Reinventing A Broken Wheel

by BILL WADDELL

Both Ford and Boeing strike me as companies that have an intellectual understanding of lean, but have yet to really internalize the principles and make a commitment.  Kind of like the recovering alcoholic who knows he shouldn't drink, but sometimes cannot control the urge to run back to the local tavern when under pressure.

A reader by the name of Emmer in commenting on yesterday's post pointed out an article in the Detroit News about Ford's next generation Whiz Kids.  For those who don't know, the Whiz Kids were a group of guys who came to work for Ford after World War II with a mission to whip the company into an orderly, logical operation - the epitome of managing by the numbers.  Ford is still trying to undo the damage they did to the management culture.  The king of the Whiz Kids - Robert McNamara - went on to run the US military in Viet Nam by the numbers, and the whole world is still trying to undo the damage done.

Ford's new Whizzard In Chief is the holder of a Chinese PhD named Rose Peng.  She leads a posse of 19 PhD holders who are rising in the Ford organization as experts in, apparently, just about everything.  The big claim to fame for this Ford Geek Squad is that they mastered rental car fleet theory.  It seems that the auto makers sell big fleets to the rental car companies with a guarantee to buy them back.  Then they have to resell the used rental cars.  Rose and her gang brilliantly deduced that, instead of just trying to make money on the first sale, they oughtta think about the second time the cars would be sold, and make sure they had the best set of options and features to get the best price both times.  Amazing, but it took 20 PhD's to think of that.

That was such a big success, Ford has now unleashed them on the rest of the business.  "Soon, Ford executives were asking what other insights the GLAD team could provide. Peng and her colleagues soon began developing models for production planning, marketing spending and vehicle pricing."

Now to put her in the proper perspective, you might want to read the synopsis of the paper Rose presented at the University of Michigan a few years back called "An Automotive Competitive Response Model".  "This model," wrote the brilliant Ms Pen, "can be used by the product development division to assess cost and benefit of investment in vehicle freshening and quality improvement."  In other words, Rose reinvented Cost of Quality/Acceptable Quality Level Theory.  She came up with a way to determine how much to spend on quality based on the return on investment from making things well.  I can almost hear the guffaws at Toyota and Honda when they saw that Ford was spending good money on relearning and reinstituting a theory that was tossed on the scrap heap of manufacturing thinking twenty years ago.

From time to time - usually after a few beers - I tell a story about two guys hiking through the forest.  They enter a big clearing and from the other side they see a bear come charging across the clearing to attack them.  One guy drops to his knees, opens up his backpack and proceeds to change from his hiking boots to a pair of running shoes.  His friend says, "What are you doing?  You can never outrun that bear."  The guy changing the shoes calmly replies, "I don't have to outrun the bear.  I only have to outrun you."  I tell that story for laughs - Rose would apparently see it as a deep insight, most likely handed down from some Zen master.  The gist of her thinking is that quality and price don't have to be perfect - or especially good in the eyes of a customer - they just have to be better than GM and the others.  That, along with Acceptable Quality Level thinking is what set Ford and GM up for the slaughter when the Japanese arrived.

So now Ford is going to cut the eggheads loose on "production planning".  What do you suppose they will think of next - EOQ theory perhaps?  Or maybe how to apply regression analysis to determine cost behavior?  Just when it looked like they might be turning the corner, Ford reverts to form and goes back to listening to "19 Ph.D.s from the fields of mathematics, physics, statistics, economics and engineering."  And not a one with a lick of knowledge about cars or what it takes to make them.

Comments

[Jason Morin]

Ouch. Quite a caustic commentary, Bill. The only thing I would say is that fields like statistics, Operations Research, DOE, etc. have yielded some very positive business results. Mathematical models certainly aren't a panacea to a company's problems and, if you read the article, Ford recognizes that. But they can be powerful tools that offer insight and generate ideas in a very complex environment.

I agree that leadership with real-world, "combat" experience is key to any organization, but don't crucify the PhDs.

[Bill Waddell]

Perhaps I am being harsh, Jason, but when 19 PhD's with no practical manufacturing knowledge or experience get together to tackle factory scheduling and pricing I cannot think of anything good that can possibly come out of it.

I have no issue with statisticians and agree that they have made a contribution - but this seems to be taking them way out of their arena.

[david foster]

Not clear from the article how closely they are coupled to those who *do* understand manufacturing (and logistics, and the sales channel)...if there is a very close coupling, it might work OK; if not, not.

The fact that the team is completely comprised of PhDs is not a good sign. Unless hiring decisions are being driven by intellectual snobbery, I'd expect some people on the team that have good math applications knowledge, but don't have PhDs.

[Andy Etnyre]

If you can't pull the screw out of the 2x4 with a pair of pliers the first time (whiz kids #1), don't think differently and grab a screwdriver (like Toyota/Honda), just get a better pair of pliers, a strong grip on the 2x4 and pull harder!! (whiz kids #2)

[Martin B]

I think you're being unfair. These decisions are difficult. From the article: "Their models showed that if Ford cut back on these low-margin sales [to rental companies], the value of its vehicles would go up"

Fine, any idiot can tell you that the low-specced cars sold to rental companies cheapen the brand value. But if you don't sell them, you sell fewer cars. The question becomes, do the profits from enhanced brand value compensate for losses from fewer sales? Are you confident enough of your answer to commit several hundred million dollars to implement it? I'd like to run the decision by a couple of PhDs before committing the cash.

Also, regarding the "investment in vehicle freshening" paper, if you have limited funds to freshen a vehicle, where do you apply them: longer-lasting exhaust, better upholstery, rust proofing, transmission bearings, suspension upgrades? The answer is, put the money where the customer values it the most. And where might that be? You need to do surveys and statistical analysis to find that out. PhD territory again.

You seem to imply, "Forget the PhDs, just copy Toyota." Then you would end up with a copy of a Toyota, a 'me-too' product in marketer-speak. You won't make money on it unless you're a low-cost producer, which Ford is not.

Each company must find its own distinctive voice and adapt it to the market as best it can. If a bunch of Whiz Kids will help, go for it.

[Andy Etnyre]

How's that worked for Ford, GM, Chrysler over the past 30 years?

I agree, and Toyota would agree too, each company must solve its own problems with its own solutions. You can't just copy what someone else is doing. What I'm challenging is the way they are thinking about their problems. Don't they have any internal knowledge from people who have experience in the industry to solve the problems you describe???

[Paul Todd]

I saw this article and had a more positive take on it than Bill. The Whiz Kids label scares me too, but I felt better after reading the comparison of the original group to this one. The 1950s version essentially ran the company, managing by the numbers in the worst possible way. This incarnation is clearly a support staff, providing information to the decision makers along with input from operating people and customers. AQL gibberish aside, I was encouraged by their work on transaction prices and option packaging.

[Mike Byrd]

Let's remember that Dr. Deming was a PhD that Ford did not want to listen too in the aftermath of WWII, so he went to Japan. We all know the rest of that story. However, he acted as a "train-the-trainer" kind of guru in applying techniques (statistics) testing the theories, documenting the model, then training those that would go forth and propagate the teachings. Of course Toyota also learned from Henry Ford himself and his lean practices of the early 20th century, since at one time every Toyota manager was to have read "Yesterday, Today, and Tomorrow" by H. Ford.

I think there is definitely something to learn from the PhD mindset, they do look at things differently, but there is also something to learn from the successful business leaders, not to copy but to apply that thinking to our own situations.

[Karthik Chandramouli]

The anti-intellectual movement in the Lean community has to realize that it's no better to blindly follow zen fortune cookies from Taiichi Ohno without the ability to interpret and translate those words of wisdom into contemporary context. Lean is not the end-all, be-all of good management, or good manufacturing. I worked at Toyota for 7 years and it's appalling how low the technical understanding of Lean is at such a great company.