Cost - Launch Redundant Searches For Cost-Reduction Solutions

When you're trying to do something no one has ever thought about doing before, where do you find the best solution? Chances are that you cannot predict what the best information and knowledge sources will be.

When you look at the Goldcorp and Procter & Gamble examples of engaging more resources through running worldwide contests, you notice that the contests succeed precisely because no one knows in advance who will provide the best answer. Otherwise, you could just hire that person or organization.

But you need to move beyond the idea that worldwide contests will drive you well past the theoretical best practice. Why? Because there is probably a way to improve on the results enjoyed from those contests.

Instead of starting your search for improvement based solely on your own organization's thinking, step back and have a contest to identify the optimal goals for your organization. Your goals may be directed at the wrong performance areas. Your goals also may be too modest. The bigger your organization or the less confident you are, the more likely you will set goals like NASA's minimum case for the Mars rovers that would operate for just a few days.

Next you need to identify where the development should be located. Most organizations assume that they or one of their primary suppliers will coordinate everything. That assumption might be faulty.

If Ford made that assumption today about reforming its manufacturing, it might be a tragic mistake that could doom the company. Ford could instead find itself greatly advantaged by joint venturing with a non-U.S. competitor to access the kinds of manufacturing expertise that Ford might require years to develop. In such a joint venture, it would certainly make more sense for the manufacturing planning to occur in a stronger competitor's shop rather than Ford's.

But Ford cannot count on a stronger competitor wanting a partnership. Also, who's to say that lean manufacturing using teams is the ultimate best way to make vehicles?

Ford should explore organizations that are checking out other manufacturing processes that have higher potential. In many cases, these processes may be found outside of the vehicle production industry. Currently, there's a lot of custom manufacturing work done in electronics. Exploring those options might open the door to improved directions for vehicle manufacturing.

Ford also shouldn't assume that existing organizations will have the best answers. The vehicle industry hasn't exactly been knocking down the doors of the world's finest thinkers to find better ways to produce.

Further, Ford is hampered with many legacies of past thinking that hinder its effectiveness. It may well be that Ford should shrink its business model so that the company no longer produces its own vehicles. Someone without those legacies could probably accomplish more than Ford can.

Like potential Mars missions delivering thousands of rovers that can be deployed to reflect opportunities, Ford should also explore these alternative development paths simultaneously. Conceptual thinking to create breakthrough gains costs pennies compared to the dollars involved in retaining or putting inappropriate processes in place.

But wait. That's still not enough. The major costs of a vehicle are borne by an owner, not by Ford. No matter how good Ford or its suppliers are at manufacturing, those improvements are not very likely to make a big dent in an owner's costs. The multiple searches for cost reductions must primarily look for ways to benefit the owner's purse or wallet. Let's look at a few potential examples.

When a vehicle runs for more miles, that extra use normally reduces the operator's cost per mile. But many vehicle owners favor experiencing vehicle variety over low cost.

How might you provide both? Imagine, for example, if vehicle interiors could be refurbished by their owners with new colors and designs for $500. While that's a major expense, someone who spends a lot of time in the vehicle might welcome the opportunity to experience a new vehicle aroma, a nicer look, a more appealing color, and the pleasant feel of new fabric. Those who like to be fashionable would be changing their interiors long before the old ones showed wear. The extra $500 every so often is a lot less than the cost of switching vehicles.

An odd thing happens to older vehicles. Long before they are ready for the junk heap, the value of their used parts soars to well over the vehicle's market value. A manufacturer could stimulate faster turnover of older vehicles by providing services that allow owners to turn trade in vehicles for a high percentage of the used parts' value. This service would, in turn, help owners to reduce their costs per mile.

When gasoline prices are rising or are high, vehicle purchases and values are affected because most motorists don't have the assets or expertise to hedge the cost of gasoline over the expected life of their vehicle. Vehicle companies do have such assets and skills.

The vehicle manufacturers could provide futures hedging services to owners that fix the rate paid for gasoline and diesel fuel. If a vehicle manufacturer wanted to do provide such services, the organization should also explore whether an integrated petroleum company wanted to provide a similar product. By owning the raw materials, the petroleum producer might be able to make long-term deals at a lower cost to vehicle owners.

Taking this thinking a step further, a vehicle manufacturer could consider becoming backward integrated into petroleum production. This strategy would provide a major source of profits when energy prices are high that could be used to provide incentives to purchase vehicles . . . such as free gasoline for the first few years that you own your vehicle. Obviously, acting on this opportunity to invest will work best if pursued during low-price periods for petroleum rather than in high-priced markets.

If a driver is permanently injured in a vehicle accident and cannot return to work, the lost income from that disability could cost the driver more than all of the vehicles that he or she will ever purchase. Yet most people don't have income-coverage disability insurance related to vehicle accidents.

If you're hit by someone who is uninsured, you won't even have a chance to collect through a lawsuit. Large manufacturers of vehicles would again be in a good position to provide such a financial service at a low cost by spreading the development and overhead costs over millions of drivers.