"Yes, that's always bad," I say.
"Why?"
I chuckle. "Isn't it obvious? Because it's a waste of money! What are we supposed to do, pay people to do nothing? We can't afford to have idle time. Our costs are too high to tolerate it. It's inefficiency, it's low productivity-no matter how you measure it."
He leans forward as if he's going to whisper a big secret to me.
"Let me tell you something," he says. "A plant in which ev- eryone is working all the time is very inefficient."
"Pardon me?"
"You heard me."
"But how can you prove that?" I ask.
He says, "You've already proven it in your own plant. It's right in front of your eyes. But you don't see it."
Now I shake my head. I say, "Jonah, I don't think we're communicating. You see, in my plant, I don't have extra people. The only way we can get products out the door is to keep every- one working constantly."
"Tell me, Alex, do you have excess inventories in your plant?" he asks.
"Yes, we do," I say.
"Do you have a lot of excess inventories?"
"Well... yes."
"Do you have a lot of a lot of excess inventories?"
"Yeah, okay, we do have a lot of a lot of excess, but what's the point?"
"Do you realize that the only way you can create excess in- ventories is by having excess manpower?" he says.
I think about it. After a minute, I have to conclude he's right; machines don't set up and run themselves. People had to create the excess inventory.
"What are you suggesting I do?" I ask. "Lay off more peo- ple? I'm practically down to a skeleton force now."
"No, I'm not suggesting that you lay off more people. But I am suggesting that you question how you are managing the ca- pacity of your plant. And let me tell you, it is not according to the goal."
Between us, the waiter sets down two elegant silver pots with steam coming out of their spouts. He puts out a pitcher of cream and pours the coffee. While he does this, I find myself staring toward the window. After a few seconds, I feel Jonah reach over and touch my sleeve.
"Here's what's happening," he says. "Out there in the world at large, you've got a market demand for so much of whatever it is you're producing. And inside your company, you've got so many resources, each of which has so much capacity, to fill that demand. Now, before I go on, do you know what I mean by a 'balanced plant'?"
"You mean balancing a production line?" I ask.
He says, "A balanced plant is essentially what every manufac- turing manager in the whole western world has struggled to achieve. It's a plant where the capacity of each and every resource
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is balanced exactly with demand from the market. Do you know why managers try to do this?"
I tell him, "Well, because if we don't have enough capacity, we're cheating ourselves out of potential throughput. And if we have more than enough capacity, we're wasting money. We're missing an opportunity to reduce operational expense."
"Yes, that's exactly what everybody thinks," says Jonah. "And the tendency for most managers is to trim capacity wherever they can, so no resource is idle, and everybody has something to work on."
"Yeah, sure, I know what you're talking about," I say. "We do that at our plant. In fact, it's done at every plant I've ever seen."
"Do you run a balanced plant?" he asks.
"Well, it's as balanced as we can make it. Of course, we've got some machines sitting idle, but generally that's just outdated equipment. As for people, we've trimmed our capacity as much as we can," I explain. "But nobody ever runs a perfectly balanced plant."
"Funny, I don't know of any balanced plants either," he says. "Why do you think it is that nobody after all this time and effort has ever succeeded in running a balanced plant?"
"I can give you a lot of reasons. The number one reason is that conditions are always changing on us," I say.
"No, actually that isn't the number one reason," he says.
"Sure it is! Look at the things I have to contend with-my vendors, for example. We'll be in the middle of a hot order and discover that the vendor sent us a bad batch of parts. Or look at all the variables in my work force-absenteeism, people who don't care about quality, employee turnover, you name it. And then there's the market itself. The market is always changing. So it's no wonder we get too much capacity in one area and not enough in another."
"Alex, the real reason you cannot balance your plant is much more basic than all of those factors you mentioned. All of those are relatively minor."
"Minor?"
"The real reason is that the closer you come to a balanced plant, the closer you are to bankruptcy."
"Come on!" I say. "You've got to be kidding me."
"Look at this obsession with trimming capacity in terms of
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the goal," he says. "When you lay off people, do you increase sales?"
"No, of course not," I say.
"Do you reduce your inventory?" he asks.
"No, not by cutting people," I say. "What we do by laying off workers is cut our expenses."
"Yes, exactly," Jonah says. "You improve only one measure- ment, operational expense."
"Isn't that enough?"
"Alex, the goal is not to reduce operational expense by itself. The goal is not to improve one measurement in isolation. The goal is to reduce operational expense and reduce inventory while simultaneously increasing throughput," says Jonah.
"Fine. I agree with that," I say. "But if we reduce expenses, and inventory and throughput stay the same, aren't we better off?"
"Yes, if you do not increase inventory and/or reduce throughput," he says.
"Okay, right. But balancing capacity doesn't affect either one," I say.
"Oh? It doesn't? How do you know that?"
"We just said-"
"I didn't say anything of the sort. I asked you. And you as- sumed that if you trim capacity to balance with market demand you won't affect throughput or inventory," he says. "But, in fact, that assumption-which is practically universal in the western business world-is totally wrong."
"How do you know it's wrong?"
"For one thing, there is a mathematical proof which could clearly show that when capacity is trimmed exactly to marketing demands, no more and no less, throughput goes down, while inventory goes through the roof," he says. "And because inven- tory goes up, the carrying cost of inventory-which is operational expense-goes up. So it's questionable whether you can even ful- fill the intended reduction in your total operational expense, the one measurement you expected to improve."
"How can that be?"
"Because of the combinations of two phenomena which are found in every plant," he says. "One phenomenon is called 'de- pendent events.' Do you know what I mean by that term? I mean that an event, or a series of events, must take place before an-
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other can begin... the subsequent event depends upon the ones prior to it. You follow?"
"Yeah, sure," I say. "But what's the big deal about that?" "The big deal occurs when dependent events are in combi- nation with another phenomenon called 'statistical fluctuations,'' he says. "Do you know what those are?"
I shrug. "Fluctuations in statistics, right?" "Let me put it this way," he says. "You know that some types of information can be determined precisely. For instance, if we need to know the seating capacity in this restaurant, we can de- termine it precisely by counting the number of chairs at each table."
He points around the room.
"But there are other kinds of information we cannot pre- cisely predict. Like how long it will take the waiter to bring us our check. Or how long it will take the chef to make an omelet. Or how many eggs the kitchen will need today. These types of infor- mation vary from one instance to the next. They are subject to statistical fluctuations."