By December 5, 2006 5 Comments Read More →

Chrysler’s Overproduction

Chrysler’s OT shifts baffle analysts

It’s “waste of overproduction” day on the Lean Blog. Here is an article about Chrysler, where analysts are baffled because they are cranking out vehicles on OVERTIME shifts while sales are falling and inventories are rising.

Hourly workers who make the company’s core models — pickups, SUVs and minivans — say they regularly have been working overtime even when nearby storage lots are full. This weekend, for example, Chrysler planned to pay UAW members overtime to make Grand Cherokees in Detroit, Dodge Durangos in Delaware and Rams in St. Louis.

Typical comment:

“I don’t understand what they’ve been doing,” said Joe Langley, an auto industry analyst at CSM Worldwide in Northville. “They’ve been doing this for months. The inventory is up. The incentives are up. And they’re running overtime. It’s an absolute mystery to me.”

Now the only reason that I could see for building cars that people don’t want is for level loading or “heijunka” purposes. You might overbuild today with the idea that seasonal sales are increasing and they’ll sell later. That’s quite a bet to make, you better be sure of your forecast.

Chrysler says:

Determining production schedules is complicated, involves long lead times and is affected both by dealer orders and business fleet customer demand, said Chrysler spokesman Mike Aberlich.

“You have to look ahead,” he said. “What you decide to do on a plant level is based on a long-term look. … When a dealer puts an order in it can be six weeks before it leaves the system.”

Is that long lead time part of the problem?

Maybe not:

Part of the problem, [analysts] say, is that the last time they couldn’t get reasonable answers — earlier this year — it was about why storage lots near Chrysler assembly plants seemed to be overflowing with inventory.

Chrysler eventually told dealers in September that it had built more than 100,000 vehicles that dealers hadn’t ordered.

So what is going on here? Level loading or overproduction? The person who emailed me this article asked, “What is Tom LaSorda smoking?” I think that’s a bit harsh, LaSorda is as good of a lean guy as we have on top of the formerly-Big 3, and that’s including Ford’s new CEO.

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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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5 Comments on "Chrysler’s Overproduction"

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  1. Anonymous says:

    LaSorda is not a lean guy. He knows how to sound good, but doesn’t have a clue. How could they spend a whole year building inventory? He can’t even blame it on the sales guys since he’s the CEO.

  2. jwdt says:

    As with all things, seek to understand 1st. My bet is that it is a combination of things…lack of accountability at the top, Union Agreements that force this style of production, Dealer Agreements that force this as well, the list can go on & on.

    I know one place I will not be placing my $ in the stock though…any of the “b”ig 3 (i.e. that is Detroit’s big 3).

  3. Mike Lopez says:

    I agree with jwdt. Here is a system where several special interests have hamstrung the companies into non-competitive positions. When every competitor holds the same positions, this is fine. When upstarts like Honda and Toyota enter the mix with a different business model that allows them to offer more value and create more profit, the old companies die off if they cannot shake themselves of the original system. It has and is happening in auto. We’ve seen it happen in the airline industry with Southwest changing the competitive landscape. It has happened in every industry and will no doubt continue to happen. As long as there is a company that refuses to change with the times, there is a company ready to go out of business.

  4. Anonymous says:

    In the late ’80s, Chrysler’s Executive Management claimed that they would not engage in the practice of building beyond demand. Former Chrysler Group President, Holden, was fired for over building minivans prior to the launch of its re-designed successor. Here we go again. Its 2006 and Chrysler continues to increase its inventory levels far beyond orders. When will Chrysler Management get it? When will they adhere to the basic, simple rule? (i.e. don’t build beyond demand!!)

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