An End to the Holy Trinity? Print E-mail
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Written by Peter Bigelow   
Thursday, 31 March 2011 14:12

Have we misunderstood our recent productivity gains?

Good, cheap, fast. For the first half of my career, the adage went that you could find two, but never all three, of these attributes everyone seeks in well-manufactured product: good quality delivered fast at a low (cheap) price. Throughout the second half of my career, however, much effort has gone into displacing the notion that good quality, cheap pricing and fast delivery could not be enjoyed simultaneously. Many businesses enjoyed success following the lead of Dr. Deming, who started the paradigm shift toward delivering the desired manufacturing trilogy.

The first tangible results of the shift were displayed by Japanese auto manufacturers in the late ’70s that demonstrated higher quality could be purchased at low prices and with new models developed and delivered fast! The US auto industry began a multi-decade scramble to catch up. But successes were not limited just to automobiles. TQM (Total Quality Management) with focused and “empowered” teams of rank-and-file employees in all industries began their march to improve quality, reduce cycle times and, therefore, enable greater value (read: cheaper pricing). With the new millennium, TQM morphed into Lean manufacturing and was further embraced by companies of all sizes and even in non-manufacturing industries.

Our industry in particular has been one of the most efficient implementers of Lean and TQM process improvements. Cycle times decreased; yields increased – and all the while technology has exponentially become more challenging to produce. And, yes, pricing has dropped, reaping the rewards for consumers, as well as those companies that have stayed the course to accomplish that common challenge of providing, in unison, the trilogy of good, cheap and fast.

Have we really been that successful? Have costs decreased because of all these hard-earned productivity improvement efforts, or because of other, short-term tactical actions? Are we are about to see a reemergence of that terrible “Sophie’s Choice” among the three: good and cheap but not fast vs. good and fast but not cheap vs. fast and cheap but not good?

As global economies try to shrug off the recession, a couple interesting facts seem to be surfacing related to “productivity.” One argument says the productivity gains realized in Western economies were not gains but instead cost-reductions achieved by shifting high labor and overhead costs from expensive established facilities to new factories in lower-cost regions. In short, no labor hours were saved through productivity improvements, but the hourly wage rate was cut, and in some cases, enough to camouflage the use of more labor hours to achieve the same productivity. This argument continues that these major cost savings have all been realized, and the savings are completely behind us. As lower-cost areas begin to see labor and overhead costs increase, those increases will be passed on to consumers, as there are currently no significantly lower parts of the world to relocate production too.

Interesting! Based on this premise, good and fast may remain, but cheap may be on the rise!

Productivity is not just relocating a task or factory to a lower-cost area. Productivity is how efficiently one can make a desired item. Efficiency includes reducing labor hours and increasing yield of material that becomes end-product. Significant productivity improvements can take place even in the most established facilities. For those in higher-cost areas, who continue to work diligently on improving their true productivity, may feel being competitive on at least the price aspect has passed them by; well, that may not exactly be the case.

Yes, costs are radically lower in some parts of the world – lower than productivity improvements alone may have been able to offset. While productivity can always be improved, however, costs have a natural inclination to increase, regardless of where they are incurred and from what base they start. This means that companies that relied primarily on moving production in order to reduce costs may find the next few years tougher to stay competitive than do those in higher-cost areas that invested in true productivity improvements. Less productive businesses will always see costs increase sooner, and at a higher clip, than do productive companies. By focusing primarily on costs, short-term gains may be realized, but long term, those gains will be far more prone to eroding altogether.

Companies that focus on true process improvement tend to be in a better position to reduce the inflationary impact of costs and, over the long haul, can better offset cost increases through the discipline of focusing on productivity improvements. Equally, productivity gains achieved even in the most expensive facilities will always drop to the bottom line and stay there.

If Western companies have achieved all the easy productivity gains possible from relocating, and if productivity cost drivers such as labor and overhead are indeed increasing at a faster clip in lower cost parts of the world, then an opportunity exists for all.

For companies in higher-cost areas, keeping the focus on productivity improvements as the cost delta may be eroding, and those gains made and to be made will begin to really  pay off. Companies in lower cost but higher inflation emerging markets have the difficult but attainable task of focusing all staff on how to not just reduce costs, but be more productive.

Good, fast, cheap – the holy trinity does not change. Some tools for improving productivity are continually needed. To follow a changing paradigm means staying focused on the goal, while using every tool at hand.

Peter Bigelow is president and CEO of IMI (www.imipcb.com); This e-mail address is being protected from spambots. You need JavaScript enabled to view it . His column appears monthly.

Last Updated on Thursday, 31 March 2011 17:22
 

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