The Business Complexity Accelerator at Toyota

There was an interesting article in the Knowledge@Wharton newsletter today. Wharton management professor John Paul MacDuffie interviewed Toyota expert, author and Tokyo University Professor Takahiro Fujimoto. The piece is called Under the Hood of Toyota’s Recall: ‘A Tremendous Expansion of Complexity’ and raises the by now familiar questions of complexity of modern automobile systems design, attitudes at Toyota towards its recent quality problems, and what this means for both Toyota and its competitors. To sum up the article with an automotive metaphor, Toyota needs to take its foot off of the business complexity accelerator.

Fujimoto said, “I was surprised to see that Toyota was the first to be caught in this trap of what we may call

complexity problems.” What has puzzled Toyota watchers is how Toyota, proven to be so great at solving problems for so many years, seems to have stumbled in a big way during this recent acceleration-related recall. Why?

Toyota failed to see this problem in the right way, at least in the beginning.

Failing to grasp a problem clearly, quantitatively and without prejudice is the first step in problem solving. Was this a case that the problem solving approach was flawed, or was it that the problem solving process is still sound but that Toyota did not follow their own process?

The danger is that people tend to connect the two problems. “This happened and that happened, so there must be causal relations between the two.” But this is not the case. There appears to be no connections between the design problems and the Toyota production system or Toyota Way.

He clearly says that the recent quality issue at Toyota is not connected to their way of working within the production operations, i.e. the Toyota Production System or even more broadly their philosophy, the Toyota Way. He suggests that that the complexity of new systems within the design simply got out of hand, and when they did, Toyota was unable to respond properly. While the processes within TPS are sound, the mindsets and behaviors of people may have shifted in an unhealthy way towards overconfidence, even arrogance. Fujimoto said:

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Toyota to Reduce Span of Control in Engineering

The Nikkei reported on June 11, 2010 that Toyota is bringing back front line supervisors, adding a layer of management to staff positions that has been missing since 1989. This is an admission by Toyota, the world’s greatest lean manufacturing company, that they got their span of control in engineering and possibly other staff areas, wrong.

This move is in quite stark contrast to the “de-layering” going on at many global companies in an effort mainly to cut costs. While it may not seem lean to add layers of supervision, it is in fact very lean when done to reduce span of control. Form follows function and in this case the supervisors function as team leaders, coaches and first responders to andon

cord pulls (calls for help). This in turn helps expose, catch and correct problems while they are still small, rather than letting them grow into bigger problems. These problems have apparently been escaping in recent years, based on the recalls and quality problems we are seeing at Toyota.



A few years ago we commented about an article citing concern among old-timers at Toyota that the rush increase volume and make large cost cuts in design was moving the company away from it’s principle of slow, steady growth through development of people. “When did Toyota get to be a company like this?” was the question asked in alarm at the way things were being changed. The person quoted in that article was Shoichiro Toyoda, the father of current Toyota CEO Akio Toyoda, who is leading this latest reorganization towards smaller span of control for engineers.

The Nikkei reports that this new team structure will be implemented first in the technology development sections. About 1,000 employees who have been with the company for about 10 years will move into supervisory positions. The span of control is a conservative five engineers per leader. Toyota has not given this position an official title yet, and plans to do so after a one-year pilot, according to Toyota.

For further reading on this important topic, here are three more articles on our blog about supervisor span of control:

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The Illustrated Toyota Production System, Vol. 2

We are pleased to bring to you The Illustrated Toyota Production System, Volume 2. This is a book that sheds light on lean manufacturing practices and in particular the Industrial Engineering underpinnings of TPS. Building on the overview of philosophy, principles and systems provided in Volume 1, the second half gives 60 practical lessons on kaizen and industrial engineering approaches and their use.

To celebrate the publishing of this book in English, we are offering a 2-for-1 sale through the month of June. Click on the banner above or visit www.gemba-shop.com and enter the coupon code TPSGEMBA upon checkout.

Each book is about 130 pages, half of which are illustrations of various principles and tools.

Volume 2 contains 60 lessons made up of one page of text and one supporting illustration, such as the one below from “Lesson 38: Education and Training Help People See Waste“.

The book is organized into four sections as shown below:

Section 1. What Is Kaizen?

1. Kaizen Is Built on Respect for People
2. A Key to Toyota’s Outstanding Success
3. Sharing Information through Visualization
4. Creating a Common Understanding of Work through Visual Management
5. Examples of Visual Management
6. Knowledge Is Not Sufficient–Creativity Is Needed
7. We Know Defects Are Waste–Why Can’t We Kaizen Them Away?
8. Understand Time-Tested and Proven Problem Solving Techniques
9. Kaizen Must Be Workplace-Centered
10. Understand the True Nature of Defects
11. How to Find the Root Causes of Defects in the Workplace
12. Getting Rid of the Waste of Inspection
13. Causes of Careless Mistakes & the Pokayoke Concept
14. Three Approaches to Pokayoke
15. How to Cope with Unplanned Minor Stops of Equipment
16. How Can We Learn to See Waste?
17. What to Do When You Cannot Find Topics for Kaizen

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Toyota

What do you get when you mix 1,000 engineers, four weeks of additional product development lead time and reduced reliance on outsourced engineering by 67%? In most product development departments this would get a decision maker quickly fired. Not so for Executive VP Takeshi Uchiyamada, a chief engineer at Toyota tasked with turning the tide on quality issues. Toyota is taking some expensive countermeasures to the root causes that their quality assurance process from the product design and testing standpoint seems to have been cut a bit too close to the bone over the past decade through cost reductions and development time reduction efforts.

According to the Wall Street Journal article Toyota Assigns 1,000 Engineers to Quality Drive :

Toyota Motor Corp. has assigned 1,000 engineers to help analyze quality problems and is extending time devoted



to testing new models by an average of four weeks in an effort to head off glitches before vehicles enter production

Toyota has so far spent about $4 billion to correct the problem of unintended acceleration in its vehicles, but this has been mostly containment and not root cause correction. The changes suggested in this article are aimed more at root causes, and will cost approximately $400 million if we take the cost of 1,000 engineers to be $150 million per year and estimate the cost of 4 weeks of lead time and the reduction in outsourcing to be another $250 million. Could this be a demonstration of the 10X rule of the cost of quality?

Toyota reportedly saved more than $11 billion in the early 2000s thanks to its CCC21 efforts, and some have linked these cost reductions in the design process as well as supply chain costs as contributors to today’s quality problems. Cost reduction should result from following and improving safe, high quality processes that deliver to customer’s expectations. When cost reduction programs put quality before the other KPIs there is a danger that the overall costs increase in the long-run.

Mr. Uchimayada said he would like to reduce the amount of outside engineers working on research and development, but the process will take time. The company must wait for contracts to expire before it can bring the work inside the company. A company executive said the target is 10% outside engineering contractors, down from 30% now.

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Toyota Production System

According to the Buddha there are three characteristics of existence:

Impermanence
Dissatisfaction
Non-self

Becoming deeply aware of these “Three Dharma Seals” (三法印) is said to bring about wisdom and an end to the cycle of rebirth and suffering.

I read an article by an ex-Toyota manager who was responsible for starting up the Tahara factory in Toyota, Japan.

He wrote that “at the foundational philosophy of the true Toyota Productions System” there are 4 items:

Respect for people
Impermanence (諸行無常)



Mutual existence and prosperity
Genchi genbutsu

Items 1, 3 and 4 should be familiar to readers but what is meant by #2? This particular Buddhist expression means that “All worldly things are transitory.” The author explained that companies are living organisms that weaken if not exercised and that die if they do not change. To accept impermanence is to embrace change. He wrote, “The purpose of today is also to prepare for tomorrow.”

Where do we see evidence of this philosophy of impermanence within the Toyota Production System?

Kaizen. Many small changes are applied repeatedly to a process. There is never a perfect condition or a solution, only steps toward it. Dissatisfaction with the current condition is essential.

Success. Celebrate briefly and then do hansei (reflection) on what was done right, what was just luck and what could be done better next time. A bit of non-self (humility) and an awareness of impermanence are essential to gaining perspective on success.

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Outsourcing: The Big Lie

Cambridge, Mass., Sept. 22, 2011 — Outsourcing of production and services is the new norm. But in the search for lowest-cost providers, companies often overlook sensible considerations such as total cost, quality, logistics, innovation, and collaborating with partners for mutual prosperity.

John Shook, chairman and CEO of the nonprofit Lean Enterprise Institute (LEI), will examine the downside of outsourcing in the opening keynote presentation, “Outsourcing: The Big Lie,” at the Northeast Shingo Prize Conference, Springfield, MA, Oct.5-6, 2011.

“While there are clearly times when outsourcing makes good business sense, academicians and theorists have  inadvertently oversold its benefits without rigorously considering the full consequences,” said Shook.

Lean Management Expert

In 11 years as a manager at Toyota, Shook helped the automaker introduce its lean management system to North America. He is co-author of the groundbreaking workbook Learning to See that introduced value-stream mapping to a worldwide audience and author of Managing to Learn on the A3 management process.

Shook called for developing lean supply chains to end the “madness” in today’s supply Chain during a panel discussion in June at the Rebuilding Japan Conference hosted by business information giant Bloomberg, LP, at the Japan Society in New York City.

Writing in his April 2011 eletter to the Lean Community, titled “Any Color You Want Except Tuxedo Black,” Shook explained the hidden dangers in today’s single sourcing strategies.

Lean in America Theme

The Northeast Shingo conference, with a 2011 theme of “Made Lean in America,” provides education and networking for managers and executives in manufacturing, healthcare, and government.

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Stealing the 7 Secrets

Taizo Ishida (1888-1979) took over the role of President of Toyota from the inventor and founder Kiichiro Toyoda in the midst of labor unrest, layoffs and the threat of bankruptcy.

Ishida is considered the “restorer of Toyota” for good reason in that his business acumen, leadership and what would later be called lean values helped bring Toyota out of its crisis. Ishida shares his secrets of success in the book The 7 Principles of Toyota’s Business Success (トヨタの商売 成功の7原則).

These seven principles are:

1. Establish industry with Japanese minds and skills. In this phrase we see a strong desire to contribute to a positive Japanese trade balance with the world, as well as to develop the nation’s industrial capability. Replace “industry” with your type of business, institution or economic sector and “Japanese” with the people of your own region and you can steal this secret of strong long-term purpose tied to community.



2. Good thinking, good products – creativity and craft. Both of these phrases can be seen with Toyota to this day, unchanged. They have survived for 60 years because they are timeless, pithy and proven to deliver results. Toyota’s business origins were in invention (the automatic loom) a good product from good thinking. The name of Toyota’s kaizen suggestion system is the “creativity and craft” system, which Toyota stole from Ford in 1951. In principle or in practice, this is is a success secret every organization should own.

3. Spirit of country people. There may be a note of local pride or even defiance here, as the region of Toyota’s origin was rural and far from the financial, intellectual or economic center of Japan. No doubt the rural values of hard work, resourcefulness and the lack of unnecessary cultural sophistication in running a successful manufacturing business was a part of this principle. The harried treasure hunter leaves behind what looks suspiciously like large lump of coal. The savvy treasure hunter steals this huge gem.

4. Indomitable fighting spirit – will power. Steal this if you can, beg or borrow it if you can’t, but make it yours and don’t give it back.

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This production control system has been established based on many years of continuous improvements, with the objective of “making the vehicles ordered by customers in the quickest and most efficient way, in order to deliver the vehicles as quickly as possible.”

The Toyota Production System (TPS) was established based on two concepts: The first is called “jidoka“(which can be loosely translated as “automation with a human touch“) which means that when a problem occurs, the equipment stops immediately, preventing defective products from being produced; The second is the concept of “Just-in-Time,” in which each process produces only what is needed by the next process in a continuous flow.



Based on the basic philosophies of jidoka and Just-in-Time, the TPS can efficiently and quickly produce vehicles of sound quality, one at a time, that fully satisfy customer requirements.

Just-in-Time
“Just-in-Time” means making only “what is needed, when it is needed, and in the amount needed.” To efficiently produce a large number of products such as automobiles, which are comprised of some 30,000 parts, it is necessary to create a detailed production plan that includes parts procurement, for example.
Supplying “what is needed, when it is needed, and in the amount needed” according to this production plan can eliminate waste, inconsistencies, and unreasonable requirements, resulting in improved productivity.

Kanban System

In the TPS, a unique production control method called the “kanban system” plays an important role. The kanban system has also been called the “Supermarket method” because the idea behind it was borrowed from supermarkets. Supermarkets and mass merchandizing stores use product control cards on which product-related information, such as product name, product code, and storage location, is entered. Because Toyota employed kanban signs in place of the cards for use in production processes, the method came to be called the “kanban system.” At Toyota, when a process goes to the preceding process to retrieve parts, it uses a kanban to communicate what parts have been used.

Visit toyota.co.jp for more about Toyota production system

Toyota

By JAMES P. WOMACK
The latest bad news is now in from GM and Ford: 60,000 U.S. and Canadian jobs will go in the next few years, 24 giant factories will close, and North American losses in the billions will continue.

Clearly MoTown needs a new approach and it’s natural in the car industry to think that the secret must be a killer model — a Toyota Prius hybrid or some other concept to replace the big pickups and SUVs that floated the American firms for 15 years.



Actually, it’s not a new car model that’s needed. It’s a new business model. Toyota is leading the charge against Detroit — largely from inside the U.S. — with a fundamentally different approach to business that my MIT research team in the 1990s labeled “lean” enterprise. Compared with these Toyota practices, GM and Ford’s approach has five fatal weaknesses.

* GM and Ford can’t design vehicles that Americans want to pay “Toyota money” for. And this is not a matter of bad bets on product concepts or dumb engineers. It’s a matter of Toyota’s better engineering system, using simple concepts like chief engineers with real responsibility for products, concurrent and simultaneous engineering practices, and sophisticated knowledge capture methods. The Prius is not the result of a hunch or luck but rather the likely result of a development system that tries out many approaches to every problem, then gets the winning concept to the customer very quickly with low engineering cost, low manufacturing cost, and near perfect quality. (That’s not to say that Toyota can’t produce a dud — the first-generation Previa minivan and Tundra pickup stand out — but the likelihood of producing winners is higher than with traditional development systems.)

* GM and Ford are clueless as to how to work with their suppliers. Sometimes they try to crush their bones — which only works when the suppliers have any profits to squeeze, and few currently do. Then they embrace contentless cooperation that makes everyone feel better briefly but fails to produce lower costs, higher quality, or new and better technology. Toyota, by contrast, is getting brilliant results and lower prices from American suppliers like Delphi while also giving suppliers adequate profit margins. How? By relentlessly analyzing every step in their shared design and production process to take out the waste and put in the quality.

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