Quality Magazine

Manufacturing Excellence: The Bailout...Will it Work?

March 30, 2009


There is a new methodology for improving business performance called the bailout. This bailout methodology has been the most rapidly adopted global approach to solve the economic crisis. Will the bailout address the root cause of the problem or merely treat the symptoms?

We all are too good at taking care of symptoms rather than addressing the root cause of the problem. One of the reasons may be that simply bailing out requires less thinking than solving the root cause of the problem.

Let’s try to analyze why suddenly all business leaders trained at the top business schools could not see this crisis coming. The following is my analysis of what led to the current economic mess:

In the mid 1980s while working in the semiconductor industry, our product had a yield problem. The production yield was less than 50%. We ran three design of experiments (DOEs) and could not control the critical dimension of 5 microns. While we could not successfully make the previous generation, we decided to work on the next generation of product to make it the best and fastest in the world.

We had an older manufacturing facility in another country, and management decided to retire the non-cooperative chip to this old factory so the new chips could use the existing capacity in the United States. I coordinated the transfer of the old product. To my surprise, during the next few months the yield improved remarkably and, in fact, more than doubled in about six months. That was our initial attempt to outsource manufacturing because of problems we did not have the will to fix.

Later the outsourcing of manufacturing was attributed to higher labor cost at a time when labor costs in the electronics industry accounted for about 15% of the total cost. We tried to fix the business performance problem by addressing 15% of the most productive cost components.

My analysis later showed that the sales, general and administrative costs were affecting the corporate profitability more than the cost of goods, including the labor cost. Decision makers took the least painful path of outsourcing the lowest end of the totem pole, not recognizing that it was the foundation of the business. Without having a strong foundation of value creation through good manufacturing, other functions don’t work well. We forgot that manufacturing supports the other jobs in a product company, and everyone else works for the manufacturing people. In other words, we outsourced our best internal customers.

Given the magnitude of the problems in manufacturing, I believe that our past success is partly responsible for our present problems. Success makes us complacent.

Quality professionals also bear responsibility for not recognizing and responding to the need of the hour. We kept inspecting and inspecting rather than solving problems for good. Quality trade associations did not commit resources to research developing best-in-class methods to achieve better quality. Quality departments did not act forcefully in getting problems resolved through product, service or process designs. Instead we supported leadership decisions to continue to design, produce and ship marginal products. We became part of the cost of quality.

With leadership trained at best-in-class business schools, how come we did not catch and stop these problems many years ago? We are still teaching old methods in new times. Our management education has been caught sleeping during the Internet revolution. The Internet has given all our knowledge to the rest of the world while we ignored the knowledge from the rest of the world.

For manufacturing now and in the future, management must work for manufacturing and quality must drive improvement in designs. Design engineers must create designs to target-not to tighter limits-and manufacturing must strive for on-the-mark performance. In other words, we must support the strive for perfection. As I was taught in my design for manufacturing class many years back, capacity is defined as the ability to produce excellent product, not just producing something and sifting for acceptable products.