It matters where products are made
In the past, manufacturing was all about push. Each assembly line was given a list of things to make, and it made them. The list was singularly crafted to squeeze the most out of the line. It was the same for the big machines within the factories. The machines were pushed a list of parts to pound out that was designed around their setup and changeover limitations. It was the zenith of local optimization.
The factory was carved up into small fiefdoms with high walls between them that delineated boundaries used to calculate metrics. Material was pushed across interfaces early and often. It stacked up just over the border, and efficiency blossomed within the artificial accounting fiefdoms.
Then came pull. Pull’s power was enough to transcend a company’s artificial accounting interfaces and set a path of extinction for the wicked, wasteful beast of overproduction. Starting with the customer order, pull signals rippled back through the factory, and efficiency skyrocketed within factory borders. But pull ran into the same roadblock that limited push—accounting interfaces that defined efficiency, throughput, cost and quality. This time it was the interfaces that defined profitability between companies.
This problem has yet to be solved, at least for all but the biggest companies. Big companies have used their power to renegotiate the accounting borders, and from an accounting perspective, the shelves feeding their assembly lines are now the territory of the smaller companies. This is not a lean-based solution; it’s a power-based solution. The cost generated by the geography-driven cycle time between the supplier and customer is incurred by the smaller company.
As lean evolves in a global sense, company-to-companyinterfaces will become ever more important. Integration of upstream supply chains and downstream distribution channels will cut across more accounting interfaces and will twist the purely time-based lean principles. Companies will continue to do lean and continue to increase productivity and efficiency, but profitability will continue to be the dominant principle. The nature of our accounting systems will get in the way of reducing total conversion costs.
Lean has been so successful generating wealth, countries are taking notice and getting involved, even those countries that have outsourced their manufacturing economies. Their involvement is adding a whole new set of interface constraints. The sustainable growth and value creation of global manufacturing, coupled with troubled economies, have helped countries understand that it matters where products are made. And they want them made within their borders. Country-to-country interfaces are huge profitability
levers that, when pulled, further distort the application of lean principles. Where big companies changed accounting borders, countries are using their borders to extract wealth using tariffs, taxes and duties. At the surface, this looks anti-lean, with a skimming off of profits, but that’s not what’s going on. Countries are smarter than that.
The smart countries are using their economic tools and their consumers to pull jobs across their borders. When import tariffs tax finished products higher than piece parts that must be assembled in-country, it’s pretty clear that jobs are the end-game. Think of it as countries embracing late-point identification, moving the work content closer to the customer, or make it where you sell it. It seems some countries understand what lean is all about—both the principles and the value of actually making things.
As countries climb the lean learning curve, they’ll have more power to shape global manufacturing, and they’ll use lean to do it. Protectionist countries will lose, and countries that improve cost, quality and speed will win. Lean will demonstrate its power, even over countries.