The last auto plant in Detroit generates $2 billion in annual profit for Chrysler

There is a section of Detroit that sums up the city’s decline, a grim landscape of boarded-up stores, abandoned homes and empty lots that stretch all the way to the river. And in the middle of it stands one of the most modern and successful auto plants in the world. More than 4,600 workers staff Chrysler’s sprawling Jefferson North factory nearly around the clock, writes The New York Times (July 16, 2013), making one of the most profitable vehicles on the market, the Jeep Grand Cherokee.       

“Everything is aligned there,” said one auto analyst. “You have a hot-selling, high-profit vehicle, a flexible labor agreement and a facility that the company has invested in instead of abandoned.” Annual production has skyrocketed from fewer than 100,000 vehicles a year in 2009 to more than 300,000. And a work force that had dwindled to 1,300 people has more than tripled. In June, Grand Cherokee sales rose 33%, as buyers paid as much as $50,000 for the model.

The profits and productivity at Jefferson North put it on par with the most efficient luxury car plants in Germany and the best factories operated by Japanese automakers in the southern US.  Today, Jefferson North stands as the last auto assembly plant in Detroit’s city limits, which once had nearly a dozen of them.

The company has taken advantage of the groundbreaking 2007 labor agreement with the United Automobile Workers union, to bring on new employees at an entry-level wage under $16 an hour, compared with the $28 earned by longtime union workers.  Since its bankruptcy, Chrysler has hired two full shifts of new workers, over 2,200 people, at the lower wage.

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.com. Professors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.

JULY 6, 2013

Managers at the 1,000 worker Honeywell factory in St. Charles, Illinois wear credit-card-size badges warning colleagues of the “seven deadly wastes,” reports The Wall Street Journal (June 30, 2013). The list of costly problems to avoid is a reminder of past problems at the plant, which makes smoke and carbon-monoxide detectors. The plant pumps out 4 million devices a year, and its efficiency gains in recent years have been achieved with a workforce that has been cut in half—illustrating the shop-floor improvements that academics have dubbed a U.S. manufacturing renaissance.

The St. Charles facility had often produced too much, anticipating demand that didn’t materialize. Overproduction and excess inventory are 2 of the 7 deadly wastes. “You couldn’t see the plant floor because there was so much inventory stacked up,” says the director of manufacturing.

Honeywell bet that St. Charles and its other US plants could be transformed into more efficient operations when other U.S. companies were fleeing for low-cost locations overseas. St. Charles assembly lines were replaced with 7 production cells where teams could build different detectors simultaneously. More of the production systems were automated to detect worker errors. The overhaul also solicited ideas for improvement from employees, a reason for maintaining the U.S. workforce. “We’re paying for people’s brains and their hands. If I just wanted hands, I could find them cheaper elsewhere,” says one exec.

St. Charles’ defect rate has fallen 80% under the improvement plan. Automation allowed one worker from each of the work cells to be reassigned. The plant now can start production of any product in the catalog within 3 minutes. Orders typically are filled within 4 days, down from 10 days. Meanwhile, the time needed to develop new detectors has shrunk to about 18 months from 3 years, as the company uses its newfound efficiency to match products from rivals.

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.com. Professors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.