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Russia and Its Auto Factories are Severely Lacking in Lean

The fundamental concepts of lean are designed for free, democratic markets. The lean focus on creating value for the customer assumes that customers have the right to define value, and that customers have the ability to choose among competing products.

In a dictatorship, the government may limit the products available and not be concerned with what the customer would view as valuable. The results include inefficient operations, unpopular products of low quality, and unhappy citizens – conditions that, in my view, cause citizens to view the government as illegitimate and may ultimately lead to its downfall.

These thoughts are prompted by an article in The New York Times profiling the Avtovaz auto plant in Tolyatti, Russia – which the article, written by Andrew Kramer, describes as “one of the least efficient automobile factories anywhere in the world — each worker produces, on average, eight cars a year, compared with 36 cars a year at General Motors’ assembly line in Bowling Green, Ky., for example.”

The cars made at the factory are inexpensive, but quality is poor and style hasn’t changed much in 40 years.

Russian leaders are not concerned with inefficiency.

The government is giving Avtovaz billions of dollars in aid, no strings attached. No chief executive firings. No renegotiation of workers’ contracts. No demands to turn out better-quality cars, much less fuel-efficient hybrid cars. (The first car with an airbag was introduced here in 2005.)

But the auto bailout, Russian style, is intended more to ensure peace in the streets than restructure a business, much to the lament of some critics who think tough love might be better.

“The key issue is too much government protection,” Yegor T. Gaidar, a former prime minister, said. “The factory will create as many problems for the Russian economy as General Motors for the States.”

Russia is suffering from the worldwide recession. Layoffs in the past, including 400 job cuts at a GM joint venture in December, sparked protests. It is that potential for social unrest that worries politicians.

So they are providing bailout money to preserve jobs, imposing a tariff on imported cars and even subsidizing auto loans to stimulate demand. (The tariff set off protests and a police crackdown in Vladivostok, a major center for importing and servicing secondhand Japanese cars.)

Russia may succeed, in the short term, in preserving jobs and limiting social unrest. But the bigger picture is a country not competitive globally, with a troubled economy, a government strained by excessive spending, and a population simultaneously demanding more government care and better products.

Change will not come easily, and will undoubtedly involve considerable upheaval in government and the economy. It will also require massive societal culture change, in the way people think about their country, their government and the world of business.

That last area will require lean thinking. I hope change does come, and I hope lean can play a small part in making it happen.

Why Customer Value is Critical: The Lesson of the Chevy Malibu

Why does lean focus on creating value for the customer? One reason is that failing to create such value can damage the relationship with the customer. And once that relationship is damaged, rebuilding it is incredibly difficult.

That point is made extremely clear in an insightful article in The Wall Street Journal focusing on the Chevy Malibu.

The Malibu was a popular car, stylish and powerful, from the mid-1960s until it was phased out in 1983. It was brought back in 1997, but the new version was mediocre.

After Bob Lutz joined GM as vice chairman in 2001, he made redesigning the mid-size Malibu a personal project, and brought together a team of designers, engineers and marketers to handle it.

Leaders of the team say Mr. Lutz made clear that the goal wasn't to improve upon the existing Malibu but to beat the competition. Their assignment was to create a car with a base price starting just above $20,000 but with the look and feel of a luxury sedan.

They spent weeks studying the Camry and Accord looking for weakness to potentially exploit. They studied the low-end products that fashion designers were crafting for Target Corp. discount stores, in search of secrets to a luxurious look at non-luxury prices.

The team did its job and produced a high-quality vehicle that won awards and was even recommended by the independent publication Consumer Reports.

So the car was a winner, right? Nope. It’s selling better than previous versions of the Malibu. But last year, the Camry outsold the Malibu 437,000 to 177,000.

The problem is, no one trusts GM. The article provides several examples of buyers whose past history of quality problems makes them unwilling to buy a GM car, despite widespread acknowledgement of the Malibu’s quality.

"A perception of inferior quality is the most serious problem facing GM," aside from its financial predicament, says David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich…

"It takes a long time to break through," says GM spokesman Dee Allen. "We have trouble getting people to even give the Malibu a try."

The article also quotes a Toyota spokesman as saying that, although the Malibu beat the Camry in J.D. Power’s initial-quality survey last year, "Quality is a marathon, not a sprint."

By the way, if you’d like additional insights into what people think of GM today, browse through the more than 100 comments posted on the WSJ article.

GM hopes to continue impressing people with its vehicles as, this year, it introduces a redesigned Camaro, the new Cruze and the electric-powered Volt.

Will that be enough to repair the damage to its relationship with its customers? Maybe. But I wouldn’t bet the farm on it.

Book Talk: Supply Chain Management at Warp Speed

The theory of constraints (TOC), popularized by Dr. Eliyahu Goldratt, has been a respected part of the improvement world for some time. We are now about to publish the first book that describes in detail the application of the TOC approach to assured availability in distribution, for both original equipment manufacturers and retailers.

Supply Chain Management at Warp Speed: Integrating the System from End to End by Eli Schragenheim and H. William Dettmer is a sequel to Manufacturing at Warp Speed, written by the same two authors and published nine years ago. The first book expressed ideas that were, at the time, cutting age, and were later adopted by Goldratt.

The new book addresses the performance issues of the entire supply chain. It addresses the new demands taken on when a firm offers to handle rush orders. It also reviews the issues surrounding availability and the management of inventory moving through distribution systems. The book is fully illustrated and includes examples, case studies and scenarios.

By the way, if you’d like to learn more about TOC, take a look at Beyond the Theory of Constraints: How to Eliminate Variation & Maximize Capacity, by William Levinson.

Do you have a question or comment about a book(s) that you would like addressed in Book Talk? Email me directly at Ralph.bernstein@taylorandfrancis.com.

Will the New SBA Administrator Be a Lean Leader?

Karen Gordon Mills was confirmed this week as administrator of the Small Business Administration. I’ve been reading about her background, trying to figure out if she will help promote the concepts of a lean strategy.

While she may not be a bad choice for the job, I see nothing in her experience to suggest she knows anything about lean.

For many years, she has been a successful leader of venture capital firms. She has a Harvard MBA and at one time worked for consulting firm McKinsey and Co.

It is hard to tell how much experience she has in actual business operations. Early in her career she worked in product management for General Foods. As a venture capitalist, she “took a leadership role” in some companies in which her firm invested, according to one profile.

In a statement at her confirmation hearing, she said, “In the mid 1980s, I was responsible for a number of traditional manufacturing businesses -- from plastic injection molders in Ohio – to a sub-fractional motor company in Arkansas. I was there on the factory floor when we had to weather the recession of the early ‘90s. Those experiences give me a deep understanding of what our small businesses need today to survive this downturn and to prosper in the years ahead.”

Will Mills be a friend of lean? Time will tell.

Hospitals Group Launches New Improvement Effort

The American Hospital Association has launched a new initiative called Hospitals in Pursuit of Excellence (HPOE). While information about the initiative doesn’t specifically mention lean, it seems to be pointed in the right direction.

The effort focuses on four areas: healthcare-acquired infections, medication management, patient throughput and patient safety. The AHA website features numerous case studies of hospital improvement efforts, with an invitation to other hospitals to submit their own.

An article about the effort in Hospitals & Health Networks is encouraging, in that those involved seem to recognize that the focus should be on process improvement.

What HPOE clearly shows, says Rich Umbdenstock, president and CEO of the American Hospital Association, is that these are systemic problems. “They are problems with the internal processes in hospitals,” he says. “And only through a more systems-oriented approach, which is an approach that is foreign to a lot of us in the health care field, can you start to understand where the opportunities for improvement are and how to make those improvements so they bring lasting, not temporary, results.”

AHA is distributing a guide on the program to every hospital in the U.S. Personally, I‘d also like to see them give each hospital a copy of Lean Hospitals by Mark Graban, as well as a few other of our healthcare-related books.

The AHA initiative parallels other healthcare-related efforts, such as the 5 Million Lives campaign, a program of the Institute for Healthcare Improvement that concluded in December.

It is good to know that the drive for healthcare improvement is expanding.

How Can Travel Companies Cope With Overcapacity?

A recent trip to Florida got me thinking about how to cope with overcapacity – in this case, in the travel industry. I didn’t come up with any easy answers, so perhaps this posting will prompt some comments with worthwhile suggestions.

I flew on Continental from Newark to Fort Lauderdale on a 7:30 a.m. weekday flight. Much to my surprise, the plane was no more than two-thirds full. A flight attendant told me that the 6:30 a.m. flight, considered more of a business flight, was always full. Perhaps. But the simple fact that any flight nowadays could have so many empty seats is indicative of the decline in travel that has already been widely reported.

(For the record, my return flight two days later was full. However, that 6:30 pm flight took off two hours late because of weather problems. I believe it may have had additional passengers from earlier delayed flights, and I know it was filled up partly with stand-by travelers.)

When I arrived in Fort Lauderdale, I went to Dollar Rent a Car to pick up my reserved vehicle. Dollar has a counter with about 20 computer stations, but only three of them were staffed. The agent I spoke with told me most employees were in a meeting. Perhaps. But I don’t know how many employees were actually there. And the line of people waiting to pick up cars wasn’t that long.

Those two specific examples aside, we know that airlines and car rental companies are suffering. How do you cope with that? A partially full plane doesn’t cost any less to fly than a full one. And the maintenance of a 20-station rental counter doesn’t go down when business is slow, though staffing costs will be less.

Airlines are mothballing some planes, but that approach has its limitations.

What lean principles or methods are most relevant here? How do you cope with high fixed costs during a business downturn? Post your thoughts below.

Book Talk: Lean for the Process Industries

The majority of books about lean focus on lean for assembly operations – what is known as discrete manufacturing. There isn’t much available that focuses specifically on process manufacturing – those industries that do not make assembled products, but produce foods, chemicals, fertilizers and pharmaceuticals, for example.

Lean principles can certainly be applied to process manufacturing, so general lean books have some value. And we do publish TPM in Process Industries by Tokutaro Suzuki. But of course, lean is a lot more than TPM. And there are differences in how lean might be applied in process industries.

That is why we are pleased to be publishing Lean for the Process Industries: Dealing With Complexity by Peter King, a new book that will be available in May.

King is a principal consultant in DuPont Corporate Operations, in the Lean Center of Technology. He has over 40 years experience at DuPont in R&D, manufacturing, systems analysis and work process improvement.

As the title implies, this book focuses on how to apply lean in process industries to achieve the greatest benefit. This is discussed not only in conceptual terms, but also with diagrams, graphs and charts to clarify the concepts. And the book features an application of its concepts to a hypothetical process, including use of a value stream map.

Predicting success is difficult, but I believe this is likely to be one of our best-sellers.

Do you have a question or comment about a book(s) that you would like addressed in Book Talk? Email me directly at Ralph.bernstein@taylorandfrancis.com.

Grocery Shopping Update: A Security Mystery

I wrote recently about my experience using handheld scanners at my local Stop & Shop supermarket. I praised the technology for eliminating waste from the shopping process by reducing the extent to which groceries are handled.

Dwane Lay, who writes a blog called Lean HR, posted a comment raising a logical question: How does the supermarket guard against theft? Since the system involves the shopper taking an item, scanning it and putting it directly into a bag, how do you know if a shopper puts an item in the bag without scanning it?

Dwane noted that some self-service systems are based on product weight. I believe that is true with Stop & Shop’s self-service lane, but it doesn’t seem to be the case with the handheld scanner. There is no special technology on the shopping cart, and the cart itself is not weighed.

Use of the handheld scanner is allowed only after you scan your frequent shopper tag. So the store knows who is using the scanners, and presumably could spot any shopping patterns (or change in shopping patterns) that would suggest something is wrong. However, that is just speculation on my part.

Since I didn’t know the answer, I contacted Stop & Shop. I traded emails with Faith Weiner of their PR department, who wrote “We are comfortable with our in store security system and do not comment on how it works as that jeopardizes the integrity of the security and the shopping experience itself.”

So for now, I still don’t know the answer. Are there any retail security experts out there who can offer some insight?

Efficiency is Better for Business Than Protectionism

Probably without meaning to, Keith Johnson of The Wall Street Journal Environmental Capital blog has made a strong argument for how valuable a lean strategy can be in tough times.

Johnson wrote about the steel industry, noting a protectionist proposal from a U.S. Steel executive concerned about greenhouse gas legislation. The executive suggested imposing carbon fees on imports of steel from countries that don’t regulate greenhouse gas emissions.

But then Johnson raises a good question: What if cleaning up the steel industry also makes it more competitive?

As an example, he describes technology that makes it possible to reduce pollution from blast furnaces. As it happens, deploying that technology also reduces energy use and reduces the price of steel.

He comments:

Making manufacturing more efficient generally makes it cleaner, cheaper and more competitive. Something to keep in mind during the coming rumble over climate legislation.

Johnson may not be aware that lean is the best way to make manufacturing more efficient. But there are plenty of us who can make that point for him.