6.25.2008

Is Dell Better Than Toyota?

Which company is leaner: Dell or Toyota?

Dick Schonberger offers a surprising answer.

Schonberger is a consultant and a well-known figure in lean circles. He is the author of several books on lean topics. I heard him speak recently at the regional conference (in San Diego) of the
Association for Manufacturing Excellence.

His topic was supply chains, and he was discussing research he has conducted on how well companies are achieving lean benefits.

The key metric Schonberger looks at is inventory turns – which at least some people believe is generally a fairly good indicator of a lean operation.

He looked at inventory turns for hundreds of companies. He calculated the number of turns by using figures from the public reports of those companies; if I understood him correctly, he took the value of goods sold from the balance sheet and divided it by the value of inventory from the financial statement.

Recognizing that one figure in isolation is not particularly meaningful, Schonberger looked at how the numbers changed over time. If the number of inventory turns increased over time, that’s good, and a decrease over time is not so good.

Perhaps the most interesting comparison in his presentation was Dell vs. Toyota. Schonberger found that, for an 18-year period beginning in the mid-1980s, inventory turns at Dell increased an average of 5.4 percent per year, in an almost continuous trend. (That trend ended a few years ago when Dell changed its strategy to include sales in retail stores, which required more inventory.)

Toyota, on the other hand, has seen its number of inventory turns go down about 4 percent per year for about the past 13 years.

The reasons? Schonberger suggests that Toyota, while great at manufacturing, is not so great at supply chain management. He also says this kind of trend can occur anytime a company has a strategy of rapid growth.

He commented, “It is less serious for the richest manufacturing company in the world. You can get away with it for many years.”

As an aside, Schonberger also highlighted a variety of companies in various industries that he said, like Dell, have a record of increasing inventory turns. He conceded that his list included some automotive suppliers that are in bankruptcy.

Is Schonberger right? Is Toyota not as good as we have always believed it is? What do you think?

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