Updated: Southwest Airlines Would Say Delphi Management is Failing

Updated: Delphi workers in NY rejected the contract proposal.

Updated: It looks like the contract has been accepted by the UAW

I got caught up on the WSJ during my long trip home from the UK and saw many aspects of Lean and connections. First, looking toward the GM world (I’m temped to quit even writing about their struggles):

WSJ article link | Detroit Free Press article

Wall Street is, of course, pushing for wage cuts for workers. These are the same analysts that sometimes get outsourced to India, so maybe they’ll learn eventually.

“We think GM can make a compelling case to UAW members that material wage and/or benefit cuts are needed,” Mr. Barry wrote.

I guess with all of Delphi’s accumulated Shingo Prizes for “Lean excellence,” the ONLY remaining waste was those pesky high wages.

The tentative deal appears to give Delphi many of the concessions it sought, including wage cuts, the closure of all but four of its U.S. plants and a big reduction in the number of union workers it will employ in the future. CRT Capital Holdings LLC, an investment company based in Stamford, Conn., estimated Delphi’s UAW head count by 2011 will fall to 1,600 from about 18,300.

That’s just sad, all around.

According to the agreement, Delphi will cut its wages for current workers to $14.50 to $16.23 an hour from the current $27 an hour. New hires will be paid $14 an hour.

Delphi will offer lump-sum payments, relocation allowances, buyouts and early-retirement packages to soften the blow for workers. In addition, GM agreed to take control of some Delphi plants and open the door for certain Delphi employees to “flow back” to the auto maker, which spun Delphi off in 1999 and once employed a sizable chunk of Delphi workers.

“Softening the blow?” We’d like to cut your pay by half, but be lucky you still have a job at all!! How you could have true Lean and a lean culture in that kind of environment is beyond me. Let’s quit giving Shingo Prizes and awards to Delphi, eh? Their business is crumbling, let’s not hold them up as an example for others to follow.

Now back to Southwest Airlines. This WSJ article strikes quite a contrast.

Southwest is struggling to keep profit margins up as they grow – they’re chasing market share with unprofitable growth, but the CEO says the growth is necessary for the employees’ job security (growth is good for that, see Toyota). Their cost advantages compared to other competitors are shrinking. How are the other airlines doing it? Mostly by taking from the Delphi playbook, having slashed wages (well, except for retention bonuses to those precious executives).

What does Wall Street want them to do? It’s an easy guess:

Lehman’s Mr. Chase says the problem lies elsewhere. “The real problem is labor costs,” he says. “We don’t see ancillary revenue as a sufficient fix for the problem.”

But Southwest’s leaders (and yes, I think they truly ARE leaders) see it realistically:

Southwest, which prides itself on being employee-friendly, is one of the only airlines that has not sought wage or benefit concessions from its workers. The airline characterizes its work force as ultraproductive and pleasant to passengers. If management seeks pay cuts, it risks alienating employees who Mr. Kelly calls the airline’s “greatest weapon.”

Mitch Hall, an in-flight crew-scheduling supervisor who started at Southwest 15 years ago as a mail worker, says he was confident after 9/11 that Southwest wouldn’t cut pay or lay off workers. “There wasn’t a doubt in my mind,” he says, adding that the company has always treated him well so he’s going to “do them right.” Mr. Kelly says he’d consider pay cuts a “management failure.”

I’ve blogged before about Southwest’s continuous improvement programs, employee driven, that sound very “Lean”. But CEO Kelly is honest:

He said he expects managers to find new ways to cut costs. “Communicate with your people…talk about waste continuously…control spending,” he wrote.

Mr. Kelly says that “little bittie incremental improvements aren’t going to solve” the airline’s problem. “We can’t do it overnight.”

I’d be much more positive about Southwest’s chances — sure they can’t do it overnight, but they seem to have the long-term in mind better than Delphi management has. It’s better to work with your employees to reduce waste rather than ganging up on them and slashing their pay.

Maybe Southwest can earn a Shingo Prize this year. Wait, that might just be a predictor of their decline, so maybe they should avoid that!!

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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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2 Comments on "Updated: Southwest Airlines Would Say Delphi Management is Failing"

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  1. Andy Wagner says:

    I read this morning that Southwest is delaying delivery of 15 737s to their fleet, slowing their fleet growth to match their reduced financial growth. Rather than laying off mechanics while the fleet expands, they’re keeping costs low by not building the fleet. Plain and simple leadership.
    Is Southwest Airlines lean? Maybe not explicitly Toyota lean, but they are the peak of “respect for people” in their industry and they use relentless elimination of waste and reduced lead times as a competitive strategy. Sounds lean to me.

  2. Ralf says:

    Hello,

    I think Southwest is on the right track: people are the only power in a company:-)

    Everything else comes from there.

    Even though they probably don’t name it Lean, it is “the Southwest Way”, they are exactly doing what is necessary to stay competetive in a global world -in the long run.

    Last week I attended a workshop on System Dynamics at MIT in Boston and we talked about People Express that emerged in the early 80s to be off the market bei ’86. This example of rise and fall (to elimination from the market) is used to show the effects of feedback loops and their -in this case- deadly outcome.

    Due to the low prices the airline grew fast and almost exponentially. Even though they valued the people at PE similar as Southwest does, they grew so fast that the quality of the personnel was decreasing and through that negative feedback get the “bad” word of mouth growing leading to the final decline.

    Actually there exists an interesting management flight simulator (PC based program built by MIT) where one can simulate the situations from that years and trying to use strategies to overcome this kind of reaction.

    If anybody is interested in further information on System Dynamics (connected to Lean) and similar management flight simulators please let me know via [email protected]

    Best regards

    Ralf

    PS.: It is really a pity, as I tried to fly Southwest to get a life experience;-(

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