GM, Ford and Chrysler Strive to Become The Lean Three

GM, Ford and Chrysler Strive to Become The Lean Three

Continuous improvement has taken hold in Detroit -- and not a moment too soon.

Among the myriad challenges confronting General Motors, Chrysler and Ford right now is the lingering perception among some consumers that the Detroit Three produce vehicles that lag behind their Japanese rivals in terms of technology, quality and fuel efficiency. While most auto industry observers acknowledge that the Detroit automakers have caught up to their Japanese rivals in recent years, perception often means everything in the public eye -- especially in the crowded North American car market.

You might say that a similar misperception extends to the factory floor. While Toyota is synonymous with lean and continuous improvement -- the Toyota Production System is a household term in the manufacturing world -- a fair number of people probably still believe the Detroit Three are light years behind the Toyotas and Hondas of the world when it comes to factory-floor productivity and efficiency. If Toyota is seen as the paragon of lean manufacturing, GM, Ford and Chrysler -- at least up until recently -- have been viewed as Toyota's overweight, out-of-shape rivals, gasping for breath just trying to climb the stairs to the factory floor.

Auto industry experts say that's not an accurate picture anymore (if it ever was). Well-before the recession precipitated the current upheaval and restructuring of the Detroit automakers, GM, Ford and Chrysler were adopting and implementing lean principles in earnest. They were trumpeting the flexibility of retooled assembly plants. And they were narrowing the productivity gap between themselves and their Japanese rivals.

Data from the consulting firm Oliver Wyman's "Harbour Report," a respected annual analysis of plant-floor performance in the North American auto industry, bears this out. The 2008 "Harbour Report" (the most recent one publicly available) proclaimed that "the Detroit Three automakers in 2007 nearly erased the productivity deficit against their Japanese-based competitors, despite declining production and shrinking market share."

UAW Local 602 employees focus on "building quality in station" as they assemble Buick enclaves in Lansing, Mich. Building quality in station is part of GM's Global Manufacturing System, a series of principles that promote employee involvement and lean manufacturing.

According to the 2008 report, the gap between the most and least productive automakers in terms of total manufacturing labor (a measurement that encompasses assembly, stamping, engine and transmission operations) shrunk to 3.5 labor hours per vehicle (or about $260 per vehicle), down from 10.51 hours (or $790 per vehicle) in 2003.

The 2008 report pointed to numerous plant-floor successes among the Detroit Three in 2007, paced by Chrysler. Chrysler's 7.7% reduction in labor hours per vehicle to 30.37 brought the automaker to dead even with Toyota, making Chrysler and Toyota the leaders in productivity that year. Chrysler's Toledo South assembly facility, which makes the Jeep Wrangler, led all assembly plants in productivity, averaging 13.57 hours per vehicle.

General Motors had much to crow about as well. According to the 2008 report, GM's slight reduction in total labor hours per vehicle to 32.29 marked its 15th straight year of productivity improvement. GM had the most productive transmission plant in North America -- its Toledo, Ohio, facility, which averaged 2.37 labor hours per transmission -- and boasted three of the top 10 assembly plants. Meanwhile, Ford cut its labor hours per vehicle by 3.7%, despite producing 6% fewer vehicles than it did the year before.

Ron Harbour, partner in Oliver Wyman's North American automotive practice, noted in the 2008 report that "Toyota remains the industry benchmark through its renewed commitment to lean production." But he called the Detroit Three's productivity gains "a huge accomplishment."

"Chrysler made substantial progress with the support of suppliers," Harbour said. "GM deserves credit for the growing maturity of its Global Manufacturing System [GM's version of lean] and Ford is demonstrating that focusing on quality will lead to better productivity."

Embraced 'Wholeheartedly'

Wallace Hopp, a Herrick professor of manufacturing at the University of Michigan's Stephen M. Ross School of Business, believes that the findings of the "Harbour Report" in recent years confirm that continuous improvement has taken hold at the Detroit Three.

"Actually, I think they've embraced it quite wholeheartedly," Hopp says.

Ron Atkinson, a former GM quality manager who retired in 2008 after more than 34 years with the company, can attest to that. Before he retired, Atkinson believed that lean had permeated the environment at GM and its Detroit rivals "to the point where the North American companies were as lean in their approaches as any organizations in the world."

Before Ron Atkinson retired from GM in 2008, he saw the Detroit Three become "as lean in their approaches as any organizations in the world." Atkinson is past president of the American Society for Quality.

Atkinson, a past president of the American Society for Quality, asserts that GM's adoption of lean principles in the engineering and manufacturing of its vehicles was one of the contributing factors that enabled GM to offer a five-year, 100,000-mile warranty. He also believes that the Detroit Three's commitment to lean actually helped minimize the damage "when the bottom just dropped right out" of the North American car market during the current recession.

"In my opinion, if GM, Ford and Chrysler had not been as lean as they were, things would've been a lot worse," Atkinson says. "Because their cost structures would've been a lot higher. So all of sudden when your market disappears and you have a high cost structure and a lack of income, that makes those negative numbers even bigger."

A Prerequisite for Survival

It's safe to say the Detroit Three automakers understand the role that lean manufacturing principles and practices will play as they retool -- literally and figuratively -- to compete in a North American vehicle market that, according to WardsAuto.com, shrunk from 17.8 million cars and trucks sold in 2000 to 13.5 million units sold in 2008 (while seemingly fielding more players than ever).

GM, for example, notes in its most recent viability plan that the company has been "implementing an integrated global manufacturing strategy based on common lean manufacturing principles and processes," and emphasizes the importance of creating a flexible infrastructure that enables multiple body styles to be built in a given assembly plant.

Ford, likewise, has been focusing on flexibility as well as other lean-enabling strategies such as standardization and modern work rules. Earlier this year, Ford announced that it planned to invest $550 million to retool its Michigan Assembly Plant in Wayne, Mich., "into a lean, green and flexible manufacturing complex" that will build the new Focus and a battery-electric version of the Focus (the latter is set to debut in 2011, according to Ford).

In addition to a flexible body-shop operation that will enable production of multiple models, Ford said the plant will boast "an efficient, synchronous material flow, where the material will move in kits to each operator, providing employees with the tools they need in the sequence they will need them."

"The transformation of Michigan Assembly Plant embodies the larger transformation under way at Ford," President and CEO Alan Mulally said earlier this year. "This is about investing in modern, efficient and flexible American manufacturing."

University of Michigan profesor Wallace Hopp asserts that "if you're not lean, you're not long for this industry."

"The University of Michigan's Hopp notes that such investment in lean, efficient manufacturing operations is a prerequisite for survival in today's global automotive market.

"It's a tough industry to compete in because there's just too much productive capacity for the demand that we have right now," Hopp says. "So you have to be good. And that basically means that if you're not lean, you're long for this industry."

Hopp adds that the restructuring efforts at GM, Ford and Chrysler are helping to reduce some of the baggage that has given their Japanese rivals such a cost advantage (the 2008 "Harbor Report" noted that despite Detroit's gains in productivity, "the profitability gap between Detroit-based and Japan-based automakers remain[ed] wide" due to the fact that Detroit was paying more for health care, pensions and sales incentives). But even if Detroit levels the playing field in that regard, Hopp says they'll need to keep improving on the factory floor to stay afloat.

"They're reasonably well-positioned now, but they better keep moving," Hopp says. "They're not out of the race on the lean front by any means."

Detroit's Quest for Flexibility

Among the challenges and opportunities that need to be addressed on the factory floor, auto industry observers say flexibility should be top of mind for the Detroit Three.

John Shook, a former Toyota employee who now teaches the virtues of the Toyota Production System as a senior advisor to the Lean Enterprise Institute, recently wrote in his "Lean Management" column that producing vehicles "is inherently inflexible." He noted that despite advances made by Toyota and others in reducing the product development timeline, it takes about four years to bring a new vehicle to market.

"That means four years in advance, you have to predict or put in the capability to provide what a customer will want four years later," Shook wrote. "That's risky business."

Shook added that Toyota has implemented a number of measures to build flexibility into its manufacturing operations, including just-in-time capacity, cross-training of employees and a kanban approach to parts replenishment. Toyota also is able to build multiple products in each factory and more than one product on each line -- enabling the automaker "to mix and match capacity to meet changes in demand."

While these concepts are not new to GM, Ford and Chrysler, they're still playing catch-up to their Japanese rivals when it comes to overall flexibility. That's because the Japanese automakers had to be able to quickly changeover from model to model just to survive in their "fractured" home market, while the Detroit Three's traditional business model was "predicated on economies of scale and mass production" in a healthy North American market, explains Jay Baron, president and CEO of the nonprofit Center for Automotive Research.

Ford President and CEO Alan Mulally on May 6 announces that Ford is retooling its Michigan Assembly Plant to become lean and flexible. This $550 million investment will include the installation of robotic equipment that can be programmed to weld vehicles of various sizes.

"Our plants produced 250,000 vehicles a year," Baron says. "With the market so big, you could sell all those cars and you didn't have to changeover between models. So you could set up your process and let it run forever, and that's very efficient in terms of mass production."

Baron adds that Detroit's operations model "made sense at the time," especially in the days when GM, Ford and Chrysler dominated the U.S market. But those days are long gone. In 1963, GM accounted for nearly 50% of U.S. car and truck sales, with Ford at 26% and Chrysler at 12%, according to WardsAuto.com. In 2008, the Detroit Three combined for 47% of the sales in a market that included 13 automakers with more than a 1% share. (Toyota, by the way, supplanted Ford as the No. 2 automaker in 2007 and maintained the No. 2 spot in 2008, according to WardsAuto.com.)

Adding to the need for flexibility is the fact that the auto market isn't just fragmented -- it's fickle. Jeremy Anwyl, CEO of Edmunds.com, asserts that automakers need to be able to respond to "radical shifts in demand," a challenge that is particularly harrowing when gas prices fluctuate and "the market whipsaws from big vehicles back to small vehicles" and vice versa.

"The fundamental challenge for the industry is that historically it has adjusted demand to supply through incentives," Anwyl says. "It hasn't adjusted supply to demand."

Traditionally, the automakers have looked at dealer sales to gauge demand, but that's "not a reliable indicator of where the market's going because it's influenced heavily by what inventory the dealers have," Anwyl asserts. The good news for the Detroit automakers is that today "the market signals are a lot better than they used to be."

"With people coming to the Internet before they buy a car, in some case many months before they buy a car, the shifts in demand become pretty clear just based on the shopping behavior," Anwyl says. "But car companies haven't totally plugged into that. I don't know of any car companies that are shifting production schedules based on indicators they're getting from the Internet 90 days in advance of [consumers] coming into the market."

Letting demand pull supply is a fundamental principle of lean, but it's easier said than done when producing a car requires "huge investment in massive infrastructure that takes years to put in place," as Shook puts it. And the Detroit Three have been at a disadvantage from several perspectives: Their North American infrastructure is older than that of the Japanese transplants, and past labor contracts discouraged flexibility.

"The old union agreements used to be very rigid about what each position did, and they did this basically to protect employment," Anwyl says. "So instead of having one person doing two jobs, you had to have two people doing two jobs. It was almost the opposite of flexibility."

But times are changing, and the economic crisis that pushed GM and Chrysler into bankruptcy this year appears to have eased the rancorous tenor of labor-management relations in Detroit. GM's Ken Knight, executive director, Global Manufacturing System, praises the UAW for "taking on a position of problem-solving" in its most recent labor agreement with GM, which the union ratified in May. The pact calls for more flexible work hours and shift patterns as well as job classifications that will enable employees to perform a wider range of tasks, among other provisions.

"A few years back, you might have had a pretty strong 'us-and-them' approach if you talked to somebody in the plant. But now it's 'we,'" Knight says of the current state of labor-management relations. " Everybody, especially humbled through the bankruptcy process, realizes that there's no future in that thought process, that it's 'we, the company,' that we all get our paychecks from GM, that we're all fortunate to keep our jobs -- and that's the tone being taken. So it's very natural for people to pursue improvement and not argue about us versus them. It's really refreshing."

It should be noted that a few days before this article went to press, Ford UAW members rejected additional changes to a 2007 labor agreement that would have granted Ford concessions similar to those ratified earlier in the year for GM and Chrysler. Due to labor negotiations that had been taking place at press time, Ford declined to provide comment for this article.

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