Creating the Manufacturing System That Changed the World

In the 1950s, Ohno returned to the place he understood best, the shop floor, and went to work to change the rules of the game. He did not have a big consulting firm, Post-it® notes, or PowerPoint to reinvent his business processes. He could not install an ERP system or use the Internet to make information move at the speed of light. But he was armed with his shop-floor knowledge, dedicated engineers, managers, and workers who would give their all to help the company succeed. With this he began his many “hands-on” journeys through Toyota’s few factories, applying the principles of jidoka and one-piece flow. Over years and then decades of practice, he had come up with the new Toyota Production System. Of course, Ohno and his team did not do this alone.

Along with the lessons of Henry Ford, TPS borrowed many of its ideas from the U.S. One very important idea was the concept of the “pull system,” which was inspired by American supermarkets. In any well-run supermarket, individual items are replenished as each item begins to run low on the shelf. That is, material replenishment is initiated by consumption. Applied to a shop floor, it means that Step 1 in a process shouldn’t make (replenish) its parts until the next process after it (Step 2) uses up its original supply of parts from Step 1 (that is down to a small amount of “safety stock”). In TPS, when Step 2 is down to a small amount of safety stock, this triggers a signal to Step 1 asking it for more parts.

This is similar to what happens when you fill the gas tank in your car. As in “Step 2,” your car signals a need for more fuel when the gauge tells you that fuel is low. Then you go to the gas station, Step 1, to refill. It would be foolish to fill your gas tank when you’re not low on gas, but the equivalent of this—overproduction—happens all the time in mass production. At Toyota every step of every manufacturing process has the equivalent of a “gas gauge” built in, (called kanban), to signal to the previous step when its parts need to be replenished. This creates “pull” which continues cascading backwards to the beginning of the manufacturing cycle. In contrast, most businesses use processes that are filled with waste, because work in Step 1 is performed in large batches before it is needed by Step 2. This “work in process” must then be stored and tracked and maintained until needed by step 2—a waste of many resources. Without this pull system, just-in-time (JIT), one of the two pillars of TPS (the other is jidoka, built-in quality), would never have evolved.

JIT is a set of principles, tools, and techniques that allows a company to produce and deliver products in small quantities, with short lead times, to meet specific customer needs. Simply put, JIT delivers the right items at the right time in the right amounts. The power of JIT is that it allows you to be responsive to the day-by-day shifts in customer demand, which was exactly what Toyota needed all along.

Toyota also took to heart the teachings of the American quality pioneer, W. Edwards Deming. He gave U.S. quality and productivity seminars in Japan and taught that, in a typical business system, meeting and exceeding the customers’ requirements is the task of everyone within an organization. And he dramatically broadened the definition of “customer” to include both internal and external customers. Each person or step in a production line or business process was to be treated as a “customer” and to be supplied with exactly what was needed, at the exact time needed. This was the origin of Deming’s principle, “the next process is the customer.” The Japanese phrase for this, atokotei wa o-kyakusama, became one of the most significant expressions in JIT, because in a pull system it means the preceding process must always do what the subsequent process says. Otherwise JIT won’t work.

Deming also encouraged the Japanese to adopt a systematic approach to problem solving, which later became known as the Deming Cycle or Plan-Do-Check-Act (PDCA) Cycle, a cornerstone of continuous improvement. The Japanese term for continuous improvement is kaizen and is the process of making incremental improvements, no matter how small, and achieving the lean goal of eliminating all waste that adds cost without adding to value. Kaizen teaches individuals skills for working effectively in small groups, solving problems, documenting and improving processes, collecting and analyzing data, and self-managing within a peer group. It pushes the decision making (or proposal making) down to the workers and requires open discussion and a group consensus before implementing any decisions. Kaizen is a total philosophy that strives for perfection and sustains TPS on a daily basis.

When Ohno and his team emerged from the shop floor with a new manufacturing system, it wasn’t just for one company in a particular market and culture. What they had created was a new paradigm in manufacturing or service delivery—a new way of seeing, understanding, and interpreting what is happening in a production process, that could propel them beyond the mass production system.

By the 1960s, TPS was a powerful philosophy that all types of businesses and processes could learn to use, but this would take a while. Toyota did take the first steps to spread “lean” by diligently teaching the principles of TPS to their key suppliers. This moved its isolated lean manufacturing plants toward a total lean extended enterprise—when everyone in the supply chain is practicing the same TPS principles. A powerful business model indeed! Still, the power of TPS was mostly unknown outside of Toyota and its affiliated suppliers until the first oil shock of 1973 that sent the world into a global recession, with Japan among the hardest hit. Japanese industry went into a tailspin and the name of the game was survival. But the Japanese government began to notice when Toyota went into the red for less time than other companies and came back to profitability faster. The Japanese government took the initiative to launch seminars on TPS, even though it understood only a fraction of what made Toyota tick.

In the early ’80s when I visited Japan, it was my experience that as you moved out of Toyota City and Toyota’s group of affiliates to other Japanese companies, the application of TPS principles quickly became watered down and weakened. It would still be a while before the world would understand the Toyota Way and the new paradigm of manufacturing.

Part of the problem was that mass production after World War II focused on cost, cost, cost. “Make bigger machines and through economies of scale drive down cost.” “Automate to replace people if it can be cost justified.” This kind of thinking ruled the manufacturing world until the 1980s. Then the business world got the quality religion from Deming, Joseph Juran, Kaoru Ishikawa, and other quality gurus. It learned that focusing on quality actually reduced cost more than focusing only on cost. Finally, in the 1990s, through the work of MIT’s Auto Industry Program and the bestseller based on its research, The Machine That Changed the World (Womack, Jones, Roos, 1991), the world manufacturing community discovered “lean production”—the authors’ term for what Toyota had learned decades earlier through focusing on speed in the supply chain: shortening lead time by eliminating waste in each step of a process leads to best quality and lowest cost, while improving safety and morale.