GM Blames Layoffs on the Japan Earthquake and JIT; Should Instead Look in Mirror
Let me give a big ole' Texas-sized hat tip to Bob Emiliani for sending me this sad article with the headline“General Motors lays off workers at NY plant.” This is an addition to earlier Shreveport layoffs.
The media will let GM off the hook as the parts shortages are the result of the tragic Japan earthquake, as the media again piles on to blame “Just-In-Time” supply chain practices (or more broadly, criticizing Lean in some cases).
Ironically, GM appears to be following the “Just In Time” practices often associated with Lean without also following what Toyota calls the “respect for people” principle. A truly Lean thinking company, like Toyota, would NOT lay off those workers. GM did. GM chose to.
So Let's Beat up on JIT for a While
First off, the facts of the GM story:
General Motors Co. on Monday is halting some production and temporarily laying off workers at a Buffalo, N.Y., engine plant, another sign that Japan's disaster is affecting automakers around the globe.
GM is suspending production of engines built at its Tonawanda plant for the Chevrolet Colorado and GMC Canyon compact pickups, which are assembled at a GM factory in Shreveport, La. GM shut down its Shreveport operation this week because of a shortage of parts from Japan.
GM doesn't know when production will resume at either plant.
Other stories are starting to pop up blaming “JIT” and Lean for the shortages. The WSJ normally has an article each year with flawed thinking about JIT (as I've collected here). It's literally once a year that the WSJ trots out this sort of article, as they did in 2007 when a smaller earthquake halted some production (“Updated: Step 1 Earthquake, Step 2 JIT Bashing“). They haven't chimed in this time (yet) but others have.
We had a really poorly researched article at the site BNET: “Lean Production: Another Casualty of the Japanese Quake?” I was tempted to not link to them – please don't click on any of their ads if you visit their site, lest we reward their shoddy writing.
First off, even if companies decide JIT isn't the best strategy, that hardly means “Lean Production” is a casualty of anything. Lean is a broad management system and culture, JIT practices are just one tool. Be sure to read the BNET comments, which have a better view than the article itself.
Summary of the counterpoint — you can't possibly hold enough inventory to protect against every possible scale of disaster. This was a once-every-150-years earthquake. Holding inventory is costly, remember, and holding a ton can be expensive or it might have been damaged if it was being held in northeastern Japan anyway.
MSNBC.com has a similar article titled “Disasters show flaws in just-in-time production.” I'll give them credit for presenting a balanced view of the pro's and con's of JIT without bashing “Lean” as a whole. The goal of Lean was never “ultra-low inventory.” That's an effect, just like low cost is an effect. You can only have “ultra-low inventory” if you have a very local supply chain (like Toyota's San Antonio supplier park).
JIT was invented by Toyota for local Japanese supply chains where “milk trucks” could make deliveries, not ocean freighters or 747s.
It's hard to do in a global supply chain where companies have often just chased cheap labor and end up having to air freight parts from China (a practice that might not be the lowest total cost solution).
Trying to “JIT” with “ultra-low inventory” from half way around the world might be considered “J.I.T.A.M.E.” (Just In Time As Misguidedly Executed), an even more awkward equivalent to what I've dubbed “L.A.M.E.” (or Lean As Misguidedly Executed).
The article “Time to Rethink JIT?” makes the reasonable point that “Surely some more moderate form of JIT makes sense.” – especially if we have long, complex global supply chains. Inventory management practices need to be reasonable, not “fanatical” as the author says. Common sense and lowest-total-cost thinking should trump dogma about “ultra-low inventories” (we can blame the title of the old book Zero Inventories for “J.I.T.A.M.E.”?
Contrasting GM and Toyota
Now back to GM – you might ask “what should they do with workers if they can't build anything?”
Well, the answer from Toyota would be clear. They'd keep paying people. Now, Toyota isn't like the old GM/UAW Jobs Bank where people were typically paid to sit around doing nothing. Paying people to do nothing wastes money and it doesn't show much respect for people. Workers weren't idle because they were lazy – management never got them involved in anything. I was in the minority of engineers who had willing workers help me with a few improvement projects (completely within the rules and the workers were just happy to do something where they could use their brains).
This is indeed what happened here in 2011, at the same time GM was laying people off: “Toyota shutdown coming” “but officials say there will be no layoffs.”
This idea of paying people to NOT do production work isn't theoretical – Toyota has repeatedly demonstrated their “respect for people” and long-term management vision by paying workers during the sales downturn in the 2008-2009:
- Toyota Invests In Workers Instead of Laying Them Off (LeanBlog)
- Toyota Texas Tour Tales #1: Overview (Lean Blog)
- Toyota Idles Factories but Can't Lay Anybody Off (Workforce Management News)
When I visited the San Antonio plant, they talked with such pride about what they paid people for during the downturn:
- Additional job skills training (how to use production tools, etc.)
- Toyota Production System problem solving and quality improvement methods
- Volunteer work in the community (a great leadership development activity, as well)
The Workforce Management piece highlights other things Toyota does with workers during slow times, such as:
…safety drills, productivity improvement exercises, presentations on material handling and workplace hazards, diversity and ethics classes, maintenance education and a stream of online tests to measure and record their skill improvements.”
Toyota had a lot of cash in the bank to be able to afford keeping all of their full time staff. Granted, Toyota has laid off temporary workers, but they set the expectation that temporary workers will lose their jobs in slow times. I mean, it's not good for those temps, but it's better than laying off everybody. Investing in training and skills development is an investment that will pay off in the long term, or at least that seems to be Toyota's bet.
Toyota is not being charitable by paying people to do non-production work. This is an investment in their long-term success, building the skills of their employees. They also built up A LOT of loyalty amongst the San Antonio workers and the community.
GM has run a lot of ads talking about the “New GM.” It's too bad they still have the labor practices of the old GM.
I guess GM's people are all fully trained and cross trained. It's safe to assume that they don't need any more Lean / Global Manufacturing System training. We can also guess that they don't need leadership development through volunteering.
You might say that GM would WANT to follow Toyota's lead, but they can't afford it. GM doesn't have a lot of extra cash laying around, do they? Actually, GM has $29B in cash and equivalents on hand. Toyota has $38B in the bank.
Would you cut GM slack for just coming out of bankruptcy? Or does GM have a responsibility to learn from and follow Toyota's model by not laying off employees in Buffalo or at other plants, even temporarily?
Yes, workers won't lose much financially, but isn't GM losing more by not training or developing their people or improving their processes during this downtime?
It's taken for granted that you HAVE TO layoff workers. Except for the cases where strong companies with the right mindset do not.
Final References on the JIT Angle
Since the Just-In-Time disaster always pops up, it's good to look back at a 10-year old “e-Letter” from Jim Womack: “JUST IN TIME, JUST IN CASE, AND JUST PLAIN WRONG” that was published after the first avian flu scare (and JIT wasn't supposed to work in a post 9/11 world either). It's just as relevant today, as is his piece “NONSENSE ABOUT JIT.” These essays are among those in the new book Gemba Walks just out from LEI (conflict of interest statement, I am a part-time employee of LEI).
Come back Wednesday for a new podcast episode where Jim talks about the new book and related topics.
Also worth checking out is Matthew E. May‘s story (in a blog comment) about the 1997 Aisin fire and how Toyota responded nimbly to that local disaster that interrupted their supply chain.
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