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GM to try to Inspect Quality In After Letting Experience Walk Out the Door
June 14, 2008

GM preps for new hires after buyouts

This is a particularly sad story. We often debate the proper role of layoffs and headcount reductions in the Lean community. It's "conventional wisdom" perhaps in the Lean movement that we should not let efficiency improvements that result from Lean methods lead to layoffs. To do so would undercut the employee participation that is required for Lean (and an organization) to be successful in the long run.

Many consider it to be a different story if the business is shrinking because of a declining market or declining market share - case in point, General Motors. At a high level, GM's leadership has a responsibility to prevent decline -- through product design, marketing, and general management of the whole enterprise. Toyota claims to have not laid off employees in 50 years. This is partly due to continually being in a growth mode rather than constantly shrinking.

This most recent article about GM paints a different picture. GM is not just shrinking the workforce. They are throwing out older, more expensive workers to be replaced by newer, less expensive ones. This is not "Lean." This is not in keeping with the "respect for people" principle of the Toyota Production System.

Some 19,000 GM hourly employees are leaving as part of the labor deal GM negotiated with the United Auto Workers last year that allows the company to replace departing workers with lower-paid new hires. Most are slated to leave July 1.

That's 19,000 individuals with skills, knowledge, and experience. If GM views them merely as a back and a set of hands, then shame on GM. They might defend the decision by saying, "Someone paid $14 can just as easily turn a wrench as somebody making twice as much." What about the accumulated experience and problem solving abilities that should be there in the older employees? I guess that never was valued much??

Don't they realize the impact this mass exodus could have on quality? Oh wait, they do:

The biggest challenge for GM may be accomplishing the massive undertaking without compromising the quality of its cars and trucks. Having begun to win new respectability on the quality front, the automaker can't afford costly and reputation-marring mistakes on the factory floor, which is a risk when there is significant turnover.

"We are very intensely focused on making sure our quality isn't compromised," said Joe Mazzeo, GM's executive director of manufacturing quality. "Our customers don't know this is going on, and they don't care."

As with many business decisions, such as outsourcing or offshoring, the "savings" or "benefit" from such a move is easy to calculate. It's easy to calculate the savings from paying workers $14/hour instead of $28/hour, even considering the buyouts and "go away" payments to departing workers. But the COSTS are much less easily quantified. What is the cost of poor quality? What is the cost of poor morale, of either having to work alongside a new junior employee who makes an embarrassing low wage or the low morale of a new employee who resents the older employees who make twice as much for the same job?

How does GM plan to maintain quality? Sure, the new employees will be trained, they won't just be thrown into jobs.

Also, in an unusual step, GM will carry out quality checks of every vehicle headed off the factory floor during the initial transition. Typically, vehicles are picked at random for the checks.

The people at GM must have listened to Dr. Deming a little bit. They MUST know that you can't "inspect quality in" to a product. The need to increase inspection adds cost and must be an acknowledgment that they KNOW quality will suffer. They won't be able to catch all of the defects. The customer will notice. GM says their customers don't know this is going on. Um, maybe try to avoid being quoted in a newspaper article about how this is happening. Readers of this blog know it is happening. Tell your friends.

I doubt we'll see loads of books and Harvard Business School publications about the "General Motors Method" of throwing out expensive employees and replacing them with cheaper ones. Or maybe it's already called the "Circuit City Method." Ford has been doing the same thing, as have other auto suppliers. It's the standard playbook anymore, unless you're Toyota or a truly Lean company.

Step 1: Fire expensive employees. Step 2: Hire cheaper ones. Step 3: Profit. Oh wait, both companies are still struggling.

Can the GM leaders be thrown out and replaced with newer, cheaper executives?

Posted by Mark Graban on June 14, 2008 | Comments (1)