It’s a Value Problem, not a Cost Problem

WSJ.com – Can Mr. Fix-It Find Time for GM?

Part of the discussion about a GM-Nisssan/Renault alliance has been the old “purchasing efficiencies” driven by the idea of economies of scale. This means, if you’re bigger, you get a better deal through volume or having more leverage to squeeze, I mean partner with, your suppliers.

But I’ve wondered, wow, wasn’t GM big enough already? Is lack of purchasing leverage really the problem?

This article has a quote that is led into by talking about how Carlos Ghosn’s strategy with Renault has been about trying to grow and increases sales.

“While Mr. Ghosn has prescribed growth hormones for Renault, GM needs the opposite medicine, which is much more difficult to deliver. It has to figure out how to shrink wisely. It is commonplace to think that GM’s costs are out of control. But many of them aren’t. GM, which produces a third more vehicles globally than Ford, has a world-wide supply-purchasing budget of $86 billion, less than its rival’s $90 billion. But GM sells its vehicles for much less than Ford. Its average wholesale-vehicle price is $19,000, in part because it sells too many to rental fleets and to its own employees. Ford’s is more than $23,500.”

So GM’s supply costs are better than Ford’s situation. Toyota is able to charger roughly $3000 more per vehicle (if I recall that figure right, if I wrong, please correct me) because they are able to avoid consumer incentives and dumping cars on the rental fleets. Ford even has a pricing premium over GM.

It seems like more of a value problem than a cost problem, isn’t?

Lean isn’t just about cutting costs. Lean certainly isn’t about being successful by being big. He’s not a lean guy, but I’m reminded of the Eli Goldratt quote that you can only cut costs to zero, but revenue can go up to infinity. If GM were able to get cars that people want to market and do it quickly, they wouldn’t be losing market share and having to close plants. The value gap far outweighs the retirees excuse, the healthcare costs excuse, or the need for purchasing leverage excuse.

Look at your organization — how can you use lean to increase value to customers? Can you use improved Cycle Time to gain new business? Can you use freed up space and people to start a new line of business? That’s the real power of lean.

Many of the hospitals I’m working with get it better than the factory people. Hospitals are growing, looking to insource work that was previously outsourced, they’re playing the Value game, providing better care to doctors. That’s fun to be a part of. I bet the manufacturing world will be coming to the lean healthcare people for help at some point. We are going to have some great business success stories, not just cost cutting stories. Funny how the “caring” hospital people sometimes understand business better than the profit-driven factory folks.

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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an eBook titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

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