A Thank You Note to Toyota
By Jim Womack, Founder and President, of Lean Enterprise Institute, Inc. U.S.A
More than twenty years ago Dan Jones and I made an important discovery. On
a trip to Japan we concluded that there was really no “Japan, Inc.” or
standardized way of doing business. Instead there were many companies
pursuing a variety of approaches, some very good and some mediocre. Most
important, we concluded that best of the best was Toyota. This company,
rather than anything generically “Japanese”, became our image of the
business system to copy or exceed.
a trip to Japan we concluded that there was really no “Japan, Inc.” or
standardized way of doing business. Instead there were many companies
pursuing a variety of approaches, some very good and some mediocre. Most
important, we concluded that best of the best was Toyota. This company,
rather than anything generically “Japanese”, became our image of the
business system to copy or exceed.
In the years since we reached this conclusion, we’ve often wondered what
would happen to the lean movement if Toyota faltered. Fortunately, we’ve
never found out because Toyota has marched from victory to victory over the
past twenty years while sharing its business system freely with the world.
would happen to the lean movement if Toyota faltered. Fortunately, we’ve
never found out because Toyota has marched from victory to victory over the
past twenty years while sharing its business system freely with the world.
In the mid-1990s, Toyota set a goal of a 10% market share in the global motor
vehicle market by 2000 and in 2000 Toyota’s share was 10.01%. Last year
Toyota announced a new vision to achieve a global motor vehicle market
share of 15% by 2010, which will push Toyota past GM and Ford as the global
market share leader.
vehicle market by 2000 and in 2000 Toyota’s share was 10.01%. Last year
Toyota announced a new vision to achieve a global motor vehicle market
share of 15% by 2010, which will push Toyota past GM and Ford as the global
market share leader.
This is not being done at the expense of profits, which have been rising
steadily in step with growing market share. In the 2003 fiscal year ended
March 31, Toyota will report profits of about $10 billion US on about $125
billion in sales. With a return on sales of nearly 8%, Toyota is now the most
profitable car company excepting Porsche (with a 17% ROS this past year), a
company one twenty-fifth the size of Toyota which has transformed its
business using Toyota methods, as Dan and I reported in Chapter 9 of our
book “Lean Thinking”.
steadily in step with growing market share. In the 2003 fiscal year ended
March 31, Toyota will report profits of about $10 billion US on about $125
billion in sales. With a return on sales of nearly 8%, Toyota is now the most
profitable car company excepting Porsche (with a 17% ROS this past year), a
company one twenty-fifth the size of Toyota which has transformed its
business using Toyota methods, as Dan and I reported in Chapter 9 of our
book “Lean Thinking”.
The two best features of Toyota’s continuing success for the rest of us are (1)
that the techniques are freely available and (2) that they work without any
need for brilliant product breakthroughs.
that the techniques are freely available and (2) that they work without any
need for brilliant product breakthroughs.
Freely available: Like Henry Ford, whose ideas on flow production Toyota
transformed, the company has always been remarkably open, even to direct
competitors. All of its facilities around the world have been open to visitors
from the very beginning and Hajime Ohba at the Toyota Supplier Support
Center in the USA has been available for more than a decade to teach the
Toyota system to anyone willing to learn. Our humble efforts at LEI in North
America, the Lean Enterprise Academy in the UK, Lean Institute Brasil, and
the Lean Enterprise Institute in Turkey have been directed to writing down
the techniques in plain language (and local languages) so anyone can
implement them, even without the benefit of a sensei like Ohba-san.
Therefore, those failing to apply Toyota techniques in their businesses can’t
claim that the problem is a lack of access to the details of the system.
transformed, the company has always been remarkably open, even to direct
competitors. All of its facilities around the world have been open to visitors
from the very beginning and Hajime Ohba at the Toyota Supplier Support
Center in the USA has been available for more than a decade to teach the
Toyota system to anyone willing to learn. Our humble efforts at LEI in North
America, the Lean Enterprise Academy in the UK, Lean Institute Brasil, and
the Lean Enterprise Institute in Turkey have been directed to writing down
the techniques in plain language (and local languages) so anyone can
implement them, even without the benefit of a sensei like Ohba-san.
Therefore, those failing to apply Toyota techniques in their businesses can’t
claim that the problem is a lack of access to the details of the system.
No brilliant product breakthroughs needed: The other great feature of the
Toyota system is that it is built on brilliant processes – information
management from order to delivery, product development from concept to
launch, operations management from raw materials to customer – and not on
brilliant product innovations. In fact, Toyota has usually been a follower with
new product concepts like pick-ups and SUVs (with the hybrid Prius as a
notable exception.) Yet it has been the most successful auto company of the
last fifty years. I dwell on this point because few of us can hope to have truly
brilliant product ideas (and certainly not often), but all of us can create
brilliant design and production processes day by day if we have sufficient
determination.
Toyota system is that it is built on brilliant processes – information
management from order to delivery, product development from concept to
launch, operations management from raw materials to customer – and not on
brilliant product innovations. In fact, Toyota has usually been a follower with
new product concepts like pick-ups and SUVs (with the hybrid Prius as a
notable exception.) Yet it has been the most successful auto company of the
last fifty years. I dwell on this point because few of us can hope to have truly
brilliant product ideas (and certainly not often), but all of us can create
brilliant design and production processes day by day if we have sufficient
determination.
Thus the Toyota gift is freely available all over the world and requires only
persistent application rather than flashes of inspiration.
persistent application rather than flashes of inspiration.
With appropriate thanks given, let me hasten to add that not even Toyota is
perfect. Richard Schonberger – a stalwart leader of the lean movement from
the very beginning – has recently claimed that Toyota has not been “walking
the talk” for a key indicator of lean practice – inventory turns. He points out
that Toyota’s company-wide turns have fallen from more than 80 in the 1960s
to about 12 today, and follows this observation to some rather gloomy
conclusions about the future of the lean movement.
perfect. Richard Schonberger – a stalwart leader of the lean movement from
the very beginning – has recently claimed that Toyota has not been “walking
the talk” for a key indicator of lean practice – inventory turns. He points out
that Toyota’s company-wide turns have fallen from more than 80 in the 1960s
to about 12 today, and follows this observation to some rather gloomy
conclusions about the future of the lean movement.
In my and Dan Jones’s view, Richard has identified an important symptom –
Toyota’s turns really have fallen – but has come to the wrong diagnosis and
prognosis. Toyota’s turns have not fallen because its individual plants are
less lean.
We visit them frequently and know that this is not true. Rather Toyota’s turns
have fallen because of the steady global expansion of Toyota without the
ability to globalize and regionalize its production system at the same rate.
Toyota’s turns really have fallen – but has come to the wrong diagnosis and
prognosis. Toyota’s turns have not fallen because its individual plants are
less lean.
We visit them frequently and know that this is not true. Rather Toyota’s turns
have fallen because of the steady global expansion of Toyota without the
ability to globalize and regionalize its production system at the same rate.
In the 1960s Toyota created practically all of the value in its products within a
short distance in Toyota City and sold most of its output in the Japanese
domestic market. In addition, it sold its finished units at the factory gate to
the independent Toyota Motor Sales Company, meaning that the Toyota
Motor Company carried no finished-unit inventories. Its lean methods inside
Toyota City made 80 or more turns quite practical. (Remember that turns are
calculated by dividing the cost of goods sold during a year by the average
value of the raw materials plus work-in-process plus finished goods on hand
during the year. This means that shorter value streams always produce
higher turns, other things being equal.)
short distance in Toyota City and sold most of its output in the Japanese
domestic market. In addition, it sold its finished units at the factory gate to
the independent Toyota Motor Sales Company, meaning that the Toyota
Motor Company carried no finished-unit inventories. Its lean methods inside
Toyota City made 80 or more turns quite practical. (Remember that turns are
calculated by dividing the cost of goods sold during a year by the average
value of the raw materials plus work-in-process plus finished goods on hand
during the year. This means that shorter value streams always produce
higher turns, other things being equal.)
As Toyota began to sell abroad, it suddenly needed to ship finished vehicles
vast distances by sea. What was more, because it could no longer build most
vehicles to customer order as it did in Japan (due to the long lead times for
shipping), Toyota had to create stocks of finished units in each export market.
At first these vehicles were owned by independent foreign distributors and
were not carried as inventory on Toyota’s books once they left the boat.
However, over time Toyota bought out its foreign distributors and in 1982
merged with its Japanese distributor to form the current-day Toyota Motor
Corporation. This had the effect of transferring all finished units not at
dealers onto Toyota’s books and dragged down inventory turns.
vast distances by sea. What was more, because it could no longer build most
vehicles to customer order as it did in Japan (due to the long lead times for
shipping), Toyota had to create stocks of finished units in each export market.
At first these vehicles were owned by independent foreign distributors and
were not carried as inventory on Toyota’s books once they left the boat.
However, over time Toyota bought out its foreign distributors and in 1982
merged with its Japanese distributor to form the current-day Toyota Motor
Corporation. This had the effect of transferring all finished units not at
dealers onto Toyota’s books and dragged down inventory turns.
Then, after 1984, Toyota began to establish assembly operations abroad,
supplied initially by parts makers in Japan. Even with frequent shipments
from suppliers, mountains of parts were always on the ocean, pulling turns
down further. Over time Toyota has worked hard to establish a parts base
within each region, but the steady growth of Toyota assembly operations
has always run ahead of its ability to create local parts manufacturers and in
any case the local suppliers are not nearly as close to Toyota assembly
plants or as tightly coordinated as they are in Toyota City.
supplied initially by parts makers in Japan. Even with frequent shipments
from suppliers, mountains of parts were always on the ocean, pulling turns
down further. Over time Toyota has worked hard to establish a parts base
within each region, but the steady growth of Toyota assembly operations
has always run ahead of its ability to create local parts manufacturers and in
any case the local suppliers are not nearly as close to Toyota assembly
plants or as tightly coordinated as they are in Toyota City.
Therefore, even Toyota has a lot of work to do to fully “walk the talk” for its
extended value streams, now stretching across the world, and doing this will
be a continuing challenge as it moves to the head of the global automotive
industry. I look forward to an upturn in inventory turns at Toyota in the years
ahead and anticipate that members of the Lean Community will be involved
in this campaign as Toyota suppliers.
extended value streams, now stretching across the world, and doing this will
be a continuing challenge as it moves to the head of the global automotive
industry. I look forward to an upturn in inventory turns at Toyota in the years
ahead and anticipate that members of the Lean Community will be involved
in this campaign as Toyota suppliers.
Let me sum up with an _expression of thanks for what Toyota has
accomplished for our common benefit and a hope for Toyota getting even
leaner in the future.
accomplished for our common benefit and a hope for Toyota getting even
leaner in the future.
Reprinted with permission: The Lean Enterprise Institute, Brookline, MA.
http://www.lean.org/ (617) 713-2900.
http://www.lean.org/ (617) 713-2900.
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