NASCAR, Toyota, and Economies of Scale
In honor of the upcoming Daytona 500, I’m going to touch on a couple stock car topics this week.
In 2007, Toyota began racing its “Camry” in the top NASCAR series. A year later, Joe Gibbs Racing switched brands and began racing Toyota branded vehicles. For the first 4 years of the partnership, JGR built their own engines while TRD made the rest of the engines for the Toyota teams. That arrangement is changed and TRD will now supply the engines for the Gibbs teams.
That, in itself, is not particularly interesting especially as it relates to Lean. The part that I find most interesting is in a quote about the change from TRD’s president Lee White who says in this article, “Building for three teams or less is extremely expensive and inefficient. We’re hoping to recognize the tremendous economies of scale by spreading these costs across six or more teams in the future.” As ‘Lean Thinkers’, one of the things we initially try to cut out of our vocabulary is the phrase “economies of scale”. The phrase carries a stigma of filling warehouses with product to satisfy an outdated accounting metric. What this highlights is that there is some real value to the thought as long as we aren’t using it to justify avoiding changeovers and over producing to keep machines busy. The reality is that there is a significant investment to obtain a facility, outfit it, and hire and train the people that work in it. A company can be the most Lean operation in the world in terms of their variable costs, but if the fixed costs are too high at the volume they run there isn’t much left to work with in looking at the ‘Profit = Price – Cost’ equation. Instead of banishing the words “economies of scale”, maybe we should just move them out of the micro level (process and operation) and in to the macro level (overall customer demand).
There is another Lean theme that comes up in the article. Both TRD and Joe Gibbs Racing representatives talked about the impact of this change on the people that work for them. Both went out of the way to say that it would provide stability for the employees and that there wouldn’t be any layoffs as a direct result of the change. I can only take those statements as face value, but it was refreshing to read about a move like this that wasn’t directly correlated to layoffs.