Gresham's law for organization

I want to write this post for a long time ago, finally, I started it tonight.

Gresham's law is named after Sir Thomas Gresham who was an English financier in Tudor times. It is commonly stated as "Bad money drives out good.", says that any circulating currency consisting of both "good" and "bad" money (both forms required to be accepted at equal value under legal tender law) quickly becomes dominated by the "bad" money. This is because people spending money will hand over the "bad" coins rather than the "good" ones, keeping the "good" ones for themselves.

The principles of Gresham's Law can sometimes be applied to different fields of study. Gresham's Law generally speaks to any circumstance in which the "true" value of something is markedly different from the value people must accept, due to factors such as lack of information or governmental decree.

The most famous instant to explain the law by the market for second hand cars, lemon automobiles (analogous to bad currency) will drive out the good cars. The problem is one of asymmetry of information. Sellers have a strong financial incentive to pass all cars off as "good" cars, especially lemons. This makes it chancy to buy a good car at a fair price, as the buyer risks overpaying for a lemon. The result is that buyers will only pay the fair price of a lemon, so at least they won't be ripped off. High quality cars tend to be pushed out of the market, because there is no good way to establish that they really are worth more. The Market for Lemons is a work that examines this problem in more detail.

I need to highlight that the critical element for Gresham's law is "asymmetry of information". Let us change the scenario to our organization, think about if the senior management team only look at the financial data and report for the operation. They do not know how the team working on the process in order to achieve the goal, but they only listen to somebody they think can be trusted. The element of "asymmetry of information" would be effective and we can find the "bad GUY drives out good!" Some bad guys from the organization did nothing for contribution but play the political game all the day. The senior management did not know who get the job done. Afterward, many people joined the bad guys team and force all the good guys out of the organization. In other words, the good guys are always not willing to work with the bad. They will quit the team by their owned willing.

In our kaizen activities, we also needed to study and avoid the same issue. As a lean leader, they are needed to join the kaizen activities to understand who is the member really gave their effort to improve the situation. They are also needed to identify who are the guys only sitting in the team but gave no idea and suggestion. The management team need to identify it perfectly and give the right award to right people, otherwise, the kaizen would be stopped by wrong motivation because of asymmetry of information. This is part of the lean culture and Gresham's law is effective here too.

Lean VS Six Sigma 2

This post is used to further explain about the relationship between lean manufacturing and six sigma, refer to the article Lean VS Six Sigma 1.

In my last post about lean and six sigma, Lean manufacturing is more suitable to use for solving perspicuously problem. If the process is defined as labor intensive, we can identify the problem, or wastes according to the 7 wastes concept. disassemble the actions for the work station, we can easily to identify which is value-added actions and which is non-value-added. Sometime, we need to use a stop watch to measure the process time. We can also easily to adjust and balance the process by a bar chart and no need to use the statistic tools or quantitative analysis for improvement activities. In simply say, if we can identify the problem by observation or simple measurement, lean manufacturing concept can help us to solve the problem and speed up the improvement progress.

For Six sigma, it would be more suitable to use for solving recessive problem. You can not identify the problem directly and you have to dig out the issue and reduce the variances of process by a serious of statistical analysis. For instant, a process, which is highly automatic, is needed to use six sigma for improvement. We can not identify the problem by observation because there is no operator working in the station. The machine or process is all covered by a metal shell. All the hidden problem can not be found by our bare eyes. At this moment, we need to measure all the detail, such as temperature, current, pressure, speed, and the parameters of the machine or production line, so that we can use the quantitative analysis method in six sigma to identify the issues and make the suggestion to adjust the parameter accordingly.

Is that any conflict between lean and six sigma? Absolutely not, in opposite way, they can support each other. Let us review the process for our working place, the process is always combined with automatic process and manual process. Do you agree? The most important thing is which tools is suitable for our target process. Sometime, we need lean to speed up the kaizen process, but sometime we need the six sigma to dig out the hidden problem. Therefore, we always call the continuous improvement activities as Lean sigma activities. Those tools can be combine together organically, the critical point is the kaizen leader has enough experience for both tools or not.

If you have different ideas, please give a comment for this post, thanks!

Traditional manufacturing VS Lean manufacturing

The traditional manufacturing flow is driven by push, you can think about the flow in the Henry Ford's time in producing Model T. The lean manufacturing is driven by pull concept. The table shows the differences of many elements between traditional manufacturing and lean manufacturing.

Lean VS Six Sigma 1

Sometime, I was asked by somebody that which continuous improvement concept is suitable for their company? Lean manufacturing? or six sigma? I was wondered they have no idea for the differences between lean and six sigma. Here is a comparison table between lean and six sigma for your reference and hope it can help you to identify the strength and weakness of the tools.

By the way, I give you one more condition to explain which is suitable for you as below,

Lean: suitable to use for solving perspicuously problem, that's meant you no need to make a complicated calculation and mathematical analysis to identify the problem. You can point out every problem and mistake just according to the concept.

Six sigma: suitable to use for solving recessive problem. You can not identify the problem directly and you have to dig out the issue by a serious of statistical analysis.

Let me know if you have more additional details, thanks!

Terms of lean manufacturing

andon - a system of flashing lights used to indicate production status in one or more work centers; the number of lights and their possible colors can vary, even by work center within a plant; however, the traditional colors and their meanings are:
green - no problems

yellow - situation requires attention

red - production stopped; attention urgently needed

baka-yoke – In the past, Japanese called the mistake-proofing as baka-yoke, it meant fool-proofing. Baka is meaning foolish, however, somebody felt the term is not respect to people and changed it to poka-yoke.

heijunka - A production scheduling/leveling tool, essentially to distribute kanban cards in an efficient manner.

jidoka - a Japanese word which translates as autonomation; a form of automation in which machinery automatically inspects each item after producing it, ceasing production and notifying humans if a defect is detected; Toyota expands the meaning of jidoka to include the responsibility of all workers to function similarly, i.e. to check every item produced and to make no more if a defect is detected, until the cause of the defect has been identified and corrected.
jishu kanri - self-management, or voluntary participation.

jutsu - to talk, or ‘the art of’ (i.e., 'leanjutsu: the art of lean production').

kaikaku - A rapid and radical change process, sometimes used as a precursor to kaizen activities.

kaizen - the philosophy of continual improvement, that every process can and should be continually evaluated and improved in terms of time required, resources used, resultant quality, and other aspects relevant to the process.

kanban - a card or sheet used to authorize production or movement of an item.

karoshi - death from overwork.

mizusumashi - the classic 'water spider', who performs a wide range of tasks which allow workers to perform 'value-added' tasks.

mokeru - the Japanese term for the industrial engineering, more properly translated as ‘profit-making I.E.’.

muda (waste) - activities and results to be eliminated; within manufacturing, categories of waste, according to Shigeo Shingo.

mura - inconsistency

muri - unreasonable

nagara - smooth production flow, ideally one piece at a time, characterized by synchronization [balancing] of production processes and maximum utilization of available time, including overlapping of operations where practical.

ninjutsu - the art of invisibility (applies to management)

poka-yoke - a means of providing a visual or other signal as to the location or condition of a part characteristic. Often referred to as 'error-proofing', poke-yoke is actually the first step in truly error-proofing a system (see baka-yoke).

5S - refers to the five words seiri, seiton, seison, seiketsu, shitsuke. These words are shorthand expressions for principles of maintaining an effective, efficient workplace
seiri - eliminating everything not required for the work being performed
seiton - efficient placement and arrangement of equipment and material
seison - tidiness and cleanliness
seiketsu - ongoing, standardized, continually improving seiri, seiton, seison
shitsuke - discipline with leadership

seiban - Seiban is the name of a Japanese management practice taken from the Japanese words "sei", which means manufacturing, and "ban", which means number. A Seiban number is assigned to all parts, materials, and purchase orders associated with a particular customer job, or with a project, or anything else. This enables a manufacturer to track everything related with a particular product, project, or customer. It also facilitates setting aside inventory for specific projects or priorities. That makes it great for project and build-to-order manufacturing.

sensei - one who provides information; a teacher, instructor, or rabbi.

shojinka - continually optimizing the number of workers in a work center to meet the type and volume of demand imposed on the work center; shojinka requires workers trained in multiple disciplines; work center layout, such as U-shaped or circular, that supports a variable number of workers performing the tasks in the layout; the capability to vary the manufacturing process as appropriate to fit the demand profile.

teian - a proposal, proposition, or suggestion. A teian system can be likened to a system which allows and encourages workers to actively propose process and product improvements.

Case study 1

I am not always studing the kaizen cases for india, however, I got some information from internet to share with you. You can also check the link of Mahindra & Mahindra Limited.

Most of the hurdles on the lean path can be overcome through effective forecasting and planning, as it is done by “Mahindra & Mahindra”.(one of the largest player in the Indian automotive industry).

The Mahindra group follows a policy of non-retrenchment. Once upon a time, at Mahindra & Mahindra, Kandivali, 1134 employed produced 75 engines per day. After they went lean, they progressed to a production of 128 engines a day with 770 people. The rest of the employees were transferred to their Nasik plant. Today the plant at Kandivali has around 7800 workers in the automotive sector. Although the issue of the human resource may be delicate. The problem can be easily overcome, if handled with care and sensitivity.

Despite the difficulties associated with the implementation of ‘lean’, several companies have implemented it successfully and moved ahead. Mahindra & Mahindra selected the route of operational excellence to fight their competition. Regarding their success with the lean mode of operation, Mr. Rajan Narayan, (M & M’s Vice -President) says that they have achieved an improvement in the work culture, productivity and revenue at Mahindra & Mahindra solely due to the lean way.

Mahindra & Mahindra are not the only ones who have opted for the ‘lean’ method. Bajaj Auto Ltd., Pune, Lucas – TVS Ltd., Chennai and LML Ltd., Kanpur and are few of the companies that seem to the trading to the ‘lean’ route successfully.