Archive for November, 2014

Why We Must Stop the Fast Track Authority in the “Lame Duck” Session

Tuesday, November 18th, 2014

The rumors in Washington, D. C. are that granting President Obama Fast Track Authority under Trade Promotion Authority will be brought up in the “Lame Duck” session, perhaps as an addition to one of the bills extending certain tax credits, called “Tax Extender bills.”

Simply put, granting Fast Track Authority to the president means:

  • Choice of countries is delegated to President
  • Executive Branch negotiates and signs a trade agreement before vote by Congress
  • Allows only 20 hours of debate by Congress
  • Forbids any amendments to the trade agreement
  • Requires only a simple majority vote in each House violating U.S. Constitution Article 1 Treaty clause giving the Senate authority to approve a treaty by a supermajority.
  • Gives Constitutional power over trade to President and takes it away from Congress
  • Usurps Constitution and is dangerous to give this much power to the Executive Branch

There are two trade agreements that have been in secret negotiations since 2010. The first is the Trans-Pacific Partnership. Eleven nations have participated in the negotiations: Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. Japan announced its intention to join the agreement last spring. However, the TPP is intended as a “docking agreement,” so other Pacific Rim countries could join over time, and the Philippines, Thailand, Colombia, and others have expressed interest. Even China could join the TPP at a later date without suffering any disadvantage though this would negate the original reason for the TPP as a counter to China’s hegemony in the Pacific.

The TPP is much more than a trade agreement; it is a Trade and Global Governance Agreement because only five of the 30 chapters relate to tariffs and quotas. The other 25 chapters cover such topics as: domestic regulation: food & product safety, financial regulation, investor states’ rights, immigration, intellectual property, federal, state and local laws on taxes, patents, copyrights, trademarks, immigration, environment, labor standards, among many other issues. Clauses in these chapters may even overrule prior acts of Congress without new legislation being introduced, passed in Congress, and signed by the president.

Most dangerous of all, International Tribunals, not U.S. courts, would decide on lawsuits between companies in member countries and U. S. In a commentary article on October 15, 2013, Lt. Col (Retired) Allen West wrote, “TPP would subject the U.S. to the jurisdiction of foreign tribunals under the authority of the World Bank and United Nations. These unelected, unaccountable panels would constitute a judicial authority higher than the U.S. Supreme Court. They would have the power to overrule federal court rulings and order payment of U.S. tax dollars to enforce the special privileges granted to foreign firms that would be exempt from EPA and other regulations that strangle American firms.”

In addition, the U.S. would have to agree to waive Buy America procurement policies for all companies operating in TPP countries. What this means is that the TPP’s procurement chapter would require that all companies operating in any country signing the agreement be provided access equal to domestic firms to U.S. government procurement contracts over a certain dollar threshold. To meet this requirement, the U.S. would have to agree to waive Buy America procurement policies for all companies operating in TPP countries. There are many companies that survived the recession and continue in business today because of the Buy American provisions for defense and military procurement. The TPP could be the death knoll for these companies!

The other trade agreement is the Transatlantic Trade and Investment Partnership (TTIP) also known as the Transatlantic Free Trade Agreement (TAFTA), which is a proposed free trade agreement between the European Union and the United States. The Obama administration considers the TTIP a companion agreement to the Trans-Pacific Partnership, and it is similar in scope and nature to the TPP, incorporating all the same global governance chapters.

In the last 20 years, the U. S. has made trade agreements with 20 nations, of which the major trade agreements are:

  • Created the World Trade Organization & let China join
  • Panama Free Trade Agreement
  • Central America Free Trade Agreement
  • Colombia Free Trade Agreement
  • Korea Free Trade Agreement

What have been the consequences of these past trade agreements? One consequence is an increasing trade deficit. In 2013, our total trade deficit in goods was $688.4 billion, of which China represented 46% at $318.4 billion. Our top six trading partners of Canada, China, Mexico, Japan, Germany, and South Korea represent 64% of our total trade deficit.

Another serious consequence is the loss of American jobs. From 2000 to 2010, the U. S. lost 5.8 million manufacturing jobs and 57,000 manufacturing firms closed. Where did most of the jobs go? U.S. Department of Commerce data shows that “U.S. multinational corporations… cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million.” Millions of people have lost their jobs because corporate CEOs concluded, “It’s cheaper to manufacture where they pay 50 cents/hour and let us pollute all we want.”

As a result, the real unemployment rate is 16.1%, and there are still nearly 2 million less jobs than there were at the start of the Great Recession in December 2007!

The TPP and TTIP/TAFTA are bad for American companies, American workers, and American consumers. What good does it do to have cheaper consumer goods if you don’t have a job?

I urge everyone to Contact your Congressman to ask them to vote no on granting Fast Track Authority!


Lean Sustainability Requires a Change in Culture

Tuesday, November 11th, 2014

On the second day of the Lean Accounting summit put on by Lean Fronteirs, Cheryl Jekiel, author of Lean HR, gave the keynote presentation on “The Future of the Horizontal Lean Enterprise, Rev Up Your Engines.”

Ms. Jekiel led off by comparing the support functions of a company (Accounting/Finance, Information Technology, Human Resources, Quality, etc.) as “potentially the engine of the organization” in “driving strong performance.”

She outlined six ways to power up support functions to create a different attitude in the whole team:

  1. “Gain clarity on how your work impacts your external customers.
  2. Shift attitudes beyond current expectations.
  3. Focus on highest priorities ? what is the #1 problem in your business?
  4. Develop a service attitude – how do you measure service? Does it meet the needs of your customers? Survey internal customers (other departments).
  5. Synthesize skills of Finance, IT, etc. and combine various items into a cohesive whole.
  6. Leverage diversity of skills ? you are better together”

In summary, she recommended that companies “identify ways that support staff impact external customers, expect more of team members in support functions, and prioritize work based on ability to achieve objectives.”

Retiring American Manufacturing Excellence President, Paul Kucharis, made a comment that has kept running through my mind, “What got you here, won’t get you there.” We have come a long way in the last 25 years since lean concepts, principles and tools diffused out of the Toyota Production System, but it is a never-ending road of continuous improvement to reach an ever-changing target. The underlying discussion among speakers and attendees of the summit seemed to be questioning whether enough progress had been made. The consensus from discussion was that we now have many companies that are lean manufacturers, but how many are lean enterprises? And, of particular importance to the theme of the summit, how many are using lean accounting rather than standard cost accounting?

This is why I selected the breakout session on Accellent Corporation’s “Solving the Standard Costing Problem,” presented by Jeremy Friedman, President and COO of the Cardio & Vascular Division. Accellent is a medical device manufacturer with 17 factories, 5,000 employees, and 20,000 SKUs.

He said, “Standard cost accounting is incomprehensible; we didn’t know where the numbers came from…Our prices were as high as three times competition. Standard costing didn’t work for our 20,000 SKUs…There were too many assumptions, too many variances.”

When he was the Executive V. P. and CFO, he researched the subject, read several books, and spoke to some of the experts, such as Jerry Solomon, Brian Maskell and Nick Katco, whom I met at the conference.

The decision was made to eliminate standard cost accounting, and they made the switch to “plain English P & Ls on October 1, 2012.” He said, “We began with value stream management and focused on cutting costs…We eliminated variance analysis and changed from using standard costs and adding a markup…We had to teach that pricing isn’t a function of cost. Besides the benefits at the operations level, we are no longer pricing products at two to three times higher than competition. We changed to a new paradigm ? lean cash flow.” The old model was “What is the lowest price we can charge based on standard costs and markup. The new is “What is the highest price we can charge and still win the business.”

The companies I represent sometime lose orders for being two to four times higher than the competition, so I have a very good reason for encouraging a transition from standard cost accounting to lean accounting. I firmly believe that if more companies would make this transition, we would be losing less business to China and other offshore suppliers.

Next, I attended the session on “Lean Product and Process Development ? Creating the Future” by Dr. James Morgan, President of Emc Network and a Sr. Advisor for the Lean Enterprise Institute. Dr. Morgan shared his experiences as the Director of Global Body Exterior, Safety and SBU Engineering at Ford Motor Company from 2006 to early 2013 when he left the company.

He said, “Every time you develop a new product, you have the opportunity to create/change the future…Apple and Google changed the future.”

“In many companies,” he commented, “new product development is a nightmare: design and quality problems, late launches, [etc.]…Great products drive enterprise growth and require interdepartmental collaboration…Lean product development requires that you develop the people and product simultaneously.”

Morgan said that at the time of the economic crash in 2008 “Ford had $17 billion in losses over the previous three years and a 20-year market share decline…Ford’s recovery was a product driven recovery based on a new product portfolio and new global development process.

The Body department was organized around the value stream and developing engineers was made a priority following the Technical Maturity Model (TMM), Technical Independent Development Process (TIPD), using mentoring and targeted assignments, and design reviews to demonstrate efficient design. They included the extended enterprise of the UAW and suppliers and used the Matched Pair Process for engineering and purchasing to shape processes, tools, and objectives. They spoke as one voice.”

In summary, he said, “They tightly synchronized activities to create effective concurrency and increase probability of success. The process they followed was:

  • “Study – to create the right product
  • Execution – to deliver the right product
  • Reflection/learning”

He recommended that “you use A3 forms for business planning and align your organization with the right tools and stretch your team.”

In between, the keynotes and one-hour workshops, I attended two of the 20-minute “scrambles.” The first was “Kata, Coaching and TWI” by Jim Huntzinger and Dwayne Butcher, the principals of Lean Frontiers. I was familiar with TWI (Training within Industry) from my Lean Six Sigma Yellow Belt class. It was briefly described as the program implemented during WWII to train women and non-military qualified men to replace men in industry that had been drafted. It contained three “J” programs: Job Relations, Job Instruction, and Job Methods.

They explained that the objective of Coaching Kata is: “Create an organization that solves every problem every time…Coaching Kata shows how to develop problem solving skills one-on-one using PDCA in coaching/mentoring on actual projects.” Huntzinger said, “You will not become lean by doing TWI, but you will not become lean without doing TWI.”

To me, the last “scramble” of the day came full circle from the first keynote by Robert Miller on the future of Lean leadership and put everything into perspective ? Orry Fiume’s discussion of “Executive Leadership.” He stated that whether or not your company has built a sustainable culture of excellence based on Lean principles can be easily determined by using the following simple comparison Mr. Fiume presented:

Traditional Lean
Functional form Business form
Managers direct Managers teach
Management delegates Management supports
Blame people Root cause analysis
Us vs. Them Real teams
Results focused Process focused
Internal focus Customer focus
Managers control Workers control
Hierarchy Flattened organization
Employee is a cost Employee is an asset
Rewards individual Rewards group sharing

I would add one more comparison to this matrix to fit the theme of the conference: traditional standard cost accounting vs. Lean Accounting.

Less than half the attendees and speakers were present for the final panel discussion on “Your Organization in 10 years.” The consensus of comments by panelists and members of the audience seemed to be that while the “Lean movement” has come a long way, many companies, still have a long way to go.

Within the San Diego region, I see many companies that participate in the CONNECT Operations Roundtable workshops apply lean principles and tools on the shop floor. They seem to have transformed from traditional companies to lean companies in about half to two thirds of the above matrix. However, I don’t know of any company that utilizes lean accounting.

The problem is that most of these companies are medium to large companies. Very few companies under 50 employees have begun to adopt lean principles and tools. Only two of the small companies I have represented in the past 15 years have gone through lean training. The first was a metal stamping company with less than 40 employees. They obtained the training through one of the California Centers for Applied Competitive Technologies offsetting the cost with some funding from the Employment Training Panel. As a result, average throughput was reduced from five weeks to five days, on-time delivery improved by 70% and work-in-process was reduced by 40%. The other company was a rubber molder with only 15 employees, and they received their training through the southern California Manufacturing Extension Program, California Manufacturing Technology Consulting. Their biggest benefit was eliminating wasted movement and time by implementing 5S and rearranging equipment. The cost of their training was also reduced by Employment Training Panel funding. Small companies have the advantage of not having much of a hierarchy to flatten, and the president has to be fully committed to becoming lean to even initiate the training. This makes it easier for lean to become integral to the culture of the company.

Utilizing lean tools is not enough to become a lean company. Lean concepts and principles must become part of the culture. Lean will not be sustainable in the long run unless it does.

Lean Principles Must Expand Beyond Shop Floor

Tuesday, November 4th, 2014

I had the pleasure of attending the 2014 Lean Accounting Summit on October 21-22 in Savannah, GA, produced by Lean Frontiers, headed up by founder and President, Jim Huntzinger. It was two days of information-packed presentations and workshops that included case studies showing lean principles in action. I was honored to be part of such an illustrious group of lean experts to give a presentation on “Returning Manufacturing to American Using Total Cost of Analysis.” I attended all five of the keynote presentations during the two-day summit and selected one of the four sessions in each breakout period between the keynotes.

The summit began with a keynote presentation on “The Future of Lean Leadership, How Leaders Build Sustainable Cultures of Excellence Based on Principles,” by Robert Miller, now President of Arches Leadership and former Executive Director of the Shingo Prize.

Miller outlined how we got to the present concept of lean starting with the quality circles of the 1960s, leading to the Kepner-Tregoe methodology ofwork simplification in the 1970s, the Just-in-Time and Statistical Process Control programs of the 1980s, the Total Quality Management philosophy of the 1990s, and now the Lean Six Sigma culture of the 21st Century. As a sales rep for Tier 2 and 3 suppliers to Original Equipment Manufacturers starting in the mid 1980s, I remember trying to comply with the JIT and SPC requirements of my customers. I took an intensive 100-hour class in 1993 to get my certificate in Total Quality Management to be prepared for the future, but saw TQM fizzle out as the decade ended because it wasn’t embraced by top management of companies.

Miller affirmed my opinion by saying, “We keep reinventing new versions of known practices, tools, and programs, using a few key principles that are timeless, universal, natural laws that govern consequences in our businesses… Tools and systems are necessary, but are insufficient. Sustainability requires culture. Culture is the sum of all learned and socially demonstrated behavior patterns that exist at many levels: civilizations, regions, countries, communities, organizations, families, etc.”

He explained that “individual acts or behaviors are visible, observable, recordable, and measurable. You can’t improve unless you measure, but measuring requires a standard or principle… Culture is influenced by a leader, reinforced by rules, embedded by routine, validated by recognition, and guided by beliefs. Beliefs are deeply personal.”

He then outlined the six strategies for leaders based on the10 universally accepted Guiding Principles of The Shingo Model™:

  1. Leaders understand principles and know what behaviors flow from principles
  2. Leaders have to be honest with themselves and others
  3. Leaders are humble
  4. Leaders value potential of everyone
  5. Leaders ensure systems align with principles
  6. Leaders balance Scorecard (results and behaviors)

He concluded, “Sustainability requires changes in thinking…attempting to implement practices without understanding the reasons behind them leads to failure,” This is what we saw happen with the philosophy of Total Quality Management because company leaders didn’t learn to understand the principles and didn’t practice the strategies necessary to embrace and embed the philosophy into the culture of their companies. Lean Six Sigma will only be sustainable for the next ten years and beyond if company leaders follow these six recommended strategies so that lean becomes embedded into the culture of their companies and embraced by all employees.

The next keynote speaker, Tom Hood, CEO Maryland Association of CPAs and Business Learning Institute, spoke on “What’s the Future of Accounting?” He caught everyone’s attention by showing the list of jobs that are most likely to being disrupted by technology, and accountants were the second most likely at 94%, just after telemarketers at 96%. He said, “We are in a race with machines, and we can’t beat them.” In my business as a manufacturers’ sales rep, I have to do more telemarketing than ever before, so I took this data to heart.

He continued, “We are experiencing the largest shift change in history in: leadership, learning, technology, generation, and workplace…For every two Baby Boomers, there is only one Gen Xer, while Millennials (Gen Ys) are equal or greater than Baby Boomers in numbers.”

He questioned whether the” leadership of accounting is changing in collaboration, cultural awareness, technology and transparency.” He explained that “incumbent practices, resources, and institutions are in decline, and new business models, practices, and technologies are emerging…The challenge and opportunity is to make the shift from the first curve to the second at the right time and with the right strategy.”

He stated that the MACPA CPA Vision for 2025 is: “CPAs are trusted advisors who, combining insight and integrity, deliver value by:

  • Communicating the total picture with clarity and objectivity
  • Translating complex information into critical knowledge
  • Anticipating and creating opportunities
  • Turning insights into action to transform vision into reality

He briefly highlighted the five ways to thrive in a shift change:

  1. Power of vision, purpose, and alignment
  2. People – strengths and positivity
  3. Collaboration and engagement
  4. Learning and Development
  5. Technology (RONI = Risk of Not Investing)

In conclusion, he stated, “In a period of rapid change and increasing complexity, the winners are going to be the people who can learn faster than the rate of change and faster than their competitors.”

Next, I attended an interesting breakout session by Bill Waddell, author of Simple Excellence and Rebirth of American Industry, on “How to Create and Transition into Value Streams.” From my Lean Six Sigma yellow Belt class, I learned how manufacturers can organize based on their product value streams, but I still didn’t understand how other types of companies could transition into value streams.

Waddell stated, “How we construct value streams should be different for each unique value proposition we have to optimize in order to achieve the objective.” He briefly outlined the following steps a company can take to “pursue the things that have the greatest impact on results:”

  • “Nail down the markets you serve and separate them by the different value propositions/necessary cost structures they require.
  • Identify critical key performance indicators (KPIs) that define how to achieve strategic objectives.
  • Select your value stream managers.
  • Determine initial scope of the value streams by function.
  • Assign the human and physical resources.
  • Restructure core managements systems, ERP systems, accounting, budgeting, and supply chain systems to match value streams”

Waddell featured Wahl Clipper Corporation as an example of a company that has been successful in transitioning to value streams.Wahl has been manufacturing professional styling products, home styling products and animal grooming products since 1919. As an advocate for manufacturing in America, I was delighted to hear that “Wahl has captured 80% of the consumer market in clippers” while manufacturing in the U. S.

In my opinion, becoming a Lean Enterprise is one of the keys to American companies being able to maintain or return manufacturing to America while being competitive and profitable in the global marketplace.

In my next blog article, I will cover day two of the summit.