Seeing the leaders of the Big Three car makers begging Congress last week for a federal bailout was a sobering sight, and one that begged the question, "How did U.S. manufacturing get into this mess?"
Many Americans seem uninterested in digging into the real reasons for our industrial malaise, instead choosing to point a finger at some familiar bogeymen: unions, healthcare costs, offshoring, pensions, government regulations, and currency fluctuations.
While all of these have contributed to the massive job losses in our manufacturing sector, there are more fundamental reasons for our inability to compete successfully in the global marketplace.
The key to understanding the root causes of our failure lies in studying the success of Japan, a small, bombed-out nation with few natural resources 60 years ago that is now one of the great industrial powerhouses.
After World War II, Japan's infrastructure had been decimated and it had almost no natural resources to aid in the rebuilding effort. Yet, in a few decades it became the world's second largest economy when measured by gross domestic product.
This resurrection was made possible because Japanese companies learned four of the most important keys to manufacturing excellence:
- Manufacture products as similar to each other as possible (minimize variation).
- Design products so that they perform in realistic environments for a long period of time (high reliability).
- Prevent and predict issues, rather than detect and react.
- Educate employees in quantitative methods to accomplish the first 3 items.
While some manufacturers have been successful at reducing variation, others, such as American car makers, have not (despite highly touted "quality programs"). Combined, GM and Ford spent more than $8 billion in warranty costs last year. From 2003 to 2006, DaimlerChrysler spent an average of 4.5 percent of revenue on covering products under warranty, while GM spent roughly 3 percent. By comparison, Toyota spent only 1.25 percent of its revenue on warranty costs.
Then, there is safety recall data. From 2000 to 2006, GM had 1,014 safety-related recalls, Ford had 558, and Toyota had 131, despite the fact that Toyota sells more vehicles than Ford.
Perhaps the biggest reason for the decline of the U.S. automotive and electronics industry is what happens after warranty period ends. When the manufacturer pays for warranty repairs it's an inconvenience, but when consumers are forced to pay for costly repairs, they lose loyalty to the brand.
The consequences of product variability include huge losses within a manufacturing facility as well. Because products vary, many will not even be good enough to be sold. Those products are thrown away or re-worked. The loss in profits can be considerable, and the rate of "bad parts" being made internally is disturbingly high.
Executives argue that there is only a "perception problem" when it comes to the quality and reliability of American cars. However, the data strongly suggests otherwise. Executives should review statistics from the Consumer Product Safety Commission, the National Highway Traffic Safety Administration, the Federal Trade Commission, the National Transportation Safety Board, Consumer Reports, their own warranty databases, customer complaint data, and legal expenses.
To get the American auto makers back on track they must:
- Use proper industrial quantitative methods to minimize variation in components and products.
- Develop products with high long-term reliability, not just acceptable initial quality.
- Prevent manufacturing problems through the use of proper quantitative methods.
- Educate employees in necessary predictive methods for superior engineering.
If U.S. manufacturers don't get serious about quality and reliability soon, who will be the next CEOs seeking handouts from American taxpayers?
Allise Wachs is founder of Integral Concepts, a consulting company which provides solutions to complex product design and manufacturing challenges.