On the permanent hunting for efficiency.

Many believe in the theory of evolution, many do not. What you believe does not detract from the situation facing us all today. Either belief can accommodate the notion of survival of the fittest, and the economic crisis raises the bar to the point where only the fittest company, organization or individual makes it to the next period of economic prosperity.
During financial booms, very few are concerned about its inevitable end, and the system copes with a huge range of business acumen and abilities. Efficiency becomes less important. Individuals or organizations that are not particularly efficient can flourish and not worry about the future until a recession comes along and then – shock, horror! – workers are made “redundant.”

This is sad, of course – and can be catastrophic for those directly affected. We have two major events to consider from this: the need to smooth out the peaks and troughs of economy, and the effect on supply chains. Peaks and troughs have always existed. Time was, the machine tool industry assumed a five-year cycle between the highest peak and the lowest trough, and similar theories exist today, but there is much more reliance on the supply chain feeding itself properly now.
Because we have insisted, quite rightly, on becoming efficient and use techniques such as TQM or JIT, we have developed a supply chain wholly dependent on itself for survival. In the days when we used to build stock and there were economic cushions, the supply chain could survive relatively long in a recession and the effects were less dramatic and more drawn out. If the likes of a GM or a Ford catches a cold today, everyone sneezes tomorrow rather than weeks later, as would have been the case 20 years ago. There is no fat left to live on when times get hard.

Therefore, when people stop buying cars, not only do the car manufacturers suffer, the suppliers suffer as well – and immediately. In the UK, Honda decided to cease making cars for two months because of falling sales. Their suppliers, in turn, suffer immediately. The electronics module suppliers cannot supply; their assemblers cannot supply; the component suppliers cannot supply, and then the PCB manufacturers and the laminate suppliers cannot supply. Where does it end?
The recession is here to stay for a lot longer. There will be many company failures. The point is will we lose so many suppliers that we cannot recover? Every day, we read that company A is restructuring and cutting costs, and in many cases, they close. If we kill off so many important suppliers in the chain, then we will never recover. Recessions in the past affected everyone badly for a while but, in the end, we all got through. This time, it may be different.

One hundred-fifty-years ago, there was a nasty event called the “South Sea Bubble” when large-scale investments were made in schemes that were not substantial. The real losers were not the investors, but the subsidiary companies that were sucked into the mess. Is history repeating? Have we not learned? We have learned how to become efficient, but not how to preserve the supply chain. We must now rely on the survival of the fittest if any suppliers are to stay with us.
Unfortunately though, we still allow various managers and supposed entrepreneurs to mismanage companies and institutions and walk away with no penalty. Indeed, in many cases we reward failure. How can this possibly equate to the survival of the fittest? The obvious conclusion is that such mismanagement comes from unfit people, and we should immediately fire them with no recourse, instead of letting them sack thousands in return for a pay raise.

Some of the mismanagers take risks without worrying about the consequences because they are safe in the knowledge that some corporation or government will bail them out. Bailing out a large manufacturer such as a car manufacturer is acceptable, provided the reasons for the car manufacturer’s problems are not associated with bad management, but rather unfortunate timing and a public short on funds. In this case, there is a chance the supply chain can be maintained. Bailing out a failed bank is a different kettle of fish. It is very possible the bank’s managerial team “played” with its client’s money without worrying about the consequences of its actions, safe in the knowledge a golden parachute would cushion any bad decisions.

Fitness now includes the need to monitor trends and predict probable cyclical ups and downs so as to ensure the possibility of maintaining a supply chain. We must be aware that the supply chain has no excess fat and that we have driven it to be lean, mean and fit. Unfit managers can no longer be tolerated. Fitness for purpose includes every single member of a company working to their maximum efficiency all the time with no safety net for failure. This principle applies to public corporations as much as private companies. Public corporations must not expect floods of government money if they encounter trouble; their managers must be as adept at maintaining efficiency as their private industry counterparts.
If we want lean, mean and fit companies, we must be permanently hunting for efficiency drives. There might then be many more of us who can be considered “fit for purpose,” and the effects of recession should not be so severe.

Peter Grundy is director of P G Engineering (Sussex) Ltd. and ITM Consulting (itmconsulting.org); peter.grundy2@
btinternet.com. His column appears bimonthly.