Anyway, the money quote comes at the end of the article:

In the question stated above, “cheap” is a misleading word. The more productive China becomes, the cheaper its labour will be, at least relative to what you get.

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While there are many articles and posts out there discussing LEAN in healthcare, I just like the way this explains it.

Some quotes from the transcripts, with my comments interspersed [in italics and in square brackets].

BILL MOYERS: Why are we talking about the American health care system as a crisis? What’s wrong with our health care system?

DR. JIM YONG KIM: My own particular take on it is that I think for many, many years, we’ve been working under the fantasy that if we come up with new drugs and new treatments, we’re done.

The rest of the system will take care of itself. In my view, the rocket science in health and health care is how we deliver it. And unfortunately, there’s not a single medical school that I know of that actually teaches the delivery of health care as one of the essential sciences [sic]

[in other words, Dr. Kim is saying that high-tech innovation alone is not enough to make us excellent. The same can be said for many manufacturing facilities.]

DR. JIM YONG KIM: Well, just think about a single patient. So a patient comes into the hospital. There’s a judgment made the minute that patient walks into the emergency room about how sick that person is. And then there are relays of information from the triage nurse to the physician, from the physician to the other physician, who comes on the shift.

From them to the ward team, that takes over that patient. There’s so many just transfers of information. You know, we haven’t looked at that transfer of information the way that, for example, Southwest Airlines has. Apparently they do it better than any other company in the world.

[The same way we gain efficiencies by LEANING the flow of materials and of information in our facility.]

DR. JIM YONG KIM: It means how do you evaluate clinical outcomes? How do you understand variation in doctors’ practices, for example? And ultimately, how do you fix the problems? So the group at Dartmouth Institute does all of that. We look at variation. You know, why is a Medicare reimbursement rate, you know, almost a third in the Mayo Clinic area, as opposed to Miami?

[Measure results.  Analyze variation. Improve procedure.]

DR. JIM YONG KIM: Well, I’ve noticed over the years that when it comes to our most cherished social goals, not only do we tolerate poor execution, sometimes we celebrate poor execution. Sometimes it’s part of the culture. You know, these folks are trying to solve this terrible problem. They can’t keep their books straight.

They really don’t know what they’re getting. They don’t measure anything. But they’re on the right side, so that’s okay. I think we’re in a different time.

[Tolerating waste as a cultural problem.]

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This month, Bill Waddell of Evolving Excellence gives another example– none other than General Motors. Anyway, for another (more skillfully written) take on a similar issue, go to his post here.

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During that first tour, I was chatting with my friend’s production manager. Pointing at the mountains of semi-finished goods on the factory floor, I explained that in those mounds were hiding defects (later to be discovered by customers), clogging the production cycle (impacting delivery), and tying up his boss’s cash (needed for sales, marketing and other investmens).  Reducing the WIP, I argued,  would be a solid first-step in turning the place around.

To my surprise, the production manager seemed well versed in LEAN. He understood how to balance the production on both sides of the bottleneck, and how to eliminate non value-added steps in the process.  He understood the value of JIT and Jidoka.

“All good stuff”, he said.  “But we can’t implement it here.”

Why? Because they were too busy for LEAN or JIT.   If they tried he explained, it would slow the process flow, resulting in even more delivery problems.  Yes, in principle it’s a good idea.  But not here.  Not now.

That was during the good times. Yesterday’s visit showed a much slower factory, with much fewer workers and lots fewer orders. Some things, however, haven’t changed. There are still piles of WIP on the factory floor, and (not surprisingly) they are still having quality, delivery and cash-flow issues. Once again, I broached the subject of LEANing the production flow, and once again there was a “good reason” not to. Whereas before they were “too busy” for LEAN, now there was “not enough work” to go LEAN. Now the thinking, it seems, is that if they go LEAN and utilize their labor (and other resources) efficiently then some people wouldn’t have enough work to be kept busy.   (I mentioned to him that the workers who were idled by balancing the line could be employed in his factory’s 5S efforts, but that didn’t go over too well).

This I’ve heard before.  LEAN makes sense.  It’s good stuff.  But not here.  Not now!  Here are some lame excuses to maintain waste in the production cycle:

• People need to be kept as busy as possible. That’s the only way to be efficient. (Actually, processes need to be efficient– not people)
• It works for Japanese and westerners, but for cultural reasons, Chinese can’t understand/implement/accept it. (Total bullshit.  LEAN works just fine in China)
• LEAN production looks less busy and active, and people will think they don’t have to work hard. (Not really.  People are smarter than that– especially the workers who can see first hand how productive their team has become).
• You will need to hire lots of additional people to do the clerical work required for LEAN. (Not true.  And if there were “extra work” to do, it could be done by some of the people made temporarily redundant by balancing the line).
• People want to do the same repetitive tasks over and over all day.  It makes them feel like experts. And the longer they perform that one task, the quicker and better they become.  (I doubt it.  But even if it did make them faster, it wouldn’t make production faster or any better.)
• LEAN is great if you have large production runs, or if all of your items utilize similar process steps. But our low-volume/high-mix model can’t be LEAN. (100% wrong.  LEAN is great for low-volume/high-mix production.  LEAN makes your facility flexible and agile).

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Here’s an example of a “LEAN” organization that didn’t get this point:

The China manufacturing subsidiary of a Really Big Corporation  (we’ll call them “RBC” for short) purchases small volumes of manufactured components from it’s vendors.  In order to cut inventory costs and reduce lead-times to almost zero, it requires its vendors to stock both excessive amounts of raw materials  and also a fairly large quantity of it’s finished goods (which are the customer’s components).

The strategy is, in the narrowest sense, successful.   RBC holds almost no component or material stock, and yet, whenever RBC needs one or one thousand components for it’s manufacturing, they are always on-hand immediately.  Zero Stock!   Zero Leadtime! And if RBC has a spike in demand it’s no problem (for them)  because their vendors have been commanded to hold lots and lots  of raw material on-hand.  Just in case. (Better safe than sorry, I always say)

OK, they’ve added value for the shareholders; cash flow is improved and the risks associated with stocking is drastically reduced.  And they’ve added value for the customer, because lead times are reduced and flexibility  is enhanced.

The problem is that RBC has not really reduced waste, it has just dumped it upstream, which is as smart as pissing into the wind (or tugging on Superman’s cape).   Because the waste that RBC has driven out of its internal material flows has now shown up as liability on the balance sheets of its vendors.   And make no mistake, the waste is flowing back to them– as a result of waste dumping, RBC cannot command the  price reductions in might, because vendors are raising prices in an effort to  offset the cost of carrying  so much slow-moving inventory.  In some cases valuable vendor relationships, costly for RBC to initiate and develop, are in jeopardy, meaning that they will likely  spend time, money and “bandwidth” to find, qualify and train new vendors.

The sad part is, it doesn’t have to be this way.  RBC could have achieved a most of its objectives without unduly burdening its vendors by working with them to set up reasonable and fast-moving buffer stock procedures.  How this is done would vary from vendor to vendor, but to a certain extent, it can be accomplished.  An added benefit is that the vendors who were not versed in LEAN could have learned some valuable inventory management techniques.

Don’t worry too much– RBC will be just fine (they are, after all, Really Big).  In addition, I understand that they are open to learning, and may change their ways.   I write about it because I hate  to see otherwise respectable and forward-thinking companies giving LEAN a bad rap with this type of implimentation.

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Seems accurate enough.   But what caught my eye were the last two paragraphs,  sharing the stated views of a famous Chinese labor activist:

[The activist]…once incarcerated for his efforts to establish an independent alternative to the government-sanctioned All China Federation of Trade Unions, notes that the last thing the country’s labour movement needs is more martyrs rotting away in Chinese prisons for daring to challenge the Communist party’s authority. Far better, he adds, to focus on factory-floor issues that affect workers’ daily lives. [emphasis mine]

As [he] said in an address to Hong Kong’s Foreign Correspondents’ Club earlier this year: “Why not let workers and employers settle their problems [independently] at factory level? That’s the best way to make a harmonious society.”

What does he mean by “factory-floor issues that affect workers’ daily lives”?   It looks like he’s telling us workers rights will improve not by workers banding together to cause unrest, but by going to the gemba and working together with management to ensure  that their working lives are safer, more comfortable, and more productive (with the assumption that increased productivity means increased compensation for the worker).

Not news to me… I’ve said elsewhere that LEAN, JIT, and related strategies and concepts can do more than just add value for shareholders and customers, but can add value for the workers and for the community as well.   What surprises me is hearing it from labor.

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Basically, Kristof’s argument is that Western intolerance to sweatshops lead to joblessness and misery in poor countries.  After all, a sweatshop job is better than abject poverty.

He writes:

When I defend sweatshops, people always ask me: But would you want to work in a sweatshop? No, of course not. But I would want even less to pull a rickshaw. In the hierarchy of jobs in poor countries, sweltering at a sewing machine isn’t the bottom.

My views on sweatshops are shaped by years living in East Asia, watching as living standards soared — including those in my wife’s ancestral village in southern China — because of sweatshop jobs.

Well, MY views on sweatshops are shaped by  a decade of experience running factories in Southern China and by doing business in the greater China for over two decades.

My comments:

1. If labor standards are constraining the rise of manufacturing in poor countries, and eliminating those standards would help alleviate poverty, why not take it further; why not eliminate safety  and quality standards (UL, CE, et al)  and environmental standards (RoHS, WEEE) at the same time?

2. I’ve seen a number of ugly facilities in China which I would classify as sweatshops, and have found that these factories tend to  waste big bucks through mismanagement of labor and inventory, and then try to draw it back by skimping on workers’ compensation, housing, and benefits.  Simply allowing these factories to run on as sweatshops puts no pressure on them to improve their management.  (Yes, I’m saying here that even in “low cost countries” such strategies as LEAN and JIT can work to improve results for workers, shareholders and customers alike).

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In it’s most recent post, Evolving Excellence cites and agrees with a Manufacturer’s Monthly (Australia) article comparing the total costs of outsourcing to China with the total costs of purchasing from a lean local factory. The conclusion from the Manufacturer’s Monthly article is succinctly stated:

Agility is the key to beat Chinese imports and lean manufacturing the most effective tool to achieve that agility.

Lean enables suppliers to offer faster service, better quality, smaller batch sizes and a greater degree of customisation than traditional manufacturing approaches without increasing unit costs. Lean can drive down total costs for customers by reducing inventory holding and handling costs, obsolescence and the cost of poor quality.

Fair enough– lean leads to competitive and strategic  advantages in inventory costs, lead times, quality and overall operations.    But you can’t count on “lean” to be competitive against the Chinese for one simple reason… the Chinese can be as lean as you can!!

Some (corrected) excerpts from my comment on the Evolving Excellence post:

The comparison cited above (and many like it) assume that the only choices are “lean” on one side and “outsourced” on the other. This is a false dilemma. What happens when you compare “lean domestic” sourcing cost with “lean China” sourcing costs?

My experience in China tells me that the China-based factory can be operated in a lean manner, mitigating the costs of longer transportation lead times, and not incurring the prohibitive costs associated with support functions and poor quality. If that’s the case, then the cost savings associated with low-cost production will in many cases (but not always!!)  be enough to ensure profitability, even though long-distance transportation costs and transportation lead times are an offsetting factor.

By all means if you’re  a manufacturer  go lean… it’s good for you, your shareholders, your employees, your vendors and your customers.  And if you are considering outsourcing, do ensure that you are taking into account total cost when you make your decisions.   But don’t assume that going lean (or buying from lean sources) will offer you a competetive advantage against aggressive pricing in the long run, because the competition has access to the same advantages you do.

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About 10 years ago, I was hired as the sourcing director for ***** Electronics, a privately held company headquartered for over 40 years in southern California.   We were a smallish power supply company, supporting OEM projects for some major players in the medical, commercial and sometimes retail electronics markets.   We had no China facility, and relied on our Taiwanese suppliers to realize the designs, make the products and ship them to us.   My job was to setup and run a small liaison office in Taiwan,   managing the development and sourcing of power supplies with our Taiwanese OEM and ODM vendors, and ensuring the quality of products made by those vendors in their Taiwan and Chinese factories.

Previous attempts at outsourcing in Mexico had failed miserably, and now it was time to try Taiwan as a manufacturing center.  Prior to my arrival, Taiwan wasn’t working either.   It was clear that Taiwan wasn’t “working for us” because it’s factories in Taiwan didn’t have the quality understanding to satisfy our market’s demands, and their factories in China (where an increasing number of our products were being made) didn’t have the flexibilty to “buy into” our high-mix low-volume high-value model.  The results: projects sold to major customers  got to market late, or never made it to market at all.   Most damaging were product recalls for power supplies sold to Bloomberg and Kodak.

I found that the problems were manifold: the vendors were quoting and planning our production on a mass-production model, but in the end were getting the small, unattractive orders our company had come to expect.  In their business models, low volume = low value.

While I was able to improve the results we got with our Taiwan vendors, I could not change the basic DNA of the situation:  we had a  fairly large large number of vendors, each geared for mass production of commodities, each getting small orders of products requiring a quality and technical level they had never encountered before.   Products and Projects stalled, sputtered and failed.

So it was decided sometime in 1999 that we would solve these problems by setting up in China.   When I mentioned to our current vendors that we would be setting up in China, they tended to snicker as they mumbled “chasing cheap labor”.  My dirty little secret was out, as if I’d winked while mentioning I was “going for a massage”,

This was when labor WAS still cheap in China, but cheap labor was not even CLOSE to being the driver for the move.  This facility was set up (and remains) in Shenzhen city (in Nanyou), which is a much higher cost setting than where any of our competitors had set up (usually in Shenzhen’s  outskirts, or in Dongguan).   We paid our people more, and spent more on housing and other benefits than our competitors did (many called me stupid to do this, and warned me against “spoiling” the workforce).

What we chased, or what we caught, was a stable and flexible workforce.   In retrospect, cheaper labor would have been much more costly.  That facility, with it’s high labor costs, started on a shoestring budget, grew to take in all previously outsourced production, and grew an R&D function which was intened as a “back office” to the US R&D facility.  In the end that too became the driver of our company’s R&D capablity.

So we came to China and paid our workers too much, spent too much on their benefits and too much on ensuring their comfort and safety.  And all we got for all this “cost” was LEAN, flexible, and otherwise value-added production.  The value, added by this flexible and stable workforce, was not lost on the market, and as  we added Fortune 500 companies to our customer list, our value and stature grew.  Finally the operation was finally purchased by a competitor.

I left that company in 2005, but I still talk to people in that company fairly often; I’ve never heard anyone mention moving out of southern China to chase cheap labor.

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I do believe, however, that those manufacturers who practice LEAN and it’s related strategies may be better able to whether the storm, and may even come out better.  Here’s why LEAN and JIT may help manufacturers get through the crisis:

When labor costs rise those more efficient in labor utilization will gain more value as a competitive advantage. This is one of LEAN’s primary advantages.

When credit is scarce there may be opportunities for growth for those organizations who can utilize cash most efficiently. Once again, LEAN and JIT make better use of cash as inventories are reduced. Those that waste cash on creating WIP, creating rework, and creating stock will be at a fiscal disadvantage.

When order sizes decrease, as is likely in a recession, those manufacturers which are flexible and can efficiently produce smaller lots and ship them JIT may have opportunities for growth, taking business away from the larger, less flexible manufacturers who are unable to adapt to smaller order sizes with a greater product mix.