The Development of the Toyota Production System (TPS)

Toyota Motor Corporation struggled through the 1930s, primarily making simple trucks. In the early years, the company produced poor-quality vehicles with primitive technology (e.g., hammering body panels over logs) and had little success. In the 1930s, Toyota’s leaders visited Ford and GM to study their assembly lines and carefully read Henry Ford’s articles, Today and Tomorrow (1926). They tested the conveyor system, precision machine tools, and the economies of scale idea in their loom production. Even before WWII, Toyota realized that the Japanese market was too small and demand too fragmented to support the high production volumes in the U.S. (A U.S. auto line might produce 9,000 units per month, while Toyota would produce only about 900 units per month, and Ford was about 10 times as productive.) Toyota managers knew that if they were to survive in the long run they would have to adapt the mass production approach for the Japanese market. But how?

Now jump ahead to Toyota’s situation after World War II, in 1950. It had a budding automotive business. The country had been decimated by two atom bombs, most industries had been destroyed, the supply base was nil, and consumers had little money. Imagine being the plant manager, Taiichi Ohno. Your boss, Eiji Toyoda, has returned from another tour of U.S. plants, including the Ford’s River Rouge complex, and he calls you into his office. He calmly hands you a new assignment. (Don’t all bosses come back from trips with assignments?) The assignment is to improve Toyota’s manufacturing process so that it equals the productivity of Ford. It makes you wonder what Toyoda could have been thinking. Based on the mass production paradigm of the day, economies of scale alone should have made this an impossible feat for tiny Toyota. This was David trying to take on Goliath.

Ford’s mass production system was designed to make huge quantities of a limited number of models. This is why all Model T’s were originally black. In contrast, Toyota needed to churn out low volumes of different models using the same assembly line, because consumer demand in their auto market was too low to support dedicated assembly lines for one vehicle. Ford had tons of cash and a large U.S. and international market. Toyota had no cash and operated in a small country. With few resources and capital, Toyota needed to turn cash around quickly (from receiving the order to getting paid). Ford had a complete supply system, Toyota did not. Toyota didn’t have the luxury of taking cover under high volume and economies of scale afforded by Ford’s mass production system. It needed to adapt Ford’s manufacturing process to achieve simultaneously high quality, low cost, short lead times, and flexibility.