Yesterday Jim Womack issued another lean epistle, this one called "A Tale of Two Business Systems" – go ahead and read it. Every word of it is correct, yet it is perhaps the most exasperating document I have seen on lean in a very long time. He goes after the auto industry and, once more, lays out the differences between Ford/GM/Chrysler and Toyota. That’s all well and good, but Jim Womack can and should do better. In particular, if you were Bill Ford or Rick Wagoner, exactly what would you do after reading this article? Probably nothing besides sending it to all of their underlings, hoping one of them will figure out something to do?
My original intention was to simply ignore the article, until I reached the part about the "social contract" with workers. Then my hackles got up. There is no "social contract" with workers – it is a euphemism, a theory, a grand idea – but it is not reality. Reality is jobs and paychecks, flesh and blood human beings, and legal documents that must be submitted to Wall Street with factual bottom line numbers calculated with cold arithmetic. There is a gaping hole in the boat and its sinking fast. Bill Ford and Rick Wagoner are frantically trying to plug the holes, and all Jim Womack can do is lecture them on the theory of shipbuilding.
At the AME Leadership Conference last week, I had a chance to talk to a lean accounting expert who has been close to Jim Womack and LEI for a long time. According to him, LEI took a long look at manufacturing accounting and deliberately chose to leave it out of their lean mix. Whether they failed to realize the significance of it, were intimidated by its complexity, or were overly awed by the grandeur of the accounting ivory towers (especially in automotive) really makes no difference. Messrs Ford and Wagoner do not have the luxury of avoiding the difficult matter of money.
The ‘social contract’ at Toyota is the classification of production employees as a fixed cost. In the U.S. the workers are inevitably classified as variable costs. Bill Ford and Rick Wagoner would love to sign the ‘social contract’ that grants Toyota level stability to their employees, but they do not know how. Their financial numbers tell them that they cannot make a profit when all employees are fixed costs. They need Jim Womack to explain it to them – he is the only one in the lean community with the stature to do so. In this article, he has ducked the issue, rendering the entire piece just so much more impractical lean theory in the eyes of manufacturing.
Womack’s prescription for bringing the social contract to life: "… try very hard to defend every employee willing to embrace the new value creation system." Try very hard? C’mon, we can do better than that. As harshly as I often treat the execs, I would not stoop to question their work ethic. The top people in Detroit are probably working 80 hours a week to plug the holes in the boat. They don’t need to be told to ‘try very hard’, they need to be told how to work on the right things.
Manufacturing is about dollars and cents. Eli Goldratt made that Goal very clear a long time ago. Yet Jim Womack and many others persist in describing lean as some sort of grand social program – that American companies need to be nicer and more respectful. Anyone who thinks that Toyota is all about ‘niceness’ has misread them entirely. Toyota and the Toyota Production System are first, last, and everywhere in between about making money – staggering amounts of it according to their latest earnings release. Their ‘respect for people’ is of great importance to them, not for the sake of being humanitarian, but because it supports the economic model by which they manage. When they are in a situation in which they do not think that model applies, they can be just as hard nosed and crappy as GM – just ask the boys in India who are entering the second month of their strike against Toyota.
If Womack or the rest of us want Ford and GM to adopt the Toyota people model, we need to explain to them the Toyota economic model. "Respect for people", people as fixed costs and lifetime employment are polar opposites to the American full absorption accounting, ROI driven manufacturing accounting package. Urging Bill Ford and Rick Wagoner to be nicer, without helping them change their financial model ends up simply insulting them. In effect, it is saying to them, "Your company would make more money if you would only stop behaving like a crappy human being and try very hard to be nicer and more respectful of people."
The failure to step up to the big, old, mean grizzly bear of accounting rings throughout the article. "Lean supplier management creates a small number of highly capable suppliers in long-term partnership with their customers. Suppliers work to demanding customer targets for cost, quality, delivery reliability, and new technology and achieve these targets by jointly examining the development and production process they share with their customers." Ford, GM and Chrysler have already done that. The practice of tiering the suppliers and only dealing with the Tier 1’s has been in place since the first time the lean community told the auto companies how Toyota deals with a smaller supplier base. It ain’t working. The suppliers are all going belly up. Collins & Aikman, Delphi, Meridian, Tower Automotive, Trim Trends and Uni Boring are bankrupt. Visteon is teetering on the brink of it.
Simply taking the same unwieldy collection of cats and dogs from all over the globe who became automotive suppliers solely on the strength of low purchase prices, and tiering them under someone else, is hardly the spirit of the Toyota system. It is merely outsourcing purchasing. Make ’em somebody else’s problem. They shoved the inventory upstream and called it JIT, then they made the tier 1’s ride herd on the tier 2’s and the tier 2’s ride herd on the tier 3’s and called that Strategic Sourcing, but nothing ever really changed. It’s the old looking lean without being lean story. But that’s all they knew to do. They are driven by accounting systems that say purchase price is all that matters – that inventory is an asset and quality and logistics overheads are unknowable and irrelevant. Within their financial model, putting the hammer on suppliers to "… work to demanding customer targets for cost, quality, delivery reliability, and new technology and achieve these targets by jointly examining the development and production process they share with their customers". means nothing more than trying to squeeze more blood out of the supplier turnips. Of course the suppliers are bankrupt.
Wagoner and Ford do not need the lean community to spout the same old supply chain mantra at them, exhorting them to look more like Toyota. They need us to tell them how to be more like Toyota. This is really at the heart of the exasperation I have with Jim Womack’s latest. It ducks and dodges the tough financial issues, and lays out more theory and superficial fluff. It’s all true, but it’s all useless.
My very first foray into Superfactory revolved around a quote from Shingo: "We have to grasp not only the Know-How but also ‘Know Why’”, if we want to master the Toyota Production System." Art Smalley did a masterful job of driving this point home in his Superfactory article. The Toyota Production System is a financial engine that ruthlessly roots out cost excesses of all kinds and focuses the entire company on bottom line results. We are not going to help Bill Ford or Rick Wagoner get there with social contracts or Toyota-looking practices if we are unable or unwilling to step up to the financial realities of their world.