An Avoidable Manufacturing Failure?

Google announced in May that it has decided to close its Motorola MotoX smartphone plant. The Texas plant has been in operation for one year. Its smartphones will be manufactured in China and Brazil.  

One goal for this plant was to “challenge conventional wisdom that manufacturing in the U.S. is too expensive.” But unit quarterly sales were so low that economies of scale could not be realized.

Keeping manufacturing operations in this country depends on several criteria:

• Quality management down through the 3rd organization tier;
• Disciplined strategic focus – with an honest and periodically updated Situation Analysis;
• Superior culture with the absence of hubris and politics;
• Best Cost Producer – utilizing Lean, Kanban and Kaizen protocols;
• Productive, lean salaried employee organization – not just lean for hourly manufacturing employees;
• Regular Competitive Benchmarking and Value Analysis of the product lines;
• Effective application of capital spending – which is essential.

The photographs of Motorola’s Texas plant show an unusually large number of hourly direct labor employees assembling product. This seems excessive.

This raises questions of how effectively “Best Cost Producer” and capital spending protocols were applied to create a low cost, high thru-put operation normally found in this type of technical product. Did Google Motorola have an engineering and manufacturing team capable of putting together an equipment plan to reduce direct labor headcount and increase thru-put resulting in a profitable USA plant? Was the equipment plan supported by the correct level of capital expenditures? Advanced manufacturing technology such as robotics is fairly easy to do.

Is the Moto X smartphone competitive in features, performance and price point? CNET’s review concludes that it is a good quality and relatively competitive smartphone. Not perfect. But if the price points were set correctly and its manufacturing costs yielded positive profit margins, profitable unit sales should have been realized.

While Motorola has struggled, Google appears to be well-run. It is hard to believe that Google did not put top people and resources behind making its Texas smartphone facility successful. But did they?

Google’s failure does not bode poorly for manufacturing operations being successful in this country. It is certainly possible that the USA’s manufacturing base can be increased if the criteria for successful operations are in-place – particularly for technical products.

General Motors versus Toyota – who will win?

-->

General Motors just reported a 41% reduction in its second quarter Net Income to $1.5 billion with a $1.8 billion decrease in Sales.

The main source of the GM decline was its European operations. Its future results are questionable as USA sales forecast predicts declines. Both of which are understandable in this difficult economic environment.

But, Toyota reported a huge increase for the same time period. Its Net Income was $3.17 billion on robust sales growth – profit was 111% greater than GM’s. Its sales forecast expects substantial increases.

Can GM be successful up against Toyota and other Asian manufacturers?

Toyota’s USA based operations have lower product costs compared to GM because their hourly factory labor wages are lower – further compounded by lower health care and retirement costs. Toyota has a leaner salaried organization and thus lower overhead costs. These significant issues were not dealt with during GM’s bankruptcy.

GM is not the best cost producer in its industry and, as a result, will decline. Its profit margins and free cash flow will be squeezed resulting in less capital available to develop new products and productive manufacturing systems and equipment.

Will this bring GM to its knees again?

Most likely.

Click on the following links to read my earlier posts with greater details of GM’s issues:

General Motors - Industry Leader? 

GM & Chrysler Bankruptcies

UPDATES:  

On August 15^th Forbes published a thorough analysis of General Motor’s declining performance entitled GeneralMotors Is Headed For Bankruptcy – Again -  a worthwhile read.

A September 10^th Reuters’ article, Insight: GM Volt: the ugly math of low sales, high costs,  details General Motors costly failure with the Chevrolet Volt – a loss of $49,000 on each car. Couple this failure with the Chevy Malibu being rated dead last versus five competitive vehicles in Car and Driver magazine’s comparison tests raises two questions: Is GM well managed? Can it succeed?

These product failures signal the absence of coordination and cross-functional communication among GM’s operating functions. In particular, for these two product failures, are product engineering, marketing, manufacturing engineering and cost accounting working in sync?

In my experience there is an absence of open and candid communication through all levels of distressed, troubled companies. Cross-functional communication is always missing. Consequently mistakes mount, problems fester.

Cross-functional communication requires that the CEO uses it and demonstrates that it is an integral part of the company’s culture. Absent that it is difficult for functional officers and mangers to use it – the negative politics of some human beings results in certain people being unwilling to participate in this style of management. Need a fully competent and self-confident CEO - highly knowledgable of what goes on in the bowels of a manufacturing company.

If its faults are not corrected, the prediction that GM will reenter bankruptcy may come true.

October 31 and November 5. Toyota’s net income tripled and market share increased while General Motor’s net income declined12%.
 

The Netflix Culture & Mistake

Netflix’s culture was described in a recent edition of the Business Insider. It makes an interesting read. At more than one hundred pages, it is quite long and detailed – but worthwhile.

While it is described as a statement of its company culture, it is more of a guide and blueprint for its employees on how the company operates or, perhaps more accurately what is expected of its employees.

Netflix’s culture document has three principal themes – Performance, Freedom, Responsibility - and expands into seven specific requirements which are listed below:

Values are what we value.

High Performance.

Freedom & Responsibility.

Context, not Control.

Highly Aligned, Loosely Coupled.

Pay Top of Market.

Promotions & Development.

 The several factors frequently emphasized:

“Performance” is the most important variable leading to success – it is cited repeatedly throughout the statement. It will overcome context and control failures, responsibility issues and success with hiring and promotions.

An indication of Performance’s importance are two warnings to employees: “Accomplish amazing amounts of important work.” “Adequate performance gets a generous severance package.”

“Think strategically.” “Focus on strategy & goals.”

“Minimize written rules.”

“Communication.” “Frequent department meetings.” “Honest, candid, non-political communication.” “Challenge prevailing assumptions.” “Courage to say what you think.” “Quick to admit mistakes.”

“Open internally about strategy and results.” (i.e., the company makes sure all employees are thoroughly familiar with its strategy and results)

“Judgment.” Largely refers to how decisions are made: Identify root causes, not symptoms. Think strategically, not tactically. Make good decisions regardless of uncertainties – i.e., do your homework.

“No toleration for brilliant jerks” Smart but difficult to work for managers are not retained.

In the first few pages they surprisingly go out of their way to harpoon Enron’s value statement that was displayed in Enron’s lobby: Integrity, Communication, Respect, Excellence.

It is unusual for a company’s culture to be a written document. Although one of the world’s most successful companies – Wal-Mart – publishes a statement of culture.

By comparison, in my fifteen years at Emerson Electric Co. there was none and one was never discussed. We all understood the culture and the company’s values. It was exactly the same as Netflix’s emphasis throughout its culture statement: “Performance” and “Strategic Focus”.

Netflix acknowledges that they know they are not perfect but continue to work toward achieving their goals by stating in the culture document: “We are getting better” “We keep improving our culture as we grow. We get better at seeking excellence.” This certainly gives credibility to the constructive perspective that supports Netflix’s statement of culture are.

However, Netflix does make mistakes. One major error was this year’s decision to separate its DVD service from its Internet streaming service. Three weeks after the spin off decision was announced, Netflix reversed itself and decided to not spin off its DVD service. It decided to keep both services under one name and one Web site.

The positives:

● The quick realization of a mistake with the reversal decision being made just three weeks after it was announced. (It took Coca Cola three months to reverse its New Coke decision.)

● A candid admission that a mistake was made and that hubris was a factor.

● The 60% price increase. It may make the mistake fade quickly, if it sticks, as it will have a significantly favorable impact on profitability.

The negatives:

● Contrary to its culture statement on Judgment, thorough homework for this decision was not completed.

● The admission that hubris played a big role.

● Can the company recover? Will competition capitalize on the error? Will customers accept the 60% price increase? Will Netflix record Net Losses in 2012?

Click on this link for Netflix's culture document.