Is Lean Manufacturing a practical application of Austrian economic theory?
Having followed Austrian economics and especially the audio lectures for a couple of years I was wondering what the relationship with lean manufacturing and its underlying ideas would be. My interest stems from being a consultant/trainer for lean thinking and lean manufacturing myself. What actually triggered the question for the relationship is the importance of value in both Austrian economics and lean manufacturing as well some other issues that may somehow interface.
The main principles of lean manufacturing / lean thinking are:
value as defined by customer and avoiding waste
value stream mapping make the flow and creation of value visible
flow / ensuring flow
pull principle
perfection or continual improvement
Here are other possible relationship or fields common interest between Lean Thinking and Austrian Economics:
Value Theories - Value as defined by customer
Lean enterprise and spontaneous organisation around a value stream.
The lean enterprise and the theory of the firm.
Lean Approaches versus bureaucratic approaches
Lean and business cycles.
I am more then willing to investigage this further and provide more information on the matter and would like to hear more comments on this. Of course I would like to write articles on this and publish them on my web site on lean manufacturing citing information I got here , too
I’m interested in others’ responses to this as well. I work in manufacturing and we’re trying to turn one of our plants around right now to a lean approach. And the biggest pushback is the people on the line and supervisors. They remind me of government bureacrats, contantly demanding that the current way is the right way and all we need is more staff, more pay, more etc., etc. Anything but to change the actual method and be demonstrably answerable to a customer’s demands. For some they think they’re job is in danger. Some may be right, but others look in the face of greater productivity and bigger per piece bonuses for them personally and still resist the changes.
I don’t understand. How could any aspect of any production method be justified by anything else than by it producing more of what the buyers want at smaller cost? By this standard, allowing workers to have a siesta nap after lunch qualifies as lean if it results in their sufficiently increased productivity after they wake up. Isn’t lean, in this case, just a fancy way of saying good?
Thanks for the reply. I may come to the implementation issues later, but would like to deal with the underlying theoretical issues first. Just on a general note, while the problem may show up at the lower rank and file, the root cause is usually higher up. In your case they may suspect that the companies issue is just head count reduction - so the first thing, you’d have to do is giving a guarantee that nobody will be fired due to the lean initiative the company takes. Where the physical flow is involved things are per usual more visible, it is however better start with the flows of information (in management) and streamline them. This being known from experience, I know would like to show deductively from theoretical axioms and assumptions. My first concerns are how value theory and human action / praxeology fit into this.
lean manufacturing is austrian economics. The reason lean fails to make any headway is that we do not have an actual free market as described by Mises. During the time the US was the closest to a free market, Henry Ford created the company that is the foundation of all lean ideology. Toyota pales in comparison to what Ford achieved.
and my article “Yesterday, today and tomorrow” at Lean.org. just google Lean economics and it will come up. It has been published at the Business Standard and LEI (lean enterprise institute)
Please contact me if you want to try and work together on this. My goal is to start a lean economics conference in which lean leaders and free market leaders come together to promote these ideas. john_podlasek@hotmail.com
I dont buy into the dont fire anyone ideology. In fact when you want to change the culture the best and easiest thing to do is to get rid of the naysayers right away and let them know you are not going to back down. You have to send the strong message that there is a new sheriff in town. Sort of the Bill Parcels approach, and why he won many superbowls by getting rid of the superstars on the team that were destroying team chemistry. You want results, then you have to create a team that can work together, and so its just much easier to get rid of the miscontents. Fire a couple of people and see how quickly the rest start to understand you mean business.
The dont fire anyone ideology comes from lean consultants, that want to prolong their consultancy, so its better if it takes more time.
Then how to you justify, Porche?, Virgin Airlines, Polo, and many other companies that sell products at much higher costs then competition. Lean is not so easily defined by one business model.
You produce only what the customer wants, and if you keep getting customers then you are doing something right.
The worst thing you can do in business is try to copy some other business. It means you have alread lost the battle. Toyota laughs at all these lean copy cats.
lean is not only about productivity, but if the siesta works, why not?
Lean manufacturing is an entrepreneurial methodology. It’s an art form, not an exact science. Austrian economics has almost nothing to contribute. The closest topics imo are structure of production theory, pricing of factors of production, economic calculation, the forms of income earned by entrepreneurs, and vertical integration. And there is little that these can contribute. Eliminating waste and becoming more efficient is more a matter of encouraging a culture of innovation, initiative, cooperation, diligence, and personal responsibility.
Stephen I disagree 100%, that Austrian economics has nothing to contribute, and so do the Lean Leaders. I was talking about this with Womack, Jones and Shook last year at a Lean Conference and they agreed that lean has not been defined completely, and up till now the focus has been on simplistic ideas due to that they basically sell well. At the moment Shook is reviewing my book, and with luck LEI will publish is as they did my article “Yesterday, Today and Tomorrow” Google it if you want an quick snapshot into the ideas.
Lean by definition (Customer Focus) is free market economics as you even state (entrepreneurial methodology). Economics is an art form and not an exact science,and the same with lean. Anyone that tries to tell you that Economics is an exact science is a snake oil salesmen, just like many lean consultants. Why do you think Bernake cant figure out how to fix it? Why are there no lean companies besides Toyota? Very little achievement by lean I must say considering we are supposed to be in a lean revolution.
Govt interferes with the pure definition of Lean. Govt and govt regulations are a disruption in the natural value stream between the customer and the producer. Complete Muda if you truely believe in Lean concepts. Mises says the same thing. Govt is waste. Plain and simple. The customer will regulate the producer with purchasing decisions. This is lean in a nutshell.
Gold standard promotes production over speculation. Inflation v deflation. The gold standard will promote deflation of prices due to more products chasing stable money supply and competition. This promotes productivity, and increased purchasing power. This creates wealth. Henry Ford raised wages and lowered product costs during the only time in History a country was the closest to a pure Free Market. This did not happen by accident. Toyota pales in comparison to what Ford achieved.
Without the free market lean goes nowhere, has absolutely no traction. There are no modern lean successes and even Toyota is floundering. Due to that we dont have a free market as defined by Mises, and so we dont have lean. Yes you have companies that have lean tools. So what? Thats easy.
I wrote a book about this www.leaneconomics.org. You are free to download and read it for free and try to expand your understanding of lean and make comments.
The housing market bubble bursting rippled thru the economy and almost every company suffered massive losses including Toyota. Start by asking Why 5 times.
Lean is much more. Read Henry Ford’s book, “Today and Tomorrow”. He understood as well.
Economics is a science. It’s an axiomatic deductive science. What many economists do nowadays, is not economics. It’s economic modelling (which is not an exact science but an art), forcasting, dreaming up jibberish, and PR for the central bank, IMF, and so on.
Science has exact solutions. Arts are open ended and have inexact, or a range of solutions. One can apply a science to an art. But for lean manufacturing, specialized technical knowledge and soft skills are what counts.
Lean is business. Nothing more nothing less. Why did everyone want to copy Toyota? Because they were making tons of profits. This is the exact science and solution of any business venture. Do the ends justify the means? It is measureable? Profits are measurable. Technical knowledge and soft skills are just one part of achieving a successful organization. They do not guarantee success. Exchange rates have more of an affect on my business then soft skills and technical knowledge.
Here is a perfect example of the entire misundersanding in the lean community. This example I copied from the LEI website incorrectly tries to state that costs are going down as well as product cycle times for automobile production. The exact opposite is true. This is due to Keyenesian economic theory if we were in a free market then results would have been true to this chart.
Lean has generally accomplished nothing except make some professors and consultants rich.
The free market is generally defined by an absense of government intervention into the market.
Entrepreneurship is not an exact science. It is an art. There are no exact methods which will guarantee success. In sciences, there are exact solutions to problems.
I never said that technical knowledge and soft skills guarantee success, just that they have more to do with lean manufacturing than Austrian economics does.
Absense of govt intervention is one part, but most important is sound money. This will provide as system based on proper deflation of consumer products and increase the wealth of society.
sound money will control govt intervention.
Lean is not an exact science, Economics, and Austrian Economics is not an exact science either from what I have read. Human action, can not be measured or predicted as an exact science. It can not be managed. Exact solutions imply that it can be managed. This is what Bernake is trying to do. Austrian school says stay out of the way and let Human action work naturally. Trust that competition will create the best solution. This what the control maniacs can not stand. Same in business and Lean. You have to trust your employees to create the best solutions. You can not manage them in the conventional sense.
we can say that a crash is coming due to what appears to be a bubble, but the exact time of when and where are not predictable obviously.
similar to that we know one day a meteor is going to crash into the earth, or earthquake is going to happen, but no one can say when.
Even science has its limitations. DNA for example is a complete mystery
My book theorizes that lean is Austrian Economics, or more importantly needs Austrian Economics to succeed. www.leaneconomics.org
A pure fiat currency can only come about through government intervention. So sound money falls into the category of non-intervention into the market so its not necesarry to spell out.
The law of supply states that the price of a good will fall or remain the same if the supply of that good increases, and that it will rise or remain the same if the supply of the good diminshes, all other things being equal. This is an exact theorem. It holds true in all cases and at all times. So, you’re simply wrong about economic science being exact.
Also, I skimed through your book. You know alot about lean manufacturing, but you only have an elementary understanding of economics. You should give Man, Economy, and State a good read. Then rewrite your book.
I never said that economic science was exact. Please read my posts again. My point was that it is not, but neither is lean. In my first post I wrote “” *Economics is an art form and not an exact science,and the same with lean. Anyone that tries to tell you that Economics is an exact science is a snake oil salesmen, just like many lean consultants.‘’ then in a later post “”*Lean is not an exact science, Economics, and Austrian Economics is not an exact science either from what I have read. Human action, can not be measured or predicted as an exact science.“”
So I am not sure how you came about this conclusion. No worries.
You are correct in regards to my economic knowledge as a formal education. However I do run an international manufacturing company, so I have alot of experience in the real world concerning economic activity and turning around failing companies. I have read a few economic books and honestly I find them basically blah, blah. I did like Human Action though. Fuzzy sciences like economics or psychiatry bore me, since the education system can be vey one sided in their views, and then they dont have the science prove their ideas 100%. Engineering, Law. Those studies are straight forward similar to running a business. I doubt many economic professors can run a manufacturing business. Similar to lean consultants. They know how to talk, but ask them to show the actual bottom line results and they run away.
I will read the book though and I appreciate the advice.
The goal of my book was just to try and make the lean community look into Austrian Economics. Most of the lean leaders are college professors, or have govt connections, so they support bailouts, and the current system, and dont understand how the economic system creates waste. I still regard Henry Ford’s book “Today and Tomorrow” as my guide on these issues. He ran a company. The company that had the greatest influence in how we live today. His idea of wage motive was compelling. I dont want to dive into complex economic theory in the book. I only wanted to hit the high points. I dont see the point of it. You are free to make comments on the websites or point out flaws. Then I might update. Its a lean book at this stage. the updates will be written by my customers. Its a hobby, and a pesonal mission. I am not selling it for profit. So far its doing quite well. I am getting alot of hits on the website.
Sorry. Typing error on my part. Yes, you are arguing that it is not an exact science and I am arguning that it is. That’s my bad. Sorry about that.
I don’t have a formal education in economics either. I have a BEng. in Manufacturing Engineering. So I am familiar with lean concepts, though its been a while. I am still a student in Austrian Economics, though I have read over 15000 pages of literature on or related to Austrian Economics. I am somewhat puzzled that you have read human human action and regard economics to be a fuzzy science. Mises is quite thourough and rigorous. He explains how action is different from animal behaviour, how we concieve of and understand action, what the various necessary categories that precede action are, and then goes on to reconstruct the body of classical economic laws and theorems from theses categories, adding several of his own innovations along the way.
It is not as though the law of returns or law of marginal utility can be fuzzy laws. They simply always hold true because they are implied by action.