Auto Companies Must Change From Within
IndustryWeek : Continuous Improvement
Here is an outstanding column from Industry Week and editor Tonya Vinas. It came to my email box courtesy of the Industry Week newsletters (click here to sign up).
Tonya starts by slamming the Wall St. analyst crowd and their wrong-headed views on manufacturing companies.
Five years ago the editors of IndustryWeek invited a stock analyst to come in and tell us how his company identifies value when evaluating manufacturing companies. He was a very nice man, and we sent him away with some nice token gifts. But we editors all had an uneasy feeling as we said good-bye to our guest. His message made no sense to us, process improvement junkies that we are. Essentially, he said, “We don't care what companies are doing internally to make themselves stronger and more productive — we just care if they make their earnings projections and grow revenues and profits.”
That and he's probably only interested in the short-term, last quarter and next quarter. It's that much more impressive, as a friend of the blog pointed out, that Ford announced yesterday that they are going to stop providing quarterly AND annual “earnings guidance” to the street, as part of Ford's attempt to focus on the long-term (ala Toyota).
Tonya then lays out well reasoned arguments about how GM, Ford, and others in the auto supply chain chose to focus on the demands of Wall St.:
This resulted in misdirected and wasteful growth (overcapacity, complex and inflexible production practices), a disconnect from employees (costly union strikes, negotiations and contracts; top-heavy management) and customers who found better options (Honda, Toyota, Nissan).
She makes an attempt to explain why TPS hasn't taken root, particularly with Wall St. and its followers:
The Toyota Production System (TPS) never was meant to be a plant-level cost-cutting tool in the way U.S. companies have used it. It is an internal value system that unfortunately got no respect from the U.S. capital markets because analysts could not make a direct connection to it and the top or bottom lines each quarter. Companies, in turn, devalued TPS, using it successfully to boost productivity but ignoring its real worth. To me this — more than anything — explains the mess that the U.S. auto industry is in.
Anyway, I could comment more, but go visit the entire column at the IW website. Quality writing.
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I read the article. Regarding parts proliferation: the systems were set up to reward proliferation. Accounting & senior management rewarded local optimization by rewarding piece part cost reduction on individual products. For example, by selecting a catalyst with only the minimum amount of precious metal, the piece cost of the catalyst is reduced. However, a new part is created and the shadow costs in inventory, service parts, etc starts. Accounting only was able to cope with piece costs and not system cost. Hence, when senior executive looks at the system, all looked well.