Hello, my name is Jim Tompkins, CEO of Tompkins Associates and Tompkins International. I am pleased to be with you today to present our third segment in our second series of the Global Supply Chain Podcast.
Today we turn to the second stage of the supply chain, Make. I'm very pleased to welcome Hans-Georg Scheibe today, one of the CEOs of ROI Management Consulting, a strategic partner of Tompkins International in Germany, and an expert on the "make" element of the supply chain.
Welcome Georg, glad to have you here.
As you know we would like to talk about the "make" component of the supply chain with you today. Germany still is the leading export champion, so I'm confident that you can give us some very interesting insights on the Make component.
Georg:
Hi Jim, thanks for inviting me to this very interesting podcast series. Yes, it's true, we will be export champion in 2008 again, but China is catching up very quickly.
Isn't it amazing that the label "Made in Germany" originally was introduced in Britain in the 19th century to mark German products more obviously, as British society considered them to be inferior to domestic products?
Fortunately, the Germans managed to invert the whole thing and used the label to distinguish themselves better from the British manufacturers. And soon, the term "Made in Germany" became the equivalent of quality, reliability and perfection. But the future is not as bright as it seems.
Jim:
Why is that?
Georg:
That's why the award "export champion" doesn't consider at all where the value of those products being exported all over the world is created. During the last couple of years, more and more of the value creation has been outsourced to foreign countries, especially to Eastern Europe and China. The consequence is that for many products, research and development and the final assembly are the only value creation levels still located in Germany.
Jim:
That's very interesting, I've never looked at this from this perspective. So what can you do if you want to counter this perspective?
Georg:
The answer is very simple: increase productivity, increase productivity, increase productivity! Like that, the manufacturing operations become more competitive compared to the price level of low-wage countries, and thus outsourcing becomes less attractive.
The key to productivity is not a trendy brand-new super-duper super-innovative MBA high-tech tool, but quite an old, basic and approved approach that has been a little bit neglected the last couple of years: Measuring!
Jim:
In your opinion, why is it so important to measure?
Georg:
An old truism claims: You cannot improve what you cannot measure. Conversely, this means: You can only improve what you can measure. That's why measuring is the key element of every improvement project. These improvement projects usually apply a systematic technique called "methods engineering" which is used for the design and improvement of work methods, for the introduction of those methods into the work place, and finally, for ensuring their solid adoption.
Jim:
Georg, could you please explain the procedure for methods engineering to our audience?
Georg:
At the beginning you have to decide what's to be improved, for example, labor productivity, and select the subject matter, which could be a certain production line or a complex manufacturing process.
Then, in a second step, the goal that should be achieved has to be defined.
Step 3 is analyzing the current situation. If the project goal is improvement of an existing work system, that work system has to be analyzed and accurately understood.
In step 4, the selected work system has to be modeled, based on the data gathered from the analysis. This is done by selecting the most typical value for each parameter. The reason for using a model is that the actual work system changes on a daily basis, but if you focus on the model, you will not get distracted.
Having generated the model, step 5 is to develop the improvement plan based on the ideal methods. This means that the production system itself is examined. After evaluating the suitability of different production methods, the approach will be selected.
If there are several improvement plan alternatives, the best plan has to be selected in step 6. This is done by applying uniform evaluation standards for issues like cost improvements, time required for improvements or degree of technical difficulty.
In step 7, this plan has to be implemented by applying the new methods. According to my personal experience, this is the point where many companies fail, because it takes great efforts to sustainably implement such improvements.
Finally, in step 8, it's essential to create a monitoring procedure in order to make sure that the system performance can be maintained at the target level. Therefore it's of prime importance to determine standards and to implement a measurement system in order to track the performance.
Jim:
Given the analysis of the current situation which is critical for the success of the whole project: What are the important points that should be taken into consideration?
Georg:
In total, three points are crucial for a successful analysis:
First of all, it's necessary to take a quantitative approach as much as possible. As I emphasized before: you can only improve what you measure.
Secondly, it's important to analyze to a level of preciseness adapted to the subject being analyzed. If you go too much into detail you will lose the big picture and drown in complexity. If you simplify too much, there is the risk that relevant information is not taken into account.
The third important point is to present the results visually. Information is so much easier to understand if it's illustrated in the form of charts, drawings etc. And a clear understanding of the initial situation is vital for developing a successful improvement plan.
Jim:
What about the techniques that can be used for analyzing the current situation?
Georg:
There are a variety of techniques to choose from, depending on the object being analyzed.
At this point I would like to concentrate on the technique of time study, because it's one of the most essential techniques for analyzing manufacturing processes.
In general, you have two different possibilities of measuring time: direct observation and the application of a predetermined time system, which provides information about manual work cycles in terms of basic human motions.
Direct observations, for example by using a stopwatch, have one central disadvantage: they require an analyst who has to rate the subject's performance compared with normal pace.
In contrast, predetermined time systems such as methods time measurement (MTM) eliminate a large part of the subjectivity from the resulting standard and thus provide a more consistent standard. Another key advantage of predetermined time systems is that they can also be used in the planning phase to visualize the work and synthesize the standard.
At ROI Management Consulting, we use a proprietary tool called ROM, which is based on MTM, but works with different time classes. This is why it's much faster to apply without hardly any loss of accuracy. As I mentioned before: it's important to find the optimal level of preciseness.
Jim:
Before, we spoke about increasing the productivity in order to stay competitive. But do you think, from a holistic point of view, this is sufficient?
Georg:
Improving the productivity is a very important lever, but it's certainly just one part of the story. Simply increasing, for example, labor productivity in a manufacturing operation with little or no regard to the rest of the business will negate any possibility of actually realizing the benefits of the improvement.
Just take a look at the American carmakers: There is a huge overproduction of large cars with high fuel consumption that nobody wants to buy, be it due to environmental or financial reasons. Increasing the labor productivity would mean to produce each car by deploying less labor force. But still these shelf warmers would be produced which is definitely not the way to success. Instead it would be better to specify the value from the standpoint of the end customer and produce the kind of cars that the customer wants and that maximize her or his utility.
Jim:
Thank you Georg -- one more question that I know our audience would like to hear is your view on the topic of lean. What are your thoughts on lean manufacturing?
Georg:
I've already explained one of the most important principles of lean in the question before, which is specifying the value from the standpoint of the end customer.
The whole lean thing has been very popular the last couple of years, and everybody tried to copy Toyota. But many companies had to learn that you won't become a lean enterprise just by applying all the principles and tools. If you don't manage to create a cross-company philosophy and understanding of lean, it's all just a flash in a pan.
Jim:
Thank you very much Georg, I really appreciate you spending time with us today.
In two weeks we will be pursuing further the global supply chain discussion when we turn to Don Anderson, the VP and lead of Tompkins' transportation service line, to discuss the Move step of the supply chain. Thanks for being with Georg and I today, we look forward to speaking to you again real soon.
