GM's Dangerously Naive Overseers

By Kevin Meyer

I've been keeping a pretty close eye on GM since I recently became an unexpected investor in the company thanks to the government bailout.  Some good signs, some bad, but the news yesterday was more than a little troubling.

Starting Jan. 4, General Motors Co. plans to do something unprecedented in the U.S. car industry: It will run its assembly line here [Kansas City] around the clock on a permanent basis.

It's not just unprecedented in the U.S., but in many such industries worldwide.

While common in other industries, not even car-efficiency benchmark Toyota Motor Corp. operates its plants routinely with more than two shifts. Car-assembly lines need too much scheduled maintenance and restocking for such intensive production to make sense, many industry experts say.

For a company long bloated with unused capacity, GM's third-shift strategy is a radical—and risky—departure. Unlike other cost-cutting moves made during its trip through bankruptcy court last summer, such as halving its brands to four, the third-shift plan could make GM a model of car-industry efficiency—or end up a failure like its 1980s drive to let robots run its factories.

So why would they do it?

The Obama administration auto task force that oversaw GM's reorganization last spring was startled to learn that the industry standard for plants to be considered at 100% capacity was two shifts working about 250 days a year. In recommending that the government invest about $50 billion in GM, the task force urged the company to strive toward operating at 120% capacity by traditional standards.

But industry manufacturing experts are skeptical, noting that the federal task force had limited automotive experience. "Do those guys understand the business?" asked Ron Harbour, whose Harbour Report is a widely followed analysis of auto-plant efficiency.

The article points out one good reason for not running three shifts.

A few idle hours between shifts also enables a plant to perform cleaning and restocking. A plant's paint shop alone generally requires about four hours of cleaning a day, said Mr. Harbour, adding that the efficiencies of a third shift can disappear quickly amid slowdowns for such maintenance.

"If running three shifts means you're moving [the line] at only 60% of capacity, then you haven't gained anything," he said. In all industries, moreover, midnight-shift workers are prone to above-average rates of on-the-job errors, absenteeism and illness.

I've personally run 24/7 operations a few times in the past and can vouch for how tricky they are.  Maintenance becomes a serious issue, and without a laser focus and commitment from the very top, quality will suffer.  If a mold goes down a few cavities, the almost overwhelming desire is to keep the press running, even if the mold is unbalanced.  If I knew GM had that total commitment to quality I might buy into this.  I don't.  At least not yet.

But as I implied, the article mentions one good reason for not doing three shifts.  There's another, one we've talked about before, and that's the distortion of reality caused by traditional accounting.

Traditional accounting creates the desire to fill unused capacity in order to absorb overhead, depreciation, and other indirect costs.  Usually regardless of whether demand actually exists for that capacity.  Last time I checked GM still had a much larger inventory than other auto companies, spread out through a still too large dealer network.  Improving, but a long ways to go.  They are also going to pay $30k per employee to relocate, plus retraining and retooling, and tons of time trying to figure out how to manage a third shift.  With traditional accounting those dollars and costs aren't in the same bucket (let alone the bizarre concept of a "sale" being when the vehicle has left the factory, not when money transfers from a real customer).  In reality, bucks are bucks.

It may look like a bold, risky move but is it?  How risky?  How bold?  Appropriately risky?  Interesting how GM's move that effectively risks the company's viability is portrayed as a good thing by the Obama overseers, but Wall Street's risk-taking is a bad thing.  Go figure.

In reality there are several other bolder moves that could, and should, be taken.  Ones without the risk of destroying my unintended investment.  Here's a very simple one: have all the managers and execs go stand in an Ohno circle on the factory floor, a few times a week.  Of course you'd have to educate a lot of them to just recognize a factory floor... or perhaps even their own cars for that matter.  But I bet they'd have a lot of "a ha!" moments and realize how the could vastly improve efficiency and reduce waste.

Without putting the entire company, my investment, at risk.

Comments

[Jamie Flinchbaugh]

All I can say is "wow, how stupid are these guys?"

Toyota doesn't ONLY run two shifts. The try really hard to keep it to two shifts. Only then do they have the flexibility for true quantity control and for proper and regular maintenance.

If guess if the plant is always down from problems, they won't accumulate the inventory that they can't sell.

[Bruce Baker]

Interesting article. It is risky. The article did say that they are starting slowly. Starting it slowly in on of their highest performing plants. They have an Obeya room with management and union in it planning how they are going to try this. I would be concerned about the urge to overproduce in order to avoid laying off the new shift.
I guess I am skeptical but not as concerned as you are based on the fact that the people (management and union anyway) seem to be working together on a plan, they will do it in one of their best plants. Then hopefully they will see how that goes and decide what to do in the other plants in the second quarter of next year.
The upside of this is that crisis is driving it. The easy thing to do is what the industry experts are suggesting - nobody does that so they shouldn't try.
Ohno knew he couldn't be a better Ford he had to do things differently. Maybe they will learn something new instead of aping Toyota. It will be interesting to watch what happens, if they learn when things don't goes as planned in the war room and how they react. This will certainly surface a lot of problems that they already have and can cover up with lots of scheduled down time -- if they do this right and with a sense of crisis they might improve in ways that the rest of the industry won't (because they don't have to because of the scheduled downtime).
Hopefully journalists will write stories about this - it will be an interesting experiment. I salute GM for giving it a try. My shares (our shares if you pay taxes in the US) will probably expire worthless in the next bankruptcy if they don't change.

[Shawn]

Great post Kevin. I see this resulting in the same benefit as the other failed attempts at optimizing GM's manufacturing operations.

When I worked in assembly we implemented Andon - backwards. Install the cords, one presentation to introduce it and then berate operators for pulling the cord.

Could 24/7 operation be the holy grail of production at an automaker? Doubtful, but even if it was it would require years of creative TPM innovation, bottleneck workarounds and generally a better understanding of what the customer actually desires.

Your recommended moves would be a far better start for GM. At least they're going to try to repay our investment this year.

Shawn

[Tim McMahon]

Wow. Just another bad idea to add to list of bad ideas they have had recently. I wonder with all the organizational change whether they can be successful with anything. Too much turbulence is not good either.

On the 24/7 operation my plant used to do that. Worst idea. Since we stopped that practice a few years back the productivity has increased.

I am sure since many operation don't operate 24/7 it is just a mistake. There can't possibly be a reason for it. Certainily not one GM would understand especially standard cost accountants helping them.

Tim McMahon
A Lean Journey
http://leanjourneytruenorth.blogspot.com

[Dirk Fischer]

Hi,

who should buy all these ugly cars?
You can see it through the lean glasses, you can see it through TOC glasses (Theory of constraints) you can simply use your brain.
As already said, plant sales are not automatically sales of the entire supply chain, so what you do is, you just pump in inventory.

Such stupid things are only instructed by people who still believe that the sum of local optimas will give a optimum whole.

It doesnt´make any sense at all! You will only increase inventory. And as you know, that is causing all the other wastes and losses.

If GM is not dead yet, I guess now they found something, that will kill them finally.

Regards

Dirk

[Mike]

Let's also not forget that with this additional inventory, even if someone buys these cars the cash isn't in GM hands right away. They continue to run 0% financing for 72 months! That's 6 years!! Talk about a cash flow problem...

As far as the TPM goes, when do they expect to complete the maintenance? With UAW work rules and ensuring skilled trades are doing the PM work and not floor operators, scheduling in maintenance would be a nightmare. The 3rd shift production supervisor is being pushed for output and up time, so they end up not giving up the lines to the skilled trades to complete the necessary PMs. The PMs get behind and then up time goes in the toilet. I'd love to see this plan work... that's why Washington bureaucrats need to stay out of business.

Mike

[Dan Markovitz]

I'm with Bruce Baker on this one: I think the jury's still out on this one. GM is doing a lot of things right in this experiment, not least of which is involving the actual workers in the planning.

If it works, the post-hoc analysis will talk about how GM's risky yet brilliant move to 3 shifts led to a new paradigm in manufacturing that other auto makers are struggling to copy. Sort of like the way lean was a risky yet brilliant move back in the day....

[Martin B]

I worked in a concrete precasting operation that fell behind and management put it on a 24/7 schedule. Never again, I hope. It is horrible working those hours, like being put on a punishment detail.

My stepfather was a miner and working 24/7 was standard. But it was very disruptive for the family when his turn at night shift came around. Then the kids have to be told to keep quiet during the day because Daddy's sleeping, and when they actually see him, he's very grumpy.

I'd avoid night shift if at all possible. If it must be done, make the accountants who mandated it work night shift as well.

[Sean S]

If you change a tool, but don't change the culture, you have changed nothing.

[Andy Wagner]

I can't say that I'm glad that GM is taking the right approach at doing the wrong thing.
Best effort with the best intentions doesn't get you much.
I work in a 24/7 facility. There is no TPM. There's a firefighter response to every machine failure. Quality suffers, productivity suffers, delivery suffers, and it's been the practice for so long, nobody realizes how painful it makes life.

[Rodrigo]

This is nothing new both the Oshawa (Ontario) Car and Truck plants ran three shifts, while doing it they topped both the JD Powers initial quality and Harbour productivity rankings. The impala even cracked the elusive CR recommended buy ranking for the first time in this period. There are a number of other plants that ran three shifts before last year's meltdown.

The operations are not 24/7 just 24/5 plus occasional Saturday Overtime. Other car companies also follow this schedule.

TPM concerns are true. Maintenance is done on weekends mostly, also major processes are decoupled by large banks of work in process (long conveyors between the body shop, paint and assembly areas), upstream departments run faster that the end of the line allowing some time lost for reactive maintenance without affecting the end of line rate. There is also the use of backup tools and even whole stations wherever possible.

Don't discount the hard work and ingenuity of the people that run auto plants. The logistics and people challenges are enormous and while we can't ignore all the factors that put GM in the position where it is right now the operational side has been slowly making gains.

[Bruce Baker]

I've seen great and terrible TPM in 3 shift and 4 shift operations. Overproduction is the real danger here. If they are smart and humble they will learn to run 3 shifts efficiently eventually. Like Rodrigo said, they are not going where nobody has been.
Bruce Baker
leanisgood.wordpress.com