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January 2005

I read some of the recent discussions about accounting and thought you might be interested in my perspective on the issue. A few weeks ago I gave a keynote address to a conference in Ontario, California sponsored by the Defense Contract Audit Agency (DCCA). In the audience were around 200 auditors who go out and look at the Defense industries contracts.

For me, it was a very joyous experience to speak to this group, for many years ago I was a soldier assigned to the Army Audit Agency which today is a part of the DCCA. I started my talk telling them what a pleasure this experience was and how ironic it was for me to speak to them since many years back I was one of them. The talk began, “Years

Norman Bodek
PCS Press
ago one of my first assignments was to audit the Detroit Ordinance Depot. I was assigned to a civilian Bill Bricker, a lead auditor, who informed me that we had a tough task in front of us. We were to do two weeks worth of work. The problem was that we had to do the two weeks worth of work in three months.” As I told this story there was quite a roar from the crowd. “Well, I want you to know that we met the challenge and successfully conducted our audit. In fact, both of us were commended at our achievement and I was raised to become a lead auditor.”

I at least got their attention and then followed with,

“Ladies and Gentlemen I have something to share with you today that could save the US Government billions of dollars, maybe hundreds of billions of dollars. When I think back on those days as an auditor trying to save the Army money on those renegotiable contracts how foolish I was for I was looking at the wrong things. I was looking at the expense accounts and misapplication of overhead when I should have been looking at the balance sheet and all of the non-value adding wastes being charged. If you would just look for the right measures: the inventory turns for example. Why just a week ago I heard a talk from a manager at Kodak who told about taking out $450,000,000 from their inventory by simply applying lean techniques.”

I wonder if they went beyond my jokes to fully understand the power of Lean Manufacturing and how much can be saved by insisting that defense contractors earnestly eliminate those wastes.

Of course, I know a lot now that I didn’t know then but can you fault me for what I did not know? I feel the same way about the accounting profession. How can we blame the accountants when they did or do not know how their measurement system affects the bottom line? And you, the Lean experts are you applying the right measures?

  1. How many of you are using OEE as a measure to improve the uptime of your equipment?
  2. Do you really believe in and find ways to get to zero defects? Six Sigma is great but six sigma is not zero defects and I can take you to Japanese companies that claim that not a single defect leaves their plant.
  3. How many of you are using poka-yoke? I remember when we brought Dr. Shingo to AT&T and they presented a problem to him. They had an assembly operation that allowed defects to get through, maybe minor in number, but still customers were not happy when the product was not perfect. Dr. Shingo simply told them to install very simple inexpensive sensors that absolutely prevent a single defect from occurring. After Dr. Shingo’s lecture that AT&T plant implemented hundreds of poka-yoke devices.
  4. How many of you measure every change-over, video those change-overs to get to one-touch exchange? I remember seeing pictures up on the wall at Citizen Watch and how proud they were to show that they were shaving seconds off their change-overs.
  5. How many of you are doing Quick and Easy Kaizen and getting your fellow employees to come up with at least two small creative improvement ideas per month? Look at the following chart and see what some Japanese companies are doing.

Looking at Japanese companies in 2003:
Rinnai 114,179 1,800 63.4 1,400 100, .50 100 97.7
Yamaha 280,932 8,000 35.1 2,000 150 100
Matsushita 893,274 35,494 25.2 820 28 36
Mitsubishi Chemical 122,319 614 199.2 250 .15 88 100
Subaru 843,536 7,800 108.1 5,200 70 97
Toyota 534,000 58,000 9.2 70 100
Denso 352,594 28,482 12.4 56 100
Toshiba Ceramics 46,589 804 57.9 250 93 100 100
Daihatsu 176,122 9,118 19.3 2,600 100 .80 83 100

  1. The number of idea submitted by all employees.
  2. The total number of employees in the company.
  3. The average number of ideas submitted per employee for the month.
  4. The economic benefit to the company from the ideas submitted per employee (the cost savings).
  5. Reward per person submitting ideas.
  6. The investment in training each employee in Quick and Easy Kaizen.
  7. The percentage of employees submitting at least one suggestion during the period.
  8. The percentage of ideas implemented.

Imagine Subaru is getting 108.1 ideas per employee per year and saved $40,560,000 a year ago from the small ideas coming from their employees. Why aren’t you doing it?

In fact, if you work on it you can come up with measures for each of the Lean wastes:

  1. Inventory – look at the turn ratio. I remember when I first went to Japan that GM was at four turns a year while Nippon Denso (see chart above) was at 350 turns a year.
  2. Defects – how far away are you from zero and do you calculate the scrap and rework.
  3. Change-overs – easy to measures just use a stop watch every time you do one and recommend that every change-over be done by teams.
  4. Motion – I read a wonderful article in the New York Times, December 19, 2004, by Gary Rivlin titled “Who’s Afraid of China? It is about how Dell, the world’s largest manufacturer of computers, is able to build almost everything here in the US. It is a great challenge for you. In the article, I really liked how they take those video cameras out to the factory floor looking to save four seconds from an operator’s motion.
  5. Transportation – time it and then imagine how Dell is able to build and ship a computer in less than a day. I also saw a video showing Wall-Mart’s distribution center with boxes moving through at lightening speed.
  6. Waiting time – easy to watch people working and clock their waiting time and get them to work with you on how to reduce that time.
  7. Inspection is a waste – how can you reduce inspection. Of course, every operator and every process should be inspecting but I have been to many Japanese plants where there was no in process inspection. I never saw an inspector in the middle of a cell.
  8. And the biggest waste is not using people’s creative ability to solve problems. Well, use the above list to measure the number and value of the ideas received by your fellow employees.

When you start to think you can come up with many more measures to eliminate waste – then when you do it you can then go to the accountants and “bash them over the head.” What do you think? And a Happy New Year.


no_photo.gifNorman Bodek started Productivity Inc., Productivity Press, and also the Shingo Prize. In the early 1980’s he met Dr. Shingo, Mr. Ohno, and other great manufacturing geniuses, and published their books in English. He brought to the West Lean, JIT, Kanban, 5S, SMED, TPM, QFD, Hoshin, CEDAC, the Kaizen Blitz, and other powerful improvement tools and techniques.

Norman recently wrote and published his second book, Kaikaku - The Power and Magic of Lean (this is the NWLEAN Book of the Month for June '04!). His first book was co-authored with Bunji Tozawa, The Idea Generator – Quick and Easy Kaizen. Norman is the President of PCS Press, a consultant, and has written over 60 articles on Lean.

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