In simplest terms, this book tells the story of mass versus lean and shows why lean is superior. It tells not only why Toyota won but how any organization embracing the complete system of lean production can also win.
We concluded that the auto industries of North America and Europe were relying on techniques little changed from Henry Ford’s mass-production system and that these techniques were simply not competitive with a new set of ideas pioneered by the Japanese companies, methods for which we did not even have a name. As the Japanese companies gained market share, they were encountering more and more political resistance. At the same time, the Western companies didn’t seem to be able to learn from their Japanese competitors. Instead, they were focusing their energies on erecting trade barriers and other competitive impediments, which we thought simply delayed dealing with the real issue. When the next economic downturn came, we feared that North America and Europe would seal themselves off from the Japanese threat and, in the process, reject the opportunity for the prosperity and more rewarding work that these new techniques offer.
First, we had to examine the entire set of tasks necessary to manufacture a car or truck: market assessment, product design, detailed engineering, coordination of the supply chain, operation of individual factories, and sales and service of the finished product. We knew that many efforts to understand this industry had failed because they never looked further than the factory, an important element in the system to be sure, but only a small part of the total.
Forty years ago Peter Drucker dubbed it “the industry of industries.” Today, automobile manufacturing is still the world’s largest manufacturing activity, with nearly 50 million new vehicles produced each year.
The craft producer uses highly skilled workers and simple but flexible tools to make exactly what the consumer asks for-one item at a time. Custom furniture, works of decorative art, and a few exotic sports cars provide current-day examples. We all love the idea of craft production, but the problem with it is obvious: Goods produced by the craft method—as automobiles once were exclusively-cost too much for most of us to afford. So mass production was developed at the beginning of the twentieth century as an alternative.
Because the machinery costs so much and is so intolerant of disruption, the mass producer adds many buffers— extra supplies, extra workers, and extra space-to assure smooth production. Because changing over to a new product costs even more, the mass producer keeps standard designs in production for as long as possible. The result: The consumer gets lower costs but at the expense of variety and by means of work methods that most employees find boring and dispiriting.
The lean producer, by contrast, combines the advantages of craft and mass production, while avoiding the high cost of the former and the rigidity of the latter. Toward this end, lean producers employ teams of multi-skilled workers at all levels of the organization and use highly flexible, increasingly automated machines to produce volumes of products in enormous variety.
One of our most basic assumptions in the age of mass production-that cost per unit falls dramatically as production volume increases-was simply not true for craft-based P&L. If the company had tried to make 200,000 identical cars each year, the cost per car probably wouldn’t have dipped much below the cost per car of making ten.
What’s more, P&L could never have made two-much less 200,000-identical cars, even if these were built to the same blueprints. The reasons? P&L contractors didn’t use a standard gauging system, and the machine tools of the 1890s couldn’t cut hardened steel.
Instead, different contractors, using slightly different gauges, made the parts. They then ran the parts through an oven to harden their surfaces enough to withstand heavy use. However, the parts frequently warped in the oven and needed further machining to regain their original shape.
When these parts eventually arrived at P&L’s final assembly hall, their specifications could best be described as approximate. The job of the skilled fitters in the hall was to take the first two parts and file them down until they fit together perfectly.
Because P&L couldn’t mass-produce identical cars, it didn’t try. Instead, it concentrated on tailoring each product to the precise desires of individual buyers.
It also emphasized its cars’ performance and their hand-fitted craftsmanship in which the gaps between individual parts were nearly invisible.
To the consumers Panhard was trying to woo, this pitch made perfect sense. These wealthy customers employed chauffeurs and mechanics on their personal staffs. Cost, driving ease, and simple maintenance weren’t their primary concerns. Speed and customization were.
In sum, craft production had the following characteristics:
- A workforce that was highly skilled in design, machine operations, and fitting. Most workers progressed through an apprenticeship to a full set of craft skills. Many could hope to run their own machine shops, becoming self-employed contractors to assembler firms.
- Organizations that were extremely decentralized, although concentrated within a single city. Most parts and much of the vehicle’s design came from small machine shops. The system was coordinated by an owner/entrepreneur in direct contact with everyone involved-customers, employers, and suppliers.
- The use of general-purpose machine tools to perform drilling, grinding, and other operations on metal and wood.
- A very low production volume—1,000 or fewer automobiles a year, only a few of which (fifty or fewer) were built to the same design. And even among those fifty, no two were exactly alike since craft techniques inherently produced variations.
Hundreds of companies in Western Europe and North America were turning out autos in small volumes using craft techniques.
Nostalgists see Panhard and its competitors as the golden age of auto production: Craftsmanship counted and companies gave their full attention to individual consumers. Moreover, proud craft workers honed their skills and many became independent shop owners.
That’s all true, but the drawbacks of craft production are equally obvious in hindsight. Production costs were high and didn’t drop with volume, which meant that only the rich could afford cars. In addition, because each car produced was, in effect, a prototype, consistency and reliability were elusive. (This, by the way, is the same problem that plagues satellites and the U.S. space shuttle, today’s most prominent craft products.)
Car owners like Evelyn Ellis, or their chauffeurs and mechanics, had to provide their own on-the-road testing. In other words, the system failed to provide product quality-in the form of reliability and durability rather than lots of leather or walnut-because of the lack of systematic testing.
Individual craftsmen simply did not have the resources to pursue fundamental innovations; real technological advance would have required systematic research rather than just tinkering. Add these limitations together and it is clear, in retrospect, that the industry was reaching a plateau when Henry Ford came along.
Ford’s new techniques would reduce costs dramatically while increasing product quality. Ford called his innovative system mass production.
The key to mass production wasn’t-as many people then and now believe-the moving, or continuous, assembly line. Rather, it was the complete and consistent interchangeability of parts and the simplicity of attaching them to each other. These were the manufacturing innovations that made the assembly line possible.
To achieve interchangeability, Ford insisted that the same gauging system be used for every part all the way through the entire manufacturing process. His insistence on working-to-gauge throughout was driven by his realization of the payoff he would get in the form of savings on assembly costs.
Taken together, interchangeability, simplicity, and ease of attachment gave Ford tremendous advantages over his competition. For one, he could eliminate the skilled fitters who had always formed the bulk of every assembler’s labor force.
Then, around 1908, when Ford finally achieved perfect part interchangeability, he decided that the assembler would perform only a single task and move from vehicle to vehicle around the assembly hall. By August of 1913, just before the moving assembly line was introduced, the task cycle for the average Ford assembler had been reduced from 514 to 2.3 minutes.
Ford not only perfected the interchangeable part, he perfected the interchangeable worker. By 1915, when the assembly lines at Highland Park were fully installed and output reached capacity, assembly workers numbered more than 7,000. Most were recent arrivals to Detroit, often coming directly from the farm. Many more were new to the United States.
History could have gone the Americans’ way if fuel prices had continued to fall—as they did for a generation, up until 1973-and if Americans had continued to demand cars that isolated them from their driving environment. However, energy prices soared and younger Americans, particularly those with money, wanted something fun to drive. Detroit’s problem was that its “hang-on” features, such as air conditioning and stereos, could easily be added to existing European cars. But it would take a total redesign of the American vehicles and new production tools to introduce more space-efficient bodies, more responsive suspensions, and more fuel-efficient engines.
After protracted negotiations, the family and the union worked out a compromise that today remains the formula for labor relations in the Japanese auto industry. A quarter of the workforce was terminated as originally proposed. But Kiichiro Toyoda resigned as president to take responsibility for the company’s failure, and the remaining employees received two guarantees. One was for lifetime employment; the other was for pay steeply graded by seniority rather than by specific job function and tied to company profitability through bonus payments.
In short, they became members of the Toyota community, with a full set of rights, including the guarantee of lifetime employment and access to Toyota facilities (housing, recreation, and so forth), that went far beyond what most unions had been able to negotiate for mass-production employees in the West. In return, the company expected that most employees would remain with Toyota for their working lives.
The wage progression was quite steep. A forty-year-old worker doing a given job received much higher pay than a twenty-five-year-old doing the same job. If the forty-year-old quit and went to work for another employer, he would start with a zero seniority wage that was below that of even the twenty-five-year-old.
In some Western plants, management actually told assembly workers that they were needed only because automation could not yet replace them.
Not surprisingly, as Ohno began to experiment with these ideas, his production line stopped all the time, and the workers easily became discouraged. However, as the work teams gained experience identifying and tracing problems to their ultimate cause, the number of errors began to drop dramatically. Today, in Toyota plants, where every worker can stop the line, yields approach 100 percent. That is, the line practically never stops! (In mass-production plants by contrast, where no one but the line manager can stop the line, the line still stops constantly. This is not to rectify mistakes — these are fixed at the end — but to deal with material supply and coordination problems. The consequence is that 90 percent yield is often taken as a sign of good management.)
Even more striking was what happened at the end of the line. As Ohno’s system hit its stride, the amount of rework needed before shipment fell continually. Not only that, the quality of the shipped cars steadily improved. This was for the simple reason that quality inspection, no matter how diligent, simply cannot detect all the defects that can be assembled into today’s complex vehicles.
Today, Toyota assembly plants have practically no rework areas and perform almost no rework.
In both cases, corporate managers and small-business owners alike understood that it was every firm for itself when sales declined in the cyclical auto industry. Everyone thought of their business relationships as characteristically short-term.
Organizing suppliers in vertical chains and playing them against each other in search of the lowest short-term cost blocked the flow of information horizontally between suppliers, particularly on advances in manufacturing techniques. The assembler might ensure that suppliers had low profit margins, but not that they steadily decreased the cost of production through improved organization and process innovations.
The same was true of quality. Because the assembler really knew very little about its suppliers’ manufacturing techniques-whether the supplier in question was inside the assembler firm or independent—it was hard to improve quality except by establishing a maximum acceptable level of defects. As long as most firms in the industry produced to about the same level of quality, it was difficult to raise that level.
Toyota did not wish to vertically integrate its suppliers into a single, large bureaucracy. Neither did it wish to deintegrate them into completely independent companies with only a marketplace relationship. Instead, Toyota spun its in-house supply operations off into quasi-independent first-tier supplier companies in which Toyota retained a fraction of the equity and developed similar relationships with other suppliers who had been completely independent. As the process proceeded, Toyota’s first-tier suppliers acquired much of the rest of the equity in each other.
Toyota often acts as banker for its supplier group, providing loans to finance the process machinery required for a new product.
Finally, Toyota shared personnel with its supplier-group firms in two ways. It would lend them personnel to deal with workload surges, and it would transfer senior managers not in line for top positions at Toyota to senior positions in supplier firms.
This simple idea was enormously difficult to implement in practice because it eliminated practically all inventories and meant that when one small part of the vast production system failed, the whole system came to a stop. In Ohno’s view, this was precisely the power of his idea-it removed all safety nets and focused every member of the vast production process on anticipating problems before they became serious enough to stop everything.
It took Eiji Toyoda and Ohno more than twenty years of relentless effort to fully implement this full set of ideas-including just-in-time-within the Toyota supply chain. In the end they succeeded, with extraordinary consequences for productivity, product quality, and responsiveness to changing market demand.
Ohno and Toyoda, by contrast, decided early on that product engineering inherently encompassed both process and industrial engineering. Thus, they formed teams with strong leaders that contained all the relevant expertise. Career paths were structured so that rewards went to strong team players rather than to those displaying genius in a single area of product, process, or industrial engineering, but without regard to their function as a team.
Ironically, most Western companies concluded that the Japanese succeeded because they produced standardized products in ultra-high volume. As recently as 1987 a manufacturing manager in Detroit confided in an interview with members of our project that he had found the secret of Japanese success: “They are making identical tin cans; if I did that I could have high quality and low cost, too.” This illusion stems from the fact that the Japanese companies initially minimized distribution costs by focusing on one or two product categories in each export market.
However, the total product portfolio of the Japanese firms has always been broader, and they have steadily increased their product range in every world market.
The general public has a simple and vivid mental image of auto production—the assembly plant where all the parts come together to create the finished car or truck. While this final manufacturing step is important, it represents only about 15 percent of the human effort involved in making a car. To properly understand lean production, we must look at every step in the process, beginning with product design and engineering, then going far beyond the factory to the customer who relies on the automobile for daily living. In addition, it is critical to understand the mechanism of coordination necessary to bring all these steps into harmony and on a global scale, a mechanism we call the lean enterprise.
At Takaoka, every worker can stop the line but the line is almost never stopped, because problems are solved in advance and the same problem never occurs twice. Clearly, paying relentless attention to preventing defects has removed most of the reasons for the line to stop.The Machine That Changed the World
In simplest terms, this book tells the story of mass versus lean and shows why lean is superior. It tells not only why Toyota won but how any organization embracing the complete system of lean production can also win.
We concluded that the auto industries of North America and Europe were relying on techniques little changed from Henry Ford’s mass-production system and that these techniques were simply not competitive with a new set of ideas pioneered by the Japanese companies, methods for which we did not even have a name. As the Japanese companies gained market share, they were encountering more and more political resistance. At the same time, the Western companies didn’t seem to be able to learn from their Japanese competitors. Instead, they were focusing their energies on erecting trade barriers and other competitive impediments, which we thought simply delayed dealing with the real issue. When the next economic downturn came, we feared that North America and Europe would seal themselves off from the Japanese threat and, in the process, reject the opportunity for the prosperity and more rewarding work that these new techniques offer.
First, we had to examine the entire set of tasks necessary to manufacture a car or truck: market assessment, product design, detailed engineering, coordination of the supply chain, operation of individual factories, and sales and service of the finished product. We knew that many efforts to understand this industry had failed because they never looked further than the factory, an important element in the system to be sure, but only a small part of the total.
Forty years ago Peter Drucker dubbed it “the industry of industries.” Today, automobile manufacturing is still the world’s largest manufacturing activity, with nearly 50 million new vehicles produced each year.
The craft producer uses highly skilled workers and simple but flexible tools to make exactly what the consumer asks for-one item at a time. Custom furniture, works of decorative art, and a few exotic sports cars provide current-day examples. We all love the idea of craft production, but the problem with it is obvious: Goods produced by the craft method—as automobiles once were exclusively-cost too much for most of us to afford. So mass production was developed at the beginning of the twentieth century as an alternative.
Because the machinery costs so much and is so intolerant of disruption, the mass producer adds many buffers— extra supplies, extra workers, and extra space-to assure smooth production. Because changing over to a new product costs even more, the mass producer keeps standard designs in production for as long as possible. The result: The consumer gets lower costs but at the expense of variety and by means of work methods that most employees find boring and dispiriting.
The lean producer, by contrast, combines the advantages of craft and mass production, while avoiding the high cost of the former and the rigidity of the latter. Toward this end, lean producers employ teams of multi-skilled workers at all levels of the organization and use highly flexible, increasingly automated machines to produce volumes of products in enormous variety.
One of our most basic assumptions in the age of mass production-that cost per unit falls dramatically as production volume increases-was simply not true for craft-based P&L. If the company had tried to make 200,000 identical cars each year, the cost per car probably wouldn’t have dipped much below the cost per car of making ten.
What’s more, P&L could never have made two-much less 200,000-identical cars, even if these were built to the same blueprints. The reasons? P&L contractors didn’t use a standard gauging system, and the machine tools of the 1890s couldn’t cut hardened steel.
Instead, different contractors, using slightly different gauges, made the parts. They then ran the parts through an oven to harden their surfaces enough to withstand heavy use. However, the parts frequently warped in the oven and needed further machining to regain their original shape.
When these parts eventually arrived at P&L’s final assembly hall, their specifications could best be described as approximate. The job of the skilled fitters in the hall was to take the first two parts and file them down until they fit together perfectly.
Because P&L couldn’t mass-produce identical cars, it didn’t try. Instead, it concentrated on tailoring each product to the precise desires of individual buyers.
It also emphasized its cars’ performance and their hand-fitted craftsmanship in which the gaps between individual parts were nearly invisible.
To the consumers Panhard was trying to woo, this pitch made perfect sense. These wealthy customers employed chauffeurs and mechanics on their personal staffs. Cost, driving ease, and simple maintenance weren’t their primary concerns. Speed and customization were.
In sum, craft production had the following characteristics:
- A workforce that was highly skilled in design, machine operations, and fitting. Most workers progressed through an apprenticeship to a full set of craft skills. Many could hope to run their own machine shops, becoming self-employed contractors to assembler firms.
- Organizations that were extremely decentralized, although concentrated within a single city. Most parts and much of the vehicle’s design came from small machine shops. The system was coordinated by an owner/entrepreneur in direct contact with everyone involved-customers, employers, and suppliers.
- The use of general-purpose machine tools to perform drilling, grinding, and other operations on metal and wood.
- A very low production volume—1,000 or fewer automobiles a year, only a few of which (fifty or fewer) were built to the same design. And even among those fifty, no two were exactly alike since craft techniques inherently produced variations.
Hundreds of companies in Western Europe and North America were turning out autos in small volumes using craft techniques.
Nostalgists see Panhard and its competitors as the golden age of auto production: Craftsmanship counted and companies gave their full attention to individual consumers. Moreover, proud craft workers honed their skills and many became independent shop owners.
That’s all true, but the drawbacks of craft production are equally obvious in hindsight. Production costs were high and didn’t drop with volume, which meant that only the rich could afford cars. In addition, because each car produced was, in effect, a prototype, consistency and reliability were elusive. (This, by the way, is the same problem that plagues satellites and the U.S. space shuttle, today’s most prominent craft products.)
Car owners like Evelyn Ellis, or their chauffeurs and mechanics, had to provide their own on-the-road testing. In other words, the system failed to provide product quality-in the form of reliability and durability rather than lots of leather or walnut-because of the lack of systematic testing.
Individual craftsmen simply did not have the resources to pursue fundamental innovations; real technological advance would have required systematic research rather than just tinkering. Add these limitations together and it is clear, in retrospect, that the industry was reaching a plateau when Henry Ford came along.
Ford’s new techniques would reduce costs dramatically while increasing product quality. Ford called his innovative system mass production.
The key to mass production wasn’t-as many people then and now believe-the moving, or continuous, assembly line. Rather, it was the complete and consistent interchangeability of parts and the simplicity of attaching them to each other. These were the manufacturing innovations that made the assembly line possible.
To achieve interchangeability, Ford insisted that the same gauging system be used for every part all the way through the entire manufacturing process. His insistence on working-to-gauge throughout was driven by his realization of the payoff he would get in the form of savings on assembly costs.
Taken together, interchangeability, simplicity, and ease of attachment gave Ford tremendous advantages over his competition. For one, he could eliminate the skilled fitters who had always formed the bulk of every assembler’s labor force.
Then, around 1908, when Ford finally achieved perfect part interchangeability, he decided that the assembler would perform only a single task and move from vehicle to vehicle around the assembly hall. By August of 1913, just before the moving assembly line was introduced, the task cycle for the average Ford assembler had been reduced from 514 to 2.3 minutes.
Ford not only perfected the interchangeable part, he perfected the interchangeable worker. By 1915, when the assembly lines at Highland Park were fully installed and output reached capacity, assembly workers numbered more than 7,000. Most were recent arrivals to Detroit, often coming directly from the farm. Many more were new to the United States.
History could have gone the Americans’ way if fuel prices had continued to fall—as they did for a generation, up until 1973-and if Americans had continued to demand cars that isolated them from their driving environment. However, energy prices soared and younger Americans, particularly those with money, wanted something fun to drive. Detroit’s problem was that its “hang-on” features, such as air conditioning and stereos, could easily be added to existing European cars. But it would take a total redesign of the American vehicles and new production tools to introduce more space-efficient bodies, more responsive suspensions, and more fuel-efficient engines.
After protracted negotiations, the family and the union worked out a compromise that today remains the formula for labor relations in the Japanese auto industry. A quarter of the workforce was terminated as originally proposed. But Kiichiro Toyoda resigned as president to take responsibility for the company’s failure, and the remaining employees received two guarantees. One was for lifetime employment; the other was for pay steeply graded by seniority rather than by specific job function and tied to company profitability through bonus payments.
In short, they became members of the Toyota community, with a full set of rights, including the guarantee of lifetime employment and access to Toyota facilities (housing, recreation, and so forth), that went far beyond what most unions had been able to negotiate for mass-production employees in the West. In return, the company expected that most employees would remain with Toyota for their working lives.
The wage progression was quite steep. A forty-year-old worker doing a given job received much higher pay than a twenty-five-year-old doing the same job. If the forty-year-old quit and went to work for another employer, he would start with a zero seniority wage that was below that of even the twenty-five-year-old.
In some Western plants, management actually told assembly workers that they were needed only because automation could not yet replace them.
Not surprisingly, as Ohno began to experiment with these ideas, his production line stopped all the time, and the workers easily became discouraged. However, as the work teams gained experience identifying and tracing problems to their ultimate cause, the number of errors began to drop dramatically. Today, in Toyota plants, where every worker can stop the line, yields approach 100 percent. That is, the line practically never stops! (In mass-production plants by contrast, where no one but the line manager can stop the line, the line still stops constantly. This is not to rectify mistakes — these are fixed at the end — but to deal with material supply and coordination problems. The consequence is that 90 percent yield is often taken as a sign of good management.)
Even more striking was what happened at the end of the line. As Ohno’s system hit its stride, the amount of rework needed before shipment fell continually. Not only that, the quality of the shipped cars steadily improved. This was for the simple reason that quality inspection, no matter how diligent, simply cannot detect all the defects that can be assembled into today’s complex vehicles.
Today, Toyota assembly plants have practically no rework areas and perform almost no rework.
In both cases, corporate managers and small-business owners alike understood that it was every firm for itself when sales declined in the cyclical auto industry. Everyone thought of their business relationships as characteristically short-term.
Organizing suppliers in vertical chains and playing them against each other in search of the lowest short-term cost blocked the flow of information horizontally between suppliers, particularly on advances in manufacturing techniques. The assembler might ensure that suppliers had low profit margins, but not that they steadily decreased the cost of production through improved organization and process innovations.
The same was true of quality. Because the assembler really knew very little about its suppliers’ manufacturing techniques-whether the supplier in question was inside the assembler firm or independent—it was hard to improve quality except by establishing a maximum acceptable level of defects. As long as most firms in the industry produced to about the same level of quality, it was difficult to raise that level.
Toyota did not wish to vertically integrate its suppliers into a single, large bureaucracy. Neither did it wish to deintegrate them into completely independent companies with only a marketplace relationship. Instead, Toyota spun its in-house supply operations off into quasi-independent first-tier supplier companies in which Toyota retained a fraction of the equity and developed similar relationships with other suppliers who had been completely independent. As the process proceeded, Toyota’s first-tier suppliers acquired much of the rest of the equity in each other.
Toyota often acts as banker for its supplier group, providing loans to finance the process machinery required for a new product.
Finally, Toyota shared personnel with its supplier-group firms in two ways. It would lend them personnel to deal with workload surges, and it would transfer senior managers not in line for top positions at Toyota to senior positions in supplier firms.
This simple idea was enormously difficult to implement in practice because it eliminated practically all inventories and meant that when one small part of the vast production system failed, the whole system came to a stop. In Ohno’s view, this was precisely the power of his idea-it removed all safety nets and focused every member of the vast production process on anticipating problems before they became serious enough to stop everything.
It took Eiji Toyoda and Ohno more than twenty years of relentless effort to fully implement this full set of ideas-including just-in-time-within the Toyota supply chain. In the end they succeeded, with extraordinary consequences for productivity, product quality, and responsiveness to changing market demand.
Ohno and Toyoda, by contrast, decided early on that product engineering inherently encompassed both process and industrial engineering. Thus, they formed teams with strong leaders that contained all the relevant expertise. Career paths were structured so that rewards went to strong team players rather than to those displaying genius in a single area of product, process, or industrial engineering, but without regard to their function as a team.
Ironically, most Western companies concluded that the Japanese succeeded because they produced standardized products in ultra-high volume. As recently as 1987 a manufacturing manager in Detroit confided in an interview with members of our project that he had found the secret of Japanese success: “They are making identical tin cans; if I did that I could have high quality and low cost, too.” This illusion stems from the fact that the Japanese companies initially minimized distribution costs by focusing on one or two product categories in each export market.
However, the total product portfolio of the Japanese firms has always been broader, and they have steadily increased their product range in every world market.
The general public has a simple and vivid mental image of auto production—the assembly plant where all the parts come together to create the finished car or truck. While this final manufacturing step is important, it represents only about 15 percent of the human effort involved in making a car. To properly understand lean production, we must look at every step in the process, beginning with product design and engineering, then going far beyond the factory to the customer who relies on the automobile for daily living. In addition, it is critical to understand the mechanism of coordination necessary to bring all these steps into harmony and on a global scale, a mechanism we call the lean enterprise.
At Takaoka, every worker can stop the line but the line is almost never stopped, because problems are solved in advance and the same problem never occurs twice. Clearly, paying relentless attention to preventing defects has removed most of the reasons for the line to stop.