Childrens Corner

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One of my favorite discussions of the history of the development of the Japanese automobile industry is a book by Michael Cusumano, The Japanese Automobile Industry (Cusumano, 1985), that contrasts in detail the evolution of Nissan and the evolution of Toyota. In his book, Cusumano clearly illustrates the different trajectories of the two companies.

One of the key differences is that Toyota always chose a path of self-reliance and “let’s do it ourselves,” rather than relying on outside business partners. For example, when Toyota wanted to get into the luxury car business, it didn’t buy BMW. Instead it created its own luxury division, Lexus, from scratch, in order to learn and understand for itself the essence of a luxury car (in the genchi genbutsu spirit).

Like the small farmers of old who had to build their own houses, repair their own equipment, and creatively solve all their own problems, Toyota Motor Company started small with few resources. Everyone had to chip in on every activity and do what was necessary to engineer and build a car. In fact, in the 1930s the president of Toyoda Automatic Loom, Kodama Risaburo, thought the automotive business was risky and was reluctant to invest all but minimal capital in the new venture (Cusumano, 1985). So the Toyota automobile company had to learn to make everything for itself.

While many companies can claim to value self-reliance, Toyota actually lives this philosophy on a corporate institutional level. Toyota Motor Company founder, Kiichiro Toyoda, said:

My father was not educated. The only strength he had was to believe in one thing all the way: that the Japanese have latent capabilities. The automatic loom was the product of this conviction.

Kiichiro, son of Sakichi and the first president of Toyota Motor Company, carried on the tradition of his father’s self-reliant philosophy. In the 1920s he was an engineering student, but not just an engineering student going to class and passing tests. Like his father, he actually invented things, and by 1926-1928 he was inventing processes to build a car. Jim Press, a Toyota history buff, explains how this “do-it-yourself” philosophy played out in the new car company led by Kiichiro:

Toyota’s orientation from the very beginning was anybody could go hire a mechanic and hire an engineer and hire this and buy that. Toyota’s view was that before they could build a car, they needed to perfect new revolutionary processes to build a mold, to build an engine, to go back to that level. And that’s what makes the company different. Going back to the essence.

Later, when other Japanese automakers were willing to buy kits from U.S. carmakers and assemble knockoffs of their vehicles, Toyota chose to design and build its own cars, drawing on pieces of designs from a variety of U.S. vehicles. In fact, Toyota was the first automobile company in Japan to develop vehicles without technical assistance agreements with the more advanced automobile companies in Europe and the U.S. It didn’t want to be dependent on outside assistance.

In both a physical and psychological sense, Toyota is somewhat isolated from the rest of Japan. Toyota City is almost in the middle of nowhere. To get there requires going to Nagoya, a major though not central city in Japan. Then a long train ride and finally a taxi will get you to Toyota headquarters. Even now, with Toyota and its suppliers populating the landscape, there is a rural flavor. And Toyota executives proudly proclaim themselves unsophisticated country bumpkins. Mikio Kitano, formerly President of Toyota Motor Manufacturing Kentucky and a director of the company at the time I visited his office, had a huge stuffed animal gorilla in his office. He described himself to me as an ape—not like the sophisticates of Tokyo.

At Toyota the companion to self-reliance is responsibility for its own successes and failures. In Toyota Way 2001 it states: “We strive to decide our own fate. We act with self-reliance, trusting in our own abilities. We accept responsibility for our conduct and for maintaining and improving the skills that enable us to produce added value.”

taken from; The Toyota Way:14 Management Principles from the World’s Greatest Manufacturer

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taken from: The Toyota Way:14 Management Principles from the World’s Greatest Manufacturer

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Leveling out a work schedule is easier in high-volume manufacturing than in typically lower-volume service environments. How do you level schedules in a service operation where service providers are responding to customers and the lead times on service work vary widely case by case? The solutions are similar to the solutions in manufacturing:

1. Fit customer demand into a leveled schedule. This is more common in service operations than you may think. Why is it that doctors and dentists schedule procedures and you need to fit into their schedule? So they can level the workload and have a constant stream of income. Time is money in service operations.

2. Establish standard times for delivering different types of service. Again, the medical field is instructive. Even though everyone has somewhat different medical needs, doctors and dentists have been able to establish standard times for different types of procedures. And they separate diagnosis from the procedure. You visit, they diagnose you, and then, in most cases, they can predict the time that will be required for your procedure.

Toyota has effectively been able to level the schedule for product development even though lead times are months or even years. In most cases, Toyota will make minor updates to a vehicle every two years, adding features and changing styling, and will do a redesign of the vehicle every four or five years. Toyota product development works according to a matrix, where the rows are the different Toyota vehicles—Camry, Sienna, Tundra—and the columns are years. They decide when each vehicle will be freshened and go through a major redesign. They intentionally level the schedule so a fixed percent of the vehicles are being redesigned in any one year.

Planning when vehicles are scheduled for redesign would be futile if the lead times required to actually design and develop a vehicle were unpredictable. This is where Toyota has a big edge over some of its competitors. While some auto companies let the start of production slip by months or even a year, Toyota is like clockwork. Development milestones are met with virtually 100% accuracy. So the leveled plan becomes reality.

Toyota also has found there is a cadence to the workload requirements over the life of the development project: the workload is relatively light early in the conceptual stage, then builds up as they get to detailed design, and then reduces again in launch. By offsetting different vehicle projects, they know when one is peaking and others are in the light period and can assign the numbers of engineers to products accordingly. They also can flex the number of people needed by borrowing engineers from affiliated companies (suppliers and other divisions of Toyota, such as Toyota Auto Body). Affiliates can come onto projects as needed and then go back to their home companies, allowing an extremely flexible system and requiring minimal full-time employees. This is the result of other Toyota Way principles, particularly standardization. Toyota has standardized its product development system and the product designs themselves to the point that engineers can seamlessly come in and out of design projects, because their engineers have a standardized skill set similar to the Toyota engineers’ and years of experience working in Toyota’s system. The principle of long-term partnering that we will discuss in the next postallows Toyota to have a trustworthy and capable set of partners who they can depend on for extra help when needed.

In short, it is possible to level the schedule in service operations. But there are some base requirements. You must follow all of the other Toyota Way process principles—flow, pull, standardization, and even visual management—to get control over lead times. Standardization is critical to controlling lead times and also to bringing people on and off the projects to address peak workloads. You must also develop stable partnerships with outside companies that are capable and that you can trust.

The Toyota Way:14 Management Principles from the World’s Greatest Manufacturer

In the early 1980s, Toyota formed a joint venture with GM. It was Toyota’s first overseas plant and they did not want to go it alone. They agreed to teach GM the principles of the Toyota Production System (TPS). Toyota proposed to take over a light truck factory in Fremont, California that had been closed by GM in 1982 and run it according to the principles of the Toyota Way. Dennis Cuneo, now Senior VP of Toyota Motor Manufacturing North America, was an attorney for Toyota at the time. He explains:

The perception that everybody had at that time was that the Toyota Production System just worked people to death. It was just basically “Speed up!” In fact, I remember the first meeting we had in the union hall with union leadership and there was this gentleman by the name of Gus Billy. He was sitting at the end of the table and we were talking about the Toyota Production System and kaizen, etc. He said, “It sounds like a production speed-up to me. It’s the whole concept of making all these suggestions, trying to suggest your way out of a job.”

This was not an isolated hostile attitude. Even when the plant had been run by GM, the union local had the reputation of being militant, to the point of calling illegal wildcat strikes. Nevertheless, when Toyota took over management of the plant, against the advice of GM, Toyota decided to bring back the UAW local—and bring back the specific individuals who represented this UAW local in the plant. Cuneo says:

I think it surprised GM. Some of the labor relations staff advised us not to. We took a calculated risk. We knew that the former GM workforce needed leadership—and the Shop Committee comprised the natural leaders of that workforce. We had to change their attitudes and opinions. So we sent the shop committee to Japan for three weeks. They saw firsthand what the TPS was all about. And they came back “converted” and convinced a skeptical rank and file that this Toyota Production System wasn’t so bad.

In fact, under Toyota’s new management, when the old factory reopened in 1984, it surpassed all of GM’s plants in North America in productivity, quality, space, and inventory turns. It is often used as an example of how TPS can be successfully applied in a unionized U.S. plant with workers who had grown up learning the traditional culture of General Motors and the traditional adversarial relationships between union and management. Cuneo says the key was building trust with the workers:

We built trust early on with our team members. GM had problems selling the Nova in 1987 to ’88, and they substantially cut the orders to our plant. We had to reduce production and were running at about 75 percent capacity, but we didn’t lay anybody off. We put people on kaizen teams and found other useful tasks for them. Of all the things we did at NUMMI, that did the most to establish trust.

According to Cuneo, GM’s initial motivation for entering the venture was to outsource production of a small car. As GM learned more about the TPS, they became more interested in using NUMMI as a learning laboratory. Hundreds of General Motors executives, managers, and engineers have come through the doors of NUMMI, only to be transformed by the teachings of TPS by the time they returned to GM. I have visited GM plants in the U.S. and China and the bible for manufacturing is a version of the Toyota Production System first written by Mike Brewer, an early “alum” of NUMMI sent by GM to learn TPS. GM’s “Global Manufacturing System” is a direct copy of the Toyota Production System.

Unfortunately, it took about 15 years for GM to take the lessons of NUMMI seriously. When they began to take it seriously, it took GM about five years before they really began to see improved productivity and quality, corporate wide (as seen in the auto industry’s Harbour Reports and customer surveys by J.D. Powers and Consumer Reports).

You may be asking, “Why would Toyota teach their coveted lean manufacturing system to a major competitor, GM?” There were lots of different motivations for starting the joint venture. But at least one consideration was that Toyota realized GM was the world’s largest carmaker and was struggling in its manufacturing operations. By helping to raise the level of manufacturing at GM, they were helping society and the community, as well as creating high-paying manufacturing jobs for Americans. The senior executives at Toyota speak of giving back something to the U.S. for the help they provided Japan to rebuild its industry after World War II. This is not mere lip service or pie-in-the-sky idealism. They really believe it.

taken from; The Toyota Way:14 Management Principles from the World’s Greatest Manufacturer

Cho’s quote at the opening of this chapter suggested customers may have to wait a little longer if they want to order a vehicle specially built for them. He is not willing to sacrifice the quality and efficiency benefits of heijunka for the sake of “build-to-order.” Yet, other car manufacturers have developed build-to-order systems, potentially giving them a competitive advantage. One of the conventional build-to-order solutions is to keep a lot of finished vehicle inventory in huge dealer lots around the country and swap vehicles among dealers that match custom orders.

So is Toyota satisfied with asking customers to wait while they may be able to get the specific car they want from a competitor? In response to this challenge, Toyota has developed a solution that will allow it to level the schedule and at the same time build to order. They are never satisfied with either/or. Alan Cabito, Group Vice President of Toyota Motor Sales, explained:

The Toyota system’s not a build-to-order system. It is a “change to order” system. And the big difference is that we have cars moving down a line that we change specs on. We’ve always done that. But we’re just taking it another big notch up. We pick a car on the line, any car, and change it. And obviously there are guidelines on how many changes you can do in a day, so we consistently have the parts available to do it.

This is all done within the leveled schedule created several months in advance. Cabito explained further the realities of the mixed model production line:

You might have a van unibody and a truck and then you might have another truck, so that the van was every third vehicle. That isn’t going to change. You can change the color, which is not simply paint, it’s interior and everything else. You can have matching mirrors, etc. There’s a lot of complexity to changing color— you have to change virtually all the accessories. And the way that gets managed is on the allowance of how much change can take place. There will be a limit to the number of green, leather-interior Siennas we can make in the same day.

As usual, Toyota experimented with building to order with an actual pilot—the Solara, a sporty coupe version of a Camry—in the Canadian plant. It is relatively low volume. For Solara they achieved 100% “change to order.” For the Tacoma truck there are a huge number of engine combinations, and they were able to achieve about 80% “change to order” from dealers who called in with customer requests. Cabito gave me a sales perspective on how this works:

We place a single month’s order three times. We’ll order it four months out, three months out, two months out. During that time, they set up all the components and suppliers. For July production, the final order will be placed in May. So your order’s out there 60 days in advance. Then every week we can change the order in the U.S. plants. Every week we can modify anything that’s unbuilt, except for the basic body type.

The important point here is that the Toyota culture does not allow managers and engineers to conclude, “That cannot be done here.” The rigid principle of heijunka does not stay rigid for long. On the other hand, it is not simply thrown away because of a new trend such as build-to-order. The question is: How can we accommodate the customer’s desire to make choices and get the car quickly without compromising the integrity of the production system? In true Toyota Way problem-solving style, the engineers carefully studied the situation, experimented on the shop floor, and implemented a new system.

taken from; The Toyota Way:14 Management Principles from the World’s Greatest Manufacturer

Can a modern corporation thrive in a capitalistic world and be profitable while doing the right thing, even if it means that short-term profits are not always the first goal? I believe that Toyota’s biggest contribution to the corporate world is that of providing a real-life example that this is possible.

Throughout my visits to Toyota in Japan and the United States, in engineering, purchasing, and manufacturing, one theme stands out. Every person I have talked with has a sense of purpose greater than earning a paycheck. They feel a greater sense of mission for the company and can distinguish right from wrong with regard to that mission. They have learned the Toyota Way from their Japanese sensei (mentors) and the message is consistent: Do the right thing for the company, its employees, the customer, and society as a whole. Toyota’s strong sense of mission and commitment to its customers, employees, and society is the foundation for all the other principles and the missing ingredient in most companies trying to emulate Toyota.

When I interviewed Toyota executives and managers for this book, I asked them why Toyota existed as a business. The responses were remarkably consistent. For example, Jim Press, Executive Vice President and C.O.O. of Toyota Motor Sales in North America and one of two American Managing Directors of Toyota, explained:

The purpose of the money we make is not for us as a company to gain, and it’s not for us as associates to see our stock portfolio grow or anything like that. The purpose is so we can reinvest in the future, so we can continue to do this. That’s the purpose of our investment. And to help society and to help the community, and to contribute back to the community that we’re fortunate enough to do business in. I’ve got a trillion examples of that.

This is not to say that Toyota does not care about cutting costs. Shortly after World War II, Toyota nearly went bankrupt, which led to the resignation of the company founder—Kiichiro Toyoda. Toyota pledged to become debt-free. Cost reduction has been a passion since Taiichi Ohno began eliminating wasted motions on the shop floor. Often this led to removing a worker from a line or cell, to be placed in another job so one less worker had to be hired in the future. Toyota now has a rigorous “Total Budget Control System” in which monthly data is used to monitor the budgets of all the divisions down to the tiniest expenditure.

I asked many of the Toyota managers I interviewed if cost reduction is a priority and they just laughed. Their answers amounted to “You haven’t seen anything until you’ve experienced the cost-consciousness of Toyota—down to pennies.” Yet cost reduction is not the underlying principle that drives Toyota. For example, Toyota would no sooner fire its employees because of a temporary downturn in sales than most of us would put our sons and daughters out on the street because our stock investments went bad. Toyota executives understand their place in the history of the company. They are working within a long-term philosophical mission to bring the company to the next level. The company is like an organism nurturing itself, constantly protecting and growing its offspring, so that it can continue to grow and stay strong. In this day and age of cynicism about the ethics of corporate officers and the place of large capitalistic corporations in civilized society, the Toyota Way provides an alternative model of what happens when you align almost 250,000 people to a common purpose that is bigger than making money. Toyota’s starting point in business is to generate value for the customer, society, and the economy.

taken from; The Toyota Way:14 Management Principles from the World’s Greatest Manufacturer

Leveling the schedule has profound benefits throughout the value stream, including giving you the ability to plan every detail of production meticulously and standardizing work practices. If you visit a Toyota plant or a Toyota supplier, you will see the great pains taken to level the schedule. The best Toyota suppliers also work on the assumption that Toyota’s demand for their parts will be level. This is a risk, because not keeping finished goods inventory means leaving themselves fully exposed to any wild variations in their customer’s volume and mix of products. They can do this and still sleep at night because Toyota is a very reliable customer and levels out its production schedule.

For example, Trim Masters is a U.S. supplier in Georgetown, Kentucky that makes seats for the Camry and the Avalon manufactured there. Trim Masters builds and delivers seats just in time, based on a broadcast from the Toyota plant that orders one seat at a time. From the time the orders are placed, Trim Masters has three hours to build the seats, put them on the truck in sequence, and deliver them to the Toyota plant, so they appear on the assembly line in the exact order needed for production. Trim Masters orders parts just in time from its suppliers and keeps very little inventory, with inventory turns of 128 times per month. The Avalons and Camrys take different seats that require different parts, so Trim Masters has to trust Toyota will make the mix of Avalons and Camrys that it projects. If there is a sudden spike in Avalon seat production, Trim Masters will run out of parts and must pay for emergency delivery of parts. This happens routinely for U.S. auto companies, providing many truckers and helicopter pilots a good living on high-priced expedited freight. This happens from time to time with Toyota, but by and large it carefully maintains a leveled schedule and builds what it says it will build.

Most suppliers are not like Trim Masters and must satisfy customers whose demand fluctuates significantly. In these cases, TPS experts will often recommend keeping at least a small inventory of finished goods. This seems to contradict lean thinking. Theoretically, the leanest solution is to build to order and ship just what the customer wants. (If you are going to keep inventory, why keep the most expensive inventory—finished goods? Instead, build to order and store only raw material inventory.) But this reasoning doesn’t consider the importance of heijunka. A small inventory of finished goods is often necessary to protect a supplier’s level production schedule from being jerked around by sudden spikes in demand. It may seem wasteful, but by living with the waste of some finished goods inventory, you can eliminate far more waste in your entire production process and your supply chain, if you keep your production level.

This is one reason why companies that have successfully applied TPS often schedule their production with a combination of building to order and maintaining a pre-determined level of finished goods inventory. The case example at the end of this chapter shows a company that builds high-volume seasonal products to hold in inventory and then builds other products to order. This combination allows the company to level the schedule over the year, have a smooth flow, and build most of its products to order.

taken from; The Toyota Way:14 Management Principles from the World’s Greatest Manufacturer