Hi! Managers: How the Thai flood crisis could change our approaches to process improvement
The two largest groups of work-permit holders in Thailand are South Koreans and Japanese, yet despite knowing that, I confess that I had not quite understood the dependency that Japan's industrial output has on Thailand. That is until the floods hit Thail
During the two quarters prior to that, production in Japan had already been affected by the third largest insurance loss in the world: the earthquake, tsunami and subsequent nuclear crisis that began on March 11, 2011.
However the fourth disaster, which will shortly become the fourth largest insurance loss ever, were the floods in Thailand. The word “unlucky” does not even to begin to describe this situation for Japan, which was the only country to be hit hard by its own disaster as well as Thailand’s. All in the same year.
In Thailand, the word “lucky” does not come up when describing floods, but the Kingdom is lucky that Japanese production is so extensive and deeply entrenched here. While most manufactures did have other countries that were able to take up some of the slack, it is impossible to establish oneself quickly in another country – it could take five years. Hence, these businesses have no choice but to re-establish themselves here.
However, the flood crisis has created a conundrum for the early pioneers of production improvement, and it will likely cost you and I money.
Throughout history, improvements in production are linked to wealth and national development. For example Eli Whitney’s 1793 invention of the cotton gin, which separated raw cotton from seeds and other debris, shaped the economy of the South American States. It even affected the continuation of slavery in the South because of the high profitability of cotton.
Between 1908 and 1915, when Henry Ford introduced the automobile assembly line, it changed the global economy. Mass production of low-priced vehicles was quickly copied all over the world, causing a revolution in travel.
So what is the economic impact if we have to return to some of these improvement methodologies?
In 1948, just after World War II, Japan was suffering from a significant deficit of male workers and had to improve upon the assembly-line process. The results were that Eiji Toyoda, Taiichi Ohno and Shiego Shingo developed the Toyota Production System (TPS), a major precursor to today’s more generic LEAN manufacturing.
The main objectives of the TPS were to “design-out” overburden (muri) and inconsistency (mura), and to eliminate waste (muda). Within muda, the “seven deadly wastes” were:
-Waste of overproduction (considered the largest waste)
-Waste of time on hand (waiting)
-Waste of transportation
-Waste of processing itself
-Waste of stock at hand
-Waste of movement
-Waste of making defective products
Manufacturers must be considering how they should re-write muda given the lessons learned from last year’s flood crisis. While the possibility of individual problems with suppliers, locations or logistics would have been built into company’s Business Continuity Plans, the possibility of an entire ecosystem being wiped out had never been thought of. Now it must.
This provokes serious challenges to the principles of waste. For example, muda encourages fewer suppliers with consistent quality ensuring bulk purchasing and transportation, and providing consistent just-in-time delivery. These will all need to be revised.
In fact, “just-in-time” is the polar opposite of what is desirable when concerned with the possibility of another substantial “ecosystem-wide event”.
--Specifically:
-More suppliers will be required, with the resultant potential impact on quality (Waste of making defective products, waste of transportation);
-More suppliers means more paperwork, more inspections and more maintenance (Waste of processing itself);
-Some of these suppliers will have to be further away from the plant (Waste of transportation);
-Larger stocks will have to be kept of suppliers’ parts (Waste of stock at hand);
-Larger stocks of finished goods be required (Waste of overproduction);
-Both supplier parts and finished goods will probably have to be stored in different locations (Waste of transportation).
This is yet another example of a “new normal”, which has been created from the profundity of the flood crisis. And it is a change that all manufacturers across the world will need to consider: a fatter LEAN.
Andrew McBean is a partner at Grant Thornton Management Consulting, a unit of Grant Thornton Thailand. His article is carried every third Monday of the month. He can be contacted at [email protected].
