As so often happens with this blog, I keep getting distracted from planned work by things that pop up on the fly. One of those - and the subject of today's article - is the revelation that a US Air Force cadet has figured out how to save the USAF $4.9 billion over the next five years by altering the way it purchases some of its air to air and air to surface missiles.
As the editor of the piece points out in his snippet at the end, bulk purchasing is hardly a revolutionary concept. And he's right, it's not. The trouble is that today's world is pervaded by a management culture that is detached from reality and that insists on grabbing little bits of other organisations operating methods and trying to implement them, without understanding the whole picture (can you guess my opinion on managers and management culture in general?).
A classic example of this has been the number of organisations that tried to cut costs by moving their helpline services out of street level offices and into centralised call centres (a favourite of banks). The theory was that what worked for sales calls could work for customer service, and relied on the number of calls remaining roughly the same which a centralised office could handle much more cheaply.
The trouble is that every time a big organisation does this, the number of phone calls to the call centre invariably explodes exponentially compared to initial predictions. This is because of a phenomenon first identified in the 1980's by Professor John Seddon, known as Failure Demand.
Essentially customers used to ring their local bank and get a satisfactory answer and/or resolution to their complaint first time from an experienced professional. Now they were having to speak to the poorly trained equivalent of a glorified answer phone, which resulted in multiple calls to the call centre in order to get their complaints sorted properly, producing a several fold increase in the number of inbound calls; a problem which was only magnified further by the long waiting times for calls and tight management control over call times and number of calls answered.
(If you work in a call centre, ask your line manager if they know what Failure Demand is. If they don't (they wont), start looking for a new job, for your own sanity).
Another, far more common management process that pervades many aspects of western business culture these days is the principle of lean manufacturing/lean services, and that is what is of interest to us today (so bear with me on this).
The whole "lean process" malarkey (a polite way of saying "bullshit") started in Japan with the Toyota Motor Corporation and their "Toyota Way". This process was designed to reduce waste and inefficiency in their large manufacturing processes, allowing Toyota to grow from a small company into one of the worlds top automotive manufacturers.
That's brilliant and it worked wonderfully for Toyota. The problems really started when a variety of intellectually vapid morons - otherwise known as managers - decided to study Toyota in the hope of copying their methods and applying them to other businesses in order to achieve similar efficiency gains. These are the same sort of people who think McDonalds became the brand that it is today because of superior management processes and a unique business culture, as opposed to the fact that it sells 10p slices of beef, topped with a 1p slice of cheese, in a 2p bun, for £1.99.
Inevitably the result has been a string of disasters and near disasters as businesses all across the world attempt to recreate the Toyota way in their own business. The fact that many of these businesses have been retail orientated should give you your first clue as to what went wrong.
Because the Toyota way is not just one idea, one bit that you can pinch and then apply elsewhere. It's a complete model for running a production line, that requires multiple steps to achieve the final aim, and which requires the acceptance of the model at every level of the business. Unfortunately this point seems to have been lost on a lot of people, who only saw the word "lean" in amongst the myriad of concepts that make up what Toyota does.
Indeed, the "lean" aspect of Toyota's business actually consists of a significant number of steps and concepts (the Japanese are big on capturing an entire idea in one word), many of which break down into a number of sub-steps, with most of the sub-steps breaking down yet further into another layer of steps, right down to how to layout a work station and cleaning your workspace. The fact that most of the Toyota recalls in recent years have been attributed to insufficient implementation of these methods by their various manufacturing partners in other countries, shows you that sometimes the Toyota Way doesn't even work smoothly for the company that invented it in the first place.
Yet despite the complexity, we can roughly boil down the Toyota Way into one very basic and broad rule, which is the idea of only keeping enough stock of various items (like sub components for a car) on site to fulfil the immediate production needs; so called "Just In Time Logistics". This in turn works because of two key factors; 1) Toyotas' obsession with quality control and 2) their obsession with having a very specifically timed production line, that runs neither too fast nor too slow.
It's into these factors that all the various concepts play. The whole sub set of detailed instructions about the layout and size of workstations, and the almost OCD like obsession with putting tools back in the proper place is designed to minimise the amount of time wasted by staff looking for items. This in turn helps Toyota to carefully measure out the time it takes to perform various action on the production line, such that it should take a roughly uniform amount of time for any worker to perform that same part of the production.
What you get then is a very steady, very reliable, very predictable flow of work. The manager at a factory should be able to tell you with almost complete precision how many cars his factory will produce between the hours of say 10 in the morning and six in the evening. This ultra predictable flow of work thus allows Toyota to manage its sub component supply chain in a similarly ultra predictable manner, and in turn it can manage its storage and delivery systems in an ultra predictable, bare minimum manner, eliminating unnecessary costs at each stage.
The main problem for people outside of Toyota has been that they turn up, review how Toyota manages their whole system, and then decide "hmm, that idea of minimising excess stock levels is quite appealing, I think we should introduce 'Just In Time Logistics' too", which they then take off and try to implement into their own field, while completely missing the whole bloody point.
This has led to bizarre situations where, for example, retail companies will turn down good deals on wholesale stock because they don't have sufficient storage space at their "efficient" depots to handle the extra goods, meanwhile they have stores whose warehouse shelves are often barren because they don't want to hold any more stock than they absolutely have to, for reasons that none of their managers ever seems able to explain, other than "it's not good to have stock inefficiently lying around".
Except that these are businesses that don't have the same luxury that Toyota has of being able to predict the consumption of stock in an ultra accurate and reliable manner. One week a certain product might be highly in demand and if you don't have enough stock handy then you can't cash in on that demand. For perishable items there's a method in that madness, as perishable stock will go off if not sold, but for things like electronics, furnishings and household products there is no excuse. These businesses also become vulnerable to supply shocks, as even a short term disruption to their supply chain can leave a business that insists on low stock levels in the lurch.
Perhaps most critically is that it overlooks the advantage that many retail businesses have, in that they can discount stock that is taking up too much room, not selling well, or is coming near to the end of its life. Buy cheap, in bulk, and sell with a small margin. It's one of the principles that has helped bargain retail stores like B&M to not only survive the recession, but massively grow during it, as shoppers are pulled in by the low prices.
So, you're probably wondering by this point "What the hell is he talking about? I thought this was a defence blog? Why is he talking about car production lines and bargain retailers?".
Those are good questions and the answer to all of them is simple; because the USAF - as astutely observed by that young air force cadet - is trying to use "lean" methods in an organisation that doesn't run on a nice, ultra predictable timetable of work flow. Some months the USAF may need to use a lot of precision attack munitions. A month later it might not use any precision munitions. The demands of war and the unpredictability of when conflicts will spark up defies the use of measured, lean processes.
This problem has been prevalent in the UK and other nations militaries as well, as operations over Libya showed when many nations reportedly began running low on ordnance. According to the Royal United Services Institute (RUSI) the stock of Brimstone missiles available for the RAF campaign at one point fell to dangerously low levels.
This helps to demonstrate the danger of low volume orders for organisations that do business in a volatile market (so to speak). And yet amazingly some people who should know better are encouraging the MoD to do more of precisely the thing that got them into trouble less than two years ago.
Defence Management is reporting that the Public Accounts Committee (a select committee that is supposed to keep an eye on government spending) has chastised the MoD for wasting money on unused materials such as ammunition and uniforms, while also storing large quantities of other materials and supplies described as "non-explosive" (which frankly could be any number of assets, from unused vehicles to spare parts), which it claims could be sold off to ease pressure on the budget.
And it's precisely this kind of idiotic advice that has left so many businesses in the - if you'll excuse my French - shit. Let me just quote one line for you that I think is interesting; "The report found that the MoD's purchasing system focused on ensuring it had enough supplies to meet demand, rather than preventing excess ordering."
Now don't get me wrong, there's a lot of things the MoD does that don't seem to make sense to a rational human being, and there is probably more scope for budget reductions and greater efficiency in the department if that were to be required. But to lambast the MoD for ordering enough supplies in order to meet demand, as opposed to preventing "excess ordering" is absolutely bloody ridiculous. If I were a more uncouth and uncivilised individual, I'd be tempted to say it's bordering on the fucking scandalous.
This, ladies and gentlemen, is the kind of enlightened economic wisdom that is being shared with the MoD. An organisation that is inherently prone to sudden spikes in its operating tempo, is being told not to hold onto too much stock, because that's bad for the books.
It's ludicrous. Absolutely and utterly ludicrous. Like the young USAF cadet had noticed with his parent organisation, the MoD is being told to order just enough to handle daily/weekly usage, the old "Just In Time Logistics" again. Instead of being able to take advantage of bulk purchase prices and keeping healthy stores of commonly used (or useful) items as a hedge against future problems, the MoD is being told to conform to a business model that at times can't even cope with the demands of its original business, let alone the fast moving, highly variable business of warfare.
It is categorically the most stupid thing I've ever heard a politician, or group of politicians*, say.
*(What do you call a group of politicians? A gaggle? A herd? A clusterfuck?)
This obsession with maintaining low stock levels based on the incredibly dubious assumption that all immediately unused stock is a waste of resources is not just going to cost the MoD in terms of order discounts, but potentially could leave the forces short of kit or supplies needed at a critical moment.
Yes, storing equipment and supplies costs money, but given the significant size of the MoD estate I suspect there is more than enough unused room kicking around to house it all. Storage space on existing MoD sites costs (or should cost) the same amount regardless of whether it's nearly empty or full to the brim (ask all the hospital trusts lumbered with PFI facilities for a primer on that one). And any supplies that have a fixed shelf life can always be - heaven forbid - expended in live training. Gosh, service personnel getting to occasionally drop actual bombs and fire real bullets! How uneconomic.
I'm reminded of a guest post that was sent to Think Defence a while back (linky, linky) describing some of the problems that a "fictional" RAF squadron had to face on a day to day basis. If I may I'd like to quote a small section, for which Think Defence can sue me later, as I think it quite relevant;
"Aircraft Spares; Clearly if the spare part you need to fix your aircraft is not on the shelf you have to order it and wait for it to be supplied. The RAF uses some clever software to analyse wear and tear on aircraft which then dictates what, and how many spares you have on the shelf on station, those spares that are available off the shelf from suppliers and so on. This reduces costs considerably but aircraft simply do not break as and when they are supposed to so spares delays are common. Often the part you need is “robbed” (removed) off another aircraft that is broken for anther reason. This presents various issues outside the scope of this article (if it ain’t broken, don’t fix (touch) it!!) but the important factor is robbing a part takes more time than taking the same part off the shelf (removing it then possible cleaning/prepping, function testing etc) hitting your manpower further."
I've underlined the section I think is most relevant and it's a problem that's been highlighted in the past with the RAF's Typhoons (lack of spares). The quote says that this reduces costs, but that's really a relative measure. It would reduce costs in the short term by pushing the purchase of spare items into future years, along with some potential savings from not buying spare parts that are never used throughout the life of the aircraft, but that has to be offset by the additional item cost caused by a drip feed of purchases, plus the transportation costs every time one of those items has to be sent (one presumes - because one is in posh mode again - that important aircraft components would not be sent by Royal Mail second class). The poster of that guest article also highlights the wasted man hours that occur when parts are laboriously scavenged from one aircraft to put onto another, creating both more work in the short term and more work to be done in the long term.
It's what might be referred to by some as a "false economy". That being the generous term for it. I've already sworn enough in this post that I've probably set off every ones child and work filter settings, so I'll leave it at that.
It just baffles me that this is the kind of advice being given to the MoD by supposed experts in finance. Or that it takes a young, optimistic air cadet to explain to people in the Pentagon that if you buy items in bulk you can reap significant savings on the purchase price, whilst also building up your stock levels.
There's a limit to how far you can go with economising in certain areas of defence, especially when you're chasing some fabricated Key Performance Indicator (KPI) dreamt up by someone who has more experience of eating sandwiches at management conferences than they do of actually working on the front line of any business, all because they've been told that that's how Toyota managed to eliminate waste.
Well, Toyota is not the MoD. Nor is it the USAF. Or even the DoD. Nor is its business model anything close to being approximate to the needs and practices of defence.
And it makes shit cars too.
So you can take your Toyota method and shove it up your... [this section of the article has been censored by your network administrator for safety reasons. Please contact your network administrator for further details on why this has happened and what measures you should take if he/she permits you to view the content].