Posted by: knightbird | January 27, 2017

A Day Late and a Dollar Short

Economies are moving targets with lots of places where the income a business earns is siphoned off, I contend without necessity. In the world of Lean Management, accumulations of waste from all organization engaged in regulating and supporting businesses really cost us when we think about diversifying our economy. Let’s look at where this waste exists.

When a business starts up, it has licenses and permits to secure, sometimes from multiple sources. You need a federal Employer Identification Number, a State Business License, professional licenses for some businesses and various municipal permits, depending on the business. And you end up going to multiple locations to secure the permits. If you use a building in the business, there are a variety of regulations to implement, and if you serve the public directly, food safety laws and regulations. Inspections are conducted when you remodel a space to fit your use. And because we live in Alaska, every one of the requirements we have are inefficiently delivered. They cost a lot more than they should, and the collective impact on our economy is substantial. Why do I say this? It’s because not even one of our public institutions is managed well. Not one uses Lean Government as their philosophy of management. The result is we pay more for the service than we should, and generally spend a lot more time fulfilling the requirements than we should have to.

Then we are taxed locally, and substantially. We don’t have a sales tax, but the Municipality of Anchorage does collect real estate taxes. A lot of the tax goes to support our schools. Guess what? No schools in Alaska use Lean Education as their philosophy of management. And without a Lean management approach, we pay more for less instruction. In one school district I read about, each teacher had 104 non-productive instructional hours from interruptions. If the same fact is true in the Anchorage School District, we have over 300,000 hours of non-productive time we could recover and dedicate to instruction.

The state of Alaska is responsible for a lot of our services, which are provided extremely inefficiently. How do I know this? In 2009, our Division of Public Administration improved its process for reviewing applications from approximately 22-23 a day to over 120 a day, with fewer resources required. The used one of the tools of Lean Management, then stopped innovating. The last time I read about their Lean Program, they were seeking a contractor, for up to $800,000, to help them fix a computer system and process 50,000 backlogged applications. We seek one offs, a project to solve a problem, but not a long-term management culture to continuously solve problems.

Then we pay for health care and other benefits. Our health care providers do not use Lean Healthcare as a philosophy of management in Alaska. Providence has a program, but you don’t read much about it. And it’s not just the cost of healthcare that become a substantial burden on businesses, it’s the impact of why we see a health care provider—lost time, illness and medical supplies and equipment. We pay a lot because our supply chains and logistic support networks do not use Lean Transportation for their management philosophy (except for Alaska Airlines).

And our living expenses are higher than they need to be. Our contractors do not use Lean Construction as their philosophy of management, and we pay more for housing for a lot of reasons. They need municipal permits that cost more to secure than they should. They schedule a project with huge amounts of dead time. Their supplies are more expensive because of the supply chain. The use more employees than they need to and that drives up the cost.

And we spend incredible amounts on our communication requirements. Why, because our telecommunication companies do not use Lean as their philosophy of management. You can buy a Samsung 55-Inch 4K Ultra HD Smart LED TV cheaper than you can buy a smartphone (ACS does use Lean Tools in its management system, but I am not sure how effective they are).

And large businesses end up hiring professionals in law, accounting, and a plethora of business services. Very few law firms use Lean management as their philosophy and I am not aware of no accounting firms do (Davis Wright Tremaine is an early adopter in Alaska).

So, add it all up. How much waste exists in a business before it accounts for its operations. And that itself involves huge waste. Individual businesses can capture incredible efficiencies through adopting Lean as its philosophy of management, perhaps saving as much as 50% of its total cost of doing business. You are critical of that statement. I understand. Despite cost increases for the automobile industry, you can buy a car cheaper today than you could in 1969. A VW Beetle sold for $1,999 ($13,200 inflation adjusted for 2016) then, and a Nissan Versa sold for under $13,000 in 2016. You might say that the difference isn’t that much. Think about it. The 1969 VW didn’t have seat belt, much less air bags. Health Insurance was a very small part of the cost in 1969. It’s considerable today. Emission controls, electronic systems, and much more are provided in today’s vehicles.

If we want a vibrant Alaskan economy, we need to discuss the proliferation of Lean thinking for our statewide philosophy of management. We are wasting huge sums of money everywhere, and our businesses pay for it. This makes their goods and services more expensive, and less competitive than other states and countries. That may not be what makes our business noncompetitive in the world market, but internal use of Lean could fix that. But if we wait to adopt Lean management philosophies, like the U.S. auto industry did, we will lose as other states catch up.

Very few people will understand why I write this. I know because I have tried to show this path to anyone who would listen, starting in 2005. Well educated and accomplished people have failed to comprehend the tremendous benefit waiting for us. And when I talk about how poorly we are doing, people take offense, despite the facts I bring to this discussion.

Why do most of our journalists do such a shallow job of discussing and debating issues like our economy? Why do many politicians focus on cutting budgets instead of enhancing performance? Why do businesses pay the increased cost of health care instead of doing something about it? Why do they hire 25% to 50% more employees than they need? I wish I knew.

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