Here is an interesting interview with Bob Lutz, who for many decades served in management and on the boards of auto-industry companies worldwide, including GM, Ford, Chrysler, BMW, and Lotus. The interview panel is perhaps a bit nerdy, but is a good one, comprising journalists and consultants with many years of experience in the auto industry.
Lutz has an interesting perspective from the point of view of Lean in that he describes some of the problematic attitudes that plagued the old mass-production versions of the American auto companies – attitudes that are still fairly common in American business. In addition, his insistence on understanding and meeting the needs of the customer is very much a core principle in Lean organizations.
One could ask why the auto industry should serve as a model for other industries. I would offer the same argument made in “The Machine That Changed The World”: There is very little the auto industry doesn’t do, so almost every industry can learn something from the successes or failures of the auto industry.
Watching this interview I was struck by a couple of recurring themes.
The first is that every activity in the business must be oriented toward meeting the needs of the customer. Lutz repeatedly asks, in different ways, “How does this benefit the customer?”
I often refer to Edwards Deming’s 1950 speech at Hakone Japan in which he laid out a cycle of customer survey, design, production, and sale or delivery. That cycle starts, and repeats, with assessing the needs of the customer. If you don’t accurately, precisely, and repeatedly assess the needs of the customer, the rest of the cycle is largely wasted effort. Lutz makes this point repeatedly.
The second theme is one that is implied more than stated. It is a widely ignored principle of Lean, so it requires some explanation. The principle is that it is total cost that matters, not unit cost.
In a mass production organization, unit cost is everything. It is assumed that, if every component of a product is produced or procured at the lowest possible price, then the finished product will have the lowest possible price. In fact, what often happens is that lowest possible unit price translates instead into lowest possible quality and a high total cost.
In a Lean organization lowest unit cost is certainly desirable, but it is total cost that really matters. It’s quite common in a Lean organization to use resources freed up by lowering costs in one part of the organization to improve value for the customer in another part of the organization.
For example, in the auto industry, lowering the cost of designing and building the drivetrain, given the same or improved quality, can allow a company to spend more on styling, which can sell more cars, spreading fixed costs over more units, so revenue goes up significantly while total costs increase only marginally. Or, in the apparel industry, redesigning an item so it is easier to sew may allow the company to utilize a finer fabric or finer finishing, which provides greater value to the customer at the same price, which again increases sales.
Listen in and learn from a master.
Copyright 2015 by Paul G. Spring. All rights reserved.