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Three recent announcements shed some
light on things to come, maybe.
The first contained the candid and
revealing comments of Bernd Pischetsrieder, VW's CEO since
2002, in a recent Wall Street Journal article (VW Chief
Confronts Corporate Culture, WSJ; Sept. 19, 2005).
Recognizing the need for but difficulty in changing a
deep-seated culture, Mr. Pischetsrieder says he is undertaking
a broad revamp of management, "changing both people and
priorities." He also admits that management was too slow
to react when it became clear the company was headed for
trouble. The article points out the company's desire to reduce
wages and lengthen work hours. Mr. Pischetsrieder notes that
labor costs are just 15% of the cost of the car and asks,
"What about the other 85%?" Refreshingly, he was
quoted as saying, "Sometimes in a situation like this,
you need different thinking…to give a signal to the internal
organization that we need a different approach."
The second was the announcement of Kerk
Kerkorian's interest in increasing his stake in GM and
securing a seat on the board. While he still claims no
interest in getting involved in the management of the
business, most industry watchers feel he will, at some point,
make a move to improve the company's performance in order to
improve his financial position. Just as VW needs different
thinking, GM seems mired in an inbred version of "narrow
think" when it comes to managing its way out of its
current situation. Let's hope Mr. Kerkorian can stimulate
different thinking. (It is interesting that he has also
invested in Volkswagen recently.)
The third was an article, also in the Wall
Street Journal, on research regarding managing: Rethinking
the Quality-Improvement Program, WSJ, Sept. 19, 2005. The
gist of the article is that process management tools such as
Six Sigma help improve existing products and routines but can
hinder the ability to innovate. Even GE, which still touts the
merits of Six Sigma, is reportedly backing off some of its
emphasis on it. One executive was quoted, "There are
times when it is overkill." Motorola, which invented Six
Sigma in 1986, acknowledges their defect rate is actually
Four-and-a-Half Sigma.
The reason these three announcements are
significant is that they denote a shift in thinking. The world
is changing and the more we can open up to different thinking,
the more likely we are to respond successfully to the
challenges our businesses face.
At a recent meeting of operations
management professionals, a logistics expert described to the
audience the complexity of a "typical" automotive
supply chain. The number of parts managed exceeded 20,000 and
the challenge to reduce complexity was enormous. The audience
consisted of people from a variety of industries including
steel fabrication, healthcare, distribution, and foundries.
One gentleman from the healthcare industry was unimpressed by
the automotive complexity. It turns out he deals with well
over 30,000 unique part numbers with even more demanding
customers and tighter delivery commitments.
In other words, complexity exists
everywhere, partly brought on by the increasing width and
depth of the supply chain, regardless of the industry. The
natural result, when traditional thinking is applied, is often
an increase in inventory levels to accommodate, and in some
cases mitigate, the damage complexity can do to the
customer-supplier relationship from missed deliveries, quality
issues, and extended lead times.
Problem is, there's a new factor that makes
the inventory response the wrong one. Offshore competitors
whose costs are often 20-25% below yours can eat your lunch,
metaphorically and literally, by providing your customers a
cheaper product with equal quality. They usually maintain
buffer inventory as well, but it costs them 20-25% less than
yours does. As a result, to stay competitive, you have to
deliver to the customer in a timely, responsive way without
incurring the cost of building and carrying inventory. It is
time for new thinking.
Oh, and if you think that being lean will
bail you out, remember that because of offshore competition,
your selling prices are probably 20-25% too high. If you spend
your time improving your processes so that you can do the
wrong thing better (in this case build more inventory), your
business still loses to the competition.
There's no more time for incrementalism. It
is time for new thinking.
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