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Guest Editorial: Checklist - Seven Recommendations for Improved Profits

Manufacturing News, Source : The Manufacturer US
Published : 26 Jun 2007 17:45

by Abbott A. Imberman, PhD, Professor of Economics at University of Chicago, retired, 1975.
A checklist is most helpful in the pursuit of excellence. The latest suggestions on improved management practices are made in the widely read “The World Is Flat,” by the New York Times writer, Thomas L. Friedman, three times Pulitzer Prize winner.

He emphasizes that in a global economy there is no hiding from competitors. He stresses the vital importance of American industry to maintain its world lead by persistent self-examination of how to improve operations and boost productivity. He cites no specific questions to raise but the present author has created such a checklist.

Looking back, we can find perhaps the first methodical approach to a checklist occurred in 1900, when Frederick Winslow Taylor was on contract to the Bethlehem Steel Company to study operations. Watching laborers load bars of pig iron onto freight cars, Taylor wondered how many bars a worker could load in a day if he really tried. He estimated that the men he watched loaded iron bars at the rate of 12 and one half tons per man per day. Taylor was curious to see how much pig iron they could load if they hustled. So as an experiment, he offered to double the workers’ wages in exchange for loading as much as they could. They loaded 16 and-a-half tons in something under 14 minutes. Taylor did the math: Over a 10-hour day, this rate worked out to over 75 tons per man per day. But Taylor wanted a realistic figure of achievable number of tons per man per day, so he deducted time for breaks, bathroom time etc. Accordingly, he adjusted the figure 40% downward, and concluded that every laborer could be expected to load 45 tons per day if they were paid incentive pay for reaching the target, but received penalties for failing. Lured by a promise of a 60% increase in wages -- from $1.15 to $1.85 a day -- each worker loaded 45 ¾ tons per day.

Taylor trumpeted this as a victory, and it formed the basis of his influential study, “Principles of Scientific Management Checklist.” He used this method with other projects for other clients.

This idea soon blossomed into the creation of business schools. In 1908 Harvard University opened the first graduate school to offer a Master’s degree in business, and based its curriculum on Taylor’s scientific management. Taylor preached the gospel of efficiency across the country. Many variations of his checklist have been developed since then, and management science has flowered into many directions.

This brings us back to Thomas Friedman’s latest contribution in this field. A good number of manufacturers have efficient management, Friedman says. But more effective results are needed by more producers if they are to survive today’s onslaught of imports from China and India.

Friedman speaks with considerable authority on today’s imperative for strict management self-examination. Unlike Taylor, however, he does not specify any particular questions to be asked. But the author of this article has done so. I’ve developed seven critical questions that will uncover the common shortcomings which inhibit and limit the growth and profitability of an organization. These powerful questions, in the form of a checklist, were developed in the light of many years of a successful management consulting practice. To raise these key questions is of special importance for manufacturers with 100 to 1,200 employees -- which collectively account for 71% of U. S. manufacturing employment.

Here’s the checklist:

1) In order to compete against lower-priced imports, are you instituting incentive employee programs to boost productivity – thereby reducing unit costs and boosting profits?

2) Have you explored the reduction of investment in inventory, by shifting inventory responsibilities to suppliers?

3) If costly customer returns occur, what measures do you take to eliminate the production errors that may be responsible?

4) Since deliveries from foreign producers are often delayed due to transportation problems, and arrive only 50-60% on time, are you gaining a competitive edge by delivering your goods on time 90-100%?

5) Have your supervisors been given special training on how to improve production --- particularly in managing Hispanic workers?

6) Since hourly employees are closest to daily work, have you a method to obtainworkplace information from them, such as, suggestions on how operations performance can be improved?

7) Does management take the attitude that current bottom line profits are “good enough”? What measures are being considered to improve those profit margins?

To ask these checklist questions is just the beginning, but the answers need an inordinate persistent effort to overcome mediocre performance. Improving performance is much more than planning and talking; it requires the methodical acquisition and analysis of key operating statistics. Sometimes broad experience and professional help is needed to pinpoint those key answers—which vary by industry and operation.

In some companies management is unaware that its typical behavior limits profits. Many company presidents are usually bored by the non glamorous aspect of internal plant operations. Such typical executives give most of their attention to the outside world where many opportunities for increased business and profitable returns may be available. That is where the excitement exists, rather than dealing with the prosaic internal plant problems, raised by the cited seven questions. It is for this reason that the present author, a management consultant for many decades, has been successful, because typically I have insisted on asking questions which management should ask about the prosaic elements in plant performance.

As Friedman said, inertia in management is responsible for more loss of market share, more loss of competitive position, and more loss of business growth than any other factor. Leadership is required to overcome these short comings. Leaders in business should determine company goals, priorities, and give their achievement a sense of urgency.

A common technique that I have used and which management should use, to achieve a sense of urgency is described here. It involves engaging the management executives in a series of exercises using the seven checklists. The purpose of these exercises is several-fold: to review work processes, to make them more effective and teach managers the importance of focused effort, to help each manager relate his daily activities to his long term goals so that he can use his time most effectively, to determine what changes are to be achieved and who will be responsible for achievement, to tie compensation/motivation policies to overall company strategic objectives, so employee reward systems at all levels are congruent with reaching these objectives, and to decide what incentive systems to use as motivators , in order to boost profits. For questions or comments on these recommendations, address the author at: imbanddef@aol.com. America needs to maintain the thrust that has produced a booming economy with an unemployment rate of only 4.5%.

Professor Imberman can be reached at IMBandDEF@aol.com

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