History of Manufacturing

American Manufacturing §

• Interchangeable Parts - prior to this, the making of a complex machine was carried out in its entirety by an artisan who made each piece. With this system in place, parts can be standardized, mass produced, and the whole product made as a composite of these individual parts.

  • The highly skilled artisan was no longer necessary and unskilled workers can make complex products
  • Specialization was embedded in machinery which meant a greater focus on general intelligence rather than specialization

• Mass Distribution System - facilitating mass production at a large scale requires facilitating the flow of material and goods throughout the economy. Innovation in this regard came through transportation and communication.

  • The railroad industry in America also gave birth to the middle manager to manage growing complexity.
  • This logistics network also required advanced ways to perform Data Analytics

• Horizontal and Vertical Integration

  • Horizontal integration meant firm bought competitors in the same line of business.
  • Vertical Integration meant firms bought sources and users of their own product.
  • This also came with knowing how to optimize for unit cost given fluctuations in supply and demand

• Moving Assembly Line - enabled high speed, high volume mass production of complex mechanical products. There is an emphasis on throughput velocity.

  • Pioneered by Henry Ford
  • Here, instead of workers assembling around the products, the products were moved to the workers in a nonstop, continuous stream.
  • The core idea is keep everything in motion; take the work to the man, not the man to the work
  • This allowed for products to be made faster and sold at a lower price.
  • The key insight here is that speed is critical to both cost and throughput.

Scientific Management §

• Scientific Management - to make manufacturing into a proper discipline, managers observed their practices with the scientific method in mind. Management becomes systematized.

• Frederick Taylor pioneered the focus on efficiency — the core idea was to maximize efficiency. The standard was the rate at which a first class man could work using the best procedure.

  • Taylor proposed three motivators for workers
    • The carrot - give a significant reward to workers who met the standard relative to those who did not
    • The stick - a worker who is unable to meet the standard should be reassigned to a task which he is more suited; a worker who refuses to meet the standard should be discharged.
    • Factory Ethos - management and labor need to recognize their common purpose. Workers need to realize that, by leaving the design of their work to managers, they can reap the rewards of a more efficient system ¹
  • Taylor also proposed that management should be based on expertise rather than authority. He also proposed that management roles should be split to different people.
  • The philosophy of scientific management follows from the following principles:
    • The development of a true science
    • The scientific selection of the worker.
    • His scientific education and development.
    • Intimate friendly cooperation between management and the men. ^{2 3}
  • Downside: The main downside to this approach is how it stifles worker creativity in problem solving.
  • The main limitation of Taylor’s approach is that it assumes optimizing the simplest steps (a-la Greedy approach) would optimize the productivity in the long run.

• Henry Gantt - best known for the Gantt chart.

  • He preferred a task work with a bonus system — workers were guaranteed their daily rate but received a bonus for completing a job within the set time
  • Unlike Taylor, he allowed for a system of worker protests.

• Harrington Emerson - was interested in selecting and training employees.

• Frank Gilbreth - also concerned with efficiency, but not just with regards to time (i.e., scheduling). He was also interested in motion study — how a worker physically performs a job.

• In general, this approach has its limits:
  • It helped give rise to the middle manager who has no systemic perspective.
  • It makes assumptions that are not realistic in practice. It is also easy to forget these implicit assumptions which encourage a myopic view.
  • Realism is sacrificed for precision and elegance.
  • Far more research in this field was published than practiced.
  • It has, ironically, led to more Doublespeak within the field
  • The subproblems solved by Scientific management are not the only problems within the manufacturing system

World War I-II Manufacturing §

• The focus was not only on economies of scale but also economies of scope. The goal was to introduce structure to these large factories.

• Du Pont - his main contribution was the use of ROI to evaluate relative performance.

  • Alongside Sloan, he structured General Motors to target specific markets.

• Hugo Muntersberg - regarded as the father of industrial Psychology

  • Addressed the limitations within Taylor’s system — wherein he did not acknowledge the nuanced psychological motivators that workers had.

• Lillian Gilbreth - another pioneer of industrial psychology.

  • Argued that because of its emphasis on scientific selection, training, and functional. foremanship, scientific management offered ample opportunity for individual development, while traditional management stifled such development by concentrating power in a central figure
  • Advocated for the humanization of the management process

• Mary Parker Follett - argued that functional foremanship was a sound basis for allocating authority but scientific management’s emphasis on the divide between planning and doing was not good.

  • “One person should not give orders to another, but both should agree to take their orders from the situation”
  • The very process of laborers participating in the work environment is essential to establishing a functional work environment

• Hawthorne effect - an effect observed where productivity increases as a result of attention received.

  • Work is essentially a group activity and that workers strive for a sense of belonging, not simply financial gain, in their jobs
  • This marked a shift from technical efficiency to HR-based efficiency.

Post-War Decline §

• Post World War II, the focus shifted from managerial innovation to marketing and advertising.

• This backfired, however, when manufacturing details were ignored entirely and quality control became lax.

  • The Marketing Outlook - there is a shift to focusing on how to sell the product. This stifles innovation since products that are most amenable to analysis tend to be imitative, rather than innovative. The marketing outlook will often not justify high-risk, high-reward innovation
  • The Finance Outlook - there is a shift from using ROI for long term performance to short-term performance. This also discouraged high-risk long-term ventures. This also promoted a perspective in the Financial Market that risk is minimized through diversification. This ignores how diversification is valid in the financial market only because of its stochastic nature. A focused approach may be favorable for a firm so that they occupy a specific market slice.

• It was also during this period that managers were fast-tracked. These managers had no knowledge of the inner workings of their industry.

• Additionally, business schools shifted from being trend setters to trend followers. This emerged due to revised curricula for business school which reduced the importance of the practical side of management.

Globalization (1990s) §

• American manufacturing entered the global market, however it was no longer dominant. The global market remains competitive.
• In a world of intense global competition, simply setting appropriate general guidelines is not enough. Managers need detailed knowledge about their business, knowledge that must include technical details.

Japanese Manufacturing §

• Japanese manufacturing is characterized by the use of Just In Time Manufacturing best represented by Taiichi Ohno of Toyota.

  • There are two pillars — Just In Time and Autonomation — automation with a human touch (aka foolproofing)
  • Coupled with this is the Kanban system.
  • JIT reflects control over the work environment to improve productivity
    • Setup times and costs are not fixed. We can reduce them to avoid dealing with lot-sizing
    • Due dates are negotiated with customers so we can make production schedules that do not require abrupt changes.
    • Variances in delivery times can be resolved if we negotiate with the vendors.
    • Quality is something we can control. Product defects can be eliminated using standardization.
    • Manufacturing procedure and Design are coupled together to make practical designs and appropriate work plans.
  • Ask why five times. Iteratively remove obstacles.

• It is based on Japanese culture’s focus on conservation of resources. As well as a more systems oriented approach

• JIT also emerged in an effort to close the gap with Western Productivity. This was done by eliminating waste and lowering cost. The lack of economies of scale is remedied through best management practices

• At a macro level, the Japanese success was premised on an ability to bring quality products to market in a timely fashion at a competitive cost and in a responsive mix.

• At a micro level, this was achieved via an effective production control system. It fostered high external quality through high internal quality.

• Good customer service is maintained via a steady, predictable outside stream

Links §

• Hopp and Spearman - Ch. 1 - 5

Footnotes §

1. Labor Market Theory posits issues which disagree with this. In particular, labor unions are opposed to the assumption that a surplus gives proportionate rewards to the laborers. ↩

2. The idea is — managers perform the planning, workers perform the labor. This is a matter of matching the person with the role suited for them. There is a distinction between the job of planning (managers) and the job of doing (workers) ↩

3. In effect, this is analogous to how the military operates. ↩