Posted by: knightbird | February 13, 2015

What Does Porsche Have In Common With the State of Alaska

In 1992, Porsche lost $150 million on $1.3 billion in sales. The story of Lean Sensei Chihiro Nakao’s first visit to Porsche Stuttgart in the fall of 1992 is contained in “Lean Thinking: Banish Waste and Create Wealth in Your Corporation.” It’s an amazing story of the break down of resistance that comes from doing. The story starts of page 201. To set the story up unless you read it yourself, understand that new leadership was hired at Porsche in 1991 to address ongoing problems. So leadership was already predisposed to new solutions and had visited Toyota a number of times. They hired Shingijitsu as their consultant.

Sense Nakao had many years of experience at the time, and developed what the authors referred to as 20/10 Lean Vision. During his first visit to Stuttgart, he observed huge amounts of waste I the assembly area and mistook it for a warehouse. Buffers of inventory averaged 30 days worth. His first act was to engage a team to reduce he amount of inventory from 30 days to 7 days. They did this by cutting storage shelving in half, literally. Mr. Nakao met incredible resistance everywhere, but powered through because he knew what the results would be. The Union only agreed to an experiment but their team would conduct their own workshop to demonstrate their competence. By the end of 1993, Lean had taken over Porsche and in 1995 profitability returned. And sales had improved to $2.6 billion. The amount of time it took to complete a new car (cycle time) went from 6 weeks to 5 days in 1995. Huge improvements accrued that were not contemplated in 1991.

Mr. Nakao used Kaikaku, or radical change, because Porsche required radical change. Inventory levels were cut by 90% in 5 years. Productivity doubled during that same time period. Hours of effort to assemble a Porsche 911 went from 120 hours in 1991 to 45 hours in 1995, and reduced to 25 hours in 1997. So sales improved, and cost of making the product declined. That means increased profitability.

I was teaching in the School of Business and Public Administration at the University of Alaska Juneau in 1991. I had never heard of Lean. The evidence was mounting. Lean Thinking was published in 1996. The Machine That Changed The World was published in 1990. It’s now 2015, and Alaska businesses are still not engaged in a Lean Transformation. And our government entities are even more mired in the status quo. The Union working with Porsche faced a huge crisis in 1992. If they failed to participate, then all of their employees would lose their jobs. At that time, they had already seen a substantial decline in employment. With the huge loss in 1992, the handwriting was on the wall. Well, the handwriting is on the wall in Alaska. Fortunately, we have a savings account that will help us for about 7 years. But why should we have to spend the savings account down if there is a more efficient way of doing business? I can’t figure out any reason why. We should be having this conversation today, and formulating a strategy for Kaikaku, rapid change, in how we do government services. It saved Porsche. It can preserve Alaska’s services.

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