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The
recent quarterly meeting of the Alabama Automotive
Manufacturers Association (AAMA) focused on Lean. The morning
session offered a tutorial on value stream mapping while the
afternoon was made up of a panel discussion featuring a number
of lean success stories. I was pleased to participate on the
panel. During my 25 years of lean experience, I’ve seen a
lot of initiatives that have helped develop the level of lean
we see today. However, as I emphasized in my AAMA
presentation, being lean isn’t enough anymore.
Take
the automotive manufacturers for instance. The automotive
industry as a whole is a classic example of Push
manufacturing: That is, production being “pushed” by a
forecast rather than “pulled” by customer demand. Despite
most OEMs and Tier Ones in the industry becoming lean (meaning
they have streamlined their operations and reduced waste) they
are still building to forecast rather than customer
demand.
Currently, the automotive industry is trying to
overcome the disconnect between historical forecasts and
shifting consumer preferences by offering rebates and
incentive programs which exceed $3000 per vehicle sold. In
addition there is an estimated $4000 of unnecessary cost in an
average automobile due to long manufacturing cycle times,
out-of-balance inventories and redundancies within the supply
chain.
American manufacturers are facing a new
challenge. While being lean is important the industry must
make the next step: becoming customer demand driven. Customer
demands will lead the change to this new focus.
Customer
demands for faster, cheaper, and better (or custom) products
are straining the profitability of many companies. Some are
reacting by switching production to lower cost countries.
While low cost labor lessens the problems caused by the
demands for cheaper, it doesn’t necessarily resolve the
challenge of faster (or custom). Instead, it creates a double
whammy. As customer preferences change, sometimes overnight,
building inventory, even at lower labor rates, adds
tremendously to costs and ultimately causes higher selling
prices, something the customer is increasingly unwilling to
accept.
This costly and ineffective solution to the
problem is resolved through build-to-order initiatives which
dramatically shorten response time to customer demands. Build
only what the customer wants. Don’t demand that the customer
wants what you forecast. Imagine the value of reducing the
cost of selling a vehicle by $7000 while giving the customer
what they want, when they want it.
For build-to-order
to work, a close connection is required with customers as well
as suppliers throughout the supply chain. The U.S. consumer is
driving this need for change and it bodes well for companies
who can achieve both rapid response and low cost.
Build-to-order can do that. Ask us how.
John
Collins, President and CEO
Sustainable
Solutions International, LLC
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