From hell to heaven: Porsche’s case study
Porsche faced a 1990s financial crisis. Strategic changes led to a remarkable turnaround, making it a luxury car brand. Let's explore its transformation.
The background
Porsche, a German luxury car manufacturer, had a storied history dating back to 1931 when Ferdinand Porsche founded the company. Over the years, Porsche had gained a reputation for producing high-performance sports cars that were synonymous with luxury and innovation. However, despite its brand recognition, Porsche faced several challenges in the 1980s and early 1990s that led to a dire financial situation.
The crisis
During the 90’s Porsche faced three main problems:
- Worldwide recension reduced sales in the luxury car market.
- Strategic missteps:
o by introducing a number of models, as the 944 and 928, which were aimed for a broader market but that didn’t sell well.
o by investing in new technology as the V8 engine for its larger models but investments not being paid in the short term.
- Costs out of control with a production system expensive and inefficient, as for example:
o The store system was designed for spares for 28 days of production. This was not helping suppliers to improve their efficiency and they were frequently slow and made mistakes sending spares or with defects
o The philosophy was based on producing cars as fast as possible and to fix the systematic quality defects outside the assembly line. No first-time quality.
The measures of Wiedeking
Wendelin Wiedeking, as new CEO in 1993, played a crucial role in Porche’s transformation implementing bold strategies and making key decisions by:
- Focusing on the production and development of the core products and discontinuing the less sold products
- Reducing one-third the management team and reviewing the roles and responsibilities of the remaining
- Porsche’s management travelling to Japan to make tours in auto plants and provoking a cultural shock.
- Contracting SGC (Shingijutsu Global Consulting), a Japanese consulting firm made of disciples of Taichi Ohno (father of the Toyota production system), to implement lean manufacturing techniques and improve production efficiency. This helped reducing costs and improving the quality of Porsche's products.
The changes in the production system
SGC helped Porsche to improve its production processes and efficiency using its expertise in lean manufacturing and the Toyota Production System and by identifying areas of waste and inefficiencies. In order to achieve this, SGC worked closely with the production workers and Porsche gave full control to SGV in the decision making and execution of the changes.
Main changes were:
· Implementation of a "just-in-time" production system, where parts and materials are delivered to the production line only when needed, reducing inventory costs and improving production efficiency.
· Redesign of its production lines to eliminate bottlenecks and reduce production time for each car.
· Foster a culture of continuous improvement and waste elimination within the workforce, based on a more proactive and innovative approach were all employees were encourage to identify and address inefficiencies in the production process.
· Empowerment of employees to take ownership of their work and collaborate with the different departments to streamline processes
The results: increased quality at a lower cost
These changes resulted in reduced costs and improved quality, helping Porsche navigating through the financial crisis. For example:
- The speed of the assembly was reduced from 120 hrs to 72 hrs
- The number of errors per car was reduced a 50%, to an average of three.
- The workforce was reduced a 19%.
- The line and inventories were cut down and the factory space was reduced 30%
- The inventory was reduced from 28 days to 7 days.
- The redefinition of craftmanship by creating an uninterrupted flow of manufacturing
- The redefinition of Porsche’s cars models
Conclusions
The lessons learned from this case study have been broadly applied across other companies around the globe and it proves that being open to make substantial and dramatic changes and evolving embracing a culture of continuous improvement can be key to overcome times of crisis.
Finally, Wendelin Wiedeking's tenure as Porsche's CEO exemplified the power of resolute convictions, ambition, and strategic expertise in reshaping the direction of a company. With unwavering determination and a wealth of knowledge and experience, Wiedeking successfully transformed Porsche during his tenure, showcasing how effective leadership can steer a company towards new horizons.
Sources
· Chicago Tribune. Porsche gets Japanese fine-tuning