How to piss away $4 million

By Dan Markovitz via   Article

“… the steps taken by the president of a corrugated box manufacturer to reduce raw material costs. Despite spending $3.5 million on new equipment and $500,000 on training, costs actually went up by about 3%. … you can imagine that the decision to spend $4 million was made safely inside the confines of the executive conference room.

Two years later, the president tried to improve the situation again, this time by developing a clearly defined and agreed-upon problem statement addressing the high raw material losses.

Hats off to the president for taking the time to develop a problem statement. However, the real breakthrough came when he left his offices and went to the gemba to actually see what was going on:

He quickly observed numerous problems. The paper was often too wide, resulting in extra losses from cutting. In addition, paper rolls were often damaged by the forklifts that moved them, and various machines were not properly calibrated.

Perhaps most notably, Mike observed that the main corrugator machine stopped at 11:30 a.m. Assuming it was an unplanned outage, Mike rushed to the machine only to learn that the machine was stopped every day at lunch. Stopping and restarting the machine at lunchtime not only decreased productivity but also increased the probability of both damage to paper and mechanical problems. Interestingly, the lunch break turned out to be a response that had been instituted years ago in response to instability in the electric power provided by the local utility—a problem that had been fixed long ago. 

With first-hand exposure to the problem, it was relatively trivial to institute countermeasures that cut paper losses by 7%, generating $50,000 in savings in the first two months alone. The president commented that

it took this process to… actually go see and talk with our operators to understand what was going on. Funny thing is, they already knew what the problem was, we just weren’t listening.

…. Speaking from my own experience at the Stanford Graduate School of Business, we were never taught the necessity of going to the gemba and seeing the work done for ourselves. The science of management was (and I believe still is) taught as some kind of rarified intellectual exercise conducted from within the executive suite.

Taiichi Ohno said, ‘Data is of course important, but I place the greatest emphasis on facts.’ And of course the only way to get those facts is to see firsthand what’s happening.”


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