SCDigest editorial staff

The News: As Ford prepares to join GM in announcing a series of layoffs and plant closing, supply chain issues are at the forefront of potential recovery strategies.

The Impact: In hugely competitive global market with rapid changes in consumer demands and fewer models with mega-sales, automotive companies, like manufacturers in other industries, must develop more agile production sytems.

The Story: At last week’s Automotive News World Conference in Dearborn, well-known industry consultant Ron Harbour told attendees that lack of flexibility at the plant level was a key issue for U.S. manufacturers.

Harbour, whose Harbour Consulting produces a variety of research on the automotive industry, said that U.S. automakers are at a competitive disadvantage because most of their plants aren't as flexible as those run by Toyota Motor Corp., Nissan Motor Co. and Honda Motor Co., each of which can make several vehicles and models at the same factory and change over production lines very quickly.

This has several negative ramifications for U.S. producers. First, it means that the sales volume to make a given model profitable is much higher for GM and Ford, because a factory’s full cost must be supported for that model. Second, as a model’s sales decline, they face fewer and tougher options. The Japanese can move that model to another factory with comparative ease and keep it going at lower volumes, where U.S. manufacturers often must either close the plant or retool it for another model – both hugely expensive choices.

U.S. manufacturers such as Ford are working to make the plants for flexible. Germany’s Daimler-Chrysler, as reported in SCDigest, is taking major steps to make its plants more flexible and support multiple models per factory. Even the Japanese manufacturers usually are able to make fewer models at each U.S. plants than in their home market, though more than the U.S. producers have been able to achieve.

Meanwhile, the U.S. manufacturers have made huge gains in manufacturing productivity – they just aren’t able to reap the benefits.

Harbour said, for example, that between 1998 and 2004, GM’s total labor hours per vehicle was reduced by 26%, from about 46 hours per vehicle to 34. But, union contracts requiring the automakers to keep paying unneeded workers, and a failure to shut plants to match capacity with demand in the face of shrinking market share and substantial the productivity gains – means the productivity figures look nice on paper, but have done little for the bottom line.

For example, Harbour said GM had 331 stamping lines in the early 1990s, but made need as few as just 150 in a few years. It current has about 240.

Harbour cited Honda of America as the most productive and flexible producer in the United States. He said Honda twice moved the Accord assembly line from one plant to another in only a single weekend in order to maximize production when demand peaked.

Do you think U.S. auto manufacturers will be able to achieve competitive levels of factory flexibility soon? Will they be able to finally reap the financial benefits of the productivity gains they’ve made? Let us know your thoughts.