The Ford F-150 pickup trucks, with an average selling price $40,000, are sitting unfinished in assembly plant parking lots. For lack of computer chips, they cannot be driven or sold. Ford will lose at least $2.5 billion in sales this year. Most of it will never be recaptured.
Ford and most of the car companies are victims of being slaves to the philosophy of “lean.” Their unwavering belief that their computers and data analysts can predict usage and dictate the ordering of components to wring out the last nickel of profit in order to raise the price of the stock and pad their bonuses, is one of the fallacies of 21st-century business practice.
In the Great Chip Fiasco of this year, the sheep who decide how to keep the factories running at peak efficiency made hugely incorrect estimates on demand for 2021. Unlike the components that come from primarily domestic Tier 1, 2, and 3 producers in North America, chips come almost entirely from Asia.
Frankly, I do not understand why a chip made in China or Taiwan should be significantly cheaper than one made in Albuquerque or Phoenix, but that was the calculation car companies bought into over the past 20 years, so the chip makers followed their reasoning and built almost all their high-volume new plants across the Pacific.
In the midst of a pandemic, before the FDA had okayed two extremely effective vaccines, the car guys all believed that sales of the 2021 model would be awful.
Evidently, they and their “smart” computers were so sure of their predictions of misery they chose to order chips from Asia in paltry amounts. But chips were the one component in a car or truck that they could not ramp up quickly. They could not start churning them out within weeks, the way American manufacturers did when called upon to produce respirators in 2020.
The obvious and enormous weakness of dependence on foreign chips with limited North American capacity was that they had to be right in their predictions or face a production nightmare. The stupidity of “lean” has always been the blind belief in predictability and the illusion that you can quickly pivot from a mistake.
Fat in the supply chain is insurance. Evidently, insurance is not part of the computer programs that dictated the “lean and mean” mess of hundreds of thousands, and eventually millions, of unbuilt vehicles.
As any human being knows, life is unpredictable. Who saw a pandemic coming two years ago? Who saw water shortages in Taiwan? Who saw an increasingly testy relationship with China? And who saw a huge rebound in demand in 2021?
But that is why lean to excess is dumb, and the F-150 pickups sit unfinished, and new chip plants in America are several years away.
Question: What stuff do you always keep extra of?
The Plandemic was planned at least 2 years ago to ruin USA and World Economies….Thank you for writing about USA dependence on China. And now shutting our own production of oil and energy and entering into the “Green Deal” watch out for the next shut down and CONTROL…
We are self-governing…we do not need the “false” representatives in D.C. with their conflicting committees for every crisis they create? Wasted time, energy and illegal taxation and collusion with wall street.
Our next shortage will be food, as the Gov’t is paying farmers to destroy crops to creat shortages. They are getting fines if they don’t plant, and then getting fines if they don’t destroy their product. Thanks Biden.
I am with Nancy – our government is off the rails. Inflation, immigration, the “green new deal”, EV vehicles that require electrical energy from coal plants & are terrible for the environment (batteries galore), wind power that is not even reasonable without subsidy & takes tons of money to place online and take off line years later, blah blah blah. Funny how South Dakota is doing so well as an unpopulated fly over state with great leadership and common sense policies.
Maybe South Dakota is happy because one-third of their electricity comes from wind turbines. They can charge their cars from that, and not coal?
You have to ask what made Manufacturing Fat in the first place? One of the issues I believe that caused it are shortages like we have seen in the last year combined with inflation making it attractive to hold material and make extra pieces, because they would be worth more in the coming months and years.
Lean manufacturing concepts in the form of Set-up Reduction, Poka Yoke and 5S are very good concepts, but maintaining capacity and inventory at razor thin levels leads to the kind of shortages and issues we have seen.
Also the global supply chains become an issue, it is impossible to have a global supply chain and be Lean.
The question now is, when will Manufacturing become Fat again?
All very correct, John. I think the problem was largely with MBA holding managers with no experience on the shop floor who didn’t want to deal with all the issues and risks of actually making things when they could farm out the real work to someone else. The offshoring madness never did make sense, even from a cost standpoint. It just got accepted as a sort of perverted religion among businesses, thanks to promotion from consultants and magazine articles. I am very proud that during the time I owned my company we shipped products TO China.
Lean as practiced by the bankrupt thinkers of the Detroit Automakers is truly a perfect system for a world in which there are no Fires, Earthquakes, Tsunamis, Polar Vortexes, Pandemics, Floods, or Labor Strife. Sadly, they have not the ability to determine that they do not live in such a world. I remember writing a letter to someone at Saginaw Steering back in the 1980’s in response to their letter exhorting our company (sole supplier of a couple of parts) to “implement a fire safety plan in our shipping department so their supply would not be interrupted.” I told them that their very best price to a sole supplier agreement didn’t leave us any margin for such a luxury, and he should just enjoy the low prices while they could get them. The arrogance is both a feature and a bug with that culture. You may remember my Free Lunch Syndrome piece back in December of 2002. Nothing has changed.
The stuff that I try (valiantly) to keep extra of is Patience, the Presumption of Good Will in others, and Bourbon. The bourbon helps when every thing else runs out.
You are very right. In the mid-70’s I worked for a company which carried excess raw materials, work-in-progress, and finished product. That was one of their multiple problems that led to them no longer existing. I’m now a professor and teach manufacturing to engineers. To keep current, I visit many factories (except for the last year). Very often I hear about their great just-in-time and lean systems. But I never hear about their resilience to problems. A central concept of system theory is that complicated systems have so many components that even if they each are very reliable, the great number of components will mean that the overall system is in failure mode most of the time. A little fat and inefficiency is an insurance that will often help bridge temporary problems.