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Mark Graban

Quality Insider

GM Blames Layoffs on Earthquake but Should Look in the Mirror

Just-in-time inventory halfway around the world won’t do

Published: Thursday, March 24, 2011 - 06:00

Let me give a big ole’ Texas-sized hat tip to Bob Emiliani for sending me the sad article with the headline  General Motors Lays Off Workers at NY Plant.” This is in addition to General Motors Co. (GM) suspending its Shreveport, Louisiana, assembly plant last week due to a choke in supplier parts coming from Japan.

The media will let GM off the hook because the parts shortages are the result of the tragic Japan earthquake. But the media also loves to pile blame on just-in-time (JIT) supply chain practices (or more broadly, criticize lean methodology).

Ironically, GM appears to be following the JIT practices often associated with lean without also following what Toyota calls the “respect for people” principle. A truly lean-thinking company like Toyota would not lay off those workers. GM did. GM chose to.

So let’s beat up on JIT for awhile

Here are the facts of the GM story. On March 21, 2011, GM halted some production and temporarily laid off workers at its Tonawanda engine plant in Buffalo, New York—another sign that Japan’s disaster is affecting automakers around the world. GM is suspending production of the engines built at its Tonawanda plant because those engines are for the Chevrolet Colorado and GMC Canyon compact pickups, which are assembled at GM’s plant in Shreveport, Louisiana. The automaker shut down its Shreveport assembly plant on March 17 because of a shortage of parts from Japan. GM doesn’t know when production will resume at either plant.

Other stories are starting to pop up blaming JIT and lean for the shortages.

The Wall Street Journal (WSJ) normally has an article each year with flawed thinking about JIT. It’s literally once a year that the WSJ trots out this sort of article, as it did in 2007 with “A Key Strategy of Japan's Car Makers Backfires.” This story came out when a smaller earthquake in central Japan halted its auto production (“Updated: Step 1 Earthquake, Step 2 JIT Bashing”). The WSJ hasn’t chimed in this time—yet—but others have.

A poorly researched article was published on BNET titled, “Lean Production: Another Casualty of the Japanese Quake?” If companies decide JIT isn’t the best strategy, that hardly means lean production is a casualty of anything. Lean is a broad management system and culture, and JIT practices are just one tool. Be sure to read the BNET comments, which offer a better view than the article itself.

Summary of the counterpoint: You can’t possibly hold enough inventory to protect against every possible scale of disaster. The earthquake that leveled Japanese communities on March 11 was a once-every-150-years event. Remember, holding inventory is costly, and holding a ton of it can be very expensive, especially if it was being held in northeastern Japan and may be damaged.

MSNBC.com has a similar article titled, “Disasters Show Flaws in Just-in-Time Production.” I’ll give them credit for presenting a balanced view of the pros and cons of JIT without bashing lean as a whole. The goal of lean was never “ultra-low quantities.” That’s an effect, just as low cost is an effect. You can only have ultra-low inventory if you have a very local supply chain. JIT was invented by Toyota for local Japanese supply chains where deliveries could be made by milk trucks, not by ocean freighters or 747 airliners. JIT is hard to do in a global supply chain where companies chasing cheap labor end up having to air-freight parts from China (a practice that might not be the lowest total-cost solution).

Trying to use JIT with ultra-low inventory from halfway around the world might be considered “JITAME” (just in time as misguidedly executed), an even more awkward equivalent to what I’ve dubbed “LAME” (or lean as misguidedly executed).

The article, “Time to Rethink JIT?” by James A. Smith, Ph.D., makes the reasonable point: “Surely some more moderate form of JIT makes sense.” This is especially true if we have long, complex global supply chains. Inventory management practices need to be reasonable, not “fanatical,” as Smith says. Common sense and lowest total-cost thinking should trump dogma about ultra-low inventory.

Contrasting GM and Toyota

Now back to GM. You might ask, “What should they do with workers if they can’t build anything?” The answer from Toyota would be clear. They’d keep paying people. Toyota isn’t like the old Jobs Bank—an agreement between U.S. automakers and the United Auto Workers union to protect workers from layoffs—where people were paid to sit around and do nothing. Paying people to do nothing wastes money, and it doesn’t show much respect for people. Workers weren’t idle because they were lazy; management never got them involved in anything. In my own experience, I was in the minority of engineers who had willing workers helping me with a few improvement projects (completely within the rules, and the workers were just happy to do something where they could use their brains).

This idea of paying people to not do production work isn’t theoretical. Toyota has repeatedly demonstrated its “respect for people” and long-term management vision by paying workers during the sales downturn in 2008–2009. See my past blogs and an Automotive News article:
• “Toyota Invests in Workers Instead of Laying Them OffLean Blog
• “Toyota Texas Tour Tales No. 1: OverviewLean Blog
• “Toyota Idles Factories but Can’t Lay Anybody Off” by Lindsay Chappell, Automotive News a sister publication of Workforce Management

When I visited the Toyota vehicle assembly plant in San Antonio, Texas, they talked with pride about what their people were being paid to do during a downturn. Toyota workers received additional job skill training (i.e., how to use production tools); they learned the Toyota Production System problem-solving and quality improvement methods; and they performed volunteer work in the community (which is a great leadership development activity).

Chappell’s article highlights other things Toyota does with workers during slow times, including “… safety drills, productivity improvement exercises, presentations on material handling and workplace hazards, diversity and ethics classes, maintenance education, and a stream of online tests to measure and record their skill improvements.”

Toyota had a lot of cash in the bank to be able to afford keeping all of its full-time staff. Granted, Toyota has laid off temporary workers, but it set the expectation that temporary workers will lose their jobs in slow times. I mean, it’s not good for those temps, but it’s better than laying off everybody. Investing in training and skills development is an investment that will pay off in the long term—at least that seems to be Toyota’s bet.

Toyota is not being charitable by paying people to do nonproduction work. This is an investment in their long-term success, building the skills of their employees. They also built up a lot of loyalty among the San Antonio workers and the community.

GM has run a lot of ads talking about the “New GM.” It’s too bad it still has the labor practices of the old GM. I guess GM’s people are all fully trained and cross-trained. It’s safe to assume it doesn’t need any more lean or global-manufacturing system training. We can also guess that it doesn’t need leadership development through volunteering.

You might say that GM “wants” to follow Toyota’s lead, but it  can’t afford it. GM doesn’t have a lot of extra cash lying around, does it ? Actually, GM has $29B in cash and equivalents on hand. Toyota has $38B in the bank. Would you cut GM slack for just coming out of bankruptcy? Or does GM have a responsibility to learn from and follow Toyota’s model by not laying off employees in Buffalo or at other plants, even temporarily? No, workers won’t lose much financially, but isn’t GM losing more by not training or developing its people, or improving its processes during this downtime?

It’s taken for granted that companies “have to” lay off workers—except for the cases where strong companies with the right mindset do not.


About The Author

Mark Graban’s picture

Mark Graban

Mark Graban is an author, educator, and speaker in lean health care, through his company Constancy Inc. He is a faculty member for the Lean Enterprise Institute (LEI) and vice president of improvement and innovation services at KaiNexus, a technology company that helps organizations spread continuous improvement. He is founder of the Lean Blog and is author of Lean Hospitals: Improving Quality, Patient Safety, and Employee Engagement, Second Edition (Productivity Press, 2011) and, with Joseph E. Swartz, Healthcare Kaizen: Engaging Front-Line Staff in Sustainable Continuous Improvements (Productivity Press, 2012), both recipients of the Shingo Professional Publication and Research Award.