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?