Tuesday, May 6, 2014

Fixing General Motors

Even well-run manufacturing companies periodically have product quality problems. The lifeblood of a manufacturing company is controlling its costs. Quality problems increase costs and ultimately reduce sales. As such, successful chief executive officers pay attention to product quality costs and causes which are readily available in monthly financial and operating reports.

Reports that the General Motors’ CEO and senior officers did not have knowledge of this critical and tragic ignition switch defect points up a serious flaw in its management process and culture.

The cause of GM’s ineffective management process

As reported in a recent Bloomberg article, GM’s senior management may not have learned of the ignition switch problem because: “… people didn’t want to push bad news upward.”.

Depending on the culture, lower ranking employees may not come to a chief executive officer’s office to reveal a problem. Some may not speak up in a meeting with higher ranking officers. Even senior officers may remain silent so as to not violate an unspoken pecking order, keeping vital information from being considered.

If we are to believe that management was unaware of this extremely serious defect for a decade, it raises the question of what other hidden operating problems is GM’s CEO not aware of today that can affect its performance and reputation.

General Motors has a correctable management process problem. It apparently has a hidebound culture that isolates senior management from an accurate and timely understanding of what goes on in its operations.

Correcting GM’s flawed management process

CEOs and senior officers of successful companies accomplish being fully aware of problems by using “random walk” which results in “bottom to top” communication – commonly referred to as “bubble up”.

I was given excellent advice on my first day running an Emerson Electric division:

“Remember you are at the top of your division’s organization pyramid. You will only know 10% of what is actually going on. You must “submerge” yourself into the lower levels of the organization to learn about problems. You cannot be office bound. “Randomly” walk your office hallways and the floors of your manufacturing plants. Be visible. Ask questions. Listen. Relax. Smile. Do not make friends or make decisions lower management should handle. If you don’t have time to do this, you are working on the wrong priorities.”

Emerson Electric is considered an exceptionally well-run manufacturing company. Management is never surprised. The management process relies on hands-on, face-to-face cross-functional communication. No videoconferences or telephone meetings.

When Chuck Knight was Emerson’s chief executive officer, there were about 130 manufacturing plants. Knight carried a matrix with him that listed every plant with the dates of his visits. His advice: “…make sure you are in your plants frequently…go alone.” He was known for visiting plants unannounced and alone. An example of a successful CEO seeking an accurate understanding of what goes on in the company’s operations.

For GM to fix its process requires a change in its culture with the development of “bottom to top” communication. To make it work its CEO and senior officers must use “random walk”.

General Motors has about 10 final assembly plants in this country. Its other 34 USA plants produce the components used in final assembly.

A brief 4 hour visit twice a year to each of its 10 USA final assembly plants would require no more than 20 half days from a GM chief executive officer’s 250 day annual schedule.

This is all that would be needed to learn what is going on in GM’s operations.

GM’s CEO should go alone, without an entourage. Do not notify the plant that the CEO is coming – make it a surprise visit. This will avoid having the plant spending costly hours fixing and cleaning it. Walk through the offices and manufacturing floor alone, without the plant management.

After a few visits people will relax and talk to a CEO – particularly if they see a rational, approachable person that can be trusted. People will tell of problems, make suggestions, disagree with decisions or just vent their concerns. The CEO should ask questions: “How are we doing? Do we have any problems? How is our quality?”.

Once every three months randomly drop in unannounced and alone to various GM committees particularly the ones cited in the Bloomberg article: "At the heart of General Motors…slow response to fatally flawed ignition switches is a committee culture that impeded the flow of information…to the corner office.". Ask: “Do we have any quality issues? Any production problems?”.

A General Motors CEO’s periodic random walks will breakdown a dysfunctional management process and an inept culture. It will eventually result in communication flowing from the very bottom of the organization to the top.

If chief executive officers do not have time to do this, they are working on the wrong priorities. Thus, failure will be guaranteed.

Just two months after GM announced the recall of 1.6 million cars with the ignition switch defect it announced an additional recall of 2.7 million vehicles. This raises the question of what other hidden operating problems is GM not aware of today that can affect its performance and reputation.

Bloomberg’s recent article, “Don’t Bail GM Out Again” is a helpful read noting that GM continues to make poor quality cars which was one cause for its decline into bankruptcy. Its earnings are currently slumping.

Another worthwhile article by the Wall Street Journal in 2012 “General Motors Is Headed ForBankruptcy – Again”

Can GM fix its hidebound culture and ineffective management process?  

Monday, May 5, 2014

Avoiding a Common Manufacturing Problem

Otis Elevator’s costly move of its Mexican plant to its South Carolina plant is a common problem in manufacturing. Sadly it is an elementary, “Manufacturing 101”, process that seasoned manufacturing managers know how to avoid.

Contrary to Otis’ reasoning that “…it was trying to do too much”. The principal cause was most likely that the “manufacturing fundamentals” were not accurate.

This would include inaccurate bills of material and routings in its cost system:

Bills of Material not accurate:

When the daily production plan is published and individual product (SKU) orders are released to the plant floor component parts are taken from inventory and sent to the production floor. If the bills of material for the SKUs are not accurate, some of the parts necessary to produce the product will be missing resulting in production delays. As a result, hourly production employees are idled incurring costly labor variances.

Inaccurate bills of material complicate an operation further because supply chain does not know what component parts to purchase to support sales and production. Supply chain uses the bills of material and sales forecast to decide what raw materials to purchase.

When moving production to a different plant, if the bills of material are not accurate, the necessary component parts to produce a product will not be transferred or on-hand at the new plant.

Not everything may have been captured in the older, long-used manufacturing plant’s bills of material. There may be an informal system in-place which long-term employees know from experience what parts are needed to produce a product – although these parts are not included in a cost system’s bill of material.

Routings incomplete:

Routings are simply the timed steps a product (SKU) takes from start to finish in the production cycle. It is possible that the older plant’s routings were not accurate. But experienced employees may know how to successfully route product through production.

However, if routings are not completely accurate when a plant is moved, it will be virtually impossible for the new plant’s management and engineers to establish the correct order of steps and tasks to produce product.

It would be the same as when we assemble a new bicycle for one of our children. We open the box and find only a completely disassembled bicycle – only parts. But there are no instructions included on how to assemble the bicycle. We may eventually figure out how to put the bike together, but it will take a longer time with hits and misses.

It is not much different asking production managers and engineers to produce product with inaccurate routings.

Once a cost system is in-place it is fairly easy to maintain it daily by manufacturing and industrial engineering and cost accounting allowing supply chain to maintain the requisite inventory supported by a bar coding system.

Wall Street Journal’s Market Watch article: “Otis finds 'reshoring' manufacturing isn't easy”