Viewpoint -- Industry's New Look

March 13, 2009
Manufacturers have not yet truly embraced what LEAN Six Sigma tells us

A few years ago, I interviewed the President of a large machine business about how he viewed global markets and competition and how his business was responding to them.

I've not forgotten his prescience: "we can't shed our conventional thinking fast enough to embrace the new ideas that will rule our markets in a few years, even months."

At the time commodities prices were high and producers all over the world were tripping over themselves to make stuff faster. Not smaller. Not smarter. Just faster.

This weekend I drove 700 miles through the heart of U.S. steel and auto markets, through Indiana, Michigan, Ohio and Pennsylvania and saw the direct consequences of the time. In every factory back-lot were stacks and stacks of new products waiting for orders. I noted steel bar, roofing supplies, truck beds and bodies and lumber, with no place to go.

For as LEAN as we thought we were, this correction and these inventories point out a critical flaw in the industrial supply chain, which is the assumption of demand based on historical data.

In fact, the correction shows us that we've not yet truly embraced what LEAN Six Sigma tells us.

I can safely estimate that I saw billions of dollars of inventory. The point is not that it will take years to work through it. The point is that it shouldn't be there to begin with.

U.S. manufacturers have done extraordinary things with LEAN Six Sigma within their businesses. We can measure fractions of pennies in the costs associated with the production of a vehicle. But we are often unable to measure the cost consequences after the production event is over, and ownership begins. If we were able to measure these things, we would be able to do something good with them.

LEAN hasn't reached sales and marketing yet and the effects of this shortfall are everywhere; manufacturers continue to lay off workers because they haven't been able to reduce their inventory to a level where they actually need additional production. Sellers are drastically dropping their prices and taking losses, in an attempt to clear out their storerooms.

Winning in tomorrow's markets hinges on four factors:

  • Small. Everything is about to get smaller: supply chains, machines, infrastructure, service events.
  • Smart. Everything has to be smart in order for everything to be small. Technologies that are easy, communicative and connected will continue to proliferate.
  • Agile. Lean isn't just about producing fast. It is about producing and changing fast. One without the other isn't lean.
  • Aware. Until now, many companies have been flying blind.

Tomorrow's leaders will take dramatic steps to improve information collection and sharing process in order to create a transparent supply chain that connects business processes and resources to traditional demand levers, and to larger market shifts instantly. Businesses that help other businesses accomplish small, simple, agile and aware will thrive.

Nicholas Hayes is a partner at FiveTwelve Group which provides business strategy and market research to Fortune 100 companies. He is co-creator of RADCL Software -- a best practice for research-driven decision making and information collection modeled after Six Sigma practices, which harness the thinking of teams.

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