Lean Manufacturing, Leadership, and Company Excellence (What Happened at Delphi and GM?)
The latest issue of Target, the award-winning publication of the Association for Manufacturing Excellence, has a cover story on Delphi's pursuit of excellence. Written by Delphi division president Jeff Owens, the article details the company's culture that supports and strives for excellence. Delphi has won numerous awards for manufacturing excellence, including a large number of Shingo Prizes in 2004 and 2005.
But wait a minute. There are many people, including my father-in-law who recently retired from Delphi, who would dispute those accolades. The company has just slashed medical insurance for retirees and has a severely underfunded pension plan that will probably lead to pension cuts. There is even talk that the company may file for bankruptcy.
This is excellence? This is the result of impressive efforts to implement lean manufacturing methods? Actually Delphi is operating in a very difficult business environment... internally and externally. Legacy union agreements require that idled workers be paid almost 80% of their active wages, incredibly generous health care plans have created a huge cost burden, and accounting irregularities dating from 1999 have cast a dark cloud over the company.
Lean manufacturing is a tool, and a process... but not the answer. It also takes leadership. And leadership can be tough.
The May 9th edition of Business Week has a cover story on "Why GM's Plan Won't Work... and the Ugly Road Ahead." Pretty brutal, but unfortunately accurate. Like Delphi, GM suffers from legacy costs due to union agreements. But it also has too many like car models, too many divisions, significant overcapacity, and too many businesses that distract from its core automotive activities. Market share continues to decline, with GM executives claiming that it's going to turn around... every year for the past fifteen. The only good news is that GM has considerable (but eroding) cash in the bank, and it has successfully revitalized its Cadillac line with innovative styling and technology. Lean manufacturing efforts have cut costs, but not nearly enough.
GM can survive. But it will take a lot of guts. Executives must have the guts to consolidate car models and divisions in the face of opposition from dealers. Unions must have the guts to bring health care benefits back in line with the norm. And shareholders must have the guts to allow the company to spend some of its cash to close plants, idle workers, and therefore reduce overcapacity.
As the Business Week article pointed out, GM has been the number one auto seller for a very long time... so long that no one at GM has ever experienced GM being anything except number one. Being able to envision, let alone create and effectively manage, a GM that is in second or third place will require a very difficult culture change.
That will take guts. Serious guts. But that's the essence of leadership.