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strategy and business
 / Summer 2008 / Issue 51(originally published by Booz & Company)


Jeffrey Liker: The Thought Leader Interview

S+B: That sounds reasonable, though. Some would call it proactive.
LIKER: Yes, but it made it easy for Ford to overlook some of the thinking and design that had led to the success it was trying to emulate.

One example of how this played out was in the painting process. For any automaker, almost every car that comes “out of paint,” as they call it, is defective and has to be reworked; usually there’s a separate process after paint for repairing the paint and buffing out the de­fects. In Toyota’s case, it keeps a relatively small overstock of maybe 30 or 40 cars of all paint colors. The cars that come out of paint with no defects can be moved down the assembly process into final assembly while the others can go into final assembly subsequently, after paint repair. And the overstocked cars can be used to pick up the slack if a car of a certain color is needed immediately. So as the cars go down the assembly line, Toyota can send a signal to its suppliers saying, “We’ve got this red car, and it’s going to have these options and this kind of seat. Seat supplier, please make us this seat set and send the seats in this sequence.” The seat supplier then has three hours to build the seats for that car and deliver them to the assembly line.

Ford’s view was that it is not realistic for suppliers to build and ship something in three hours; they need more planning time. So its idea, to go beyond what Toyota did, was to lock in assembly sequencing for 10 days and then be able to tell its suppliers, “Next Tuesday, we’ll need these types of seats or dashboards exactly in this sequence.” To do this, however, Ford needed a much bigger cushion of extra cars and a larger warehouse with automated storage and retrieval to hold that inventory.

When Ford finally imple­mented this system — after taking two years to build the warehouses — the inefficiency was obvious, as was the sheer impossibility of sequencing assembly for more than a week in advance. For example, I walked the line at a few of Ford’s assembly plants and saw a huge bin with several hundred carpets. In­quiring about this, I was told, “Oh, those are the carpets that were out of sequence. When a carpet comes in, if it’s not the right one for the car, we throw it in that bin.”

“Why does that happen?”

“Lots of reasons: We planned on building this car, but the se­quence got interrupted because we were missing a part or the car was defective. And then we had to replace that car with other cars with different specifications to keep up with our assembly plan.”

Simply put, a car may be scheduled today for completion next Friday, seven days from now. Ford is predicting and assuming that it knows what’s going to happen next Friday, and then when circumstances do not cooperate, the carpets — and who knows how many other parts — simply get tossed aside.

S+B: Having seen the problem, why couldn’t Ford just change its approach?
LIKER: Because it was already locked in with its investments, and more importantly, locked in with its way of thinking.

Most of the companies I’ve seen, in Detroit and elsewhere, have an approach based on a deterministic paradigm: They want to control every phase of their future. But the Toyota approach was an adaptive, dynamic paradigm, which could be summed up as, “We don’t know what’s going to happen more than three hours from now, but we feel pretty comfortable that we know what will happen within that pe­riod. We have enough discipline in our system that we know in three hours this specific car is going to be done, and we’re going to need this seat.”

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