MBM & MBR -Lessons from Rouge

1. MBM & MBR -Lessons from Rouge Dr. Yong W. Kim Dr. Thomas Johnson

2. Conventional Wisdom • Organization will reach its bottom-line goals best • If it drives its employees and suppliers to achieve financial targets

3. Common Practice • Manager’s task: to motivate people to reach and exceed quantitative targets • Defined by financial measures • It will create unseen and unnecessary inefficiency and instability

4. New Management Thinking • What decides an organization’s long-term profitability: • The way it organize its work • Not how well its members achieve financial targets • Example: ABC and Pull system failures

5. MBR • Focus on the bottom-line target • Achieving financial targets justifies inherently destructive practices

6. MBM • Desirable end will emerge as a consequence of nurturing the activities of all employees and suppliers in a human manner • Means are ends • Opposed to “Ends justify any means”

7. MBM Requirement • Disciplined practices • Sustained attention to how work is done • Nurturing every step of the work at every moment • Manager's focus on minute particles (attention) • Cultivate employee’s creative talents

8. Manager in MBM • Cultivate and nurture conditions • Bond company talents and customer needs in a profitable union

9. Toyota and Big Three • The story contrasts the consequences of acting on the belief that order must be externally imposed with consequences of acting on the belief that order self-emerges from within.

10. Toyota and Big 3 Story

11. Early 1950s • Toyota and Big 3 struggled independently with a problem that confronted virtually all manufacturers following World War II • How could they satisfy customer demand for an increasingly varied range of new products, yet do so at mass-production prices? • Great opportunities for companies able to offer customers the widest range of styles and models at the lowest prices

12. Before World War II • Henry Ford helped pioneer the concept low-cost repetitive mass production • Facility on the banks of the River Rouge in Dearborn, Michigan

13. Henry Ford in 1920s • Dedicated to making one model • Operates around the clock • High profits are attributed to remarkable efficiency • Low cost per unit

14. Henry Ford in 1920s • Build a facility to produce one variant of a product and then run it without interruption at full capacity until demand was sated

15. Henry Ford in 1920s • If the variant is referred to as A, • Then most efficient and profitable schedule for producing A is • AAAAAAAAAA…where each A is assembled in a continuous flow, one at a time

16. Henry Ford in 1920sWork Flow

17. Henry Ford in 1920sWork Flow • Schedule pushes material at a relentless pace that was sustained by having machines and workers perform repetitive tasks • Give the simplicity of the flow and the repetitive nature of tasks it was not necessary to spend extra resources on activities to control and expedite the flow of material and information

18. Henry Ford in 1920sWork Flow • Flow was dictated by the plant’s initial design (layout) • One vehicle per minute • Total lead time = 3 days and 9 hours from steel making to finished vehicles

19. Henry Ford in 1920s • A sign of mechanical roots • Relation between information and the flow of work • Primary information originates outside the process • Neither the materials nor the workers supply any information • Pushed by external information

20. Henry Ford in 1920s • Mass Production • Homogeneity of inputs and outputs (interchangeable) • Large scale • High speed of throughput • Uninterrupted work flow

21. How perceptions of low costs at the Rough shaped the quest for variety after World War II • Car-buying public grew more sophisticated • With more features and styles • After World War II, Toyota and Big 3 addressed differently the problem of how to produce varieties of automobiles at low cost • Different thinking

22. 1982 Meeting – Toyota and Ford • Philip Caldwell • Eiji Toyota • “There is no secret to how we learned to do what we do, Mr. Caldwell. We learned it at the Rough”

23. Mass-Producing Variety in BatchesWhat Big 3 Saw at the Rough • Old way faced a challenge • One way to meet these demands was to build a new plant dedicated to each new variant ….but….

24. Mass-Producing Variety in BatchesWhat Big 3 Saw at the Rough • Most manufacturers have remained committed to the mass-production thinking that says high profits depend on producing at low costs by running operations without interruption at full capacity for as long as possible

25. Mass-Producing Variety in BatchesWhat Big 3 Saw at the Rough • But in the context of making products in varieties, it is discovered that “running without interruption” and “running at full capacity” are not necessarily achieved as simply as they are when • the production schedule is AAAAAA • Work is organized in a continuous flow

26. Mass-Producing Variety in BatchesWhat Big 3 Saw at the Rough • Effects variety has on the production schedule • Changing from one variety to another takes time • Did not see the benefits to reducing the time it took to do individual changeovers

27. Mass-Producing Variety in BatchesWhat Big 3 Saw at the Rough • Big 3’s reaction • Took steps to reduce the total amount of time spent changing over • By separating the various processes through which material flowed continuously in the early River Rouge plant. • With processes separated, material for different varieties could be batched and processed “efficiently” in long runs that economized on changeovers

28. The System the Big 3 Created in Response to Ford System • Customer order • AA/B/AAA/BB/CCC/AAA • Batch production • AAAAAAAA/BBB/BBB • Reduces the number of interruptions and increases the percentage of time running • Reduces costs and, presumably, increases profitability

29. The System the Big 3 Created in Response to Ford System • Producing varieties in long-running batches creates costs • Producing in batches means producing out of step with the flow of customer orders

30. The System the Big 3 Created in Response to Ford System • To avoid having production deviate from consumption, • Time & resources must be spent on forecasting demand • Or on stimulating demand so that it fits what you are producing • Marketing / Centralized Scheduling/ Advertising => Overhead

31. The System the Big 3 Created in Response to Ford System • Most mass producers addressed these added costs of batching variety • By speeding up the flow of output for each batch • By reducing the total amount of time lost changing from one variety to another

32. The System the Big 3 Created in Response to Ford System • They attempted to control the costs of forecasting demand, discounting prices on unwanted output, and losing sales • By speeding up production, thereby reducing costs per unit • Honored the mechanic concept of “economics of scale”

33. The System the Big 3 Created in Response to Ford System • Making varieties in batches • New ways of organizing work that additional costs besides costs caused by out-of-step

34. The System the Big 3 Created in Response to Ford System • “Decoupled” batch production approach • Uninterrupted work only in each separate operation • Followed by transit to a central staging area • Where material waited till a schedule directed it to flow in varieties to a final assembly plant

35. The System the Big 3 Created in Response to Ford System

36. The System the Big 3 Created in Response to Ford System • Making all the pieces in this complicated “flow” come together in the right places at the right times • Required people and equipment not employed in the actual making of the products themselves

37. The System the Big 3 Created in Response to Ford System • Overhead: • scheduling, controlling, expediting, storing, inspecting, transporting, and reworking • “Information factory” • Separate from but alongside the material-flow factory • Needed to impose order on a batch-driven system that had been created to minimize the costs of producing output in varieties

38. The System the Big 3 Created in Response to Ford System • Answer to added costs of “information factory” • The same mass-production logic of economics of scale and speed • Profitability is assured if enough output is produced to reduce unit costs below the prices customers will pay

39. The System the Big 3 Created in Response to Ford System • Answer to added costs of “information factory” • To increase the speed and amount of output (i.e., throughput) even more, and then • Engage in advertising or other incentives to stimulate customer demand

40. The System the Big 3 Created in Response to Ford System • Real Problem • Most companies attributed the activities associated with batch production to complexity cased by producing varieties of product, not to complications caused by the way they organized work

41. The Big 3 System: Examples of Added Activity • Separating parts of the system made inventories

42. The Big 3 System: Examples of Added Activity • Separating the system into independent stages (decoupling) created a need for production controllers and schedulers to coordinate the movement between these stages and from inventory to final assembly • MRP, IT

43. The Big 3 System: Examples of Added Activity • The balance between supply & demand is often forced by means such as • Building inventory • Investing in advertising campaigns • Reducing prices to clear out excess stock • Laying off people • Selling assets

44. The Big 3 System: Examples of Added Activity • Workers in each independent part of the system cannot receive immediate feedback from workers in the next operation

45. The Big 3 System: Examples of Added Activity • Decoupling creates a correlation between increasing varieties of output and decreasing the amount of time spent each day actually producing as opposed to changing over

46. The Big 3 System: Examples of Added Activity • Rising costs encourage the belief that if performance incentives are offered to workers, they will hasten production, thus helping drive down unit costs. • The outcome of incentives has proved to be analogous to what might happen should each musician in a orchestra be rewarded for playing faster and louder than the others