This morning I came across a story that immediately raised my hackles since it was titled Lean and Mean. Obviously linking lean manufacturing methods and "mean" is symptomatic of several potential issues... a company that uses the waste-reduction aspects of lean but forgets the respect for people side, and therefore lays off a bunch of folks. Or companies that use it to pound on suppliers, or authors that simply don't understand lean and think the rhyme is cute.
But this particular article hit close to home, as it is about an industry I was intimately familiar with: telecom electronics and photonics. I used to run the manufacturing operations for a hypergrowth company that supplied wicked high-end test equipment to the companies that put the lasers and photonics on either end of fiber optics used for long-haul high-bandwidth communications. In fact, the company mentioned in the article was my largest customer.
Remember those "lean manufacturing" initiatives we heard optical component and subsystem companies blame for last year's poor start? Well, they're not over yet -- they're just moving farther down the food chain.
In a recent conversation, JDSU's Craig Iwata, senior director of marketing and business operations, told me that the adoption of lean business practices by systems houses last year had two major effects. The first was that it gave the systems vendors an opportunity to re-examine their inventory requirements; several decided they didn't need to carry as many spare parts, which led to the aforementioned slowdown in orders.
I read that and say "it's about time!" You see, back in 2000-2001 I was being driven hard by those same companies to crank out more and more and more. Price was no object. I relocated a bunch of very talented and expensive people to this beautiful small town on the California central coast. We implemented lean to almost quadruple output in the same floor space, dramatically reduce lead times, and actually deliver orders on time... which was just a moderate improvement over being almost a year late on many orders in mid-2000.
In early 2001 we began to see signs that the market was slowing down. Some high capacity fiber was going "dark"... meaning that there wasn't the data demand to drive it. Hence, we thought, our equipment that was used to test the lasers and photonics at either end of the fiber should also be slowing down. But JDSU and others continued to order at an increasing rate.
Then, boom! Within the space of a month demand dropped to almost zero. So quick that we were still in the process of hiring and relocating people when we began to plan layoffs. And on September 10th, 2001 we announced the closure of our operations with 180 high level people laid off. The events of the next day put things back in perspective again. Some of those engineers found new jobs with companies making the likes of ozone systems and power supplies. Some became bicycle messengers (yes, really), some were forced to move, and some of us started our own companies. But it taught me to always keep a keen eye on the overall supply chain, industry trends, and gave me a very strong desire to never go through that again. Respect for people.
You can't blame JDSU and other subsystem vendors for taking this approach. But this certainly can't be good news for component suppliers to JDSU and companies of its ilk. They already suffered a trickle-down effect from the spread of lean practices at the systems level in 2007; a repeat at the subsystems level suggests component companies will see another year get off to a rocky start.
No I can't blame JDSU for taking the lean approach... finally. They got burned heavily as well, and were left holding a bunch of expensive inventory. It took them half a decade to recover. But this IS good news for component suppliers to companies like JDSU. Sure demand may be lower, but it will be tied much more closely to the final industry demand.
Basically do you want to have an overly profitable present with a potentially disastrous future due to oversupply, or do you want to become steadily, and predictably, profitable over the long term? Having been there, I know which I'd prefer.