As a longtime executive of a major trading company, Keiji Mizuguchi was fully aware as he took on the presidency of Showa that the world consists of many markets, some offering interesting opportunities, and that Showa should develop a new strategy for serving markets beyond Japan. But he was determined that Showa’s new global strategy would not repeat the mistakes of the past. The first step (in 1995) was to establish a subsidiary in China, but one with a very different purpose from those of many other Japanese, European, and American firms.
The new Showa subsidiary customizes designs and then manufactures Showa products for the Chinese domestic market. Most of the manufacturing is done at one site in China—using lean techniques with no compromises—for rapid delivery to Chinese customers. The objective is to take full advantage of the strengths of a lean firm by customizing and manufacturing in the market of sale and developing strong relations with local customers. There is no intention to export Showa products from Japan to China or from China back to Japan or to other markets. In the future, any major market with promise for Showa will get its own design and production system to serve that market. What will be shared globally is a set of technological capabilities and the vital lean know-how for managing production, product development, and order-taking .
The Bottom Line: A Lean Success
By 1995, after a decade’s march, Showa was finally reaping the full rewards of its conversion to lean principles driven by a lean strategy. As shown in Figure 10.4 , Showa quickly improved its productivity and reduced its space needs and inventories after 1984. These steps stemmed the company-threatening losses and bought vital time to consider what to do next (just like similar steps at Pratt & Whitney and Porsche), yet as of 1991 the firm was still not making an adequate return because it was selling products into declining markets.
As the new business units gradually found their markets and product development and order-taking were improved after 1991, Showa began to take off, just as the rest of the export-dependent Japanese economy fell into a prolonged slump. As typical Japanese manufacturing profits (for the 1,033 largest firms) fell by 70 percent after 1989 (as shown in Figure 10.4 ), Showa, now selling 100 percent of its output into a stagnant domestic economy, lifted its profits by nearly 100 percent compared with 1989.
F IGURE 10.4: S HOWA S ALES AND P ROFITS , 1989–95
Sales themselves rose nearly 33 percent in the first half of the decade, against a slumping economy, but President Mizuguchi has set a target of a 50 percent increase in sales in Japan by the year 2000 as the Japanese economy recovers and additional products are launched. This will be achieved using only existing office and plant space and with existing head-count, as Showa once more launches into a wall-to-wall kaizen exercise to look again at every element of its value streams. Meanwhile, Showa will be testing its “lean globalization” strategy in China and will pursue it elsewhere as appropriate.
What About the Rest of Japan?
Showa’s transition to leanness may seem to have occurred at a snail’s pace, especially for readers accustomed to the magic world of business books, where any firm can be fixed almost overnight by following the author’s simple advice. Surely, you say, there are shortcuts, and surely Showa was a late and slow adopter of lean ideas in Japan, an outlier in the hinterlands.
In fact, Showa could have gone faster. None of the methods ultimately used, including the reorganization into tightly focused, integrated product teams, the product customization system, and the new order-taking and scheduling techniques, was unknown in 1984. In a society demanding more rapid returns from capital than Japan and one willing to bear the human consequences, perhaps Showa would have gone faster. (Remember that the first rule of business at Showa—as in most Japanese firms—was not to lay off employees unless it faced immediate bankruptcy, so there were inherent limits on how quickly its financial performance could improve in a stagnant product market if headcount was held constant.) Certainly, a management determined to go faster can go faster, and we will return to this point in Chapter 11 .
However, Showa was not a late adopter among mid-sized and small firms in Japan. Indeed, it was among the first manufacturing firms in Kyushu to fully embrace lean ideas, and there is ample evidence (as we will see in a moment) that a substantial fraction of the Japanese economy is still not lean today. We can see why when we review the struggle to diffuse lean ideas from their point of origin in Toyota.
Leanness at Toyota
When Taiichi Ohno first came to tiny Showa Manufacturing in 1984, mighty Toyota was just at the end of a thirty-five-year process of diffusing lean thinking across the Toyota Group within Japan and was just beginning to spread it across the world, beginning at the NUMMI plant in California.
Two of the basic lean concepts in physical production—automatic machine and line stopping whenever a mistake is made so no bad parts will be passed forward to interrupt the downstream flow (which Toyota calls jidoka) and a pull system so that only parts actually needed are made (which Toyota calls Just-in-Time)—had been formulated by Sakichi Toyoda (the founder of the Toyota group) and his son Kiichiro Toyoda (first president of its offshoot, the Toyota Motor Company) in the 1920s and 1930s. However, these concepts of physical production were only linked and operationalized by Taiichi Ohno and his disciples beginning in the late 1940s. At the same time, Toyota was pioneering ideas on the organization of product development, supply chain management, and order-taking from customers, which ultimately constituted the complete Toyota system. Soberingly, Toyota was only able to make the historic leap to fully implement these ideas when it faced a deep crisis in 1950.
“… The Advantage of a Defiant Attitude”
Looking back in the 1980s, Taiichi Ohno noted that “Companies making even a modest profit never use the Toyota Production System. They can’t. On the other hand, there are nearly bankrupt companies that implement the Toyota Production System to the fullest, knowing they won’t lose much even if it fails. … This is the advantage of a defiant attitude.” 2
Certainly, loss-making Toyota did not have much to lose in the immediate postwar period and Ohno was master of the defiant attitude. When he was promoted to manager of the Engine Manufacturing Department at Toyota in 1948, and suddenly had the authority to make changes, he found a classic batch-and-queue operation with all machines of a type in one location. The shop’s performance was even worse than one might expect because other Toyota departments supplying the engine shop rarely delivered on time and then delivered only in huge batches. Therefore, the engine shop spent the first half of the month waiting for all of the necessary parts to arrive and the latter half working furiously to meet the monthly production quota.
It was soon after arriving that Ohno had his most fundamental insights. First, he noted that workers spent most of their time simply watching machines do their work and that many bad parts could be produced before they were discovered by inspectors from the Quality Control Department. He remembered Sakichi Toyoda’s self-monitoring looms (which he called “a laboratory in front of your eyes”) that used devices measuring thread tension to shut themselves down immediately if a thread broke and the loom began to make defective cloth. Using this idea as his inspiration, he quickly devised a set of simple limit switches and go/no-go gauges so that machines, once loaded, could do their work to completion without human intervention and stop working immediately if they detected an error in their efforts. With these simple devices added to conventional machine tools, it was quickly possible for one worker to superintend many machines and perform quality checking as well, intervening only to load machines (as in the chaku-chaku line just installed at Pratt & Whitney) and to deal with malfunctions.
Ohno’s second insight was that “when you have lots of inventory you are always one part short.” He decided that the problem could only be solved if each processing step went frequently to the previous processing step and picked up exactly the number of parts needed for the next increment of production. By adding the ironc
lad rule that the previous step would never produce more parts than the next step had just withdrawn, a rudimentary JIT system was put in place. The famous kanban cards were introduced in 1953 to formalize the system and make information flow smoothly backwards at the same rate products flowed forward. The quick changeovers of tools needed to permit the previous process to rapidly respond to the needs of the next process were first attempted in the late 1940s, but the dramatic ability to change even the most massive tools was not fully perfected until the late 1960s.
Ohno’s third insight was that machines should be moved from process villages into “cells.” There, in a horseshoe pattern, they would be placed in the exact sequence required by the part being made. By focusing on the needs of the object undergoing manufacture, rather than the maintenance needs of the machines, the traditional skill sets and work methods of the workforce, or conventional thinking about scale economies, he focused the value stream and eventually perfected the concept of “single-piece flow.” Note also that the introduction of single-piece flow eliminates much of the need for in-plant JIT linking departments and process villages. In addition, by adding or subtracting workers from a cell, Toyota could increase or reduce the rate of production to keep it exactly synchronized with the “pull” of the market.
Ohno’s insights and actions marked a fundamental departure from other Japanese firms in the post–World War II era (including arch-rival Nissan). Many companies focused on larger and larger high-speed machines grouped in process villages, eventually linked by MRP, or on elaborate, automated transfer and assembly lines linking dozens of manufacturing steps and increasingly employing robotics to eliminate human effort. The latter might be thought of as “high-tech” mass production and these methods were perfect for the high-volume production of standardized products, largely for export. However, such goods are today a vanishing species, and high-tech mass production is often a loser when confronted by a flexible lean producer that has introduced continuous flow through its entire value stream .
The Creative Crisis
One of Ohno’s favorite sayings was that “Common sense is always wrong.” He viewed his life as an effort to reverse common sense—for example, the belief that batch production is more efficient—and find a better way. However, his temperament and the very notion that the “common” was wrong destined him for collisions with most of his colleagues and workers. From the moment he discovered that one worker could load and monitor as many as fifteen machines, and further concluded that machines needed to be arranged and rearranged in the sequence of production steps without regard for traditional skills, there was potential for conflict with the workforce. And from the moment he concluded that upstream departments should do precisely what the next department downstream requested precisely when it requested it, the life and work of managers all along the value stream was permanently changed.
As it happened, Ohno’s productivity campaign collided with a collapse in sales in 1949. Even as the number of workers needed to produce a given volume of vehicles was falling rapidly, sales plummeted in the depression brought on by the “Dodge Line” introduced by the American Occupation to break the back of inflation. Toyota, unlike Showa years later, had insufficient financial reserves to survive while keeping all its workers on the payroll, and faced a desperate crisis. What was more, many first-line workers and their direct managers (who were in the same union) found Ohno’s new approach to manufacturing highly upsetting. The traditional skill trades—welders and machinists—and many support skills—like quality checking and machine maintenance—were threatened with elimination by the new methods and managers found the extreme synchronization of the production process, with ever-declining buffers, to be very demanding.
Early in 1950, the crisis came to a head when Toyota announced it would terminate 2,146 employees, a third of its workforce. The remainder of the workforce went on strike for two months until President Kiichiro Toyoda agreed to take responsibility for management’s failure to protect the work-force and leave the company. But Toyoda’s ouster had no effect on the adoption of lean techniques. Ohno stayed and the new agreement between Toyota and its union made clear that Ohno’s working methods would become the norm. In return for flexibility in working practices, this agreement guaranteed the jobs of the remaining workers for life and promised that no one would be laid off in the future due to process improvements .
The Slow March Through Toyota
Fortuitously for Toyota, the end of the strike in June 1950 was exactly coincident with the outbreak of the Korean War. Suddenly, Toyota had a full order book making trucks for the American army in Korea and the financial crisis was past. Still, no Toyota executive wanted ever again to face the trauma of layoffs, so the problem immediately became how to increase production without significantly increasing headcount. This was exactly what Ohno knew how to do.
However, Ohno taught through hands-on demonstrations to his direct reports, and his ideas were often counterintuitive and difficult to accept unless you tried them yourself. (This is still true today, as we have seen repeatedly.) As a result, most managers and line workers not under Ohno’s direct supervision remained skeptical about his “reverse common sense,” which no one else in the world was pursuing, and the diffusion of the Toyota Production System was surprisingly slow within Toyota.
It was only when Ohno was promoted to general manager of engines, transmissions, and assembly in 1953 that these steps were fully synchronized and such techniques as the andon line-stop system were transferred from their first implementation in the engine shop (in 1950) to the final assembly line. And it was only when he took over the new Motomachi plant in 1960 that Toyota attempted to get its outside suppliers to deliver Just-in-Time. Indeed, right up until his retirement in 1978, the progression of the Toyota Production System within Toyota was linked directly to Ohno’s career. He not only invented much of the “knowledge” but was also the relentless “change agent,” two of the three roles which we have found essential in every successful firm we have studied. (The third role, the force of continuity, was played by President Eiji Toyoda—Kiichiro’s cousin—who steadily backed Ohno, surely one of the world’s most demanding and difficult personalities, in his run-ins with other Toyota executives.)
The Parallel Revolutions
The invention and perfection of the Toyota Production System was a staggering achievement, but at the same time Ohno was rethinking the factory in the late 1940s, President Kiichiro Toyoda was putting in place the shusa product development system, the Toyota supplier group, and the Toyota distribution and sales system, each of which complemented the new logic of physical production.
Because Toyota was determined not to build foreign manufacturers’ cars on license (as all other Japanese car companies did until well into the 1950s), it needed a superior product development system with strong leadership. Kenya Nakamura was therefore chosen as the first truly strong chief engineer (or shusa ) for Toyota’s first postwar, “clean sheet” car, the critical Crown model set for launch in 1955. Nakamura and the three other chief engineers selected when the Chief Engineer’s Office was established in 1953 were forceful personalities who built strong teams of helpers and guided their designs rapidly through a firm with relatively weak technical functions. 3 The overwhelming success of the Crown in the Japanese market and Toyota’s decision to adopt a short, four-year model replacement cycle created a special role for Toyota’s shusa which served the company well for a generation.
The crisis of 1950 had another effect on Toyota because its banks partly blamed the crisis on overproduction due to optimistic forecasts by the Sales Department. They demanded the creation of an independent company (called Toyota Motor Sales) starting in July of 1950 that would buy all of the Toyota Motor Company’s output and distribute it to customers. In theory, Toyota Motor Sales would resist overproduction because the inventory would be carried on its books. The bankers’ theory was dubious (be-cause Toyota Motor Company controlled Toyota Motor Sal
es), but the arrangement did give the brilliant Shotaro Kamiya (TMS’s president for twenty-five years) more room to maneuver in perfecting his “customers for life” selling system and to think very hard about how to shorten the order cycle to a point very near the day of manufacture so unwanted cars would not be built.
At the same time the shusa product development system and level selling were being introduced, Toyota made a dramatic departure from conventional industrial practice on vertical integration. Beginning with the creation of Nippondenso, Aisin Seiki, and Toyoda Gosei as independent companies in 1949, Toyota rapidly deintegrated itself. By taking former internal departments and turning them into independent but affiliated businesses, Toyota reduced the value it added to the average vehicle within its narrow corporate boundaries from about 75 percent in 1937 to 25 percent by the late 1950s. Even 50 percent of final assembly was contracted out.
The reasons this radical policy was pursued are difficult to establish with precision. The initial spin-off of Nippondenso, Aisin Seiki, and Toyoda Gosei may have been encouraged by the American Occupation, which objected to concentrated industrial holdings. (Toyota’s industrial group was designated in September of 1947 as an unacceptable industrial concentration to be disbanded within a few years, but this mandate was never enforced.) However, the continuing process of de-integration of Toyota, even after the Occupation abandoned its deconstruction campaign, and the later de- integration of Nippondenso and the other “first-tier” suppliers, was apparently caused by the desire of Toyota managers to spread risks and to gain the advantages of a lower wage base for subcontracted parts.
Whatever the reason, it seems unlikely that Kiichiro Toyoda fully anticipated the brilliant effect of the group structure, which was to create permanent relationships between firms whose wages and executive compensation depended on their individual performance rather than on the performance of the whole group. The methods of interaction devised for dealing with the closely affiliated companies were later applied to all 190 members of the Toyota supplier association, creating a totally different style of supplier relations from any seen before.
Lean Thinking Page 28