Wednesday, March 30, 2011

The Story of GM’s 19-Year Ascent to Best-in-Class Warehouse Productivity

- by David P. Carlisle

It has taken 19 years of steady, measured, year-over-year improvement for GM to make it to the top of the heap in North American parts warehousing productivity. The charts show parts warehouse productivity1 from 1992 through 2010. In 1992, the productivity quintiles represented 70 or so parts warehouses of 7 different OEMs. In 2010 there are over 200 warehouses and nearly 30 OEMs in the mix. The quintiles separate all the warehouses in the mix into five groups, ranging from most productive (green) to least (red). Aftermarket parts, you might think, what’s the big deal? Well, it’s nearly a trillion dollar global segment, deceptively (almost blindingly) complex, nicely profitable, significantly responsible for customer ownership satisfaction, and GM’s a very big global player. So, it is a big deal.

It has actually taken GM twenty three years to achieve best-in-class. That’s the story behind this blog; it is not about who’s number one - it’s about the journey one takes to improve.

GM’s 23-Year Plan

My first introduction to long-term strategic plans was doing work for Toyota Aviation. We were in the middle of a project and I asked the Japanese team members if they had a strategic plan. Enthusiastically, they unrolled a timeline showing the next 50 years, with incredible detail, of what they had thought out. I was impressed. In late 1988, I met with GM’s aftersales planning czars: Stu Wagner and David Sergeant. Wagner, since retired, is a brilliant man - he will insult me when he reads this, because he is incredibly tough too. At that point in time I had only worked with the importers in parts warehousing, and I had a pretty good working knowledge of their labor productivity. Twenty three years ago, when asked who to learn from, I’d simply say Toyota. Wagner, Sergeant, and I talked a lot. Wagner questioned GM’s parts leadership attitude - that everything was fine and GM “had game”. No, they did not have game. It took us 4 years of talking, cajoling, challenging, learning, and planning to launch the first warehousing benchmark conference in 1993. Toyota blew everyone away - their overwhelming superiority in this space was pretty clear to everybody within about 5 minutes of arriving at their LA parts warehouse. Mopar, too, was dazzling - they were the best of the Big-3. And, err, well, once we made it to their turf, they had a new Viper under covers, in a conference room. They were so Mopar.

GM did not dazzle - in fact, we were a bit dazed by what we saw. Barbed wire fences, second floor sorting operations with no air conditioning; their place was a mess. I attended their debriefing after the conference. Not a lot of excuses; mostly embarrassment. That was 1993, and Bill Lovejoy headed up GM’s parts operation. You all should remember him - he moved from parts to sales and “saved the industry” post 9/11 with a gutsy rolling out of $0/0% - everybody followed suit; it cured the tower-shock and it brought folks back into dealerships to buy cars and trucks again. We avoided a recession. Well, Lovejoy, Wagner, and Sergeant embraced the benchmark metrics and kept GM in the benchmark group, in spite of the continued embarrassment this activity brought on. You can see the charts - the numbers were pretty bad there for about 8 years. That didn’t mean that nothing was happening. Seemingly small gains on top of a very low base provided ample rewards for continuing their journey of change. They developed “a plan” - to scrap most, if not all, of their existing warehouses and replace them with “Template” warehouses. The Template warehouses employed modern Lean work methods and were designed based on best-in-class methods they’d learned from their benchmarking. It takes a lot of time, patience, courage, cash, and commitment to do this. Let me stress that one word, “time”.

The Concept of “Unlearning”

I learned my concept of “unlearning” from GM. When you are young and foolish, you learn that American companies only have strategies that span to their next quarterly 10Q report. When you are young and foolish, you learn that strategy longevity is tied to the strategy’s architects or founding fathers. 23 years. That’s a long time that goes well beyond the 10Qs, plan architects, and founding fathers. GM forced me to unlearn a bunch of stuff. Bill Lovejoy passed the VP baton to John Smith (who resuscitated Cadillac and went on to head corporate product planning with Bob Lutz), then to Doug Herberger (now president of Allstate Dealer Services), Kevin Williams (heads up GM Canada), and now Steve Hill. Supply chain leadership during GM’s transformation started with Rodney O’Neal (now President and CEO of Delphi), then to Ron West (now retired); but it is Charlie Hyndman who has spent the last 10 years marching his team to the goal line. Even a cursory examination of these pedigrees of leadership is impressive. Early on, GM’s supply chain certainly did not have game, but these guys did and still do.

The Hyndman Era

Charlie Hyndman will hate this heading, but it really does describe the past decade of change within the GM parts supply chain. Hyndman came out of GM’s lean manufacturing operations with a knack for listening and a talent for innovation. He is an enabler: he enables talented staff to innovate from a mix-up of ideas and experience. The bottom chart in this blog shows what we call “quality”, expressed in warehouse error rates (North America) - again you can see a 19-year progression from back of the pack to nearly front of the pack. Hyndman brought manufacturing’s “Quality Wall” to parts warehouses to give visibility to poor quality and attention to systematic improvement. GM looked to some of the more ground breaking supply chain innovations that Ford brought to market and then rewired their “Template” distribution strategy. More recently they re-thought the roles of their transportation carriers. They have been in the forefront of OEM parts logistics evolution, which has paralleled the evolution we’ve seen in inbound to assembly logistics (they did this with some help from transplanted manufacturing logistics staff).
  • Increased use of small parcel freight that has different PDC handling characteristics and costs that are offset by different negotiated carrier rates and terms.
  • Hybrid network structures that incorporate carrier/3PL-operated mixing centers.
  • Further, we’ve seen the evolution of DDS to look more like traditional LTL freight with carrier/3PL-operated in-market mixing centers.
A lot at GM changed under Hyndman’s leadership. “Change” is not a word that some of the more hardened associate with the UAW. I had to work my way through college and joined the UAW at a foundry that made Delco parts. I know this culture a bit from the inside. GM made all these changes with a UAW work force - and, I credit Hyndman’s leadership for making this happen. It is time for many folks out there to unlearn some stuff they think they know about the UAW. However, the big take-away from all this is that this is not a series of anomalies. It’s pretty consistent with a culture that has the incredible patience to wait 23 years and battle against what seemed to be impossible odds to see a strategy work out.

Bottom Line

I grow tired of people who take a superficial look at what’s in the papers and conclude that GM lags behind true automotive modernity.
Time Out: One last story. Back in 1995, GM hired me to evaluate their aftersales purchasing practices - those draconian ones that purchasing Czar Ignacio Lopez brought to GM; the same practices that have spread to nearly every other OEM still in business today. I moderated focus groups attended by nearly 100 suppliers. This was the high stress point in my career - higher than my 3 days of IRS depositions in an expert witness case. My supplier focus group conclusion was that these miserable practices were certainly dehumanizing and polarizing, but they were sustainable in the short run. As long as there was a plentiful supply of cannon fodder-like suppliers. Toyota and Honda emerged as best-in-class from a supplier perspective - and they still are today. Well, I wasn’t very popular calling GM’s baby ugly. Harold Kutner, who replaced Lopez, refused to see me. It is now 16 years later. GM has put some personality and teamwork back into purchasing ... while most other OEMs are still stirring up their witches brew of dehumanizing practices. We deal with all the purchasing OEM departments, so we see and experience, first hand, the type of treatment that the supply community gets. It ranges from professional in GM’s case, to being treated like trailer trash. Mostly trailer trash. With the devastation of the Japanese supply base and the Darwinian culling of suppliers since the recession, it might be time to change strategies. So, maybe, GM’s really ahead of the curve, not at all behind it.
Now, 23 years later, when asked who to learn from, I don’t have a single point of reference. I say, Toyota, GM, Volkswagen, Hyundai, Ford, Mopar, Deere ....

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1 “Method 1” for hourly PDC workers, and “Method 5” representing hourly and salaried PDC workers.

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