Thoughts on Productivity

Roger W. Schmenner

Kelley School of Business

IUPUI

A number of things claim that they are key to productivity but are really on the edge of what

productivity is about, and not at the center.

Essence of Productivity

What really counts is to take What really counts is to take the perspective of a molecule the perspective of a molecule going through the process. going through the process.

The key is:The key is:

Swift, Even FlowSwift, Even Flow

1. Variation kills capacity and adds expense toany process.

Variation in quality, quantities, and timing

2. The faster the flow, the more productive the process.

Reduce throughput time, but not by speeding up machinery. Rather, eliminate waste – inventories , distances, non-value-added steps, time sinks, …

Variation kills capacity and adds expense to any process.

1. Variation in quality -- rework, scrap, missed tolerances, ...

The Japanese have proven to us the worth of high quality-- conformance to specifications, as valued by customers. The “cost of off-quality” -- costs of failure, detection, and prevention -- can be significant. Off-quality can add 10%+ to the cost of goods and take it out of your bottom line.

This is often recognized in manufacturing, but too-frequently ignored in services and in the support, non-manufacturing areas of companies.

2. The queuing phenomenon – is caused by mismatches in timing or in quantities for what is demanded and for what any process can supply. And, it can’t be avoided! You can just try to cope with it.

Variation kills capacity ...

Waittime

0% Capacity utilization 100%

AB

Goods &Materials

Information

The faster the flow, the more productive the process.

Product Manufacturing

Tooling Suppliers Design

1st Tier ofMaterialSuppliers

2nd Tier ofMaterialSuppliers

Distribution

Managing the flow of goods/information is the best way to earn money throughout a supply chain. Quality, productivity, customer satisfaction, and continual learning are all tied to swift, even flow. The faster the flow, the more money is made.

Why does Swift, Even Flow work? If throughput time is to be reduced, with little variation, lots of things must be true.

Diminished non-value-added – elimination of Shingo’s 7 classic wastes:

Overproduction – produce only what’s needed, Waiting – everything is coordinated,Transportation – layouts are rational and effective, Unnecessary processing steps – good manufacturing engineering, Inventories – less carrying cost, less obsolescence, Motion – good industrial engineering, Defects – good quality and thus lower rework and scrap

Attention to bottlenecks – add new capacity or manage work through them

Lessened chaos and confusion – level production plans, few interruptions for expediting or engineering changes

Lower overhead – fewer resources needed to plan, track, cost, remedy, etc. the flow of materials

Bonus: Response to the market can be quicker

vs.

Think in terms of the old fable of the tortoise and the hare: slow but steady, always in motion, value being added all the time, every aspect of the process able to operate.

• Slow equipment, always able to run• Materials do not wait long to be worked• Quick setups• Little WIP• Compact, rational layout; materials move economically between operations• Smooth schedules, few interruptions• Help asked of all

• Fast equipment, but not well-maintained• Materials wait a lot to be worked on• Lengthy setups • Lots of WIP• Scattered layout; materials move a lot, often into and out of the storeroom• Jerky, stop & start schedules, often interrupted• No help sought of others

Swift, Even Flow fits with the principles of lean manufacturing & JIT, but not with everything touted as effective.

Good fit with:

• Just-in-Time principles ; pull systems• Cellular manufacturing• Quality improvements – TQM, Six Sigma, etc.• Process re-engineering• Focused factories

No fit with:

• Automation• ERP systems such as SAP• Economies of scale or other supposed synergies

How do these guys do it?

How can they be so low-cost and still make money?

They don’t pay less for their aircraft and their staff is well paid.

They do save on food, and there’s only one class of service, etc., but …

(One of Europe’s knock-offs of Southwest Airlines)

One type of aircraft – easier for parts & maintenance, easy to substitute (planes and crews)

Fly from less congested airports – cheaper fees, airplanes don’t waste time on the ground

Point-to-point (no hubs) – no need to wait for other aircraft

Not linked to others – no interlining of luggage, ticketing easier, lots via the web

Aircraft turnarounds in 30 minutes – aircraft in the air earning revenue

In short – Swift, Even FlowIn short – Swift, Even Flow

So, when you’re looking to improve productivity, here’s what to ask and do:

Where do materials and information lose time in the process? Why? Can bottlenecks be broken? Can waste be eliminated? Make it “once in motion, always in motion”.

• Where is there variation – in quality, quantities, or timing? Work to lessen that variation, perhaps by segregating processes or by reducing variety or by managing the customer.

• Eliminate the standard measures of the operation such as labor efficiency or machine utilization, as they have nothing to do with either variation or throughput time.

• Don’t think that automation or scale is the obvious answer to low productivity.

What manufacturing history tells us: Swift, even flow is the old-fashioned way to make money

The Arsenal in 16th Century Venice

The “Robber Barons”

John D. Rockefeller

Andrew Carnegie

Henry Ford

If Swift, Even Flow explains productivity differences within and across companies, it should also explain productivity differences across countries.

• The Industrial Revolution happens in Britain, and not in Spain or Italy or …

• The United States, and then Germany, quickly overtake Britain in productivity

• The leading countries before the Industrial Revolution – China, India – get left behind

• Japan is the country in Asia that goes on to have its own industrial revolution

Swift, Even Flow was a necessary condition for the Industrial Revolution. Some considerations:

• Britain invented the “factory system” – Machines + Central Power + Workers + Supervision. Faster and better quality than by hand.

• British cultural aspects: mass market and comparative freedom, appreciation for science, clocks and the attitude toward time and saving time

• “American system of manufactures” – standardization and the interchangeable part

• Elsewhere: One or more of these things is missing