The history of lean manufacturing philosophy and six-sigma production philosophy began in 1980s. During this time, many organizations were focusing specifically on total quality management (TQM) as a strategy for increasing performance. Organizational performance was then measured in terms of outputs and profitability without necessarily focusing on the inputs or processes.
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The Toyota Company first adopted the lean manufacturing philosophy with the goal of minimizing wastes. On the other end, the Motorola Company focused on costs that were associated with variation of products, thus leading to rejection of many finished products when subjected to quality testing. To resolve these challenges, Motorola incorporated the six-sigma philosophy.
The benefits accruing from the two production philosophies were integrated to form the lean six-sigma production philosophy that was adopted by organizations such as Ford, Allied Signal, Honeywell, and GE among others. This paper discusses the case of Ford in an effort to demonstrate how the company fostered the lean six-sigma culture as a tool for improving performance through elimination of costs of variations (six sigma) and wastes (lean manufacturing).
Company’s History and Growth
Ford Motor Company or simply Ford is an American multinational organization, which was established in 1903. Its main offices are based in Dearborn in Michigan. It manufactures and sells various types of vehicles under the Ford brand name. Luxurious automobiles are sold under the Lincoln brand name.
In addition, it owns Troller, FPV, and SUV. The latter is based in Brazil. The company also engages in the production of tractors. It has stakes in various other automobiles that manufacture organizations such as Mazda (Japan), Aston (the UK), and Jianglin (China).
In its manufacturing plants, Ford established flow and large-scale systems of manufacturing. It also embraced large-scale techniques of management of workforce through an elaborated sequential manufacturing system that was characterized by mobile assembly lines.
By 1914, this approach became a common practice that was adopted by many industries (Karel, Haslam & Williams, 2002, p.518). Ford sold Jaguar vehicles, which were acquired in 1999, Land Rovers, which were purchased in 2000, and the Tata Motors of 2008. Ford Motors Company also owned the Volvo between 1999 and 2010.
However, amid selling these subsidiaries, the company remains the second largest automobile manufacturing organization in the US and fifth largest across the globe based on the 2010 automobile sales statistics. In Europe, Ford was the largest automaker in 2009 based on sales revenues (118.3 billion). In 2008, the company had employed 213,000 people across all its 90 manufacturing plants across the globe.
Strengths and Weaknesses of Ford Motor Company
The company has established a strong position in the automobiles industry in the US. It is the second largest automobile company operating in the US. The US is also the second largest market for automobiles across the globe. In this market, the company has managed to build a good reputation for its products.
In fact, the organization has a strong selling position for commercial vehicles, which are also the highly profitable automobiles made by the organization. Ford has successfully been able to implement ECOnetic initiative (Ford Motor Company, 2013).
This technology involves the production of engines that are highly fuel-efficient through improvement of the existing ones contrary to the deployment of hybrid engines. This effort has translated to mass production of Ford Fiesta. The car produces the lowest emission among all other mass-produced vehicles in the European market. Compared to Toyota Prius with reference to the initiative, Ford Focus has better consumption rates for fuel.
Other strengths of Ford Company are good financial performance, significant growth in other markets such as China, and exploration of only one strategy for success. China is not one of the strongest markets for Ford. However, the organization experienced an amicable growth. In 2012, Ford reported 46 percent growth in the Chinese market (Ford Motor Company, 2013).
In terms of financial performance, Ford was the only US biggest automaker that never required government bailing. It was the first one to have its investment status restored. Compared to other automakers operating in the US, Ford has a higher profit margin ratio and higher liquidity share (Ford Motor Company, 2013). Ford deploys one approach to success in the global market.
The approach entails the production of product lines that fit various market segments. This move implies that the company stopped the production of customized vehicles since the approach led to a reduction of costs. The company also deploys lean six-sigma production philosophy by focusing on the reduction of variation costs and the costs that are associated with production wastes.
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Although Ford Motors Company has the above strengths, it also has some weaknesses (Gerry, Kevan & Whittington, 2005). One of Ford Motor company’s subtle weaknesses is poor records on environmental protection. Ford faces immense critics from green movements in its dwindled efforts to mitigate environmental pollution that emanates from its plants.
It also has the largest cost structure. Through the ‘one approach’ strategy and/or the use of six-sigma approaches to production, the company has been able to reduce its costs tremendously. However, compared to other automobile makers, its cost structure remains high.
The company adopts generous pension plans together with compensation programs for its employees to increase its costs structure. Particularly, this step is a major challenge considering that it has a weakness of low profit operation markets in Europe. For instance, the company registered a loss of 1.75 billion US dollars in 2012 (Ford Motor Company, 2013). The company in the region expects more losses until 2015.
Ford focused on output management to ensure compliance with total quality. Management of outputs implies the measurement of outputs such as sales and profitability, dominance in markets, and growth as measures of the extent of performance of an organization. In 1990s, this approach failed to deliver substantial results. Ford Motor Company had to think differently. There was a huge accumulation of wastes in the form of work in progress, re-works, and scrapped materials.
To ensure customer value, Ford considered altering its concerns on performance from basing it on outputs to focus on inputs in late 1990s. The major problem that required solution was wastes reduction.
This issue led to the establishment of control systems such as operation control, development of programs for enhancing human resource management, programs for assessing customer satisfaction, reviewing compensation and pension schemes for employees, and even deployment of various problem-solving techniques. These aspects encompassed the lean six-sigma methodology for resolution of the challenges experienced by Ford.
The Lean Methodology
The lean six-sigma methodology adopted by Ford has five important phases. These phases include define, measure, analyze, improve, and control. The definition phase involves the establishment of opportunities together with significant implications of the opportunities in terms of customer services and quality satisfaction.
Any opportunity embraces an activity, which may enhance the performance of Ford. In the second phase, measurement of every activity to determine how well the activity can be optimally executed was done. The analysis phase involves investigation of the opportunities in the effort to determine what can go wrong in the process of opportunity implementation.
Where issues of concern were identified in the analysis phase, the next phase, improvement, entailed fixing of the aspects of concern, which may lead to defects and accumulation of wastes such as work in progress, rejection of the already completed products due to variations beyond acceptable quality levels, and even re-working. Control performance was considered an important phase in the bid to stabilize the outputs.
After identification of the vital steps in the development of a Lean Six Sigma methodology, the next task involved setting the Lean Six Sigma processes. The company took the model for supplier- consumer relationships and broke it down in the effort to define the various opportunities for value creation. The breakdown involved the establishment of various processes through which the products could go through in a Ford manufacturing facility.
This way, it became possible to identify the various wastes and track their sources in each process before proceeding to apply the six-sigma formulas for waste reduction. After every process, control was done to mitigate the likelihood for cascading defects. This goal was accomplished by ensuring that all units of work within a process were organized with respect to the anticipated outcomes and goals of each process.
Changing people’s work culture to ensure strict compliance with the efforts of reduction of wastes in every process and work unit that people are in charge of was a major obstacle. The overall goal of the Lean Six Sigma methodology was to ensure 99.99% DPMO (defects per million opportunities).
The Current State of the Company
The current state of Ford before the implementation of the lean methodology was essentially based on TQM and the just-in-time (JIT) strategies. No VSM was conducted to identify wastes. The focus was on improving the production process and planning to enhance production of quality products. Ford also paid incredible attention to the control of its processes from a statistical perspective. As part of continuous processes for improvement, emphasis was placed on the job training.
Vigorous training and establishment of self-improvement programs were deemed appropriate to enhance employee productivity. All these strategies were considered effective in enhancing organizational transformation. These approaches are ingrained in the perspectives of total quality management. JIT was also an important system for production processes before the adoption of the lean methodology. Under this approach, the focus was on the control of costs as opposed to the reduction of wastes.
The Future State
Ford Motors Company endeavored to improve its business performance by implementing Lean Six Sigma methodology. Some of the desired future states include the streamlined production and manufacturing processes. In this context, Ford wants to reduce and eliminate unnecessary production processes especially the ones, which do not add any value to the final product.
The organization also wants to have systems that measure the value of products acquired after going through various process based on the willingness of the customer to pay for such value addition. Fords also desires to create a system that will ensure elimination and minimization of defects and wastes. These accomplishments will translate to an increase in efficiency and quality of products.
Lean Culture Strategy Implementation
Upon considering the desired Ford’s future state, implementation of Lean Six Sigma culture is the best approach in achieving the goals. The company implemented this culture by integrating both six sigma and lean manufacturing techniques. Statistical control was deployed to ensure that both defects and wastes were minimized. Care was taken to ensure that the methodology deployed in the calculation of variation opportunities was consistent all the time.
This step was important upon considering that any failure to ensure consistency would result to inaccurate measures and approaches for comparison of the actual outcomes with the desired outcome (Beinhocker, 2006). Using statistical controls, 1σ corresponds to 31.00 percent of the time in which no defects are recorded. 2σ matches with 69.2 percent while 3σ matches with 93.32 percent. Similarly, 4σ, 5σ, and 6σ correspond to 99.3790, 99.9770, and to 99.99966 percent respectively in terms of the time in which defects are not produced.
Through this approach, the company ensures that in every 10,000 vehicles made, defects and wastes in the form of re-working are only likely for one vehicle. Using the technique, Ford managed to make savings of 1 billion US dollars between 2000 and 2002 (Holden, 2005). In the Ford’s Kentucky plant, Davis Chris deployed statistical control tools for six-sigma to track the sources of variations. He identified the source of vibrations in F-series product line. In the absence of Lean Six Sigma culture, the traditional approach would have called for realigning the suspension systems. However, the challenges could have persisted. Through the success of Davis Chris strategy, Ford accelerated the change process by empowering people through this case example for applicability of Lean Six Sigma in attaining the desired future state of the company.
However, in the leaning out process, challenges were experienced. A major challenge was reluctance to alter the culture of constrained dialogue. Additionally, hierarchical structures hindered ardent interaction between various people who were in charge of different processes and work units to enhance efforts for accurate identification of wastes and analysis of the causes of variations and product defects.
Through Lean Six Sigma, Ford was able to reduce wastes significantly such as re-works and defects. This strategy led to efficiency improvements, improved quality, and streamlined production processes. Between 2000 and 2002, the organization was able to save 1 billion US dollars through defects and wastes reduction. This outcome made the company focus on building its production culture around Lean Six Sigma production philosophy.
To ensure consistency, the company incorporated control structures that ensured that no defect and wastes were produced in one million opportunities or 99.99 percent of the time. This observation implies that Ford Motor Company was able to ensure that only 3.5 vehicles had defects.
Beinhocker, E. (2006). The Origin of Wealth. Boston: Harvard Business School Press.
Ford Motor Company. (2013). 2012 Annual Report. Retrieved from https://corporate.ford.com/homepage.html
Gerry, J., Kevan, S., & Whittington, R. (2005). Exploring corporate strategy: text and cases. London: Prentice Hall.
Holden, L. (2005). Fording the Atlantic: Ford and Fordism in Europe. Business History, 47 (3), 122-127.
Karel, W., Haslam, C., & Williams, J. (2002). Ford versus ‘Fordism’: The Beginning of Mass Production. Work, Employment and Society, 6(4), 517–555.