You have to wonder how many lean books, articles and proposals from lower and middle managers and technical folks the geniuses running the tire companies have dismissed along the way, only to be dragged into lean – apparently whining and complaining at every step. There are so many lean principles at play in this WSJ article I can hardly figure out where to start …
There is the logistics angle – "Mr. Kellogg also set up a daily delivery service to each store, cutting truck mileage by 10%; before, each store manager dispatched trucks to fetch needed supplies." Wonder why it took a recession and his profits being hammered for Mr. Kellogg to figure out that milk runs are a good idea – especially compared to a 'make-it-up-as-we-go-along' logistics strategy. Better he figured it out late than never, however.
And "Jim Mayfield, the president of Del-Nat Tire Corp. in Memphis, Tenn., said that he had reduced staff about 10% in the past two years. Del-Nat Tire also arranged for more tires to be shipped directly from factories to dealers, rather than first to Del-Nat's warehouse." Logistics is waste. Distributors are waste. Mr. Mayfield's warehouse is 100% waste. Too bad 10% of the workforce had to be laid off, but when an entire business is built performing non-value adding steps in the supply chain it is inevitable.
Even though they are nothing but waste, distributors are necessary – direct shipments in small quantities are not an option – when the factory is 10,000 miles away in China. And China costs – not anything inherent in the base costs of the things that go into rubber and steel – and certainly not "demand from China and other hot economies" as the reporter theorizes is driving up prices. That theory is silly on its face. Global demand for just about everything is down, and the growth in sales of cars in China hardly offsets the drop in demand in the USA and Eourope. No – China labor costs are skyrocketing and companies like Cooper "Everything is better in China" Tires are taking a pounding for turning their collective management brains over to the likes of McKinsey.
And the folks at Cooper apparently have missed the concept of strategic pricing and customer value entirely – I don't recall seeing any Cooper wizards at any of the lean accounting events – and still think pricing is a function of their costs. Imagine their confusion when faced with the fact that "Mastercraft had been a good seller lately. Mr. Jenkins said that when his sales people explained to customers that Mastercraft was made by Cooper, 'that just reels them in.' A set of four Mastercrafts typically costs $85 to $100 less than a similar set of tires with a better-known brand, said John Turk, CEO of the Conrad's chain." I can imagine their fury at the sales folks for letting that particular cat out of the bag, what with the truth being the Achilles heel of brand management thinking.
And kudos to Mr. Kellogg for evolving beyond twenty year old core competence/competitive advantage thinking. That particular tripe creates the theoretical underpinnings for outsourcing just about everything and anything management doesn't want to deal with. Getting beyond it is a necessary step for committing to employees and other stakeholders. And that makes insourcing "work once outsourced, such as mowing lawns, cleaning stores and repairing equipment" a better idea than laying people off. And whether he knows it or not, installing more efficient lighting to cut utility bills reflects some lean thinking, as well.
The world is changing and an entirely new economic and management model is evolving – one driven by value in the eyes of customers - and whether they understand it, or have to be dragged into it kicking and screaming, only those businesses driven by creating superior value will succeed. A low cost strategy is a plan for failure. Accounting that makes phrases like "smaller profits on each sale" appear to be logical is accounting for doomed businesses – it is based on a cost allocations that accountants love, but render management information meaningless and misleading. Economists like those at the Federal Reserve who see "risk" in deflation – without regard for the difference betwen a "spiral of falling prices and wages" driven by bad monetary policies and downward trends that are inevitable as costs drop as waste is eliminated – are destined to be increasingly wrong and irrelevant.