Yesterday aftern�on we had a meeting with Mirousla Kroupa from Skoda who is in charge of a special cost redzction programme. Prior to that he worked on special projects directly to the chairman. He trained in Germany in maritime engineering and navigation - partly because it was a legal way of leaving the country and seeing the world but it also meant that he learned German and English to a high standard. It was this that got him a job at Skoda when it was bought by VW after "the Velvet Revolution". He heard�my presentation in the morning and was talking about repeating something like it in the Skoda plant for a wider audience - lets hope so. Having given him a a grilling I think we came to the conclusion that we may be slightly ahead on supply-chain development.

However any comfort that this thought might have brought today when we visited two TRW brake manufacture plants in the North of the country around Liberec - a pretty semi-mountainous part of the country. It is near the point when the boundaries of Cz Germany and Poland come together. In fact across the valley we could see large scale open cast lignite mining which was in Poland.

The first factory was a greenfield site and had been open for two years - it could have been anywhere - the Midlands, Tennessee, Nagoya - in terms of the skill levels of the staff and the leanness of the operation. The only major difference was that the workforce are paid 10-20% of the levels that apply in some of those locations. Maybe in Japan the quality levels of components from suppliers would have been higher, in USA the volumes might have been higher and in the �K the commercial strategy might have been a bit sharper. But since the people running the plant are pretty switched on they can almost certainly fix that stuff.

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The second plant - about 10 miles away was if anything more impressive�partlz because it is a brownfield site with over 800 employees - two things that make it much harder to run. It was targeted by a UK company in 1992 which was smart of them - but unfortunately that company was acquired by a US firm about three years ago. It makes around 1.5 million brake units every year - from components made all over Europe. The level of production control and process improvement looked really good. The one area that looked less positive was inventor� but they are doing two things which �give them a chance to tackle that - one is putting in a Toyota derived pull system called Kanban and the other is developing the six sigma improvement process. This reduces inventory and waste more generally by reducing variation in the production flow. To have got the plant which under the command economy worked in a complelety different way on different products to the point it is today is an amazing achievement and suggests that the Czechs have a great capacity to change and adapt.

Even as things are the return on capital looks OK and th�se improvements will just put in some cream. It will be hard for UK companies compete on this basis.

The more interesting issue is how they will cope with the increasing integration of electronic and mechanical technologies in what is called for example brake by wire. It is in the design of this kind of system that the UK research centre which is part of the same group excels �- partly beca�se they have been working on the issues for a few decades. There is also a question over whether environmental policy will put the cost of extended supply chains up at the same time as market forces raise the �cost of labour in Central Europe.

I listened to some Webern string quartet and string trio music last night - some of it sounds quite familiar.

Peter has gone back to the UK tonight and I am going to Liberec Technical Univeersity tomorrow by myself. Now I better find somewehere to eat in Prague - not a hard job by any standards.