Driving Down Costs: Toyota Takes Lean Efficiencies Beyond JapanPublished: September 18, 2012 in Knowledge@Australian School of Business
It took an earthquake and floods to finally knock off Toyota as the world's largest car-maker. The company had reached the top by mass-producing reliable and affordable cars, using the acclaimed Toyota Production System (TPS). Tagged "lean production", TPS reflected Japanese history and a culture of cooperation in the workplace. When assembly plants were opened in Thailand, TPS was adapted to local conditions. Researchers at the Australian School of Business have been exploring whether "lean" became "mean" in a lower-wage economy.
The philosophy known as the Toyota Way ("continuous improvement, respect for people") was battered by the recall of nine million cars worldwide in 2010. That followed a messy dispute in the large US motor market over a sticky accelerator, a fault that dented the brand's reputation for safety. Toyota was found wanting in its car design and response to consumer concerns. Looking better by comparison, US auto manufacturers staged a mini-revival with customers apparently thinking US cars were not so bad after all.
The setback caused collateral damage to the reputation of TPS and revived questions about such silver-bullet theories of business excellence, notes Vik Kortian, an expert in lean and Six Sigma management practices at the Australian School of Business. "There are a lot of factors in success, but it does not take much for things to go wrong," he says.
Among those to contest the idea that a company could become an industry leader by following a simple formula such as TPS was Phil Rosenzweig, a professor at the International Institute for Management Development. Rosenzweig set out his arguments in his 2007 book, The Halo Effect … and Eight Other Business Delusions that Deceive Managers.
TPS emerged as a management phenomenon from the quality movement of the 1980s. It was lauded as best practice and emulated in other industries, from call centres to the public service. TPS involved multi-skilling, job rotation, task enlargement and workers participating in suggestions for continuous improvements on the assembly line. Termed lean because it eliminated waste at every stage of production, the system had its critics who claimed it put pressure on small teams of workers doing meaningless, fragmented tasks on the assembly line.
They saw Toyota's production system as an outcome of trade unions being excluded from the 1960s compact of government and industry in postwar Japan. Subsequent labour shortages – and criticism of "death by overwork" in Japanese society – caused Toyota to modify TPS to emphasise "quality of work life" at selected plants by the 1990s.
This was inspired by Swedish "reflective" concepts of work design at some Volvo plants, where the production line was broken up into segments with buffers to make them more independent, tasks were functionally related, pay was for skill as well as performance, and more emphasis was put on ergonomics for workers.
Volvo used extensive buffers while "post-lean" Toyota used in-process buffers to lessen the sense of crisis when the assembly line stopped.
Making a Move
Post-lean production was more worker-friendly in Japan but was not always exported to overseas factories as Toyota increasingly moved to lower-wage Asian destinations.
In Thailand, the production line is more lean than post-lean, according to a recent study by Australian School of Business researchers Thunyalak Weerasombat and Ian Hampson, an associate professor in organisation and management. When the researchers did a lean rating of TPS at Toyota Motor Thailand, they expected the worst. Thailand has no political labour party and successive military governments have obstructed unions, regarding them as potential sources of communist agitation.
"The Thai case is consistent with the view that TPS can grow more in host countries with weak industrial relations systems, as there would be less resistance to work reorganisation," say the researchers. "In some respects, the institutional environment in Thailand appears conducive to harsh, [leaner] versions of TPS. Yet, perhaps surprisingly, some of the post-lean characteristics are identifiable at [the Thailand operation]."
The authors say the essence of TPS, or lean production, is debated. It can involve distinguishing valued-added from non-value-added steps, with workers contributing ideas to improve production processes to remove all waste, such as excessive inventory, unnecessary motions, overproduction and idle time. It is driven by just-in-time methods – that is, producing and delivering only what is needed when it is needed.
This aims to ensure continuous flow in the production process because the inconsistent use or overburdening of workers/machines is a form of waste. Toyota prevents defects that might block the flow of the production through machines that may detect abnormality and stop automatically. Workers who note anything suspicious in the production flow can pull a cord to stop production.
According to supporters of TPS, workers become masters of the production process because they are encouraged to design and control their work. Yet TPS is altered overseas by national differences such as skills training. In the US and Thailand, recruits have lacked trouble-shooting skills to deal with production problems, which has impeded the transfer of Japanese work practices.
Thailand's vocational education system does not provide a workforce sufficiently skilled for the needs of the automobile industry. But there is a debate about what skills are needed for TPS. Toyota Motor Thailand executives say this is not a worry because it has a solid in-house training and job rotation system for workers.
"Actually, we would argue we prefer to employ workers with less skills at the beginning, as it is much easier to train and socialise them to have the skills and characteristics we desire," they say.
Kortian challenges the general view that team management, and "the human resource side of things", was a major factor in Toyota's success. "The whole lean improvement program was to bring workers and management together. Certainly Toyota management realised that to succeed they needed to work with their people, not against them. A key difference with the Toyota approach was putting the team, not the individual, on a pedestal. But overall, in reality, things are more complex," he says.
Before Toyota was described as lean, the world had its share of new management pioneers. Technology transfer consultants – whose similar approach was value-added management – were employed at US plants of Ford and General Motors.
The US pioneered lean production in the early 1900s when Henry Ford boasted it would take 72 hours to convert the iron ore delivered to its Highland Park plant in Michigan into a Model T automobile. Later, Toyota sent engineers to Detroit to find out how it was done. The quality movement of the 1980s saw US management strategies such as Motorola's Six Sigma lift quality by minimising defects and variability in manufacturing and business processes.
Weerasombat and Hampson evaluated the elements of TPS in Thailand on a spectrum of lean (original) to post-lean (1990s Japan) to reflective (Volvo). They found that Toyota workers in Thailand are paid 100% on performance, which puts them close to the lean model. It does not count skill accumulation, but is judged by work quantity, quality, cost improvement, team working and safety.
But in other areas, the Thailand operation is post-lean, such as in showing high concern for ergonomics on the assembly line. There are examples of assisted equipment to take the load off workers, often based on their production improvement suggestions (kaizen in Japanese). At least one kaizen per worker per year is still compulsory at Toyota Motor Thailand.
"The scope of kaizen covers not only production-related issues but also a wide range of issues like work conditions. In this respect, [the Thailand operation] is closer to the post-lean model, although kaizen suggestions help demonstrate workers' good attitude, an important criterion for promotion," say Weerasombat and Hampson.
The authors' Thailand study was partly based on plant visits and interviews. They found that the assembly line characteristics were lean because, while the line was split into segments, they were interdependent and workers were given a very short time to perform tasks. Similarly, buffers were employed, but only so the whole line moved at the same speed. This was closer to the lean ideal of TPS as one continuous line, with no in-process buffers as relief.
"Although this ideal is never realised … reducing buffers forces to the surface production problems, which then require solution, thereby improving the production process as a whole. This has been associated with increasing stress on workers, and possibly machinery as well," say the authors.
Team organisation at the Thailand operation is comparable with post-lean production, with members working interchangeably in small teams of four to six, and teams combined in a group of 20 workers. Work design has both lean and post-lean characteristics as workers are expected to perform tasks both functionally related (to building a car) and unrelated (or meaningless) tasks. In periods of high demand, tasks are shortened, with fewer steps, to speed things up. The automation policy is similar to that at Toyota Japan, although the Thailand plant uses more labour than automation due to lower local wages.
"The TPS implemented at subsidiaries can vary from the one taken at Toyota Japan, owing to different contexts. However, sometimes the differences are not exactly what one would expect, as the institutional environment of Toyota Motor Thailand would seem to predispose it towards a highly lean version, when in fact it is between lean and reflective production," conclude the researchers.