It’s all About the Right Business Balance: Use Lean to Improve the Business, not as Carte Blanch for Workforce Reduction (Mar 18, 2008)

As I reflect upon my “Lean” experiences with various German manufacturers it strikes me that I am often left wondering, “What is the real issue here?”

We want to sell a product at the best possible market price and at a high profit, and the only way to do that is to have a company at which all parties involved in production, directly or indirectly, dovetail their work and are thinking and cooperating between each other.

If we look at the beginning of modern automation in Germany, the main reason was to let machines take over simple and repeating work in order to set people free for more demanding tasks, considering the limited sources available after the war. At that time companies invested both in automation and to up-skill their employees, who brought the right balance between machines and workers, creating the success of the 50s, 60s and 70s.

Later on, due to higher competition in the market and changes in the ownership of companies, the situation changed. It seems that the current management thinking is that to save money, companies must invest in even more machines and fire more skilled (expensive) people. Unfortunately this has reached the point of diminishing returns between automation and workforce, and by that, many companies have lost their know-how and competence because of the loss of highly skilled and devoted employees.

Due to the pressure from the stock market, many managers have tried to perform miracles to show a good financial result, by relocating parts of their production into other countries, etc. Or they sell parts of the company to satisfy the shareholders. Shareholders want to maximize their profit and management faces high pressure to achieve profit targets. These actions may work for a short time but in the end the risk is too high and sometimes kills the company.

For me, it seems that the “automation-driven” mentality has passed its zenith. Yet, hiring or re-hiring more skilled workers isn’t necessarily the answer either. Unfortunately, the solution is not so simple as “It is better to have more of x and less of y.” So, what are we to do?

The answer is easier to identify if one asks a different question. Rather than asking “Which is better?” we should be asking “What is the right balance?” In this case, the question is, “What is the right balance between automation and people?” This leads us down a different pathway for creating the right solution.

We often conveniently “forget” or ignore that fact that automation has its own issues. An expensive piece of equipment typically requires very expensive support personnel. From the view of accounting, these support personnel are part of the indirect budget. Yet, their costs are very real and the company doesn’t see any improvement at the end of the day when all such “indirect” costs are tallied.

Lean tells us to use automation to reduce cycle time variation to level out production. This is often coupled with redesigning into work cells. But these same principles can lead to other challenges. For example, I have seen many instances where managers question if operations are “over-automated.” A machine breaks down or demand changes suddenly. The automation does not provide enough flexibility (or is too expensive) to adjust on the spot to support the required configuration. In some instances, having lower levels of automation and an appropriate level of operators may actually improve flexibility and lower overall costs at the same time.

In my opinion, the only solution that makes sense is the one that balances the total costs of the machines, labor and salaried personnel, etc. while satisfying customer demand – as well as the needs of the internal and external stakeholders. In the absence of finding the right balance between the process and financial implications relative to serving our customers, we are all just fooling ourselves that any changes we make in the short term will guarantee positive longer-term and sustainable impact.

Michaela Gerweler






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