Thursday, July 7, 2011

The Factory

There was a country that once produced a world class product, envied by all other nations on the planet. A significant part of what made this product best in the world was the availability of high quality raw materials---feedstock. While some countries boasted feedstock of similar quality, few if any had ready access to the quantity of this premier producer.

The product was in great demand throughout the country and the globe, generally appealing to two customer groups: consumers who used the product as-is; and "value added resellers" (VARs) who enhanced and incorporated the product into their own products and services.

Originally these products were created by skilled craftsmen who worked closely with feedstock suppliers. Much like a luthier who establishes a source of fine hardwoods from which to make violins, these craftsmen understood that materials were often as important as process.

These craftsmen rarely worked alone, instead working in small teams of apprentices and journeymen each responsible for various aspects of production. At the advent of the industrial age the assembly line was introduced and these responsibilities and the relation between them was formalized.

As factories took shape, three phases were identified: initial assembly; product customization; and final preparation and packaging. The first phase, initial assembly generally comprised six steps and assembly lines with six stations were often established to accomplish the work. The final two phases comprised three steps each with an equivalent assembly line configuration.

Most manufacturers operated many more first phase lines than second and more second than third. The first phase lines were often located near the sources of feedstock ensuring the highest quality in the earliest steps of production. The second and third were situated closer to the customers as this ensured that the proper product, at the proper production level was available to service the needs of each customer segment.

The assembly line approach offered great improvements in product quality and consistency as well as efficiency of operation. Incoming inspections guaranteed only the finest feedstock was used. Quality was checked at each station along the line, rapidly identifying inadequacies in process or line workers. Low productivity line workers were easily identified as work tends to back up behind them whilst the line ahead empties. These workers were replaced or retrained. As product moved between factories, quality was inspected at shipment with defective product reworked before it moved forward. On the receiving end, incoming checks identified any product that slipped through the previous quality check and those items were returned for re-work.

These lines were also extremely efficient. Often an entire initial assembly factory with three or four lines would be run by a single factory manager and one or two line supervisors.  This lack of management overhead ensured that resources were dedicated directly to the line work necessary for production.

Every other year or so, the more quality conscious organizations would stack rank their employees, eliminating the bottom fifteen percent and replacing them with new recruits. This ensured that the quality of the employee, and consequently the product, continued to improve over time.

In a relatively short period of time the commercial manufacturers had elevated product quality while improving efficiency. Just as internal competition removed weaker workers and prevented use of low quality feedstock, inter-company competition weeded out the weaker players. As the industry matured, consolidation lead to a few top-notch competitors who proved to be world leaders in this field.

This was not to last.

The industry found itself caught between government and unions, the perfect storm of dysfunction. The central government, perceiving this was not only a success for private industry, but a key component of the national zeitgeist, nationalized the industry, removing all production from private hands. Unions, having established a symbiotic relationship with central government stepped in to "represent" the employees asserting that since corporate wealth and income were not equally distributed to all workers that these workers were therefore being abused.

These groups acted fast. The government immediately transferred the cost of production from the customers to the general population through new taxes, eliminating the need to compete in an open market. The union demanded and got an immediate end to stack ranking and instituted new policies making removal of incompetent workers virtually impossible.

Shortly after nationalization, the government came under pressure from groups representing producers of inferior feedstock to begin buying and processing their product. As a generous act of appeasement, the government accepted not only the existing supplies of inferior feedstock but committed to accept any feedstock from within the country regardless of provenance, propriety or performance. As one would expect, this accelerated the production using what was previously unacceptable feedstock.

Observing this generosity, the unions swooped in, securing seniority based pay scales, generous healthcare benefits and lavish defined benefit retirement programs. Non-performing employees were no longer to be replaced or retrained, employees were simply retained regardless of contribution.

Based on these new HR policies and the elimination of line station quality checks, it was determined that incoming feedstock quality assessments were "wasteful". These were also eliminated.

These changes had an immediate and disastrous impact. Quality plunged, in part due to a flood of inferior feedstock, and partly due to a work-force unencumbered by any need to perform. The increase in feedstock overloaded existing production capacity, so additional facilities were hastily built and staffed.

Government bureaucracy seeped in, increasing executive, administrative and management staffs in far greater proportion than called for by the increase in production. As quality dropped and costs increased these bureaucrats took it upon themselves to re-work assembly lines. To offset the inferior feedstock, they added one and then another preliminary work station to the initial assembly lines.

These changes had the opposite effect to what was desired. The continuing decline was addressed by re-basing the quality metrics effectively redefining "high quality". This capitalized on an oft-used principle that "if the government says it is good, it must be true".

The combination of line quality assessment elimination and re-basing the final product metrics created situations where line stations frequently advanced work product that was not only inferior in quality but product that was simply incomplete. This effect accelerated when incoming assessments were stopped at product customization and final prep and packaging. It was determined that high production levels required that product either be re-worked as it moved along the lines or it simply be passed through with significant components missing.

The rapid production expansion exceeded the availability of trained workers, so the government, supported by the unions, hired inadequately trained workers. In cases where a line, or line station became overloaded, a compromise was reached whereby a skilled worker would be assisted by an unskilled worker, generally at a lower salary. To avoid a public perception that quality had dropped and that this decline might be blamed on workers, the union collaborated with the government and some NGOs to establish "Certification and Training Centers" that issued credentials used to verify workers' capability. This expanded the role of the government and allowed the union to decouple pay increases from performance. Furthermore it solidified government and union control over quality assessments.

Because feedstock varied by location, those factories supplied with higher quality feedstock consistently produced higher quality product, even in the face of a severely compromised process. To help eliminate this disparity it was decided to redistribute feedstock such that no factory would process only high quality materials. This had the expected result of lowering quality at high performing factories, but did not improve the quality of inferior feedstock at those factories or product quality at the factories from which inferior stock had been removed.

Before long it became impossible for the government to convince consumers that product quality had not degraded. It was now common for new product to need repair or rework before it was fit for service.

Surprisingly, this did not cause a mass revolt amongst the taxpayers subsidizing this failure or the consumers of the defective products. Quite the opposite in fact. Many communities whose feedstock was and remains unacceptable now had their own factory filled with line workers, supervisors and executives who to a person would readily proclaim that their product was as fine as any in the land. They would even manufacture evidence to that effect, but only if called upon to do so. This regional pride swept like a madness over the public many of whom convinced themselves that only other factories were failing whilst theirs was as good as any in the world.

Another thing resonated with this regional pride. Quite by accident a customer discovered that this product would fall from a height rather rapidly, noticeably faster than other objects. After some experimentation it was further determined that some samples of the product fell faster than others, and in many cases this rate negatively correlated with the quality of the feedstock from which the product was made. A new sport was born: Gravity Storming. And since poor quality feedstock often performed well, the communities of such feedstock now had another feather in their cap.

Gravity Storming became an instant hit. Local and regional competitions were held and the winners of regional rivalries held bragging rights for a year. Championship winners were held in high esteem and treated to parades and keys to the city. Communities built arenas dedicated to the sport and events were broadcast live on radio and television, with many an on-screen talent specializing in the broadcast and analysis of Gravity Storming.

Factories began to identify incoming feedstock that would produce championship Gravity Stormers and special treatment was given to these stocks throughout the manufacturing process. Often specialists would be called in to ensure that the maximum potential was wrung from every competitor. These endeavors were supported by the factory executives who wasted no opportunity to inform the public of the benefits that excellence in Gravity Storming brought to the factory and the entire community.

Though Gravity Storming became so popular it was credited with the demise of Lawn Curling, there were still soft but persistent voices of dissent.

Foreign producers were relentlessly outperforming on objective third party assessments. Though some consumers determined reworking inferior, but government subsidized product was the most cost effective option, those who demanded performance and quality turned to foreign suppliers. The union complained loudly and the government initially acted to block this trade, but ultimately was forced to allow limited access to foreign suppliers.

Domestic suppliers of high quality feedstock fought to regain the reputation products based on their supplies had lost. Some convinced the government to set aside assembly lines dedicated to their product. While this showed some improvement, the damage done by these factories was too great and these products saw only marginal improvement. Others established their own factories, free from government and union influence. While most of these were a return to the glory days of free enterprise, some acquired partial public funding and retained excessive government influence.

It would be nice to say that the country in question  recognized its failure and has returned to the private sector to regain its world leadership position. Sadly, such is not the case. The political clout of the unions and the self-interests of these quasi-government workers remains strong enough to shore up the status quo. All the while that country, its people and the people of the world suffer from the squandered potential of their high quality natural resources.

Now, dear reader, you've read quite a long story to reach this point. If you have not identified the country or the product about which you've been reading, the reveal comes in the form of a question:
At what public school is your child an honor student?