GM Blames Layoffs on the Japan Earthquake and JIT; Should Instead Look in Mirror
Here is a 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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You can read my thought in the comment section in the BNET article about blaming Lean on inventory levels but a few my other thoughts on material and supply chain:
I had each of the co-authors (separately) of the new edition of Orlicky’s MRP book and they discussed what needed to be done to fix the supply chain for today’s world. They were adamant about that the question to fulfillment was not about “How Much?” but “Where”. They proposed that the more common part the more stock and stocking points were needed in an around the supply chain. The more critical and unique the part the closer to the source and the more stock needed.
But Mark, you bring up some interesting points on respect for people. I am not sure the workers care much since, they receive a fairly sizable portion of their pay while being laid off. And after a short lay-off they get to work overtime to make up for the shortages. With stock at dealerships, and the swapping of cars between dealerships, I doubt that even the consumer will be drastically affected. I would venture that the only person/organization to be affected would be GM’s bottom line because they have a inflated supply chain at the consumers end (overstocking dealers). This is only a hypothesis on my part.
Another hypothesis, if GM were managing a supply chain effectively and answering the questions of where instead of how much they certainly could re-route material flow on either end of the chain to compensate accordingly. However, the traditional high capital invested plants and non-flexible production lines have difficulty compensating or changing anything. It even prevents reduced hours or shorten shifts because it destroys “efficiencies”.
As we know in Lean, and following Deming’s thoughts, you have to manage looking at the system as a whole to include labor. This maybe about supply chain in-efficiencies and about not basing your production on customer pull.
Yes, there isn’t much harm financially to the workers. Even if they don’t get 100% pay, they spend less on gas and have free time to enjoy life.
I’m trying to argue that it is GM that loses out in the long-term by not investing in their people, which then leads to better performance by GM.
The Toyota model for “Respect For People” leads to a stronger Toyota.
It would not be surprising if GM is really blaming JIT, it provides some clues that they may still be operating on the old management paradigm of blamestorming. Sure under the conditions experienced within Japan flow will be interrupted, however like you stated around the point of people development, there would be an inquirey of what could be done to find alternative ways to continue production of course the production should still be based on real demand, not forecasted/perceived demand.
It doesn’t sound like GM has a Lean culture and are just using Lean tools in a mass production system of management. They need to stop using Lean as the scapegoat, stop driving from the rearview mirror, and look at what it has cost them, the customers and employees to operate this way
What I find most interesting about the GM story is that I haven’t heard of any other companies laying people off due to what’s going on in Japan. Sure, there have been factories shut down, but only GM is apparently whipping out the employment axe (or at least they are among the very first). A LOT of companies are affected by the production halts in Japan, and the repercussions will eventually hit store shelves here on a lot more products (cars, cell phones, computers, etc.). Toyota, Honda, Mitsubishi and Nissan have not announced any layoffs (that I’ve heard of), and arguably they are closer to the ideal of JIT than GM, so what gives with GM? Blaming JIT just doesn’t seem to hold water.
Toyota announced 6 days ago that they didn’t expect to close plants in Ontario: LINK
I will try to look. I’d invite Steve or others to post links to any stories that talk about what other automakers are doing.
Again “shutting down production” doesn’t necessarily mean “laying off workers” in these cases.
And this article talks about how Japanese companies rarely lay off workers during crises or bad times.
Other headlines out there are playing the “blame” game that GM was “forced” to do this, rather than saying it was GM’s choice:
Japan situation leads to GM layoffs-Ž – Bizjournals.com
Japanese Crisis Forces Layoffs at GM Tonawanda-Ž – WBEN 930
Japan quake causes GM plant shut down-Ž – KSLA-TV
Maybe WSJ is in the pay of the warehouse owners of the world??
Otherwise who else wants seas of inventory sitting around the place?
I suspect GM is bringing forward planned layoffs under the cover of someone else’s bad news.
As for the idle workers question – certainly the company should not being doing overtime, should not be paying unnecessary allowances and if they have to cut shifts proportionally then that too is reasonable if no work is being done. People will accept lower pay in the circumstances, if it keeps their job. Managers, too, should be accepting lower bonuses/perks.
Enough GM bashing (and JIT bashing). GM is maximizing profits by not using scarce parts for small trucks being built because of government CAFE regulations. As mentioned, the workers get 75-80% of pay to stay home per union contract. How could there not be supply disruption from a disaster of this scale? The real story should be that it’s not worse than it is.
If you want to look at respect for people, the real story should be Tepco. Here is a company with a long history of coverups and fibbing to regulators (Toyata, BTW, got fined by the US for their less than swift and forthright response to the accelerator recall). Tepco is paying workers $110 a day to work in radiation to try to fix problems that were not caused by the workers’ mistakes. Tepco had a lackadaisical crisis management response until the Japanese government stepped in and took charge. Apologies do not take the place of actions to correct the mistakes.
I don’t think it qualifies as “GM bashing” to criticize a specific practice. That practice is the laying off of workers during this production shutdown. I don’t blame them for the supply disruption.
GM is maximizing short-term profits at the expense of the long term.
It’s a shame that they don’t choose to pay the workers full pay for training, development, and improvement work. That would benefit GM in the long term. That’s my point, that GM is losing out by making a short-sighted layoff decision.
Would the UAW get in the way of that? I honestly don’t know. Toyota has the advantage of not dealing with the UAW at their U.S. plants when they choose to pay workers for non-production development work.
There’s no excuse for the company that ran the Japanese nuclear plants and their history of falsifying inspection reports. I don’t see what that has to do with this discussion, but here is a link on that:
“Bungling, cover-ups define Japanese nuclear industry
Half-century-long history of relying on nuclear power riddled with scandals
In Liker and Ogden’s new book “Toyota Under Fire” they provide a lot of factual information and details covering the accelerator recalls.
After reading it I think that NHTSA levied fines against Toyota more because of the “court of public opinion” rather than any known safety issue that would put peoples lives at risk.
I think it’s admirable that Toyota is agreeing not to contest them…Toyota’s feeling is that they didn’t listen to the emotions of the customer and should have been more in touch with them.
Here’s a review I did of the book if anyone is interested
In Jeffrey Liker’s new book “Toyota Under Fire” he has a great quote.
“People are not the biggest bucket of variable cost at the company, they are the largest bucket of appreciating assets”
A parts disruption is a short term problem but it’s how to react to it that makes all the difference. I don’t think GM acted in the long term best interests of the company or its workers.
My greater concern is that GM still sees it’s employees as ‘JUST’ laborers.
Thanks for posting this one, Mark.
I grew up in Buffalo, NY. Most of my family is still there. In fact, I first heard about the GM layoffs from my parents. My father has worked his entire life in steel fabrication, going from shop floor to drafting & estimating. My uncle is a machinist. My aunt is an assembler. My grandmother was an original Rosie the Riveter in WWII where she worked in a factory making the P-40 Warhawk. My sister and I, like a lot of kids from that area, got our college degrees and left for good. There’s simply not much opportunity.
As a young kid, I watched my parents stare, empty-eyed, at the dinner table while my father endured layoffs, wondering how they would feed their kids. I vividly recall eating hot dogs and beans for a week, and hoping it would last to the next pay day.
That was a long time ago. The role I landed into after college was planning and measuring program/project/ business performance. Once I entered the workforce, I had my share of bad bosses and bad cultures, and I started to see trends. Once I encountered Lean, a lot of those trends were explained.
If I had a gun to my head and someone asked me to state the difference between what companies like Toyota do differently from companies like GM, I wouldn’t point to the Lean methods like Kanban, Kaizen or JIT. I’d go deeper, and I wouldn’t state it in vaguely like “Respect for People.” I would put it like this: Companies like Toyota perceive costs spent on their workforce as Human Capital Investments, companies like GM perceive it as Labor Expense.
Toyota has no layoffs. yes, this is Respect for People, but it is also long-term stategic thinking. Spending on training, coaching, morale, invests in an asset, with anticpated future returns. Laying off cuts an expense, in the short term, only to incur the same or greater expense later on in order to bring those workers back, or replace them with other workers since the folks you laid off needed jobs, and are now working for your competition.
From being told to stay out of the kitchen at 6 years old while Mom & Dad talked, to pushing 40 and having spent 15 years watching various projects boom or bust, I get a very visceral reaction when I see a poorly run company push the penaltiy for poor management down to the lowest levels.
As Caesar said, “The soldier has the right to competent command.” Blaming these layoffs on production methods that beat you to a pulp for 30 years or so until you, literally, ceased to exist seems to be the height of incompetence. The people who show up to work every day and live or die by your command deserve better.
It is a shame that any company would blame the earthquake in Japan for laying off workers. It is the company’s choice to lay of the workers instead of investing in improvements and people which would lead to a better future for the company.
What amazes me is the same author on Bnet has another post today (March 23, 2011) again going after lean. It just continues to show his lack of understanding of the thinking. The author contiues to believe it is about JIT and low inventories. I didn’t post the link here because I didn’t feel I should fuel the fire.
The author continues to defend having inventories for Just-In-Case. Wow! He even cites the GM layoffs as evidence that more inventory is needed.
I really hope one day people will understand the meaning and we don’t have to fight against all the mainstream articles and journalists that don’t understand the thinking.
A more links:
Automotive News with a defense of Lean that’s not particularly compelling, although he has a good point that no system (tons of inventory or not) can protect against the worse catastrophes:
The ornery Bill Waddell at Evolving Excellence:
It’s a balancing act when you run your company lean. Sometimes you mis-calculate and some things you just can’t predict.
I would have to agree about looking out for the worker, but managers tend to get fired for such management thoughts.
I’ve enjoyed reading the comments.
@Dave K. Appreciated your story as I have similar experiences. Thanks.
Ironic, many people are defending Lean by saying that you cannot be prepared for this type of disaster but my thoughts are that the Lean companies have the ability to respond better and manage the uncertainty better.
Respect for people may not be GM’s strong point but on the flip side, where are the unions on this. I always thought that Unions should have stepped up and embraced Lean Principles more so than companies. They should be the leaders in training and developing needed skills. It would be interesting if the UAW developed a culture of problem solvers.
“GM Blames Layoffs on the Japan Earthquake and JIT; Should Instead Look in Mirror” is a salacious headline but it leads to the wrong argument. Japanese and American businesses are not the same, not to mention the cultural differences that influence their businesses. GM has a fiduciary responsibility to its shareholders that include the American people by government bailout.
While we all feel empathy for the people affected by the tragic events that has happened in Japan, we shouldn’t declare practices like JIT the problem. An earthquake measuring 9.0 on the Richter scale followed by a tsunami is to blame. Structures and systems are built for extreme stresses, but when the extreme stress level is surpassed, its new territory and things fail as they have in Japan.
GM shareholders are happy the company is focusing on the bottom line. GM can do the most to help its employees and shareholders by staying in business. Japan has been described as “an aftermath to avoid” by Jonathan Shaw (http://harvardmagazine.com/2010/07/an-aftermath-to-avoid) of Harvard Magazine. Japan’s policies has caused the nation’s economy to shrink, being referred to as the lost decade. If GM deviates from profitability, it will be a lost company with 200,000 people out of a job and share holders left with nothing. A profitable GM is good for all constituents. Its unfortunate employees will be laid off, but they will be compensated through unemployment. It’s also unfortunate that part shortages will reduce revenue which hurts everyone.
Marvin – Thanks for your comment, but I strongly disagree. The point I was trying to make was that continuing to pay workers IS in the best long-term financial interest of GM and its stockholders. Short-term cost cutting (temporary layoffs) hasn’t worked for the last 30 years, why would it work now?
Toyota pays people and invests in their training and skills and development. GM lays off in the short-term. Which company has the better financial results? Clearly that has been Toyota.
I *WANT* a profitable GM – but for the long-term, not just this quarter. Arguably, layoffs “help” in the short-term but hurt in the long-term. That’s why Principle #1 of The Toyota Way is about long-term thinking and making decisions for the long-term at the expense of the short-term. Forget lean tools and andon boards – GM has refused to try to copy lesson #1 of Toyota (a lesson that they ignored when Dr. Deming tried to teach them to think long-term, as well).
Keeping employees on the payroll and helping them develop has nothing to do with empathy or philanthropy – it’s about business results. And, it sends a powerful message to employees that they are valued as fully-realized thinking human beings. GM employees are told, through the layoffs, that they’re worthless unless they are using an impact wrench and turning screws.
Japan’s “lost decade” is more a matter of a housing bubble and government policy than it has anything to do with Toyota’s business practices, right?
[…] Post: GM Blames Layoffs on the Japan Earthquake and JIT; Should Instead Look in Mirror – Lean Blog […]
The Indiana Toyota plant in 2008 (notes from Jeff Liker talk):
40% sales drop compared to plan. Decided to have 3 months of ZERO production to avoid overproduction. At 50% production for another 9 months or so (a whole shift of people they didn’t need).
No layoffs of long-term team members (did training and kaizen). Temporary workers let go.
This article shows the difference in the Toyota approach:
[…] the artist for Wii Lean and the satirical “Lean Sensei” app. The recent reactions of GM (layoffs) and Toyota (no layoffs) to the production shutdowns caused by parts shortages caused by the Japan […]
[…] So we hear the horror stories of JIT in the WSJ piece, even companies that had suppliers NOT impacted by the recent Japan earthquake and tsunami disaster). […]
More on what Toyota has their people do instead of laying them off:
Hesterberg said Georgetown management has organized for workers to be able to venture out and volunteer, while remaining fully paid, at area non-profits during their Monday and Friday shifts. The non-profits being assisted include God’s Pantry, Habitat for Humanity in Scott County, Boy Scouts, the Lexington Hearing and Speech Center, and Lexington Children’s Theatre.
Read more: http://www.kentucky.com/2011/05/12/1737925/toyota-to-resume-full-production.html#ixzz1MAMQtmdz
And other workers in Alabama getting paid for tornado relief volunteering:
[…] Use kaizen for people development, not just ROI, as Toyota is doing during the tsunami parts shortages, unlike GM which lays off workers. […]
[…] a company that does NOT lay off workers when demand drops (due to the economy or natural disasters, as I’ve blogged about here, comparing GM and Toyota). When work is slow, Toyota INVESTS in its people – training them or […]
[…] in the industry sales or the problems that followed the big Japanese tsunami and earthquake. GM laid off employees, Toyota did not in the aftermath of the tsunami and a Japanese supplier being taken off […]