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Total Productive Management: How manufacturers are accomplishing miracles by managing productively

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Everybody's attention has been focused on the American recapture of leadership in the world economy (and thus in management) and on the relative failure of Germany and, above all, Japan. That focus has gone hand-in-hand with the belief that old-line manufacture has gone into terminal decline, to be succeeded by services and the gee-whiz technologies of Silicon Valley. The US and (on a smaller scale) the UK, on this reading, have been leading the way to a new post-industrial world in which the most prosperous nations will owe their riches to the knowledge industries.

As Thinking Managers has stressed, the newcomers in Silicon Valley and elsewhere are pioneering the development of a new style of management, faster-moving, freer in style, non-hierarchical, anarchic, that is going to affect all industries - especially as managements discover and exploit the potential of the new information technology. But the attention grabbed by the hot-shot entrepreneurs, with their unbelievable stock market ratings, ignores one unarguable and all-important fact. The hot-shots, like everybody else, depend on the products of traditional factories - and these are the sites of a different management revolution, which is still being led by Japan.

This truth was rammed home for me at a recent Stratford conference on TPM, which stands for Total Productive Manufacturing, and is a close relative of TQM, or Total Quality Management. There were speakers from the oil industry, tyres, food, chemicals, liquor, packaging, trucks, nuclear fuel, cars, castings - all among the multitudinous suppliers of manufactured goods which are indispensable to every aspect of the modern economy. Mobile phones, PCs and Internet routers could not exist without these products: and the greater efficiency of their production is underpinning economic growth.

As Eamonn Fingleton points out in a new book, In Praise of Hard Industries, manufacturers have been accomplishing miracles in making more with less. In telecommunications, 'Just 70 pounds of glass in the form of optical fibres can transmit as much telephone traffic as one ton of copper'. Then, everybody takes CDs for granted: by end-l998, 11 billion CDs had been sold, about 10 for every household in the world. They are only an eighth of the weight of long-playing records, and cost a mere 30 cents to produce. And these are only two miracles among myriads.

The way in which these miracles are being made has lessons for all managers, including service industries. This isn't just Total Productive Manufacturing. It's also Total Productive Management: TPM2. First, both kinds of TPM demand total reality about where you are now. For example, at the bottling operations of United Distillers and Vintners, the world's largest spirits company, the 'prevailing operating culture' in 1996 reads like a bad dream. Operators would stop working when there was a breakdown, and call an engineer, because engineers were the experts. All faults were treated as breakdowns, and left alone by the operators because 'I might make it worse', coupled with 'I might get hurt'. The operators lacked confidence and, anyway, didn't want to steal the engineers' jobs.

VAST WASTEAs for the engineers, they were no better. They liked a breakdown, because it made them feel valued. They took comfort in the routine of being called in as the experts. They agreed that the operators would make things worse and would probably get hurt: and 'we'll be busier fixing their mistakes'. They feared the unknown and were also frightened of having their jobs stolen. The consequence was a vast amount of waste. When the operators and engineers got together in a TPM programme, 12 skips of waste were removed in six months.Line changeover halved from 23 to 11 minutes: tools are now changed in 10 seconds.

Do you know as much about your operations - not just in manufacture (if any), but in the offices (right up to the executive suite), the shops, the service operations, etc? Do you know the cost of waste inside the business? Are you sure that the dysfunctional attitudes of those UDV operatives have no equivalents in your organisation? Do you know what opportunities for cutting costs and speeding up are available?

Daniel Jones, a professor at Cardiff Business School, cites some even more spectacular results, like inventory turns improved from 10 to 53, with a cut in lead-times from 2.5 days to 4.5 days: or a change over three-and-a-half years from 21 people making 55 pieces each in 2,300 sq.ft to three employees making 600 each in 1,200 sq.ft. In this Indiana location, injuries were almost eliminated - and the capital investment was under $1,000.

You may think that these miracles are only possible in very poor plants. But Jones (the co-author of the excellent book, Lean Thinking) has a striking analogy. The common snail, he says, travels at Mach 0.0000094 (0.007 mph). 'This is more than ten times the average velocity of the fastest part flowing through a fighter aircraft production system!'. Before collapsing with mirth, however, ask if you actually know how long manufacturing and/or other processes take in your business. If the answer also turns out to be a snail's pace, the cause may well lie in 'hand-offs'.

That refers to the transfer of work from one machine or desk to another. In the typical manufacturing outfit, there can be as many as 40 hand-offs in one operation. Using the TPM approach, you can cut that to 11, with enormous savings in time and costs. In non-manufacturing environments, hand-offs can often be eliminated completely, by letting one person handle the entire job (like issuing an insurance policy or dealing with a complaint or processing an order). Not only does the work get done faster, but the employee obtains more job satisfaction. The magic Jones formula is....

1. Stop focusing on the organisation and concentrate instead on outcomes.
2. Draw a clear distinction between operations that add value and those that create waste.
3. Reconfigure the whole value stream to eliminate time and steps that add no value.
4. Successively remove all constraints to a smooth workflow directed towards the desired outcome - supply to the customer.
5. Recognise that you are setting out on a never-ending path towards a perfection you will never reach.

Jones says that the path is never-ending because 'most of what we do is waste', and 'the more layers of waste you remove, the more waste you can see'. You judge your progress towards perfection by the rate of improvement in eliminating non value-adding steps, while reducing defects, throughput time, inventories and management time devoted to fire-fighting, expediting and negotiating.

You also set extremely high targets. How about doubling output and profits with the same headcount? Obviously, that can't happen without radical improvement in the value chain. So how high would you set your target for cutting throughput time and defects? Inventories? Space and unit costs? If you think that reducing them by a third is excellent performance, think again. Jones says that the potential gains are respectively 90% for the first two, 75% and 50%. And once you have achieved such startling gains, you don't rest on your laurels. You begin all over again.

Note that this is not a 'downsizing' exercise: the headcount in Jones's calculations stays the same. He says that heavy capital investment isn't required, either. The crucial lesson of TPM is that simply reforming processes can produce great improvements on its own. Throw in investment in new equipment and technologies, and you have the phenomenon of rising manufacturing output and falling workers. But the remaining jobs add far more value - which is why employers in the 'weak' Japanese economy can pay their workers $22.01 an hour and those in 'slow-growth' Germany can pay $14.79. In booming, downsizing America, the rate is only $12.37.

The pace of growth in American per capita income was actually bettered by 12 other OECD nations in the 16 years to 1996. These and other statistics assembled by Fingleton hardly square with the following statement in Fortune magazine: 'America is the world's most competitive nation, thanks to the overall high quality of its CEOs'. The first thing wrong with that statement, as Fingleton argues, with plenty of support, is that in many manufacturing industries, the US has almost abandoned competition. It has simply exported its activities - either to American-owned plants abroad or to plants owned by global competitors. That hardly suggests high quality management from anybody, including the CEOs.

The second fault, anyway, is the assumption that the CEO alone has the decisive influence on performance. But that's the starting point for the two authors of the Fortune article, consultant Ram Charan and journalist Geoffrey Colvin. They claim to have found 'one simple, fatal shortcoming' that explains why CEOs fail and get fired. Any expert in TPM and TPM2 would know that any such finding must be a fallacy. There is never only one cause for the fault actually named by the two authors: 'bad execution'. In their minds, however, the answer is as 'simple as that; not getting things done, being indecisive, not delivering on commitments'.

In other words, bad managers manage badly and lose their jobs - not exactly a statement of breathtaking originality or value. The authors are no more useful when they describe 'six habits of highly ineffective CEOs'. The half-dozen are 'people problems, decision gridlock, lifer syndrome, bad earnings news, missing in action, off-the-deep-end financials', of which only the second could be called a habit: the others are symptoms of corporate disorder. And that springs from precisely the same causes as those which UDV found in its bottling plants: mismatches between the objectives and the mind-sets of the people who alone could realise those aims.

Charan and Colvin produce an impressive list of CEOs who have failed (a fate which, according to one piece of research, is three times more likely than a generation ago). In many of these cases, the man at the top had failed to mobilise the company's people, all the way down to the bottom, in support of a strategy to which everybody agreed. They hadn't applied TPM2:

1. They looked inward into the organisation, not outwards towards the customer
2. They persisted with operations that destroyed rather than adding value
3. They stuck with value streams that wasted time and processes that added no value
4. They allowed systems to function and malfunction that blocked the smooth delivery of excellent goods and services to the customer
5. They started and then stopped improvement programmes without getting the full benefits.

Worst of all, they were in denial. They had not started with the basic TPM appraisal of what's wrong in the here and now. That means, not only benchmarking performance against the competition (and non-competitors, if they are better than you at any function), but listening to what employees at all levels, including managers, customers, suppliers and distributors have to say about your defects. TPM2 managers then act decisively to cure the defects - which they never deny.

The writing is on the wall once you start to believe all the stuff the company writes about itself; think your company's shares are under-valued; blame shortfalls on external circumstances; artificially boost end-quarter figures to make profit targets; and (say Charan and Colvin) claim you're a realist. TPM2 is not glamorous. But it's the basic habit of highly effective managers - at every level in the organisation.

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