How to find and repair hidden factories

It turns out that Feigenbaum’s insight applies not only to traditional operations, but also to manufacturing and product development across the globe. Almost any type of work process in any industry can be clouded by hidden factories. Carrier, who works with businesses to identify and deconstruct hidden factories, spoke with MIT Sloan to summarize best practices when approaching the problem.

As the name suggests, hidden factories are hard to see. They are the result of an accumulation of many small improvised changes. A culture is built around them, with its own language: absorption cost, allowances, refactoring, redefinition of priorities, etc. It then creeps into the operations architecture itself, as enterprise resource planning systems are customized to accommodate hidden factories, rather than being used to eliminate them.

“My first step is usually to meet with the planners and ask them, ‘Are we planners and planners, or re-planners and re-planners? In the “as expected” installation, you plan, schedule, and execute. In the “as is” installation, hidden factories fit into the plan, resulting in constant rescheduling.

The trick to finding hidden factories is, in a sense, simple: look for the missing time, Carrier said. Evaluate, for example, the punctuality of delivery to the customer. (Most of the companies Carrier has worked with fulfill around 60-70% of orders in time before his intervention.) After that, look at which tasks are rescheduled and redefined and how. Third, study the maintenance logs; if deferrals are a constant problem and there is a large and growing backlog of maintenance, then somewhere a hidden factory is slowing the systems down.

Carrier noted two other symptoms to look for when trying to find hidden factories. First, find the parts of a system that are under pressure, especially time pressure. This hunt can be as simple as asking employees what causes the most stress in their jobs. Second, find places in the system where products and processes are stuck while waiting to move on to the next step. Long queues suggest a hidden factory.

Address the problem

In the 1990s, furniture maker Herman Miller felt compelled to move factories overseas. Executives, however, were loath to abandon the Michigan communities in which the company had been rooted for nearly a century. The company researched, found and corrected inefficiencies; manufacturing remains in Michigan.

The heart of this work was not a series of layoffs or a massive push for leaner production. Rather, the company has embarked on an effort to “reduce human struggle,” Carrier said. This slogan – more easily affiliated with political revolution than corporate cost savings – is what informed the hunt for hidden factories.

“This is how you find the friction within your operations,” Carrier said. “You are changing the way you measure things. Here are some specific approaches to repairing hidden factories:

Make room for the little things. Businesses like to devote their efforts to solving big problems. This can be problematic when it comes to hidden factories because, despite their cost, they have dozens or hundreds of small inefficiencies. Carrier calls this the 10,000 cent problem. “You won’t find dollar bills on the factory floor,” he said. “But the hidden factories are 10,000 cents.”

Hire as many employees as possible. From the top of the company, Carrier suggests that CFOs should be involved in this work. They alone can provide the necessary investments and properly measure results. But strong leadership is not enough. Since hidden factories tend to be scattered across many parts of a system, building an effective solution requires engagement with a large part of the business. Carrier suggests that as many as 30% of employees should be recruited to work on solutions.

Above all, when searching for hidden factories, employees should focus on how time, not the cost, is spent. “If you are constantly looking for cost reduction, you will end up exhausting the system to total failure,” Carrier said.

Focus on risk, not productivity. There is a conventional view of risk and productivity as being closely related: greater productivity implies greater risk, and vice versa. “This is based on the assumption that the system is operating at its ‘efficient frontier’, which is rarely the case,” Carrier said. If you approach risk the right way, by tackling the parts of a system that are overloaded, you can reduce risk while increasing productivity. Hidden factories left unattended, on the other hand, are both unproductive and dangerous.

Invest in the system, not in new technology. Technology can, of course, help reduce hidden factories, but at the root of this problem is culture and information, not technology. First and foremost, the nodes in the system must be addressed and the information gaps that led to these nodes repaired. New technologies or algorithms cannot help if the system and culture it nurtured remains broken.

Look for duct tape, pliers… and spreadsheets. The Hidden Factory has its own set of tools – of the “get-‘er-done” variety. In operations, it consists of duct tape, C-clamps, adjustable wrenches, and the ratchet extension that someone bent with a torch. In the office, the main culprit is the spreadsheet, where work outside of the workflow app – be it Jira or an SAP or Salesforce app – is funneled into the hidden office work factory. This hidden work is then protected from detection by PowerPoint waterfall diagrams, meticulously prepared to smooth out any disturbing information that would be helpful in addressing the factors behind the formation of the Hidden Factory, Carrier said.

Encourage open communication. Workarounds and quick fixes are inevitable. Building a fault-free system, Carrier said, would be prohibitively expensive, if not impossible. The key is to have quick, routine feedback when workarounds occur, and then react accordingly. To this end, open and honest communication is essential. “If you have a culture where employees are supposed to only report good news to senior management, then they’ll just filter out the information they think they shouldn’t be sharing,” he said. “Paraphrase W. Edwards Deming, ‘You have just created the perfect system to institutionalize the hidden factories.’ ”

Look for factories hidden in software development and knowledge work. In the software world, the hidden factory phenomenon is revealed in terms such as anti-models and technical debt. Unsurprisingly, the world of development and operations adopts the same concepts and tools to solve them: Kanban, fast delivery cycles and value stream mapping. “There are a lot more hidden factories in software and back-office processing than in any physical manufacturing,” Carrier said.

In the end, Carrier explained that the search for hidden factories should be seen first and foremost as an opportunity. “Hidden factories are actually good things because they are the way the system tells you where to focus,” he said. “It’s a gift. You want them to go, but also know that the system is talking to you.

This article is organized from World Economic Forum.


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