Lean Strategies in a Low-Volume World

Do you wonder why automakers no longer have models that sell hundreds of thousands of units? It’s because the world has changed, and you need to be lean to survive.

            That message comes from Chris Theodore, vice chairman of American Specialty Cars (ASC).

Actually, Theodore’s main point is the need for innovation in product development. But he bases that point on what he sees as the ongoing transformation of the auto industry into a collection of niche products – making low-cost, low-volume production essential.

To say that lean helps you achieve this goal is an interesting position because many people see lean as having the greatest benefit for high-volume operations.

            ASC does not make cars; it produces components or modules for cars to help them become distinctive. For example, one of the company’s products is InfiniVu, a moon-roof system.

Speaking at the recent Management Briefing Seminars (sponsored by the Center for Automotive Research), Theodore put into sharp focus the low-volume world that now confronts auto companies in North America.

            On this continent, average sales per nameplate used to be high: 108,619 back in 1985. But 20 years later, the average sales per nameplate in 2005 were a mere 48,626. And Theodore believes we are fast approaching the point where that figure will drop to 40,000.

            The plummeting number reflects the fact that more auto companies are producing many more nameplates than was true 20 years ago, splintering the market.

            (I suspect that, in China, the sales per nameplate may eventually grow to a figure higher than that of the United States. But the competition will still be just as fierce.)

            So what’s an auto company to do (other than close plants and lay off workers)? Simple, says Theodore: Produce niche vehicles at the same cost per unit as high-volume vehicles. That means lower investment per model and lower product development costs.

            Well, sure. And how can that be done? Lower investment per model, Theodore says, requires:

• Greater flexibility, meaning lean manufacturing.
  
• New materials and processes.
  
• Lower investment, meaning low-cost equipment and tooling.

 

            Achieving lower product development costs requires:

• More flexible architectures.
  
• Faster product development.
  
• Fewer new components, meaning increased sharing and reuse of components.

 

            Theodore didn’t spend a great deal of time talking about lean, although he made it clear he is a believer in a lean strategy. In fact, ASC has trademarked the phrase Lean Product Creation.

            He stressed the need for constant innovation arriving with ever-increasing speed. And he pointed out that speed comes not just from developing products faster, but from developing more products with the same resources, launching new models without losses, being closer to the market, and achieving excellent execution.

            Further, he stressed the importance of speed of decision-making, developing a plan and sticking to it, and avoiding what he called the greatest waste of all: cancelled or deferred products.

            The flow of bad news from GM and Ford makes one wonder whether the two giants can adapt to a low-volume world. They would do well to listen to people like Theodore.