Lean Enterprise Institute CEO John Shook Urges Manufacturers to “Right-Shore” Operations for Sustainable Job Creation
Manufacturing companies should think in terms of “right shoring,” not off-shoring or re-shoring, according to John Shook, CEO and chairman of the nonprofit Lean Enterprise Institute (LEI). Shook made his remarks during a panel discussion on advanced manufacturing at "Manufacturing's Next Chapter," a business summit held February 7, 2013, to bring together experts from business, government, and labor to deliberate the impact on industry of powerful trends in technology, insourcing, job creation, workforce development, and global competitiveness.
“Things will be made in different places and they should be,” Shook said, “but we can be smart about it.” Being smart about where to make products usually means locating design and production closer to the markets where products are sold, Shook said. It also means knowing the total costs – not only labor costs – of each location where manufacturing facilities are located.
For example, Shook noted that many companies, chasing low labor costs a decade ago, off-shored production but later discovered the labor savings were more than offset by higher supply chain costs. As labor rates rise overseas, companies re-shoring production often discover their U.S. workforces have lost important capabilities and need re-training. The original decision to off-shore had been made “without fully understanding the implications” of hidden costs, Shook said.
He noted that furniture maker Herman Miller resisted the rush to offshore, developing instead the problem-solving and innovation skills of its U.S. employees through lean management. He said the “equation for success hasn’t’ changed much” for companies. Long-term success and job protection required “team-based problem solving and innovation.”
Lean Leaps at GE
Earlier, GE CEO Jeff Immelt sounded a similar note about right shoring. As a global company, GE wanted to be “close to the innovators, close to the markets we sell in,” he said. That means adding production capacity in countries where GE sells, including the U.S. Immelt expects a “steady increase” in U.S. manufacturing jobs in coming quarters and years.
In 2010, GE brought 1,300 manufacturing jobs back to Appliance Park in Louisville, KY, to make new products (mostly water heaters, washer/dryers, and refrigerators) for the first time in over 15 years. Leaders from GE’s Appliance Park plant, featured in The Atlantic’s recent "Insourcing Boom" article, will explain how lean principles are making their facility more competitive, during LEI’s Lean Transformation Summit, March 13-14, 2013, in Orlando.
Leaner Supply Chains
Answering a question from the audience, Shook said companies will “compress” their supply chains as a result of the impact of the 2012 tsumani in Japan. “Companies no longer want to know just their suppliers. They want to know their suppliers suppliers,” Shook said.
The conference featured interviews and panel discussions with a range of industry leaders, including GE’s Immelt; Senator Mary Landrieu (D-LA), chair of the Senate Committee on Small Business and Entrepreneurship; Neil Gershenfeld, director of MIT's Center for Bits and Atoms; and Thea Lea, economist and deputy chief of staff at the AFL-CIO. In back-to-back interviews, Senators Michael Bennet (D-CO) and John McCain (R-AZ) discussed immigration's impact on the future of the American workforce.
Shook, an expert in lean management, participated in a panel discussing “What Advanced Manufacturing Requires to Keep Advancing.”
The Atlantic magazine organized the conference, which is being underwritten in part by GE. The event was live streamed and archived at http://events.theatlantic.com/manufacturings-next-chapter/2013/. Virtual attendees joined the conversation on Twitter using #AtlanticMFG.
In "The Insourcing Boom," the cover story of the December 2012 issue of The Atlantic, Shook said that the inability to see the "total costs" of moving operations out of the U.S. led companies to make poor decisions about offshoring. The realization that there is more than the offshore labor rate to consider when deciding where to make products is leading many companies to relocate operations back to the U.S..
About John Shook
Shook learned about lean management while working for Toyota for nearly 11 years in Japan and the U.S., helping it transfer production, engineering, and management systems from Japan to NUMMI and subsequently to other operations around the world.
He is the author of Managing to Learnand co-author of Learning to SeeandKaizen Express. His article "How to Change a Culture: Lessons from NUMMI"; Sloan Management Review, January 2010, won Sloan’s Richard Beckhard Memorial Prize for outstanding article in the field of organizational development. He is the former director of the University of Michigan, Japan Technological Management Program, and served on the faculty of the university’s Department of Industrial and Operations Engineering. Shook is a member of the Industry Week Manufacturing Hall of Fame.
What is Lean?
The terms lean manufacturing, lean production, or lean management refer to a complete business system for organizing and managing product development, operations, suppliers, customer relations, and the overall enterprise. It requires less capital, material, space, time, or human effort to produce products and services with fewer defects to precise customer desires, compared with traditional modern management.
Toyota pioneered lean management as a complete business system after World War II. During the late 1980s, a research team headed by James Womack at MIT’s International Motor Vehicle Program coined the term “lean” to describe Toyota’s system.