Ford has launched a remarkable series of videos documenting their introspective look at themselves. It is very much worth the couple of minutes to watch the first installment. You can take a look by clicking here .

The comments from a number of people at Ford concerning their focus on the wrong competitors - GM and Chrysler, rather than Toyota and Honda - and their product and quality shortcomings reflect a healthy willingness to deal honestly with their situation. There is little doubt that they have named their effort acurately - Change Or Die.

I don’t believe, however, they have asked “Why?” enough times. One lean tenet is that you usually have to ask why five times before you get to the root cause of a problem. I know a number of Ford management folks, as well as people who work at Toyota and Honda. The Ford people are no less intelligent or committed to success than the people at their Japanese competitors. It has long been my premise that the problems that exist at just about every big manufacturer - Ford and GM are just the ones most in the public eye - are a product af the basic management structure in which they operate.

It is hard for me to believe that, no matter how inbred the Detroit automotive culture is, they have not been acutely aware of Toyota. I don’t believe that the problem at Ford or anywhere else is so simple that merely telling people to care more - change or die - will solve it.

Ford, GM and all of the traditional American manufacturers manage with an infrastructure that is fundamentally different from the management infrastructure at Toyota, Honda and the truly lean companies. No matter how much the Ford people care, and no matter how hard they work to solve their problems, they cannot continue to manage themselves by the old DuPont ROI model with MRP/ERP systems, labor focused performance metrics, functional organizational structures, standard costs, and investment decisions driven by the same old accounting methods and hope to compete with the lean companies.

Traditional manufacturers are not being out-worked by the lean manufacturers, nor is their problem a lack of caring. They are being out-managed. The only solution is a fundamental change in how they manage.

The Ford initiative is a good start, but asking why a few more times will get them to the heart of the matter where sustainable improvement can begin.

What do you suppose the cost of a Lego block is when it pops out of an injection molding machine? A penny, maybe? Two at the most. It takes an extraordinary amount of waste for that penny toy to become a premium priced addition to your kid’s toy box.

It will be palletized and un-palletized three or four times, at least. It will move in and out of three massive, automated distribution centers, tracked by two different RFID systems, roll down miles of conveyor, shrink wrapped, un-shrink wrapped and re-shrinkwrapped, scanned into and out of two ERP systems and one MRP system. Since the time to move that plastic block that many times through that many systems across a continent or two is pretty substantial, the fraction of a second it takes to actually make the block has to be planned and scheduled months in advance using globally integrated forecasting technology.

By the time the ‘Global Supply Chain In The Information Age’ folks get done with it, that toy with value measured in pennies has a cost measured in dollars. The Lego company was doing OK until a few years ago. They were under competitive pressure, of course, and they were working on building their market in a lot of innovative ways - some worked and others didn’t. Then something happened that is awfully hard to explain, but the Lego folks swapped ‘nurture the child’ for ‘nurture the semiconductor’ in their corporate culture. Oracle and IBM were very well nurtured, but it seems that just about anyone peddling warehouse, planning or tracking technology got at least a warm hug.

If anyone bothered to map the process a Lego block follows from start to finish, they would have to be insane to miss the reason why Lego found themselves losing money after all of this technology was deployed. It was so ludicrous that at one point, they were making blocks in their factory in Connecticut, packing, palletizing, shrink wrapping and loading it into trailers - then hauling it across the parking lot to their distribution center to undo all of it and put it into warehouse racks. If the product has to go to Walmart or Target - Lego’s largest customers - it is unwrapped and labeled with an RFID tag, then re-wrapped.

The ERP mindset is so ingrained at Lego that their customers had to hack into their system to get what they wanted. Their ‘Lego Factory’ product offered customers a tool to go online and design the structure they wanted to build with Lego blocks, then Lego would convert that into requirements for each little plastic block it took to make it. When customers found they were paying for more blocks than they needed, always having several left over, they hacked into Lego’s system and found that Lego was calculating the block requirements in lot sizes. If the true requirement was for, say 23 pieces, and Lego batched them in lots of 10, the system would calculate demand for 30 then ship and bill that many. Customers found they could go into Lego’s system and figure out the real demand using little more than logic and common sense.

Lurching from one strategic fad to the next, rather than taking a long look at the exorbitant waste in the system, management’s next move was to outsource. The problem, they determined, was high labor cost. People could be had for 20-35% less in the Czech Republic, said the CFO, so off they went. The operation in the U.S. is being closed and that work sent to Juarez, Mexico. It has apparently never occurred to them to simply stop doing much of this non-valued added shuffling of little plastic blocks and save 100% of the labor cost.

Automating a process without first getting the waste out of it simply enables you to waste money at speeds you previously though to be impossible. Outsourcing to get 1/3 off of something you don’t need in the first place is hardly a bargain.

Management at Lego and everywhere else has to have a very clear vision of their value steam from start to finish, and a firm strategy to optimize that value stream. Being driven by labor costs, rather than the critical metric of the ‘Value Added Ratio’ – the time during which the product is having its value increased in the eyes of the customer, as a percentage of the total time – leads to stories like the Lego tale.

Inventory is waste – and inventory management systems are Waste Management Systems. In moving it all to the Czech Republic and Mexico, Lego has simply found cheaper garbage men.

Mark Edmondson from Lean Affiliates and Mark Graban have been hammering away at the latest whiz bang variation of MRP, calling it another “siren song” for manufacturing. For those a little light on their Greek literature, the sirens were a devious bunch of women with beautiful singing voices, and they would lure passing sailors to venture closer to hear the music, only to find that they had been suckered into steering the ship right into the rocks, where it would crash and sink. To see the boys over at Lean Manufacturing Blog’s sarcastic, cynical comments (imagine someone writing in such a tone in a serious manufacturing blog!), drop down the page to “First the V-Pill; Now Its the V-Chain”.

They are right, of course. Joe Orlicky and Ollie Wight lured American manufacturing onto the rocks with MRP in 1961, and we have been foundering on them ever since. Originally, MRP stood for ‘Material Requirements Planning’. A few years after Orlicky put the first system into a JI Case plant in Moline, Illinois, the system was tweaked to add capacity planning, and it has remained unchanged since. Later on, the whole system was tied into cost accounting, and renamed MRPII, and the initials now stand for Manufacturing Resource Planning. Finally, the tentacles grew deeper into the company and the whole mess was renamed ERP - Enterprise Resource Planning. Through it all, though, the heart of the system has remained unchanged since Joe and Ollie laid it all out during the early days of the Kennedy administration.

In order to understand MRP, conjure up all of the core principles of lean manufacturing in your mind - then picture the opposite. You will have a good grasp of MRP logic. Taichi Ohno used the analogy of manufacturing being like a river full of rocks. The water level in the river represents inventory and the rocks represent manufacturing waste. The aim of the Toyota Production System, says Ohno, is to continually drop the water level and expose the rocks, so they can be eliminated. The rocks of poor quality, long set up times, poor factory layout and so forth all must be eliminated to turn the factory into a smooth, rapidly flowing stream of production.

MRP, on the other hand, is designed to make it easy for factories to plug in the size and location of each rock, then turn it over to the system to assure that there is always enough water to keep every rock covered. It is built around lot sizes that assure set up times and costs are spread out over so many units they become insignificant cost elements; the user inputs yield percentages to generate enough extra production to assure that lousy quality doesn’t get in the way of shipping; it helps to assure that there is enough inventory everywhere in the process to keep all of the manufacturing waste hidden from view.

While the sophisticated systems peddled today as ‘necessary’ for every serious manufacturer have whistles and bells Orlicky and Wight could not have imagined, they still drive manufacturing exactly to their 1961 vision. The enhancements to MRP have been in hardware, not software. Joe and Ollie would be flabbergasted to see desktop machines running MRP. The original was run on a computer the size of a comfortable home called an IBM RAMAC 305. (Check out this cat running an IBM RAMAC machine and you will have a good idea just how state of the art MRP is) For that matter, RAMAC stood for Random Access Method of Accounting and Control. The factory people had to know nothing good could come from introducing more ‘accounting and control’ into the factories. At any rate, once the MRP crusaders got over their amazement at hardware, however, they would feel right at home with the logic.

MRP was useful - even necessary - under the manufacturing philosophy of the day. Trying to become lean using a 45 year old manufacturing tool won’t work, however. It is a lot like a world class, Olympic sprinter who breaks her leg. Sure, she is going to need crutches until her leg heals. But she better get rid of the crutches eventually if she thinks she is going to get to the Olympics. MRP was a great crutch for factories bloated with inventory, cranking out dismal quality products in the 1960’s. Nobody is going to keep up with Toyota using MRP, however.

As info, Toyota uses MRP for planning - it still does a great job there, especially for capacity planning. But there is no sign of MRP in their factories. You have to go to an American plant to see the relics of Orlicky’s thinking in serious action.

Computer systems are great tools - not panaceas. The siren singing of a system that does it all sounds almost as sweet to American manufacturers as the siren singing Chinese love songs. The manufacturers that follow all end up on the rocks, however. I read somewhere that American manufacturers can be expected to compound the waste in their factories with over a billion dollars of additional waste in the next year for MRP systems. I wish them all good luck as they head off to battle with the truly lean manufacturers armed with their half century old arsenal.

Blogger’s Note: It pains the author to have to admit that I am an APICS certified MRP wizard and have led a number of companies down the road to ruin with MRP, and induced many more to self-destruct as a result of my lectures and articles in various APICS forums. I have fully recovered from my addiction to MRP and I can only beg forgiveness for all the harm I did early in my career.