WSJ.com – Lesser Than the Sum of Its Parts . . .
The linked column requires a paid WSJ subscription, but I'll try to summarize. The piece bemoans high labor costs as the things that are sinking Delphi and possibly GM.
The author also blames the “albatross” of vertical integration, as practiced by GM (and let's not forget Henry Ford's Rouge Plant vertical integration).
Originally vertical integration seemed like a good idea. GM founder William Crapo Durant thought, reasonably enough, that the more value that could be added to a vehicle within GM, the more profit the corporation would harvest. So did his protégé Alfred Sloan, the managerial wizard acquired along with the Hyatt Bearing Company, one of Durant's first initiatives to implement his strategy.
So it's not so smart today? What about Toyota and it's vertically integrated semiconductor fab?
Vertical integration makes sense if you adding value and can keep costs low enough. That requires good management, which I'd argue Toyota has. When vertically integrated, you don't have to pay a supplier an additional layer of profit margin, which should be to your advantage. It should also be easier to coordinate a value stream that's owned by the same firm.
Complacency was a natural outcome of having what amounted to captive customers.
Complacency and failures such as workers reading newspapers on the job, as mentioned in the column, are the failures of the MANAGEMENT SYSTEM. Sorry for my shouting.
The internal partsmakers were increasingly resented for unresponsiveness to their GM customer needs. They were at least complicit in GM's late adoption of such key technologies as disc brakes, multivalve engines and single rail fuel injection
Unresponsiveness to customer needs. Again, a management problem.
The article says GM and Delphi need to shed the albatross of vertical integration. The problem, I think clearly stated, is the management system. Why aren't we talking about getting rid of THAT albatross? Why aren't we talking in the media about GM needing to adopt the Toyota Way, not just dabbling with lean practices at the plant level.
Maybe they needed more Shingo Prizes? Or maybe that's an Albatross too?
The other headline from today's WSJ (and Detroit News article):
“GM's Wagoner Gains Some Time For Turnaround”
Hmm. Any comments on that?
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AMEN!!
It is very annoying to hear/read the media and their relentless focus on pension and health care obligations.
With their continual focus on costs (in every quantifiable dimension), the GM Brand is now associated with low-end. From how they market their vehicles, to the long-term quality, to fuel efficiency, adopting new technologies, product selection, and fit/finish.
I remember going to a lecture during college in the mid-90’s and a GM powertrain group was presenting on quality. The only metric they cared about was that the engine lasted 60,000 miles. Why? because that’s when the warranty ran out. It was of absolutely no concern or dicussion whether or not the engine would last 100k or 200k miles. Instead of viewing quality in terms of customer satisfaction, they viewed quality as a cost to be mitigated. I couldn’t believe what I was hearing. I had wrongly assummed the Honda/Toyota case study had shined the light on what the consumer cared about.
Right then, my decision was cemented that I was not interested in working for them or buying their vehicles.
Ultimately the market will solve GM’s issues (bankruptcy/ownership change). Unfotunately, many very good people (unrelated to the cause) will be the worse because of it.
GM’s problem with vertical integration was the UAW and management.
However, I put the bulk of the blame on the UAW and labor law. The UAW learned that by striking key facilities in the vertically integrated system, a handful of workers on strike pay could bring down the entire system through cascade. The parts plants would take down the assembly plants. As the assembly plants went down, other parts plants would go down until the entire system ground to a halt. Further, this handful of workers on strike pay led to the majority of workers (in the same union) being laid off at >90% pay. For a trivial cost to union members, GM could be made to suffer tremendous losses. This worked to cement in management’s head that vertical integration was a bad idea. If GM could legally lock out the entire union during a component plant strike so the pain was felt equally between the company and UAW, I think Delphi would be a different story.
As it was, every generation of managers worried about their bonus on their watch. The UAW extracted their wealth by strategic strikes and management extracted their wealth by capitulating to the union to meet quarterly numbers and receive their bonuses. Both sides mined the business to line their own pockets at the expense of the share holders.