Posted on November 16, 2021November 15, 2021 by Mike Clayton

Lean Thinking

Pocketblog has gone back to basics. This is part of an extended management course.

Imagine that you were an Egyptian overseer, responsible for building a great pyramid for your Pharaoh. How would you want to organise things?

Would you want to start by knowing exactly what your Pharaoh wants?
Would you want to fully understand every part of the process?
Would you want to understand how stone moves from being part of the wall of a quarry to a perfectly fitting part of your Pharaoh’s pyramid?
Would you want to ensure that the giant blocks of stone arrived fast enough so the workers on the ramp always had a stone ready to move up?
Would you want to make sure stones got up to the top of the ramp fast enough to make sure that they were there as soon as the last stone was placed on the pyramid?
Would you want to avoid stones arriving too fast and causing a bottleneck?
Would you want to make sure every stone was perfect to avoid having to stop and find a replacement or re-dress the stone on site?

If your answer is yes to all of those questions, then congratulations: you are instinctively an ancient Lean Manager.

Lean thinking is not new: the ideas have been around for a very long time and accumulated in industry over the years. But there are a few names that are strongly associated with its emergence as a driving force in organisational effectiveness in the last years of the twentieth and early years of the twenty first century.

The thinking was done by the founder of Toyota, Sakichi Toyoda, his son, Kiichiro Toyoda, and their postWW2 production chief, Taiichi Ohno. The Toyodas set out how a production line could work best, avoiding the problems of Henry Ford’s original ‘don’t stop the flow of the line if anything goes wrong – sort it out at the end’ approach. When they could not make it work due to the flaws in their supply chain, it was Ohno who then solved the practical problems.

The message came out in a landmark study by researchers from The Massachusetts Institute of Technology (MIT). This was published in the 1991 book ‘The Machine that Changed the World’ which introduced the world to the term ‘Lean’. Two of its authors: James Womack and Daniel Jones, went on to write a series of influential books, spelling out how to apply the lean principles they had researched at Toyota, starting with ‘Lean Thinking’ and becoming even more practical, with ‘Lean Solutions’.

The Value Chain

At the heart of Lean Thinking is an understanding of the value chain, which we discussed in an earlier post. Lean thinking starts by defining value from the point of view of the end customer for your products or services. When you do this, you usually find that only a small proportion of your activities directly contribute to that value (from the customer’s perspective). The rest – including some parts of what Michael Porter described as Primary Business Activities are only necessary as supporting this value creation.

Performance improvement comes first from eliminating steps and interactions that are not necessary for value creation and then, redesigning those that are to be as effective and efficient as possible. This means less wastage due to delays, re-work, duplication, scrapping below quality products, and oversupply.

The five principles of Lean Thinking are set out below.

Waste

At various points, Lean Thinking decries wastage. The Toyota production chief set out seven sources of waste that destroy value.

overproduction
excessive inventory
defects
delays
unnecessary transportation of goods
unnecessary movement of materials
unnecessary processing or materials

Where is there waste in your organisation?

Taiichi Ohno: Lean Production

The engineer behind many aspects of the Toyota Production System (TPS) can justly be described as instrumental in creating one of the world’s great manufacturing businesses. But his influence goes far wider, with many of the management ideas that we take for granted originating as a part of the TPS. I promised you we’d look at him when we examined the lessons from his boss, Eiji Toyoda, so let’s see what we can learn from Taiichi Ohno.

Short Biography

Taiichi Ohno was born in China, where his father was working on the Manchuria Railway, in 1912, and grew up in the Aichi prefecture of Japan, attending the Nagoya technical High School. In 1932, he joined the Toyoda Automatic Loom Works, which had been established by Sakichi Toyoda, who was highly innovative in the looms he designed and built. When Toyoda sold off the loom business to a British company, he determined to invest the money in an automobile business, to be headed by his son, Kiichiro Toyoda.

Kiichiro Toyoda set out to learn from US motor manufacturers, and started manufacturing vehicles in 1936 and it was he who first introduced the idea of ‘Just in Time’. However, it was when Taiichi Ohno was tasked with increasing productivity that the company started to make the breakthroughs which would later form the groundwork for Toyota’s great commercial achievements of the 1960s onwards, under Eiji Toyoda.

In looking at Toyota’s productivity levels shortly after the war, Ohno realised that the gap in performance between Toyota and the top US manufacturers of a factor ten could not be due solely to a poor Japanese workforce. He considered that the significant factor was waste; ‘Muda’. As he experimented, and took on board Kiichiro Toyoda’s ideas of Just in Time production, he gradually, over the years from 1945 to the mid-1970s, built up a coherent set of principles and practices that has come to be known as the ‘Toyota Production System’.

Towards the end of his life, Ohno spoke and wrote extensively (most notably: ‘Toyota Production System: Beyond Large-Scale Production‘) about the TPS – perhaps more than his superiors really felt comfortable with. In doing so, he frequently used the metaphor of a supermarket to describe how Just in Time principles work. He had first seen, and been captivated by, supermarkets on a visit to the United States in 1956. Ohno died of heart failure in May 1990.

The Toyota Production System

The three principles at the heart of the the Toyota Production System are easy to state:

Produce components just in time for their use (‘Just in Time’ production)
Build quality in every part of the process (‘Jidoka’)
Create one continuous process (the ‘Value Stream’)

Just in Time Production

As if the phrase Just in Time has not become well-enough known, it is supported by an idea and a practical tool that have each become central to manufacturing processes world-wide… and, indeed, to other business and organisational processes.

The first of these – and Ohno’s starting point for his reforms – is the idea of waste, or ‘Muda’. Ohno waged a systematic campaign to eliminate all possible forms of waste. In so doing, he identified the seven categories that are often known as the ‘Seven Wastes’.

Defective Production – producing defective products
Overproduction – producing more than is needed
Waiting – idle, non-productive time
Transporting – the wasted time and risks of damage or loss
Inventory – holding unnecessary stock and therefore incurring capital costs
Motion – the wear and tear and the accidents that arise in moving things around a plant
Excessive Processing – over-specification of components, or unwanted functionality, for example

Some people add other wastes to Ohno’s original seven, most commonly placing Non-used employee talent (wasting skills) between number 3 and 4 in my ordering, so create the mnemonic acronym: DOWNTIME.

Ohno also developed a system of signboards that track progress of goods through the manufacturing process, which are called ‘Kanbans’. The kanban board is now widely used to track progress in projects throughout commerce, especially in managing software projects under agile project management methodologies.

Quality

Ohno examined every part of the manufacturing process and looked for ways to reduce errors, increase safety, and improve reliability. When he found them, he instituted rigorous staff training. The principle of building quality into everything is ‘Jidoka’. And, although he did not originate the idea of continuous improvement, known as ‘Kaizen’, Ohno’s concept of Jidoka involved daily improvement in a cycle of detecting problems, stopping production, removing the cause of the problem, and then incorporating the improvements into the standard workflow.

Another of Ohno’s greatest innovations is his problem solving methodology, the Five Whys, a way of getting at the root cause of a problem. This intelligent approach to stopping a machine when a fault arises and injecting human problem solving is Ohno’s idea of intelligent automation, or ‘autonomation’; ‘ninben no tsuita jidoka’.

Value Stream

Instead of seeing a factory as a series of inter-connected processes as Henry Ford had done, Ohno saw it as one continuous connected process. And ensuring that its efficiency is optimised is the idea of work levelling; ‘Heijunka’. This is central to eliminating waste, or Muda and is about rearranging (dynamically) the allocation of work to ensure that every resource is fully utilised at all times.

Introducing Change

Many of Ohno’s ideas seem obvious to us now but they did not at the time. And, inevitably, he encountered much resistance from the Toyota workforce. He employed one principal strategy to deal with this, that had two simple components: patience and persistence. Evolving the Toyota Production System took thirty years and, no doubt, it is ongoing today.

Adoption outside of Japan

Outside of Japan, Ohno’s ideas have been widely adopted and modified. The TPS is now more generally known as ‘lean manufacturing’ and the principles of lean thinking are increasingly being applied throughout the economy in sectors like retailing, services, telecommunications and even government service.

There does seem to be a difference, however, between Ohno’s and the two Toyodas’ philosophy and that of modern western businesses with which I am familiar. Here, we see organisations seeking to use lean principles to ‘sweat their assets’ to cut staff numbers and compel them to work harder to achieve greater productivity with fewer resources. Toyota instead thought that by making its process more efficient, its workforce could produce more without significant increases in the cost base, and so exploit new markets to create more profit.

At the heart of this is a different approach to pricing. The Western approach is to lower your cost base as low as you can, to determine a profit level, and then to sell at the price that these dictate.

Toyota’s success was build on a different philosophy: that the market fixes the price it will pay, and you optimise your processes to set your unit costs. Your profit is the difference.

'Successful' Toyota approach to pricing

Learn More

Toyota describes the Toyota Production System on their website, at: http://www.toyota-global.com/company/vision_philosophy/toyota_production_system/

Eiji Toyoda: Yes we can

Eiji was not a management theorist and neither did he found a business. His genius lies in his absolute determination to take on a huge challenge and do difficult things… and he did it twice.

Brief Biography

Eiji Toyoda was born in 1913 and grew up near Japan’s third city, Nagoya. There, his father had a textile mill, so Toyoda grew up surrounded by the potent combination of engineering and business that was to define his life. He studied engineering at Tokyo Imperial University and, upon graduating in 1936, he joined his cousin’s Toyoda Automatic Loom Works business, where they set up an automobile works and soon changed the name to Toyota.

Toyoda took on a number of roles in setting up research and production planning, but the steady growth of the business was interrupted in 1941, when Japan entered the war. The General Motors car parts they needed were no longer available, and besides; the country now needed trucks. So Toyota became a truck manufacturer. In the early years after the war, trading was tough and Toyoda was heavily involved in the inevitable lay-offs. But he also decided to diversify the company’s future by establishing Toyota Motor Sales.

But there was still precious little to sell. In 1950, Toyoda visited a Ford plant in Dearborn, Michigan. In the time since Toyota had produced their first car in 1936, they had built around 2,500. What Toyoda saw was a plant producing 8,000 every day. He saw immediately that this was the future and determined to revolutionise Toyota’s manufacturing.

Toyoda – like many of his Japanese contemporaries – was often described as under-stated, or taciturn. This was characterised by his outward response to his experience in Michigan. He wrote back to Toyota headquarters that he ‘thought there were some possibilities to improve the production system.’ He brought a manual of Ford’s quality-control methods, which he had translated into Japanese, changing all references to Ford to ‘Toyota’.

This was the start of his first big challenge.

In 1955, Toyoda led the introduction of Toyota’s first mass production car, the Crown. It was a huge success in Japan, but in serving the Japanese market, it was poorly suited to the US Market, where it failed to gain a foothold. That came in 1960, when Toyota launched two new models, the Corona and the Corolla. Both sold massively in the US and, by 1975, Toyota overtook Volkswagen as the largest car importer into the US.

By then, Toyoda had been appointed president of Toyota, serving for longer than anyone to date, from 1967 to 1981, when he stepped into the newly created role of Chairman. It was as Chairman that he really took on and equalled the US, forming a joint venture with General Motors in 1984 to manufacture Toyota cars in the US.

But it was a year earlier, in 1983, that he kicked off his second big challenge: to create a luxury car to challenge the best.

This was to become the Lexus, which later grew into a new brand, to create a clear marketing distinction between the mass-market Toyota cars and the elite Lexus vehicles. His success was complete. Lexus regularly competes with prestige German marques Audi, BMW and Mercedes.

In 1984, Toyoda resigned from the Chairmanship although he continued to go into the office (where all three of his sons are executives) into his nineties. He died, shortly after his 100th birthday, in 2013.

Challenge 1: Become a World Class Manufacturer, to rival the US ‘Big Three’ auto manufacturers

Toyoda set out to take US mass-production ideas and fine tune them to the point where he could out-compete the US auto giants. He worked with a veteran loom engineer, Taiichi Ohno (who deserves, and will doubtless get, his own Pocketblog one day). They created together the ‘Toyota Production System (TPS)’ which is now more generically known as ‘Lean Production’. It rested on three core tenets:

Just in time (JIT) production
Ohno extended the concept of quality to reduction of waste and asked ‘why stockpile components?’. The result was a revolution
Value Stream – also known as Value Chain
To make JIT work, you need to see the production process as a part of a longer stream of activities from procurement to production to delivery. Customer demand drives ordering.
Kaizen and Responsibility
TPS makes everyone responsible for quality. While Toyota did not invent continuous improvement, or Kaizen, it is only when everyone takes responsibility for quality that it can really work.

Challenge 2: Create a World Class Luxury Brand, to rival established German auto manufacturers

From a top secret meeting to a world class luxury marque, Toyoda created a new brand from nothing but determination and around $2 billion of investment. Well, you can do a lot with $2 billion (I think – I’d love to try). But who, in 1983, would have thought that a Japanese car maker would out-engineer the German luxury brands? To do this, Toyoda’s engineers had an eye for detail that today reminds me of Apple. They tested the Lexus on Japanese roads, but knew that Japan would not be their primary market if they were to succeed. So they built new roads in Japan, mimicking roads in the US, UK, and Germany, and tested the Lexus on these. In the process of building the first Lexus, Toyota innovated and experimented like never before.

And what did Toyota get for their 200 patents and 450 prototypes? The Lexus LS400 and the start of a whole new world class business.