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In The Race For Success, Quality
Is More Important Than Productivity


Each summer, auto executives await the release of The Harbour Report that rates the productivity at manufacturing plants in North America. A key rating in the report is the number of man-hours per vehicle required to assemble vehicles. To the Big Three this metric is critical. As Sue Carney reported in the Detroit News, "Higher productivity translates into lower labor costs and greater profitability for the automakers."

However, when labor only reflects 10 percent to 15 percent of the actual costs in every vehicle; will a 1 percent or 2 percent improvement in labor actually improve profits?

The axiom that "productivity equals profitability" is held to be self-evident. But in this era of profitless prosperity, i.e., robust sales with low profits, that notion is ripe for re-examination. The battle today is for market share. Focusing primarily on productivity won't win that war.

Clearly, there's merit to measuring productivity, especially when benchmarked against peers. If it takes automaker "A" twice as long to complete a process or function as it takes automaker "B," then something is clearly amiss. Automakers cannot be profitable without being efficient.

Productivity is a necessary, but insufficient condition for profitability.

What else makes them profitable? Maybe we should ask the person most affected by the manufacturing process, the customer who buys the car or truck. We would find that they value a different metric -- quality.

The Harbor Report's focus on productivity may have the unintended consequence of driving poor decision-making on the plant floor by categorizing workers at the plant into two bins: value-added and non-value-added. Value-added types physically put something on the car. Non-value-added types do not, but serve other functions helpful to putting the vehicle together, like maintenance workers who keep machines running, transport folks who get parts to work stations on the assembly plant floor and quality control inspectors who monitor things like body panel gaps and make sure that CD players work before leaving the factory.

An easy way to "improve" productivity is to reduce or eliminate "non-value added" functions, like quality control. Rather than have quality control inspectors along the line to check against a specification, some manufacturers have set up pre-shipping inspection lines that use the most recent warranty data to inspect vehicles before they are shipped. These pre-shipping lines seek out problems at the end of the line and repair them...if they find them at all. After some months of production, warranty claim data adds up. Inspectors at the end of the line then know which problems are more likely. Quality is sacrificed at the altar of productivity.

The consequences are severe. Warranty claims can cost manufacturers several thousand dollars per vehicle if not carefully assembled (at the same time, profits can be less than $100 per vehicle). Profits suffer. Customers who have numerous warranty claims are less likely to be repeat customers, driving up marketing costs to lure new buyers to showrooms. Customers don't make purchasing decisions based on productivity, they make them based on perceived value and quality is intrinsic to that perception.

Look at how Toyota manages quality. Inspection is built into the system and accepted as a necessary evil until the day that both humans and machines are 100 percent reliable in producing 100 percent of the vehicles with zero defects. An inspector at Toyota looks for defects that are out of standard for the vehicle. That means that they are measuring each vehicle against their own internal benchmark of what makes a quality vehicle, not just what was the last thing that the customer complained about.

There's another report that comes out annually that may be more informative about manufacturing prowess. The J.D. Power initial quality survey measuring how many problems car buyers have with their vehicle upon delivery, in many ways is a better single assessment of manufacturing operations than the Harbour Report.

Productivity has an impact on profits, true. But as manufacturing excellence -- and profitability -- is concerned, quality is king.

-- Dan Slater is president of manufacturing performance at RWD Technologies www.rwd.com