Monday, December 29, 2008

lean healthcare

The Toyota Production System (TPS) earned the sobriquet 'JIT' in the 1960s. It created a very narrow view of TPS and created an image that it was suitable only for discrete and repetetive manufacturing industries. It created an image that implemeting TPS meant 'zero inventories'. Actually zero inventories are only possible when the production shop is shut down for good.

The word 'lean' has replaced JIT to describe TPS. The word first surfaced in an article by Krafcik in the Sloan Management Review in the Fall 1988 issue. Womack's book 'The machine that changed the world gave the word 'lean' worldwide acceptance. Both Krafcik and Womack talked about TPS. The only difference was that they talked in terms of generic principles. This caused a
huge change in the nature of TPS implementations. Service organisations started implementing their own version of TPS.

Check this article of lean implementation at a small hospital.
http://minnesota.publicradio.org/display/web/2008/12/23/leanhealth/

It gives a very good message. TPS / Lean / JIT is not merely about inventory reduction. They are a set of principles. It is about making work more simple and reliable. Kanban, TPM, etc are merely tools. Lets hope more organisation abandon the jargons and fall in love with the simplicity of TPS.

Thursday, December 18, 2008

End of an era?

The GM and Chrysler bailout funding drama just does not seem to end. Both sides have their points. But that the Christmas vacations may never end in these two companies is definitely a possible situation. Read this article:
http://www.nytimes.com/2008/12/15/business/15costs.html?fta=y
It is a common academic statement that rarely have companies survived by cutting costs. Yet, it seems sad that such huge multi billion dollar enterprises have to stoop to a level of monitoring all purchases of over $10,000. Everything in the press is about how these and other auto companies are acting to reduce costs. Nothing is about new strategies on how to earn more money. If saving costs is a prime requirement, pensions - they are said to be as much as $1500 per car for GM, could be first reworked. Better deals with hospitals could be worked out, lower insurance premiums negotiated. A 10% savings here would be a lot higher than the savings from saving a few sheets of paper or electricity.

That sales will fall is an accepted fact. Earning more money means increasing margins. It also could mean doing something else with the spare capacity / resources. Auto companies could think of a business where they refurbish old cars. People still would need to move and cheaper used cars (that are refurbished by the original company) could be a good business.

The companies need to do something positive and not merely cut costs. I am sure there would be a way. If nothing is possible maybe they could prepare for a grand end that has a minimal impact. All said, with the current spree of cost cutting and waiting for the 'bridge' loan seems to be a stop gap measures. The sales are going to continue to fall and a new loan would again be required in due time. All the Best Gm and Chrysler.

Wednesday, December 3, 2008

Effect of terror attacks

Check this link -
http://online.wsj.com/article/SB122828423164375463.html?mod=googlenews_wsj
If we go by this article, the terror attacks in Mumbai are by themselves not going to have a major impact on the investments in India. While Indians may cheer it as great news and a measure of confidence on the so called "Great Indian Dream", I believe it is a lack of foresight.

The continuous acts of terrorism in India clearly demonstrate the lack of security and political will in India. Add to this the token and glamour based opposition from the people (candle light vigils, human chains) clearly show that the situation is not about to change very soon. In fact it would get worse. Especially for American and Israel based companies in India. Given the solid planning demonstrated in the current strike, it would not be difficult for the terrorists to strike selective targets. Targeting the factories that are in rural areas would even be easier.

There could be a few reasons for the international manufacturing companies not changing their plans
1. They already have invested substantial capital and pulling back now would be a major loss
2. They see India as an extremely cheap manufacturing destination. Given the current economic downturn, the companies might feel that the India cost advantage might make survival possible.
3. They plan to staff the Indian Operations with very few expatriates and so the death / damage would be of locals only.
4. Suitable insurance policies to take care of all possible financial losses.

I believe all the points are myopic.
1. As companies are reducing production, with new capacity in India coming up they would have to stop something. Either way capital loss is certain. The continued cost of keeping non operating plants in Europe / USA (pensions and other overheads) might work out to be substantial.
2. Given the lack of infrastructure the real costs of producing in India might be higher. The added security and insurance costs would also add up.
3 & 4. The disruption of supply from the India plant would be a huge loss. Especially in a recession based market. Competitors would take away the market share in the time in which the supply resumes. Getting it back would be very difficult and costly. No insurance policy or alternate manpower planning can reduce this loss.

My message - India is a huge risk proposition.

Saturday, November 29, 2008

Manufacturing cuts in Japan

Manufacturing cuts are a rule now. Check this link that talks of cuts in the supposedly super efficient companies from Japan.
http://www.google.com/hostednews/ap/article/ALeqM5jmfkCQFvxtt6IXRmfAjmFGTya2yAD94NR8580

The production cuts would of course be useful only if they create a substantial reduction in the costs. For companies with a high level of fixed costs in the form of expensive machinery or pension expenses, the cuts would not help much. They might be better off in reducing prices and hoping (and praying) that the demand picks up.

I am sure there would be other things to do. Companies of course have a reserve fund that they can use to survive in such periods. But there should definitely be other techniques that manufacturers can leverage on in these hard times. Reducing production and firing people seems to be a knee jerk reaction. I do not have a solid proof on what I am saying, but I hope I can create a complete picture in the next few posts.

Saturday, November 15, 2008

An America without manufacturing

Check this passionate appeal to save the automobile companies in the United States..
http://www.detnews.com/apps/pbcs.dll/article?AID=/20081115/AUTO03/811150338/1149
Part 1
Manufacturing has this unique ability of generating jobs for a lot of people directly and indirectly. An automobile factory needs vendors, who would themselves need vendors and so on. Since this is a sector on which so many people depend, and that has such a wonderful legacy of promoting the weaker sections (African Americans), should it be allowed to shut down? If we say no, are we not going against the basic principles of capitalism? Is the purpose of a firm job creation or is it profit?
If I take another view, is the motive of a firm its own profit or the benefit of the nation in which it conducts business? Would it be okay for an American company with invenstments from India to take a step that is in American interests but may not be slightly detrimental to the company?
Part 2
America has a rich history of innovations. They have a strong knowledge economy. Can the nation survive on the basis of this knowledge economy without owning their own source of manufacturing?
Part 3
America is supporting financial institutions. If these companies can be supported why not the Big 3?

I do not have answers. maybe at some point someone reading this might come up with something. I might add something myself later.

Monday, June 30, 2008

Yahoo for Indian manufacturing?

A report in the Economic Times says that among the top five companies in India, four are manufacturing companies. Chk this report here:
http://economictimes.indiatimes.com/Editorials/Indias_manufacturing_story/articleshow/3173702.cms

On the face value this is a time to say "Cheers" to the Indian manufacturing industry that has been in the shadows of accomplishments by service companies. History has repeatedly shown that the super powers, whether Romans, Greeks, Russians, Americans or Chinese have been all manufacturing led economies. India with a push in service and software oriented industries was trying to create a different path for global dominance. While creating a different path is not a problem it had imposed a sort of step motherly feeling for manufacturing. The general sentiments also did not favour manufacturing. That India would always be an underdog to China in manufacturing was accepted as fait accompli.

At one level the report surely increases the confidence level of Indian manufacturing. It sort of creates a feel good factor. This feel good factor is not a small thing as it slowly create a wave of positive attitude towarda manufacturing industries. This would mean more people taking up manufacturing as a profession, more investments, more output and so on. It is only on the basis of such positive sentiments that economies develop and take off. There are of course tens of ways to counter the article. The aquistions of Indian firms are still young and cannot be called a success. Manpower is still a huge problem. But overall the article does give a thumbs up for the manufacturing sector.

Wednesday, June 11, 2008

Fuel costs dictating change

Continuously rising oil prices have thrown many calculations out of gear. Suddenly the cost of one drop of fuel has begun to matter. There are reports of Americans moving towards smaller and fuel efficient cars. I refer to Americans because they are the most inefficient users of oil and other energy. As a fallout of this most automakers have changed their production plans. Check this report on Nissan.
http://www.allheadlinenews.com/articles/7011219024
Nissan is cutting production of its SUVs and trucks and moving towards making more Ultima cars which I believe would be a lot more fuel efficient. Most other automakers would have already changed their plans as well. To be able to make the new plans effective is altogether a different question.

Small cars are typically low margin high volume business. SUVs are high margin vehicles for manufacturers. Changing from SUVs to small cars is not merely changing from one vehicle to another, it is a huge change in mindset. Every small waste has to be examined in case of low margin businesses. SUV factories may not be tuned to operate in this environment where every single bolt and washer has to be accounted for.

Since the talk is on changes being dictated by fuel, I would like to point out one more article-
http://www.nytimes.com/2008/06/11/business/11air.html?hp
Airlines are now washing the engines more often as small specks of dirt can increase the fule consumed. They are also switching to lighted seats, carrying lesser water for toilets. Fuel which was 15% of their costs in the year 2000 is all ready more than 40% of the costs today.

If I think of the time aircrafts in India spend on circling the airports (plus the low cost of manpower), I am sure the proportion of fuel costs would be much higher. Smarter management to reduce this time would easily bring a smile to the bottom lines of most airlines. Such changes and calculations would be considered academic last year, but today it could mean a difference between life and death.

Friday, May 30, 2008

Global manufacturing

The flavour of the season for global conglomerates is to have specialised factories in different parts of the world specialise in a certain product. So, for example, a manufacturing plant in India can be a hub for small heat exchangers that are supplied to the entire world from here. The same company would supply boilers worldwide from their plant in China. This supposedly ensures that the companies get the benefits of scale and specialisation. Also control is easier.

What this ignores is that the businesses becomes too dependant on the fuel prices. At the US$125 per barrel range I am sure that the entire mathematics of localised manufacturing has gone awry. Read this article that talks about manufacturing in China becoming uneconimical:

http://seekingalpha.com/article/79417-challenges-pile-up-for-chinese-manufacturing?source=news_sitemap

The key would be to find the proportion of fuel costs in the total cost of the product. The company could then factor in the fuel comfort zone - the price of fuel upto which they are comfortable manufacturing in specialised regions.

Friday, May 23, 2008

Struggling Dell?

Dell Inc. is closing its manufacturing facility in Austin, Texas. check this article.
http://www.marketwatch.com/news/story/dell-close-texas-plantweigh-sale/story.aspx?guid=%7B0DF2ADF8-453A-4B08-BC32-74E75CFA0389%7D

The article starts by labelling Dell as a 'struggling computer maker.' This is the first time I have seen the adjective 'struggling' being used to describe Dell. The makers of Dell had a merry time because of absence of legacy supply chain that allowed them to sell products directly. While direct sale was good for the commercial segment, retail consumers were never the major target of Dell. Now, with commercial spend on a tight leash Dell has no option but to look out and attract retail consumers. This is easier said than done.

Wednesday, April 23, 2008

China and US at it again

The current feud is about contaminated heparin that has apparently caused 81 deaths in the United States. To a lay man it might seem like a simple issue of contamination happening at a local facility in China that has weak processes. Read this link in The New York Times
http://www.nytimes.com/2008/04/22/health/policy/22fda.html?_r=1&scp=1&sq=heparin+China&st=nyt&oref=slogin
There is an amusing paragraph in the middle: China has in recent years exported poisonous toothpaste, lead-painted toys, toxic pet food, tainted fish and now, contaminated medicine.

All this seems to be part of a larger battle to assert dominance. This is not a political blog, but the point of putting it here is that your products may suffer becuase of your country's relation with your customers' country. Judging by these events I think it might be prudent for small manufacturers to avoid certain markets altogether. In short run it might seem to be a bad business idea, but in the long term it should work out.

Moral of the story: Just because you have a market, it may not be a good idea to sell there.

Tuesday, April 22, 2008

New product development

My last post in November 2007 was about sew product development and so I start the blog again after 5 months on the same topic. When the user and the designer are two seperate departments both would naturally have different requirements. Not necessarily all these requirements can be mapped, because all may not be logical. For example if a doctor has a preference for a particular brand of surgical instruments he will not switch brands merely on the basis of logic. There is a realiability based bond that he has with the current brand.

Coming back the the point, when users and designers of a product are a very different set of people, conflicts are bound to occur. Nothing displays this conflict more than the development of India's indigenous battle tank Arjun. The designer is DRDO and the user is the Indian Army. Chk the link
http://www.business-standard.com/common/news_article.php?leftnm=10&bKeyFlag=BO&autono=320813
Ajai Shukla has done beautiful work in bringing out the story from both sides.

One more point of consideration is the long lead time of design. The long lead time ensures that customers have time to be impregnated by new ideas and rock the existing boat. The key would be to create a product as fast as possible and give it to the customer. There will always be a scope for improvement. This scope should not limit the product being produced. Like the Eurofighter mentioned in the article, a basic product should roll out first and then there can be incremental improvements. Unless there is a huge safety issue I believe that some product is better than no product. Given the strategic nature of defense sector I believe that some version of the tank should be in service as soon s possible and it can be developed as and when needed.

I'll do some wishful thinking here. Maybe if the design was modular, we could very easily replace the old technology modules with new gadgets as soon as they are designed.