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From the Desk of Jack Healy

An Inconvenient Myth

By Jack Healy, Director, MassMEP

The modern conception of manufacturing in the US centers on a convenient myth about decline that, fortunately, is rapidly disappearing. Unfortunately, few people understand what is really going on in manufacturing as a result of today’s global competition.

With little fanfare, Toyota is confounding the conventional US manufacturing myth by opening factories as quickly as their systems and quality standards allow. Toyota is creating thousands of US jobs annually that offer above par wages and good health insurance by selling products to American buyers that American workers have manufactured. Toyota is making this happen profitably and at lower costs than its US competitors.

Some of the myth makers may be quick to point out that Toyota can do this because it employs the Toyota Production System whose focus on eliminating waste and Continuous Improvement has made the company a worldwide giant. They would be right. Unfortunately, these same myth makers are unaware that many US based manufacturers also are employing the methodologies of the Toyota Production System; they call their systems "Lean Manufacturing."

Danaher Paves Way with Lean
A recent article in BusinessWeek magazine described Danaher Corp. as one such US manufacturer who has made Lean the bedrock of its Danaher Business Systems (DBS). DBS is a set of management tools borrowed liberally from the famed Toyota Production System. In essence, DBS requires every employee, from janitor to president, to find ways every day to improve the way that work gets done. Such quality improvement programs and Lean manufacturing methods have been de rigueur for manufacturers for years. The difference at Danaher is that the company started its lean efforts in 1987. They were one of the earliest companies to adopt Lean and they have a cult-like devotion to making it "pay off."

Bill Wadell, author of "Rebirth of American Industry" states, "Danaher is probably second only to Toyota in terms of large company performance due to real lean. But Danaher’s growth model is significantly different than Toyota’s, in some respects requiring an even more disciplined implementation of lean. Danaher manages a portfolio of more than 600 subsidiary acquisitions."

Danaher manages its portfolio with a lean corporate headquarters staff of only 40 people. Danaher believes in "doing." Its performance is summed up as follows by BusinessWeek:

"In 2006, Danaher posted revenues of nearly $10 billion and net profit margins of 16%, truly astounding for a company in such Old Economy businesses as heavy-truck braking systems and hand tools. Its return on invested capital is 15%, way ahead of its industrial peer group, which is near 9%. Over 20 years it has returned a remarkable 25% to shareholders annually, far better than GE (16%), Berkshire Hathaway (21%), or Standard and Poor’s 500 stock index (12%). Not bad for a Lean company.

Lean Manufacturing in Massachusetts
We are also starting to see the effects of Lean Manufacturing in Massachusetts. The Massachusetts Manufacturing Extension Partnership (MassMEP), last year alone, trained 9,327 manufacturing personnel in various Lean Manufacturing technologies. We are also seeing an overall Massachusetts industry turnaround with respect to productivity as indicated in the following summary:

Massachusetts Manufacturing Metrics Comparisons, 2000-2005

Number of employees on payroll declined
Number of production workers declined
Total value of shipments declined
Value shipped per employee increased
Value added per production hour increased

The numbers show us that manufacturers in Massachusetts have handled all of the national industry changes caused by out-sourcing supplier reductions, market declines, and low priced foreign competition. The manufactures who have done the best in handling such changes are the ones that have implemented Lean.

A recent survey of 103 MassMEP clients who started their Lean implementations back in 2005 indicated that after one year of implementing Lean Manufacturing they realized the following outcomes:

  • Increased and retained $121, 000,000 in sales (Lean is not just about cost reduction)
  • Experienced approximately $24, 000,000 in cost savings
  • Created or retained 1,992 jobs that otherwise would not have existed.

A more extensive summary of the MassMEP Economic Impacts is enclosed.

Fighting Decline Requires Leadership
So as Toyota, Danaher, and hundreds of other manufacturers have demonstrated and continue to demonstrate everyday, the inevitable decline of American manufacturing is a myth. But this is a myth that can come true if there is no leadership.

In investigations of national disasters, it was found that 9/11 was a  "failure of imagination." The committee investigating the failure of the response to Hurricane Katrina determined the root problem was a "failure of initiative." But there is a nexus between imagination and initiative and that is…leadership. Without leadership, the myth of decline will become a reality, no matter what sector of the economy we work in — private sector, government, non-profit. Manufacturing is no exception to this rule.

For manufacturing leaders, the MassMEP is holding Manufacturing Roundtables to enable you to meet and network with your peers and see how other manufacturers are implementing Lean in their organizations. These roundtables provide an exercise in imagination. Attendees provide the initiative by being there.

The next roundtable is the Mass Manufacturing Roundtable at Savage Arms, April 26, 2007, Westfield, MA. Details are in the Programs & Events section of this newsletter.


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