A Glimpse Back to 1995

U.S. Big Three Trail Japan in Productivity - New York Times

Sometimes, in the course of my reading and research, I stumble across something interesting in the NY Times archives. Keep in mind this is from 1995:

The Big Three American auto makers lag behind the Japanese in productivity at North American plants but are ahead in profits, according to a survey released today.

American car makers have done a better job of anticipating buyers' preferences, and Japanese makers have suffered from slow sales at home, a rising yen and cars with expensive features that Americans do not want, said James Harbour, lead author of the Harbour Report.

Nissan, at the time, was the most efficient (in terms of direct assembly labor, which is only one measure) but had the largest loss per vehicle.

For cars, the Toyota No. 1 plant in Georgetown, Ky., was second in 1994 at 2.42 worker-days for each vehicle, followed by the Toyota No. 2 plant in Georgetown (2.49); the Ford Motor Company's Atlanta plant (2.63); the Ford plant in Chicago (2.64), and the Chrysler plant in Bramalea, Ontario (2.67).

The General Motors Corporation had no plants in the top 10 for cars. Its plant in Fort Wayne, Ind., was No. 7, with 2.92 days, for trucks, the report said.

My understanding is that Toyota never chased after these singular productivity goals -- who are they trying to impress? -- instead, focusing on total system cost. Nowadays, the "Detroit Three" are catching up in productivity, but not in profits. Is that what you would have predicted in 1995?

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Still Squeezing the Suppliers?

Marketplace: Supplier gets dwindling sums for its parts

This story has been in the blog backlog, but it's always an important topic, the idea of not just squeezing your suppliers on price. It's not a good idea to just demand lower prices, without partnering up on shared improvements. Why are so many auto suppliers bankrupt? The lack of partnership in the industry has to be at least a part of it.

We see the same dynamic in healthcare, where "reducing costs" often means "squeezing the suppliers" (the doctors or the hospitals). Forcing a "price reduction" is not the same as true cost reduction. That's not sustainable, continually forcing the price down because you have market power. Maybe that's one reason more healthcare organizations are looking at Lean. With the pricing pressure, one to keep their profits up is to reduce cost (and a lot of that has to do with improving quality).

Many doctors are backing out of the Medicare and Medicaid system and more are dropping insurance plans that squeeze them too much (via the Kevin M.D. blog).

"We were spending inordinate amounts of time and resources on things that have nothing to do with the quality of patient care," said gynecologist Felice Gersh, medical director of the four-doctor practice. "I would be more than happy to be a member of all the health plans if they paid me reasonably and quickly."

Sounds like a lot of waste and Non Value Added activity? I know my dentist's office complains that my dental insurer purposely delays payment or loses submissions, another form of "squeezing."

Back to the Marketplace piece, a long-time supplier complains:

Myers says over the years, GM has pressured him to keep prices so low that his last price increase was in 1984.

AL Myers: The methods that they're using now border on cruelty to animals. They're so relentless and so overbearing with their requests for price reductions that they really don't care whether you go out of business or not.

A GM spokeswoman says the company goes to extreme lengths to keep suppliers profitable. Because when suppliers go out of business, she says it's disruptive and costly to find new ones. But in 2005, GM said it would slash purchasing costs by 30 percent.

So is GM helping take 30 percent of the cost out of the supply chain, or are they just squeezing and paying less?

I think, for both the manufacturing sector and for the sake of healthcare, that we need to find more ways to be Lean, to find true cost reductions (again, quality improvement and partnership are a good start), instead of just slashing what we spend.

Automotive Overproduction Comparison

How GM Handles a Hit: Build Fewer - WSJ.com

Welcome to new readers from the MoneyCentral MSN blog. To explore more about "Lean," visit the main page of my blog or click on "What is Lean?" in the left column.

The WSJ had an article today about how GM is trying to avoid overproduction of hot new vehicles (like the Buick Enclave) so that they don't have to dump inventory to rental fleets or resort to using incentives and discounts to move metal. Both of those practices harm resale value, which is one buying point for many customers.

I read recently how Toyota's goal is to build one car less than customer demand, always keeping that in balance.

So how does Toyota compare to the "Detroit Three" in terms of inventory levels and avoiding overproduction? This graphic from the article tells quite a story.

Toyota has half the inventory of GM, Ford, and Chrysler, not just in total numbers, but in adjusted "inventory per market share point." Toyota carries fewer days of inventory than their competitors, clearly.

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From Autos to Healthcare

In Shift, Auto Workers Flee to Health-Care Jobs - WSJ.com:

This story caught my ear, first, when I heard it on the Wall Street Journal This Morning radio show (XM channel 167), even though the host had a bit of a snotty "what could these dummies do in healthcare" tone of voice to him. I'm linking to the newspaper version of the article, that talks about how the most popular new career choice of bailing autoworkers is healthcare, something like 40% of the departing Ford workers are going that route.

"Workers say the jobs are also a welcome break from repetitive work. Chris Pengov, a 48-year-old native of Norwalk, Ohio, spent the past 15 years with Ford, most recently tightening lug nuts and installing rims and tires on Econoline vans and other vehicles at a plant in Avon Lake, Ohio. 'A mind is a terrible thing to waste,' he says. 'That's what happens working on the line.'"

For one, that's a sad commentary on life on the line at Ford, that your brain goes to waste. Check your brain at the door. That's what I heard at GM in the 1990's and it is the opposite of the objectives of Toyota's "Thinking Production System."

But you know what, I've heard hospital employees make the same complaint about "check your brain at the door," particularly in departments that have very repetitive work in them. I've seen very repetitive, mindless type work in hospitals and it's fair to say that hospital management doesn't always engage their employees, either, in general.

I hope the autoworkers aren't expecting nirvana, but at least an environment better than the auto industry. They'll probably have more job security, at least.

What Would You Ask the UAW?

For UAW Chief, a Bid To Forestall 'Waterloo' - WSJ.com

The UAW leader for the U.S., Ron Gettelfinger was featured in today's Wall Street Journal. He pretty much spoke the company line on the usual excuses for why the Detroit Three aren't as competitive as Toyota.

"In a defiant television interview to be aired this weekend, he blames currency imbalances and unfair foreign-trade practices for U.S. auto makers' competitive problems, and calls on the federal government to fix them."

It amazes me anytime an article comparing the "Detroit Three" and Toyota does NOT mention the Toyota Production System and the lean practices. You can argue that there ARE unfair trade practices (or unfairness that the Detroit Three have to pay for healthcare), but shouldn't the companies and UAW also focus on things they have control over, such as quality and efficiency improvements through lean? Or, as it was with Delphi, would lean success (at least gaged by Shingo Prizes) not be enough?

What would you ask Ron or the UAW, in the context of Lean, if you had the chance?

• What role does lean (or the lack of lean management) play in the gap between Detroit Three and Toyota? How does "factory lean" versus "lean enterprise" (including product development) impact Detroit Three competitiveness?
  

• Isn't the best way to prevent wage erosion to improve productivity and utilize workers' ideas and ingenuity? Is Detroit Three management moving away from the old, disrespectful "check your brain at the door" approach to managing production workers? Are UAW employees prepared to cooperate as "thinkers" if management would let them?
  
  
• Is the UAW no longer afraid of the word "lean?" Can the UAW work together with the company on lean methods, to help improve competitiveness? You can call it "global manufacturing" or "competitive manufacturing" instead of "lean manufacturing," if you have to.

Lest anybody misinterpret my point here, I have NEVER blamed UAW employees for the problems that GM and the others face. I worked with many good, well-intended UAW employees during my time at GM in the 1990's. It was bad management practices that got in the way of their success. I learned quickly that it wasn't "lazy union workers" that held the company back.

I just think it's fair to ask the UAW to publicly endorse lean methods as one way of solving at least part of that competitiveness gap. Sure, ask the government for help, but make sure that isn't the only strategy.

What are your thoughts on this, Detroit folks and auto industry folks?

Suppliers: GM better, rivals not

Detroit News Article

GM, Ford, and Chrysler are frequent targets here for their "beat up the suppliers" approach to supply chain management. Here's some encouraging news for GM (and for their suppliers)... not such good news for Ford

General Motors Corp. has substantially improved its rocky relationship with parts suppliers for the first time in 15 years, while the rapport has worsened at Ford Motor Co. and Chrysler, according to a study to be released today.

GM's improvement suggests the automaker's aggressive plan to work more harmoniously with its parts makers is gaining traction.

Comparing Toyota to Ford:

...82 percent of suppliers consider Toyota a preferred or very preferred customer, compared to 10 percent for Ford, which has the worst supplier relations, according to the survey.

This was true at some work I did with a Tier 1 auto supplier once... the same company made parts for Toyota and Chrysler, and they MUCH preferred Toyota as a customer, partly due to their attitudes and partly due to the fact that Toyota actually kept their production plan stable instead of changing it constantly (Beer Game, anyone?).

There are more metrics and examples in the article, check it out.

Toyota Way Principle #11 says:

Respect your extended network of partners and suppliers by challenging them and helping them improve.

Dr. Deming used to preach, as part of his 14 points:

2. Adopt the new philosophy of cooperation (win-win) in which everybody wins. Put it into practice and teach it to employees, customers. and suppliers.

4. End the practice of awarding business on the basis of price tag alone. Instead, minimize total cost in the long run. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust.

Looking at the data, GM has a long ways to go, but at least they are improving.

On a scale of zero to 500 -- with zero being the worst -- the survey rated GM's overall relations with its suppliers at 174, up from 131 last year. "We've never seen that type of improvement before," said John Henke, president of Planning Perspectives. "They've just generally been doing things better from the standpoint of working with their suppliers."

As they have since the report began in 2001, the suppliers ranked Toyota and Honda the best companies with which to work.

Of the six companies ranked, Toyota had the best relations with suppliers with a score of 415, followed by Honda (380), Nissan (289), Chrysler (199), GM (174) and Ford (162). Ford and Chrysler fell several points from last year.

Henke called a Ford program to improve supplier relations a "disappointing failure."

Any suppliers care to comment on how the "Detroit Three" are doing?

Industry and Health Insurance

Heath Care - New York Times

Long, but interesting, piece in the Sunday Times about the history of how we got to the point of companies providing healthcare. No, and it's not an article calling for a single-payer system (nor am I advocating that).

One tidbit on how far we've come in healthcare:

The first calls to create what we now know as universal health care date back to the early 20th century. Before then, medical care was generally cheap because it was, for the most part, ineffective. As one scientist put it, “It was around 1910 or 1912 when it became possible to say that a random patient with a random disease consulting a random doctor stood better than a 50-50 chance of benefiting from the encounter.”

That's a pretty high process defect rate! Things have gotten much better, but we still have a long way to go with preventing healthcare delivery errors.

So how did we get the rise of industrial/company-provided healthcare?

And during World War II, when the government exempted fringe benefits from its strict controls on wages, employers started offering ever more generous health benefits in order to attract workers. Another government decision — to exempt group health insurance premiums from personal income taxes — made health insurance an even more attractive option for business to offer. This effectively made a dollar of insurance worth more than a dollar of income, giving companies an easy way to cement worker loyalty.

But as this developed in the auto industry:

former Chrysler C.E.O. Lee Iacocca was warning about health care’s impact back in the 1980s — the problem had magnified over the years. Uwe Reinhardt, a Princeton economist, has described the Big Three automakers as “a social insurance system that sells cars to finance itself.”

All of this is a huge distraction from taking care of the customer, I might suppose. Companies should be able to focus more on their direct "value added" activities. Every minute spent talking about or worrying about the rising cost of employee benefits is a minute not spent on taking care of customers or innovating/kaizening core business activities. It certainly provides a distracting excuse for the automakers, then and now. If we had a "level playing field" healthcare wise, what excuse would be used for the gap between Toyota and the Detroit Three?

Workers, Supervisors, and Respect

The End of the Line as They Know It - New York Times

The link above is an article about "Detroit Three" employees taking voluntary buyouts. There are some insights into the working world of the plants these employees leave behind.

One thing about the title for this post: I hate the word "workers," as applied to just about anybody, when it implies "not thinking." When we refer to people as "workers," we often mean the Taylorist model where managers and engineers (or the educated) come up with plans and workers merely execute those plans. It comes back to a 35 year UAW veteran telling me once,

"Management told me to check by brain at the door."

The Toyota Way "respect for people" notion is supposed to work against this. I stood eye to eye with an outwardly tough UAW "worker" (heck, "worker" is in the name of the UAW), who seemed broken down and devalued since management never wanted to hear his thoughts. It was very sad.

In the intro to the NY Times piece, a slice of GM life:

Talk to Kenneth Doolittle about General Motors, where he once supervised a team of assembly line workers, and he readily speaks with pride about his job and the self-esteem it provided. “I loved all of it — the people, the work,” he says. “I was in a position finally where people listened to me when I spoke. I wasn’t just a Joe-Nobody. I contributed.”

Again, how sad that he was a "Joe Nobody" who wasn't listened to when he was just a "worker." Faced with the prospect of becoming just a "worker" again (a different job at a local plant), Mr. Doolittle took the buyout -- it sounds like it was a matter of dignity and respect for him.

Now if GM has been working on lean for such a long time, why are the production workers still treated like "nobodies?" Maybe this is why they aren't catching up to Toyota so quickly?

Mr. Doolittle, a stocky man with a narrow mustache, joined G.M. on the assembly line in Lansing in 1973 and rose to become a leader of one of the Japanese-style work teams that first became fashionable in the American auto industry in the 1980s.

These "work teams" were fashionable... and became just as unfashionable as managers and supervisors took control back. I'll write more about this some other time. In my archive of stuff, I have the signs and letters that talked about how my plant (circa 1995) was a "Deming Organization" based on teamwork and mutual respect. Ironically enough, the "Deming" approach had been reduced to meaningless signs and empty slogans. Not what Dr. Deming would have wanted.

How About Partnership Instead?

New Detroit Woe: Makers of Parts Won't Cut Prices - WSJ.com

Wah, the latest complaint from the "Detroit Three" (formerly known as the "Big Three") is that they are having trouble squeezing and stomping on their suppliers for lower prices. Because so many suppliers were beaten up over time, they have consolidated, have had plants closed, and/or were bought by private equity firms. Seems like a natural response for a part of the industry that has been abused by many OEM's for a long time.

The WSJ article talks about the trend toward shorter and shorter contracts with suppliers, as opposed to long-term partnership and collaboration.

Principle #11 of The Toyota Way says:

Respect your extended network of partners and suppliers by challenging them and helping them improve.

Toyota treats suppliers much like they treat their employees, challenging them to do better and helping them to achieve it. Toyota provides cross functional teams to help suppliers discover and fix problems so that they can become a stronger, better supplier.

Does this type of interaction sound like respect? From the WSJ article, describing the negotiating practices of the Detroit Three:

...says auto makers and large "tier one" parts makers continue to ask Bluewater to accept business under terms that cover just labor and materials, with nothing left over for overhead or profit. "We are constantly getting calls asking, 'Can you take on this or that business from another supplier?'" says Mr. Lord. "We tell them, 'Here is our price,' and many times they get offended and say, 'We won't be doing business with you.' That threat hasn't proven valid."

The Curious Cat blog has a nice summary of the Detroit Three's supposed attempts at "partnering" with suppliers, including a recapping of Deming's attempts to push Ford toward partnering with suppliers, not just demand price reductions.

What Deming tried to re-introduce to Ford [in the 1980s] was a more modern and refined version of what had made Ford great.

Here’s what I mean - During the early days, Ford and his associates were dissatisfied with the price that an auto body manufacturer was demanding.

They wanted him to get his price down, just as today’s Big Three want their suppliers to reduce prices.

The difference was that Ford and his co-workers didn’t just tell the supplier to cut his price.

They looked at the supplier’s product and taught the supplier how to make it more efficiently.

The supplier’s production costs dropped so far that the supplier could not only give Ford the price he wanted, but also make more money for himself.

When will the Detroit Three ever learn? Instead of whining about "legacy costs," why not change the way you are doing business??

Chrysler supposedly made the most progress in this areas, in the 1990's, under the leadership of Thomas Stallkamp. After Stallkamp left with the Daimler merger/acquisition, those partnership practices went away. I saw Stallkamp give a talk once in an academic setting where he seemed near tears that all of his work had been done away with. Sad. Stallkamp is now, ironically enough, working with private equity firms and the supplier base, including one possible attempt by a supplier (Magna) to purchase an OEM (Chrysler).

I wonder if Magna will use Detroit Three tactics to beat the Chrysler price down??

The BBC on Lean Production

BBC NEWS | Business | The triumph of lean production

The BBC highlights lean practices and provides a stunning contrast between Toyota and Ford:

On the assembly line at Toyota's giant plant, Laura Wilshire is not happy.

There is something wrong with a seatbelt fitting on the Camry she is working on.

Laura pulls a cord, stopping the production line - and prompting her five fellow workers on trim line three to crowd round.

They soon see why it is not screwed in properly and fix the problem.

"I don't like to let something like that go," she says. "That's really important for people who buy our cars."

Workers at the Toyota plant in Georgetown, Kentucky, pull the cord 2,000 times a week - and their care is what makes Toyota one of the most reliable, and most desired, brands in the US.

In contrast, workers at Ford's brand-new truck plant in Dearborn, Michigan, pull the cord only twice a week - the legacy of generations of mistrust between shop-floor workers and managers.

There's a huge cultural difference between Toyota and Ford. Even with Ford's attempts at reclaiming the "Ford Production System," all of the lean design and lean documentation doesn't matter if you're not going to "manage lean" which includes letting workers pull the cord to fix quality problems.

The article doesn't delve deeper into Ford, but instead looks at GM's efforts to catch up to Toyota from a labor productivity standpoint. But it mentions nothing about quality or how GM's "andon" (not "andan" as the BBC spelled it) process works any better than Ford's. GM has had the chance to learn from Toyota at NUMMI, so you'd hope they would have a more robust line stop and quality improvement process. Do they?

The article doesn't draw a direct comparison to GM, Ford, and Chrysler building what they want (or what they can) and dumping it on dealers, but I will. Here's Toyota's approach:

Toyota also has a close relationship between the dealers who sell its cars and its plants.

The production run is adjusted at the Georgetown plant, and extra Saturday working is added, only when computerised orders from the dealer network show it is needed.

And individual buyers can alter what they want in their car - changing the paint colour or specifications - right on the production line, by notifying their dealers.

Let's not point out management practices as the differences between the "Detroit 3" and Toyota... let's blame healthcare and currency policy. Right. The differences between Toyota and the Detroit gang are so obvious. Having the better management system -- that's the key to Toyota's success.

The article ends with some added cynicism from our friend and future Podcast guest Jim Womack:

At a deeper level, the question is whether GM and Ford - the companies that perfected mass production -can fundamentally change their culture to the new lean production system.

"I hope they make it - but I am not optimistic they all will be able to," says James Womack, an expert who has advised many global companies, from Tesco to Boeing, on the advantages of lean production.

Mr Womack says it has to be something that is inculcated in all the company's workers, from the bosses to those on the factory floor.

"This is not Japanese companies vs American companies, it is smart Japanese companies vs smart American companies," he says.

"GM has caught up on assembly plants, but Toyota is still ahead on suppliers, product development and a problem-solving approach to issues.

"For too long, managers at US car companies were in denial about their problems."

Scapegoating Toyota?

Toyota fears U.S. backlash over gains

I tend to fall on the side of those who think the "Detroit Three" are indeed scapegoating Toyota and that Detroit's past and present horrible management mistakes are to blame, more so than any supposedly currency manipulation by "Japan Inc."

At the risk of opening up a muda-filled debate, what do you think?

Toyota Motor Corp. is bracing for possible political and consumer backlash caused by its rapid U.S. growth, according to an internal report obtained by the Free Press.

People at Toyota need to quit leaving their computers unlocked. This is the second news story in a week about a report that was leaked/grabbed/stolen from the computer of Seiichi (Sean) Sudo, president of Toyota Engineering & Manufacturing in North America.

Think they're applying root cause problem solving to how/why the leaks happened and how to prevent them in the future? :-)