Outsourcing Does Not Make Porsche Lean

Porsche is an extremely successful car company, and an article in The New York Times suggests that success stems from a lean approach. Unfortunately, the Times gets it wrong.

The article, by Carter Dougherty, notes that Porsche goes beyond other car companies when it comes to outsourcing. Rather than just outsource production of certain parts or subassemblies, Porsche has some entire cars assembled by Valmet Automotive, a company in Finland.

In some sense, the innovation makes Porsche the only major virtual vehicle manufacturer, a company that designs and markets sports cars without actually cranking them all out on its own production line.

The bread and butter of Porsche’s work in Stuttgart is the classic 911 sports car, but with demand for that model now falling, it is pulling Boxster production out of (Valmet) back to Germany. Though the system creates fiendishly complex logistical challenges, Stuttgart can keep running at capacity, evading the industry’s hoary problem of covering the fixed costs of factories and labor.

Porsche is profitable, well-run in many ways, and taking production back from Valmet does enable it to avoid laying off its own employees. However, the Times article says the arrangement with Valmet “is inspired by Japanese models of lean manufacturing.”

Sorry, but simply transferring work to a supplier is not lean. Eliminating waste from a process is lean; making the process someone else’s responsibility is not.

Ironically, the description in the article makes Valmet sound like the lean company in this relationship because it demonstrates impressive flexibility.

Ilpo Korhonen, Valmet’s president, a cerebral engineer with an M.B.A., is constantly calibrating his work force to match Porsche’s needs with the deft touch of an artist applying the final brushstrokes to a masterpiece. In each of the last three months, he idled about a third of Valmet’s 600 employees before ramping up again in January and February, and then shifting down with 190 layoffs in March.

“We are adjusting capacity almost daily,” Mr. Korhonen said.

Managing the inflow of parts that go into a high-performance Porsche is another tricky task. Many suppliers are concentrated near Stuttgart, but Valmet has to arrange deliveries to Finland, and often in smaller quantities.

Hence the “milk run,” as Mr. Korhonen calls it. Trucks are perpetually swinging through Germany, Poland, Sweden and Finland to collect the components that go into the Porsches assembled in Uusikaupunki…

But Valmet’s greatest challenge is, in the end, existential. Its contract with Porsche expires in 2012. The German company will move its outsourced assembly to Magna Steyr, a company in Austria, which has the resources to assist Porsche in some development work.

Valmet workers are already clearing space in the factory to manufacture the Karma, a plug-in electric hybrid designed by Fisker Automotive, a California start-up. It will also soon produce a luxury golf car for a Danish customer and expects to sell other engineering services as automakers create derivatives of existing models, Mr. Korhonen said.

And when the well-to-do rediscover their love of Porsche sports cars, Valmet hopes to produce those, too.

“Eventually we will ramp back up,” Mr. Korhonen said. “We expect the market to recover.”

I would suggest that the true hallmark of a lean company is that it doesn’t outsource, but finds its savings by streamlining its processes – not offloading them.