Issue link: https://iconnect007.uberflip.com/i/674146
58 SMT Magazine • May 2016 demand for a product and I produce 1 unit, I can set a very high price since the demand far outweighs the supply. There is a price range, however. Somewhere between what the product costs to produce and what someone is willingly to pay. As more of the product is produced, the supply goes up. When the supply goes way up as other sources begin to produce the product, pressure is put on the price. These competitive forces will drive the price down, as I will settle for less profit in order to sell the product. In free markets, the price of a product is determined by what Adam Smith called the "invisible hand." In 1776, he published An In- quiry into the Nature and Causes of the Wealth of Nations. His timing was perfect. The Industrial Revolution was in its early stages and his book provided a blueprint for nations and individu- als who were involved in mercantilism (trade). I consider these, along with Karl Marx' Das Kapital (first volume published in 1867) and his Communist Manifesto (1848), required read- ing for the post-secondary student who wants to build products. This meant a combination of the desirability of the product (demand) and the amount of that product I am willing to produce at a certain price (supply). That's all. The price is established naturally. If there is an incredible demand for a product and I produce 1 unit, I can set a very high price since the demand far outweighs the supply. There is a price range, however. Somewhere between what the product costs to produce and what someone is willingly to pay. As more of the product is produced, the supply goes up. When the supply goes way up as other sources begin to produce the product, pressure is put on the price. These competitive forces will drive the price down, as I will settle for less profit in order to sell the product. You can think of a product production orga- nization as a wagon. The wagon is pulled along (progresses) by the direct labor worker. All oth- er employees RIDE in the wagon. As business wanes and backlog is reduced, the wagon can pull fewer riders. So, here's the great irony: As a company automates to reduce labor content (to be more competitive with low labor rate regions of the world), the company's number of wagon pull- ers is reduced. However, if the company doesn't also address the riders, the wagon eventually stops—too much weight to pull and not enough pullers to pull the riders in wagon. The point of all of this is that just automat- ing normally doesn't cut it. There IS another way to pull more riders. It's clear a company needs direct labor hours. We've reduced the number of wagon pullers for a given product through automation. However, if we add the assembly of more products (increase assembly volume), that will restore some of the wagon pullers (direct labor hours). This will permit us to pull more riders again (absorb the cost of more wagon rid- ers). The problem is this: the disparity in labor sell rates is still daunting. You have to do some- thing about the wagon riders! Where did all these wagon riders come from? And how much value do they add to the operation? How do we reduce the wagon load? To answer these questions, we need to do more than just look outside the box—we need to look outside history! The history is this: In 1908, Henry Ford be- gan to make cars for the masses. We've all heard the Henry Ford marketing strategy, "You can get the Model "T" in any color as long as it's black." Why was this important? Ford had to produce a car that would attract the masses by offer- tHE HEnRY FoRd diviSion oF laboR PRoduction ModEl Figure 2: Assembly line development by Henry Ford after visiting Thomas Edison's mining opera- tion in Sparta, New Jersey. (Courtesy US Depart- ment of the Interior)