Lean Thinking p304 - end

Lean Thinking

P302 - end

- gambles on product technology are unnecessary as long as the company can quickly match any successful innovation by more daring competitors. Toyota can quickly copy the products others pioneer and win decisively because it continues to pioneer brilliant processes its competitors have taken halting steps to copy.
- may of the most effective change agents succeed in the long term because there is someone behind them putting a rigorous system of lean processes in place, someone who can take over and push improvement continuously ahead when the change agent leaves or moves on to other issues
- for firms with access to a master sensei, invest early in systematically writing down the knowledge of the sensei and inquire about the big picture before too many process kaizen events are lined up. [the sensei has a detailed master plan of how all the parts will eventually fit together to create a complete lean production system, not usually revealed at the outset. Initially the most valuable aspect of the sensei’s exercises is the raised consciousness of the managers involved in the change process and their enthusiasm for tackling other problems using the knowledge they are slowly acquiring.]
Map your Value Stream
- The objective in each case is to write down all of the steps in the process as it currently operates to define what we call the Current State. For each step we urge managers to ask a set of very simple questions. Dows the step create value for the customers? Is the step capable? (Does it produce a good result every time?) Is it available? (Can it produce the desired output, not just the desired quality, every time?) Is it flexible? (Can it be changed over quickly from one product to the next so that items can be produced in small lost or even lots of 1?) Is capacity for the step adequate so the product doesn’t need to wait on the process? Or is there too much capacity (due to designing equipment in large increments of capacity based on demand forecasts that are often wrong?)
- Steps not creating value should be eliminated; steps that are incapable, unavailable, inflexible, inadequate and under or over capacitized should be perfected. The relation between the steps is also important. Does the information coming back from the customer flow smoothly without delays? Does the product moving toward the customer flow at the desire of the customer rather than at the push of the producer? Is demand levelled at each stage so small perturbations are smoothed rather than amplified?
- By writing down all the steps as a team, it’s possible for everyone to see the whole value stream under discussion and to agree on its current level of performance

Scan p317

- the current state summarizes the performance of the steps, shows the inventory currently accumulating between them, compares value creating time (very small) with total throughput time (large), and helps managers envision the initial flow kaizen needed to drastically compress the through put time for the product, eliminate wasted steps, and rectify quality, flexibility, availability, and adequacy problems.
- In this case, the specific steps required are to improve the capability (1st time quality), availability (uptime), and flexibility (changeover time) of the 4 weld and assembly steps and to eliminate inventories impeding flow by turning the 4 steps into a cell. Setup times of the stamping press are greatly reduced to permit the production of much smaller batches, further reducing inventories.
- The Material Requirements Planning (MRP) system previously giving production orders to every step in the process is disconnected, replaced by a simple pull system sending kanban signals from the heijunka box (demand levelling device) at precisely paced intervals.

Scan p319

- It is always possible to make further progress by designating the future state, once achieved, as the new current state and beginning the improvement cycle again.

Scan p 320

- to get the attention of self-absorbed functions, it can be helpful to change reporting arrangements and move personnel under a product line manager or team leader, at least for one product generation.
- More mature lean firms get brilliant results from giving the value stream manager complete responsibility for the value stream and the success of the product but hardly any direct reports or traditional authority.
- Instead the value stream manager develops the vision for the product, determine the current state of the value stream and envisions the future state. He treats the functions as the suppliers of the essential inputs (engineering, operations, purchasing, sales, lean knowledge) needed to reach this state. If the function fails to perform, the value stream manager goes directly to the COO or director of the office of value steam managers to describe the problem, get to the root cause and install a fix
- Product line manager overseeing an entire product may work with a number of value stream managers at lower levels taking responsibility for different courses of the value stream. For example, a chief engineer (toyota’s term for a product line manager overseeing an entire automotive platform) works with a development leader in design, a value stream manager in the assembly plant, and value stream managers in each of the component plants working on major items assembled into the finished product. Each manager is essentially doing the same job but with varying scope – wide at the top and narrow at the bottom.
- With mature lean firms, the value stream manager is the critical player in the org. Once the functional departments are enlightened, it is not needed to change the organizational chart and move people onto product teams for each new product family. Instead, the value stream manager explains to the functions what they need to do as his suppliers to ensure the success of the product. And they do it
- Lean promotion function should be created to house the functional expertise from old fashioned industrial engineering, quality, and maintenance departments. Once differing vocabularies and professional rivalries are stripped away, all these experts are in pursuit of the same goal: the perfect process.
- The challenge is to create a dialogue between all experts so the value stream manger gets consistent, quality advice in a single voice.
- The lean promotion office should be small, except for periods when excess employees from line jobs are being redeployed and put to work on short term kaizen projects. It needs only a few experts who are willing to master all the knowledge and methods needed to create perfect value streams and to teach this knowledge, as necessary, to value stream managers and line employees.
- When you’ve fixed something, fix it again.

Policy Deployment
- forces you to make decisions about what is really most important for the organization and what is truly achievable. It also exposes the contradictions between the plans of every unit of the organization as these affect the other units.
- It can only be led by the senior executive
- The actual plans emerging from policy deployment exercises have been found to be good for about 3 months only. Remember a principle: a value creation system must be flexible and responsible because forecasts are always wrong.
- Planning is invaluable but plans are worthless.
- Going through the process forces everyone in the organization to understand the needs and constraints of everyone else and greatly heightens consciousness about the most promising future path even if the specific course of action chosen during the process needs frequent modification.

Scan p328, 330, 331, 332

- locate engineers next to the point of production to gain the many benefits of co-location

Lean Math

Think about the location for producers currently in high cost areas.

- start with the piece part cost of making your product near your current customers in high wage countries
- compare this # with the piece part cost of making the same item at the global point of lowest factor costs, probably dominated by wage costs. (the low factor cost location will almost always offer a much lower piece part cost)
- add the cost of slow freight to get the product to your customer.

This completes the math many purchasing departments seem to perform a.k.a. mass production math.
For lean math add some additional costs to piece part plus slow freight costs to make the calculations more realistic:

- the overhead costs allocated to production in the high wage location, which usually don’t disappear when production is transferred. Instead, they are reallocated to remaining products, raising their apparent cost.
- The cost of the additional inventory of goods in transit over long distances from the low wage location to the customer.
- The cost of additional safety stocks to ensure uninterrupted supply.
- The cost of expensive expedited shipments (you’ll need to be careful here because the plan for the item in question will typically assume that there aren’t any expediting costs, when a bit of casual empiricism will show there almost always are)
- The cost of warranty claims if the new facility or supplier has a long learning curve.
- The cost of engineer visits, or resident engineers at the supplier, to get the process right so the product is made to the correct specification with acceptable quality.
- The cost of senior executive visits to set up the operation or to straighten out relationships with managers and suppliers operating in a different business environment. (this may include all manner or payments and considerations, depending on local business practices)
- The cost of out of stocks and lost sales caused by long lead time to obtain the correct specification of the part if demand changes
- The cost of remaindered goods or of scrapped stocks, ordered to a long range forecast and never actually needed.
- The potential cost, if you are using a contract manufacturer in the low cost location, of your supplier soon becoming your competitor

These additional costs are hardly ever visible to senior executives and purchasing managers who relocate production of an item to a low wage location based simply on piece part price plus slow freight.

3 more costs to complete lean math, which are hard to calculate but sometimes very large:

- currency risks, which can strike quite suddenly when the currency of either the supplying or receiving country shifts
- country risks, which can also emerge very suddenly when the shipping country encounters political instabilities or when there is a political reaction in the receiving country as trade deficits and unemployment emerge as political issues
- connectivity costs of many sorts in managing product handoffs and information flows in highly complex supply chains across long distances in countries with different business practices.

Lean Math typically says products fit into 1 of 3 categories:

- for products where rapid customer response can substantially raise sales and selling prices (probably including the higher end shoes produced by the firm just mentioned), work hard to conduct every step of the production process as near the customer as possible. In many cases, the full application of lean techniques to production steps that are located immediately adjacent – a process we call value steam compression – can produce an acceptable combination of higher revenues and lower costs in a high labour-cost location

- for products that are more price sensitive but where rapid customer response is stell important, to co-locate all steps in the design and production process – that is, complress the value stram including engineering –at a low labour cost site within the region of sale. For US & Canada – Mexico, Western Europe – Eastern Europe. By using trucks, which are fast and cheap, rathe than boats, which are cheap but slow and often require fast but expensive airfreight backup to deal with inaccurate forecasts, it is steill possible to replenish products in 2 or 3 days as they are sold or consumed rather than waiting weeks or maintaining large just in case stocks near the customer.

- Finally, for commoditized products that have a fairly high value to weight ratio and where demand can actually be forecast due to stable sales point, even outside the region of sale. (The best approach is to compress the value stream to conduct as many steps as possible, including engineering, at the low cost point, requiring only a single transport link to move the finished item from the point of design and manufacture to the market of sale.)

- Still bearing in mind currency risks (rapid), country risks (of trade protection in the receiving country and political chaos in the shipping country), and connectivity costs (ranging from air freight expediting to unplanned engineer visits to the other side of the world to deal with quality issues) that are inherent in managing decompressed value streams. When all factors are weighed, the 3rd category is much smaller than most managers currently think.

- depending on the problem, auto mechanics are independent extensions of the failed quality assurance teams (of auto manufacturers)

- use the same method to separate workers, to separate suppliers

- 3 types of attitudes towards lean: All about lean, I’ll wait and see, I won’t change


Chaku-Chaku – load – load
- operator proceeds from machine to machine taking a part from the previous operation and loading it in the next machine, then taking the part just removed from that machine and loading it in the following machine, etcetera
Five S
- Seiri – organization - separate - tools, parts, instruction from unneeded materials and remove the latter
- Seiton – tidiness - sort – neatly arrange and identify parts and tools for ease of use.
- Seiso – purity - conduct a clean up campaign
- Seiketsu – cleanliness - means to conduct the last 3 frequently intervals to maintain a workplace in perfect condition.
- Shitsuke – discipline - form the habit of always following the 1st four S’s

Five Why’s
- asking why 5 times whenever a problem is encountered, to identify the root cause of the problem so effective counter measures can be developed and implemented

Heijunka – production smoothing

Hoshin Kanri – policy deployment – a strategic decision making tools for a firm’s executive team that focuses resources on the critical initiatives necessary to accomplish the business objectives of the firm. By using visual matrix diagrams similar to those employed for quality function deployment, 3 to 5 key objectives are selected while all others are clearly deselected. The selected objectives are translated into specific projects and deployed down to the implementation level in the firm. Hochin kanri unifies and aligns resources and establishes clearly measurable targets against which progress toward the key objectives is measured on a regular basis

Jidoka – autonomation – transferring human intelligence to automated machinery so machines are able to detect the production of a single defective part and immediately stop themselves while asking for help, allowing one operator to over see many machines. With proper use jidoka employees could be performing preventive maintenance and routine housekeeping or tending to logistics.

Kaikaku – radical movement to remove muda

Kaizen – continuous, incremental improvement
Kanban – card regulating pull
Keiretsu – group of firms
Poka-yoke – mistake proofing device/procedure

Seven muda
- overproduction ahead of demand
- waiting for the next processing step
- unnecessary transport of materials
- overprocessing of parts due to poor tool and product design
- inventories more than the absolute minimum
- unnecessary movement by employees during the course of their work (looking for parts, tools, prints, help, etc.)
- production of defective parts.


Ohno’s defect list
- defects (in products)
- overproduction of goods not needed
- inventories of goods awaiting further processing or consumption
- unnecessary processing
- unnecessary movement (of people)
- unnecessary transport (of goods)
- waiting (by employees for process equipment to finish its work or on an upstream activity).

Transparency is used as an alternative to visual control to indicate the need to everyone to see all of the activities occurring along a value stream flowing through many departments, functions, and firms. Visual control carries the connotation of top down control of employees and facilities, which is the antithesis of lean thinking.

Cycle Time – the actual amount of time needed to complete a given task and move it along to the next step in production. All tasks must share the same cycle time to achieve flow. For takt time of 60 seconds, all tasks must be completed in 60 seconds or less.

MRP hides the parameters of batch sizes, throughput times, and capacity managers should be seeking to improve on every day. The internal logic of the production algorithms is so complex it is impossible to tell intuitively and visually that production was off track until a crisis emerged.

Eliminating waste and creating value requires a systematic approach and endless attention to detail.

To make the system itself incapable of crating peaks and troughs in orders unrelated to end customer demand, Toyota has installed a series of filters into each level of the ordering system that allow only those orders to be passed on that correspond to the normal ordering pattern for that dealer or PDC. Orders outside these limits must be explicitly authorized by head quarters before they are accepted, to eliminate both clerical mistakes and panic orders based, for example, on rumours of shortages or of imminent price increases. (a poka-yoke device in the ordering system to filter out noise)

Deploying air and electrical lines from the ceiling every few feet sot that any machine could be moved anywhere on the floor and hooked up immediately.

In a desperate but largely successful effort to sustain buyer interest until new models could be introduced, Porsche began to launch a variant of the 911 every 6 months. This kept Porsche’s name in the auto enthusiast magazines because journalists seemed incapable of resisting the offer to test drive “the new Porsche” even if the newness consisted only of minor modifications such as a Targa top or refined transmission.

Technical descriptions of how to evaluate jobs for fatigue and stress can be found in “On the Development of TVAL (Toyota Verification of Assembly Line) and Its Applications.” Toyota City: Toyota Motor Corporation, 1994
“Development of Assembly Line Verification” Society of Automotive Engineers Technical Paper 940890, 1994.
Both by Yoshinori Eri, Atsushi Nimi
- papers recommended to anyone implementing lean techniques, particularly in factory settings.

Learning to See. Rother & Shook. 1998
How the world has changed since the machine that changed to world. Womack. 2000.
Both Brookline Mass.

The Toyota Production System. Operatons Managemetn Consulting Division and International Public Affairs Division, 1995

Mihaly Csikzentmihaly. Flow: The Psychology of Optimal Experience. 1990.
The Evolving Self: A Psychology for the Third Millennium. 1993. both New York HarperPerennial

Lean Thinking p202 - 302

Lean Thinking

P202 - 302

- Participants in the initial improvement projects must include all of the senior managers as well as the primary workforce.
- Workers may find if difficult of impossible to believe that the problem was inside (Porsche) rather than outside in the marketplace.
- The union only agreed to working with the Japanese consultants if their workers would conduct their own parallel workshop to show that if change was really needed it could perfectly well be achieved by long term employees rather than outsiders (which worked to prove they could not, and later they were to join the consultant led group).
- The first kaikaku was to get rid of the mountains of inventory and the treasure hunting for parts which occupied a substantial fraction of each assembler’s daily effort. Then make the parts flow from receiving to engine assembly to the final assembly plant very rapidly with no stopping, no scrap, and no backflows to fix defects.
- Parts kits for each engine were built up in a kitting area on the floor below and sent to assembly in little carts at exactly the rate engines were being assembled. (The kits were themselves a poka-yoke device because the parts were placed on the cart in their exact assembly sequence. Any part skipped over would be spotted immediately).
- Over a 2 year period, teams gained the experience to join with work teams and conduct activities without outside help. Every work team would conduct a major weeklong improvement project on it s activities every 3 months, in addition to taking immediate action on improvement suggestions from work team members at any time.
- because natural attrition is about 3% per annum, given the age of distribution of Porsche’s workforce, an additional 30% reduction in the workforce can be achieved in the next decade without resort to layoffs if no additional sources of production volume can be found.
- Both workforce and union were initially quite upset at the affront to their competence and their role. The lean msg was the traditional craftsmanship was mostly muda; correction of mistakes which should never have been made, movement to find parts and tools which should be immediately at hand, wasteful motions through a lack of careful analysis of how to do the job, wasted time while watching machines which could be taught to monitor themselves, waiting for missing parts, and inventories everywhere due to batch and queue methods.
- There is a higher form of craft, which is to proactively anticipate problems in a team context and to prevent them while constantly rethinking the organization of work and flow of value to remove muda. The direct worker and the work team subsume many of the traditional activities of ‘management’ while improving activities at a far more rapid rate than management alone ever could.
- They began with those suppliers most receptive to lean thinking. Use the initial success of these firms to encourage the more reluctant suppliers to join in.

Porsche version of the JIT game

- Going to the supplier, they usually insist there’s nothing to improve.
- 5 senior managers take roles in a 4 stage process folding and packing 3 colours of paper boxes.
- 1st person bundles up and delivers quantities of unfolded boxes in 3 colours to the 2 pre-assembly stations. Quantities are in response to a customer order. One pre-assembly station folds the small boxes while the other preassembly station folds the small boxes and both stations secure their boxes with a rubber band. The boxes are then passes ahead to the assembly station where the 4th player opens the large box and places the small box inside. The player writes out a ticket, folds it, places it on top of the small ox and then closes the large box and secures it with a rubber band. The box is then passed to quality control/dispatch where the 5th player opens the large box and checks to see that the ticket is present and properly written. This player signs and stamps the ticket before placing it back on top of the small box. The large box is then closed, secured with a rubber band, and delivered to the customer.
Scan p 209
- Players are told to work at their own pace to produce the 3 colours of box in response to the customer order. Soon every player is trying furiously to complete his tasks, 1st for one colour of box, then for the next. However, a juge mountain of boxes quickly builds up in front of the 4th player, who has a bigger job than the others. In addition, the customer announces that he wants to change his order, to receive first whichever colour of box the team has left till last. This quickly produces even more of a pile up as the wrong colour boxes are pushed to the side so the right colour can get through.
- Team of 5 is then asked what’s wrong and what could be done about it. Answer is always the same: 4th player is the bottleneck so we need to add another worker to the assembly step and build a storage area between steps 2 and 3.
- You then suggest that instead the 5 players should try a pull system by making only 5 boxes at a time and only when asked (pulled) by the next player downstream. To the players amazement, the whole activity proceeds smoothly, with only a tiny buildup of boxes between steps 2 an d3. They then play 2 more rounds, reducing the lot size to 3 and then to 1, eventually achieving perfectly smooth flow and no buildup of boxes at all.
- Next you say the customer is going to vary his order at random between the 3 colours of boxes and asks what will happen. The supplier executives recognize this situation as the key headache in their lives and predict chaos. But, with no boxes piled up in inventory, it’s a simple matter to switch from one colour to the next.
- Move the game to reality suggesting that the exact same techniques should be introduced in the activities required to make (parts). “Lets take a set of activities for one (part) and do it today.”
- Then stay for a week or two to remove all the waste the team could find and to standardize the process and develop follow-up steps so the new level of performance is sustained.
- The understanding with the suppliers management from the beginning from the outset was that the cost saving would be precisely calculated and divided 3 ways: 1/3 to the supplier, 1/3 to Porsche (you), and 1/3 as a pass through to the customer.
- Due to Porsche’s success, many companies not supplying Porsche asked for help. Porsche started Porsche Consulting, an external consulting practice.
- as results begin appearing in physical production, power will shift from the product engineers to the operations managers, the activity central to the firms success.
- Inventory reductions will free up cash (which was used to fund a new product program).
- to keep the core workforce busy and reap the full financial benefits for the lean transition, he needed to double sales very quickly at constant prices.
- instead of retaining the centralized scheduling dept. the reengineering team eliminated the scheduling department and gave the task of scheduling orders to the marketing group in each product team.
- Production teams were told to schedule backwards (working to takt time) to precisely synchronize orders with available production slots at a point exactly (4) days before shipment when the firm order needed to be inserted in the production schedule.
- Orders with incorrect information must never be passed forward by the designers and engineers. Scheduling equivalents of poka-yoke devices have been developed to make sure all mistakes are caught. The customer must be educated to understand the company only needs (4) days of lead time before the product is ready to ship so that there is little point in specifying exactly what is wanted (and then changing the order repeatedly) until it is time to build it. They must also be educated the company now ships exactly on schedule.
- Final element of the ordering and scheduling system is it is completely open for everyone along the value stream to see (customer, distributor, product team, component and materials suppliers). Only the product team can change the information on the electronic schedule board, but everyone with an interest in the outcome can electronically check on the status of orders at any time. Another example of visual control.
- 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.
- 2 of the basic lean concepts in physical production, automatic machine and line stoppage whenever a mistake is made so no bad parts will be passed forward to interrupt the downstream flow (jidoka), and a pull system so that only parts actually needed are made (JIT)
- “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 TPS to the fullest, knowing they won’t lose much even if it fails – this is the advantage of a defiant attitude.”

Ohno’s Insights

1) Self-monitoring looms – 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 as 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. These devices make it possible for one worker to superintend many machines and perform quality checking as well, intervening only to load machines and deal with malfunctions.
2) when you have lots of inventory you are always one part short – 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. Ironclad rule: the previous step would never produce more parts than the next step had just withdrawn.
3) 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 begin made. By focusing on the needs of the machines, rather than 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. By adding/subtracting workers from a cell, he could increase or reduce the rate of production to keep it exactly synchronized with the pull of the market.
- “Common sense is always wrong.”
- Teach through hands on demonstrations to your direct reports, as the ideas are often counter intuitive & difficult to accept unless you try them yourself. Ohno created much of the ‘knowledge,’ and was the relentless ‘change agent;’ ‘force on continuity’ (played by the president), who steadily backs Ohno; these are the 3 roles found essential in every successful firm studied.
- ‘customers for life’ selling system; thinking 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.
- the continuing de-integration of Toyota and other 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.
- This had 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.
- As the Toyota group supplier costs fell, the 190 firms soon discovered they could make much more money selling to customers other than Toyota who did not understand the logic of lean production.
- Later Ohno directed a new group of direct reports he had trained, the Production Research Office, or Operations Management Consulting Division (OMCD), to set up mutual help groups among Toyota’s 42 largest and most important suppliers. The companies were divided into 6 groups of 7, each with a team leader from one of the companies. Groups were asked to conduct 1 major improvement activity each month between them, with the technical assistance of OMCD. Results of the activities were then to be examined by senior executives of the other 6 firms whose task was to offer suggestions on how the activity might be improved even further. Next, the suppliers were asked to establish their own OMCDs and get on with the task of making every activity lean. The transformation is pulled along by (Toyota) demanding continuing reductions in part costs on every part every year from every supplier. Suppliers will eventually need to reduce costs by teaching their next tier suppliers the TPS, forcing the TPS to trickle down the entire supply chain.
- Toyota later reorganized its products into 3 platform groups, overseen by truly heavy weight managers with a much higher level of dedicated engineering resources. The objective is to focus on product families which share components rather than on stand alone products (each of which still has its own chief engineer), to dedicate engineering resources to the platform groups, and to streamline the flow of designs all the way into production so new vehicles can be carried from concept to launch in twenty seven months.
- High tech automation only works if the plant can run at 100% output and if the cost of indirect technical support and high-tech tools is less than the value of the direct labour saved.
o This lesson was taken to heart with a return to a much lower level of automation in final assembly and a reorganization of the assembly line so that related activities (electrical system) are installed and then tested in one focused area. This gives the workforce immediate feedback on whether everything has been done correctly, a key factor in creating a psychological sense of flow.
- Actual level of human effort involved: Toyota asked work teams to precisely determine the amount of fatigue and stress caused by each motion and then summarize these for each job, allowing the company to jobs comparable (or to adjust the effort level for older workers or those with physical problems) and to answer critics who have frequently claimed that the TPS system demand an impossible pace from workers.
- If unacceptable levels of stress and fatigue are discovered, the work team then kaizens the activities to redesign jobs and develop simple operator assist mechanisms.
- RAV4 – reducing the # of parts and simplifying their fabrication can be much more effective than either automation or a fast work pace in reducing product costs. Ex. RAV4 take a max of 3 strikes to complete in the stamping shop while panels in other models generally require 5 strikes. Going from 5 strikes to automatically reduces tooling bills by 40% and increases the throughput of the stamping shop dramatically. Many other components in the RAV4 have been simplified as well, and Toyota estimates it has reduced the human effort needed to assemble a RAV4 by 20%, compared with the most comparable previous product, even while reducing the amount of assembly automation, the cost of production tools, and slightly reducing the work pace.
- as customers want to get exactly the product they want exactly when they want it (immediately), in almost every case, locating smaller and less automated production systems within the market of sale will yield lower total costs (counting logistics and the cost for scrapped goods no one wants by the time they arrive) and higher customer satisfaction.
- Alternative way to surmount the changes in the world economy is to become technological innovators and pioneer new classes of products which no one can duplicate. (the world will then either buy them at whatever cost and with whatever wait, or do without)

An Action Plan

- the trick is to find the right leaders with the right knowledge and to begin with the value stream itself, quickly creating dramatic changes in the ways routine things are done every day. The sphere of change must be steadily widened to encompass the entire organization and all its business procedures. Once this in hand and the process is irreversible inside your own firm, it’s time to start looking up and downstream bar beyond the boundaries of individual firms to optimize the whole.
- Getting started; overcoming the inertia present in any brownfield org.; You’ll need a change agent plus the core of lean knowledge (not necessarily from the same person), some type of crisis to serve as a lever for change, a map of your value streams, and a determination to kaikaku quickly to your value creating activities in order to produce rapid result which your organization can’t ignore.
- Individuals with a make something happen mind set. Usually the problem executives have finding good candidates is a reluctance to bring in executives who will introduce truly fundamental change.
- Change agent doesn’t need detailed lean knowledge at the outset but instead a willingness to apply it.
- One underused resource for firms all over the world is the generation of Japanese now in their sixties who helped pioneer lean thinking and create order out of chaos in the 50’s, 60’s…
- For the true sensei, the change agent’s level of commitment is the single most important issue
- Finding a sensei who does not speak your language (and needs an interpreter) can even be a help because it highlights the unusual nature of the interaction: it’s someone changing your whole way of thinking about your business. This is not just another consultant peddling another quick fix; Similarly, any teacher who doesn’t vigorously protest when a pupil fails to live up to his promise and potential is probably more interested in a secure fee than in lasting change.
- The change agent and all of the senior managers in your firm must master it themselves to a point where lean thinking becomes second nature. What’s more, they should do this as soon as possible. If the change agent doesn’t fully understand lean thinking, the campaign will bog down at the first setback (and there will be a 1st setback). So he must truly understand the techniques of flow, pull, and perfection, and the only way to gain this understanding is by participating in improvement activities, hands on, to a point where lean techniques can be taught confidently to others. While doing this, then change agent needs to involve the other senior executives of the firm as well, so everyone’s knowledge if brought up to a minimum level to grasp the power of lean thinking.
- Finding a lever by seizing the crisis, or creating one
o Take some subunit of the organization which is in crisis and focus all your energies on applying lean remedies to it Once dramatic change has been introduced in the unit, the leaders of other units can be invited over for a hands on learning and can take ideas back.
o If no sub unit is in crisis, there may be an opportunity for change if you can find a lean competitor. By focusing on one instance of superior practice it was possible to introduce significant change in the corresponding business unit.
o Find a lean customer or lean supplier, as the will make demands on your performance. The customer will not only create a crisis but may also offer hands on assistance in introducing lean methods to resolve it.
o Boldest move is to consciously create conditions in which there will be a firm threatening crisis unless lean actions are taken. Example: traditional manufacturer who begins to sell a critical new range of products, set for initial deliveries in a couple of years, at prices hat can only be profitable if the firm quickly adopts lean methods to bring down costs dramatically across the board.
- If major investment is required, you’re not getting lean.
- Market based societies permit to exist and thrive those firms which do a good job of identifying and serving customer needs rather than the firm’s own interests.
- It’s advised people start with an activity that’s performing very poorly but which is very important to the firm; you can’t afford to fail, potential for improvement is very large, and you will find yourself drawing on resources and strengths you didn’t know you had in order to ensure success.
- Demand immediate results; immediate feedback is critical; the improvement team and whole workforce should be able to see things changing before their eyes. This is essential to creating the psychological sense of flow in the workforce and the momentum for change within your firm.
- Don’t waste time on benchmarking if there is any way to get your firm moving without it. Benchmarking as a way to avoid the need for immediate action is itself waste.
- Once you dive in, if nothing dramatic is accomplished in the 1st week of working on a problem activity – typically a halving of required effort, a 50% reduction of work in process, halving of space requirements, and a 90% drop in production lead time – you’ve either got the wrong sensei or you are not really a change agent. Figure out which it is and take action immediately.
- As soon as the 1st round of improvements are in hand, it’s time to start linking the different parts of the value stream for a product family. Convert the next upstream processes to flow and also establish a level schedule and a formal pull system. As you do this, “backward steps” are bound to occur b/c the precise purpose of these techniques is to expose and eliminate all types of waste. It’s only when the flow stops that you know you’ve found the next problem to work on.
- Once you have flow an pull started on the shop floor, it’s time to go to work on your ordering system. Kaikaku in the office is not as easy to see as moving machines on the shop floor, but it’s equally vital. Start with office activities directly linked to the activities you just changed on the floor. Prepare the way by involving office staff in the early shop floor kaikaku weeks – where they can play a useful role just by asking questions: why do you do it this way? After tey grasp the fundamentals and see the potential, they are ready to ask the same questions about office work. Once a bridgehead is established, go to work on all of your activities related to selling, formal order taking and scheduling.
- At the same time you start to introduce pull in production and order taking, you need to start thinking about flow and pull in product development for each product family. This is particularly the case b/c for most firms the quickest way to grow sales in order to absorb freed up production resources is to speed up products already in the pipeline.
- Once they understood that waste of overproduction translates in the warehouse world as a “faster than necessary pace” and that levelling incoming orders is a necessary precondition for creating flow, they make rapid progress.
- The next leap is to create an organization which can channel the flow of value and keep the stream from silting up again. Devise a practical strategy to fully utilize all of the resources being freed up.
- Doing this requires reorganizing your business by product families with someone clearly in charge of each product and creating a truly strong lean promotion function which becomes the repository of your hard earned skills. It also requires a consistent approach to employment in your firm and a willingness to remove those few managers who will never accept the new way. Finally, it means creating a mind set in which temporary failure in pursuit of the right goal is acceptable but no amount of improvement in performance is ever enough.
- Your sensei will need a place to sit down (although a good sensei doesn’t sit very often). Your process mappers will need somewhere in the organization to call home. The extra people you will soon be freeing up will need a place to go (lean function). Your improvement teams will need logistics support. Your operating manager will need continual education in lean methods and periodic evaluation of their efforts to make sure there is no backsliding. You need a permanent lean promotion group and it should report directly to the change agent.
- A good idea is combine your quality assurance function with your lean promotion function so that quality enhancement, productivity improvement, lead time reduction, space savings, and every other performance dimension of your business are considered equally and simultaneously. Initial attention to ‘standard language’ so everyone is using the same terminology, and a consolidation of the quality and lean functions is an excellent investment, so operating managers don’t think quality assurance experts and lean experts are telling them to do different things.
- Our rule of thumb is when you convert a pure batch and queue activity to lean techniques you can eventually reduce human effort by ¾ with little or no capital investment. When you convert a ‘flow’ production setup to lean techniques, you can cut human effort in half (mostly by eliminating indirect activities and rework plus line imbalances). And this is before your lean development system rethinks every product so it is easier to make with less effort. Meanwhile, in product development and order taking, converting from batch and queue to flow will permit your organization to do twice the work in half the time with the same # of people

Devising growth strategy to absorb resources at the rate they are being freed up
- pass cost savings directly through to gain volume
- speed up development of projects in the pipeline to spur sales and increase market share
- focus on shortening production lead times, delivering exactly on schedule, and making exactly the configuration of product the customer wants, again to boost sales of conventional products.
- Try to convert their product from a good to a service and add downstream distribution and service activities to their traditional production tasks.
- Integrate backwards upstream to consolidate previously scattered production activities into single piece flow

- in every organization there was a small group of managers, generally less than 10% who simply could not accept the new ideas. Hierarchical personalities needing a clear chain of command and something to control were particular problems.
- To repeat: as you begin the process, most managers and employees will not understand what you are doing but will be neutral to positive if you make employment guarantees. Take action quickly to remove those managers who won’t give new ideas a fair trial.
- At the end of the 1st improvement initiative on an activity, tell the line management and the work team that in 3 months it will be time to fix it again. It’s critical to get your employees to understand at the outset that no level of performance is ever good enough, and there is always room for improvement. This will usually mean moving every machine and changing every job.
- In the early years of the lean transition, the lean promotion function will have to take the lead in planning successive improvement campaigns. Increasingly over time, improvement becomes the most critical job of the product team leader and the primary workforce. You must instil the idea that management is no longer about running activities in a steady state and avoiding variance. Instead, it’s about eliminating the root causes of variances (so they permanently disappear and managers can stop fighting fires) while improving performance in periodic leaps that never end. How much did you improve performance? Must become the critical question in evaluating managers.
- An energetic general manager at Pratt took on a task which was correct in principle but too ambitious in practice. When this manager and his direct reports to other jobs were reassigned instead of fired (the usual step taken in the past), a critically important message that mistakes in pursuit of the right goal are not a failure.
- When at the same time a general manager of another component center was terminated for anchor dragging on the lean conversion (in an operation that was performing no worse than it had historically), he sent the complementary message it’s not acceptable to do nothing to improve your operation on the grounds that the risk of failure is too high.
- Getting these 2 messages across is a critical task of the change agent

- once you’ve got momentum (in the 1st 6 months of the transition) and have rethought your organization (over perhaps the next year), you’re a long ways toward your goal of a lean transformation. Additional steps are important to make the new approach self sustaining. After initial inertia, the # of proposals for improvement will snowball and you’ll need a mechanism for deciding what’s most important to do now and what can wait until resources are available. You will need to create a new way to keep score and to reward your people so they will continue to do the right things, and to make everything in your firm transparent so everyone can see what to do and how to improve. You will need a systematic method for teaching lean thinking to every employee (including customers’ and suppliers’ employees along your value streams). Finally, you’ll need to systematically rethink your tools, ranging from monster machines in the factory to computer systems for scheduling, with the objective of devising right sized technologies which can be inserted directly into the value stream for individual product families.
- The experience of taking on too many lean initiatives once the ball is rolling is the norm, so it’s vital to use the tools of policy deployment to reach agreement across your whole organization on the 3 or 4 lean tasks your firm can hope to complete each year. Example: reorganize by product families, introduce a lean accounting system, kaizen every major production activity 4 times, and kaikaku order taking and scheduling.
- Even more important task for your annual policy deployment exercise will be to identify the tasks you can’t hope to succeed at just yet but which some parts of the organization will badly want to tackle right now. You’ll need to publicly acknowledge these are important but they will need to be ‘deselected’ until the next year or the year after, when resources are available.

Lean Accounting
- many firms today still run standard cost accounting systems, although many more have made some move toward activity based costing. The latter is a great advance, but you can go even further. What is needed is value stream/product based costing including product development and selling as well as production and supplier costs so that all participants in a value stream can see clearly whether their collective efforts are adding more cost than value or the reverse.
- Once you reorganize by product family and shrink your traditional functions with their allocated overheads, it becomes a lot easier to assign rather than allocate costs to products so that product team leaders and their team members can see where they stand. Your own accounting group should be able to figure out how to do this – you don’t need a consultant – but we strongly recommend you start with the chief financial officer and involve him in several weeks of hands on improvement activities to get started. Then ask the simple question: What kind of management accounting system would cause our product team leaders to always do the right (lean) thing?
- You may still need a financial accounting system for your profit and loss statement, which does strange things like value potentially obsolete inventory as assets, but you won’t need or want ot show it to your product team leaders. Make a gradual transition from your current system to the new lean approach over a year or so to avoid chaos.

- Ideal compensation scheme pays each employee in exact proportion to the value they add, as value is determined by the customer. Actually doing this may present insurmountable technical problems & may only be achievable with enormous, non value adding effort.
- In a lean firm, usually the simplest and cheapest method of calculating compensation is generally the best. This mean paying a market wage to employees based on their general qualifications (whatever assembly workers or entry level product engineers receive on average in the area of a facility) along with a bonus tied directly to the profitability of the firm. Because a lean firm should be substantially more profitable than average, the bonus should be a significant fraction of total compensation (Wiremold set a target for its bonus to be about 20% of base pay, on the presumption it should be at least this much more profitable than the ‘average’ manufacturing firm in its area and industry).
- Considering bonus schemes, it will become apparent the total amounts on offer, while substantial, will not be enormous. This underlines the reality the primary incentive for working in a lean system is that the work itself provides positive feedback and a psychological sense of flow.
- Incentive pay is really a carry over from the old days of piecework and is sometimes used today to deal with the perception that work pace is harder in lean systems. In fact, the pace of minute to minute exertion is the same. The difference is that lean systems identify and eliminate practically all of the non-productive slack time for employees at every level. Therefore, it initially feels as if the work is harder, but after a period of acclimation, when a lack of waste begins to seem normal, people often report that the pace is actually much easier than before. Trying to buy the allegiance of your workforce to a lean system with cash is approaching the problem from the wrong direction. Stress the positive aspects of the new work environment.
- Regarding separate bonus’ for members of each product family, lean accounting makes them technically feasible, but we thin they’re also a bad idea. In lean systems work tasks are evaluated very carefully by the work team itself to achieve an even pace with no wasted time. Looking across a firm, the pace of work inside each product family should be very similar. What’s more, it will frequently be necessary to reassign employees from one product to another, sometimes after an interlude in the lean promotion function, as the needs of the business change. Reassignments will generate continuous conflict if bonuses vary from product family to product family because of varying competitive conditions in the marketplace.
- Benchmarking others usually wastes time you could better spend doing the right thing. However, benchmarking your internal performance, especially your rate of improvement, is critical. It’s also vital to create a ‘scoreboard’ which shows everyone involved in a value stream exactly what’s happening in real time. These don’t need to be complicated or require significant investment. Simple diagrams and process status boards can be used, with little in the way of language or math skills.
- It has become conventional wisdom higher levels of management should learn to listen to the primary work team since they know the most about how to get the job done. Unfortunately, this bit of common sense is only half right. Your primary workforce probably does know the most about the hard technical aspects of getting isolated jobs done (including all the deviations from poorly maintained official procedures which are necessary in order to get products made at all). What primary workers and front line managers typically don’t understand is how to think horizontally about the total flow of value and how to pull it. Nor do they typically understand the methods of root cause analysis to eliminate the need for fire fighting. Therefore, if you ask your primary workforce to implement lean techniques or permanently solve problems today, you are likely to get a rush of suggestions followed by general disillusionment when they fail to work properly.
- To gain lean skills, your workforce needs training of a special type. The faculty is entirely line managers (which means they must learn operational skills themselves, skills rarely mastered by senior managers in western firms) and the skills being taught are precisely those needed immediately for the next phase in the lean transition.
- Lean learning and policy deployment can be carefully synchronized so knowledge is supplied just in time and in a way that reinforces the commitment of managers and all employees to doing the right thing. Everyone learns the same approach to problem solving and everyone experiences the direct benefits of continuous learning. Over time, the investment in training can also be directly connected to the resulting improvements in the business.

- includes production equipment, information management systems, test equipment, prototyping systems, organizational groupings, accounts receivable
o large, fast, elaborate, dedicated, centralized tools are more efficient is the cornerstone of batch and queue thinking
- for every activity ask them to work backwards by asking: What kind of tools would permit products in a given family to flow smoothly through the system with no delays and no back loops? And what types of tools would permit us to switch over instantly between products so there would be no need to make batches?
- 2 small machines with only the features you needed generally cost much less in total than one big one with all the bells and whistles.
- Much of your new tooling can be built inside your firm using excess materials at very low cost by excess people freed up by lean techniques (consider throwing away your industrial equipment catalogues and getting directions to your local junkyard)
- You will realize more and more you can provide most value streams with their own dedicated equipment to completely cut out bottlenecks at monuments and stoppages due to changeovers. When the value stream shifts its course, you can quickly redeploy your right sized tools to serve new needs. Tackling your major monuments and completely replacing them with right sized apparatus will probably only get into full swing after several years of making the best of what you have already.
- make sure your suppliers and distributors are following your lead, that you are creating value as close to your customer as possible, and you are making lean thinking automatic and bottom up, rather than merely top down.
- The only alternative is to actually fix their production, product development, and order taking systems by sending them your lean promotion team. (this is also an excellent way to be alert to broader trends in industry and to keep your lean thinkers sharp by continually exposing them to new situations) Don’t do this until you’ve fixed your own activities which the supplier or downstream firm links into, but then go as fast as possible and accept no excuses. “We’ve done it quickly. We know you can, too. Here’s how. Let’s get going.”
- To make this approach feasible, it’s obvious you will need to winnow down your upstream and downstream partner list and prepare to work with them for the long term. When you go to help them, don’t charge for your help. Instead, agree up front on how you are going to share the savings. (Porsche and its suppliers decided on a 3 way split: suppliers 1/3, Porsche 1/3, customers 1/3) It should be easy to get paid back as well in better quality and shorter lead times for your products.
- Point out there is an extra ‘win’ for your suppliers in this ‘win win win’ situation because they will learn how to cut costs and lead times on all of their activities but will probably not need to pass these savings along to their other customers who are still bogged down in short term, market based thinking. They can steadily gain business by under pricing batch and queue competitors in the supplier community.
- As soon as your suppliers and downstream customers start to improve their in house performance, insist they send their newly created process improvement teams to fix their own suppliers or downstream customers. (Remember your suppliers and downstream partners are typically no more integrated than you are) Set continually declining target prices and continually increasing quality and reliability goals, which make if impossible for them to relax.
- It will help this process to bring your 1st tier suppliers together in a supplier association for mutual learning of the type long utilized by Toyota. Your 1st tier suppliers may then with to draw up a short list of 2nd tier suppliers they wish to work with. Then the resources of the 1st tier suppliers can be concentrated on a much smaller number of 2nd tier firms. Similarly, the assembler firm near the customer at the end of the physical production stream may need to join forces with other lean minded assemblers to take on the most intractable ‘batch head’ raw materials suppliers and show them a better way.

- Some firms can exist happily by doing everything in only one place. The mystique in their products protects firms of this type from knockoffs. In addition, volatility in some export markets, due to currency shifts or changes in tastes, can be tolerated if no one market accounts for a large fraction of total sales. The world as a whole will provide a stable enough market.
- Some firms are happy to take advantage of export opportunities as they arise but to treat them as a windfall rather than a core aspect of the business.
- For most products with global market potential, the correct global strategy is to develop a complete design, order taking, and production system within each major market of sale. This makes it much easier to communicate with the customer and also makes it possible to design, produce and deliver the product very quickly with just the right specifications. ‘High tech’ mass production at a centralized global location and a far flung design and production system seeking to find the lowest wage cost for every activity along a complex value stream can never achieve these combined objectives. These alternative strategies optimize one course of the value steam at the expense of the whole.

Convert from Top-Down Leadership to Bottom-Up Initiatives
- initially the process improvement group will work top-down because the pressing need is to change the way your employees think by directly demonstrating a better way. Over time the process improvement group will focus more making every line manager a sensei and every employee a proactive process engineer. The function can then tackle only the very toughest problems where line managers still need outside help. This is the present day assignment of the Operations Management Consulting Division within the Toyota group.
- There is a critical transition as you move your organization through the lean transformation, a point when managers must become coaches rather than tyrants and employees become proactive. This transition is the key to a self sustaining organization. Note: if you are the change agent, you may become the biggest problem. Change agents sometimes want to continue commanding change from the top when those on the bottom were quite capable of sustaining it on their own.
- One solution is to change your behaviour, another is simple to move on. Many of the best change agents we’ve encountered seem to work best by converting an organization over a period of several years, then turning senior management over to a more collegial personality, and moving on to another firm still full of ‘concrete heads’.

- whenever encountering a would be change agent who wants to transform his firm, ask: are you willing to work very hard, accept the one step backward which comes with 2 steps forward, and stick to your task for 5 full years?

- Often an extended period may be required for the transformation because a large number of people including senior leadership must be taught to see the difference between value and waste. And a significant period of experimentation by ordinary managers – complete with backward steps – is necessary before everyone begins automatically to apply lean thinking and move the organization ahead from the bottom and middle ranks. It’s only at this point the change agent can step in front of the bus without being missed and it’s at this point also that the full financial benefits of lean thinking are apparent. From this point we believe there will be no turning back and the change agent may even want to move on to a new challenge.

Scan p270

- Of course, even a brilliantly performing firm can fail for reasons beyond anyone’s control – an unsuspected shift in consumer tastes, the sudden appearance of a new technology which totally eliminates the need for the old product (clothes pin after the home dryer, vacuum tube after the transistor), but with a lean tool kit, the chances of succeeding will soar.

PART III - Lean Enterprise

- When asked: What’s new here? What are you saying that we haven’t heard before? – We are putting the entire value stream for specific products relentlessly in the foreground and rethinking every aspect of jobs, careers, functions, and firms in order to correctly specify value and make it flow continuously along the whole length of the stream as pulled by the customer in pursuit of perfection.
- Objectives for the lean enterprise: Correctly specify value for the customer, avoiding the normal tendency for each firm along the stream to define value differently to favour its own role in providing it (example, manufacturer who thinks the physical product itself is the customer’s primary interest, the independent sales and service company that believes responsive customer relations account for most of the value to bring a product from concept to launch, from order to delivery, and from raw material into the hands of the customer…). Then identify all the actions required to bring a product from concept to launch, from order to delivery, and from raw material into the hands of the customer and on through the its useful life. Next, remove any actions which do not create value and make those actions which do create value proceed in continuous flow as pulled by the customer. Finally, analyze the results and start the evaluation process over again. Continue this cycle for the life of the product or product family as a normal part, indeed the core activity, of ‘management.’
- Mechanism of the lean enterprise is also very simple: a conference of all firms along the stream, assisted by technical staff from ‘lean functions’ in the participating firms, to periodically conduct rapid analyses and then to take fast strike improvement actions. Clearly someone must be the leader, and this is logically the firm bringing all of the designs and components together into a complete product. However, the participants must treat each other as equals, with waste as the joint enemy.
- This is not the norm because jointly analyzing every action needed to develop, order and produce a good or service makes every firm’s costs transparent. There is no privacy. The question of how much money (profit) each firm along the value stream is going to make on a specific product is unavoidable.
- All the parties willingly negotiate a set of principles to guide their joint behaviour in the future and then devise a mechanism for mutual verification that everyone is abiding by the principles. These principles may be something as follows:
o Value must be defined jointly for each product family along with a target cost based on the customer’s perception of value.
o All firms along the value stream must make an adequate return on their investments related to the value stream.
o The firms must work together to identify and eliminate waste to the point where the overall target cost and return on investment targets of each firm are met.
o When cost targets are met the firms along the stream will immediately conduct new analysis to identify remaining waste and set new targets.
o Every participating firm has the right to examine every activity in every firm relevant to the value stream as part of the joint search for waste.

- A simple example of a problem to be overcome is the need for a firm far up the stream to invest in new technology to produce in small lots rather than large batches. Because most of the benefit is gained by downstream firms but all of the costs are borne by the upstream firm, some means must be developed for the former to compensate the latter.
- As the introduction of lean thinking forces problems and waste to the surface in all operational areas, new organizational problems will inevitably arise as you apply these ideas. As you shrink traditional functions, which were formerly the key to career paths in your organization, many employees will start to express anxieties about where they are going and whether they have a ‘home.’ Employees assigned to a particular product team to apply their skills to the value stream may begin to wonder is they are ‘going anywhere’ and get confused about ‘who I am’ (I trained as an electrical engineer but I seem to spend most of my time on integrative tasks which don’t utilize all of my training). While the actual work is likely to be much more rewarding than in the previously disconnected world of departmentalized batches and queues, the lack of perceived progression and the loss of a commanding skill may be dispiriting.
- It is bad for the enterprise if employees gradually lose their edge and simply spend all their time applying what they already know to standard problems (the generalist engineer problem) – a potential weakness in competing over the long term with a (German) firm which has extremely strong technical functions.
- A new form of career must be devised, and ‘alternating career’ where employees go back and forth between applying what they know in a team context and taking time out to learn new skills in a functional setting. The idea would be to assign employees to product teams for the life of a development exercise or during a product’s production life, but to send them back to their home functions when a project is completed or they are no longer needed. In the home function, they could receive training on new skills, or work on advanced projects which apply existing skills to the limit, or analyze the flow of engineering, order taking, and production activities as a technical adviser to a lean enterprise seeking to identify and eliminate waste.
- A new concept of career in which more and more skills are gained and applied to more and more difficult problems is both good for the employee and good for value flow. Gaining the agreement of employees that this is the path to the future is the key to self perpetuating lean enterprises.

- Rethink departments: traditional functions should not perform traditional tasks
- Engineering should not engineer, in the sense of performing routine engineering on a product. Purchasing should not purchase, in the sense of making individual purchase decisions and holding the hand of the supplier in getting products to launch. Operations should not direct employees in day to day production activities. Quality should not conduct detailed audits of products or conduct fire fighting exercises to eliminate problems with a specific product. These are all tasks for the dedicated product teams, dealing with the issues of the present.

- What functions should do is think about the future.
- Product engineering should work on new technologies that will permit products to do new things for the user and develop new materials and methods which make it possible to eliminate fabrications steps and reduce costs. Tool engineering should work on right sized devices – from computers to production hardware – which make is possible for product teams to create value in continuous flow and rapidly shift over between product variants. Purchasing should identify the set of suppliers a firm will work with in the long term and develop a plan for each supplier to ensure they will have the technologies plus the design and production capabilities to assure the highest quality performance. Quality should develop a standard set of methods which the product teams can apply to ensure ever product is right every time with no backflows and no ‘escapes’ of bad products to the customer.

- Every function would provide a home to employees with given technical specializations (including production workers who must become operations specialists able to detect and eliminate waste). A primary job would be to systematize current knowledge and procedures and teach these to function members as needed (JIT knowledge b/c most knowledge is quickly lost if not immediately applied). The functions other job would be to search for new knowledge and summarize it in a form which can be taught when needed.

- Firms provide the link between streams; they are the means of crossing from one valley to the next in order to make max use of the technologies and capabilities accumulated by each firm’s technical functions. They also provide the means of shifting resources – people, space, tools – from value streams which no longer need them to other steams which do. From this if follows most firms will want to participate in multiple value steams, often with different upstream and downstream partners.

- In American management, the industrial finance system asks each firm to optimize its short-term performance but ignores the performance of the whole because no shares of a whole value stream are traded in any market.
- German firms face a adjustment challenge in addressing the jobs problem at the outset and in creating a system of alternating careers for all workers.
- Ask an NEC employee who he is and the answer will always be “an NEC employee,” as opposed to an engineer or some other functional skill
- While the German firm needs to accustom employees to working in horizontal teams, the typical japanese firm needs to accustom employee to the idea skills must be continually upgraded and carried to the cutting edge through periodic in function assignments which overcome the generalist employee problem.
- The horizontal kieretsu, rather than individual firms or the vertical [supply group[ keiretsu, are the essential mechanism for redeploying people from one valley to another in this situation because most individual firms have stuck to a very narrow range of products and cannot easily shift people within their own operations, all of which face the same problems.
- Most of the reductions in cost are due to cutting the wages of personnel and using older equipment. This is another instance of simply shifting cost burdens rather than reducing the amount of effort needed to get the job done.
- The manufacturer can size its production capacity for a steady stream of vehicles because the mobility provider can counteract the business cycle by replacing vehicles at a steady rate.
- Revitalize a highly mature “product” by converting it from a hassle laden good to a hassle free service
o What goods can be turned into services?

Lean Solutions


Goal is to satisfy consumption
- lean production works in every company, industry and country where it is seriously tried
- customer experience is deteriorating
- consumption should be easier due to better cheaper products; instead it takes growing time and hassle to get our products to work together & properly
- making consumption more satisfying; the next challenge for business

5 trends confronting buyers
1) choice requires more decision time; more channels to obtain with; customized
2) mass production decreasing; more activities & decisions to make
3) shift form service to self service economy; needs capital goods to manufacture our own value; ex. PDA replacing secretary
4) households changing which causes time & energy pressure for consumers
5) internet growth blurring distinction between production and consumption, drawing customer into the process; ex. Customer has to check if it is making its way to their house

Chap 1
- obtained, installed, maintained, integrated, repaired, upgraded & recycled
- claiming more of the customers unpaid time & blurring line between consumption and production

6 Principles of Lean Consumption
1) Solve my problem completely
2) Don’t waste my time
3) Provide exactly what I want
4) Deliver value where I want it
5) Supply value when I want it
6) Reduce the # of decisions I must make to solve my problems

- today the product is not the problem
- consumers Gemba – path they take to solve their problem
- identify each step
- is each step necessary? Ask for each step
- remove unnecessary steps

scheduling an appointment = making an order
line = queue

Typical Experience: Parts Unavailable when consumer and vendor are strangers, when failure to describe the nature of the problem up front, or share any data on the products ‘as is’ condition

Time is not time and value cannot be accurately estimated by time simply using a clock.
We do not measure it all the same way.
For example, Time spent waiting for a train on a dark platform in a dangerous area is perceived as longer than it really is. Time on train dozing / reading is perceived shorter than it really is
- trains should run more frequently as opposed to faster, or security in waiting area should be increased to save time as perceived by the traveller. And the person making the decision should be basing it on the user’s needs and experiences.

- Steps that seem unnecessary, whose outcome is uncertain seem to take longer; hassle time; unhappy face
- Steps that seem to create value and where a successful outcome is assured seem to take less time; happy face
- Successful consumption process seeks to minimize hassle time

Chap 2
- walk through 2nd Gemba to see what firm is actually doing to serve its customers
- how ppl feel about the process determines how well they do their jobs, and how well they deal with the customer
- identify interconnection points between the consumption and provision streams where the consumer and provider directly engage each other; often the point of greatest dissatisfaction on both sides
- for steps from employees point of view – identify hassle time; unhappy face and fulfilling work experiences; happy face
- a failure in any one step disrupts the entire consumption process
- the best approach is to prevent any failures form happening in the 1st place
- the lean help desk encourages the customer to say a lot more about the problem, even though this may take considerably more time, and also develops linkages that trace the problem back to the source where it can be eliminated

The Machine that Changed the World

Womack, James, Jones, Roos

Based on Taiichi Ohno, Eiji Toyoda

Covers the 5 year study of the auto industry, identifying what made Toyota (lean) a superior automotive manufacturer over all other (traditional mass production) companies.

Suppliers p59
Product Development & Engineering p63
Most Important Organizational Features of a Lean Plant p99
Running the Factory p79
Design p105
Starting Off in Lean Production p129
Coordinating the Supply Chain p146
Establishing Prices and Jointly Analyzing Costs p148
Dealing with Customers p169
Managing the Lean Enterprise
Proposed Multiregional Motors p220
Diffusing Lean Production p225
Completing the Transition p257
Outdated Thinking about the World Economy p260
End Notes p289

Mass production:
– almost anyone could drive & repair the car
- key to the assembly line: the complete & consistent interchange ability of parts & the simplicity of attaching them to each other.

Because the new techniques were easy to master & production workers were idle during the die changes, Ohno let the production workers perform the die changes as well, removing the need for die change specialists. Endless experimentation led to time reduction for die changes decreased from 1 day to 3 minutes, where he discovered it cost less per part to make small batches of stampings than to run off enormous lots (due to reduced inventory carrying costs, and stamping mistakes show up immediately).

If workers failed to anticipate problems before they occurred & didn’t take the initiative to devise solutions, the work of the whole factory could easily come to a halt. Holding back knowledge & effort – repeatedly noted by industrial sociologists as a salient feature of all mass production systems – would swiftly lead to disaster in Ohno’s factory.

Toyota – pay was steeply graded by seniority rather than by specific job function and tied to company profitability through bonus payments (rights of workers went far beyond what most unions had been able to negotiate for mass production workers in the west)
- employees also agreed to be flexible in work assignments and active in promoting interests of the company by initiating improvements rather than merely responding to problems. A.k.a ‘if we are going to take you on for life, you have to do your part by doing the jobs that need doing’

- in mass production, none of the specialists beyond the assembly worker was actually adding any value to the car. The assembly workers could probably do most of the functions of the specialists and do them much better because of their direct acquaintance with conditions on the line.
- Ohno experimented by grouping workers into teams with a team leader, teams were given a set of assembly steps, their piece of the line, and told to work together on how best to perform the necessary operations. The team leader would do assembly tasks as well as coordinate the team, and would fill in for any absent worker.
- The team’s next job was housekeeping, minor tool repair, and quality checking. After teams were running smoothly, he set time aside periodically for the team to suggest ways collectively to improve the process (known here as quality circles)
- This continuous, incremental improvement process (Kaizen in Japanese) took place in collaboration with industrial engineers
- Workers should think any error they allow to continue down the line will be cause for disciplinary action, as this error will compound as it moves down the line, causing enormous rectification work, or possibly not detected at all. Also, because of late detection, a large number of similarly defective vehicles would be built before the problem was solved
- In the case an error is detected, the whole line is stopped immediately and the whole team come together to work on the problem.
- The 5 Why’s; production workers are taught to trace systematically every error back to its ultimate cause (by asking why as each layer of the problem is uncovered), then devise a fix so it will never occur again
- Initially the line stopped constantly and workers became discouraged; however with experience identifying and tracing problems to their ultimate cause, number of errors dropped dramatically, resulting to yields approaching 100%
- Rework before shipment fell continually, and quality of shipped cars steadily improved because:
o Quality inspection, no matter how diligent, simply cannot detect all the defects that can be assembled into today’s complex vehicles
- Today, Toyota plants have practically no rework areas & perform almost no rework (mass prod plants devote 20% of plant area & 25% of total hours to effort fixing mistakes), and delivered cars have the lowest number of defects of any in the world, comparable to the very best of German luxury car producers


under Mass Production,

o suppliers have little opportunity of incentive to suggest improvements in the production design based on their own manufacturing experience;
o they have no practical way of optimizing their parts for the buyer because they are given practically no information about the rest of the vehicle
o the focus on short term cost pits suppliers against one another, blocking the flow of information horizontally between suppliers, particularly on advances in manufacturing techniques; preventing them from steadily decreasing the cost of their production through improved organization & produces innovations;
o the buyer, knowing little about a supplier’s manufacturing techniques, has no way of improving quality except by establishing a max acceptable level of defects. As long as most firms produce to about the same level of quality, it is difficult to raise this level.
- Regarding co-coordinating the flow of parts within the supply system on a day to day basis: inflexibility of tools in supplier plants (comparable to the inflexibility of stamping presses in assembler plants) and the erratic nature of orders from assemblers responding to shifting market demand, caused mass production within supplier plants which results in high inventory costs and routine production of thousands of parts later found to be defective when installed at the assembly plant

Lean approach to components supply

- Organize suppliers into functional tiers; 1st tier suppliers were responsible for working as an integral part of the product development team in developing a new product, which would work in harmony with other systems
- 1st they’re given a performance specification (ex. Design a set of brakes that can stop a 2200lb car from 60 mph in 200 ft 10x in succession without fading. Brakes should fit into a space 6” x 8” x 10” at the end of each axle and be delivered to the assembly line for $40 a set.
- Suppliers are told to deliver a prototype for testing; if the prototype worked, they got a production order.
- ***Toyota did not specify what the brakes were made of or how they were to work; these were engineering decisions for the supplier to make
- 1st tier suppliers were encouraged to talk among themselves about ways to improve the design process
- Because each supplier (for the most part) specialized in one type of component and did not compete in that respect with other suppliers in the group, sharing this information was comfortable & mutually beneficial
- Each 1st tier supplier formed a 2nd tier of suppliers under itself. Companies in the 2nd tier were assigned the job of fabricating individual parts. These suppliers were manufacturing specialists, usually without much expertise in product engineering but with strong backgrounds in process engineering and plant operations
- Because 2nd tier suppliers were all specialists in manufacturing processes & not competitors in a specific type of component, it is easy to group them into supplier associations so that they to can exchange information on advances in manufacturing techniques
- Toyota spun its in-house supply operations were quasi-independent 1st tier supplier companies where Toyota retained a fraction of the equity and developed similar relationships with other suppliers who had been completely independent. As the process proceeded, 1st tier suppliers acquired much of the rest of the equity in each other (12 – 22% in each on average)
- Toyota also acts as banker for its supplier group, providing loans to finance the process machinery required for a new product
- Toyota also shared personnel with supplier group firms
o By lending them personnel to deal with workload surges,
o and transferring senior managers not in line for top positions at Toyota to senior positions in supplier firms
- Toyota encouraged suppliers to perform considerable work for other assemblers and for firms in other industries, because outside business almost always generated higher profit margins (ex. A 1st tier firm Nippondenso does 60% of its business with Toyota, who holds 22% of it’s equity; 30% of its equity is held in the Toyota supplier group; 6% by a German components group, totaling 58%. Remaining 42% traded publicly)
- Just in time is Kanban in Japanese, making close proximity important to reduce transportation costs
- It eliminates practically all inventories, so if one small part of the production system fails, the whole system comes to a stop – removing the safety net - necessary to focus every member of the vast process on anticipating problems before they become serious enough to stop everything

Lean Product Development & Engineering

- In mass production, an engineer who spends his whole career designing auto door locks is not an expert on how to make door locks (a door lock manufacturing engineers job). He only knows how he thinks they should look and work if made correctly.
- Divided labour systems have many weaknesses. Ohno & Toyoda decided product engineering encompassed both process & industrial engineering.
- They formed teams with strong leader 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, resulting in a dramatic leap in productivity, product quality and responsiveness to changing consumer demand
- As Toyota could deliver superior reliability (which consumers wanted) they found they no longer had to match exactly the price of competing mass production products.
- Their flexible production system & its ability to reduce production engineering costs let the company supply the product variety buyers wanted with little cost penalty. A lean producer needs half the time a mass producer does to design a new product, so they can offer twice as many products with the same development budget.
- Japanese companies initially minimized distribution costs by focusing on 1 or 2 product categories in each export market.
- The traditional North American system is a system marked by a lack of long term commitment on either side, which maximizes feelings of mistrust. In order to maximize bargaining position, everyone holds back info, the dealer about the product, the consumer about his true desires, and everyone loses in the long term.
- Toyota’s strategy was to develop a long term, or life long relation between the assembler, dealer and buyer by building the dealer into the production system and the buyer into the product development process. The dealer became part of the production system as Toyota gradually stopped building cars in advance for unknown buyers and converted to a build to order system in which the dealer was the first step in the kanban system, sending orders for pre-sold cars to the factory for delivery to specific customers in 2 to 3 weeks.
- Dealers worked with the factory to sequence orders in a way the factory could accommodate. The lean system could not deal with large surges or troughs in total demand or abrupt shifts in demand between products that could not be built with the same tools. Sequencing orders was possible because sales staff did not wait in the showroom for orders, they went directly to customers by making house calls. When demand began to dip they worked more hours, and when demand shifted they concentrated on households they knew were likely to want the type of car the factory could build.
o This was possible because of a second feature of aggressive selling – massive database on households and their buying preferences Toyota gradually built up on every household ever showing interest in a Toyota product. Using this information sales staff could target their efforts to the most likely buyers.
- Toyota focused relentlessly on repeat buyers; they were determined never to lose a former buyer & could minimize the chance of this happening using data in the consumer data base to predict what buyers would want next as their incomes, family size, driving patterns, and tastes changed. Toyota went to its existing customers in planning new products.

Running the Factory

Lean believes in having as little space as possible so that face to face communication among workers is easier, and there is no room to store inventories
o When a worker found a defective part, he tagged it and sent it to the quality control area in order to obtain a replacement part. Once in quality control, the part is subjected to the 5 why’s to trace the defect to its ultimate cause so it will not recur
o Lean organization must come before high tech process automation if a company is to gain the full benefit. Some GM plants had a higher level of automation than others which were more productive; so automation is not a factor in explaining the productivity gap.
o The first production models of any new car are unlikely to reach consumers. Instead, competitors buy them, immediately tearing them apart for competitive assessment
o Very few car companies conducted systematic benchmarking studies of their competitors.
o Manufacturability is conducive to high performance in the factory
o GM noted 41% of the productivity gap could be traced to the manufacturability of the 2 designs (GM’s and Ford’s). The other major cause of the productivity gap was plant organizational practices.
o Ease of manufacture is one of the most important results of a lean design process.
o There was no correlation at all between the number of models and body styles being run down a production line and either productivity or product quality.
o To those who think a focused factory is the solution to their competitive problems: plants in the survey with the highest under the skin complexity also had the highest productivity and quality

Most Important Organizational Features of a Lean Plant

2 key features:

1) It transfers the maximum number or tasks and responsibilities to those workers actually adding value to the car on the line, and

2) it has in place a system for detecting defects that quickly traces every problem, once discovered, to its ultimate cause.

o Teamwork among workers and a simple comprehensive information display system makes it possible for everyone in the plant to respond quickly to problems and understand the plants overall situation. All information, daily production targets, current production, equipment breakdowns, personnel shortages, overtime required, etc. are displayed on boards (electronic displays) visible from every work station. Every time anything goes wrong anywhere in the plant, any employee who knows how to help runs to lend a hand.
o In the end a dynamic work team emerges as the heart of the lean factory. Workers are taught a wide variety of skills so all jobs in their work group can be rotated and workers can fill in for each other. Workers then need to acquire many additional skills: simple machine repair, quality checking, housekeeping, materials ordering. Then they need encouragement to think actively, proactively, so they can devise solutions before problems become serious.
o Plants trying to adopt lean production reveal workers respond only when there exists some sense of reciprocal obligation, a sense management actually values skilled workers, will make sacrifices to retain them, and is willing to delegate responsibility to the team.
o Merely changing the organization chart to show “teams” and introducing quality circles to find ways to improve production processes are unlikely to make much difference
o Workers should have confidence in the operating management, who works hard to understand lean principles, and believe that if all employees worked together to get the job done in the best way the company could protect their jobs.
- Lean production offers a creative tension where workers have many ways to address challenges. This is what separates manual factory work from professional think work in mass production
- For this system to work, management must offer its full support to the factory work force and, when the market slumps, make sacrifices to ensure job security that has historically been offered only to valued professionals.
- If management fails to lead and the work force feels no reciprocal obligations are in force, it is quite predictable lean production will revert to mass production.


Most automotive companies develop some sort of matrix in which every employee involved in developing a product reports both to a functional department and to a development program. The leadership challenge is managing the matrix to satisfy the needs of both the functional department and the product development program.

At Honda, 1 person is appointed Large Project Leader (shusa). Each project member is on loan from a functional department. Appropriate people are borrowed from the relevant departments and transferred to the project for its life. The Large Project Leader’s task is to manage, and he able to move the project along rapidly because all necessary resources are under his direct control.

- the magnitude of the performance difference between lean and mass production: nearly a 2:1 difference in engineering effort and a saving of 1/3 in development time.
- Innovations are most useful when they are available to everyone.
- There are 4 differences in design methods employed by mass and lean producers:
o leadership,
o teamwork,
o communication
o simultaneous development.
Together these make is possible to do a better job faster with less effort.

o Shusa is needed, the leader of the team whose job it is to design and engineer a new product and get it fully into production. The position of shusa carries great power and may be the most coveted in the company
o Position of directing a process requiring far too many skills for any one person to master.
o We will always need craftsmen to exist, but we are in an era when the skills involved are not so much technical as social and organizational

o Employees selected for the team retain ties to their functional department, but for the life of the program they are clearly under the control of the shusa. How they perform in the team, as judged by the shusa, will control their next assignment, whish will probably be another development team.
 The problem with short term loan in mass production facilities is the peoples focus:
• the members’ success depends on moving up through their functional specialty, and they work hard in the team to advance the interest of their department.
o Japanese companies are able to use fewer people partly because efficient organization requires fewer bodies, but also because there is so little turnover.

o Many western development efforts fail to resolve critical design trade offs until very late in the project; one reason is US team members show great reluctance to confront conflicts directly. They make vague commitments to a set of design decisions – agreeing to try to do something as long as no reason crops up not to;
o In Japan team members sign formal pledges to do exactly what everyone has agreed upon as a group. Conflicts about resources and priorities occur at the beginning rather than at the end of the process. Another reason is a design process that is sequential, going from one department to the next rather than being kept at team headquarters, makes communication to solve problems very difficult in any case.
o In Japanese lean projects, numbers of people involved are highest at the outset. All relevant specialties are present, and the shusa’s job is to force the group to confront all difficult trade offs they’ll have to make to agree on the project.

Simultaneous Development
o Die production begins at the same time as body design, because body designers and die designers are in direct, face to face contact and probably have worked together in previous product development teams.
o Die designers know the approximate size and number of panels for the new car, so they begin making rough cuts in the steel, so it’s ready to move to final cutting as soon as the final panel designs are released (requires understanding of panel design process & anticipation of designers final solution)
o Die cutters have special quick change cutting tools, allowing one machine to handle many different types of cuts, so the dies being cut spend much less time in queues.
o Suppliers have up to 51% share in engineering the assemblers product

It is necessary to build up the plant’s production rate slowly, stopping as necessary to get each step tight rather than rushing ahead and going back later to rework errors not just in the cars but in the entire production organization.

Starting off in Lean production

- University trained mechanical, electrical & materials engineers start off assembling cars. At Honda all entry level engineers spend their first 3 months working on the assembly line. They’re then rotated to the marketing department for 3 months. They spend the next year rotating through the engineering departments: drive train, body, chassis, and process machinery. After they have been exposed to the entire range of activities involved in designing and making a car, they are ready for an assignment to an engineering specialty like engine department
- Initially they will likely be assigned to a new product development team. There they will do very routine work, largely adapting established designs to the precise needs of the new model. This task continues for up to 4 years.
- After successfully working on a new development project, the young engineer is likely to be transferred back to the engine department to do more fundamental work, perhaps on the design of a new engine (an engine development program, like a new model development program, requires 3 – 4 yrs between initial concept and actual production.
- After finishing this work on a 2nd type of development team, some of the most promising are selected for additional academic training and then set to work on longer term & more advanced projects; (an engineer might study how to incorporate fiber reinforcements into highly stressed metal parts). In working on these projects, the engineers consult closely with academic experts on retainer to the company. These longer term development projects have a very specific objective: to remedy some weakness in the company’s products identified by the product or major component development teams – so they are tied tightly to the needs & timetable of specific development projects. The work is conducted by engineers who thoroughly understand the practicalities of product development and production. To ensure engineers maintain their sensitivity, all are assigned to spend a month each year working in 1 of the other functional areas of the company (selling, factory operations, supply coordination, etc.)
- Engineering, even the most advanced sort, must be tied into the key market driven activities of the company

- When Japanese planned around rising energy prices and smaller engines, things went the opposite direction and consumers demanded larger more powerful cars. So the product development teams turned to the advanced engineering groups, which suggested introducing every available technical feature to boost the performance for the basic 4-cyl engines.
- These features were conceptually simple: fuel injection rather than carburetors, 4 valves per cylinder instead of 2, balanced shafts in the bottom of the engine, turbochargers and superchargers, a 2nd set of overhead cams, and an additional set of cams for use at higher speeds.
- Engineers worked hard on refinement: paying attention to the smallest details of an engine design so the finished engine runs smoothly & without complaint at all speeds in all driving conditions, imitating the performance of a much larger engine, imitating the performance of a larger engine.
- Because engineers paid endless attention to manufacturability; because they were going against one good engineering practice (adding parts & complexity to an already complex device), they had to work extra hard at manufacturability so the complex engines would work properly every time & entail only the minimum of extra production expense

Coordinating the Supply Chain

1/3 to 1/8 as many suppliers are involved compared to mass production, because lean producers assign a whole component to a ‘first tier supplier’ who is in charge of delivering the complete component to the assembly plant. This allows the suppliers to collaborate in producing parts that function in harmony with each other

- the 1st tier supplier typically has a team of 2nd tier suppliers (independent companies who are manufacturing specialists. These companies may engage helpers in a 3rd or 4th tier of the supply pyramid. The latter companies make individual parts according to drawings supplied by the 2nd tier firm.
- 1st tier suppliers assign staff members (resident design engineers) to the development team shortly after the planning process starts and 2 to 3 yrs prior to production. As product planning is completed, with continuous input from the suppliers’ engineers, different areas for the car (suspension, electrical system, lighting, climate control, seating, steering etc.) are turned over to that area’s supplier specialist to engineer in detail. So it is that 1st tier suppliers have full responsibility for designing and making component systems that perform to the agreed upon performance specification in the finished car. The supplier’s development team, with its own shusa and with the help of resident design engineers from the assembler company and the 2nd tier suppliers, then conducts detailed development and engineering.

Almost all relationships between supplier and assembler are conducted within the context of the basic contract, which is on one hand, an expression of the assemblers & suppliers long term commitment to work together. It also establishes ground rules for determining prices as well as quality assurance, ordering & deliver, proprietary rights & materials supply a.k.a.: a cooperative relationship.

Establishing Prices and Jointly Analyzing Costs

- first the lean assembler establishes a target price for the car of truck and then, with suppliers, works backwards, figuring how the vehicle can be made for this price while allowing for a reasonable profit for both the assembler and the suppliers.
- It is a ‘market price minus’ system as opposed to the western ‘supplier cost plus’ system
- To achieve target cost, both assembler & supplier use value engineering techniques to break down the costs of each stage of production, identifying each factor that could lower the cost of each part. Once this is completed, the 1st tier supplier designated to design and make each component enters into mutual bargaining with the assembler, not on the price, but on how to reach the target and still allow a reasonable profit for the supplier. (This is the opposite process of price determination in the West)
- Once the part is in production, a technique called value analysis is used to achieve further cost reductions. Value analysis, which continues the entire time the part is being produced, is a technique for analyzing the costs of each production step in detail, so that cost critical steps can be identified and targeted for further work to reduce costs still further.
- These savings may be achieved by incremental improvements, or kaizen, the introduction of new tooling, or the redesign of the part.
- Machine operators can collect the data in many cases, making it possible to do a complete cost analysis several times a year and monitor progress in cutting costs accurately
- For the lean approach to work, the supplier must share a substantial part of its proprietary information about costs and production techniques; both go over every detail in the supplier’s production process looking for ways to cut costs & improve quality; in return the assembler respects the supplier’s need to make a reasonable profit.
- Agreements between the 2 on sharing profits gives suppliers the incentive to improve the production process, because it guarantees the supplier keeps all the profits derived from its own cost saving innovations and kaizen activities.
- By agreeing to share the profits from joint activities and letting suppliers keep the profits from additional activities they undertake, the assembler relinquishes the right to monopolize the benefits of the suppliers’ ideas.
- Once a component is designed and production begins, lean production has few running changes because the new product tends to work the way it is supposed to.

- It is almost universal components are delivered direct to the assembly line, several times a day, with no inspection of incoming parts. To make just in time work, the system has a signal sent from the assembler back to the supplier indicating to make more parts.
- In Japanese lean, employees are considered a fixed cost because they are there for life. In western firms, labour is considered a variable cost as employees are hired and laid off as needed. Due to employees being a fixed cost, Japanese lean works hard at heijunka (production smoothing).
- During market slumps, the aggressive selling system has made it possible to cut prices in order to keep production volume steady.
- Another motive for practising heijunka: to ensure a steady volume of business for suppliers. Suppliers are given advanced notice of changes in volume. If changes persist, assemblers work with suppliers to find other business. Assemblers do not pull activities in house so it can keep its own staff working. There is a commitment to share the bad times as well as the good. Suppliers are to a degree, considered a fixed cost like employees.

- Suppliers know as long as they make a good faith effort to perform as they should, the assembler will ensure they make a reasonable return on their investment. Sharing with other group members means the performance of the whole group will improve and every member will benefit. Active participation in mutual problem solving through the supplier group is an act of self interest
- To ensure everyone tries hard continually, the assemblers usually divide their parts order between 2 or more members of their supplier group, to prevent anyone letting down on quality or delivery reliability [Remember prices have already been set].
- When a supplier falls short on quality or reliability, the assembler does not dismiss the company; instead, they shift a fraction of the business from that supplier to its other source for that part for a given period of time as a penalty. Since costs & profit margins have been carefully calculated on an assumed standard volume, shifting part of the volume can have a devastating effect on the profitability of an uncooperative supplier. This form of punishment is highly effective in keeping everyone on their toes, while sustaining the long term relationship essential to the system.
- Suppliers are never kept in the dark about their performance. There are simple supplier grading systems, and suppliers receive scores based primarily on:
o the number of defective parts found on the assembly line,
o % of on time deliveries in the proper quantity and sequence, and
o performance in reducing costs

- Suppliers regularly compare their scores with those of their competitors, discuss the findings, and highlight problem areas for attention, often with the help of engineers loaned from the assembler. It assesses the supplier’s attitude and willingness to improve. Only if there is no sign of improvement will the supplier, in the end, be fired.
- “We will stick with any supplier as long as we believe they are making an earnest effort to improve. It’s only when we think they have given up we bring the relationship to an end.”
- Mutual interdependence


Ways Assemblers can reduce the number of suppliers
o Assigning whole components to a 1st tier supplier. Assembler’s admin cost for coordinating supply plummets
o Reducing the parts count in components.
- In the Toyota system, suppliers should never commit themselves to delivering at unrealistic prices but must be prepared instead to lower their price continually over the life of the model.
- For parts that are competitive on price but not quality, one strategy is to station a resident engineer at the supplier fulltime, so the quality problems can be attacked immediately

Most reforms in the West have involved pushing the traditional mass-supply system to its limits under pressure, instead of fundamentally changing the way the system works.

Western assemblers damage themselves through their unwillingness to give up the power based bargaining they have relied on for so long.
Japanese operate in a framework that channels the efforts of both parties toward mutually beneficial ends with a minimum of wasted effort.
They abandon power based bargaining and substitute an agreed upon rational structure for jointly analyzing costs, determining prices, and sharing profits – resulting in adversarial relationships giving way to cooperative ones.

Japanese suppliers face constant pressure to improve their performance, through constant comparison with other suppliers and contracts based on falling costs.

In lean production, suppliers can get on with the job of improving their own operations – with the knowledge they will be fairly rewarded for doing so.

Dealing with Customers

The link between the customer and production is the logical place to start in understanding any market driven manufacturing process. The success of mass production is geared to the needs of the manufacturing and design processes, with the customer coming last.

Ford demanded full payment from his dealers at the shipping dock but bought his parts and raw materials on consignment.

Since Japanese exporters could not accept special orders due to the distances involved in supply, they concentrated on adding a variety of options as standard equipment on the cars they export.

It is taken as a given a high level of service entails high distribution costs and this can only be justified on luxury makes with high gross margins. Cheaper items can logically only be sold through dealers offering the minimum of assistance to the consumer.

After visiting showrooms, they were amazed at just how little salespeople do know about their products.

Dealers (Channels) in Japan have different labels and model manes for their cars, but the main thing that differentiates them is their appeal to different groups of customers. During the entire period new cars destined for sale through the channel are being developed, staff members from the channel are on loan to development teams. Channels provide training to staff. They also provide staff and a full range of services for those dealerships where it does not own the facilities. Employees, many who are college grads, are hired right after graduation each spring and experience intensive training at Corolla ‘university’ which offers 60 courses, mostly related to marketing. Once fully trained - formal training continues every year for employees – they’re assigned to specific dealerships & begin selling cars.

Sales staff in each dealership is organized into teams of 7 or 8 (similar to teams in Toyota assembly plants). These teams are multi-skilled; all members are trained in al aspects of sales: product information, order taking, financing, insurance, and data collection, as well as to systematically solve owners’ problems as they arise.

Each team begins and ends the day with a team meeting. During the bulk of the day, team members disperse to sell cars door to door, with exception of one team that staffs the information desk in the dealership. Each month, the entire team takes a day to solve systematically any problem that have cropped up, using the 5 why’s and other problem solving techniques. These meetings are the equivalent of the quality circle in the factory.

Selling cars door to door; team members draw up a profile on every household within the geographic area around the dealership, they periodically visit each one, after first calling to make an appointment. During their visits they update the household profile: How many cars of what age does each family have? What is the make and specifications? How much parking space is available? How many children in the household and what use does the family make of its cars? When does the family think it will need to replace its cars? This information is fed back to the development teams.
Based on the info and a knowledge of the corolla product range, the sales representative suggests the most appropriate specification for a new vehicle to meet this particular customer’s needs (even if the family has doubts about what to buy or if it’s really in the market for a car, so the sales rep may bring a demonstration vehicle on the next visit. Once a household is ready to buy, it places a special order through the rep.

The vehicle order also typically includes a complete financing package, trade in on the old car, and insurance, because the sales agent is trained to provide one stop service for the buyer.
Factory execs try to make an educated guess about the demand for different versions, colors and so forth. Based on this forecast, they establish the plant’s build schedule, which is also given to components suppliers so they know what to make. Accuracy of these forecasts depends on how frequently the build schedule is revised (usually every 10 day). Once orders come in, the assembler adjusts the build schedule to make the specific cars the customer wants. The market research provides the basis for a more accurate build schedule

Because the customer is buying a car tailored to his needs, the haggling is almost eliminated. The salesperson doesn’t need to discount the product in order to get rid of a car that the customer would rather not have. The prime objective of the dealer is to keep the customer feeling he is part of the dealer’s family; customers should think they’ve been treated well and paid a fair price.

This is to be one of many transactions the customer does with this salesperson, who probably has already sold the customer a car in the past, taken care of the formalities of registering it an disposing of the traded car, arranged to have the car serviced, and seen it through the rigorous government inspections. Quite possibly the salesperson will have battled with the insurance company for an accident claim on the customer’s behalf & lent him a car while the customer’s own car was being repaired. The Japanese system aims to maximize the stream of income from a customer over the long term. It is clearly understood the dealer will fix any problems the owner encounters with the car even after the end of the formal warranty. Ordered cars are ready in 10 – 14 days and personally delivered by the sales representative. The new car buyer need never go near a dealership.

Lean dealerships have few cars on premise other than 3 – 4 demonstrator models. Stock of cars in the Japanese system averages 21 days. Sales teams are paid on a group commission, so they have no incentive to grab the customer before the next salesperson does or suggest he can provide a better deal. Instead members of the team all join in the discussion once the customer approached them to ask a specific question.
The heart of any Japanese dealership is its service area, whose primary purpose is to prepare vehicles for the Ministry of Transport inspections (a task providing a major source of revenue).

Retired cars: dealer resells 1/3 in the local market, 1/3 is shipped to other countries for sale, 1/3 is scrapped because repair costs the dealer would incur. Dealers repair anything that goes wrong, so they don’t want to take the risk of taking on high future costs or tarnishing their reputation.

The key objective of every distribution channel in Japan is to build and nurture lifetime channel loyalty. Once a new car is delivered, the owner becomes part of the Corolla family. This means frequent calls from the person selling the car – who henceforth becomes the owner’s personal sales agent. The rep will ensure the car is working properly and ferret out and problems the owner may be having, to relay back to the factory. The rep also sends the owner a birthday card or condolence card, and will call to ask if sons and daughters will need a car as they leave for college or 1st jobs. The channel is obsessed with market share and tries never to lose a single owner; relatively short term warranties are ignored. The channel will generally continue to fix defective cars at no cost to the owner throughout the vehicles normal life, provided the owners have not abused them (this implicit warranty does not apply to routine wear, such as replacing brake and clutch linings).

When sales lag, the sales force puts in more hours, and when sales lag to the point the factory no longer has enough orders to sustain full output, production personnel can be transferred into the sales system.

The buyer is treated as an integral part of the production process. The whole distribution system contains 3 weeks supply of finished units, most of which are already sold. In the same way lean producers only have a limited number of suppliers, they only work with a limited number of dealers, who all form an integrated part of their lean production system.

Japanese companies are aware of the costs of their system – they analyze the costs of every step in production down to the last yen.

The periodic surveys of practically all consumers in the Japanese market is the 1st step in the product development system. It avoids the need for the time consuming, expensive & frequently inaccurate market assessment surveys in the west.

When a consumer enters a Corolla dealership they are greeted with an elaborate computer display. Each owner in the Corolla family has a membership card that can be inserted in the display, which shows all the system’s information on that buyer’s household and asks if anything has changed. If so the machine invites the owner to enter new information. The system then makes a suggestion about he models most appropriate to the households needs, including current prices. A sample of each model is usually on display in the showroom immediately adjacent to the computer display. If interested the buyer can approach the sales desk. Cars sold in this manner are about 20% and rising steadily. Companies are planning to make the same information available at every owner’s home on a computer. The customer has access to other data bases too – on obtaining financing and insurance, parking permits, and information on 2nd hand cars (service & inspection history).
By keeping current customers happy, the company can focus on new customers.

Managing the Lean Enterprise

– had holding company at the top

– consisting of about 20 major companies, one in each industrial sector, no holding company.
– They’re held together by cross locking equity structures – each company owns a portion of every other company’s equity in a circular pattern – and a sense of reciprocal obligation.
– Among the key companies in every group are a bank, an insurance company, and a trading company.
– Each has substantial cash resources that can be made available to the members of the group.
– Their key purpose is to help each other raise investment funds – compared to the western stock market system for raising funds where stocks/loans are dropped at the 1st sign of trouble, and owners a.k.a. shareholders usually fail to confront the problem of clear slippage in competitive position until very late in the game.

By contrast, the Japanese group system is patient and extremely long term in orientation – but very well informed and highly critical of inadequate performance. Groups can afford to invest heavily to finance corporate turnarounds, because their considerable knowledge reduces the risks of failure.

The best lean producers believe the point of production is where value is truly added, not through indirect managerial activities, and all employees need to understand this fact as soon as they enter the company. Those who stay in the factory grow increasingly able to solve problems. Management stresses that problem solving is the most important part of any job.
Management’s objective is to give employees increasingly challenging problems to solve in order to continually test their skills, even when no promotion up a ladder to section head or factory manager is possible.

Higher pay comes largely on the basis of seniority, with performance bonuses as well. Lean companies try to make employees understand that their capacity to solve increasingly difficult problems is the most meaningful type of advancement they can achieve, even if their titles don’t change.

For those with a specialized skill (mechanical engineering is most common), the lean producer attempts to harness the skill to a team process where it will be of maximum use. Team members are shifted to subsequent teams and how they may be asked to learn entirely new skills as they move through their careers.

Decision making and problem solving are pushed far down the ladder, reducing the need for layers of middle & senior managers to send orders down and transfer information up.
Key functions for managers are to tie the supplier organizations to the assembler organization and to tie together geographically dispersed units of the company. Typically, the company sends mangers at the mid career level to high level positions in the supplier companies in the assembler’s group and rotates mid and senior level mangers between the company’s operations, particularly the foreign operations.

The practices create a complex network of interpersonal relations, so the assembler and suppliers and those in the company’s international operation know each other through personal contacts. They are also the conduit through which the company’s culture is spread into the supplier system and to new regions.

Lean production achieves its highest efficiency, quality and flexibility when all activities from design to assembly occur in the same place. – “we wish we could design, engineer, fabricate and assemble the entire car in one large room, so everyone involved could be in face to face contact with everyone else”

Supplier plants are mostly located nearby so parts can be shipped from supplier to assembler in less than a day’s drive. In North America, companies have located in the Ohio and Detroit area because they want to be close to the headquarters of U.S. suppliers and be able to recruit engineers easily.

Doing it all near the point of sale (operating in each of the 3 major regions: Europe, N.A. Asian):

- provides protection from trade barriers & currency shifts.
- A multiregional, top to bottom production system has the advantage of rich product diversity.
- Lean production can gain most economies of scale at much lower volume per individual product compared with mass production
o Achieving this goal presumes the variety of products can be assembled in sequence on one large production line using several sizes of engine and transmission from a large engine plant and a large transmission plant. So companies with higher production volumes for all their products combined still have a competitive advantage.
o Consumers in different regions continue to demand different types of products and ***attach different images to the same product***
 German luxury cars are sold as taxis in Germany to create a volume base for the manufacturer, but are sold in N.A. & Japan at much lower volumes and much higher prices as luxury goods. Or Honda offering a car made in the US to Japan as a limited edition, more luxurious & expensive model.
 Honda plans to develop a set of products unique to each region, to serve volume segments in that region. Then they will export these products to other regions to fill market niches, hoping their limited volume and exclusivity will permit charging higher prices. Nissan Skyline could also have taken advantage of this in N.A.
- A multiregional producer can achieve higher levels of sophistication in its managers, who gain exposure to many different environments. Managers gain extra perspective trying to manufacture products in different environments – by moving personnel back and forth between its different international operating units.
o Since managers have been exposed to radically different ways of solving problems, they also have the flexibility to think more creatively about strategic issues facing the company.
- Protection against the regional cyclicality of the market. Sales in every country tend to be more volatile than the general economy, but the world major markets don’t go up and down at the exactly the same time. A company with a presence in all major markets has more protection against cyclicality.
o This makes it easier to plow through the next recession, where they will cut prices if necessary to sustain smooth production at transplant facilities.
- Denies competitors from defending markets from which to skim profits to use in competitive battles elsewhere in the world.
o When told they could only sell a fraction of the cars they had sold previously, the Japanese raised their prices until sales fell to the required level. They then used these profits to wage a market share war in Japan, probably selling below cost in many cases and reducing start ups or foreign competition.
o They also used profits in Japan to underwrite massive investments in production facilities in N.A. and the development of new products.

It is often the case, the company taking the boldest leap in the world market is the one in the weakest position at home. [this would make sense, as it is looking to gain a stronghold somewhere and at home hasn’t worked yet]
Honda is an example, acquiring strong devoted consumers in N.A. while being considered scrappy in Japan.
Its vulnerability to currency shifts and trade barriers was simply too great if it didn’t spread its manufacturing base.
Honda obtains a wide range of components from traditional Honda suppliers from Japan who have opened American transplants nearby and from established American owned suppliers.

The management challenge:
devise a form of enterprise that functions smoothly on a multiregional basis and gains the advantage of close contact with local markets and the presence as an insider in each of the major regions. At the same time, it must benefit from access to systems for global production, supply, product development, technology acquisition, finance, and distribution.

Centralization generates intense resentment because the most important decisions are reserved for headquarters.
Extreme decentralization into regional subsidiaries in isolation ignores the advantages of cross regional integration, and creates gilded cages for highly paid national executives unable to rise ay farther in their organization.
Strategic alliances with independent partner firms from each region; a variant on the last extreme decentralization approach, leave the central question of coordination and overall management unanswered.

Proposed Multiregional Motors

- an integrated, global personnel system that promotes personnel from any country in the company as if nationality did not exist. Requires learning languages and socialization and a willingness to work much of ones career outside the home country.
- A set of mechanisms for continuous, horizontal information flow among manufacturing, supply systems, product development, technology acquisition and distribution. Develop strong shusa led teams for product development, bringing skills together with a clear objective.
o The strongest Japanese companies believe if you aren’t working directly on a product actually heading for the market, you aren’t adding value. So involving as many employees as possible in development work and production is vital. Companies should keep their eyes on the product the customer will buy.
o Teams should stay together for the life of the product, and team members would then be rotated to other product development team, quite possibly in other regions and even in different specialties (for ex. Product planning, supplier coordination, marketing). In this was the key mechanism of information flow would be employees themselves as they travel among technical specialties and across the regions of the company. Everyone would stay fresh and a broad network of horizontal information channels would develop across the company.
o Assigning new projects in new regions is a way to create a global flow of horizontal knowledge and gives every employee a sophisticated understanding of the world.

- A mechanism for coordinating the development of new products in each region and facilitating their sale as niche products in other regions – without producing lowest common denominator products. Logically this is to develop a full set of products for its regional market. Other regions may order these products for cross shipment as niche products wherever demand warrants.
o By shipping products in roughly equal volumes among its regional markets, currency shifts can be not be as significant as losses in one area are offset by higher profits in another

- Internationalizing corporate equity so funds are raised in each region in rough correspondence with sales volume and manufacturing investment would largely eliminate this concern. Dividends could be paid in the currency of the region to insulate the firm from currency shifts between regions.

Diffusing Lean Production

Lean production is a superior way for humans to make things. It provides better products in wider variety at lower cost. It also provides more challenging and fulfilling work for employees at every level, from the factory to headquarters.

Confusion About Diffusion

Reason for lack of resistance with mass prod
- done in the same city as craft production it was replacing, so all skilled workers could find jobs.

Challenge for the progress of lean – companies and workers using older production techniques find it hard to adopt new ways pioneered in other countries (nationalistic reaction), resulting in delays of decades in adopting the new production methods.

Ford supplied his factories despite the strike because he could supply parts from somewhere else. It was more costly for Ford, but the strikers exhausted their savings and gave in.

As lean production replaces mass production but the same number of vehicles are built, many jobs will disappear. ***however this will be necessary in the coming labour shortage***

A severe crisis at Ford, which threatened the survival of the company, was breaking the logjam of old thinking and entrenched interests. Employees at all levels were ready to stop thinking about how to advance their careers or the interests of their department and start thinking about how to save the company. This situation is the very definition of a creative crisis, allowing Ford to implement many elements of lean production and the results showed in the market place.

Regarding a French plant, since they had not faced a challenge from lean producer, they were unable to initiate the change in mind set needed to implement lean production.

Once 1 company was firmly committed offshore – and as it became apparent that shifting currencies and persistent trade barriers made foreign investment inevitable – all the Japanese companies rushed to follow Honda’s lead to N.A.

Managers, not fully understanding and committed to the company’s production system, may not be able to introduce or sustain lean production in a new milieu. High performing company (not stated)’s approach has been to send a large number or experienced managers from Japan to run its US plant, and is getting superlative results, exactly comparable, in fact, to the company’s performance in Japan.
The difference is not the Japanese people, but the managers collectively possess many years of experience and know how in making lean production work consistently in assembly plants. “we believe our production system, with its many nuances, can be learned by anyone… but it takes 10 years of practice under expert guidance”

Lean in the sea of cyclicality
- workers share a fate with their employer, suppliers share a fate with the assembler, in a system of reciprocal obligation. There is a willingness to participate actively and to initiate the continuous improvements that are at the very heart of leanness.
- Instead of mass prod which lays people and suppliers off, supporting a lack of commitment from both
- Lean companies have been able to survive slumps by cutting margins
- Most employees at all levels in Japanese companies receive a large part of their compensation [up to 1/3] in the form of bonuses directly tied to the profitability of the company. When the market drops, the companies operating costs (labour costs) are lower and production can be restored to a prior (lower) level.

Western Careers vs. Japanese Careers
- workers in lean companies are reluctant to leave for better opportunities in other companies other industries because practically all hiring in lean companies is from the bottom only and compensation within is based largely on seniority. Leaving would often be pointless because the employee would almost always be worse off starting off at the bottom elsewhere rather than waiting for the situation to improve with the current employer.
- In the West, high value is placed on having a portable skill, a concept tied to Western education systems that stress discrete competences and certify students to prove the skills have been attained. This concern about skills is very similar to the mind set of the skilled craftsman, who was – and is – obsessed with maintaining his portable skills, although professional workers in the West rarely see the parallel.
- For lean production systems to succeed, it needs dedicated generalists willing to learn many skills and apply them in a team setting. The problem is brilliant team play qualifies workers for more and better play on the same team but makes it progressively harder to leave. So a danger exists that employees who feel trapped in lean organizations will hold back their knowledge or even actively sabotage the system.

It is a matter of understanding the internal logic of lean production. It is a system based fundamentally on doing as much manufacturing as possible at the point of final assembly, including product development.

Completing the Transition

- mass producers need lean competitors located across the road, as they tend to change only when they see a concrete nearby example to strip away all other explanations why the other manufacturer is succeeding.
- Western producers need a better system of industrial finance, one which demands they do better while supplying large funds that will be needed to turn these large companies around
- Mass producers will need a crisis to move those trying to advance their own careers and wages/benefits divorced from productivity gains to a new sense of purpose and team spirit – so they face the reality their whole approach to production is doomed, and organizational changes that are Thought of as difficult are suddenly easy.

One of the most important tenets of the Toyota Production System is never to vary the work pace. Therefore, as efficiencies are introduced in the factory or design shop, or as the rate of production falls, it is vital to remove unneeded workers from the system so that the same intensity of work is maintained. Otherwise the challenge of continual improvement will be lost. The same is true of mass production companies converting to lean production. Excess workers must be removed completely and quickly from the production system if improvement efforts are not to falter.
- retraining workers for positions outside the company will be necessary; this is opposed by governments who do not want to support the costs, and by unions who lose strength as workers leave their companies (even if it’s in the best interests of the workers)

Outdated Thinking about the World Economy

- Lean production dramatically raises the threshold of acceptable quality to a level that mass production, particularly in low wage countries, cannot easily match.
- Lean offers ever expanding product variety and rapid response to changing consumer tastes, something low wage mass production finds hard to counter except through ever lower prices. Continually dropping prices is unlikely to work, because
- Lean dramatically lowers the amount of high wage effort needed to produce a given description, and it keeps reducing it through continuous incremental improvement.
- Lean can fully utilize automation in ways mass production cannot, further reducing the advantage of low wages.

Introduction of lean production can dramatically reduce production costs to spur the stagnant domestic market, where only the upper middle class can now afford the output of the inefficient mass produced products

Beware the risk of extra-regional export strategies in a world of fluctuating currencies.

The plants moving to Lean which perform best are those with a strong lean management presence in the early years of operations, and those that have moved slowly and methodically to build up their domestic supply base.

Companies should consider building a truly global personnel system where new workers from all regions where a company has design, engineering and production facilities are hired in at an early age and given the skills, including language skills and exposure to management in different regions, needed to become full citizens of these companies. This will mean an equal opportunity to head the company someday.
- supplier groups in each region need to operate by exchanging shares in supplier firms and offering full citizenship. They will need to regionalize their equity base and borrowings so that shifting currencies will not hinder the most appropriate deployment of production in each region. The keiretsu will need to include foreign companies.
- Western companies will need to embrace the concept of reciprocal obligation, making a long term commitment to the company of group. Japanese companies will need to abandon their narrow national perspective and quickly learn to treat foreigners who accept the obligations involved as full citizens.

End Notes

In Japan, government and industry exhibit a remarkable ability for restructuring and rationalization through the mechanism of the ‘recession cartel’ in which excess capacity is retired in an orderly manner and the financial pain is shared equally among industry participants. Typically, rather than permanent pay cuts, capacity is retired and excess workers are transferred to growing companies within the keiretsu.

Notes from revised version (20 yrs later)

Standardization – creating a precise and commonly understood way to conduct every essential step in every process.

Managers are taught from the beginning of their career how to identify a problem in the area they are managing; determine the aspects of the process that are currently causing the problem and envision a better process that should be able o solve the problem. Then develop an implementation plan, measures the results, and adjusts the process as necessary (Plan-Do-Check-Act)

Toyota is more functional than originally thought.
Professionals work through their careers in one specialty; the difference is in the horizontal connectivity across the different functions

They thought employees were assigned for the life of the project & he controlled their career path.
Actually, they follow him because he leads, and they take responsibility for product development & production as supported by the bullet proof design & production processes developed within the functions.
Functions can be very effective in cooperating cross functionally with team leaders when the needs of the product are accurately stated, processes are adhered to, everything goes as it should and the project or process leader can get the attention of higher management if it doesn’t.
The key is the behaviour of the project leader, and of the function leaders as they jointly solve problems.

Emphasis on minimizing throughput time for the whole sequence of production steps while maximizing machine capability and availability (Toyota calls this ‘stability’) as opposed to machine utilization.

While robots are flexible and reprogrammable in theory, well trained production associates are more flexible and reprogrammable in pro-active, so Toyota never automates unless necessary.

No system of capital allocation makes much difference if the fundamental processes of a business are not being managed properly, and financiers are unlikely to understand these processes outside of their own business (if there).

The main difference between Toyota & Nissan’s results in managing suppliers is Toyota’s relentless oversight of every design, production and logistics process by asking hard questions about performance every day. Nissan, by contrast seems to have created a comfortable club where poor performance was forgiven to maintain group harmony.
What we lack as lean production diffuses across the world is a stable way for firms and independent suppliers sharing product value steams to work together to rigorously optimize the performance of the whole, not just the parts.

Kanban signals are paper or electronic, not actual bins as described on p154

Toyota has standard inventory, proportional to the volatility of orders from the customer and to the stability of the upstream process steps delivering what is needed.
The question is not whether to reduce inventories over time but how. Simply eliminating most inventories in advance of reduced order volatility or enhanced upstream stability leads to pain without gain.

Machine utilization – a key metric in standard cost accounting systems, which fails to account for the hidden costs of extra inventory, long lags in catching quality problems & long lead times

The lean approach would be to produce parts in the sequence ABABAB so that no waves of orders are sent back upstream (I think this means steady flow), production is much closer to actual customer requirements, and inventories are minimized.
Some batching is often still required due to the nature of technology, but a lean producer wants to steadily reduce batch sizes whenever possible to make small amounts of each item frequently in proportion to customer demand.

Lean Thinking p1 - 104

Lean Thinking

Part 1 Lean Principles

Lean Thinking versus Muda

- value can only be defined by the ultimate customer
- value is created by the producer
- business school trained executives of western firms usually have a slick presentation about their org, tech, core competencies & strategic intentions. They talk about their short term competitive problems (specifically their need to garner adequate profits in the next quarter and consequent cost cutting initiatives.
- customers across the world like products designed with an eye to local needs; products made to their precise order to be delivered immediately
- outdated thinking about economies of scale; producing using assets they’ve already bought; producing what they know how to produce
- airlines – low cost, point to point services using smaller jets; quick turnaround systems for small jets at airports
- old fashioned “efficiency” thinking suggests the best way to make use of these assets and technologies is to get larger batches
- ignore existing assets and technologies; rethink firms on a product line basis with strong dedicated product teams.
- Lean thinking must start with a conscious attempt to precisely define value in terms of specific products with specific capabilities offered at specific prices through a dialogue with specific customers.
- the initial ingot of material (ex. Nickel) was 10 times the weight of the machined parts eventually fashioned from it. 90% of the very expensive metals were being scrapped because the initial ingot was poured in a massive size – melters were certain this was efficient – without much attention to the shape of the finished parts.
- Firms are accustomed to looking carefully at their own affairs but had simply never taken the time to look at the whole value stream, including the consequences of their internal activities for other firms along the stream.
- Creating lean enterprises does require a new way to think about firm to firm relations, some simple principles for regulating behaviour between forms and transparency regarding all the steps taken along the value stream so each participant can verify that the other firms are behaving in accord with the agreed principles.
- Looking at the problem from the standpoint of the newsletter which wants to get mailed in the quickest way with the least effort
o 2 options to fold, address, seal and stamp & mail a newsletter: Fold all of them, address all of them, seal all of them, mail all of them. Or do them each individually.
o Wouldn’t doing it individually (folding one, then addressing, then sealing then stamping, then mailing) avoid the wasted effort of picking up an putting down every newsletter four times?
o Most of the world has a profound conviction that performing tasks in batches is best, and fails to consider that a rethink of the task might permit continuous flow and more efficient work.
- Things work better when you focus on the product and its needs, rather than the organization or the equipment, so that all the activities needed to design, order, and provide a product occur in continuous flow.
- The challenge with flow thinking is counterintuitive; it seems obvious to most people that work should be organized by departments in batches. Once departments and specialized equipment for making batches at high speeds are put in place, both the career aspirations of employees within departments and the calculations of the corporate accountant (who wants to keep expensive assets fully utilized) work powerfully against switching over to flow.
- the reengineering movement recognized that departmentalized thinking is suboptimal and tried to shift the focus from organizational categories (departments) to value creating ‘processes’, but this doesn’t go far enough conceptually. It still deals with disconnected and aggregated processes (ex. Order taking for a whole range of products) rather than the entire flow of value creating activities for specific products.
- They often stop at the boundaries of the firm paying their fees, whereas major breakthroughs come from looking at the whole value stream.
- The lean alternative is to redefine the work of functions, departments & firms so they can make a positive contribution to value creation and to speak to the real needs of employees at every point along the stream so it is actually in their interest to make value flow.
- The demands of customers become much more stable when they know they can get what they want right away and when producers stop periodic price discounting campaigns to move goods already made which no one wants.
- how can performance be improved: sweat and longer hours are not the answer but will be employed if no one know how to work smarter.
- When employees begin to feel the immediate feedback from making product development, order taking, production flow and are able to see the customer’s satisfaction, much of the carrot and stick apparatus of open book management’s financial reward system becomes unnecessary.


- Carl Sewell, Customers for Life
- Home Builder: Teach your workforce the principles, collect and analyze data on every aspect of the business, remove individual sales commissions (which destroy quality consciousness), eliminate the superintendent bonus (builder bonus, who were qualifying for the on time completion bonus by making side deals with customers on a “to be done later” list, reduced contractor corps by 2/3, and required remaining contractors to attend (and pay for) his monthly quality seminars, monitored customer surveys
- Wiremold: formed a team for each product to stick with that product during its entire production life (a marketer, product engineer & tooling/process engineer), who proceeded to enter into a dialogue with leading customers (major contractors) in which all of the old products and solutions were ignored. Instead, the customer and the producer focused on the value the customer really needed.
- Firms need to be searching for fundamentally new capabilities that will permit them to create value in unimagined dimensions, most firms can substantially boost sales immediately if they find a mechanism for rethinking the value of their core products to their customers.
- Travel: the problem is each firm is providing a partial product, often only looking inward toward its won operational “efficiency” while no one was looking at the whole product through the eyes of the customer. The minute the focus is shifted to the whole as seen by the customer, obvious questions emerge.
- Producers must accept the challenge of redefinition, because this is often the key to finding more customers, and the ability to find more customers and sales very quickly is critical to the success of lean thinking; this is because lean organizations are always freeing up substantial amounts of resources. If they are to defend their employees and find the best economic use for their assets as they strike out on a new path, they need to find more sales right now. Beginning with a better specification of value can often provide the means.

The Target Cost
** the most important task in specifying value, once the product is defined, is to determine a TARGET Cost based on the amount of resources and effort required to make a product of given specification and capabilities if all the currently visible muda were removed from the process. Doing this is the key to squeezing out the waste
- Conventional firms set target selling prices based on what they believe the market will bear. They then work backwards to determine acceptable costs to ensure an adequate profit margin, and they must do this any time they begin to develop a new product
- Difference: Lean enterprises look at the current bundles of pricing and features being offered customers by conventional firms and then ask how much cost they can take out by full application of lean methods. They ask, what is the waste free cost of this product, once unnecessary steps are removed and value is made to flow? This becomes the target cost for the development, order taking and production activities necessary for this product.
- Because the target is certain to be far below the costs borne by competitors, the lean enterprise has choices: reduce prices (another way to increase sales volume and utilize freed up resources); add features or capabilities to the product (which should also increase sales); add services to the physical product to create additional value (and jobs); expand the distribution and service network (again increasing sales, although with a time lag); or take profits to underwrite new products (which will increase sales in the longer term).
- Once the target cost is set for a specific product, it becomes the lens for examining every step in the value stream for product development, order taking, and production (this latter being called operations in the case of a service like insurance or transportation). The relentless scrutiny of every activity along the value steam – asking whether a specific activity really creates any value for the customer – becomes the key to meeting the aggressive cost target.

The Value Stream

** Creating a Value Stream map identifying every action required to design, order, and make a specific product is to sort these actions into 3 categories
1) those which actually create value as perceived by the customer
2) those which create no value but are currently required by the product development, order filling, or production systems [Type 1 muda] so can’t be eliminated just yet;
3) those actions which don’t create value as perceived by the customer [Type 2 muda] and so can be eliminated immediately. Once this third set has been removed, the way is clear to go to work on the remaining non-value-creating steps through use of the flow, pull, and perfection techniques.
- Cola: during most of the development period the concept is sitting still, awaiting feedback from the group which conducts the clinics on all the firm’s products or awaiting its place on the schedule of the department which conducts small scale market trials for all products.
- [Benchmarkers] who discover their performance is superior to their competitors’ have a natural tendency to relax, while mass producers discovering their performance is inferior often have a hard time understanding exactly why. They tend to get distracted by easy to measure or impossible to emulate differences in factor costs, scale, or culture, when the really important differences lie in the harder to see ways value creating activities are organized.
- Advice: tell hell with your competitors; complete against perfection by identifying all activities that are waste and eliminating them. This is an absolute rather than a relative standard which can provide the direction for any organization.

- once value is defined and the entire value stream is identified,
1) focus on the actual object: the specific design, the specific order, and the product itself (a ‘cure,’ a trip, a house, a car), and never let it out of sight from beginning to completion.
2) Ignore the traditional boundaries of jobs, careers, functions (often organized into departments), and firms to form a lean enterprise removing all impediments to the continuous flow of the specific product.
3) Rethink specific work practices and tools to eliminate backflows, scrap and stoppages of all sorts so that the design, order, and production of the specific product can proceed continuously.
These 3 steps must be taken together.
- Most managers imagine that the requirements of efficiency dictate designs, orders, and products go “through the system” and good management consists of avoiding variances in the performance of the complex system handling a wide variety of products. The real need is to get rid of the system and start over, on a new basis.
- the lean approach is to create truly dedicated product teams with all the skills needed to conduct value specification, general design, detailed engineering, purchasing, tooling and production planning in one room in a short period of time using a proved team decision making methodology commonly called Quality Function Deployment (FD). This method permits development teams to standardize work so that a team follows the same approach every time. Because very team in a firm also follows this approach, it’s possible to accurately measure throughput time and to continually improve the design methodology itself.
- Dedicated teams do not need to be as large as traditionally thought, the smaller the better. A host of narrowly skilled specialists are not needed because most marketing, engineering, purchasing and production professionals actually have much broader skills than they have 1) ever realized, 2) ever admitted, or 3) ever been allowed to use. When a small team is given the mandate to ‘just do it,’ it is always found the professionals suddenly discover each can successfully cover a much broader scope of tasks than they have ever been allowed to previously.
- Production slots created by takt time calculation are clearly posted.
- Complete display, so everyone can see where production stands at every moment, is an excellent example of another critical lean technique, transparency or visual control.
- Transparency facilitates consistently producing to takt time and alerts the whole team immediately to the need either for additional orders or to think of ways to remove waste if takt time needs to be reduced to accommodate an increase in orders.
- Raising awareness of the tight connection between sales and production also helps guard against one of the great evils of traditional selling and order taking systems: resorting to bonus systems to motivate a sales force working with no real knowledge of or concern about the capabilities of the production system. These methods produce periodic surges in orders at the end of each bonus period (even though underlying demand hasn’t changed) and an occasional “order of the century” drummed up by a bonus hungry sales staff, which the production system can’t possibly accommodate. Both lead to late deliveries and bad will from the customer.
- To get continuous flow systems to flow for more than a minute or two at a time, every machine and every worker must be completely ‘capable.’ That is, they must always be in proper condition to run precisely when needed and every part made must be exactly right. By design, flow systems have an ‘everything works or nothing works’ quality which must be respected and anticipated.
- This means the production team must be cross skilled in every task (in case someone is absent or needed for another task) and the machinery must be made 100% available and accurate through a series of techniques called Total Productive Maintenance (TPM).
- It also means work must be rigorously standardized - by the work team, not by some remote industrial engineering group – and that employees and machines must be taught to monitor their own work through a series of mistake proofing (poka-yoke) which make it impossible for even one defective part to be sent ahead to the next step
- 5S (where all debris and unnecessary times are removed an every tool has a clearly marked storage place visible from the work area)
- status indicators and clearly posted up to date standard work charts, displays of key measurables and financial information on the costs of the process
- the precise techniques will vary with the application, but the key principle does not: Everyone involved must be able to see and must understand every aspect of the operation and its status at all times
- this typically can be done very quickly and almost never requires major capital investments; if you think you need to spend large sums to convert equipment from large batches to small batches or single pieces, you don’t yet understand lean thinking
- when production is broken into product families, it is often the case no family accounts for the kind of volume needed for track assembly. Manual advancing of the product through assembly is often cheaper.

- Mihaly Csikszentmihalyi, University of Chicago, studied what makes people feel good
- the types of activities which people all over the world consistently report as most rewarding (make them feel the best) involve a clear objective, a need for concentration so intense that no attention is left over, a lack of interruptions and distractions, clear and immediate feedback on progress toward the objective, and a sense of challenge – the perception that one’s skills area adequate, but just adequate, to cope with the task at hand.
- When people find themselves in these conditions they lose their self consciousness and sense of time. They report the task itself becomes the end rather than a means to something more satisfying, like money or prestige. People experiencing these conditions are in a highly satisfying psychological state of flow.
- Work is rated as the most important overall life activity. In classic batch and queue work conditions, the worker can see only a small part of the task, there is often no feedback (much less immediate feedback), the task requires only a small portion of one’s concentration and skills, and there are constant interruptions to deal with other tasks in one’s area of responsibility.
- Work in an organization where value is made to flow continuously also creates the conditions for psychological flow. Every employee has immediate knowledge of whether the job has been done right and can see the status of the entire system. Keeping the system flowing smoothly with no interruptions is a constant challenge, and a very difficult one, but the product team has the skills and a way of thinking which is equal to the challenge. And because of the focus on perfection, the whole system is maintained in a permanent creative tension which demands concentration.


- Toyota applied their standard formula machines should be available for production about 90% of the time and down for changeovers about 10 % of the time
- Don’t make anything until it is needed; then make is very quickly
- Toyota had to convince its employees the new way of thinking would not cause anyone to lose his job
- Warehouse
o Reduce bin sizes and relocated parts by size and frequency of demand.
o Trying to pick large & small parts on the same run caused lost parts and use of grossly oversized equipment, so parts were segregated to small, medium & large categories with their own sections of the warehouse
o Parts most frequently demanded were moved closest to the start of the sorting and picking runs

Scan in b4 & after picks
- batch size of replenishment orders must be changed
- concepts of standard work & visual control used by dividing the workday into 12 minute cycles. An interval of this length was found to be the best compromise between walking distance and cart size in making a round of the bins to load or unload a cart.
- During each cycle an ‘associate’ (as hourly workers were now called), was expected to pick or bin a different number of lines, depending on the size of the part.; in a 12 minute picking cycle, 30 lines of small parts or 20 lines of medium parts or 12 lines of large parts.
- A progress control board was constructed between the receiving dock and the shipping dock to show everyone the number of cycles to be completed and the time available. Each associate was given a stack of magnetic markers of a given color and asked to place a marker in the appropriate square on the progress control board each time a cycle was completed. Everyone could now see exactly how the work was proceeding, a good example of visual control where everyone works out of contact with everyone else.
- The control board eliminated the need for ‘team leaders’ (as supervisors were now called), to supervise teams. Instead everyone could look at the board, observe that one worker was falling behind, and provide that worker with help once other tasks were finished.
- Visual control & exact work cycles also made it possible to address the causes of disruptions in work flow. The right side of the progress control board provided a blank area beside each cycle for associates to write in the reason a cycle could not be completed on time. These reasons became the raw materials for directing work team kaizen activities.
- new work carts were built to the right sized for each type of picking or binning task, and designed to hold just the right # of parts (another type of visual control)
- main computer reprogrammed to group orders from dealers by bin location so a set of picking labels in precise bin order was printed out at the beginning of each shift. Picking labels were divided into 12 minute cycles and placed in pigeonholes in a dispatch box Pickers obtained their jobs of exactly 12 minutes duration from the dispatch box, always taking labels from the next available slot so there could be no possibility of favouritism in work assignments. Each associate was given 5 assignments/hour and work could proceed in a smooth flow from shelves to shipping dock. Posting start times above the slots & visually controlling completion times also eliminated another traditional warehousing problem or working ahead to ‘beat the system,’ which invariably led to quality problems as associates in their hasted picked the wrong part or put parts in the wrong bins
- switched from weekly to daily orders, smaller dock area due to smoother flows with no surges
p80 scan

- level scheduling needs level selling.
- Temporary increases in orders (due to sales & promotions)increase the level above long term average demand, followed by a drop in orders, requiring costs such as overtime, excess capacity, shipping, stocking, picking. The solution is to concentrate on level selling by keeping prices constant and making replacement parts at the exact rate parts were being sold.
- The difficulty persuading people to go along with the improved method comes from generations of batch & queue thinking.
- it is hypothesized half of the downswing of economic activity in business cycles is due to consumers and producers working off the inventories built up toward the top of the cycle, and ½ the upswing is due to building up new inventories in expectation of higher upstream prices.


- no matter how many times employees improve a given activity to make it leaner, they could always find more ways to remove waste by eliminating effort, time, space and errors.; and the activity became progressively more flexible and responsive to customer pull
- traditional management often fails to grasp the concept of perfection through endless steps, which is a fundamental principle of lean thinking.
- Quality problems causing high levels of scrap are difficult to address when there are long time lags between different steps in the process (pressing, encapsulation, & installation). These problems are likely to be discovered in a lean process where processes are close together and no time lag exists
- In order to form a view of what perfection is, value steam mangers need to apply the 4 lean principles of value specification, value stream identification, flow and pull. You are competing against perfection, not competitors, so it is necessary to gauge the gap between current reality to perfection. Then decide which forms of waste to attack first, by means of policy deployment.
- Trying to envision perfection and getting there is impossible, but the effort to do so provides inspiration and direction essential to making progress along the path.
- Besides forming a picture with the appropriate technologies, managers need to set a stringent timetable for steps along the path.
- The greatest difference between those organizations that have done a lot and those that have accomplished little or nothing is that the high achievers set specific timetables to accomplish the seemingly impossible tasks and then routinely met or exceeded them.
- The low achievers, by contrast, asked what would be reasonable for their current organization and disconnected value streams to accomplish, and generally defeated themselves before they ever set out
- Policy deployment: top management agrees on a few simple goals for transitioning from mass to lean, to select a few projects to achieve these goals, to designate the people and resources for getting the projects done, and to establish numerical improvement targets to be achieved by a given point in time.
- Often organizations construct an annual policy deployment matrix which summarizes goals, project for that year, and targets for these projects so every one in the entire organization can see them. In doing this, it’s essential to openly discuss the amount of resources available in relation to the targets so everyone agrees as the process begins it is actually doable.

Scan p96 matrix

- once specific projects are agreed on, it’s essential to consult with the project teams about the amount of resources and time available to ensure the projects are realistic. The teams are collectively responsible for getting the job done and must have both the authority and resources from the outset
- as the concept of making a dramatic transition begins to take hold, we often observe that everyone in an organization wants to get involved and the number of projects tends to multiply. This is exhilarating but is actually the danger signal too much is being taken on. The most successful firms we’ve found have learned how to ‘deselect’ projects, despite the enthusiasm of parts of the organization, in order to bring the number of projects into line with the available resources. This is the critical final step before launching the lean crusade.
- The techniques themselves and the philosophy are inherently egalitarian and open. Transparency in everything is a key principle. Policy deployment operates as an open process to align people and resources with deployment tasks. And massive an continuing amounts of problem solving are conducted by teams of employees who historically have not even talked to each other, much less treated each other as equals.
- The catalytic force moving firms and value steams out of the world of inward looking batch and queue is generally applied by an outsider who breaks all the traditional rules, often in a moment of profound crisis. We call this individual the change agent.
- The change agent is typically something of a tyrant, hellbent on imposing a profoundly egalitarian system in profoundly inegalitarian organizations
- Those who succeed in creating lean systems over the long term are clearly understood by the participants in the firm and along the value steam to be promoting a set of ideas which have enormous potential for benefiting everyone.
- Those who fail are either identified as narrow technocrats with no concern for the very real human issues inherent in the transition, or they are dismissed by the organization as self promoters who are simply seeking to advance their own position by riding the wave of ‘the next program’. Both quickly fall victim to organizational lassitude, if not to active sabotage.