Only DC Can Make S&P Look Smart
Standard & Poors - the credit rating folks who just downgraded the United States - are a gang of egg-headed fools, about as out of touch with the reality of what makes a business creditworthy as can be. Credit worthiness has a lot less to do with numbers than it does with management, and these guys are so out of it they still give J&J a AAA rating. No one with a lick of common sense would loan J&J a nickel unless they got to hold the Rolex watches of the entire board of directors as collateral. That said, S&P comes out of the week looking downright omniscient.
The 12 members of the committee tasked with crafting a bipartisan, tough, fair creative solution to the long term debt problem have been named. They include 7 lawyers, 2 school teachers, and three political hacks. Collectively they have been out of college for 422 years - and they have spent 319 of them in elected office or government jobs. Of the remaining 103 years, 88 of them were spent in the wacky worlds of law and academia. As a group, this august bunch has spent less than 15 years in the real private sector, and most of that was the time Pat Toomey spent working as a currency trader for a couple of big banks. On average they have spent the last 27 years of their lives creating the problem.Their experience managing people, accountable for results and making tough decisions is virtually nil - as is the likelihood of them accomplishing much of anything. It was like shooting fish in a barrel, but give S&P credit for seeing this one coming.
In Defense of Civil Servants
It's easy to ridicule government waste and the collective lack of lean thinking among the bureaucrats - most of it deserved. Keep an eye, however, on the US Post Office and we will all get an inkling of what the future holds. Government is different from the private sector in that growth is a bad thing for the public sector. Lifetime employment and offering more service is not a government option.
Along comes the Postal Service trying to do exactly the right thing: They want to cut 120,000 jobs, close scads of under-utilized locations, bail out of the absurdly generous federal retirement system and cut mail delivery to five days a week. All of which is a long overdue response to the advent of the digital age. But it will take Congressional approval - and that approval means Democrats standing up to unions, and Congressfolks of both stripes being tough enough to withstand the complaints of constituents who demand that their local Post Office remain open, and they get their mail on Saturday. The courage to stand up to even this level of trivial pushback has never been a Congressional trait.
The Post Office is not alone. Congress routinely overturns military requests to eliminate weapons programs and close redundant facilities in order to preserve local jobs. Amtrack's plans are consistently undermined as Congress demands that high speed routes become snail speed routes by stopping in every Congressional district. The Post Office request to cut billions of dollars of waste is the debt problem in a nutshell. It will be interesting to see how it plays out.
Lean in Action
Soda machines (for those on either coast) - pop machines for those in the middle - carry a lot of inventory. Some of the inventory turns very fast - some relatively slow. Most of the inventory is water. A lot of the water inventory doesn't turn very fast, however, because even though it is the same water embedded in the fast moving products, it has been committed to the syrup for slower moving products. As a result, the machines are too big in order to hold a lot of slow moving water inventory, they consume too much energy to keep all of that inventory cold, and they tie up the drink maker's cash unnecessarily.
The Coke 'Freestyle' machine is a great example of optimizing flow. The drink isn't mixed until the order is placed - means the water is not committed to a product until right before the sale. It could mean smaller machines, but instead Coke has kept it bigger than necessary and offers 100 or better products (compared to the handful in traditional machines).
It is lean in every regard - faster inventory turns means lower overall cost - and flexibility that translates into more choices and higher value for customers.
Way too much inventory is committed way to early in way too many supply chains - creating way too much waste. There are lessons to be learned in every supply chain from Coke figuring out a way to do it freestyle.
The Baby Boomers are Exiting - Thank God
A Bloomberg Business Week article warns of the impending loss of knowledge in many organizations as a result of so many baby boomers heading into retirement. "The loss of business intelligence and corporate knowledge ..., could amount to billions of dollars in lost intellectual capital. Leaders must act fast." Bloomberg cites a McKinsey study (authored by baby boomers in all probability) that described the baby boomers as the best educated, highly skilled workforce in history. That assertion says more about a deplorable ignorance of history at McKinsey than anything else.
Wikipedia defines the baby boom as the period from 1946 to 1964. Having arrived smack dab in the middle of this period, I know baby boomers about as well as anyone. That means a baby boomer is anyone between the ages of 47 and 65. That particular demographic includes most of the elected officials who have trashed the US economy and credit, the architects of the wholesale abandonment of American manufacturing, the bulk of the thieves and bottom feeders on Wall Street, and will most likely be recorded in real history as the greediest, most self-indulgent and short-sighted gang of Americans who have ever come down the pike - a generation that left its children and grandchildren holding a very hefty, foul smelling bag.
"Leaders should act fast" all right - to shove us into retirement homes, taking all of our "business intelligence and corporate knowledge" with us, never to return.