By October 3, 2006 1 Comments Read More →

Beyond Lean, Again?

Landmark Study Investigates Root Causes of Profitability Gap Among North American Automotive Manufacturers

Here is a Harbour Report study which claims the key to American Competitiveness is “beyond lean.” I always hate it when people talk about what is beyond lean, or what’s “next” as if lean has already been accomplished. It’s usually the software vendors that want to convince you that lean is old hat and that you need something new. Lean isn’t easy, it’s not “done”, nor can you ever be done in your journey of continuous improvement. Toyota is better than GM, but they keep driving lean further and they keep improving. Toyota is not “done” with TPS/lean.

The press release about the study DOES lay out the numbers in the profit gap between Toyota and GM.

Total Profit Gap between Toyota and GM = $2,985 per vehicle.

Most everybody, including GM management, focuses on COST and their excuses for things supposedly outside of their control.

Cost Gap = Warranty Cost Gap + Vacation/Holiday Cost Gap + Uncontrolled Absenteeism Gap + Relief Worker Cost Gap + Health Care Cost Gap
= $164 + $138 + $70 + 70 + $1400
= $1842

But what about Revenue? Profit = Revenue – Cost, of course.

Revenue Gap between Toyota and “Big 3” = $2692 per vehicle.

Something about the Harbour math is off, because the Profit Gap <> Revenue Gap + Cost Gap ($2985 <> $1842 + 2692).

But, the point is real. For all of Detroit’s complaints about costs (costs that THEY negotiated with the UAW), the real problem is revenue. This is a design issue (with some exceptions) and a quality/reputation issue. It might not be “fair” that the market values a GM product (Pontiac Vibe) lower than the similar Toyota product (Toyota Vibe). But, the market is what we deal with. Detroit needs to quit building cars that people don’t want that have to be dumped at a discount. The Catch-22 is that building fewer cars increases their costs, since they have to pay people to not work (again, something that GM negotiated with the UAW).

Detroit needs MORE than lean…. this is different than moving BEYOND lean. They need exciting design (more cars like the Mustang, fewer like the Five Hundred) and they need to earn back a quality reputation. Much easier to lose that reputation than it is to earn it back. Sorry that’s not fair, but that’s life, that’s business. Lean can help quality, that’s easy to see. Lean, having customer focus and continuous improvement, is a concept that CAN impact product design. Toyota didn’t get their minivan, pickup, or hybrid “right” the first time, but they keep improving. Detroit needs to focus more energy on improving and less on excuses about costs that they imposed on themselves.

By the way, GM *can* design great cars — the Saturn Sky is quite a head turner.

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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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1 Comment on "Beyond Lean, Again?"

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  1. Jamie Flinchbaugh says:

    Just for the record, this is a different company and person from that which produces the Harbour Report, than annual study of productivity, although the same family.

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