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The country's economic woes are forcing many companies to become lean and mean in their business practices. Detroit's "Big 3" automakers have received some of the greatest public scrutiny for their business downsizing decisions, which include General Motors' Chapter 11 bankruptcy protection.
In the current economic climate, "lean manufacturing" has now become all the rage within industry, according to Danny Johnson, an Iowa State University associate professor of operations and supply chain management. But there’s much more to lean manufacturing than simply reducing inventory, Johnson says.
"Lean manufacturing is really about getting rid of waste in your processes," said Johnson, who has conducted research on lean manufacturing practices. "We often talk about it with respect to manufacturing processes, but the same kind of waste elimination efforts apply to administrative processes, office work – you name it. Too many times, people think lean manufacturing implies simply inventory reduction. While having too much inventory is problematic, so is having too little inventory.
"The problem you have if you simply cut out inventory, and you don't get rid of the reasons why the inventory is there, is that your system starts to stall out and production volumes fall," he said. "So in order to reduce the inventory, you've got to get rid of the reasons why the inventory exists in the first place."
Johnson says American carmakers are plagued by having too many cars – or at least, too many of the same kind.
"Part of the problem with what's going on with Ford, GM and Chrysler, in my opinion, is that they've got too many models of cars that are too similar," he said. "For example, if you look at GM, you start to ask yourself, 'What's the difference between a Buick and a Pontiac and a Chevrolet and so forth?' They are very similar. The more models you have, the more inventory you need in order to produce all of those different models, and the less efficient you are."
Johnson says car manufacturers produce all those different models because they believe that's what customers want, and that's what they have to do to compete in the market. But if the company doesn't see a competitive gain, and the large number of models simply increases the cost to produce each vehicle, it causes the manufacturer to be less efficient in the production system. That's what he's seen in the "Big 3."
Toyota has often been recognized by scholars as the model of lean manufacturing. But Toyota also recorded a $6.9 billion loss for the first quarter of 2009, prompting it to lead a 56 percent decline in Japan’s domestic vehicle production in February -- the biggest drop since 1967. And that may be a product of Toyota being lured into following the broken American model, Johnson notes.
"What many people don't realize is there's some research that suggests that Toyota may be getting into that same problem," he said.
"It may be that as Toyota has gotten bigger, its executives have found it becomes just as difficult to manage that lean enterprise as what the American carmakers experienced," he said. "Basically, they're trying to do the approach that GM did back in the '60s and '70s, where you develop a car for every price range, every target market, every person – and you're trying to hit the needs of all of them. The only way you can really do that is to increase your product variety, and the more you increase your product variety and the options associated with that, the more your inventory is going to tend to grow in your system."
While lean manufacturing is important to success, the same lean focus can be extended to the entire supply chain. That may have been a factor in GM’s and Chrysler’s recent decisions to close dealerships nationwide – affecting roughly 1,100 GM and 800 Chrysler dealerships. But Johnson views those decisions as more a product of necessity.
"I think they're worried about their dealer network and they want to find a way to make sure that their dealer network survives and is as strong as possible," said Johnson, who previously worked as a mechanic and an office assistant at a John Deere dealer. "If you have too many dealers in a given area, the sales volume of each of those dealers is relatively small. They then don't have the money to put into updating the showroom, to update advertising, to have a well-trained sales force, etc. If you get rid of the weaker dealers, the stronger dealers experience more volume, hopefully become even stronger, and your dealership network survives."
As part of his continuing research on lean manufacturing, Johnson co-authored a study published last November in the International Journal of Production Research comparing the use of kitting vs. line stocking systems for component storage in assembly environments. He reports that the study has drawn interest from officials within the auto and aerospace industries.