Charging queues

Automotive News recently had a report on driving a Tesla Model S electric car from Los Angeles to Las Vegas. You can find a video describing the drive here. What I found more interesting was the reporter’s description of stopping to charge up the car (A flaw in Tesla’s plan: It’s Chargie McVanish, Apr 8). In order to spur interest in its vehicles, Tesla is building out a network of solar-powered Supercharger charging stations. Their website says they currently have nine but plan to get to one hundred by 2015. One is in Barstow, perfectly positioned for a drive from LA to Vegas.

So what’s a reasonable wait to charge your Tesla?

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Zipcar and Avis

A new term starts today at Northwestern and I will be teaching a couple of sections of the core ops class. That means I will almost certainly be leading a discussion about Zipcar.

One of the first points that we make in the core class is that operations must be linked to strategy. How a firm chooses to carry out its quotidian obligations needs to be aligned with what it is trying to do in the  marketplace. If that alignment is missing, it is going to be very hard for the firm to meets its obligations to customers. Or, it is going to be very easy for a competitor to come in to take its lunch money.

Comparing Zipcar with take your pick of standard rental car companies is a nice way of illustrating this point. Zipcar and, say, Avis are in the same business: They rent cars. However, Zipcar is set up for replacing car ownership in densely populated areas while Avis is set up for accommodating travelers far from home who need to get to a meeting. Zipcar is not set up to handle people getting off an airplane and Avis is not set up to help yuppies get out to the Target in the burbs. It’s not that Zipcar or Avis wouldn’t want to make those sales, it’s that their operational choices make it somewhere between difficult and impossible to fulfill those customer needs. (For more, see here.)

Great example. Works well in class. But what does it say about Avis’ proposed acquisition of Zipcar?

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If you can buy a Mac directly from Apple, why can’t you buy a car directly from the manufacturer?

Here’s an intriguing supply chain question: When should a firm sell directly to customers and when should it go through an independent retailer? Obviously, this isn’t a clean either/or question. Nike, for example, has its own stores as well as selling through a variety of different retailers. Of course, Nike stores are as much about marketing — showing all things that can be bought with a swoosh on it — as dramatically increasing the firm’s sales. Apple Stores, on the other hand, are very much above moving merchandise and, I suspect, have really punished many small dealers that have long specialized in Apple products. It is not fair to describe the Apple Store as being the only place to buy a Mac, but it is likely the first place that most people think of.

What go me thinking about this is a recent story about Tesla Motors, the Elon Musk’s electric car company (Car Dealers Sue Tesla, Citing State Franchise Laws, NPR, Nov 9). Tesla’s cars are unconventional and it turns out their distribution strategy is as well. As opposed to signing up franchisees across the nation to be dealers, Tesla has opted to open its own stores in malls. That is leading to complaints that they are violating state franchise laws.

Robert O’Koniewski, the executive vice president of the Massachusetts State Automobile Dealers Association, is suing Tesla for opening a store in a local mall.

In Massachusetts, franchise law 93B prohibits a manufacturer from owning a dealership, O’Koniewski says. An auto dealer association in New York is also suing Tesla.

Typically, car manufacturers build the cars, then ship them out to local car dealers, which have to meet the various manufacturers’ standards. …

Each brand represents another manufacturer that can require expensive equipment and training. Not having to meet those various needs, O’Koniewski says, gives Tesla an unfair advantage.

“Those dealers are investing millions of dollars in their franchises to make sure they comply with their franchise agreements with the manufacturers,” he says. “Tesla is choosing to ignore the law and then is choosing to play outside that system.”

Tesla insists it isn’t breaking the law, in Massachusetts, New York or anywhere else. But it is clearly trying to play outside the franchise system.

Jeremy Anwyl, vice chairman of Edmunds.com, thinks that’s the real issue.

“Let’s say consumers really liked buying from a factory store. That would put dealers in a tough spot because they’ve been saying for years that the franchise system is actually good for customers,” he says.

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A better way to build bikes at Harley

I usually let Van Mieghem take the motorcycle-themed stories but thought I should take a crack at this one. The one in question is a Wall Street Journal article about steps Harley-Davidson has taken to improve its operations and prepare itself for the future (Harley Goes Lean to Build Hogs, Sep 21). As the Journal tells it, Harley has greatly revamped its York, PA plant to both cut costs and preserve flexibility.

Until recently, the company’s sprawling factory here had a lack of automation that made it an industrial museum. Now, production that once was scattered among 41 buildings is consolidated into one brightly lighted facility where robots do more heavy lifting. The number of hourly workers, about 1,000, is half the level of three years ago and more than 100 of those workers are “casual” employees who come and go as needed.

This revamping has allowed Harley to quickly increase or cut production in response to shifting demand. …

Harley got more serious about cutting costs when Keith Wandell became chief executive in 2009 amid a severe slump in motorcycle sales. On his first visit to the York plant, Mr. Magee recalled, Mr. Wandell declared the layout and working methods unsustainable. Harley began scouting sites for new plant to replace York and settled on Shelbyville, Ky. The company notified the International Association of Machinists and Aerospace Workers, or IAM, which represents York workers, that the plant would close and move to Kentucky unless they approved a new contract giving Harley more control over costs. Union members voted overwhelmingly to make concessions, and Harley stayed in York.

Instead of 62 job classifications, the plant now has five, meaning workers have a wider variety of skills and can go where needed. A 136-page labor contract has been replaced by a 58-page document..

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Process standardization at Ford

How should firms think about designing factories when they have several in their network? Should they let local managers make idiosyncratic choices or should they try to standardize as much as possible? Ford apparently is going the latter route by, among other things, trying to eliminate forklifts from its factories (Going ‘fork free’, 3D scans part of Ford’s gold standard, Reuters, Aug 31).

At its just-opened $450-million factory in Thailand, Ford Motor Co (F.N) prides itself on being “fork-free.”

Eliminating forklifts, which can have big blind spots, from the floor improves worker safety, the U.S. automaker says. Ford instead uses trolleys to bring parts to workers on the line here.

This shift is just one example of the new manufacturing standard that Ford is rolling out at its plants worldwide. Such changes are key to helping Ford cut costs and boost quality as it moves toward building more cars on shared global platforms.

Many of these practices are being tested at Ford Thailand Manufacturing, Ford’s newest factory, where the automaker now builds its Focus compact for the local market here and other countries in southeast Asia.

Over time, Ford expects to export such practices to other plants worldwide, including some in the United States.

“Thailand is the first of a number of facilities that are going to look and feel exactly the same,” said John Fleming, Ford’s head of global manufacturing and labor affairs, in an interview Friday.

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Redefining the third shift

If you have invested a lot in plant and equipment, one way to get the most for your money is to run it a lot. That, however, gets challenging when the operation is labor intensive. Yes, it would be great to run 24 hours a day but that means someone has to be working overnight. NPR reports that some automakers have been experimenting with different ways of running a third shift (New Schedules Push Graveyard Shift Off The Clock, Jun 14).

As car companies struggle to meet growing demand, the third shift is making a comeback. But many factories running on three shifts are doing it differently from in the past. And that new “three crew” shift pattern could make what’s normally a hard job even harder.

At Ford’s Michigan Assembly Plant in Wayne, employees work 10-hour shifts four days a week. The so-called A crew gets days, while the B crew gets afternoons. But the C crew shift rotates its start time every week. On Fridays and Saturdays, workers start at 6:00 a.m. On Mondays and Tuesdays, they start at 4:30 p.m.

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Fragile auto supply chains

Following last year’s Japanese earthquake and tsunami, there were many articles on how these disasters exposed the fragile nature of modern supply chains. (We have one or two – ok at least three – posts on this as well.) Now there are similar stories appearing about a somewhat less dramatic event that is none the less causing headaches for automakers. An explosion at a German chemical plant is creating an extreme shortage of a resin used in a nylon used in many kinds of auto parts. Here is how the AP explained it (Crises make automakers rethink lean parts supplies, Apr 20, available at Yahoo! News and other places).

One factory now putting automakers at risk is the German chemical plant damaged by last month’s explosion. The plant made at least one-fourth of the world’s PA-12, a nylon component in plastic fuel lines. It also supplied 70 percent of the world’s CDT, a chemical used by other companies that make PA-12, according to UBS analysts.
PA-12, also known as nylon 12, is crucial because it helps the tubes resist deterioration from carrying fuel. It’s also used in seats, and in pipelines and consumer products. No automaker has reported any factories running short of tubes, but industry analysts say that could come within weeks if alternatives aren’t found and tested quickly.

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Two ways to take cost out of cars

We’ve got two stories today that illustrate ways of taking cost out of building cars but they come from very different parts of the auto market. One is about making high-volume, low-cost cars at Renault. The other is about high-end, low-volume electric cars from Tesla.

The Renault story comes from the Wall Street Journal (Renault Takes Low-Cost Lead, Apr 16). Renault launched  a low-cost model called the Logan in 2004 with the intention of selling it in developing markets but subsequently expanded its entry-level offerings (see the graphic) and started selling them in Western Europe. They now account for 30% of Renault’s sales and supposedly sport a profit margin more than double the margins on the rest of Renault’s line.

So how do they do it?

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Lemons are disappearing from the auto industry

My kids have had the good fortune of never riding in a really bad car. Even the used Carolla we owned years ago was very reliable. My parents worked through their share of crappy cars from the Vega with an unreliable engine block to the Fury III that was prone to stalling just as it was hitting the entrance ramp to the highway. But as NPR reports, my kids may never know a true lemon (U.S. Automakers Aim To Eliminate Lemons, Apr 3).

[Reporter TRACY] SAMILTON: The trucks built in this Detroit factory are getting high marks from outside rating groups. But a similar turnaround is happening pretty much everywhere, with just about every car company. Quality, once largely the domain of Toyota and Honda, is now simply the price of entry.

Jesse Toprak is an analyst with TrueCar.com.

JESSE TOPRAK: So you go to any dealership today, buy any new car in the U.S. dealerships, you’re not going to get a clunker that’s going to fall apart on you.

SAMILTON: Toprak says quality has been rising for at least 20 years, and the gap between the best and worst is shrinking.

The claim about the convergence in the quality of US and import brands is shown by this graph of the well-known J.D. Power study of initial vehicle quality:

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What will Ford do with all those cars?

It has been a while since we’ve talked about automobile inventory. A year or two ago there was a lot in the press about automakers in the US finding religion and keeping better control over their inventories. The argument was that greater labor flexibility for the US makers would allow them to keep from accumulating cars and being forced to offer margin-trashing incentives. (See, for example, this post and that post.)

With that background, check out this graphic from today’s Wall Street Journal (Small Cars Test Ford Resolve, Jan 11):

So Ford has a lot of small cars. As the article notes, the party line in the industry is that 60 days is the “right” amount of inventory. Ford currently has 126 days of Fiestas and 92 days of Focuses (or should that be Foci?).

Here is the author discussing Ford’s problem.

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