@ Supply Chain Management


Drucker on Real Transformation

Bill Waddell at Lean Affiliates writes about Principles for Real Manufacturing Transformation:

Sixteen years ago, Peter Drucker’s article, “The Emerging Theory of Manufacturing”, appeared in the Harvard Business Review. That is probably about the right incubation period for the rest of us to catch up to his thinking. Drucker points to four principles that defines what’s needed for real transformation, and establishes the critical role of the chief executive. These principles are:

  1. Integrate the factory into the total value stream
  2. Instill a statistical quality focus across the entire company
  3. Implement a completely new accounting model
  4. Treat the entire business as a system

Remember that Drucker is writing this at about the time that Six Sigma had just appeared on the scene but his recommendation seems to be spot on. Bill goes on to elucidate the differences between looking lean and being lean and how the above principles, proposed by Drucker in his “The Emerging Theory of Manufacturing” are essential to a lean transformation.
1. Integrate the factor into the total value stream: A quote from Taiichi Ohno of Toyota captures the central thought here –

All we are doing is looking at the time line, from the moment the customer gives us an order to the point where we collect the cash. And we are reducing the time line by reducing the non-value adding wastes.

. Bill calls this idea – “from call to cash”, meaning that every activity that occurs in the intervening period and process space is evaluated on the basis of its integrity with respect to the value to customer that each activity confers. Such totality begs for C-level executive involvement, not in sense of micro management but in the authority conferred to such a process overhaul.
2. Instill a statistical quality focus across the entire company: Ever since the surpassing of Newtonian physics, scientists have been engaged in the description of the natural world through statistical techniques. However, the education system relies primarily on the promulgation of facts implying the completeness of the description which actually only statistically implied. Its nice to see that businesses that imbibe this statistical approach to their activities are achieving coherence with the kind of descriptive and prescriptive pattern inference also called science. Though, I think that the day is so far off into the future when accountants shall describe a firms financial activities in statistical terms – what a sea change that would be? The other key takeaway is the relentless focus on quality that such statistical processes describe.
3. Implement a completely new accounting model: Accounting is quite integral to how management decisions are made and how they’re represented to the world at large. However, if even half as much continual transformation and improvement were carried out in the accounting departments as are carried out in the manufacturing department, the manufacturing department might be four times better than it is today. Yes, the ratios of supposed benefit are imaginary. However, that management often makes decisions based on accounting gimmickry is and should be the object of scorn because accounting doesn’t report information in a way that lends itself to decision making. While accounting should be about informing business decisions, I suspect accounting is really about accounting. And that’s Drucker’s view as well though I suppose I am twice as cynical as he is prescient.
4. Treat the Entire Business as a System:The central point here is that the manufacturer within his ecosystem provides a solution over and above providing a product/widget/service. Therefore, a manufacturer is as much part of the solution as he is part of the problem that crops up because of a particular deficiency in the solution that he provides. The expectation of a customer is not how finely finished a product might be (if that were the sole contribution of the manufacturer) but that it meets or exceeds his expectations of product peformance and value.

In the end, abstractions such as performance and value are what the manufacturer or business is aiming at fulfilling. The problem with abstraction is that people abstract without particular attention to reason or logic. One part of the business should be about addressing those abstractions in a value laden way but another part of the business should be about clarifying the abstractions, informing and educating the customer as well.

Category: Lean, Strategy


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June 2006