Ford Gets It - Do You?

by BILL WADDELL

Just to put things in perspective - after all it is easy to get tangled up in all of the short term ups and downs and spin regarding the auto business - I thought it might be helpful to look at where the auto companies are compared to 2007 - the last year before the recession hit.

The story is fairly clear.  GM and Chrysler were taken over by the government because they were mismanaged ... and nothing much has happened since then to indicate much of anything has changed.

The so-called'niche'  producers - Kia/Hyundai and the collection of cats and dogs in the 'Other grouping - VW, BMW, Audi, Mercedes, Subaru, Mitsubishi, etc... - have collectively been growing.  Ford, Honda and Nissan have generally held their own.  Toyota has slipped a bit and the jury is still out on how much of that is due to tsunamis and bad PR, and how much is reflective of a loss of cultural mojo.

The bigger story, however, is the fundamental change in the economic model the chart indicates.  If 'economy of scale' means operating at full capacity, then it is alive and well.  To the extent it is achieved by making one thing in staggering volumes, or it is achieved by carrying lots of inventory, it is as dead as Marley's ghost.

 There is no 'mass market' for anything - especially cars.  Each person's definition of what constitutes the best value is unique.  Every market is a collection of niches of one.  The old model - the mass production model - is to make a one-size-fits-all product, keep the cost down through high volume, try to fool the public into thinking there are differences through superficial means - sheet metal and packaging - and push it with clever advertising and marketing.  Through deception, discounts and a never ending price game, people are pushed into compromising their individual value proposition to buy something that is 'close enough' to what they want.

The lean model is to achieve low cost by fully utilizing capacity - but to do so with many genuinely unique products.  This doesn't affect the small producers so much.  They have smaller plants and can fully utilize capacity with few products and still find enough people to buy them - the BMW's, Subarus and the like.

But for the big guys, it means flexibility.  This article indicates that Ford understands this basic principle.  "By 2015, Ford will be able to make 4.5 different vehicles per plant or 25% more derivatives on average compared with 3.6 vehicles in 2011."  The formula is pretty simple: create a relatively few basic platforms, create a large number of variations from each core platform (true variations rather then pure wallpaper), then create the manufacturing capability to quickly switch from one platform to aother and from one variation within the platform to another.  Use standard processes and common components as much as possible to minimize the changeover task, then get very good at changing over that which must be changed - design for manufacturability means design for flexibility.

The idea of making one thing in huge volumes to fully leverage capacity is the old Henry Ford - 'one color so long as it's black' approach.  It is alive and well.  In fact it is the under-pinning of the whole 'innovation craze' - if we can conjure up something really unique and cool it will appeal to a huge number of people and we can get away with Henry Ford style mass production - the Apple model.

Making more than one thing through batch production and carrying a lot of inventory is the alternative for mass producers without whiz-bang products, who then must resort to discounts, rebates and massive investments in marketing to move the inventory - the GM and Chrysler model that has not changed just because the government bailed them out.

The heart and soul of Toyota's success was SMED - flexibility - the ability to make lots of things in one factory without losing too much capacity in the process.

Ford has maintained its position through tough times with some innovation, a lot of quality, and some marketing ... enough to get by.  Now they understand what it takes to really succeed.

Comments

[Andy Wagner]

I can only add that Ford has been moving in this direction since 2006--eliminating platforms, commonizing offerings--reintroducing cars after decades of investing only in trucks and SUVs. Ford began this long journey during the meltdown. GM and Chrysler used the meltdown as an excuse *not* to do it.

[Robert Drescher]

Hi Bill

I agree with you that Ford has been doing a much better job of late, especially so since they got rid of some of useless Euorpean brands they bought before the crash. But if you look at who they have as their CEO it is not surprising. He learned a lot from Boeing about getting things done right, and he listens to his manufacturing people, which is sort of required if you want to be in manufacturing.

He has shown that if you actually start investing in your manufacturing operation, bring it up to date and giving it the tools and ability to institute flexibilty you will be rewarded.

I know some people that work for their production operations, for the first time in their history with the company, manufacturing's needs are finally at the forefront, and being addressed.

[Steve]

Ford has shown some impressive things - I think Wayne is able to run EV and non-EV's on the same line. Pretty cool.

Even thought Toyota seems to always get brought up around Lean blogs, they also have been working on some neat ways to run more flexibly.

[David Hallsted]

I hope folks got the Marley’s ghost joke. From the Google search you get the quote below from Wiki.
“At first Scrooge does not believe that Marley's ghost is real, and a mere figment of his imagination. When the spectre asks, "Why do you doubt your senses?...”
I wish the stacks of inventory could talk like the ghost. Perhaps then the scrooges who run operations would listen.

[Bill Waddell]

Thanks David. It is not often I get a chance to weave a little 19th century British literature into a lean manufacturing post and, when I do, it's nice to know someone picked up on it.

[John Hunter]

I believe Toyota remains in very good shape. There culture has disappointed. If others had done a better job from 1990-2010 maybe Toyota would be in more trouble today. But even slipping up Toyota is far ahead of most of the others. Ok Ford is doing some good things again (they also were back in the 1980' s for awhile. Honda really is very strong in many ways. But Toyota's management culture, even having slipped, is still very good compared to other automakers and other companies in general.

I do worry a bit that Toyota is regressing to adopt the bad practices others use instead of improving how they do with lean/TPS… But Honda is the only company that seems remotely close to Toyota among the automakers is my failure un-informed opinion.