The classic Porsche development system would never be able to do this, so it was time to look around for ideas. Wiedeking quickly concluded that the new development system adopted by BMW in the late 1980s was the most feasible. This called for designating a strong product team leader for the new products (which are essentially being developed as one car with two body style options) who would report directly to Wiedeking.
The existing functional engineering structure was retained, partly because this is very useful in selling different categories of engineering consulting services. Thus, most members of the development team are still formally members of the various engineering departments. But the new project director, Rainer Srock, was given broad powers to develop contracts with the heads of each of these departments specifying which engineers would be assigned to the project for how long and preventing the destructive practice of constantly transferring engineers between projects to meet the changing needs of consulting jobs. The team was then co-located and given the mandate of developing the first variant of the new Porsche car in three years from the start of work in the summer of 1993. (The previous development cycle was officially five years but always took longer.)
An important addition to the development teams are the production leaders from operations, who actually make cars; the purchasing staff, who select the suppliers and contract for the parts; the tool engineers, who design the process machinery; and the Service Department, which helps dealers with after-sales service. By working together the team is striving to engineer a product design, a set of production tools, and a set of manufacturing methods for the first easy-to-make, easy-to-repair Porsche. The Porsche product engineer is still important—above all, the cars must have brilliant performance—but the team is now looking at the whole, even including servicing, a traditional Porsche blind spot.
A Box Score
In the summer of 1991, any reasonable observer would have pronounced the Dr. Ing. h.c. F. Porsche AG company of Stuttgart dead. The firm could either exit the sports car business and carry on as an engineering consultancy or it could go the route of Jaguar, Ferrari, Aston-Martin, Lamborghini, Saab, and Lotus by surrendering its independence to one of the giant mass-market car companies. Instead, it embraced lean thinking and stands on the verge of rising from the dead.
The indicators of new life are striking when presented as a box score (see Table 9.2 ).
In simplest terms, over a five-year period, Porsche will have doubled its fundamental productivity in operations while cutting defects in supplier parts by 90 percent and first-time-through errors in-house by more than 55 percent. By 1997, it will have launched two highly manufacturable products after only three years of development work, cut the needed manufacturing space in half, shortened lead times from raw materials to finished vehicle from six weeks to three days, and cut parts inventories by 90 percent.
T ABLE 9.2: B OX S CORE ON P ORSCHE’S L EAN T RANSITION
The Next Challenge
The results are remarkable and Porsche is the furthest along in the lean transition of any German firm we have studied. However, as with every example cited, it’s important to note that many challenges still lie ahead. The product development system is jerry-built over the preexisting structure and we would predict that the company will need to go much farther in the direction of dedicated product teams once the crisis has past.(Like the Ford Motor Company after the success of the Taurus, Porsche runs a strong risk of sliding backwards after 1997 as the engineering functions reassert their power.)
Similarly, the operating cost centers are a good start, but Porsche is only now realizing that it needs a more formalized “improvement office” (which we also call a “lean function”) to absorb the excess people who will be freed up continuously as kaizen activities continue.
Perhaps most important, Porsche’s whole method of selling cars, handling service parts, and preparing the master production schedule is just beginning to be rethought. Symbolically, the sales and marketing departments are located in Ludwigsburg on the opposite side of Stuttgart from the production organization. The inherent problems with the current system, where marketing adjusts the production schedule only five times a year and releases orders to production four to five weeks prior to actual manufacture, will reemerge when the first new product is ready in 1996 and Porsche, in all likelihood, has more demand than it has supply.
Finally, Porsche’s work with first-tier suppliers is commendable, one of the best and most systematic we have seen in any Western-owned firm. Most Porsche suppliers, however, are just getting started with their lean transition, and the bottom of the Porsche supply base in raw materials has not even been scratched.
Thus, Porsche faces a continuing challenge to complete the lean revolution started when Wendelin Wiedeking arrived as the change agent in August 1991. In our experience, it takes a minimum of five years (which would be the fall of 1996) before the transition can be so thoroughly institutionalized within a firm that there is no possibility of turning back. And five more years may be needed to push the new way of thinking through every part of the firm, into the dealer system downstream, and all the way back up the value stream to raw materials.
Implications for the German Tradition
German industry possesses many unique strengths, as we noted earlier when fitting Porsche into the industrial landscape:
• German firms still benefit from a stable system of industrial finance emphasizing the long term, even if it has unraveled a bit recently due to the strain of world competition and due to the problem of succession for the family owner–managers who built the Mittelstand after the war.
• Senior management believes in the product itself as the most important factor in competition and German firms are now working hard to rectify the tendency of times past to substitute the engineer’s definition of value for the customer’s .
• Relations with suppliers are both longterm and supportive, again with a few recent exceptions driven by crises in large firms like Volkswagen.
• Both the factory workforce and technical specialists in manufacturing firms have the highest skill levels in the world. As a senior executive at Toyota told us some years ago, “Who I really fear as competitors are the Germans, if they ever learn how to talk to each other.”
But talking to each other has been a key German weakness. As one looks at the educational system, at every level the emphasis is on deep but narrow skills for technical operations rather than horizontal systems thinking to pull all operations together. And this is reflected in career paths which have been up narrow chimneys. It is equally reflected in organization charts full of tiny departments (a term which in German literally means “separate”) reporting upward through many layers to the point where cross-department conflicts can be resolved.
Meanwhile, on the factory floor, the meister system of a large group of twenty-five workers reporting directly to the shop head, who refers problems up the hierarchy for solution, runs directly contrary to small-scale work teams. These workers should be focused horizontally on a linked set of activities along the value stream and perform many of the indirect tasks associated with managing their work, including quality assurance, machine maintenance, tool changes, development of standard work, and continuous improvement.
A second German weakness has been a fondness for monster machines which produce large batches. For example, we’ve often looked at gigantic paint booths—classic monuments—painting massive racks of tiny parts and justified on grounds of flexibility. “We never know when we might need to paint something much larger, so we’ve built in the flexibility to do so.” The costs of the initial machine and the continuing costs of keeping it continuously fed (which always requires inventories before the machine and after it) are lost in a narrow calculation of the cost to paint each part and the comfort German managers seem to derive from the belief that their equipment can respond to shifts in the market.
A third German weakness has been the tendency to substi
tute the voice of the product engineer for the voice of the customer in making trade-offs between product refinement and variety on the one hand and cost as reflected in product price on the other. While quality may be free, variety and refinement almost always entail costs, particularly when products are designed without much attention to manufacturability. Good hearing is therefore needed to ensure that product designs contain what customers want rather than what designers enjoy making.
For example, one of us recently observed a “tear down” of automotive exterior rearview mirrors and discovered that the Nissan mirror design for the Micra model assembled at Sunderland in the U.K. has four parts and is offered in four colors. The Volkswagen Golf, by contrast, offers four completely different exterior mirror designs each containing eighteen or nineteen parts specified by product engineers seeking a high degree of refinement. Each mirror is available in seventeen colors. As a result, Nissan’s production system deals with four mirror specifications while VW struggles with sixty-eight, each with more than four times as many parts. 13
German thinking about the cost/variety cost/refinement trade-offs has long foreshadowed the recent popularization of “mass customization” 14 in North America. The problem as we see it is that minor options like color and trim, and even major options like tiny increments in auto wheelbase, often exceed the ability of the customer to notice them. Additional refinement is always potentially a good thing, but only if the customer notices it and thinks the cost is worth it. The desire to listen to the voice of the customer can create a one-way conversation if the real cost of variety and refinement are hidden, even from the product engineer.
Nevertheless, the German system was highly competitive until recently because each weakness was offset by a strength:
• Because skill levels were so high on the plant floor it was possible to fix each problem as it arose rather than fix the system which created the problems in the first place. The finished product handed to the customer was usually of superlative quality, even if also of high cost.
• Because the skill level of product development engineers was so high, they could reengineer designs coming from upstream rather than talk to upstream specialists about the problems their designs were creating. Again, the end product reaching the customer was superlative in achieving the promised performance, but at high cost.
• Because of the technical depth of a firm’s functions, it was often possible to add performance features to products which offset their inherently high development and production costs. In some cases this led to rapid segment retreat (for example, in machine tools), but growth in the remaining high-end segments (for tools like the blade grinders described in the Pratt example) was sufficient to keep German firms busy and profitable.
• Because the German machine tool industry was so advanced, there seemed for many years to be a real prospect that high German wages could be offset by Computer Integrated Manufacturing breakthroughs which would couple highly flexible production operations with automated materials handling to practically eliminate direct labor. The objective of eliminating jobs created friction with the labor unions who responded by bargaining to continually reduce the workweek to offset potential job losses. However, this seemed to be a transitional problem because the eventual outcome was to be a German workforce consisting only of highly skilled technicians making products with performance features foreign competitors could not match.
In the 1990s, these offsetting strengths have been overwhelmed by world conditions. Wages have risen behind a soaring mark, East Asian firms have attacked traditional German market niches, and the limits of the current generation of factory automation have become painfully apparent. 15 Across the board, German products have become too expensive for either foreigners or Germans to afford.
In consequence, a sense of panic and then fatalism has set in. For example, Juergen Schrempp, the new chairman of Daimler-Benz, has recently lamented that “Germany can no longer hope to build airplanes,” and some of the biggest firms have been rapidly moving components production and final assembly out of Germany in search of lower labor costs. Meanwhile, the unions have begun to offer to reduce or eliminate wage increases in return for stability in the number of production jobs.
This reaction is understandable but misguided. What the Germans can no longer do in Germany is make airplanes or cars or any other product in the traditional German way. What German firms can do is teach their employees how to talk to each other about the proper specification of value, identification of the value stream, and the elimination of muda through flow and pull. Then, when workers and engineers learn to see and to hear, German firms can undertake continuous and radical improvement activities in pursuit of perfection and do this better than anyone else in the world, just as our Toyota executive feared. The result will be sales growth in Germany because real costs to the customer will decline (at constant wages) and revitalize export opportunities. 16
The Opel Eisenach plant, opened in 1993, was perhaps the first German attempt to introduce lean thinking. Yet, it was only an isolated plant and, in addition, it was a “greenfield” facility with a new, handpicked workforce built in eastern Germany by an American-owned firm. Like the new Japanese car plants built in North America and the U.K. in the 1980s, it doesn’t prove that traditional firms can adopt the new practices. Lantech, Wire-mold, and Pratt prove this for the United States and Unipart is beginning to prove it in Britain. Similarly, Porsche is the real test, the first proof that a classic German firm can change its fundamental behavior and combine the best of Japanese thinking with the best of German thinking to create something better than either.
As other firms follow Porsche, another benefit will begin to appear: The current debate about whether German wages are too high and who is at fault for falling living standards will give way to the ability to clearly analyze value and the value stream for specific products. Then, as waste is removed and operations are made transparent, everyone will be able to see whether there is still a gap between the value of products as defined by ultimate customers and the cost of creating and producing them.
If most muda has been eliminated and costs still exceed value then the issue must be faced of whether Germans are paying themselves too much to make given classes of products in Germany. The issue will be much easier to address at that point because the debate will not be along the negative-sum lines of whether management is extracting money from workers or workers are making excessive claims on their employers. Instead, it will be about the transparent relation between cost and value. Our strong suspicion, just like our instinct about the U.S. auto industry in the 1980s, is that the real problem will prove to be too much muda rather than too high a wage. In a lean Germany, high wages should be sustainable even as prices to customers fall substantially, turning the current spiral of ever-higher costs, lower production, and growing unemployment in the opposite direction.
Germany versus Japan
Applying lean thinking to all of German industry can be done and we predict it will be done. But it will require hard work and time plus a couple of additional innovations of an organizational nature to be discussed in the last chapter. By contrast, many observers have assumed that Japanese industry, having perfected lean thinking thirty years ago, has fully embraced it and has little more to do. In fact, this is dead wrong. We now turn to the third of the world’s great industrial traditions to consider the dilemmas of the current era.
CHAPTER 10
Mighty Toyota; Tiny Showa
When Taiichi Ohno first visited the Koga foundry of the Showa Manufacturing Company early in 1984, he was his usual diplomatic self. After quickly walking around the facility he told President Tetsuo Yamamoto to bring him the plant manager. When Takeshi Kawabe appeared, Ohno asked, “Are you responsible for this plant?” Kawabe acknowledged that he was. Ohno then roared, “This operation is a disgrace. You are completely incompetent. Yamamoto-san, fire this man immediately!”
Yamamoto noted that Kawabe
was no more and no less responsible for the condition of Koga than everyone else at Showa. It was being run the way Showa had always run its plants, no better and no worse. He suggested that rather than firing anyone, Ohno should act as their sensei and tell them what to do to make things better.
As a result of this interchange the seventy-two-year-old Ohno, retired from Toyota but still chairman of two Toyota-group firms, Toyoda Spinning and Weaving and Toyoda Gosei, formed a relationship with Yamamoto and Kawabe that lasted until his death in 1990 and eventually led to the total transformation of this typical Japanese manufacturing firm. The events at Showa Manufacturing since 1984 are fascinating because they illustrate so clearly how lean thinking has spread in Japan and why the complete embrace of lean principles is as hard (but as rewarding) for Japanese firms as for American and European ones. They also highlight the tasks which remain to be completed in Japanese firms, even Toyota.
The Crisis at Showa
In 1983, Showa Manufacturing, a maker of radiators and boilers, celebrated its one hundredth anniversary. The firm had been steadily successful in the Japanese market and in the 1960s had even been chosen to build a new heating system for the Imperial Palace in Tokyo. However, the world changed after the second oil shock in 1979, and Showa started to struggle. Demand for its industrial products slumped as Japanese firms cut back expansion plans and considered more modern concepts in heating. Equally ominous, the cost structure at Showa, with its traditional Japanese commitment to its 750 core employees, seemed to be stuck.
Showa’s initial response was typical of Japanese firms in these circumstances. To raise the cash to avoid layoffs it sold the valuable real estate under its center-city offices and main plant and began relocating its production facilities to cheaper but more modern sites nearby in hopes of gaining efficiencies. It also diversified into ornamental castings for bridge railings and began to implement a plan for exporting its cast-iron boilers to America to take advantage of the weak yen.
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