GM’s defective ignition switch problem came to light publicly after 11 years of installing a faulty ignition switch and after 13 deaths were linked to it. The new CEO, Mary Barra, vowed that she would get to the bottom of it. Here’s a photo of the part, a detent plunger, which will cost $3 – $5 to replace:
Photo from Lance Cooper Law Firm (from WSJ article on 3/23/2014)
The part on the bottom is defective, as the coil is more relaxed. The tighter coil (above) holds the part more securely in place.
The question is, of course, why would GM continue to buy and install a known, defective part? Those who are familiar with the pressures of being a buyer might conclude that PPV (Purchased Price Variance) is to blame. Procurement is under pressure to deliver year-over-year cost savings that go straight to the bottom line of the corporate income statement. A penny saved on COGS (cost of goods sold) translates into a penny earned on the bottom line. However, PPV does not consider the total cost of the part. Basically, PPV compares the standard price of an item to the actual price paid. When PPV prevails above total cost of ownership (TCO), then a situation such as the GM ignition switch problem can result. In this worst case scenario, accidents and loss of life can occur, negating any costs savings on this small switch. So was the continued buying of this defective part attributable to PPV? Pressures to deliver cost savings are very high on Procurement organizations everywhere. But how did it happen that some GM employees went this far to save money, despite their knowledge that the part was defective?
After an internal investigation at GM, Mary Barra announced that 15 employees had been fired because of this situation. The question is: does conducting such a purge actually help solve the problem? GM is under pressure to take action, and the quickest approach is to make sure that “heads will roll”. Rid the company of the perpetrators.
This type of problem is likely to recur unless the system and the culture is changed. There’s a saying about fixing the problem, not the blame. Usually problems as severe and as long-standing as the GM ignition switch situation are not due to a few errant employees. Firing some people in Legal and Engineering is unlikely to prevent future problems. GM needs to do some serious root-cause analysis about its culture and embark on a transformation process. The culture of a huge organization such as GM is challenging to address and transformation can’t happen overnight. GM’s culture has been around a lot longer than the ignition switch problem. Ms. Barra and GM have huge challenges in front of them.