The business metric RONA (Return on Net Assets) is used by many companies in order to gauge how well they turn their assets into income.

I am no accountant but do know there are a few ways to calculate RONA.  For the sake of this article let us work with the simple formula: RONA = (Sales – Expenses) / Net Assets.

RONA Puts Inventory in it’s Place

The reason I personally like RONA is I believe it places the correct emphasis on inventory. If we decrease inventory (an asset according to cost accounting) and sales and expenses stay flat we improve RONA.

If we are able to actually increase sales, reduce expenses, and reduce inventory good golly Ms. Molly RONA is on her way up! 

Some Practical Ways to Increase RONA

So, what are some ways a lean and six sigma practitioner can work to improve RONA? Here are some ideas but I would love to hear yours too.

1. Reduce defects – both on the shop floor and front office using six sigma and things like poka-yoke and the often forgotten pillar of the Toyota Production System jidoka (Reduces Expenses).
2. Increase throughput by using tools like Value Stream Mapping with extra emphasis on flow. This assumes, of course, the market is not a constraint (Increases Sales and Reduces Assets as inventory turns increase).
3. Implement pull systems ensuring we only produce what the customer wants when they want it which lowers inventory (Reduces Assets).
4. Implement TPM ensuring machines are available when we need them to be (Increases Sales).
5. While on the TPM journey ensure OEE is being tracked and improved (Increases Sales).
6. Become obsessed with kaizen (Reduces both Expenses and Assets and can also Increase Sales).

Is your company focused on improving RONA? If so, please share how you go about improving it.

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Today I read an article over on Industry Week that troubled me for much of the day.  Most of us have heard of all the recent issues coming out of China related to quality and safety.  One of the major stories was related to the paint used on Mattel toys. 

Many folks in the West use these stories to prove that outsourcing is not always the best way to go.  Heck I have even made this comment myself from time to time.  But the Industry Week story was not related to outsourcing.  Instead it was all about suicide.

Zhang Shuhong, who ran the Lee Der Industrial, killed himself at a warehouse on Saturday; days after China announced it had temporarily banned exports by the company, the Southern Metropolis Daily said, as reported by cnn.com.

The fact this man, possibly a husband and father, took his life is troubling enough. But there is more.

CNN reported that the Chinese newspaper said that a supplier, Zhang’s best friend, sold Lee Der fake paint that was used in the toys. “The boss and the company were harmed by the paint supplier, the closest friend of our boss,” a manager surnamed Liu was quoted as saying.

So this man was apparently betrayed by his best friend. Who knows if this is true and many will probably get their darts ready saying how it is probably all lies.

Not me. It makes me very sad to think of this man’s friends and family. I’ll be praying for them and ask anyone who practices any type of faith to do the same. You see, some things (like human life) trump any discussion of lean or six sigma.

I have not blogged on the whole Nardelli taking over Chrysler topic mainly because so many people already have and I have grown bored of the topic… that was until I read this article on The Motley Fool. 

The article takes the most common (and easiest) angle and punishes Nardelli for past sins including his large HD pay package (which was clearly stated in his contract so why the surprise by so many… but I digress).  I am not here to say this dude is a good leader.  I don’t know him and only know what the press says.  But one thing I do know is six sigma.  And when I read things like what I am about to share I want to pull my hair out.

Nardelli’s real challenge will come from implementing real change in the automaker. But let’s just hope that his focus on restoring Chrysler quality doesn’t resort to the Six Sigma ideas he implemented at Home Depot, which ultimately hobbled the retailer. Sometimes, ideas that work well in certain companies, as Six Sigma did at General Electric (NYSE: GE), don’t translate well to others. Yes, hundreds of companies have instituted the Six Sigma approach, but Home Depot was one of the apparent failures.

OK, so six sigma is the issue here I guess. I mean this Motley Fool genius seems to think so. Give me a break. Oh but there is hope says Mr. Genius.

So far, Nardelli has yet to refer to Six Sigma; he’s stated that his restructuring plan calls for cutting 13,000 jobs. The layoff isn’t only for cost-cutting purposes; it’ll also allow Nardelli to bring in new talent.

Whew… that was close. Instead of implementing that crappy six sigma stuff we are going to whack 13,000 heads. That should work. Sadly this is the kind of crap people on the street seem to think businesses need. 

If you want to read more from Mr. Motley Fool Genius click here.

I got my haircut yesterday.  I am cheap and like the $12 action at Great Clips right up the street.  They do a good job so I can’t see paying $35 (or more) for some overpriced version of the same thing.

As the stylist was bringing me to the chair I overheard a very interesting conversation.  She (the sylist) had pulled the young girl that was running the computerized cash register aside and said something like this.

“Can you please do me a favor?  When 2 people from the same family are here for hair cuts please wait until the last person is done before ringing them up.”

The young girl was confused and asked why.  The stylist responded:

“Remember the last couple (man and wife) that came in?  Well as I was finishing up the lady the man was already done and paid for both of them.  The computer then assumes I am complete with the hair cut I was working on.  Then it looks like I am just sitting around doing nothing when in fact I am still cutting someone’s hair.”

The young girl then understood and promised to not do this again.

While I was getting my hair cut I asked the stylist more about it.  She went on to explain how management really studies these metrics and bonuses are paid according to the “performance” of each stylist.

On one hand I applaud Great Clips for measuring things.  Many service oriented businesses would do well to copy this.  But we have to be careful when we attempt to determine the performance of an individual via a computer. 

In this example, the system was clearly flawed and the only way for a stylist to not look bad is to game the system.  So it seems  bad metrics don’t just exist in manufacturing… all you have to do is travel down the road to your local hair salon!

If you are American and want a feel good story this ain’t the one… so please come back tomorrow and I will try to do better.  Anyhow, I saw this article the other day and didn’t have time to comment on it until tonight.

The gist of this sad story is:

U.S. employers added 132,000 jobs in June according to a report July 6 that pointed to solid growth in the world’s biggest economy. However manufacturing lost 18,000 jobs.

Whenever I hear statements like this I immediately go on a hunt for the data since many times reporters over react to plain old common cause variation. 

So tonight after some digging around on the U.S. Department of Labor Bureau of Labor Statistics website I accessed the actual data and created the graph to the left.  I took the last few years manufacturing employment data. 

In this case, my fellow Americans, the trend is not our friend.

On the BLS website you can also create your own graphs so I took the last 10 years worth of manufacturing employment data to see what I could learn. 

Yikes! 

It seems that little recession was a real bugger after all.  And on the bright side of things the last few years don’t seem quite as bad when you put it into this perspective.  Scary (and dangerous) how we can rationalize things with pictures.

Morale of the story is simple.  American manufacturing companies need to wake up and get on board with lean manufacturing and six sigma or our kids will one day ask, “Grandpa, what were those factory things like back in the day?”

Read the full story here.

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I learned some more stumbling tricks and came across an interesting website.  This site was put together by the nice people at Stanford.  On the site are videos of several different manufacturing processes. 

You can watch an 8 minute video of a Ford Mustang being built.  See how much muda you can spot in that process!  It’s funny towards the end of the video the narrator talks in an anxious announcer like voice as they go to start the Mustang.  It starts and he says something like, “It starts!”  I’m not trying to pick on Ford… OK maybe I am a little.

They also have videos showing how things like motorcycles, jelly beans, and several other products are made.  I have not heard or seen much about Lean or Six Sigma… but there are several videos I have yet to watch.

In any event, it is interesting to see other manufacturing processes.  I like to watch these types of videos with eyes for waste pretending I worked there and was tasked with making things better. 

Engineers at Cornell University have designed this odd-looking machine that can rebuild itself and also could perform repairs on itself.