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Ford Motor’s Chairman Bill Ford Jr. has recently called for a national energy policy saying that the auto industry together with the energy companies, government and other industries should cooperate in developing a comprehensive plan.

Chairman Ford Jr., addressing the Detroit Regional Chamber said that the auto industry is not looking for handouts nor it is trying to evade its responsibilities. On the other hand he said that he would like to move beyond the “patchwork” of current fuel-economy rules and “arbitrarily set standards.”

The executive said that all of the stakeholders should help to create a more comprehensive plan for cutting carbon emissions. He also stressed that Ford is continuing to invest in cleaner, more fuel-efficient technology in spite of its restructuring program.

Chairman Ford Jr. said, “Environmental sustainability is a critical issue for our future growth and prosperity.”

He further added that although the company has been able to develop the first hybrid SUV which is the Ford Escape and redeveloped its Rouge plant in Dearborn, Mich., in what he termed as “environmentally friendly way”, the Chairman wishes that the company would have done more.

Chairman Ford Jr., also said during a question-and-answer session that the company “didn’t stretch far enough in the past few years” on design but the new vehicles such as the Edge crossover utility and the Ford Flex are “really indicative of the kind of design we want to have in the end.”

Despite the fact that Ford did well at truck and SUV design, Chairman Ford said, “I think as we started getting back to the car business, we weren’t perhaps bold enough.” He also said that he was “Very disappointed” by the comments made by Presidential candidate Sen. Barack Obama, D-III., at his recent speech in Detroit wherein Obama has criticized the US automakers and calling them to do more to build furl-efficient vehicles.

Chairman Ford Jr., added that he would like to invite Obama to Ford’s plant in Chicago “where we make a vehicle that’s more fuel efficient than the one he’s currently driving.” He further stated that it is not only the stressed on the production of more fuel-efficient vehicles that’s weighing on the US automakers but also the rising cost of health care that leaves US manufacturers at a disadvantage. “Unless, nationally, we get our arms around this, it’s going to be very hard to be a manufacturer in this country of anything,” he said during a question-and-answer session.

However Chairman Ford has also made it clear that he is not at all endorsing a national universal health-care system but he did say that the present system is “broken”. US automakers are facing a growing burden of providing heath care for thousands of retirees and active employees. But he didn’t mention just how Ford will deal with its health-care costs especially since its talks with the United Auto Workers union are getting near.

It can be remembered that Ford the producer of high quality car accessories such as Ford floor mats has taken a big step in changing its management stature when it hired Alan Mulally who is a former Boeing Co. (BA) executive as the new Chief Executive. And just recently, UAW President Ron Gettelfinger while speaking to the same conference has made a call for a national, single-payer health-care system. Gettelfinger said, “Our continued failure to enact serious health-care reform puts U.S. companies at an enormous competitive disadvantage. All of our major trading partners, every one, have national health-care systems which deliver quality care at an affordable price.”

]]> http://www.odyssey500.com/ford-chairman-bill-ford-jr-calls-for-national-energy-policy.html/feed 0 http://www.odyssey500.com/lean-mean-business-machine.html http://www.odyssey500.com/lean-mean-business-machine.html#comments Sat, 21 Aug 2010 00:00:34 +0000 admin http://www.crawbot.co.cc/?p=2975

Lean manufacturing’s main keys are the following:



Perfect first-time quality – quest for zero defects, revealing and solving problems at the source



Waste minimization – eliminating all non value-adding activities and safety nets, maximization of scarce resources (capital, people and space)



Continuous improvement – reducing costs, improving quality, increasing productivity and information sharing, pull processing: products are pulled from the consumer end, not pushed from the production end



Flexibility – producing different mixes or greater diversity of products quickly, without sacrificing efficiency at lower volumes of production, building and maintaining a long term relationship with suppliers through collaborative risk sharing, cost sharing and information sharing arrangements.



The world’s economy today is always changing and more competitive than ever. There are new companies created everyday and old ones tightening their grip on their thrifty empires. For any of these companies to remain successful or become successful, they must find a way to stay on top of their game and please the customer better than ever before. Increasingly, successful companies are turning to lean business practices (lean manufacturing, lean customer service, lean office, lean distribution, lean public sector) as the answer to staying on top of their industry. Lean 5S is not necessarily a particular way of producing a product. It is instead a philosophical way of thinking.

McDonald’s can be said to have recently implemented a lean technique. McDonald’s no longer makes an abundance of food to wait in holding bins in anticipation of a meal time rush. If a rush does not happen, then there is an obvious waste of food as well as labor. Instead, McDonald’s has focused on making the food when the customer orders to provide a fresher and hotter meal. A focus on consistent labor training and improvement is the key to keeping this service speedy and reliable. By implementing this new “leaner” way of thinking, waste of food and labor has been minimized, which is the main goal of the lean process.

Lean manufacturing was actually born in 1914 with Henry Ford and the mass production moving assembly line. Lean relies on keeping a steady flow of product out the door to the customer. Ford’s system did exactly that, though it was missing some of the most important and common factors in today’s lean philosophy. The original Ford assembly line was putting out thousands of Model T cars at a vast rate. The problem was that it did not matter what the customer demand or requests were; there was a base black Model T available. They didn’t worry about customer satisfaction or demand whatsoever. The Ford motor company stuck with mass production and had a large stock of inventory (waste) just sitting around. Although Toyota is credited with beginning Lean Production with their Toyota Production System, the roots of “lean” date back as far as the 16th century. In 1570, King Henry III of France watched in amazement as the Venice Arsenal built galley ships in less than an hour using the continuous flow process.

Later in the 1940’s The Toyoda Loom Company had problems of its own. After World War II when Japanese industry was decimated, the Toyoda family decided to extend Toyoda Automatic Loom Company to start an automotive company. They had some cash but did not have the infrastructure. They certainly could not compete directly with the established companies like Ford. Therefore, their sole demand was in Japan, which meant supplying small quantities with high variety, while Ford was selling any color Model T you wanted as long as it was black. Toyota also had to rely on outside supplier partners to make the capital investment needed to get in business. Taiichi Ohno, leader of the Toyota manufacturing enterprise, came up with a system now called the Toyota Production System (TPS). He did not do this alone though. Ohno diligently studied Henry Ford and his company’s philosophies on manufacturing. Toyota and Japan had the problems of not enough space, resources, or demand to compete with the larger automobile manufacturers of America. By assessing and solving these problems, Ohno began the TPS and the manufacturing revolution known today as Lean Manufacturing.

After WWII, Ford was ten times more productive than Toyota, but between 1945 and 1970, Ohno’s Toyota Production System was revolutionizing the Japanese automobile industry. It was during this time the rest of the world and particularly the United States started realizing the overwhelming benefits of lean manufacturing. The U.S. auto industry paid particular notice when The Machine that Changed the World was published highlighting the great accomplishments of Toyota and the huge gap between Japanese quality and productivity and auto companies in the West. The book coined the term “lean manufacturing” because Toyota was doing more with less of everything – less space, less people, less capital and less inventory.

As said before, Lean’s main goal is to eliminate or at least minimize waste. Lean 5S also seeks to streamline the workflow throughout the production process. By eliminating waste, a lean system eliminates variability in the process itself and in the cycle time of materials. The cycle time is the length of time production materials spend in process, while processing time is the length of time required to process any particular item at any given workstation. By eliminating variability within these two lean concepts, companies become more efficient, and are able to reduce the final costs of producing a customer-demanded quality product. Reducing variability is a core objective of Lean. In fact, variability reduction could be defined as Lean in action. Some of the benefits of reducing variability or practicing lean principles are shorter cycle times, shorter lead times, faster response times to customer demands, lower costs, greater flexibility, higher quality, better customer service, and higher revenue. Certainly, these are all elements of creating a successful company, capable of meeting the changing demands of a highly-competitive marketplace.

The International Society of SixSigma provides the acronym DOTWIMP for recalling the seven wastes associated with Lean:

· Defects : A defect is defined as anything produced through the process that the customer is not satisfied with or is unwilling to pay for. Usually referred to as errors, defects disrupt the production process and require a greater final investment to produce a product for profit. Initially, most defects require less production time to produce than the intended high-quality product. This is because most defects occur because at least some facet of the production process was skipped or missed. In the end, however, defects are cost nightmares for companies. The additional steps they add to the production process are exponential, since most steps in the process are repeated. In addition, the intrinsic costs are immeasurable. Lack of customer confidence, added customer operating costs, and dissatisfaction with the purchased products are all end costs of defects that destroy company profits and longevity in the marketplace.

· Overproduction : Think back to the Ford model of production in the early 1900’s. What value did the hundreds of excess Model T’s create? In essence, they only created greater expenses for the company. Valuable resources were tied up in goods that could not be readily sold. This creates wasted time, labor and resources that could be allocated to other areas, such as customer needs, process improvement, or business growth.

· Transportation : This deals with the movement of raw materials from vendors, to parts through the production process, to the finished goods reaching the end user. Lean seeks to streamline this movement so that unnecessary handling of raw materials, excess movem
ent of parts, and increased steps in the distribution process are eliminated.

· Waiting : One of the major problems with the Ford assembly line approach is that not all steps are in synchronization with each other. One step might require five minutes of labor to complete, while the following step might require only two minutes to complete. Obviously, when this is the case a disruption of movement will occur, and the process will be in a “waiting” mode. Lean works to eliminate or minimize this waiting period by combining some steps and separating others, so that each step is more closely matched to the ones before and after. This reduces the amount of time an employee has to sit idle while being paid.

· Inventory : When Toyota began developing into an automobile manufacturing facility, they were forced to eliminate as many additional costs as possible. One way they did this was to eliminate capital resources sitting unused in their parts warehouse. They realized that if their revenue was tied up into parts that could not be turned around into saleable goods in an efficient manner, then they would most likely not survive as a young company. Instead, they worked closely with their supply partners to receive inventory that was needed to manufacture goods in accordance with customer demand. The goods were then sold more quickly, and greater cash flow was created to purchase the next order of parts from suppliers.

· Motion : Hours and hours of production are wasted seconds. Lean addresses this problem by streamlining the production process at the workstation itself. If a worker takes minutes to find the parts needed to complete their step in the process, Lean finds a way to make the parts more accessible, thereby reducing the minutes to seconds. This might not seem like much of a waste reduction, but consider this model. One worker uses one screw per product in their step in the process. The same worker produces one hundred of these products each workday. The worker must stoop down below the work table each time the screw is needed. This step takes thirty seconds, or 3000 seconds per 100 products. By placing the screw bin in front of the worker at shoulder height, the worker can retrieve the screw with less effort and in only 10 seconds. This motion reduction has saved 2000 seconds per 100 products. When calculating the end cost of this reduction annually, it becomes obvious how reduced motion saves money as well as time. This simple example can save a company as much as 137 production hours over the course of a year. These costs really start to add up when one considers that there are several production steps involved in creating a product for sale. Ergonomically, reducing physical motion decreases cumulative trauma disorders associated with time and expense loss due to injury.

· Processing : This concept can take on several dynamics. It can be simplified to say that any flaw in the process which creates a slowdown in production, a disruption of the process flow, or an increase in needed labor greatly increases a company’s initial investment to create a desired result. This, of course, creates a greater cost, which hinders a company’s ability to remain competitive in the marketplace.

Go Lean or Go Home

Lean is currently a hot topic in most major industries and is coming to an industry near you. Practically every type of industry is currently using Lean: distribution centers, electrical, government agencies, manufacturing, mechanical, office, healthcare, customer service and software and system companies. The current big players in lean manufacturing are Cascade Engineering, General Electric, Hewlett Packard, Intel, Microsoft, Oracle and Toyota. The use of lean thinking is being applied to improve competitiveness and accelerate a company’s growth by managers and CEO’s alike. Perhaps, the most interesting aspect of Lean is that it does not stop with upper management. Instead, Lean is a philosophy that embraces the worker who actually produces the product or service being bought and sold. Today the leader in manufacturing is the United States, due at least in part to the implementation of lean principles in so many of our industries.

Other industries have taken notice and are now applying lean principles to compete. Channel 9 billionaire James Packer had this to say about Lean, “New management at Channel 9 has launched a concerted attack on its cost base in order to restore margins through eliminating waste, improving efficiency and lowering programming costs.”

Companies, no matter how big or small, are switching practices over to Lean methods. Many companies that implemented Lean practices such as General Electric and Hewlett Packard cut their overhead operations by 30% or more. Furthermore sales double and they’ve continued to grow at an accelerated rate. Companies have experienced this growth and success without cutting jobs, which seems to have been the primary solution used to cut cost in the past.

With such overwhelming evidence, and such compelling arguments, it would seem reasonable that all companies would embrace Lean concepts. This is not always the case. There are two primary reasons some companies are not implementing Lean. Some companies are simply ignorant to Lean methodology and clearly do not understand what is involved in process improvement. Since they are ignorant of these practices, they tend to use older methods with which they are more comfortable. Lean cannot and will not happen overnight. Converting to a Lean system takes time and effort, and results-driven people want immediate results. The other primary reason companies fail to implement Lean practices is that they see process changes as new investments, which of course equals new cost. They have invested such great sums of time and money in their current process, regardless of inefficiencies, they fail to understand that initial costs of Lean processes is simply an investment for future growth and profit.

Lean manufacturing is not a set of isolated techniques. It is a complete business system. By eliminating inherent wastes, Lean creates a new way of designing, a new way of selling, a new way of producing, and most importantly, a new way of involving all employees in improving processes, product quality, and customer satisfaction.

It should be recognized and remembered that Lean is not a final goal that a company works towards. It is an ever-changing way of thinking to make the company the best it can be at all times. Simply put, Lean 5S is making the customer happy by getting them their product in the fastest way possible with the highest quality possible while making the largest profit possible. There is no better way to succeed in today’s changing business world. Darwin’s idea that it wasn’t the strongest species, but the most adaptable species that were able to survive and thrive in the changing world, is equally applied to business. Companies who are consistently able to adapt to the changing needs of their customers, and companies who are able to meet these changes with the fewest costs while producing the greatest profits are the companies who will continue to succeed. These companies understand that Lean is a process, a journey, not an end state.

Lead them over the River of Jordan to the Promised Land!

]]> http://www.odyssey500.com/lean-mean-business-machine.html/feed 0 http://www.odyssey500.com/don%e2%80%99t-trade-in-that-suv-yet.html http://www.odyssey500.com/don%e2%80%99t-trade-in-that-suv-yet.html#comments Sat, 17 Jul 2010 10:20:47 +0000 admin http://www.crawbot.co.cc/?p=2977

          Gas prices continue to soar, your SUV gets 16 mpg, and your paycheck isn’t increasing.  Consumers feeling their pockets getting empty are starting to ask questions.  Could the high gas prices just be temporary? If not, then I guess it’s time to trade the SUV in and get a fuel efficient vehicle, right?  Actually that might not be the smartest idea.  In order to answer these questions we need to understand the current SUV situation and determine what this means financially.     

            Sport Utility Vehicles (SUV’s) have become the norm for a vehicle purchase over the last 10-15 years.  As many cars became smaller over this timeframe compared to the cars in the 1970’s, people became interested in sport utility vehicles and why wouldn’t they?  These vehicles have plenty of leg room, a large storage area, four-wheel drive, feel very safe due to their size, and are powerful.  One of the biggest selling features is they provide a higher seating position allowing the driver to view more of the road and surroundings. 

Not only did consumers have a desire for SUV’s, but they wanted larger SUV’s.  The big three U.S. vehicle manufacturers, Chrysler, Ford, and GM, were making extremely large profits on these vehicles.  The Ford Excursion, Chevy Suburban, Hummer, GMC Yukon, and Chevy Tahoe are the largest SUV’s on the market.  These vehicles were being bought by families, shuttle drivers, and small business owners.  Due to a tax break many small business owners and mostly anyone who could write off the vehicle as a work related expense became consumers for these enormous vehicles.  They were able to write off almost the entire cost.  This encouraged lawyers, doctors, accountants, and real estate agents to buy these SUV’s, when they really have no use for this type of vehicle.

            The U.S. vehicle manufacturers and consumers were both happy until the one major flaw of SUV’s was magnified.  These vehicles were gas hogs.  Hurricane Katrina started to reveal this flaw in 2005 when this hurricane caused disruption to refineries.  Gas prices soared above $3 a gallon.  Prices would start to come down as the refineries got back into full production, but not down to where they were before the hurricane.  This was due to the price of a barrel of crude oil rising to over $50.  In 2004 the average price of a barrel of crude oil was $37.  This brings us to July 4th, 2008 as the price of a barrel of crude oil is now over $145 and the price of a gallon of gas is over $4. 

            This has caused U.S. vehicles manufacturers to slow down and terminate some SUV lines which have been their most profitable over the last decade.  Consumers are now buying small fuel efficient cars and hybrid vehicles.  The problem for many consumers is they are looking to trade in or sell their SUV’s to purchase a fuel efficient vehicle, but there are not many takers for at least what the consumer feels is fair value.  Typical supply and demand has caused very fuel efficient cars and hybrid vehicles to sell for the ticket price or above.  SUV’s are selling way below ticket price since there are a lot more sellers than buyers.  Vehicle manufacturers are overloaded with SUV’s and the dealerships can’t sell the ones they already have on the lot.            

            Just this data makes it seem foolish to trade or sell a SUV at this time, but the financial numbers is what will really influence the decision.  There are many different situations a consumer might be in.  A consumer who is not able to afford fueling their SUV might need to trade their SUV in.  Perhaps there is no loan against it and the value of the SUV is high enough to get them an equally or lower priced car.  This means they directly cut down their gas expense and haven’t changed their monthly budget. 

            Some examples using numbers can probably give everyone a general idea to help with their decision making.  $30,000 is close to an average cost of a SUV.  To set-up this example we will say John purchased a $30,000 SUV four years ago.  With zero down and a 6% interest rate his payments are $580 a month and he has a current loan balance of $6000.  Let’s also examine Joan who purchased the same year and model SUV for the same amount but her loan is paid off.  Currently, a dealership is offering $9,000 for the SUV.  Therefore each consumer has sunk costs of $21,000.  Also this means John will have to use $6000 of the $9,000 trade in to pay his existing loan.  His balance of $3000 will go towards his new purchase and all of Joan’s $9,000 will be put towards her new purchase.  We will take a look at these situations in two different ways.    

            First we will look at the situations by monthly budget.  Since car payments are monthly payments we need to determine how much money is spent on gas each month.  We will use the current average U.S. gasoline price of $4 a gallon.  Joan’s roundtrip to her full-time job each day is 30 miles.  On the weekend she drives on an average 100 miles.  Therefore, Joan drives 1,000 miles a month.  At 16 miles per gallon she pays $250 a month.  Currently she doesn’t have a monthly car payment so her monthly total for gas and car payment is $250 a month.  Joan is looking to purchase a car which is the same model year as her SUV.  The car costs $15,000, but gets 27 miles per gallon.  After her $9000 SUV trade-in her monthly car payment will be $116 (using 6% interest rate).  Her monthly gas expense will be $150.  This equates to $266 a month for gas and car payment.  Her monthly expense for a car payment and gas is actually higher now which is mainly due to her only getting $9,000 for her SUV. 

John’s roundtrip to his full-time job each day is 60 miles.  On the weekend he drives 100 miles.  Therefore, John drives 1,600 miles a month.  John pays $400 a month in gas.  If John purchases this same car, then his monthly gas expense is $237.  After the $3000 John will be able to put towards his purchase, his car payment is $232.  His total expense for gas and car payment will now be $469.  John will actually save over $100 a month.  However he was in the last year of his SUV payments and now his car payments will continue for five years.   

            The second way we will look at these situations is to determine the break even point.  We can determine how many miles it will take in order to make up for the loss on the SUV.  The loss on the SUV is not the $21,000 sunk cost, but the difference in trade-in value from the time before gas prices skyrocketed to the present time.  The sunk cost has to do with trading in a vehicle for another one.  We won’t use the $21,000 since we are strictly looking at if the SUV is worth trading in just to get better fuel efficiency.  Before there was a large increase in gas prices, a typical SUV like John’s and Joan’s would have a trade-in value around $14,000.  Now the trade-in value is $9,000 which equates to a $5,000 difference.  In using cost accounting we need to determine the sale per mile and the variable cost per mile.  The $4 per gallon gas price needs to be converted to a cost per mile since we need to get the break even point in miles.  The sale per mile is just the SUV’s fuel cost per mile.  This is $4 a gallon divided by 16 miles per gallon which equates to a cost of 25 cents a mile.  The variable cost per mile is the car’s fuel cost per mile.  This is $4 a gallon divided by 27 miles per gallon which equates to a cost of 15 cents a mile.  Next we determine our contribution margin per mile which is the sale per mile of 25 cents minus the variable cost per mile of 15 cents which results in a 10 cents per mile contribution margin.  Finally we use the $5,000 loss and divide by the contribution margin per mile of 10 cents which provides the answer of 50,000 miles.  The
break even point of 50,000 miles is the amount of miles that need to be driven in the car to recover the $5,000 loss on the SUV.   To simplify the problem we simply converting both vehicles’ cost of gas per mile and took the difference.  Then we divided the loss on the SUV by this difference.  It will take Joan over 4 years of driving the car to recover the SUV loss at her current usage and it will take John over 2.5 years. 

          The future of the gas prices is unknown which makes the future value of the SUV unknown also.  However, we know the value of an SUV has dropped significantly.  If we could have predicted this drop, then trading in the SUV before this occurrence would have avoided the $5,000 decline in value.  The problem is most SUV owners couldn’t make this prediction so they are presented with the situations we have examined.  In these examples we only looked at the financial numbers which alone didn’t strongly favor trading the SUV in for a car.  Also, like in the stock market, it doesn’t make sense to sell low and buy high which is currently happening when SUV’s are traded in for fuel efficient cars.  When we consider the advantages of a SUV which have led them to their popularity over the years it doesn’t make much sense to give these advantages up.  Perhaps the next time a consumer is ready to buy a new vehicle they won’t purchase a gas guzzling SUV, but for current SUV owners it makes sense to continue to enjoy the great features of these vehicles. 

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