As part of the public flogging of Toyota for its massive quality problems and recalls, some are calling lean and the Toyota Production System into question. A recent WSJ article, How Lean Manufacturing Can Backfire, describes how Toyota’s use of common parts wreaks havoc during a recall. Part simplification is considered a lean practice. Many companies, especially GM, did not strive for part commonality and ended up with part proliferation, which is a costly and inefficient. GM didn’t have an integrated product team to design a vehicle, but a different design group for each system in the vehicle.  GM has paid for this inefficiency or rather the U.S. taxpayers are paying for it.  Why design a different braking system for every model? A common platform makes more sense.  However, when it comes to an auto recall, part proliferation means that fewer vehicles will contain the exact same part. That doesn’t mean that part proliferation is safer for the consumer, even if it is far more costly and inefficient. To say that lean has backfired because of this one practice is to throw out the lean baby with the media bathwater.  Ford, by the way, has adopted a common platform and common parts strategy for the Focus. Should Ford go back to the old platform proliferation approach? Probably not.

Toyota’s reputation for quality is now badly tarnished. And how they will get out of this mess is still not clear. But is this an indictment of lean? One of Toyota’s problems may be cultural. They kept known issues secret for far too long, possibly to save face, but in the long run making the situation more devastating. In lean, people are supposed to be rewarded, not punished, for uncovering problems as part of continuous improvement.  I think that lean at Toyota has in fact been lean manufacturing, confined to the manufacturing floor, and not lean enterprise, which encompasses all employees, including senior management and indirect employees.  Many companies think lean is just for the blue collar folks, not for management. It seems to have been counter-culture for Toyota to expose problems outside the factory walls.

I also wonder whether Toyota rested on its lean laurels and did not continue to evolve and improve its own system. In an AME discussion group, it was noted (and I have observed this myself) that Toyota employees are rarely seen at the many lean workshops and conferences that AME runs. If they do show up, it is only to present and then leave.

What I find typical in this situation is the lean bashing that ensues. Remember when this happened to the MBNQA (Malcolm Baldrige National Quality Award)? As soon as an award winner runs into trouble, as happened to the Wallace Company, critics pile it on and pronounce the whole system a failure. Wallace Company was a family-owned pipe and valve distributor received the Baldrige Award in 1990 and then filed for Chapter 11 bankruptcy protection in January of 1992. According to one observer, a consultant brought in to turn the company around said, “Instead of shoring up, officials spent time leading tours through the firm and on the lecture circuit.”  

It seems that Toyota was better at listening to its internal customers than its external customers.  It is better at fixing problems that associates find on the factory floor than the ones brought to its attention by its customers who drive the vehicles. The Toyota quality disaster will continue to be examined and written about for some time to come. And perhaps the causes of the problems will become clearer. But I believe that it wasn’t a failure of lean, but a failure of Toyota to follow the very system that made it successful in the first place. Toyota has the tools and the know-how to improve its quality and avoid quality and supplier glitches and potentially dangerous product failures. As I said when I wrote about its Tundra recall in November, Toyota had better reaffirm its commitment to quality and strengthen its resolve to fix underlying problems or suffer a decline like a couple of its American automaker brethren.

-Sherry R. Gordon

Looks like it’s really all over for NUMMI, the Toyota/GM joint auto manufacturing venture in Fremont, CA. Last summer, I wrote a post about the strong possibility of Toyota’s closing the plant (NUMMI: Things Are Looking Gloomy). The plant was losing money. Located in a high-wage area, even potential UAW concessions didn’t seem like enough to allow the plant to continue. And now Toyota has decided to close the plant in April as a result of GM’s pulling out of the joint venture when it filed for bankruptcy. Toyota couldn’t do it alone.

Besides the loss of 4700 jobs at the NUMMI plant, the toll on suppliers will be even greater, according to a December 24th Wall Street Journal article (subscription required). According to Bruce Kern, executive director of the East Bay Economic Development Alliance, tens of thousands of people work for first and second-tier suppliers to the plant. His organization is working on finding new business for some of these suppliers. While Toyota plans to continue use the top 25 suppliers, this still leaves many suppliers without their key customer. Many suppliers have had nearly total dependence on the auto industry and have not diversified. It looks like another blow to the California economy from this closing, one that will reverberate through the NUMMI supply chain.

While another WSJ article describes many suppliers to Detroit automakers as surviving the downturn better than expected, though perhaps not well-poised financially for any big ramp-ups, these suppliers appear to be in potentially worse shape. Many of the NUMMI suppliers are small businesses that have not gotten the credit and considerations that saved some of their larger Detroit brethren from bankruptcy. Of course, the threat of the NUMMI closure and its economic impact has been hanging over the supply chain for quite some time. It appears that some of the suppliers have faced the problem head-on as soon as the automotive downturn started and have been proactively pursuing other business opportunities to stay afloat. But how many of the suppliers did not? And how many can get enough new business to survive?

Because NUMMI was focussed on using lean manufacturing principles and practices that were flowed down to its supply base, there should theoretically be quite a few well-run suppliers who could be suppliers of choice for other industries, should they have the capabilities to make the transition to supplying products that take advantage of their core competencies. A few things are working against them, however. Not to make too many gross generalizations, but many manufactures are better at operations than sales. Customer diversification for a small company identified with the automotive industry is a huge challenge. Lean companies will have an advantage in eliminating waste, doing more with less and being suppliers of choice. Lean can help spur growth and give competitive advantage, but only when there are growth opportunities to take advantage of. Lean suppliers may be able to survive longer than their peers, but only if they find enough business to keep them afloat and new customers to enable them to thrive.

-Sherry R. Gordon

Die casting is manufacturing at its most basic and dirty level. Companies that use casting suppliers must allow additional lead time for procuring the castings, as they are typically a long lead-time item. And die casters are known for being generally at the low end of the manufacturing efficiency and innovation scale. According to a North American Die Casting Association (NADCA) report, the number of die caster was expected to drop from 367 in 1999 to 287 in 2008 and the association halfed its dues this year due to the rough economic state of affairs for the industry. Competition from China and the bad state of the auto industry are two factors. But if you thought that dangerous manufacturing conditions exist only in China, think again

Despite the difficulty of the business econonmically, the inherent danger and dirtiness of the casting manufacturing business was revealed recently in an article in the Concord Monitor about a Franklin, NH company, Franklin Non-Ferrous Foundry. The foundry sounds like a scene out of Dante’s Inferno. Thick brown dust containing lead, antimony, cadmium and other heavy metals covered everything in both the foundry and the office. According to the article, workers joke that they don’t dare drag their feet at work for fear of kicking up a cloud of this toxic dust. Workers were not wearing breathing protection and working near bubbling vats of 2300 degree molten metal without any heat protection. The company was slapped with numers OSHA fines for over 57 violations, 25 of which were in the serious category, which means potentially life-threatening.

What is interesting about this situation is how blase the company owner and workers are about the situation. Most seem more concerned about keeping their jobs than worrying about getting sick or hurt by the situation. As one worker said, as he was given a respirator when he started working there, ““I think it’s fun. You learn new things.” And while the owners have been slapped with hundreds of thousands of dollars in fines, it is not clear which fines have been paid. And OSHA cannot shut the company down, only report violations and levy fines. When a Concord Monitor reporter toured the facility recently, the owner told him that most of the violations had been fixed.

So what would you do if you had a supplier that operated like this, endangering its employees and the environment, yet still supplied you with quality parts at a good price that met your specifications? Die casters, particularly North American ones, are a dwindling species. Would you prefer to deal with Chinese die casters, who are likely to be operating like this without any governmental protections for health and safety of its workforce? If a manufacturer needs the parts to run their business, are they willing to do business with whoever can supply the parts without regard to how the supplier runs its business? What if none of the suppliers offered a clearly safe alternative? And, are you even aware of whether you have a directo or sub-tier supplier that runs its business without health and safety protections in place? It’s a tricky question of ethics and corporate social responsibility.

-Sherry R. Gordon

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Boeing recently announced that it was planning to replicate all 787 parts built in the Puget Sound area in a new facilities being built in North Charleston, South Carolina. According to a recent article in the Seattle Times,  Boeing machinists are seeing this as the first step toward moving all parts out of Boeing’s Puget Sound plants. The two-month machinists strike in Boeing’s Commercial division in 2008 seriously disrupted production. It was one in a series of glitches that has forced Boeing to postpone the 787’s inaugural test flight and deliveries to its customers five times. Boeing is now over two years behind schedule. The cost and penalties to Boeing are in the billions of dollars in addition to a huge loss of credibility. Boeing  is claiming that it is expanding production and not duplicating production to move away from unionized machinists.  However, their spokesman cited strikes as a major reason for doing so. South Carolina plants will not have to contend with the International Association of Machinists.

As a company that has experienced failures in its supply chain in the production of the 787 Dreamliner, this was an expected move that Boeing has made to avoid supply chain risks. When it bought the Vought Aircraft Industries plant in North Charleston, SC, it was ostensibly to stabilize a shaky critical supplier and also to avoid having to fly parts to the Puget Sound plants. Now it is clearer that Boeing is trying to avoid being at the mercy of its unionized machinists. Realistically, it is these highly skilled machinists who are needed to produce a high-quality airplane.  Boeing can’t seem to live with them or without them. It will be interesting to see whether or not using less experienced machinists in SC will prove to be a problem.

The other big supply chain risk that Boeing has experienced is in its poor selection and management of its global supply chain, which may be an even greater risk than machinist strikes. For a company that practically wrote the book on supplier certification, their losing control of their supply chain has been mystifying. There may be some parallels to the “too big to fail” mindset or “the left hand doesn’t know what the right hand is doing” situation that occurs at such a behemoth corporation. Even when processes such as supplier performance mangement are world class, they don’t do much good if they aren’t used.

As of this writing, Boeing is on track to meet its deadline of having its first Dreamliner test flight before the end of the year. It’s aiming for next Tuesday, December 22nd. In the meantime, in regard to its supply chain and machinist issues, Boeing needs to fix the problems, not the blame.

-Sherry R. Gordon

While American auto suppliers have not been directly bailed out, many have survived due to the bailout of their customers, GM and Chrysler.  No so for small Italian suppliers.  According to a WSJ article, the Italian auto industry has not received government bailout money. So the auto supply chain, comprised of much smaller suppliers than the American auto industry, is seriously hurting. As the worldwide recession has reduced auto sales and the euro has strengthened against other currencies, small Italian factories are smarting from drastically reduced sales. Interestingly, instead of blaming the government, they are blaming the banks for not extending them credit as they used to. An underground movement of sorts, using social networking and blogging, has arisen to address this crisis and put pressure on banks to allow these suppliers to continue to overdraw their accounts to receive credit needed to survive. The political pressure has supposedly caused some easing of credit among banks for these factories.

The comparison with the American auto industry is interesting. The situation here may not appear as dire, but it is still just as problemmatic as the situation for the small Italian suppliers.  Bank credit continues to be a problem for small companies here though some of the larger suppliers got a government “lifeline” of $5B in credit. And now with smaller banks going belly up in record numbers due to risky loans, banks are still unwilling to loosen up their credit for an industry whose future seems uncertain as they risk suffering the same fate as the less fortunate or savvy and now defunct banks. Auto suppliers need credit to fill customer orders and grow. Yet, the safety of betting on such suppliers in a troubled industry is uncertain.

There is one interesting difference between small American versus small Italian auto suppliers. Some Italian suppliers, like many of their European counterparts, have been stashing money in Swiss banks. So they may need to get the money out to repay the banks for previous credit. To encourage this financial repatriation, some European governments are offering a tax amnesty.  Small American auto suppliers, as far as I can tell, don’t have a stash of cash, either taxed or untaxed,  to tap into.

-Sherry R. Gordon

I recently heard a presentation at the AME Lean Conference that was given by representatives from Hershey Foods and K-Mart (part of Sears Holdings) about customer-supplier collaboration. A K-Mart General Manager and a Hershey Foods sales executive discussed how the two companies worked together on special in-store programs that delivered very strong financial results for both companies. Hershey’s developed special programs, packaging and in-store displays especially for K-Mart, no simple matter for a chain with 1368 stores. At Hershey, the program involved category managers, packaging, logistics, and manufacturing to implement. An example of one of these programs was the Heroes at Home Kisses, which raised money for military families. There are multiple challenges to implementing such a program, such as, for example, shipping constraints, inventory, financial issues, display space in stores, and the overall challenge of new product development and sales. Both companies had to put significant resources behind the programs to ensure success. Hershey needed to invest in dedicated resources, advertising support, specific promotions, customer events, sampling. Sears Holdings had to provide resource support, merchandising, television advertising and invest in new product launches and marketing initiatives.

The programs paid off, with sales at Hershey attributable to these programs rising 7% in the first year of the program and continuing to increase yearly thereafter. Hershey Kisses alone increasing by over 48% from one of these programs. Both companies felt that these collaborative programs contributed to strong and sustainable growth.

Implementing such programs has paid off for Hershey Foods and Sears Holdings. But this type of collaboration is the exception rather than the rule. It seems resource-intense and very risky. How do a manufacturer and a retailer really pull off such a successful collaboration? The secret was trust. It was all about developing a good customer-supplier relationship, not just between a GM and a Sales Manager, which is where it initially began, but among multiple functions in each company working together and across company boundaries. Building upon the trust and the relationships, success bred success. Both teams became energized and mobilized and made the collaboration work.

I asked whether either company has more than one such relationship with a customer or supplier. You can probably guess the answer.

-Sherry Gordon

Attending the annual AME Lean Conference was energizing and inspiring. The conference delegates are a different crowd. They are practitioners of the lean enterprise. This is apparent if you spend any time with these folks.

You know you’re at a lean conference when delegates:

• Complain that the buffet layout is not lean and discuss ways to improve the flow
• Admonish a colleague who is eating lunch quickly that he should switch from batch processing of their food to one-piece flow
• Brainstorm ways to turn dinner dishes cleanup at home into one-piece flow without alienating their families
• Buy a book to give to their dentist to make his/her office more lean (and by the way, the book is Follow the Leader by Sami Bahri)
• Discuss how to break it to their internist that the medical practice needs a major lean transformation so that it focuses on the patient, not the doctor
• Go on plant tours and give the plant a list of continuous improvement suggestions
• Discuss how a lean manufacturing sector will rescue the economy
• Brainstorm ways to make their suppliers lean
• Eat lots of conference food that is certain to make everyone fat, not lean — and joke about how un-lean the food is
• Discuss plans to make a shadow board (usually done for tools) for their kitchen utensils when they get home

The above bullets are representative of some of the conversations and activity taking place among the attendees, and I’m sure there is much that I missed. Lean is about elimination of waste and improving the flow of the business and making more money while respecting and empowering people. People become passionate about lean and its power and potential to transform and improve businesses and, in some cases, their homes.

The combined brainpower, energy, and lean thinking of the AME International Lean Conference was incredible. And they are correct that a robust manufacturing sector is not only an engine for growing the economy, but a clear path to help the U.S. can maintain and improve its standard of living in the future. As one presenter said: Do the math. Service jobs that pay less than half of what manufacturing jobs pay can’t improve our spending power or standard of living.

Meanwhile, I’m wondering how the newly energized attendees will re-integrate into their family lives and not alienate them with lean transformation projects at home.

-Sherry Gordon

I am in Covington, Kentucky attending the AME International Lean Conference, Journey to Greatness. Attendance is excellent despite the economy and its adverse impact on other conferences this year.  This may be due to various lean journeys presented by practitioners and couldn’t be more relevant in a down economy.  AME (Association for Manufacturing Excellence) puts on a great lean conference, and this one seems to be continuing the trend.

I will be writing about some of the companies whose presentations and stories I’ve had a chance to hear. For example, today I attended session in which a huge retailer and a manufacturer recounted a story of their unparalleled collaboration together.

On Friday, October 23, I’ll be presenting a workshop, “Managing and Improving Supplier Performance in a Lean Environment”. AME allows people to go to the pre and post-conference workshops without signing up for the conference. The learning objectives for this interactive workshop include:

• Align supplier performance expectations and criteria with the needs of your business
• Develop a supplier evaluation process that fits your company
• Create an understanding of what a lean supplier is in your company’s environment
• Develop strategies for developing lean suppliers
• Manage critical suppleir relationships to maximize value to your company
• Get from strategy to evaluation to action to lean supplier development and performance improvement

This workshop can be delivered on-site, too.

If you are attending the conference, drop me a note at sgordon at valuechaingroup dot com.

-Sherry Gordon

I was reading an article in the recent issue of AME Target, “Looking Forward,” excerpted from Doc Hall’s new book, Compression, due out this month from Productivity Press. The article is very thought-provoking as it looks at the future of manufacturing. One idea really struck me and is something I’ve always wondered about in the back of my mind. Successful companies focus on what customers really want. Waste is something that a customer does not want and is not willing to pay for, according to lean thinking. Companies that lose focus on customer desires can go out of business. This is a basic tenet of lean thinking and lean enterprise. But what if what the customer wants is not green? What if a product is bad for the earth, the sustainability of the planet and our way of life?

Doc cites the Hummer as an example. It may have lean, efficient manufacturing. And the product is what many customers want. But the product itself is very bad for the planet, leaving a massive carbon footprint in its wake of high fuel consumption.

Another example (mine) is bottled water. The whole process of bottling and shipping water, from the reduction of ground water near some bottling plants to the energy required to make plastic bottles and then ship them to distant customers illustrates the conundrum of customer focus without sustainability.

There are numerous examples of successful companies and customer satisfaction built on the basis of earth-destructive products.

If the developed world is to continue to maintain our standard of living and improve it for others on the planet who are currently living at much lower levels and whose plight they will eventually not allow the rest of us to ignore, what do we do? Our resources will not last forever if we consume instead of recycle and resuse.

The answers are not easy. The impending sustainability crisis is and will be the mother of invention.  It will change “what the customer wants” to be more in sync with green.  Out of necessity our culture of individuality and freedom needs to transition to one of community and to a point where satisfying individual desires does not destroy the planet. But how? And how soon? 

I’ll be interested to hear more from Doc Hall at the upcoming AME Lean Conference in Kentucky.