Manufacturing Management: Lessons from the Tesla OEM Supplier

By Larry Valant | Nov 20, 2016

This is the third part of a three-part series on manufacturing management. Read the first here.

After reshaping Samsonite's manufacturing operation in the 1970s, an opportunity emerged to apply the same lessons to a company on the cutting edge. This story serves as the "now" to the "then" of the Samsonite story detailed in the second part of this three-post series.

An example in a modern manufacturing company

Some 18 months ago, I had the opportunity to do some work with an OEM supplier based near San Francisco, a company with very sophisticated equipment, control systems, and manufacturing processes. The founder and CEO, a very bright, charming, and articulate entrepreneur, has a vision for a company that's as well-run and as state-of-the-art as his customers, one of whom is Tesla Motors.

The CEO, who could have competed, perhaps successfully, for the real-life "most interesting man in the world" role, had not only built his own sailing yacht but used it for two successful circumnavigations of the world. His charisma was legendary, and his customers loved him -- except for a few things: His shipments were invariably late and his costs kept rising while his profits and resources diminished -- he had trouble managing the company's perhaps too rapid growth. This devastating performance led the CEO to sell controlling interest of his company to a private equity group, but with performance incentives, he could earn back control.

This CEO desperately wanted to earn back control of his company, for his dream was to be succeeded by his daughter, whom he described as a brilliant engineer with the same gifts for leadership and management (he modestly said) as he.

The unfortunate thing is that it appears he was right. When he put her in charge of operations, she showed she had the same leadership and management talents -- for she made as big a mess and got the same poor results that he had.

One of the things that seems to be universally true is that metrics really don't lie -- it's the inability of ownership and management to accept what the metrics are telling them that causes the trouble. Much has been written about such failures: Lawrence Bossidy famously attributed in Execution most management failures to "the failure to execute" -- the failure to "make a plan" and to meet expectations of key stakeholders, most tragically, the customers.

Production problems plagued the company. Shipments were late, often incomplete, scrap rates were through the roof, and change orders were constantly behind schedule and so implemented late in most cases. These problems resulted from production schedules that had little relation to reality. Production schedules were created which matched shipment dates and quantities, but which couldn't be achieved by production. Production bottlenecks and work-center capacities and links were not understood, nor were raw material lead time requirements, so production delays were commonplace and crises occurred daily. The clients' love for the CEO waned as shipment failures escalated.

There were a number of good people who, if empowered, could have corrected many of the problems. They, however, reported to managers who simply didn't have the capability of solving the problems they faced daily, so the problems persisted. These problems were exacerbated by a disengaged workforce that grew increasingly frustrated by leadership's confusion and poor direction. All this was the result of poor leadership at the top, and confused management in the middle.

The company had done fine as a $20 million job shop, but when it was required to transition into a $40 million mass-production company, the requisite skills didn't exist, and the sophisticated systems failed because their use wasn't understood. You need to have leaders and managers who have the capability of doing their jobs, but they didn't have them, and the CEO didn't know how to solve the problems.

The CEO couldn't earn his way back to control, so he and his daughter left the company, and the board brought in a very competent manufacturing leader and manager. Within six months, he had righted the ship by implementing needed staffing and systems changes -- really very few. Two key positions were filled with competent leaders -- the materials manager and the production manager. The new CEO implemented project plans to install the Macro (PSI) and Micro (MRP II) scheduling systems. Three competent superintendents were brought on board, and staff turnover dropped, and shipments went out complete and on time, and scrap dropped to target levels.

Stating it this way makes it sound simple. It's not, but if you know what you are doing, it can be done, on time, and on budget.

The moral of these stories: Manufacturing management really hasn't changed substantially. The challenges manufacturing management faces today are still the same as we faced in 1973 with Samsonite. The OEM supplier who now serves Tesla well drives home the point: Manufacturing management still must be able to do great jobs of leadership and management, staffing, plant loading and scheduling, project management, quality assurance, and organization engagement. These are separate and apart from the tremendous economic and investment challenges posed by the technological changes which have been huge, exciting, even breath-taking, with robotics and AI.

But it still comes down to capable, sound leadership and management. Manufacturing management, the group at the center of everything in most companies, is responsible for meeting the expectations of customers and investors. Competent leaders and managers who can put it all together make that possible. Make sure you have those competencies.

This is the third post by Larry Valant and Gayle Hustad in a three-part series on manufacturing management. Read the first post here and second post here.