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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