Lean Management, Respect for People and Google

An interesting article about Google in the July 2 issue of Forbes prompts some thoughts about the meaning of the lean concept of respect for people – and how your demonstrate your commitment to that concept.

            Generally, most articles I read about respect for people (and a few I’ve written) are based on the idea that respect for people means respect for their intelligence and abilities. Lean discards the old paradigm of know-all bosses ordering unthinking robots and assumes that what’s best for a company is having employees who are thinking and creative, who contribute to solving a company’s problems and improving its operations.

            That is certainly true. But respect for people can mean more than that. It also includes providing employees with good management, interesting work and fair compensation, as well being attuned to employee satisfaction and morale. Building and sustaining a culture in which employees believe in management’s commitment to respect for people is one of the great challenges of lean management.

            The Forbes article (you have to become a member to access it online) notes that a growing number of employees are leaving Google because of the money. No, they are not underpaid; quite the opposite. Stock options granted since Google went public three years ago are becoming vested, and large numbers of Google employees are rolling in dough:

 

            Insiders figure there are at least 700 people roaming the halls worth a minimum of $5 million, many of them worth multiples of that.

 

            The article also notes that Google has grown from 350 employees five years ago to 13,000 today. Craig Silverstein, the company’s director of technology, says it is “harder for the people at the top to keep things straight.”

            Silverstein, who has made more than $100 million in Google stock, offers an even more fascinating comment when he says that for veterans like him, 'economically, you are volunteering to be here.' He stays because of his interest in solving hard computational problems with other smart colleagues.

            But the article, by Quentin Hardy, notes:

 

            Not everyone feels the same way. Veterans complain of wasted effort on overlapping projects and disaffection with endless work on glorified ad schemes. Bismarck Lepe left almost immediately after his options fully vested on their four-year anniversary. Colin Wong, who started at Google in November 2002, quit in December to do angel investing in Seattle. He left over 'the boredom of just looking at Internet advertising.'

 

            The brain drain is producing some positive effects for Google because some of those leaving are starting new companies – which use Google technology.

            However, it doesn’t appear that Google necessarily intended that to happen. And Google apparently struggles with the challenge of coming up with ways to keep people – and determining who it most wants to keep. Laszlo Bock, Google’s vice president of people operations (now there’s a title) is quoted as saying the company

 

            …is prepared to see a number of people move on and has identified the people it feels it must keep, particularly in Google's core business of Internet search. The company has an advantage there, as search now requires vast computing resources that no startup seems able to match and Google is still in a good place to address the intellectual challenges of making search better. A core of some 200 search veterans are said to be rich and happy where they are.

            Some of Google's marquee names on the business side have been given new chores to keep them happy: Sheryl Sandberg, who developed Google's ad business, now also helps run its charitable foundation, while whiz salesman Omid Kordestani is heading Google's international expansion.

The company has continually tinkered with its incentives for people to stay. Early on Larry Page and Sergey Brin gave 'Founders' Awards' in cash to people who made significant contributions. The handful of employees who pulled off the unusual Dutch auction public offering in August 2004 shared $10 million. The idea was to replicate the windfall rewards of a startup, but it backfired because those who didn't get them felt overlooked. 'It ended up pissing way more people off,' says one veteran.

Google rarely gives Founders' Awards now, preferring to dole out smaller executive awards, often augmented by in- person visits by Page and Brin. 'We are still trying to capture the energy of a startup,' says Bock.

            How do you best demonstrate respect for people? In your own experiences, what has worked best, and what hasn’t? Is losing people inevitable, particularly in a growing organization? Tell us your stories.

 

Nissan: Trying to Be Lean

Toyota gets most of the publicity, but it’s not the only Asian automaker pursuing a lean strategy.

            Nissan is another, or at least it tries to be. At the recent Automotive News Manufacturing Conference, I heard John Miller, vice president of purchasing for Nissan North America, talk about some of the techniques the company employs. He made reference to cross-functional teams, “kaizen-type activity” and other lean methods. He also said, a bit defensively, “we have our own Nissan Production Way.”

            However, for me, the most telling remark came when Miller was asked to characterize the Nissan culture. His comment: “we’re a very self-challenging company; we are never happy.” That, of course, is the right kind of attitude, one that goes to the very heart of continuous improvement.

            The conference also included a tour of Nissan’s 5.4-million-square-foot plant in Smyrna, Tennessee, which the company claims is the largest North American manufacturing plant under one roof. (I thought Toyota’s plant in Georgetown, Kentucky, is larger, but maybe that’s not under one roof.)

            The plant, opened in 1983, is a busy operation with a high degree of automation (approximately 1,000 robots). Nissan employs 8,300 people in mid-Tennessee, and the plant – which makes two cars, two SUVs and a pickup truck – has a capacity of 550,000 vehicles annually.

            Frankly, for a company that professes to be lean, I didn’t see as much in the way of visual controls as I expected at the plant. Perhaps that’s an area in need of some kaizen events.

            By the way, Miller admitted that 2006 was a “challenging” year; for the quarter ending March 31, Nissan reported global operating profit of about $1.9 billion (US), down 7 percent from a year earlier. Net income was about $600 million, down 53.7 percent due to (in order of decreasing magnitude) “provisions taken for the one-time charge for headcount reductions in the U.S. and Japan, lower profit contribution from equity method companies, and higher taxes.” Global sales (number of units sold) were down 2.4 percent, and sales in the U.S. were down 4 percent.

            The figures suggest that Nissan has some distance to go to achieve the kind of lean success enjoyed by Toyota. But its heart seems to be in the right place.

Lean in Education: Continuous Improvement in Elementary Schools

Can you teach lean principles to elementary school students? The Mountain View Whisman School District in Mountain View, California, is doing just that.

            Actually, it’s a two-stage process. The district is engaged in an organized, ongoing effort to train teachers in continuous improvement, and the teachers are then applying that training in the classroom, working with students to improve the educational experience.

            The district has created a video that makes for fascinating viewing. Both teachers and students – as young as five years old – describe what is happening in the classroom.

            This is not the kind of formal lean experience you might find at a manufacturer. As far as I can tell, there is no value stream mapping, no kanban bins, none of the tools of lean.

            You might call it Lean 101, but that would be an overstatement. This is kindergarten lean – in some cases, literally. The techniques being taught and used include setting goals, providing ongoing feedback, identifying problems and working together to find solutions.

            The most immediate benefit from this approach are that the students will achieve more in class and gain greater enjoyment from being in school.

            In the long-term, and perhaps more importantly, these students will become adults who believe in continuous improvement, who view it as a fundamental part of how they operate and what they do.

            This is fantastic. I hope we see this idea spread throughout education.

 

The True Cost of Outsourcing: Loss of Trust

An excellent column in The New York Times this week says a great deal about the dangers of outsourcing and what customers regard as value.

            In his “Economix” column, David Leonhardt discusses the recent recall of Thomas & Friends toy trains after they were found to contain lead paint.

            The trains are made under the auspices of HIT Entertainment, a British company that holds the right to a number of children’s characters, including Thomas & Friends, created by an English writer in the 1940s.

            But HIT has outsourced the actual manufacturing of Thomas trains to RC2, a Chinese company. HIT seems to think that the arrangement included outsourcing of responsibility. Leonhardt writes:

            Except for a small link on the Thomas Web site to RC2’s recall announcement, HIT has otherwise acted as if it has nothing to do with the situation. Its executives haven’t even said that they regret having been promoting toys with lead paint in them. They haven’t said anything publicly.

When I suggested to the company’s public relations agency, Bender/Helper Impact, that this might not be the smartest approach, the agency e-mailed me a two-sentence unsigned statement. It said that HIT appreciated the concerns of its customers and was working with RC2 on the recall, but that the recall was “clearly RC2’s responsibility.”

In effect, HIT has outsourced Thomas’s image, one of its most valuable assets, to RC2. And RC2 has offered a case study of how not to deal with a crisis, which is all the more amazing when you consider that the company also makes toys for giants like Disney, Nickelodeon and Sesame Street.

When it first announced the recall, RC2 said that its customers would have to cover shipping costs to mail back the trains. It reversed that decision after parents reacted angrily, but it is still going to wait about two months to send the postage refunds. Why? “Because finance is in another building,” as one customer service employee on RC2’s toll-free hotline told me.

Most important of all, the company hasn’t yet explained how the lead got into the trains or what it’s doing to avoid a repeat. Like their counterparts at HIT, the RC2 executives have stayed silent.

            Look at this from a lean standpoint. Lean is all about providing customers with value: what they want, when they want it. In this case, value consists of a particular toy that is safe for children. Value also includes trusting the company you do business with. When there is a problem, customers want the company they bought it from to solve that problem – now. And in a flat world, having something made in a faraway place doesn’t cut you any slack with customers. As Leonhardt puts it:

 

            In many businesses, outsourcing has simply grown too big to stay behind the curtain. What happens in Chinese factories determines how good — how reliable and how safe — many products are. So there is no way for executives to distance themselves from China without also distancing themselves from their own product.

 

            Many lean advocates urge manufacturers to look at the true cost of outsourcing, not just the savings from cheap labor, and they usually mention a variety of often-overlooked expenses. One item you usually don’t see on those lists – and should – is loss of trust.

 

The True Cost of Outsourcing: Loss of Trust

An excellent column in The New York Times this week says a great deal about the dangers of outsourcing and what customers regard as value.

            In his “Economix” column, David Leonhardt discusses the recent recall of Thomas & Friends toy trains after they were found to contain lead paint.

            The trains are made under the auspices of HIT Entertainment, a British company that holds the right to a number of children’s characters, including Thomas & Friends, created by an English writer in the 1940s.

            But HIT has outsourced the actual manufacturing of Thomas trains to RC2, a Chinese company. HIT seems to think that the arrangement included outsourcing of responsibility. Leonhardt writes:

            Except for a small link on the Thomas Web site to RC2’s recall announcement, HIT has otherwise acted as if it has nothing to do with the situation. Its executives haven’t even said that they regret having been promoting toys with lead paint in them. They haven’t said anything publicly.

When I suggested to the company’s public relations agency, Bender/Helper Impact, that this might not be the smartest approach, the agency e-mailed me a two-sentence unsigned statement. It said that HIT appreciated the concerns of its customers and was working with RC2 on the recall, but that the recall was “clearly RC2’s responsibility.”

In effect, HIT has outsourced Thomas’s image, one of its most valuable assets, to RC2. And RC2 has offered a case study of how not to deal with a crisis, which is all the more amazing when you consider that the company also makes toys for giants like Disney, Nickelodeon and Sesame Street.

When it first announced the recall, RC2 said that its customers would have to cover shipping costs to mail back the trains. It reversed that decision after parents reacted angrily, but it is still going to wait about two months to send the postage refunds. Why? “Because finance is in another building,” as one customer service employee on RC2’s toll-free hotline told me.

Most important of all, the company hasn’t yet explained how the lead got into the trains or what it’s doing to avoid a repeat. Like their counterparts at HIT, the RC2 executives have stayed silent.

            Look at this from a lean standpoint. Lean is all about providing customers with value: what they want, when they want it. In this case, value consists of a particular toy that is safe for children. Value also includes trusting the company you do business with. When there is a problem, customers want the company they bought it from to solve that problem – now. And in a flat world, having something made in a faraway place doesn’t cut you any slack with customers. As Leonhardt puts it:

 

            In many businesses, outsourcing has simply grown too big to stay behind the curtain. What happens in Chinese factories determines how good — how reliable and how safe — many products are. So there is no way for executives to distance themselves from China without also distancing themselves from their own product.

 

            Many lean advocates urge manufacturers to look at the true cost of outsourcing, not just the savings from cheap labor, and they usually mention a variety of often-overlooked expenses. One item you usually don’t see on those lists – and should – is loss of trust.

 

Rising Logistics Costs: Inventory Shifts, Not Reductions

Logistics costs are rising, and increased inventory is one of the reasons, according to a new report.

            On the face of it, that might seem surprising. One would think, or at least hope, that the growing implementation of lean strategies would reduce inventory, not increase it. But it turns out that retailers who are achieving reductions are simply shifting the problem on to their suppliers.

            The just-released Council of Supply Chain Management Professionals’ 18^th Annual State of Logistics Report says that in 2006, logistics costs increased $130 billion over 2005 to $1.305 trillion. That makes 2006 the third year in a row that logistics costs accounted for an increasing share of GDP (9.9% in 2006), according to Rick Blasgen, president and CEO of CSCMP.

            The biggest reason for the increase was rising transportation costs, due to rising fuel costs. But that wasn’t the only reason.

            'Inventory costs have risen dramatically because of rising interest rates and because there is more inventory in the system,' said Rosalyn Wilson, author of the CSCMP research report. 'While large retailers are keeping lean stocks on hand they are foisting inventory back on their suppliers, requiring them to stock and re-supply stores more frequently.'

            I don’t know whether this change results from retailers pursuing lean strategies (or what they believe to be lean strategies). However, lower inventories and more frequent re-supplying would be consistent with a lean approach.

            But if that is the cause, then what the retailers are doing is ultimately not really lean. If it were, they would look at the total supply chain, not just their own operations, and they would try to help their suppliers become lean so the suppliers would produce less inventory.

            In any event, it seems retailers and suppliers need a stronger education in lean so they can actually reduce costs and inventory, not just shift them around.

            By the way, the report also makes an interesting point about our nation’s shipping infrastructure, which sounds like it could use some value stream mapping and efforts to reduce bottlenecks.

            'The nation's inland waterway system needs to be revitalized,' said Wilson. 'A single barge can move the same amount of cargo as 58 semi-trucks at one-tenth the cost. Yet, of the 257 locks on the more than 12,000 miles of inland waterways, nearly 50% are functionally obsolete due to a lack of funding.'

 

Visual Controls: Hospital Wristbands

 In an action that embodies the principles of both visual controls and standard work, several Arizona hospitals have agreed to all use the same system of color-coded wristbands for patients.

            (OK, maybe this is isn’t exactly standard work. But it is a case of everyone agreeing to do something the same way.)

            Color-coded wristbands are not new. But according to a story in the Phoenix Daily News-Sun, Barb Averyt, program director of patient safety at Arizona Hospital and Healthcare Association, realized there was a problem. Many nurses and doctors practice at more than one hospital, but the wristband colors vary from hospital to hospital – which could confuse medical staff.

            Specifically, eight different colors were being used in the 47 Arizona hospitals to signify DNR (do not resuscitate). In addition, Averyt (shown in the photo above) said an incident at a Pennsylvania hospital – where a nurse gave a patient the wrong wristband, which could have caused a fatality – spurred her to take action.

            Averyt created a new program, called Safe & Sound, which was launched this spring. All the hospitals now use red wristbands to designate allergy risk, yellow to designate fall risk, and purple to designate DNR. (There are more than three types of risk, but the program focuses on these three as among the most significant. And yes, DNR is not exactly a form of risk, but whether a patient is DNR is critical information for medical staff.)

            So far, six states in addition to Arizona have adopted the program, and at least another four are considering it. Averyt received an award through the Arizona Partners for Implementing Patient Safety.

            Simple, low-tech, and inexpensive – now that’s the way to achieve improvement.

            Can you think of other good, simple methods for improving processes? Post a comment telling us about them.

 

Lean Fishing?

Here’s one I hadn’t heard before.

            The Marine Fisheries Agency, a branch of the British government, has announced a series of grants intended to modernize and enhance the competitiveness of England’s fishing industry.

            The 39 grants total £3,000,000 and include everything from small-scale vessel modernizations to major port improvements.

            But buried in the list is this: £31,000 to something called SFIA in Edinburgh for the introduction of lean six sigma techniques to the industry.

            That’s not a lot of money, and the news release doesn’t explain what SFIA is. However, I’m always glad to see lean embraced – even in a small, tentative way – by a new industry.

            It makes you wonder: Where will these lean six sigma efforts focus? On what fishermen do while out on the water? On how the fish are processed once the ship returns to port? Intriguing.

            Can you think of other industries where lean is not currently being applied and where it could be valuable? I’d like to focus on industries you wouldn’t normally think of as candidates for lean. (Of course, it’s hard to think of an industry where lean would NOT be valuable, but some industries might hold greater potential than others.)

            Fish has always been praised as a source of lean protein. Now that phrase might take on a whole new meaning.

 

The Auto Companies Suppliers Like Best

I rarely write about awards, but I was intrigued by some awards presented at the recent Automotive News Manufacturing Conference – awards that I believe spoke volumes about manufacturer-supplier relationships.

            I’ve written before about how these relationships should be partnerships built on mutual respect – a lean hallmark – and not adversarial relationships with each side trying to squeeze the other.

            The conference featured presentation of what were called Supplier’s Choice Awards – and in my view they recognized those automakers who embody the lean ideal when it comes to relationships.

            More precisely, the awards are designed to recognize those North American automakers who give the greatest support to supplier innovation. (North American, in this case, means those companies that assemble vehicles in North America, even if they are not headquartered here.) The awards are based on a survey by J.D. Power and Associates of hundreds of automotive suppliers. (The awards were sponsored this year by Deloitte.)

            J.D. Power asked the suppliers to rate the automotive OEMS on five criteria:

• Openness to new ideas
  
• Ease of working with the OEM on innovative ideas
  
• Level of trust
  
• Willingness to offer financial incentives or rewards for supplier innovation
  
• Ability to implement innovations

            Those last two criteria were described as most important.

            So who won? Not the Detroit automakers.

The awards went to BMW, Honda and Toyota.

Draw your own conclusions.

 

When Did You First Know?

Sometimes things go wrong. You fail to produce the quantity of product you need by a deadline. A shipment is delayed. Or something else happens that will lead you to disappoint your customer.

            Almost every company will try to learn from failure to prevent it from happening again. But it may be that most companies, in that effort to learn, ask the wrong question.

            I heard this discussed recently by Sanjiv Sidhu, founder and chairman of i2 Technologies, a company that makes supply chain software used by most major manufacturers.

            Sidhu was speaking at the Automotive News Manufacturing Conference. He said that when something goes wrong, the typical manager will ask, “What was the problem?” But the better manager, he contends, will ask, “When did you first know?”
            Think about that, and consider how well it meshes with lean principles. A basic lean concept is that, when there is a problem, the root cause should be identified and the problem should be solved at its point of origin. Implicit in that is the idea that the problem should be solved quickly. One of the advantages of one-piece flow is that problems and defects can be spotted almost immediately, rather than after completion of a big batch of production.

            But to solve a problem quickly, you first need to be aware of it. Your process, your flow of information, your visual controls all need to provide you with information as close to real time as possible so solutions can be developed quickly.

            And that’s why Sidhu is right. The ability to spot a problem quickly is in some ways a more important issue for your overall processes, or at least an issue to be addressed earlier, than your ability to solve a particular problem. So when a problem occurs, you should indeed ask when your key people first knew about it. If they should have known sooner, your process may need improvement.

            Sidhu, of course, has a vested interest in making this point; “visibility” is one of the selling points that i2 lists as a key benefit of its software.

            But that doesn’t mean Sidhu is wrong. And in fact, I found him to be an intelligent, articulate speaker with an excellent grasp of supply chain issues.

            So as you improve your processes, look at the flow of information as well as the flow of parts, materials and products. Evaluate your capabilities to spot problems early. Make improvements. That way, you will be able to solve problems quickly and not be embarrassed when someone asks, “When did you first know?

 

The 8th Waste: How Lean Can Improve Energy Efficiency

American industry is missing a great opportunity to reduce energy costs by becoming more efficient. Lean advocates can assist by adapting lean techniques to address the problem.

            A recent New York Times article noted that increased efficiency holds greater potential for energy savings than alternative fuels:

            Even enthusiastic supporters of alternative energy agree that the easiest way to cut carbon emissions and air pollution is to focus more on efficiency, less on pollution-free generation.

“Efficiency is the steak,” said Carl Pope, executive director of the Sierra Club. “Renewables are the sizzle.”

            What is worse is that industry apparently just isn’t interested:

            At a recent conference on energy efficiency and investment strategy, Pedro Haas, an energy expert at McKinsey & Company, said his consulting firm recently asked people worldwide what payback time they would find acceptable before investing money to save energy.

One fourth of them said they would never spend any money to improve energy efficiency; 50 percent said they wanted to earn back the investment in two years or less.

“That means about 75 percent of the public will require economics that are just not there,” Mr. Haas said.

            Why the lack of interest? Perhaps because, as the article points out, energy efficiency results from implementing many small changes and doesn’t consist of one big project with a clearly measurable payback:

            In most places the traditional ways of making energy still turn out to be easier to do than to save it. William R. Prindle, the deputy director of the American Council for an Energy Efficient Economy, a nonprofit group in Washington, said that it was simpler to finance and build a new power plant than to find the thousands of places to invest in energy efficiency, even if the dollars buy more power through efficiency than through new generation.

But the incentives for energy efficiency are growing, experts say.

“When we started talking about this in 1990s in terms of energy efficiency versus coal energy, we were talking 4 cents a kilowatt-hour for coal, and 4 cents for energy efficiency,” said R. Neal Elliott, the industrial program director at the council. “Today we’re talking optimistically, without carbon taxes, 10 cents for coal. With carbon taxes, we may be talking 20 cents for coal.”

“And energy efficiency,” he said, “is still 4 cents or less.”

            Leadership helps, and the best leadership in this area right now seems to be coming from a handful of states. The Times article, written by Matthew Wald, notes that Vermont contracts with a non-profit corporation whose goal is to help businesses find ways to save energy. And in New York, Gov. Eliot Spitzer has set a goal of cutting electricity demand by 15 percent from what it would otherwise have been in 2015. (That sounds a bit convoluted, but it’s still good. I’m a big fan of setting goals and deadlines to get things done.)

            As I noted in a previous post, lean initiatives often reduce energy usage simply by making a process more efficient.

            But we need to do more to increase lean’s focus on saving energy. I suggest that we expand the traditional list of seven wastes to eight, adding energy. Energy use can be added as a metric on value stream maps, and kaizen events can be held with the primary objective of reducing energy use. Widespread deployment of such techniques can go a long way toward reducing the world’s hunger for ever-increasing amounts of energy.

 

Theory of Constraints: Was Goldratt Wrong?

While I don’t normally focus here on the books we publish, I wanted to discuss one new book because of its intriguing challenge to a long-accepted idea regarding the theory of constraints (TOC).

            As many of you are aware, TOC was pioneered more than 20 years ago by Eli Goldratt and Jeff Cox in the business novel The Goal.

Theory of constraints focuses on maximizing throughput and does so by identifying and eliminating constraints on production, often referred to as bottlenecks.

            (Disclaimer: I am not an expert on TOC, so if you believe I don’t explain it very well, by all means please post a comment on the blog.)

            In TOC, you first identify the system’s constraint(s), then decide how to exploit the constraint(s). Next, subordinate everything else to that decision. Then elevate the constraint. If, in any of the preceding steps, the constraint has been broken, go back to the first step.

            One concept of TOC comes under fire in Beyond the Theory of Constraints: How to Eliminate Variation and Maximize Capacity. This book, which we have just added to our website (copies will be available in August), is written by William Levinson, a manufacturing expert and the author of several other books, including Henry Ford’s Lean Vision: Enduring Principles from the First Ford Motor Plant.

            The TOC concept at issue here has to do with variation. The following description from the Superfactory website explains it:

 

            Another key concept of the Theory of Constraints is that variation (in production and material transfer times) prevents the operation of a balanced factory at 100 percent capacity. This concept is illustrated in Goldratt and Cox's The Goal by a matchsticks-and-dice simulation in which the players represent production stations.

During each turn, each player passes the lesser of his dice roll (his station's capacity for that turn) and the number of matchsticks he has (work waiting at his station) to the next person. Although each station has a theoretical average capacity of 3.5 units per turn, the simulated factory's overall production is somewhat less because high die rolls, which are wasted when no work is available, do not make up for the low ones.

 

But Levinson sees things differently. He contends that much of the variation in processing and material transfer times comes from special or assignable causes that can be eliminated through traditional quality management techniques. He points to the success of Henry Ford, whose product system was designed explicitly to suppress variation in processing and material transfer times.

Levinson believes that the matchsticks-and-dice exercise is useful in teaching the effects of variation on throughput and inventory. However, he contends it may also teach the lesson that the factory is at the mercy of this variation. The purpose of Levinson’s book is to teach the reader how to identify and remove these assignable causes and, as he puts it, “roll a six every time.”

Do you agree? Do you believe it is possible to eliminate these types of variation? Please post your comments, and I’ll hope to revisit this issue after Levinson’s book has been out long enough for people to be familiar with it.

 

 

The Harbour Report: Some Progress for Detroit

The Detroit automakers are doing better, but still have a long way to go.

            That’s my reading of this year’s Harbour Report, which was just released. The annual report from Harbour Consulting measures manufacturing productivity at North American plants.

            Not surprisingly, Toyota still leads in total manufacturing productivity (assembly, stamping, engine and transmission) with 29.93 labor hours per vehicle. Honda leads in assembly productivity, at 21.13 hours.

            But General Motors won three of the report’s four Best Plant awards (Honda took the fourth).

            More broadly, the gap among the six major North American automakers continues to narrow.

            For example, the difference between the most and least productive in total manufacturing productivity was 5.17 hours, or about $300, per vehicle. However, that is down from 7.33 hours per vehicle in 2005, and less than one-third of the gap in 1998.

            Profitability is still a huge problem for Detroit. Toyota and Honda each earned a pre-tax margin of more than $1,200 on every vehicle sold in North America, the report says, while Chrysler, GM and Ford lost $1,072, $1,436 and $5,234, respectively, per vehicle.

            A Harbour news release says this reflects “a variety of factors, including the large difference in health care and pension costs, lower average revenue, as well as higher costs of rebates and low-interest rate financing required to trim inventories.”

            The release credits the automotive unions for working harder in 2006 to create for flexible labor agreements, but says they “must go further to overcome their persistent health care and pension cost disadvantage vs. Honda, Nissan and Toyota. Restrictive labor agreements that create cost disadvantages still exist and could jeopardize the survival of certain automakers.”

            However, the improvement in productivity is still significant.

            'Improving productivity in the face of lower production is a huge accomplishment, but none of the domestic manufacturers can afford to let up,' said Ron Harbour, president of Harbour Consulting. 'General Motors essentially caught Toyota in vehicle assembly productivity. Considering that they will be building vehicles in 2007 with dramatically fewer hourly employees in the U.S., GM, Ford and Chrysler likely will reduce their hours per vehicle significantly.'

            Will the Detroit Three every make it back to profitability? What do you think?