The Evils of Efficiency.

Ever since the early 1900s, when Frederick Taylor formalized his ideas for the industrial engineering school of management, manufacturing firms (like foundries) have been managed with one essential purpose in mind: to reduce the cost of production by improving the efficiency of operations. Also, and on a parallel track, management developed measurement systems to support this focus on efficiency and did such a good job that a whole new profession was created: accounting.

Over the years, a number of management gurus have cautioned that this focus on and preoccupation with efficiency was out-of-step with modern competitive realities. In response, ever more sophisticated and clever means of measuring, controlling and automating production have been adopted to achieve continuous improvement of the existing manufacturing system's efficiency. Then the 1980s happened, and the evils of efficiency were at last exposed for all who had eyes to see.

Quality is Free

In the 1980s, adroit Japanese manufacturers forced our customers to see that a trade-off between cost and quality is not required; you can have both. Also, those hard-pressed casting users forced our industry to understand that we must deliver both higher quality and lower costs than we had in the past. At that point in time, the efficiency school of manufacturing management inaugurated nearly 100 years ago was dead.

Soon enough, when we got over our collective shock and began to make the investments needed to support a rigorous quality program, we began to see that Phil Crosby was right: quality is free. Moreover, when all was said and done, the best in our industry discovered that a management philosophy rooted in quality was a powerful profitmaker. In other words, these firms began to see that sound quality programs indeed led to the now-taken-for-granted profit improvements that emanated from dramatic reductions in scrap, rework and manufacturing costs.

Speed: the Best Measure

Since that time, the dead-on-its-feet efficiency-based school of manufacturing management has been assailed on every front, and rightly so. New ideas, including process reengineering, total quality management (TQM), quick response manufacturing, just-in-time, theory of constraints, lean manufacturing and so on, broke into management's consciousness throughout industrial America. While proponents of each of these theories tried to differentiate their pet ideas from one another, there were (and remain) several extremely important common themes in the best of them. For example, division or specialization of labor, organizing work into functional departments, the desirability of backlogs, and other of Taylor's basic efficiency-oriented ideas actually work against attainment of both high quality and lowest total cost as defined by the competitive environment of the 1980s and 1990s. Thus, we now know that the traditional (and still dominant) philosophy of efficiency-driven manufacturing management cannot achieve t he quantum improvements our customers want and our best competitors are beginning to offer.

"Quality" (TQM) is a better organizing principle for manufacturing management than "efficiency" because robust quality programs can make even the most efficient operations more cost-effective, customer friendly and competitor-proof.

"Speed" (or time-based management) is a better organizing principle for manufacturing management than either "quality" or "efficiency" because taking time out of shop floor and office processes results in much better quality, much lower costs, much happier customers and much improved competitive positions. Thus, "time" trumps even "quality" in its ability to deliver the across-the-board quantum improvements21st century customers, stakeholders and competitors demand.

Time-Based Opportunities

As a CEO, if you believe the common themes of these new buzz theories (and some in our industry, including me, wholeheartedly do), you have a big opportunity on your hands. You can improve your company's cost performance 50-90% by replacing "cost" (scale and efficiency considerations) with "time" (cycle time and responsiveness issues) as the centerpiece of your management philosophy and guiding principle of both shop floor and office organizations.

If you've made the leap of faith and are a believer in the virtues of time-based management, you also have a mighty challenge in front of you. That's because virtually everything about your company--organization structures, MRP-type manufacturing systems, customer relations policies, accounting systems, plant layouts, costing and pricing methods, employee skill sets, production policies, performance evaluation systems, and so on--are designed to promote a counterproductive notion of efficiency instead of the more powerful organizing principle of speed.

So, where and how does a foundry CEO begin to make the changes necessary to compete on time? First, CEOs should note that successfully competing on time has little to do with equipment and that the money spent on new molding lines, melt shops and casting handling systems only can help. Second, CEOs and their management teams must begin talking about, measuring and judging every decision according to its impact on lead times. Third, CEOs should look to office organization and the business' manufacturing and office support systems for the biggest lead time improvement bang for the buck.

This is just the tip of the iceberg. Look for glimpses of the rest of the ice in forthcoming installments of CEO Journal.