Wednesday, January 7, 2015

Creating "Lean" Government

This is a huge topic and I want to lead with a simple example.

Corrections is the fastest growing cost in most State budgets.  Much hand-wringing results due to the budget hit and the social costs.

Manufacturing had a similar problems with cost out-running pricing power.  It is instructive to look at how it was addressed.

Picture from HERE

"Things" happened that impacted production.  Trucks got lost, material of dubious quality was introduced into the process, tools were run too long before they were replaced.

Management addressed these shocks by larding extra inventory into the system.  That buffered the system against these shocks and ensured salable product kept shipping off the end of the line.

That created a system tolerance for failure.  Tacit permission had been given to take risks.  It was "OK" to hire truck drivers who were illiterate or drunks.  It was "OK" to buy cheap material of uncertain.  It was OK to run tools until 50% of the parts were out of spec.

Many costs were incurred.  

The first, and most obvious cost was the cost of the increased inventory.  This cost was dwarfed by all of the less obvious costs.

Another cost was the cost to the customer as discrepant material snuck into the system.  No inspection process is perfect.

A third cost was the the cost of scrapping out the material in the system when it became obsolete.  Vast amounts of inventory got squirreled away in every cubby, out-building....even on the floors.

A fourth cost was the over-sizing of equipment.  A process that generates 20% scrap must be able to produce at least 120% of the demand.

A fifth cost is that re-worked parts are handled more and are rarely as pristine as parts off the regular process.

A sixth cost is the actual cost of reworking the parts into conformance.

A seventh cost is incurred when discrepant parts were correctly quarantined but then escaped quarantine and were installed in production parts.

An eight cost was the over-inspection of material.  People were hired.  Gages built and deployed.  Floor space consumed for the processes.


Same picture reposted for convenience.

Toyota found that the most efficient way to get everybody committed to cost reduction was to start reducing inventory.  Everybody had to come to grips with the rocks (the costs) that the inventory was protecting them from.

Slowly peeling away inventory exposed the largest problems and focused attention on them.  For the sake of illustration, suppose the biggest problem was that the equipment was run until the parts would not fit in some downstream assembly.  It does not require much investigation to figure out that if the tool never make scrap until after 12 hours of operation, then the process will be safe if a fresh tool is installed at the start of every shift.  It magically becomes cheaper to change tools before their end-of-life when all of the costs are reassigned back to the point-of-origin.

Inventory requires footprint.  The way inventory was reduced was to deny footprint.  People were fired for putting parts on the floor.  Equipment was installed in space that had been used for parts storage.  Management metrics (promotability!) was penalized based on inventory square-footage....$250 per square foot is a number I have seen used.  Honest.

Back to corrections

Eliminating inventory is most difficult at the beginning of the journey and at the end of the journey.

It is hardest at the beginning because it is a new game with new rules.  Players won in the old game by not blinking.  Players win in the new game by never letting "their" rock touching the bottom of the ship.

It becomes difficult near the end of the journey because the low hanging fruit has been picked.

Suppose 1% of the adult population is incarcerated.  "Controlling Inventory" would place a moratorium on new building or "rental overflow" the first year.

Subsequent steps might be to mandate an annual 5% cell count reduction years 2-through-11.  The percentage would be calculated on the shrinking basis to account for the increasing difficulty of later reductions.  5% was chosen for the glide path because 5% would allow most of the de-staffing to be achieved via natural attrition.

There are some smart people in the system who will realize that society will be better served if the ad-hoc, piecemeal decisions made by parole boards are codified and consistently applied at the front end of the process.

Or, more plainly spoken, if lawmakers decide which activities should be decriminalized and then pass laws to match.

The beauty of inventory reduction is that reality manages the process.  I don't have to predict what should happen.  The system will scream out that information.

1 comment:

  1. Well done sir, and definitely on point. Will it happen? Oh hell no... Too many 'vested' interests will prevent that.