GM’s new problem-solving focus reaps savings
It started with one project, one wheel on one vehicle.
The fix was worth $50 million in additional revenue for General Motors Co.
But more importantly, it illustrates how GM is knocking down old, compartmentalized ways of thinking and acting. It’s becoming more nimble and is making decisions to best help the entire organization, not just one department or “silo,” as business insiders characterize the various units of large corporations that don’t communicate with each other.
This year, GM identified a shortage of premium 22-inch chrome wheels for its popular and highly profitable Cadillac Escalade SUV. At issue: The supplier was unable to make enough to satisfy GM.
To solve the quandary, GM used new problem-solving methodology across departments to figure out how to produce more of the special wheels for the Escalades, some with sticker prices topping $90,000.
The wheel project is just one of more than 300 Operational Excellence business improvement projects GM CEO Mary Barra and other employees have been working on since January. They represent more than $3 billion in potential revenue or savings, said Gerald Johnson, GM’s vice president of operational excellence.
“Three hundred projects needs to become 3,000,” Johnson said.
GM’s focus for the past year includes using several processes and data to eliminate waste, reduce variation, improve quality, save money and boost revenue, Johnson said. The focus will help GM’s goals to boost customer loyalty 10 percentage points and achieve 10 percent adjusted profit margins by 2020, he said.
While the savings and revenue are big to GM, the initiative also is helping the Detroit automaker change its culture, company leaders say. Much of what GM is working on is behind the scenes and customers may not see it. But Johnson said Operational Excellence can transform the corporate culture at the once-tradition-bound GM over the next five years.
“A common approach to improvement is going to allow the organization to experience more transformation, probably faster,” he said.
New routes save money
The wheel project was GM’s first using the new ideas and data tools. Johnson said GM found the supplier was using part of its production capacity for a different wheel for another vehicle that was less profitable.
So, GM worked to re-engineer a different wheel so the capacity could be shifted to support the Escalade. It also followed the shipping movement of those chrome wheels and mapped a new route, cutting at least four steps from the transportation process. That saved money.
GM ultimately opted to move production of the wheel into the Arlington Assembly Plant in Texas. Through research and engineering, the carmaker also realized it could reuse a transit wheel — put on a vehicle until the accessory wheel was added — saving $5 million of scrap. The move also is saving customers money; GM cut the price of the special wheels by $1,000.
Originally, GM had a goal of $15 million in more revenue from the project, but one project turned into several, Johnson said.
“Now, we’re opening up and looking at a whole other set of accessories that may lend themselves to the same type of opportunity,” Johnson said.
All four GM regions (North America, South America, International Operations and Europe) are participating in Operational Excellence, as is every business function from legal to engineering and manufacturing, Johnson said.
Manufacturing, for example, worked to reduce excess scrap of parts after a model changeover. Johnson said that was worth $30 million in savings. Other project examples: Human resources is improving college recruitment, and Mark Reuss, GM’s head of global product development, is leading a project to more accurately forecast sales volume.
GM Chief Financial Officer Chuck Stevens says Operational Excellence could save the company $1 billion by 2016. It’s expected to save $600 million this year.
GM previously had lots of business improvement projects aimed at growing revenue and saving money, but Johnson said Operational Excellence has made it easier to bring together multiple departments to solve problems. GM is using processes such as the Lean business model and Six Sigma, a set of tools developed by Motorola in the mid-1980s that, coupled with data, aim to increase quality and reduce defects.
GM Chairman Tim Solso asked the automaker to benchmark Cummins Inc., the Indiana-based diesel engine manufacturing firm he formerly ran. Solso in 2014 told The Detroit News that Cummins used Six Sigma to correct quality problems and eliminate waste and variation in manufacturing.
The data-driven problem solving approach has saved Cummins more than $5 billion since 2000, and its customers hundreds of millions of dollars.
Solso last year said Six Sigma took “probably five years” to change the culture throughout Cummins. Jon Mills, a Cummins spokesman, said the business improvement philosophy has filtered throughout the company.
“The more success you see, the more it really ingrains it in the culture,” he said.
So how and when will GM know it’s been successful? Johnson points to “Happy Days” character Fonzie, who said if you have to tell people you’re cool, then you probably aren’t.
“If I have to stand up and say, ‘I’m cool,’ then I failed,” Johnson said. “The (cultural) transformation piece, it should just happen.”
GM’s new problem-solving methodology is just one way the post-bankruptcy carmaker is leaner these days. It expects to save billions of dollars through initiatives in quality, logistics, materials, information technology, operations and manufacturing to help it meet mid-decade profitability and margin targets.
Stevens says GM’s logistics and non-raw material cost savings could hit more than $2 billion this year and beyond “by taking full advantage of our global scale and volume by working very, very closely with suppliers.”
GM also is working to become more efficient in manufacturing. Savings in 2015 could total $1 billion, GM said.