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Unformatted text preview: OPERATIONS AND LOGISTICS STRATEGIES. ___________________________ READING: “THE RISE AND FALL OF MASS PRODUCTION” ___________________________ Document published exclusively for this course / seminar. It is not permitted reproduce it totally or partially without permission. Document publicat per a ús exclusiu d’aquest curs/seminari. està permès reproduir-lo totalment o parcialment sense permís. No Documento publicado para uso exclusivo de este curso/seminario. No está permitido reproducirlo total o parcialmente sin permiso. Faculty: PhD. August CASANOVAS THE RISE AND FALL OF MASS PRODUCTION1 In 1894, the Honorable Evelyn Henry Ellis, a wealthy member of the English Parliament, set out to buy a car.' He didn't go to a car dealer - there weren't any. Nor did he contact an English automobile manufacturer - there weren't any of those either. Instead, he visited the noted Paris machine-tool company of PanhardetLevassor and commissioned an automobile. Today, P&L, as it was known, is remembered only by classic-car collectors and auto history buffs, but, in 1894, it was the world's leading car company.2 It got its start—and a jump on other potential competitors— when in 1887 Emile Levassor, the "L" of P&L, met Gottlieb Daimler, the founder of the company that today builds the Mercedes-Benz. Levassor negotiated a license to manufacture Daimler's new "high-speed" gasoline engine. By the early 1890s, P&L was building several hundred automobiles a year. The cars were designed according to the Systeme Pan-hard—meaning the engine was in the front, with passengers seated in rows behind, and the motor drove the rear wheels. When Ellis arrived at P&L, which was still primarily a manufacturer of metalcutting saws rather than automobiles, he found in place the classic craft-production system. P&L's workforce was overwhelmingly composed of skilled craftspeople who carefully hand-built cars in small numbers. These workers thoroughly understood mechanical design principles and the materials with which they worked. What's more, many were their own bosses, often serving as independent contractors within the P&L plant or, more frequently, as independent machine-shop owners with whom the company contracted for specific parts or components. The two company founders, Panhard and Levassor, and their immediate associates were responsible for talking to customers to determine the vehicle's exact specifications, ordering the necessary parts, and assembling the final product. Much of the work, though, including design and engineering, took place in individual craft shops scattered throughout Paris. One of our most basic assumptions in the age of mass production—that cost per unit falls dramatically as production volume increases—was simply not true for craft-based P&L. If the company had tried to make 200,000 identical cars each year, the cost per car probably wouldn't have dipped much below the cost per car of making ten. 1 The Machine that Change the World, from James P. Womack. Chapter 2: The Rise and Fall of Mass Production. What's more, P&L could never have made two—much less 200,000—identical cars, even if these were built to the same blueprints. The reasons? P&L contractors didn't use a standard gauging system, and the machine tools of the 1890s couldn't cut hardened steel. Instead, different contractors, using slightly different gauges, made the parts. They then ran the parts through an oven to harden their surfaces enough to withstand heavy use. However, the parts frequently warped in the oven and needed further machining to regain their original shape. When these parts eventually arrived at P&L's final assembly hall, their specifications could best be described as approximate. The job of the skilled fitters in the hall was to take the first two parts and file them down until they fit together perfectly. Then they filed the third part until it fit the first two, and so on until the whole vehicle—with its hundreds of parts—was complete. This sequential fitting produced what we today call "dimensional creep." So, by the time the fitters reached the last part, the total vehicle could differ significantly in dimensions from the car on the next stand that was being built to the same blueprints. Because P&L couldn't mass-produce identical cars, it didn't try. Instead, it concentrated on tailoring each product to the precise desires of individual buyers. It also emphasized its cars' performance and their hand-fitted craftsmanship in which the gaps between individual parts were nearly invisible. . To the consumers Panhard was trying to woo, this pitch made perfect sense. These wealthy customers employed chauffeurs and mechanics on their personal staffs. Cost, driving ease, and simple maintenance weren't their primary concerns. Speed and cus¬tomization were. Evelyn Ellis was no doubt typical of P&L's clients. He didn't want just any car; he wanted a car built to suit his precise needs and tastes. He was willing to accept P&Ls basic chassis and engine, he told the firm's owners, but he wanted a special body constructed by a Paris coachbuilder. He also made a request to Levassor that would strike today's auto manufacturer as preposterous: He asked that the transmis¬sion, brake, and engine controls be transferred from the right to the left side of the car. (His reason wasn't that the English drove on the left—in that case, moving the controls to the left side of the vehicle was precisely the wrong thing to do. Besides, the steering tiller remained in the middle. Rather, he presumably thought the controls were more comfortable to use in that position.) For P&L, Ellis's request probably seemed simple and reason¬able. Since each part was made one at a time, it was a simple matter to bend control rods to the left rather than the right and to reverse the linkages. For today's mass producer, this modification would require years—and millions or hundreds of millions of dol¬lars—to engineer. (American companies still offer no right-side-drive option on cars they sell in drive-on-the-left Japan, since they believe the cost of engineering the option would be prohibitive.) Once his automobile was finished, Ellis, accompanied by a mechanic engaged for the purpose, tested it extensively on the Paris streets. For, unlike today's cars, the vehicle he had just bought was in every sense a prototype. When he was satisfied that his new car operated properly—quite likely after many trips back to the P&L factory for adjustment—Ellis set off for England. His arrival in June 1895 made history. Ellis became the first person to drive an automobile in England. He traversed the fifty-six miles from Southampton to his country home in a mere 5 hoursand 32 minutes—exclusive of stops—for an average speed of 9.84 miles per hour. This speed was, in fact, flagrantly illegal, since the limit in England for non-horse-drawn vehicles was a sedate 4 miles per hour. But Ellis didn't intend to remain a lawbreaker. By 1896, he had taken the Parliamentary lead in repealing the "flag law" that limited automotive speeds, and had organized an Emancipation Run from London to Brighton, a trip on which some cars even exceeded the new legal speed limit of 12 miles per hour. Around this time, a number of English firms began to build cars, signaling that the automotive age was spreading from its origins in France to England in its march across the world. Evelyn Ellis and P&L are worth remembering, despite the subsequent failure of the Panhard firm and the crudeness of Ellis's 1894 auto (which found a home in the Science Museum in London, where you can see it today). Together, they perfectly summarize the age of craft production in the motor industry. In sum, craft production had the following characteristics: • A workforce that was highly skilled in design, machine operations, and fitting. Most workers progressed through an apprenticeship to a full set of craft skills. Many could hope to run their own machine shops, becoming self-employed contractors to assembler firms. • Organizations that were extremely decentralized, although concentrated within a single city. Most parts and much of the vehicle's design came from small machine shops. The system was coordinated by an owner/entrepreneur in direct contact with everyone involved—customers, employers, and suppliers. • The use of general-purpose machine tools to perform drilling, grinding, and other operations on metal and wood. • A very low production volume—1,000 or fewer automobiles a year, only a few of which (fifty or fewer) were built to the same design. And even among those fifty, no two were exactly alike since craft techniques inherently produced variations. No company, of course, could exercise a monopoly over these resources and characteristics, and PanhardetLevassor was soon competing with scores of other companies, all producing vehicles in a similar manner. By 1905, less than twenty years after P&L produced the first commercially successful automobile, hundredsof companies in Western Europe and North America were turning out autos in small volumes using craft techniques. The auto industry progressed to mass production after World War I, and P&L eventually foundered trying to make the conversion. Yet, a number of craft-production firms have survived up to the present. They continue to focus on tiny niches around the upper, luxury end of the market, populated with buyers wanting a unique image and the opportunity to deal directly with the factory in ordering their vehicles. Aston Martin, for example, has produced fewer than 10,000 cars at its English workshop over the past sixty-five years and currently turns out only one automobile each working day. It survives by remaining small and exclusive, making a virtue of the high prices its craft-production techniques require. In its body shop, for example, skilled panel beaters make the aluminum body panels by pounding sheets of aluminum with wooden mallets. In the 1980s, as the pace of technological advances in the auto industry has quickened, Aston Martin and similar firms have had to ally themselves with the automotive giants (Ford, in Aston Martin's case3) in order to gain specialized expertise in areas ranging from emission controls to crash safety. The cost of their developing this expertise independently would have been simply prohibitive. In the 1990s, yet another threat will emerge for these craft firms as companies mastering lean production—led by the Japanese—begin to pursue their market niches, which were too small and specialized for the mass producers, such as Ford and GM, ever to have successfully attacked. For example, Honda has just introduced its aluminum-bodied NS-X sports car, which is a direct attack on Ferraris niche in ultrahigh-performance sports cars. If these lean-production firms can cut design and manufacturing costs and improve on the product quality offered by the craft firms—and they probably can—the traditional craft producers will either have to adopt leanproduction methods themselves or perish as a species after more than a century. Nostalgists see Panhard and its competitors as the golden age of auto production: Craftsmanship counted and companies gave their full attention to individual consumers. Moreover, proud craft workers honed their skills and many became independent shop owners. That's all true, but the drawbacks of craft production are equally obvious in hindsight. Production costs were high anddidn't drop with volume, which meant that only the rich could afford cars. In addition, because each car produced was, in effect, a prototype, consistency and reliability were elusive. (This, by the way, is the same problem that plagues satellites and the U.S. space shuttle, todays most prominent craft products.) Car owners like Evelyn Ellis, or their chauffeurs and mechanics, had to provide their own on-the-road testing. In other words, the system failed to provide product quality—in the form of reliability and durability rather than lots of leather or walnut— because of the lack of systematic testing. Also fatal to the age, however, was the inability of the small independent shops, where most of the production work took place, to develop new technologies. Individual craftsmen simply did not have the resources to pursue fundamental innovations; real technological advance would have required systematic research rather than just tinkering. Add these limitations together and it is clear, in retrospect, that the industry was reaching a plateau when Henry Ford came along. That is, as the general design of cars and trucks began to converge on the now familiar four-wheel, front-engine, internal-combustion vehicle we know today, the industry reached a premature maturity, fertile ground for a new production idea. At this point, Henry Ford found a way to overcome the problems inherent in craft production. Ford's new techniques would reduce costs dramatically while increasing product quality. Ford called his innovative system mass production.4 MASS PRODUCTION Ford's 1908 Model T was his twentieth design over a five-year period that began with the production of the original Model A in 1903. With his Model T, Ford finally achieved two objectives. He had a car that was designed for manufacture, as we would say today, and that was, also in today's terms, user-friendly. Almost anyone could drive and repair the car without a chauffeur or mechanic. These two achievements laid the groundwork for the revolutionary change in direction for the entire motor-vehicle industry.5 The key to mass production wasn't—as many people then and now believe— the moving, or continuous, assembly line. Rather, it was the complete and consistent interchangeability of parts and the simplicity of attaching them to each other. These were the manufacturing innovations that made the assembly line possible. To achieve interchangeability, Ford insisted that the same gauging system be used for every part all the way through the entire manufacturing process. His insistence on working-to-gauge throughout was driven by his realization of the payoff he would get in the form of savings on assembly costs. Remarkably, no one else in the fledgling industry had figured out this cause-and-effect; so no one else pursued working-togauge with Ford's near-religious zeal. Ford also benefitted from recent advances in machine tools able to work on prehardenedmetals. The warping that occurred as machined parts were being hardened had been the bane of previous attempts to standardize parts. Once the warping problem was solved, Ford was able to develop innovative designs that reduced the number of parts needed and made these parts easy to attach. For example, Ford's four-cylinder engine block consisted of a single, complex casting. Competitors cast each cylinder separately and bolted the four together. Taken together, interchangeability, simplicity, and ease of attachment gave Ford tremendous advantages over his competition. For one, he could eliminate the skilled fitters who had always formed the bulk of every assembler's labor force. Ford's first efforts to assemble his cars, beginning in 1903, involved setting up assembly stands on which a whole car was built, often by one fitter. In 1908, on the eve of the introduction of the Model T, a Ford assembler's average task cycle—the amount of time he worked before repeating the same operations—totaled 514 minutes, or 8.56 hours. Each worker would assemble a large part of a car before moving on to the next. For example, a worker might put all the mechanical parts—wheels, springs, motor, transmission, generator—on the chassis, a set of activities that took a whole day to complete. The assembler/fitters performed the same set of activities over and over at their stationary assembly stands. They had to get the necessary parts, file them down so they would fit (Ford hadn't yet achieved perfect interchangeability of parts), then bolt them in place. The first step Ford took to make this process more efficient was to deliver the parts to each work station. Now the assemblers could remain at the same spot all day. Then, around 1908, when Ford finally achieved perfect part interchangeability, he decided that the assembler would perform only a single task and move from vehicle to vehicle around the assembly hall. By August of 1913, just before the moving assembly line was introduced, the task cycle for the average Ford assembler had beenreduced from 514 to 2.3 minutes. Naturally, this reduction spurred a remarkable increase in productivity, partly because complete familiarity with a single task meant the worker could perform it faster, but also because all filing and adjusting of parts had by now been eliminated. Workers simply popped on parts that fitted every time. Ford's innovations must have meant huge savings over earlier production techniques, which required workers to file and fit each imperfect part. Unfortunately, the significance of this giant leap toward mass production went largely unappreciated, so we have no accurate estimates of the amount of effort—and money—that the minute division of labor and perfect interchangeability saved. We do know that it was substantial, probably much greater than the savings Ford realized in the next step, the introduction in 1913 of the continuous-flow assembly line. Ford soon recognized the problem with moving the worker from assembly stand to assembly stand: Walking, even if only for a yard or two, took time, and jam-ups frequently resulted as faster workers overtook the slower workers in front of them. Ford's stroke of genius in the spring of 1913, at his new Highland Park plant in Detroit, was the introduction of the moving assembly line, which brought the car past the stationary worker. This innovation cut cycle time from 2.3 minutes to 1.19 minutes; the difference lay in the time saved in the worker's standing still rather than walking and in the faster work pace, which the moving line could enforce. With this highly visible change, people finally began to pay attention, so we have well-documented accounts of the manufacturing effort this innovation saved. Journalists Horace Arnold and Fay Faurote, for example, writing in Engineering Magazine in 1915, compared the number of items assembled by the same number of workers using stationary and moving-assembly techniques and gave the world a vivid and dramatic picture of what Ford had wrought (see Figure 2.1). Productivity improvements of this magnitude caught the attention and sparked the imagination of other auto assemblers. Ford, his competitors soon realized, had made a remarkable discovery. His new technology actually reduced capital requirements. That's because Ford spent practically nothing on his assembly line—less than $3,500 at Highland Park6— and it speeded up production so dramatically that the savings he could realize from reducing the inventory of parts waiting to be assembled far exceeded this trivial outlay. (Ford's moving assembly consisted of two strips of metal plates—one under the wheels on each side of the car—that ran the length of the factory. At the end of the line, the strips, mounted on a belt, rolled under the floor and returned to the beginning. The device was quite similar to the long rubber belts that now serve as walkways in some airports. Since Ford needed only the belt and an electric motor to move it, his cost was minimal.) Even more striking, Ford's discovery simultaneously reduced the amount of human effort needed to assemble an automobile. What's more, the more vehicles Ford produced, the more the cost per vehicle fell. Even when it was introduced in 1908, Ford's Model T, with its fully interchangeable parts, cost less than its rivals. By the time Ford reached peak production volume of 2 million identical vehicles a year in the early 1920s, he had cut the real cost to the consumer by an additional two-thirds.7 To appeal to his target market of average consumers, Ford had also designed unprecedented ease of operation and maintainability into his car. He assumed that his buyer would be a farmer with a modest tool kit and the kinds of mechanical skills needed for fixing farm machinery. So the Model T’s owner’s manual, which was written in question-and-answer form, explained in sixty-four pages how owners could use simple tools to solve any of the 140 problems likely to crop up with the car. For example, owners could remove cylinder-head carbon, which causes knocking and power loss, from chamber roofs and piston crowns by loosening the fifteen cap screws that held the cylinder head and using a putty knife as a scraper. Similarly, a single paragraph and one diagram told customers how to remove carbon deposits from their car's valves with the Ford Valve Grinding Tool, which came with the auto.8And, if a part needed replacement, owners could buy a spare at a Ford dealer and simply screw or bolt it on. With the Ford Model T, there was no fitting required. Ford's competitors were as amazed by this designed-in reparability as by the moving assembly line. This combination of competitive advantages catapulted Ford to the head of the world's motor industry and virtually eliminated craft-production companies unable to match its manufacturing economies. (As we pointed out earlier, however, a few European craft-based producers of ultra-low-volume luxury cars could ignore the juggernaut of mass production.) Henry Ford's mass production drove the auto industry for more than half a century and was eventually adopted in almost every industrial activity in North America and Europe. Now, however, those same techniques, so ingrained in manufacturing philosophy, are thwarting the efforts of many Western companies to move ahead to lean production. What precisely are the characteristics of mass production as pioneered by Ford in 1913 and persisting in so many companies today? Let's take a look. Workforce Ford not only perfected the interchangeable part, he perfected the interchangeable worker. By 1915, when the assembly linesat Highland Park were fully installed and output reached capacity, assembly workers numbered more than 7,000. Most were recent arrivals to Detroit, often coming directly from the farm. Many more were new to the United States. A 1915 survey revealed that Highland Park workers spoke more than fifty languages and that many of them could barely speak English.9 How could this army of strangers cooperate to produce a greater volume of a complex product (the Model T) than any company had previously imagined—and do it with consistent accuracy? The answer lay in taking the idea of the division of labor to its ultimate extreme. The skilled fitter in Ford's craft-production plant of 1908 had gathered all the necessary parts, obtained tools from the tool room, repaired them if necessary, performed the complex fitting and assembly job for the entire vehicle, then checked over his work before sending the completed vehicle to the shipping department. In stark contrast, the assembler on Ford's mass-production line had only one task—to put two nuts on two bolts or perhaps to attach one wheel to each car. He didn't order parts, procure his tools, repair his equipment, inspect for quality, or even understand what the workers on either side of him were doing. Rather, he kept his head down and thought about other things. The fact that he might not even speak the same language as his fellow assemblers or the foreman was irrelevant to the success of Ford's system. (Our use of "he," "him," and "his" is deliberate; until World War II, workers in auto factories in the United States and Europe were exclusively male.) Someone, of course, did have to think about how all the parts came together and just what each assembler should do. This was the task for a newly created professional, the industrial engineer. Similarly, someone had to arrange for the delivery of parts to the line, usually a production engineer who designed conveyor belts or chutes to do the job. Housecleaning workers were sent around periodically to clean up work areas, and skilled repairmen circulated to refurbish the assemblers' tools. Yet another specialist checked quality. Work that was not done properly was not discovered until the end of the assembly line, where another group of workers was called into play—the rework men, who retained many of the fitters' skills. With this separation of labor, the assembler required only a fewminutes of training. Moreover, he was relentlessly disciplined by the pace of the line, which speeded up the slow and slowed down the speedy. The foreman—formerly the head of a whole area of the factory with wide-ranging duties and responsibilities, but now reduced to a semiskilled checker—could spot immediately any slacking off or failure to perform the assigned task. As a result, the workers on the line were as replaceable as the parts on the car. In this atmosphere, Ford took it as a given that his workers wouldn't volunteer any information on operating conditions—for example, that a tool was malfunctioning— much less suggest ways to improve the process. These functions fell respectively to the foreman and the industrial engineer, who reported their findings and suggestions to higher levels of management for action. So were born the battalions of narrowly skilled indirect workers—the repairman, the quality inspector, the housekeeper, and the rework specialist, in addition to the foreman and the industrial engineer. These workers hardly existed in craft production. Indeed, Faurote and Arnold never thought to look for them when preparing the productivity figures shown in Figure 2.1.10These figures count only the direct workers standing on the assembly line. However, indirect workers became ever more prominent in Fordist, mass-production factories as the introduction of automation over the years gradually reduced the need for assemblers. Ford was dividing labor not only in the factory, but also in the engineering shop. Industrial engineers took their places next to the manufacturing engineers who designed the critical production machinery. They were joined by product engineers, who designed and engineered the car itself. But these specialties were only the beginning. Some industrial engineers specialized in assembly operations, others in the operation of the dedicated machines making individual parts. Some manufacturing engineers specialized in the design of assembly hardware, others designed the specific machines for each special part. Some product engineers specialized in engines, others in bodies, and still others in suspensions or electrical systems. These original "knowledge workers"—individuals who manipulated ideas and information but rarely touched an actual car or even entered the factory—replaced the skilled machine-shop owners and the old-fashioned factory foremen of the earlier craft era. Those worker-managers had done it all—contracted with the assembler, designed the part,developed a machine to make it, and, in many cases, supervised the operation of the machine in the workshop. The fundamental mission of these new specialists, by contrast, was to design tasks, parts, and tools that could be handled by the unskilled workers who made up the bulk of the new motor-vehicle industry workforce. In this new system, the shop-floor worker had no career path, except perhaps to foreman. But the newly emerging professional engineers had a direct climb up the career ladder. Unlike the skilled craftsman, however, their career paths didn't lead toward ownership of a business. Nor did they lie within a single company, as Ford probably hoped. Rather, they would advance within their profession—from young engineer-trainee to senior engineer, who, by now possessing the entire body of knowledge of the profession, was in charge of coordinating engineers at lower levels. Reaching the pinnacle of the engineering profession often meant hopping from company to company over the course of one's working life. As time went on and engineering branched into more and more subspecialties, these engineering professionals found they had more and more to say to their subspecialists and less and less to say to engineers with other expertise. As cars and trucks became ever more complicated, this minute division of labor within engineering would result in massive dysfunctions, which we'll look at in Chapter 5. Organization Henry Ford was still very much an assembler when he opened Highland Park. He bought his engines and chassis from the Dodge brothers, then added a host of items ordered from other firms to make a complete vehicle. By 1915, however, Ford had taken all these functions in-house and was well on his way to achieving complete vertical integration (that is, making everything connected with his cars from the basic raw materials on up). This development reached its logical conclusion in the Rouge complex in Detroit, which became the primary Ford production site in 1927. Ford pursued vertical integration partly because he had perfected mass-production techniques before his suppliers had and could achieve substantial cost savings by doing everything himself. But he also had some other reasons: For one, his peculiar charactercaused him to profoundly distrust everyone but himself. However, his most important reason for bringing everything in-house was the fact that he needed parts with closer tolerances and on tighter delivery schedules than anyone had previously imagined. Relying on arm's-length purchases in the open marketplace, he figured, would be fraught with difficulties. So he decided to replace the mechanism of the market with the "visible hand" of organizational coordination. Alfred Chandler, a professor at the Harvard Business School, coined the term "visible hand" in 1977. In his book of the same title, he attempted to provide a defense for the modern large firm." Proponents of Adam Smith's "invisible hand" theory (which argued that if everyone pursued his or her own self-interest, the free market would of itself produce the best outcome for society as a whole) were disturbed by the rise in the twentieth century of the vertically integrated modern corporation. In their view, vertical integration interfered with free-market forces. Chandler argued that a visible hand was critical if modern corporations were to introduce necessary predictability into their operations. Chandler used the term simply to mean obtaining needed raw materials, services, and so forth from internal operating divisions coordinated by senior executives at corporate headquarters. The invisible hand, by contrast, meant buying necessary parts and services from independent firms with no financial or other relationship to the buyer. Transactions would be based on price, delivery time, and quality, with no expectation of any long-term or continuing relationship between the buyer and the seller. The problem, as we will see, was that total vertical integration introduced bureaucracy on such a vast scale that it brought its own problems, with no obvious solutions. The scale of production possible—and necessary—with Ford's system led to a second organizational difficulty, this time caused by shipping problems and trade barriers. Ford wanted to produce the entire car in one place and sell it to the whole world. But the shipping systems of the day were unable to transport huge volumes of finished automobiles economically without damaging them. Also, government policies, then as now, often imposed trade barriers on finished units. So Ford decided to design, engineer, and produce his parts centrally in Detroit. The cars, however, would be assembled in remote locations. By 1926, Ford automobiles were assembled in more than thirty-six cities in the United States and in nineteen foreign countries.12 It wasn't long before this solution created yet another problem: One standard product just wasn't suited to all world markets. For example, to Americans, Ford's Model T seemed like a small car, particularly after the East Texas oil discoveries pushed gasoline prices down and made longer travel by car economically feasible. However, in England and in other European countries, with their crowded cities and narrow roads, the Model T seemed much larger. In addition, when the Europeans failed to find any oil at home, they began to tax gasoline heavily in the 1920s to reduce imports. The Europeans soon began to clamor for a smaller car than Ford wanted to supply. Moreover, massive direct investment in foreign countries created resentment of Ford's dominance of local industry. In England, for example, where Ford had become the leading auto manufacturer by 1915, his pacifism in World War I was roundly denounced, and the company's local English managers finally convinced Detroit to sell a large minority stake in the business to Englishmen to diffuse hostility. Ford encountered barriers in Germany and France as well after World War I, as tariffs were steadily raised on parts and complete vehicles. As a result, by the early 1930s, Ford had established three fully integrated manufacturing systems in England, Germany, and France. These companies produced special products for national tastes and were run by native managers who tried to minimize meddling from Detroit. Tools The key to interchangeable parts, as we saw, lay in designing new tools that could cut hardened metal and stamp sheet steel with absolute precision. But the key to inexpensive interchangeable parts would be found in tools that could do this job at high volume with low or no set-up costs between pieces. That is, for a machine to do something to a piece of metal, someone must put the metal in the machine, then someone may need to adjust the machine. In the craft-production system—where a single machine could do many tasks but required lots of adjustment—this was the skilled machinist's job. Ford dramatically reduced set-up time by making machines that could do only one task at a time. Then his engineers perfected simple jigs and fixtures for holding the work piece in this dedicated machine. The unskilled workers could simply snap the piece in place and push a button or pull a lever for the machine to perform the required task. This meant the machine could be loaded and unloaded by an employee with five minutes' training. (Indeed, loading Ford's machines was exactly like assembling parts in the assembly line: The parts would fit only one way, and the worker just popped them on.) In addition, because Ford made only one product, he could place his machines in a sequence so that each manufacturing step led immediately to the next. Many visitors to Highland Park felt that Ford's factory was really one vast machine with each production step tightly linked to the next. Because set-up times were reduced from minutes—or even hours—to seconds, Ford could get much higher volume from the same number of machines. Even more important, the engineers also found a way to machine many parts at once. The only penalty with this system was inflexibility. Changing these dedicated machines to do a new task was time-consuming and expensive. Ford's engine-block milling machine is a good example of his new system. In almost every auto engine, then and now, the top of the engine block is mated to the bottom of the cylinder head to form a complete engine. To maintain compression in the cylinders, the fit between block and head must be absolutely flush. So the top of the block and the bottom of the cylinder head has to be milled with a grinding tool. At Henry Leland's Cadillac plant in Detroit (where, incidentally, consistent interchangeability for all the parts in a motor vehicle was achieved for the first time in 1906), a worker would load each block in a milling machine, then carefully mill it to specification. The worker would repeat the process for the cylinder heads, which were loaded one at a time into the same milling machine. In this way, the parts were interchangeable, the fit between block and head was flush, and the milling machine could work on a wide variety of parts. But this process had a down side: the time and effort—and therefore expense—it took for the skilled machinist who operated the machine. At Highland Park in 1915, Ford introduced two dedicated machines, one for milling blocks and the other for milling heads— not just one at a time, but fifteen at a time for blocks and thirty at a time for heads. Even more significant, a fixture on both machines allowed unskilled workers to snap the blocks and heads in place on a side tray, while the previous lot was being milled. The worker then pushed the whole tray into the miller, and the process proceeded automatically. Now the entire skill in milling was embodied in the machine, and the cost of the process plummeted. Ford's tools were highly accurate and in many cases automated or nearly so, but they were also dedicated to producing a single item, in some cases to an absurd degree. For example, Ford purchased stamping presses, used to make sheet-steel parts, with die spaces large enough to handle only a specific part. When the factory needed a larger part because of a specification change or, in 1927, for the completely redesigned Model A, Ford often discarded the machinery along with the old part or model. Product Ford’s original mass-produced product, the Model T, came in nine body styles— including a two-seat roadster, a four-seat touring car, a four-seat covered sedan, and a two-seat truck with a cargo box in the rear. However, all rode on the same chassis, which contained all the mechanical parts. In 1923, the peak year of Model T production, Ford produced 2.1 million Model T chassis, a figure that would prove to be the high-water mark for standardized mass production (although the VW Beetle later equaled it). The success of his automobiles was based first and foremost on low prices, which kept falling. Ford dropped his prices steadily from the day the Model T was introduced. Some of the reduction had to do with shifts in general consumer prices— before governments tried to stabilize the economy, consumer prices went down as well as up—but mostly it was a matter of growing volume permitting lower costs that, in turn, generated higher volume. At the end of its run in 1927, however, Ford was facing falling demand for the Model T and was undoubtedly selling below cost. (Demand fell, because General Motors was offering a more modern product for only a little more money. Moreover, a one-year-old GM automobile was less expensive than a new Ford.) The Ford car's amazing popularity also stemmed from its durability of design and materials and, as noted, from the fact that the average user could easily repair it. Concerns that buyers rank highest today hardly existed in Ford's world. For example, fits and finishes—or the cosmetic aspects of a car, such as the fender panels coming together without gaps, a lack of dribbles in the paint, or the doors making a satisfying clunking sound when slammed—weren't a concern for Ford's customers. The Model T had no exterior sheet metal except the hood; the paint was so crude that you would hardly have noticed dribbles; and several of the body styles had no doors at all. As for breakdowns or problems in daily use—engines that stumble, say, or mysterious electrical difficulties, such as the "check engine" signal that comes on periodically in some cars—these, too, didn't bother Ford's buyers. If the Model T engine stumbled, they simply looked for the cause in the question-and-answer booklet the company provided and fixed the problem. For example, they might drain the gas tank and pour the fuel back through a chamois to strain any water out. The bottom line: If a part didn't fit properly or was installed slightly out of tolerance, the owner was expected to fix it. And, since all cars broke down frequently, ease of repair was key. At Highland Park, Ford rarely inspected finished automobiles. No one ran an engine until the car was ready to drive away from the end of the assembly line, and no Model T was ever road-tested. Nonetheless, despite a manufacturing system that probably did not deliver very high quality in our modern sense, Ford was able to dominate what soon became the world’s largest industry by becoming the first to master the principles of mass production. It wasn't until fifty years later that plants organized on lean-production principles could deliver near-perfect quality without extensive end-of-the-line inspections and large amounts of rework. THE LOGICAL LIMITS OF MASS PRODUCTION: THE ROUGE True mass production began with Highland Park, but the end wasn't yet in sight. Ford believed that the last piece in the puzzle was to apply a "visible hand" to every step in production, from raw materials to finished vehicle. This he attempted to do at the Rouge complex, which was largely completed by 1927, when Ford shifted production there for the Model A. Smaller-scale duplicates of the Rouge were opened at Dagenham, England, and Cologne, Germany, in 1931. At these facilities, Ford continued his obsession with a single product—the Model A at the Rouge, the Model Y at Dagenham, and the Ford V8 in Germany. He also added a steel mill and a glass factory to the metal-forming and -cutting activities that took place at Highland Park. All the necessary raw materials now came in one gate, while finished cars went out the other gate. Ford had succeeded in completely eliminating the need for outside assistance. He even added raw materials and transport to the visible hand—through a wholly owned rubber plantation in Brazil, iron mines in Minnesota, Ford ships to carry iron ore and coal through the Great Lakes to the Rouge, and a railroad to connect Ford production facilities in the Detroit region. In the end, Ford attempted to mass-produce everything—from food (through tractor manufacture and a soybean extraction plant) to air transportation (by means of the Ford TriMotor, which was supposed to reduce the price of commercial air traffic, and the Ford "Flying Flivver," which was intended as the airborne equivalent of the Model T). Ford's idea was that by making everything, from food to tractors to airplanes, in a standardized form at high volume, he could dramatically reduce the cost of products and make the masses rich. He financed all his projects internally, for Ford loathed banks and outside investors and was determined to maintain total control of his company. Eventually, these steps beyond Highland Park all came to naught, partly because the synergy among industries, which industrialists repeatedly seek and seldom find, was never there, but also because Ford himself had absolutely no idea how to organize a global business except by centralizing all decision-making in the one person at the top—himself. This concept was unworkable even when Ford was in his prime, and it nearly drove the company under when his mental powers declined in the 1930s. SLOAN AS A NECESSARY COMPLEMENT TO FORD Alfred Sloan at General Motors already had a better idea in the early 1920s when he was called in to straighten out the messes that William Durant, General Motors' mercurial founder, had made.Durant was the classic empire-building financier. He had absolutely no idea how to manage anything once he bought it. He therefore wound up with a dozen car companies, each managed separately with a high degree of product overlap. Because he had no way to know what was going on in these companies, beyond quarterly profit-and-loss statements, he was repeatedly surprised to discover that too many cars were being manufactured for market conditions or that not enough raw materials were available to sustain production. A burst of overproduction heading into the economic slump of 1920 finally did him in; his bankers insisted that someone with management skills take the helm. So Pierre du Pont, chairman of E. I. du Pont, became chairman of General Motors and, in turn, made Sloan GM's president. An MIT graduate (he contributed a block of his GM earnings to found the Sloan School of Management at MIT after World War II), Sloan gained control in the early 1900s of the Hyatt Roller Bearing Company, a firm purchased by Billy Durant around 1915. He was vice-president of GM when Durant was ousted; he gained the presidency on the basis of a memo he wrote in 1919 on how to run a multidivisional company. Sloan quickly saw that GM had two critical problems to solve if it was going to succeed at mass production and oust Ford as the industry leader: The company had to manage professionally the enormous enterprises that the new production techniques had both necessitated and made possible, and it had to elaborate on Fords basic product so it would serve, as Sloan put it, "every purse and purpose." Ford Motor Company, of course, didn't suffer from GM's product overlap problem, because Ford produced only one product. It did, however, have all the organizational problems, but Henry Ford refused to acknowledge them. He succeeded with mass production in the factory, but he could never devise the organization and management system he needed to manage effectively the total system of factories, engineering operations, and marketing systems that mass production called for. Sloan would make the system Ford had pioneered complete, and it is this complete system to which the term mass production applies today. Sloan swiftly found a solution for each of GM's difficulties. To resolve the management problem he created decentralized divisions managed objectively "by the numbers" from a small corporate headquarters. That is, Sloan and the other senior executivesoversaw each of the company's separate profit centers—the five car divisions and the divisions making components such as generators (Delco), steering gears (Saginaw), and carburetors (Rochester). Sloan and his executive group demanded detailed reports at frequent intervals on sales, market share, inventories, and profit and loss and reviewed capital budgets when the divisions required funds from the central corporate coffer. Sloan thought it both unnecessary and inappropriate for senior managers at the corporate level to know much about the details of operating each division. If the numbers showed that performance was poor, it was time to change the general manager. General Managers showing consistently good numbers were candidates for promotion to the vice-presidential level at headquarters. To satisfy the broad market General Motors wanted to serve, Sloan developed a five-model product range that ran incrementally from cheap to expensive, from Chevrolet to Cadillac. It would, Sloan reasoned, fully accommodate potential buyers of every income throughout their lives. Sloan had worked out this strategic solution to the company's problems by about 1925, although he only codified it for the world outside General Motors when he got around to writing his memoirs as he approached ninety in the 1960s.13 He also worked out solutions to two other major problems confronting the company. Through his links with DuPont and the Morgan Bank, he developed stable sources of outside funding, which would be available when needed. Sloan's innovative thinking also seemed to resolve the conflict between the need for standardization to cut manufacturing costsand the model diversity required by the huge range of consumer demand. He achieved both goals by standardizing many mechanical items, such as pumps and generators, across the company's entire product range and by producing these over many years with dedicated production tools. At the same time, he annually altered the external appearance of each car and introduced an endless series of "hang-on features," such as automatic transmissions, air conditioning, and radios, which could be installed in existing body designs to sustain consumer interest. Sloan’s innovations were a revolution in marketing and management for the auto industry. However, they did nothing to change the idea, institutionalized first by Henry Ford, that the workers on the shop floor were simply interchangeable parts of the production system. So, on the shop floor matters went from bad to much worse. Ford himself was happy enough with the high rates of turnover his labor philosophy and practices encouraged. Nonetheless, he realized that once the continuous-flow system was fully in place at Highland Park in 1914, his company's efficiency was so much higher than its rivals that he could afford simultaneously to double wages (to the famous five-dollar day) and dramatically slash prices. These actions permitted him to portray himself as a paternalistic employer (and avoid unions), while he drove his craft-based competitors to the wall. The trouble with the higher wage, as it turned out, was that it worked: Turnover slowed as Ford's workers decided to stay in their jobs. Eventually they began to stop dreaming about a return to the farm or to the old country and realize that a job at Ford was likely to be their life's work. When that realization dawned, their conditions of employment rapidly came to seem less and less bearable. Furthermore, the auto market turned out to be even more cyclical than the rest of the economy. American car companies, of course, considered their workforce a variable cost, and they turned workers away from their plants at the first sign of a downturn in sales. All this meant that by the time of the Great Depression the conditions for a successful union movement in the auto industry were fully in place. This was, however, a mass-production union movement. Its leadership fully accepted both the role of management and the inherent nature of work in an assemblyline factory. Not surprisingly, then, when the United Auto Workers finally signed agreements with what had become the Big Three in the late 1930s, the main issues were seniority and job rights; the movement was called job-control unionism.14 The cyclical nature of the industry meant that some workers would be laid off frequently, so seniority—not competence— became the key determinant of who would go and who would stay. And because some jobs were easier (or more interesting) than others but all paid roughly the same wage, seniority also became the principle that governed job assignments as well. The result was an ever-growing list of work rules that unquestionably reduced the efficiency of Ford's mass-production factory as workers fought continually for equity and fairness. THE HEYDAY OF MASS PRODUCTION: AMERICA IN 1955 Take Fords factory practices, add Sloan's marketing and management techniques, and mix in organized labor's new role in controlling job assignments and work tasks, and you have mass production in its final mature form. For decades this system marched from victory to victory. The U.S. car companies dominated the world automotive industry, and the U.S. market accounted for the largest percentage of the world's auto sales. Companies in practically every other industry adopted similar methods, usually leaving a few craft firms in low-volume niches. As no year had before, 1955 illustrated just how large and pervasive the auto industry and the system on which it was based had become. This marked the first year that more than 7 million automobiles were sold in the United States. It was also the year in which Sloan retired after thirty-four years as either president or chairman of General Motors. Three giant enterprises—Ford, GM, and Chrysler—accounted for 95 percent of all sales, and six models accounted for 80 percent of all cars sold. All vestiges of craft production, once the way of all industry, were now gone in the United States. Glory is fleeting, however, as the then mighty U.S. auto industry has now learned. Ironically, 1955 was also the year that thedownhill slide began, as Figures 2.2 and 2.3 shows. The share of market claimed by imports began its steady rise. Their early perfection of mass production could no longer sustain these U.S. companies in their leading positions. THE DIFFUSION OF MASS PRODUCTION A major reason the Big Three American firms were losingtheir competitive advantage was that by 1955 mass production hadbecome commonplace in countries across the world. Many people, in fact, had expected the American lead to narrow much earlier, in the years immediately after World War I. Even before the war, a steady stream of pilgrims, including André Citroen, Louis Renault, Giovanni Agnelli (of Fiat), Herbert Austin, and William Morris (of Morris and MG in England), had visited Highland Park. Henry Ford was remarkably open in discussing his techniques with them, and, in the 1930s, he directly demonstrated every aspect of mass production in Europe with his Dagenham and Cologne factories. The basic ideas underlying mass production had, therefore, been freely available in Europe for years before the onset of World War II. However, the economic chaos and narrow nationalismexisting there during the 1920s and early 1930s, along with a strong attachment to the craft-production traditions, prevented them from spreading very far. At the end of the 1930s, Volkswagen and Fiat began ambitious plans for mass production at Wolfsburg and Mirafiori, but World War II soon put civilian production on hold. So, it wasn't until the 1950s, more than thirty years after Henry Ford pioneered high-volume mass production, which this technology, unremarkably commonplace in the United States, fully diffused beyond Fords native turf. By the late 1950s, Wolfsburg (VW), Flins (Renault), and Mirafiori (Fiat) were producing at a scale comparable to Detroit's major facilities. Furthermore, a number of the European craft-production firms, led by Daimler-Benz (Mercedes), also made the transition to mass production. All these companies were offering products that were distinctly different from the standard-size car and pickup truck favored by the U.S. manufacturers. In the early days, the Europeans specialized in two types of cars that the Americans didn't offer: compact, economy cars, exemplified by the VW Beetle, and sporty, fun-to-drive cars, such as the MG. Later, in the 1970s, they redefined the luxury car as a somewhat smaller vehicle with higher technology and more sporting road manners (the 3,500pound, fuel-injected, independently suspended, unibody Mercedes versus the 5,000pound, carbureted, straight-axle, body-on-chassis Cadillac). (The unibody car weighs less for a given size of passenger compartment than a body-on-chassis car. Though it has the advantages of greater rigidity and thus less of a tendency to rattle, it also costs more to engineer.) Combined with Europe's lower wages, these product variations were their competitive opening into world export markets. And, like the Americans before them, Europeans racked up success after success in foreign markets over a period of twentyfive years, from the early 1950s into the 1970s. They also concentrated—as Detroit did not during this time— on introducing new product features. European innovations in the 1960s and 1970s included frontwheel drive, disc brakes, fuel injection, unitized bodies, five-speed transmissions, and engines with high power-to-weight ratios. (Unitized bodies have no frame of steel beams under the car. Instead, like a tin can, the surface sheet metal holds the car together.) The Americans, by contrast, were the leaders in comfort features—air conditioning, powersteering, stereos, automatic transmissions, and massive (and very smooth) engines. History could have gone the Americans' way if fuel prices had continued to fall—as they did for a generation, up until 1973—and if Americans had continued to demand cars that isolated them from their driving environment. However, energy prices soared and younger Americans, particularly those with money, wanted something fun to drive. Detroit's problem was that its "hang-on" features, such as air conditioning and stereos, could easily be added to existing European cars. But it would take a total redesign of the American vehicles and new production tools to introduce more spaceefficient bodies, more responsive suspensions, and more fuel-efficient engines. However, as became apparent in the late 1980s and as we will show in the following chapters, the European production systems were nothing more than copies of Detroit's, but with less efficiency and accuracy in the factory. European auto plants experienced in the 1950s what the Americans had experienced in the 1930s. During the early postwar years, most European plants employed large numbers of immigrants—Turks and Yugoslavs in Germany, Sicilians and other southern Italians in Italy, and Moroccans and Algerians in France—in the interchangeable assembler jobs. Some of these people returned home as the postwar European labor shortage eased. Others, however, stayed, to be joined by larger numbers of native workers. Eventually, just as had happened in the United States, the workers in Turin, Paris, and Wolfsburg realized that mass-production work was not a way station to selfemployment back home; it was, instead, their life's work. Suddenly the interchangeable, dead-end monotony of mass-production plants began to seem unbearable. A wave of unrest followed. The European mass-production systems were patched up in the 1970s by increasing wages and steadily decreasing the weekly hours of work. European car makers conducted a few marginal experiments as well with worker participation, such as the one at Volvo's Kalmar plant, which—in a revival of Henry Ford s assembly hall of 1910—reintroduced craft techniques by giving small groups of workers responsibility for assembling a whole vehicle. In addition, the sobering economic conditions after 1973 damped worker expectations and reduced employment alternatives. These were only palliatives, however. In the 1980s, European workers continued to find mass-production work so unrewarding that the first priority in negotiations continued to be reducinghours spent in the plant. This situation of stagnant mass production in both the United States and Europe might have continued indefinitely if a new motor industry had not emerged in Japan. The true significance of this industry was that it was not simply another replication of the by now venerable American approach to mass production. The Japanese were developing an entirely new way of making things, which we call lean production. Notes 1. The material in this section on Evelyn Ellis and his car was obtained in the archives of the Science Museum, London. It consists of newspaper accounts of Ellis's exploits and an internal background memo prepared by the museum staff on the 1894 Panhard car belonging to the museum. 2. The material on PanhardetLevassor is from James Laux, In First Gear: The French Auto Industry to 1914, Liverpool: Liverpool University Press, 1976. 3. Ford acquired majority control of Aston Martin in 1987. It also acquired the small British sports car builder AC in that year. Other craft producers acquired by multinational auto firms in the 1980s were Lotus (General Motors), Ferrari (Fiat), and Lamborghini (Chrysler). 4. Ford proposed this term in his 1926 article for the Encyclopedia Britannica, "Mass Production" (13th edition, Suppl. Vol. 2, pp. 821-823). Many others at the time called his techniques "Fordism." 5. Two extraordinarily useful studies of mass production in the factory, as pioneered by Ford, are David Hounshell, From the American System to Mass Production, 18001932, Baltimore: Johns Hopkins University Press, 1984, particularly chapters 6 and 7, and Wayne Lewchuk, American Technology and the British Vehicle Industry, Cambridge: Cambridge University Press, 1987, particularly Chapter 3. The account given here of the origins of the Ford system is taken from these sources, unless otherwise indicated. 6. In 1919 the entire vehicle assembly department at Highland Park employed only $3,490 of capital equipment (Lewchuk, American Technology, p. 49). 7. Ford's ability to cut prices during the life of the Model T is summarized by William Abernathy, The Productivity Dilemma: Roadblock to Innovation in the Automobile Industry, Baltimore: Johns Hopkins University Press, 1978, p. 33. 8. The Ford Manual, Detroit: Ford Motor Company (no date), pp. 13, 14. 9. This survey is cited in Daniel Raff, "Wage Determination Theory and the Five-Dollar Day at Ford," Ph.D. dissertation, Massachusetts Institute of Technology, 1987, an interesting study of the social implications of Ford's system. 10. This oversight may help explain why the productivity of the whole factory did not improve at the same rate as that of the assembly lines. See Lewchuk, pp. 49-50. 11. Alfred D. Chandler, The Visible Hand: The Managerial Revolution in American Business, Cambridge: Harvard University Press, 1977. 12. This information and subsequent material on Ford's organization and operations are taken from Allan Nevins and Frank Ernest Hill, Ford: The Times, the Man, the Company, New York: Scribner's, 1954; Allan Nevins and Frank Ernest Hill, Ford: Expansion and Challenge, 1915-1932, New York: Scribner's, 1957; and Mira Wilkens and Frank Ernest Hill, American Enterprise Abroad: Ford on Six Continents, Detroit: Wayne State University Press, 1964. The specific information on U.S. assembly plants is from Nevins and Hill, Ford: Expansion and Challenge, p. 256. The figure for foreign assembly plants is derived from Wilkens and Hill, Appendix 2. 13. Alfred P. Sloan, My Years with General Motors, Garden City, New York: Doubleday, 1963. Peter Drucker presented his own codification in The Concept of the Corporation in 1946. Henry Ford II read this volume when taking over from his grandfather that year and set out to remake Ford in GM's image. 14. For the best explanation of the logic of mass-production unionism see Harry Katz, Shifting Gears: Changing Labor Relations in the U.S. Automo-, bile Industry, Cambridge: MIT Press, 1985. ...
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