Innovation and Export the Secret to Growth in

ManufacturingSearching for Solutions in

Japan

Dr John BlakemorePrincipal

Blakemore Consulting InternationalSydney

masc@blakemore.com.auwww.blakemore.com.au

Australia Has a Problem

Heavily in Deficit Despite Resources Boom

Australia's Trade Balance 1971 to 2007

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Japan Australia

1 Economic Growth Rate (94 to 2004) % 1.2 3.7

2 GDP per Head $ $36,170 $32,020

3 % workforce employed % 52.0 50.8

4 Expenditure on R&D % GDP % 3.1 1.6

5 Innovation Index 5.7 4.4

6 Unemployment (95 to 2004) % 4.4 7.1

7 Current Account (% of GDP) % 3.7 (6.2)

8 Population Growth % 0.2 1.1

9 Inflation 2000 to 2005 % (0.3) 3.0

10 Money Market Rate % 0.0 5.5

11 Household Savings Rate % 6.9 (3.0)

12 Trade Balance $Bn 132.0 (18.1)

13 Living Standard Rank GDP per Head 2007 11 22

14 Living Standard Rank GDP per Head 1900 40 1

Australia Versus Japan

CSIRO Exp vs Comparative Adv

Parameters 1

• The resources boom and a weak US$ has led to an elevation of the $A and squeezed manufactured exports…Dutch/Spanish Disease in the future?

• Labour costs often blamed (incorrect?)• Serious infrastructure constraints• Servicing costs on foreign debt high• Interest rates high by global standards and will go

up higher when Net Financial Debt seen as a problem (60% GDP, CAD = 6% GDP)

• Italy highest on record in 1924 at 7.1% of GDP, then, in 1925 what happened?

Parameters 2

• R&D and Innovation are the key drivers of manufacturing growth and sustainability

• Australia’s private R&D investment is very low by world standards

• Australia concentrates its innovation and R&D in the middle of the supply chain. This effort is more valuable closer to the customer.

Innovation and Performance

• We need to be flexible and fast like Australia 2 in the America’s Cup in 1983 when we came from behind 3 to 1 and had to win the next 3 races in a row Even though we lost the next 3 starts we won the cup.

• The secret was the Ben Lexcen’s innovation.

• We need a winged keel!!!

Why Japan?

• Trades in Surplus despite being poor in natural resources and energy

• International manufacturers well above the rest in quality and value dedspite strong currency

• Able to move the culture of precision and manufacturing capability to a new high

• Live on innovation for growth

Which Companies?

• Canon (Excellent Quality)

• Honda (No 1 for Reliability)

• Toyota (TPS, Lean)• Kawai ( Sydney International Piano Comp)

• Panasonic (Good all rounders)• Sony????? (Innovative but Unreliable)

Manufacturing or Service?

•There is no such thing as a pure manufacturing company

• All companies are service driven

•What is your position in the supply chain?

Canon Performance

2005Parameter Bn US$Net Sales US$ Bn (10 power 9) 31.8Total Assets US$ Bn 34.2R&D US$ Bn 2.4Capital expenditure US$Bn 3.5No employees 115,000Growth Rate 17.40%Net Profit 10.23%R&D as % Sales 7.60%

Key Operational Ratios

• On Time Deliveries % (CROTD, Actual) =100%• Changes to plan (nil)• Planning lead Time (target 1 day)• Lead Time ( Time to produce from RM = CRLT)• Value Added Time (Run Time/ 168 )(aim 100%)• Measures (Setup,Run,BD,PMT,Idle,CU),• Manned Time (% Available = run time)• % Major Ops with adequate backup personnel =

100%

My Australian R&D and Innovation Grant Observations

• 800 R&D Innovation Applications (6yrs)• 50% received grants, 5% successful• IP mostly exploited Overseas •(e.g. Shi Zhengrong and Suntech) • Tasmanian windfarm technology to China • Small no. people rich• Little National Benefit• Favours Product over Process Innovation• Commercial Ready needs Improvement!

Innovation Process versus Product

There is no point in adding a new product to a bad system.

Honda, Canon, Kawai, Toyota, Panasonic, all link Process and Product Innovation

Australian R&D

•How successful are we?

Reasons for Failure of Australian R&D and its Commercialisation

Poor Understanding of the:1. connection between Process & Product Innovation 2. use of correct resources (inc Partnerships, Pana/Leica)3. ways to release working capital to max Technology4. needs of the market (needs versus wants)5. scientific method (observation and measurement)6. need to articulate the concept and plan7. way to raise funds to support the application8. best way to use capital 9. measurement of risk10.need to tap the wisdom of the worker 11. financial institutions risk averse

Where Do You Start?The World is your Market

1. Integrate processes and systems, pull by customer, then spread out both ways.2. Substitute pull for MRP on short planning cycles3. Use internal digital data on shorter periods4. Hook up digitally with customers & suppliers5. Eliminate forecasting as much as possible

How do we Implement Creative Manufacture and

Innovation, The Step Beyond Lean ?

It is all about

People, Training,Culture,

Leadership and Commitment

Rule 1Make to Order (MTO)

Demand = Production•Pull by Customer•Apply Continuous flow rules (26)•Continuously reduce batch sizes by reducing the Economic Production Run (One piece Flow?)•Plan by replacement short Lead t•Reduce forecasting as much as possible

Rule 2Maximum Flexibility Machine and

Labour• Match Manufacturing Capability with Demand

• Tirelessly improve flexibility by reducing EPR’s

• Continuously reduce lead time

• Focus on the financial parameters to prioritise

• Aim for continuous flow

•Maximise the use of Appropriate Technology (Six Sigma)

• A process can be treated like a machine (Adam Smith)

Rule 3Innovate

• Drive Product Innovation with Process Innovation

Rule 4Use Digital Data Effectively

• Recognise that Digital Data can be obtained at the POS and sent to any point in the supply chain

Rule 5Design for Flexibility

• Reduce Complexity • Modularize• Introduce Complexity late in SC• Universal design (Toyota)• Backup suppliers (standardise)

Rule 6Reduce Waste in All Forms

• Planning waste

• Expenses waste

• Resources waste

Some Values of Key Parameters

• Days Inventory = 8 Days (Canon Australia actually 38 Days but 30 Days on Water)

• Value add % = Never stop Improving (Samurai Warrior, Toyota < 10%)

• Planning Cycle = 7 days to one day• R&D as % Sales = > 5%• Process Control at 6 Sigma• On Time Deliveries (CRLT) = 100%

Kyosei • Kyosei = Living and Working Together for the

common good• Kaizen = Continuous Improvement• Genchi genbutsu = place of understanding• Obeya = big room• Sensai = teacher• Poka-yoke = mistake-proofing• Jidoka = stop machines (Toyoda Loom)• Miyamoto Musashi “The Book of Five Rings”

the Samurai warrior after Shogun liberation

EBITA for 6 Months Periods

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Profit in $300M T/O (Ref Blakemore Consulting Reports )

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Australian Example 2(2X Productivity (Ref Blakemore Consulting Reports)

Defectives

Conclusion• Build a flexible system that can respond to changing

markets quickly and optimize the supply chain.• Remove wasteful inventory by matching lead time

and cycle time and continuously increasing value added time

• Use the capital released from wasteful inventory to innovate flexible systems and processes that can respond faster to new products.

• Continuously innovate new products and processes• Use a consistent strategy based on the systems of

Honda, Toyota and Canon • Use all resources and be aware of the tools and

knowledge available and foster partnerships with the best.

The End