By Kevin Meyer
Toyota took the fundamentals of lean from the likes of Ford and Deming and others decades ago, crafted it into TPS in the 60s and 70s which enabled the company to dominate global auto manufacturing, then rapid expansion led Toyota to forget the basics in the early part of this decade, leading to the quality and customer service debacles last year. So the story goes. Over the past few months we've told you how Toyota appears to be going back to their core values, but then there are the occasional stories about Toyota following the likes of GM in bashing suppliers. What gives?
Today's WSJ provides a clue – a description of the internal conflict at Toyota.
One one hand they are battling rising costs in Japan, not the least of which are currency issues coupled with lower demand.
Faced with overcapacity, weak demand and an exchange rate for the yen that makes Japanese-made cars and trucks more expensive around the world, Honda Motor Co. and Nissan Motor Co. are moving more manufacturing overseas, to plants closer to international customers. But Toyota President Akio Toyoda, grandson of the company founder, has long spoken of the company's social responsibility to protect Japanese jobs, as well as a longstanding commitment to annually build at least three million cars in Japan, half for export.
Company executives now acknowledge their allegiance to domestic production is being tested by a strong yen and softening sales in the U.S., still the company's largest market. Even Mr. Toyoda appears torn between fidelity to Japan and profits.
Sounds familiar – but actually laudable that social responsibility is part of a large company's philosophy. Well at least more than the lip service we hear from most. Toyota is looking at moving more production out of Japan – but closer to their customers. Note that although I often rant against moving production overseas, moving closer to customers is generally ok.
But now the article gets interesting – and describes the efforts Toyota is making to become more efficient in high-cost Japan. That's the Toyota the lean world has come to love.
Mr. Niimi and other top executives made the case in interviews for streamlining Toyota's domestic production lines, as opposed to uprooting them. They view Japanese manufacturing skills, known as "monozukuri," as an infallible weapon and expect to fully utilize idle capacity once demand recovers.
Until then, said executives, the company would redefine its economies of scale: shrink production without raising costs.
"High speed and high volume output may no longer be such a good fit for us," said Mr. Niimi, who has a degree in aeronautical engineering. "We need to retool for production with simpler, slimmer and more compact equipment."
Yes, while most companies still believe that to increase efficiency you must use larger and larger machines to process larger and larger batches, Toyota does the opposite. Bill has written about the fallacy of tradtional views of economies of scale many times.
Toyota is going back to the basics.
Starting in the 1960s, Toyota rewrote the book on lean manufacturing with innovative techniques like just-in-time inventory and renowned quality control. Designed to wring out efficiencies, the methods known as the Toyota Way were widely praised and emulated in Japan and overseas.
Some examples.
At the new plant, half-built Corolla compacts and subcompact Yaris sit side by side, rather than bumper to bumper, shrinking the assembly line by 35% and requiring fewer steps by workers. Instead of car chassis dangling from overhead conveyor belts, they are perched on raised platforms—cheaper by half and allowing for dropped ceilings that reduce cooling costs 40%.
One idea en route: carts powered by inexpensive electric bike motors to ferry heavy parts—saving worker backaches, time and more costly machinery.
Company executives say their Japanese workers are uniquely skilled at innovation. Mr. Niimi came up with a way to hasten the installation of tires onto car wheel hubs by rounding off the edges of the hub center, making it conical instead of cylindrical.
It is Mr. Niimi's job to make Toyota plants more efficient. One of his first successful targets was engine production. At the Shimoyama engine plant in Toyota City, he cut average production line capacity in half, to 100,000 engines—without raising the cost per unit. His new goal: 50,000.
Of course the analysts aren't happy. In their world the only way to make money is to chase cheap labor.
Analysts say the company must do more. "Expansion of overseas parts procurement, relocation of domestic plants abroad, a cut in the number of domestic models, and other genuine reforms to the earnings structure will be needed for profits to improve over the medium to long term," said J.P. Morgan analyst Kohei Takahashi.
Sure thing, Kohei. But Toyota is once again trying (albeit struggling) to look very, very long term.
"We will be tremendously competitive once the yen comes back to a more balanced level as a result of our production technology innovation," said Mr. Niimi, who sports a mustache grown while working in the U.S.
And Toyota itself is a bit conflicted.
The strategy has drawn hints of internal dissent. In an unusual break with corporate decorum, Toyota's outspoken CFO, Satoshi Ozawa, criticized an over-reliance on domestic production at a news conference in May and questioned whether the company could remain profitable at current exchange rates.
Is the change for real? Time will tell. But perhaps the old Toyota is back.
Bob Emiliani says
It’s good to see Toyota finally moving away from the sales-driven (i.e. overproduction), economies of scale approach to manufacturing that they pursued beginning in the mid-1990s. They are getting back to what Ohno and others before him recognized: flow destroys economies of scale.
Folks might be interested to see the presentation I gave on this topic at the 2010 Lean Accounting Summit http://www.bobemiliani.com/oddsnends/emiliani_eos_slides.pdf
Steve H says
I commented on both of these issues the last time you guys brought up Toyota following GM, but am glad to see that the article addressed the threats of major overseas production were just an attempt to shake the government into tackling the yen.
The top secret plant has actually been talked about for about half a year now – over at The Truth About Cars. The company is doing what no other Japanese auto manufacturer is doing. Nissan is all but jumping ship and Honda is making a plant in Mexico for the Fit Hatchback. Toyota is sticking to its homeland. They understand that leaving it will hurt their long term technological advantage.
If/when the yen finally falls back to earth, they are going to be seriously dangerous.
Akio has said they’re “working hard to build Toyota into a company that attracts investors who would look back 15 years and be glad they owned our shares.”
My favorite quote?
“But I don’t want the company to be driven by numbers. I want it to be driven by making better cars and contributing to society. That will turn into profit, which we can use to develop better cars. That should be the cycle, and that will, as a result, build a company with a strong foundation.”
Maybe its just lip-service.
PS – how long until low-cost car factories like Ohira spread throughout the globe? Hmm.
Kevin says
Steve – you’re right, that is a fantastic quote. Do it well, do it right, and the numbers follow. Not vice versa.
Mark Graban says
The one thing I didn’t understand about the diagrams in the article was that the conveyance with friction rollers made it look like the cars were moved in the traditional front-to-back way on the assembly line, but the other diagram says they are actually moved “sideways” to shorten the line.
Don - Process Improvement says
I wish large USA companies had a reputation for putting it’s people 1st like Toyota does. Not many large USA companies come to mind when I try to think which ones have a “Social Responsibility” as part of their company’s philosophy. Especially when I think which one actually mean it, who’s actions demonstrate it, like Toyota’s does.