NC Ch 7 : Muda, Service, and Flow

This chapter is about how to reduce waste. The theory of muda, service, and flow the authors outline comes out of the work of Taiichi Ohno, "the father of the Toyota Production System, which is the conceptual foundation of the world's premier manufacturing organization" (p125).

The authors cite industrial experts Jame Womack and Professor Daniel Jones and their book "Lean Thinking."

muda - waste, futility, or purposelessness. includes "mistakes which require rectification, production of items no one wants so that inventories and remaindered goods pile up, processing steps which aren't actually needed, movement of employees and transport of goods from one place to another without any purpose, groups of people in a downstream activity standing around waiting because an upstream activity has not delivered on time, and goods and services which don't meet the needs of the customer."

lean thinking has four elements:
the continuous flow of value, as defined by the customer, at the pull of the customer, in search of perfection

conclusion : "specialized, large-scale, high-speed, highly efficient production departments and equipment are they key to inefficiency and uncompetitiveness, and that maximizing the utilization of productive capacity, is nearly always a mistake."

Several examples of decreasing muda are given. Usually, complicated machines make one step faster but the whole system slower. Also, having smaller scale distributed production allows things to be made on demand with minimal transport of materials compared to large scale production whose intermediary steps are spread far apart. This is the kind of advice that may be useful for business owners for next year's summit.

vocab : continuous-value-flow, demand-pull system

three examples of lean thinking
- biggest N American maker of seals and gaskets, Freudenberg-NOK General Partnership, number of workers needed to make the part decreased from 21 to 3; pieces made per worker rose from 55 to 600; and space used fell by 48%
- Lantech, Louisville, Kentucky, firm making stretch-wrapping machines, cut development time for a new product family from 3-4 years to 1 year, halved work time and nearly halved space occupied per machine, cut delivered defects by tenfold, in-process inventory by 27%, production throughput time from 16 weeks to .6-5 days, and lead time for product delivery from 4-20 weeks to 1-4 weeks.
- Interface, commercial interior materials maker, Charlie Eitel and Ray Anderson, got rid of inputs that did not create customer value

reducing waste also is enjoyable psychologically for workers - psychological condition of flow.

service and flow :
analyst Walter Stahel came up with third principle of natural capitalism, service and flow, which is to deliver a service instead of selling a product.

example: Carrier, "world's leading maker of air-conditioning equipment, decided to offer "coolth services" since people don't really want air conditioners per se, they just want to be comfortable. "Now Carrier is starting to team up with other service providers so it can not only deliver cooling but also do lighting retrofits, install superwindows, and otherwise upgrade customers' buildings so they'll ultimately neeed less air-conditioning to provide better comfort."

This new kind of business model really excites me, and I think it's really important to follow what happens with these projects. This is the kind of revolutionary change that I'm really interested in talking about for next year's summit, and that I think will be relevant to an MIT audience, people starting a business or designing a product.

example: "Interface launched a transition from selling carpet to leasing floor-covering services. After monthly inspections, they replace 10-20% of the carpet tiles that show 80-90% of the wear. This reduces the amount of carpet material required by about 80%. It also provides better service at reduced life-cycle cost, increases net employment (less manufacturing but more upkeep), and eliminates disruption, since worn tiles are seldom under furniture" (p140)

At the same time...it seems that an inherent problem with this model is that people abuse things they don't own, which may not be cost-effective for a company that has to maintain things it leases.

A more stable business cycle
What are the macroeconomic implications? The authors also claim that this new kind of business model won't have a boom and bust business cycle. "The heart of the periodic booms and busts in capital investments and inventories are because durable goods wear out and need replacement, and small changes in economic growth or recession cause larger shifts in behavior, because the curplus funds available for investing in capital goods represent the small different between two large numbers - total revenue and total cost. Modest fluctuations in revenues are thus magnified into big swings in purchasing. In economic downturns, the small difference is squeezed, so more products are repaired and fewer bought. If the economy is strong, older goods are scrapped and replacements purchased. When revenues fluctuate moderately, purchasing gyrates vigorously along with such economy-moving figures are manufacturing, auto production, employment, money supply, and GDP growth."

In contrast, a continuous-flow "solutions economy" would be much less volatile.

This analysis seems to make sense, but I wonder if it's true. Something to look into.