Foundation for Profits: Stability

By Paul Peyton

"A high tolerance for ambiguity."

It is a new characteristic for the successful manager of the 1990s, according to recent magazine and newspaper articles. One speaker to a professional organization maintained that even production workers must cultivate a high tolerance for ambiguity. The reason?

"From one week to the next," said the speaker, "we may change everything the worker sees. Not only the product, but the whole corporate culture. Things change so fast that there is no time to make a plan, so the worker must be able to accept rapid-fire changes. We train our workers to be extremely agile - to accept monumental change on a near-daily basis."

Are ambiguity and rapid-fire change really a part of the foundation for profits in the '90s? Is the ability to change direction instantly a contributor to manufacturing profits? No.

Well, maybe yes... under some conditions. If you are a manager or worker in a company that is attempting to work with no plan and no leadership, then agility and a high tolerance for ambiguity are necessary traits - necessary for your own sanity. Also, they are necessary to keep the company functioning in the face of rapid-fire change.

One way to describe rapid change and ambiguity is the word vacillation. A business plan and business leadership that vacillate do require individuals with a high tolerance for ambiguity. But is rapid change good for the business? Is ambiguity good for the business? Is vacillation a good leadership practice? No.

Human nature seeks stability. A good leader will recognize the need for stability and will incorporate it into all of the plans and practices of the business. Not only is stability a need of basic human nature, but it is also one of the essential ingredients for long-term manufacturing success. People rebel against instability.

Think about it. Every task of manufacturing takes time: Lead time. We initiate a task. We allocate (or order) materials, machines and people with certain skills in order to complete the task. We provide instructions so that our resources will provide the highest return. Every person focuses on the completion of a production unit by a certain date. Those of you with manufacturing experience know what happens when unplanned change creeps into a sequence of events.

One or two minor changes equals confusion, miscommunication and error. Costs increase. What happens if you double the number (or magnitude) of changes? The confusion, miscommunication and error squares with the number of changes or the magnitude of the changes. In other words, excess costs quadruple. A change a day thrown into the manufacturing plan results in more disorder and inefficiency than the inexperienced person can comprehend. The excess cost is beyond definition.

A manufacturer that tries to function with such disorder must place a high value on people who thrive on the ambiguity and the quick changes. Those high performance people are rare. They are costly people and they bore quickly. It is unwise to stake the success of a business on either super-high performance people or on a business plan that vacillates.

Consider the question: Which is more likely to achieve - 100 average people working continuously on an unchanging plan, or 100 superstars working sporadically on a series of changing plans? The object of leadership is to develop a business plan that remains stable.

Achieving Long-Term Success
There was a small manufacturer in Wyoming that for 10 years attempted to offer quick response. It offered three product lines with dozens of configurations in each line. It attempted immediate shipment of any item in any quantity, including custom configurations. The company employed 70 people. Sales were over $2 million of a high-quality, high-priced, precision-machined consumer product.

The company was in serious trouble. In 10 years, it had never made a sustained profit. Customers were irate, quality was erratic and the lead time was 16 months. The most profitable product line averaged a production rate of two units per day. Actual product records showed completions that ranged from zero per day to as high as 10 per day. Inventory brought in via premium freight one day would be stashed in disuse the next. The production plan was to respond to whatever customer complained the loudest.

When I took over, I found that the two-per-day production average used only 13% of the available capacity. The plant could make 15 per day - but only with a stable production plan. Sales and other managers could see the benefits of a 750% increase in production. We agreed to place stability at the top of the priority list. We prioritized orders and made the prioritized list inviolate. We made it stable.

In 30 days, the company realized the 750% increase in production with no additional workers, no additional equipment, and no additional inventory. In fact, the inventory investment was reduced. The 750% increase in productivity saved the company. In 90 days, profitability improved from an average loss of $183,000 per month to an average profit of $58,000 per month.

You might wonder what was the end result of abandoning the quick response philosophy. By abandoning quick response as the top priority - replacing it with the stodgy old idea of stability - our response time dropped from a totally unacceptable 16 months to three weeks. More popular configurations shipped directly from inventory, often on the same day. Quality improved dramatically. Orders increased. Profits were reinvested into new products and new production equipment.

Stability was integrated into the management of the company six years ago. Today, that company is still profitable, and still stable.

Paul Peyton is president of DynaTech Industries (Colville, Wash.), a manufacturer of pellet stoves. He can be reached at (509) 732-4066.

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