Fire the Inventory, Not the People!

Inventory is a costly, if necessary, evil in automotive manufacturing. Without SOME inventory the assembly lines may starve and we won't get cars. But with too much inventory we tie up too much cash and we go out of business.

The theory behind the Toyota Production System and other "lean production" systems is to get the right part to the right stations at the exact moment that is needed and carry no more inventory than these Just In Time deliveries require. That's the theory.

In practice, inventory is often kept at significantly higher levels as a "security blanket", insulating the plant, to a degree, from changes in demand, supplier shortages, transportation delays, etc.

We have what we think may be a new lens through which to "see" inventory. Inventory can be seen as the price of having imperfect information. If one absolutely KNOWS that the schedule won't change, that the suppliers will all hit their targets, that there will be no absentees, no rejects, no downtime, then one can run on very little inventory.

By the same token if one KNOWS that only these two suppliers will be late and by how much, and that customer plant demand will shift from 'X' to 'Y' by 'Z' units and can infer that normal downtime and absenteeism will apply then one can run at a low but slightly higher-than-ideal inventory rate.

It appears that in the case of inventory cost, KNOWING is PRICELESS - or at least the price of excess inventory.

Alas, Clausewitz's "Fog of War" applies just as much to the factory as it does to the battlefield. The less perfect your knowledge of the real time state of all the key variables of production and the future state of these variables over the next several hours then the more inventory you are likely to carry.

Lean initaives that fail to provide a system for accurate, real time information and a Knowledge / Math Based decision model for proactively detecting and preventing potential disruptions are doomed never to capture and send to the bottom line the reduced costs they promise.

These potential profits are, instead, chained in the cost of excess inventory - the price of imperfect information.

What is needed is complete and accurate real time visualization of what is running down the line (by variety and by quality status), what material is needed where and when for at least half a shift, what is REALLY in-bound and out bound, and the same sort of view of what your customers are running planning to run. With this information, even high variety, flexible assembly processes can be run at World-Class inventory levels. Moreover, many millions in no-longer-needed inventory can go directly and permanently to profits.

And there is a "hidden value" to all of this. It is announced in the title of this section.

Management that "fires the inventory" can afford to keep more people on, converting them to earning back market share. That is, management gets a work force with higher morale and better attitudes toward productivity and quality.

We have personally seen a company receive a Letter of Commendation from the president of a Union for installing such a process, thanking management for "Improving the Quality of Work Life" and "preserving jobs." That wasn't the only reward for management. They cut inventory costs by 33% in a single quarter and sent it all to earnings.

Please comment here on other methods of producing lasting profits, jobs, and quality through specific examples of inventory reduction.

Leading and Managing Culture Change

In this section of the site we mean to examine Big Ideas for leading change in our business cultures.

What culture do we want and why? How do we eliminate fear of change and pull people and attitudes in this direction? What tools are there for assisting us in the transformation process? What are the processes and metrics we need to put into place? And once we know the changes we want and how to measure the "new way", how must our reward and recognition systems change to help create and reinforce the transformation?

At GE, during the Jack Welch years, we performed one of the more successful transformations ever. From a sort of "hide bound", well-entrenched, cautious company with an almost Ivy League institution sort of feel we made a fast-moving, dynamic, growth and cash oriented "dancing elephant." Jack provided a compelling and compact vision:

Be Number 1 or Number 2 or you're out of business

and

Rationalize everything - if you don't know why you're doing it stop doing it.

Through what we called "Work Out" the company went through the process of rationalizing all the business processes in every business unit - taking out cost and building new speed, agility, and cash. Through this process we not only got a "sleeker", more capable business, we also got decisiveness up and down the leadership ranks.

Finally, there was Crotonville - GE management development institute in Croton-On-Hudson, New York. Investing not only money but his own personal time in Crotonville assured that the vision was being transmitted, that line management on up was given the tools to make that vision a reality, and that high potential people were identified and moved up into critical positions.

To do this we had to look at the organization in different ways.

We would like to introduce some new "lenses" which might be of value in viewing our organizations.

The most important of these is what I call: real time Decision Quality. Promoting Decision Quality is a formal process whereby we align our systems to put more (and more timely) information and knowledge into every decision made within the organization and to make the decision more quickly, turning it into Action as swiftly as possible. All of this of course is meant to make better decisions and turn them into actions more quickly and increase our Operational Tempo to the point where the competition just can't keep up.

Allied with Decision Quality is the process of making Knowledge / Math Based Decisions. The focus here is more on decisions made in planning rather in real time execution of the plan. Of course, too many of our decisions are made using conventional wisdom when we should be utilizing Logic and Math Models already out there.

How do we leverage our new Knowledge / Math Based decisions and the Operating Tempo and efficiencies provided by Decision Quality to turn them into real market place advantages? One way is Variety Based Competition (VBC).

The goal of VBC is to provide a wider and wider variety of more customized-to-customer-desires product but to do so at or less than traditional Mass Production costs and prices. Here again we face obstacles, not the least of which is: How do you produce variety ("variation") when all the SPC tools and controls we have painstakingly put in place are designed to REDUCE or ELIMINATE variation?

These are the various issues and potential solutions we will examine in this section.

Doing It Right

This blog is a community work focused on improving the automotive industry, specifically, but it is a "melting pot" of ideas that will help ANY enterprise. The "founding" authors have a combined total of 152 years of experience in improving quality, productivity, costs, and the Quality of Worklife on the plant floor for General Motors, Ford Motor Company, DaimlerChrysler, Honda, Toyota, and many others.

Collectively, we have seen "Best Practices" at individual plants and headquarters around the world. And it amazes us how little these Best Practices have been taken up by other plants and other companies. The very things that would have averted the current crisis in the American automotive companies are already in their possession; in one form or another and in one plant or another, they have what it takes to win.

Dysfunction in their cultures appear to prevent the deployment of the best. There are still "chimneys" in these companies that have endured all the "chimney breaking" programs of the last two decades. There are still "buzzword societies" flourishing within the companies. And we still see punishment meted out for unpopular successes and failure rewarded.

This blog is NOT an indictment of the industry.

This IS a collecting place for the Best Ideas for fixing what ails these companies!

It is our hope that the best thinkers in industry will contribute their Best Ideas in one or more of our categories here and that the whole will be much greater than the sum of the parts.

This blog is copyrighted. All rights reserved. Small segments may be copied for either news articles or scholarly papers.