters and I demonstrate how meeting an objective is just the beginning to improvement.”
Why errorproof when you can double-check? - “If you are in the position to prevent the error in the first place, why wouldn’t you? And, I’d argue, if you can write a tool to detect the screw up - ie, it is possible to programmatically figure out that the template is wrong,”
Systems and Improvement by John Dowd - “Thus did Deming, over sixty years ago, show a basic model about how to think about quality and improvement.”

Getting Paid Not To Work by Kevin Meyer - “preventive maintenance became the norm and the mechanics spent considerable time educating the operators in the proper care and feeding of the machines. Everything revolved around keeping them up and running.”
Box seminar from 1996 remains visionary by Mark J. Anderson - “while working as a statistician at Imperial Chemical Industries (ICI), he banned the use of p-values by their industrial experimenters! (Box advocated the use of confidence intervals, instead.)”
Value Stream Communication by Mike Wroblewski - “We focus not only on the quality and quantity of information but the speed of communication from the shop floor to management and back”
The Dispersion of Toyota Talent by Mark Graban - “Convis is a servant leader. He listens to his employees. That’s the magic. I hope that’s what they can both help bring to Dana and Ford.”
Carol Hymowitz on the CEO Pay Gap by Bob Sutton - “You can overpay other senior executives too and thus entice them to stay; our you can create a big gap between the overpaid CEO and everyone else, which leads other senior executives to jump-ship. Either way, overpaying the CEO has costs beyond the extra dollars the CEO gets.”
You Can’t Steal What is Shared Freely by Jon Miller - “Whoever got people started using the phrase “steal shamelessly” in regards to lean ideas and practices should be ashamed. I am quietly offended when people say this to me because it shows a certain lack of respect for the act of teaching.”
The Defect Black Market by John Hunter - “This type of manipulation is what is encouraged by managers that think management means setting up such simplistic, senseless systems”

Management Seminar in Colorado

John Hunter — Wed, 30 Apr 2008 12:14:20 +0000

The Deming Institute is sponsoring, How to Create Unethical, Ineffective Organizations That Go Out of Business, 12-14 May, 2008 in Colorado Springs, Colorado. Kelly Allan and John Hunter will be presenting the seminar. Please let me know if you sign up.

Twenty-seven faulty management and corporate governance practices create most of the problems in any organization. These practices will be identified, and better practices recommended. It will be shown that as better practices are introduced, quality of products and services increases, costs decline, and you create a globally competitive advantage for your organization.

Learn how governance practice leads to the heaviest losses, how inconsistencies between policy and strategy create sub-optimal outcomes, how mismanagement of people leads to unethical and ineffective behavior, and how to overcome these problems. Study the theory and practice of management. Not quality management, not good management, not excellent management, not knowledge management, not risk management, not process management, not performance management, not supply or asset management, not technology management, not time management, not emergency management, just plain management.

Post Number 1,000

John Hunter — Tue, 29 Apr 2008 12:38:59 +0000

This is the 1,000th post to the Curious Cat Management Improvement Blog. Here are some highlights:

Post number 2: Dangers of Forgetting the Proxy Nature of Data - “We use data to act as a proxy for some results of the system. Often people forget that the desired end result is not for the number to be improved but for the situation to be improved.”
Most viewed post: Eliminate Slogans - management by slogan is not an effective management strategy

Information Technology: Toyota IT Overview - “customizing the code, to its business processes, and not the other way around.”

Manufacturing: Top 10 Manufacturing Countries - Manufacturing Jobs Data by Country
Health Care: Going Lean in Health Care - USA Healthcare System Costs 16% of GDP ($2.0 trillion or $6,697 per person in 2005) - Drug Prices in the USA - Change Health Care
The Purpose of an Organization quoting Dr. Deming: “The aim proposed here for any organization is for everybody to gain - stockholders, employees, suppliers, customers, community, the environment - over the long term.”
Process Improvement: Better and Different - Process Improvement and Innovation Go Together - PDSA Cycle: “One slow turn is much less effective then using it as intended to quickly test and adapt and test and adapt…”
What to do: Write it Down - Visible Data - Lean Thinking and Management - Use Books to Ignite Improvement - Management is Prediction - Standardized Work Instructions - Find the Root Cause Instead of the Person to Blame - Design of experiments - Performance without Appraisal - Bring Me Problems Even if you Don’t have the Solutions - Stop Demotivating Me! - Don’t Empower - Respect for People - Most Meetings are Muda - Managing the Supplier Relationship
Commentary: Obscene CEO Pay - Management Excellence - Management Advice Failures - Data Can’t Lie - New Rules for Management? No! - Be Careful What You Measure - Tilting at Ludicrous CEO Pay
Why blog? The Importance of Management Improvement - Bad Management Results in Layoffs

2007 Baldrige National Quality Award

John Hunter — Mon, 28 Apr 2008 13:56:55 +0000

The Baldrige National Quality Award winners for 2007 are:

PRO-TEC Coating, Leipsic, Ohio (small business)
Mercy Health System, Janesville, Wisconsin (health care)
Sharp HealthCare, San Diego, California (health care)
City of Coral Springs, Coral Springs, Fla. (nonprofit)
U.S. Army Armament Research, Development and Engineering Center (ARDEC), Picatinny Arsenal, N.J. (nonprofit)

President Bush met with winners for the first time since 2000, I believe (photo from Coral Springs web site). He did in private this year in the Oval Office. The Baldridge award had more prestige in the management community 10 years ago. In my opinion the award has failed to attract the best managed companies to apply.

When you purport to recognize the highest level of management excellence you should understand that leaving out those companies that are widely seen as excellent calls into question the credibility of the award. I can understand the challenge in convincing many potential applicants to apply. I would say that is the same challenge companies have that want to convince potential customers their solution is what the customer should purchase.

ARDEC provides a public version of their application (some details removed) that is interesting. ARDEC received the President’s Award Quality in 2000. From 1998 to 2002 the President’s Quality Award recognized management excellence in the federal government based on a Baldrige-style system (it was then switched from Baldrige-style to generic “excellence”).