It always astounds me when I walk into a large business, even many with a billion dollars or more in annual sales, and discover that they don’t have any kind of formal continuous improvement program.
The only explanation I can come up with is that they’ve been so financially successful, and so wildly profitable, that they haven’t needed one. Yet.
You have to wonder at the millions of dollars they’ve been leaving on the table every year. Dollars that could increase earnings and be returned to investors. Dollars that could be used to make acquisitions, or upgrade equipment, or train employees. Dollars that could be invested anywhere to help the company maintain its edge over competitors and grow even faster. As obvious as such benefits seem, I figured there must be some other reasons why upper management doesn’t believe continuous improvement is important.
Upon further reflection, here’s what I came up with.
The second law of thermodynamics states that entropy of an isolated system always increases over time. In business entropy describes the inevitable, gradual decline into disorder. Whether you’re making aerospace parts or providing engineering services, if your organization is not improving, it’s falling apart.
Up through the 1970s, General Motors and other staid American corporations set the standard for how to manage a business. Central control and “management by objectives” were the key elements of a business system that worked well enough. Then, by driving waste out of business processes, engaging workers’ minds, and fostering a flexible workforce, Toyota transformed the competitive landscape. That transformation has not stopped.
In October 2009 I visited a manufacturer of business jets as part of the process for my company becoming a supplier. The factory couldn’t keep up with demand and rivets were flying everywhere. The next week everything stopped. Banks would no longer loan money for business aircraft, and customers started canceling orders. Fortunately, the firm had a top-to-bottom CI initiative in place. The crash led to some painful layoffs and difficult years but the company survived.
In a global market everyone is out to take your business! Fluctuating foreign exchange rates, labor costs and shipping rates are constantly changing the sourcing equation. In the 1980s through the early 1990s, with the decline in global trade barriers, manufacturing moved to Japan and Hong Kong. Then it moved to Mexico, China and Eastern Europe. Economic changes, new technology and continuous improvement are now reshoring some of the work back to North America.
Emissions rule changes, minimum wage increases, OSHA enforcement actions, and other arbitrary regulatory burdens can stifle U.S. manufacturers’ ability to grow and flourish. This year the federal government is promulgating over 4,000 new regulations. The states are adding to that burden. Driven largely by the mandatory minimum wage increase, a client in California is pushing hard to improve its production processes and remain an American manufacturer to avoid moving work to China.
I can’t think of a customer segment that isn’t demanding faster service and more variety. In a society that gets upset at slow internet speeds, managing and exceeding customer expectations is paramount. I did some work with a heavy truck manufacturer that excelled on the product variety front, but struggled with speed. As part of their sales process they brought in customers and showed them what they were doing to improve and speed up their manufacturing processes. By managing customers’ expectations and driving lead times down by a third, the company increased sales and market share significantly.
As the former owner of a tier one aerospace manufacturer, I can tell you from personal experience that the cost of raw materials, labor, outside processes, power and transportation costs NEVER go down. Sure, they fluctuate, but the general trend is always up. At the same time OEMs are always asking for price concessions (see number 6 above) helping to further squeeze margin out of your products. Driving waste out of your manufacturing processes is a necessity not just to make a profit, but to stay in business.
The point here, of course, is that continuous improvement is essential to driving business growth and protecting earnings in a highly competitive world market. Even we CI consultants must constantly evaluate and improve our client services. TBM’s focus in the early 90s on lean transformation has evolved and improved with our customers’ needs for help sustaining their progress, managing growth, integrating acquisitions, and streamlining their supply chains. That continual growth and improvement never stops and is what makes our work so satisfying and rewarding!
A senior executive with over twenty-five years of experience bringing innovative solutions to unstructured problems. Throughout his career, John has provided superior leadership, team building project management and excellent communications. He has a proven track record in maximizing profit through cost reduction and streamlining operations with deep experience in turn around and startup leadership roles. He spent the first half of his career at AlliedSignal taking on progressively responsible roles in engineering, cell design, cell management, and remanufacturing. Most recently, John served as the CEO of Lewis Aerospace, an established provider of manufacturing, repair and overhaul to clients like Honeywell and Boeing.