Ro Khanna’s Entrepreneurial Nation

The title misleads, because the book is not about entrepreneurship but about the state of manufacturing in the US. Fortunately, the subtitle is more descriptive: “Why manufacturing is still key to America’s future.” Thinking about entrepreneurship in 2012, the first companies that come to mind are Google, Facebook or Amazon, who do no manufacturing, or Apple, which subcontracts it. Several of the executives described are in fact entrepreneurs, but you also encounter regular managers and fifth generation heirs running family businesses. I don’t blame the author for this, as I suspect the title was chosen by marketers who thought that entrepreneurship would sell better than manufacturing.

The author’s bio on the book jacket describes him as “former deputy assistant secretary of commerce,” a title that leaves you wondering what he was actually doing. You have to look up his LinkedIn profile to find out that his primary function was to boost exports of manufactured goods. Until then, he was an intellectual property lawyer. To his credit, he makes no claim to having any particular knowledge of manufacturing before he started. But he clearly fell in love with the subject, and a passion for it shows through in his writings.

The book contains facts, interpretations of these facts, and policy recommendations. Crisscrossing the country for the commerce department enabled the author to visit many companies and meet outstanding leaders in steel making, aeronautics, mining machinery, defense, and other manufacturing industries. I had not heard about many of them and learned from the author’s account of these visits.

The author quotes many sources, and his position gave him the opportunity to be tutored by industry icons like Andy Grove. Nonetheless, I find his analysis of the situation lacking in depth and originality. I agree with his fundamental point that the Federal Government of the US should have a policy about Manufacturing, and that it makes no sense to have a cabinet-level Secretary of Agriculture and no Secretary of Manufacturing when Manufacturing is a much larger component of the economy.
His argument that government’s involvement in manufacturing is a long American tradition is based on a report by Alexander Hamilton as Treasury Secretary in 1791 arguing in favor of it. Khanna quotes it many times, but makes no reference to the role played by Thomas Jefferson in launching the multi-decade effort to make interchangeable parts, that the embryonic private sector of his day would not have undertaken, but that gave birth to the machine-tool industry and became key to the emergence of mass production in the 20th century. But his key point is valid that the government has a 200-year tradition of pitching in where the private sector can’t or won’t.

One argument that Bill Clinton makes but Khanna doesn’t is that none of the advanced economies in the world have developed on pure laissez-faire. The US hasn’t, and neither have Japan, Germany, the UK, France, Italy, or Canada. The visible hand of government plays some role everywhere. The question is what that role should be. Just because the government of another country intervenes in the economy in a particular way doesn’t mean we should do it too. Khanna appears to have yet to meet a government program he doesn’t like; to him, they are all underfunded and their budgets should be increased, and I have to disagree on some of them.

He asserts, for example, that the Manufacturing Extension Partnership (MEP) is a great program that does not “pick winners and losers.” Through this program, the federal government has been subsidizing consulting firms in all 50 states to provide services at reduced rates to small and medium-size enterprises (SMEs). In so doing , the government may not pick among the recipients but it certainly does among providers. And the MEP program is run by NIST, the agency in charge of standards for weights and measures. It is run by managers who have never worked in factories and you wonder how they can select consultants. It is, however, exactly what NIST does, and, thereby, creates unfair competition to other consultants.

Khanna also makes the common confusion between having a strong manufacturing sector in the economy and having a large proportion of the work force involved in manufacturing. Most manufacturing jobs in the US today are still the kind of repetitive assembly line work that no child dreams of doing as a grown-up. The future is in the current minority of jobs that involves programming and maintaining machines. It is a slow transition that has been underway for decades and has already seen, for example, the number of employees needed in a steel mill drop by a factor of 10 in forty years. It still has a long way to go but the direction is clear. It is a process that moves like a glacier, not a tsunami, with the consequence that it can and should be planned for. The strong manufacturing sector of the future employs a small number of highly skilled people. The jobs are more desirable that traditional manufacturing jobs, but in much smaller numbers.

The book paints China as an enemy, at war with US manufacturing. But the Chinese I know are focused on pulling >1 billion people out of poverty, not putting Ohio machine shops out of business. We will do better if every way if they succeed and become consumers than if they stumble and China reverts to the chaos of 40 years ago. In a truly emerging economy, labor costs rise with the skills of the work force. As local companies develop their own intellectual property, they also become more sensitive to others’ and counterfeiting declines. Finally, as incomes rise, so does the demand for imports.

While GE’s reshoring of appliance production in a happy ending for Louisville, KY, the story makes you wonder what the executives had been thinking when they outsourced in the first place. Why did they wait until they had actually moved production to Mexico and China and wrecked Louisville before assessing the full economic consequences of these decisions?

The book is about success stories. In a context where so many are writing off the US manufacturing sector, Khanna wants to show how it can be successful, and it is understandable that he would not dwell on failures. One that he could not avoid, however, is Solyndra, because it is a case in which the government made a mistake, even if the mistake was made by a department other than the one Khanna worked for. He talks about “the lessons of Solyndra” but does not say much about what these lessons are. You shouldn’t overinvest, but you already knew that.

Stalin on how to motivate employees

On Facebook, Vitaly Podolskyi shared a telegram sent by Stalin to motivate a plant manager, which translates as follows:

Telegram Nr. 1
City of KOVROV
Kirkik Factory Nr. 2
To:  Plant Manager Kuriatnikov
Cc: Party Organizer Gureev

It has come to the government’s attention that suspicious characters in the factory inhibit the production of the Degtyaryov machine gun with a 73-bullet drum. This gun is now needed by our Red Army, like air, like water. This machine will save the lives of tens of thousands of Red Army soldiers. The faster we receive thousands and tens of thousands of units of this machine, the better for the Red Army, which is waging war against the Finnish White Guards. In spite of this, suspicious individuals in the factory, bought by enemies of the people, interfere with the work of producing the machine.

You have two to three days to set up mass production of the disk. To do it simply and without tricks, all you have to do is copy the Finnish drum. If production cannot be set up by this deadline, the government will put your factory under special control and shoot all the rats sitting in it.

J. Stalin
January 28, 1940

The object of this telegram was a machine gun designed by Vasily Degtyaryov, which I believe is the following one:

The Finnish gun that was its inspiration is the Suomi KP-31:

The Kovrov plant still exists and makes weapons, and the company is now named after Degtyaryov.

The original telegram is as follows:

Lean manufacturing and government help, Interview in Russia’s Kommersant, Tatarstan edition

Kommersant is Russia’s main business newspaper; Tatarstan, a small republic in the Russian Federation, on the Volga river 620 miles East of Moscow, with a government that supports the implementation of Lean in the local industry. This interview is part of a 4-page section on Lean Manufacturing added for Tatarstan. They asked for my views on the status of Lean manufacturing implementation worldwide, the effect it has had on successful companies, the key elements required for implementation, the motivations of various companies undertaking it, and the ways government can or cannot help. What follows is the original English version, that was translated into Russian.

Mr. Baudin, you were in charge of Lean projects in many companies in different countries…

As a consultant, I am not in charge of projects. I am not Theodore Roosevelt‘s “man […] in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds.”

This role, to whom credit belongs, is played by the VP of Manufacturing, Plant Manager, or Production Manager who own the processes that are the targets of improvement in Lean projects. My role is to be in their corner and help them be successful, but the credit and the glory is theirs.

How efficiently are Lean principles implemented there?

To date, very few companies have anything but a superficial veneer of Lean. For all the talk about “making Lean simple,” it just isn’t. What you see almost everywhere is what I call “Lean light”: a little bit of Lean sprinkled throughout the company, in the most visible places. It is just enough to get you certified as a “Lean supplier” by customer auditors, or even to get an award.

What are sights to behold are the few companies that implement Lean deep, making fundamental changes in the engineering of their production lines, their logistics, from the supply chain to in-plant part movements, the way they organize and use people, and the way they manage performance.

It is an enormous, multi-year effort, but what keeps them moving forward is that the benefits start accruing immediately.

What was the maximum effect from implementing Lean methods?

Industry dominance. This is what Toyota achieved, starting as a minuscule, nearly-bankrupt company in 1950 to become the Number 1 car manufacturer worldwide today. Because Lean is not easy, most managements give up early, creating opportunities for those who persevere. If you stick with it through the years, it gives you  a durable competitive advantage.

Which company was able to achieve it?

There are a number of companies that are known for their success with Lean, like Autoliv, from Sweden, the Hon furniture company in the US, Valeo in France, or Porsche in Germany.

But I would rather speak of companies I have been personally involved with, even acknowledging that credit for their success redounds to their managers, engineers and operators, and not to any consultant.

The most successful one doesn’t want to advertize it, to the point that, if you google its name with Lean, nothing comes up. Without bragging about it, however, they have been at it since 1984. When I first visited them in 1987, they were a small to medium size maker of high-end mechanical parts outside the auto industry, with a few small plants in Europe and the US. When I last visited them about 20 years later, their sales were 10 times larger, and all their competitors from 1987 had become internal divisions.

To mention companies I can talk about, we also helped Renault of Argentina go from worst to best performer in the Renault group within four years. At the time, it was called CIADEA and had been sold by Renault to a prominent Argentinian businessman named Manuel Antelo. CIADEA was making Renault cars under license and was later sold back to Renault. I have stayed in touch with some managers involved at the time of our engagement, and they tell me that the high performance was sustained after we left.

By the late 1990s, the Japanese electronics manufacturer Canon was struggling to maintain its position largely because its production lines were not Lean. I worked with the US branch of Canon to introduce the cell concept in laser printer assembly. This was consistent with what Canon did elsewhere and, several years later, the top management of Canon credited the use of cells with restoring the position in the industry that it still holds. The Japanese electronics industry now actually uses the term “cell production” for Lean.

La-Z-Boy is an American armchair manufacturer that is also quite open about the success it has achieved through Lean, and in particular through cells. This was a short engagement for me but a major one for my colleague Kevin Hop, and we were both gratified with the outcome.

Is it possible to track a consistent pattern: is there a component of Lean without implementing which proper practical results are impossible?

It is usually a mistake to try to implement every Lean tool in a particular organization. What you should do in every case is analyze its business, technical and human situation, and deduce from it which kinds of projects make sense to undertake and in what sequence.

Eventually, all the dimensions of the business — engineering, logistics, organization, and performance — must be addressed in some form, but, for this purpose, not all of the existing tools of Lean may be relevant, and you may need to invent new ones.

How efficiently do you think is Lean implemented in Russia?

I would rather leave that question to colleagues who are living and working full time in Russia. I am based in the US and have come to Russia about a dozen times in the past 6 years. I have not seen a Russian plant I would consider a showcase of Lean, but then, I have not seen that many Russian plants.

In Tatarstan, Lean principles are implemented as a government program. But apparently it doesn’t always happen that way.  

It actually rarely happens that way. I have nothing against government support for Lean, but it must be designed so that government officials are not put in a position to choose service providers for Lean implementation support, which is exactly what has happened in the US with the MEP (Manufacturing Extension Partnership) program. Through the National Institute of Standards and Technology (NIST), the federal government has been subsidizing consulting firms in all 50 states to provide services at reduced rates to small and medium-size entreprises (SMEs).

NIST is the agency in charge of standards for weights and measures, is run by managers who have never worked in factories, and is not competent to select Lean consultants. It is, however, exactly what NIST did, and, in so doing, created unfair competition to all other consultants.

What the government should have done instead is subsidize the SMEs directly, for them to select consultants, and pay market rates for services. Such a system would not have been perfect, and probably have led to some SME managers hiring their brothers in law with government money. This kind of risk is always present, but, at least, the choice of consultant would be made by the client, who understands his needs and the consultants’ capabilities better than a bureaucrat does, no matter how well intentioned.

What makes a company pursue Lean methods?

The two main motivations are (1) complying with external mandates and (2) improving their own performance. If a major customer of yours decides to buy only from “Lean suppliers,” it places on you the burden of proving to him that you qualify for this label, and it means satisfying auditors from your customer who may not know the first thing about your business and will come with a checklist. Then making sure you pass these audits is part of the cost of doing business. This motivation leads companies to strive to appear Lean, and success is measured in terms of obtaining the required certification. This is what leads companies to implement Lean-light.

If your motivation is improving performance, you will make different choices in your implementation plan, and you will go for Lean-deep, as explained above.

How important can government support be?

It can be necessary, but it must be limited in amount and temporary. Even from the beginning, support should not cover 100% of the implementation cost of the recipient companies, or else they are unlikely to implement anything. They should bear enough of the cost to want to recoup it through improvements. They should also stop needing support as they become successful.

Many CEOs of production associations in Tatarstan believe that Lean methods were used back in USSR as “scientific labor organization”. Do you agree?

And many American managers believe that Lean is nothing but warmed over Industrial Engineering or Fordism from 100 years ago. If soviet industry had been using Lean, it would have shown in its performance, and the whole world would have taken notice. The soviet union had a world-class industrial engineer in A. K. Gastev, and many outstanding inventors like Rostislav Alexeyev with his flying boats, or Alexander Kemurdzhian with Lunakhod. It even had Genrich Altshuller to develop a theory on how to invent (TRIZ). It just didn’t have Lean.

Should Governments Subsidize Manufacturing Consultants?

Since 1988, the federal government of the United States has been subsidizing consulting firms through a program called Manufacturing Extension Partnership (MEP) out of the National Institute of Standards and Technology (NIST). The MEP has existed through five presidencies of both parties and now supports 1,300 consultants who provide cut-rate services to small and medium-size manufacturing companies, effectively shutting out other consultants from this market segment.

This raises the question of what qualifies an agency set up to calibrate measurement instruments to pick winners among consultants in areas like technology acceleration, supplier development, sustainability, workforce and continuous improvement. Clearly, the leaders of the MEP must have an extensive experience of manufacturing to make such calls.

Director Roger Kilmer just posted an article entitled A Blueprint for America: American Manufacturing on the NIST MEP blog. According to his official biography, the director of the MEP has been with NIST since 1974 and has never worked in manufacturing. On the same page, you can see that some members of the MEP management team have logged a few years in the private sector, in electric utilities, nuclear power, and IT services. None mention anything like 20 years in auto parts or frozen foods.

Roger Kilmer

I agree with Roger Kilmer that manufacturing is essential to the growth of the U.S. economy, and even that government should help. All over the world, particularly at the local level, governments provide all sorts of incentives for companies to build plants in their jurisdiction. But is it proper for a government to directly subsidize service providers? The alternative is that whatever help is given go directly to manufacturing companies, for them to pay market rates for services from providers they choose.

Christine Lagarde

In addition, the most effective help is not necessarily a subsidy. Hearing the CEO of a small, French manufacturing company uncharacteristically praise then finance minister Christine Lagarde, I asked what she had done to deserve it. “In 2009,” he said, “banks were denying credit to everybody. We were going bust. She decreed that bankers had to explain why for each case to her ministry. That was enough to pry the money loose.” It was done with a light touch, didn’t cost any money, and worked.

State dips its toe in ‘Lean’ process

Via Scoop.itlean manufacturing

Correctional Industries – a division of the Department of Corrections that puts prisoners to work, combining job training with the production of uniforms, food and office furnishings used by government agencies – was one of the first state agencies…

State governments in the US adopting Lean |

Via Scoop.itlean manufacturing

Of course, it makes you wonder what they are actually doing in the name of Lean…

The Legislature is picking up on the “lean management” philosophy that the governor has been pushing as appropriate to hard times.