With the Toyota Production System making a guest appearance on the latest Tesla quarterly conference call, this is as good time as any to review what TPS – often referred to as “lean manufacturing” or simply “lean” – actually is. And what better way to do so than to read The Toyota Way: 14 Management Principles from the World’s Greatest Manufacturer?
(Readers looking for extra credit can also check out my interview with author Jeff Liker in an earlier CleanTechnica article.)
Now, this lighthearted (but hopefully insight-heavy) summary isn’t meant to be a replacement for reading the book. It’s more a breezy attempt to pique readers into wanting to purchase a copy, or at a minimum borrow one from their local library. I sincerely recommend you do, as it’s an invaluable read.
Since the book identifies the 14 principles behind The Toyota Way (and isn’t it refreshing that the list isn’t artificially shoe-horned into a round number like 10?), instead of going chapter by chapter, I’ll go principle by principle. The principles themselves are well articulated, which means they can be pretty verbose, so I’ll use my own soundbite versions of each principle instead; it’s yet another reason for intrigued readers to purchase the original text. 😀
The 14 principles also provide something of a contrast with the philosophy Tesla has espoused on recent quarterly calls, so I’ve included in italics some places where Tesla has chosen a different approach. We should be open to the possibility that Tesla has evolved a superior strategy, but must be very, very cautious about crediting them until that new approach has proven its merit. Tesla talking about surpassing Toyota’s manufacturing prowess before they’ve pulled even is a bit like someone who can crawl talking about running before they can walk.
To close the preamble, I’ll note that the write-up below is based on a document I wrote in 2009 while mentoring younger work colleagues. So, let’s dive in!
Principle 1 — the long term is more important than the short term
This chapter explains the ideals Toyota strives to live up to. These include earning employees’ trust, being motivated by a mission greater than merely making money, and being self-reliant when it comes to key technologies.
It’s well known that Japanese companies solicit (and receive) lots of suggestions from employees on how to improve business practices. It’s less appreciated that this system only works because of high levels of employee trust — no one is going to make cost-reduction suggestions if they think management will immediately lay them or their suddenly unnecessary colleagues off!
We can probably all agree that Tesla has a greater-than-money mission, and an interest in self-reliance (e.g. Autopilot). After some tempestuous interactions in the past couple of years with their manufacturing staff, we can hope Tesla earns back all of their employees’ trust.
Principle 2 — bring problems to the surface
Traditional manufacturing processes create lots of inventory, which creates wasted effort (e.g., moving/tracking parts to and from inventory). This also hides problems: if you’re not very good at process X but you maintain lots of inventory, there will never be a shortage of those components, and management might never realize how badly they need to fix that process. Toyota managers are encouraged to try to stress their processes to determine where the next weak links are, so they know where to focus their continuous-improvement efforts.
Tesla leased three huge warehouses in the Bay Area last year, presumably to hold inventory for the Model 3. While this may have been necessary, Toyota would have only done this as an absolute, desperate last resort. On their own, the added expense of the three warehouses is mouse nuts; rounding error in the grand scheme of things. But the cumulative effect of hundreds of slight inefficiencies can be a crippling disadvantage against a more efficient competitor. Just ask Detroit, or anyone who’s gone up against Amazon!
Principle 3 — let demand “pull” production; avoid overproduction
If you overproduce, you waste space storing inventory or finished goods, and if you pre-build too much of the wrong thing, you might have to resort to discounts to move that metal (or in the case of the BMW i3, carbon fiber).
You know how Tesla started out with a build-to-order model? At the risk of oversimplifying things, if Toyota dealerships sell 100 Corollas and 50 Camrys on Monday, the production system will alert suppliers on Tuesday to produce components for 100 more Corollas and 50 more Camrys with the exact same colors, trims, and options; and that’s what technicians will be assembling on Wednesday. You could call it “build-to-what-was-recently-ordered.”
Principle 4 — level the workload
Most industrial processes work best when they run stably, or at “steady state.” Auto manufacturing is no different; you want to know how many vehicles you’ll produce each day (even if the product mix varies) so that you can do proper scheduling and get everything working like clockwork. Try to keep production level, even if it means overproducing a little bit during slow sales months and underproducing during crazy times; whatever you do, don’t alternate quiet periods with overtime-heavy mad scrambles. Manufacturing isn’t interval training!
The reason this makes sense from a production perspective is that the processes you’ve optimized for 60 jobs per hour, with plenty of downtime for equipment checks and preventative maintenance, probably won’t work so well if you try to produce faster, or occasionally skip those necessary activities. (Many auto production lines are designed to produce about a car per minute. That’s about 250,000 vehicles per year, based on 4,000 hours of operation, which is roughly two 8-hour shifts per day, 5 days a week, 50 weeks per year.)
Tesla’s modus operandi seems to be to back-load a lot of production to the end of each quarter. The day they announce they’ve produced vehicles at a steady (or steadily rising) weekly rate over a three-month period will be a significant milestone in their growing maturity as a manufacturing organization. When that happens, other OEMs will sit up and take notice.
Principle 5 — get it right the first time, and stop to fix all problems
Toyota employees were empowered long before the word became a meaningless cliche. Not only can they literally stop production if they see a problem, they’re expected to. Fixing problems after the fact in software is trivial — you can push out a patch. Fixing problems after the fact in auto manufacturing is expensive. In other words, software rules don’t apply.
This is because manufacturing is cheap thanks to the efficiencies of mass production, while repairs are expensive because they’re inherently artisanal. You need people to fetch the right tools or replacement parts, do disassembly, removal, installation, reassembly, and then disposal of the bad components; and the next vehicle they fix probably needs an entirely different set of tools or parts.
When shards of glass from the Model 3 display recently broke off in a crash, Tesla said it would install a film on all displays to prevent a reoccurrence. That’s the right move, and is commendable even if we might wonder why the risk of broken glass from the display wasn’t identified in Tesla’s design FMEA (failure modes and effects analysis) process.
When done by Tesla’s display supplier on automated equipment, the fix will be cheap. But when done manually by service center technicians when people bring their Model 3s in, it’ll be expensive, and reduce the amount of time available to help other customers.
Principle 6 — standardize, standardize
Toyota establishes “standard work” for all activities so it’s easy to determine if the work instruction is adequate or not. If you need to do activities not covered in the work instruction, it’s deficient in some way, and needs improvement. Also important is that manufacturing technicians write the “standard work” for manufacturing activities, using the sensible logic that the people who best know how to do something are the ones who do that thing every day.
Principle 7 — use visual systems for quality
Toyota’s work with the 5S visual workspace system is discussed at that link. For readers without manufacturing experience, it’s somewhat similar to David Allen’s semi-famous GTD or “Getting Things Done” process.
In a 5S workstation, there’s a place for everything, and everything has its place. Source: WAI blog.
Principle 8 — don’t rush into sexy new tech just because it’s sexy new tech
Toyota and the Amish react the same way when new technology comes on scene: They get a few people to study it, to determine its value firsthand. Then they decide if it can be integrated in a manner consistent with their culture. If so, they adopt it widely. (Believe it or not, the Amish were among the most enthusiastic adopters of genetically engineered crops.)
The Model X’s falcon-wing doors are definitely cool, but also definitely caused key delays for both that vehicle and the Model 3. I’m definitely not alone in thinking Tesla would have been better off giving the Model X regular doors and shipping it out roughly on time while simultaneously sidestepping quality issues.
Principle 9 — grow walk-the-walk leaders from the inside
If a company wants to sustain its culture, it has to grow its own leadership. Furthermore, those leaders have to be authentic — they need to have earned the respect of the people relying on them to exercise good judgment. This is like the concept of “followership” espoused at celebrated US technology firm W.L.Gore & Associates (of Gore-Tex™ fame).
There’s been a bit (well, a bit more than a bit) of senior management turnover at Tesla in the past couple of years. One hopes there’s been enough promotion-from-within of people who can bring Tesla’s best practices forward, and who have the followership and authority to pull back from the less-effective ones.
Editor’s note: I think one such example at Tesla is Jerome Guillen.
Principle 10 — invest in people and teams
Toyota goes to exhaustive effort to develop its employees. In return, employees contribute tens of thousands of ideas for improvement … which give Toyota the savings to fund continued employee development.
Basically, while a lot of companies see training as a (short-term) expense, Toyota sees it as a (long-term) savings. All hardware depreciates — employees are the only asset a company has that can actually appreciate over time, become more valuable, and contribute ever more to the company’s success.
Principle 11 — respect your suppliers
A poll of auto parts suppliers in 2003 apparently ranked Toyota as the favourite auto company to deal with – they wanted low prices but would help the supplier improve, so that even at those low prices the supplier would make a decent profit margin. Of course, you might not want to be suppliers’ favourite customer (that could be a sign you’re too lenient on pricing or terms) but you probably don’t want to be their least favourite customer.
Elon wouldn’t’ve thrown out an explicit thanks to his suppliers on the recent quarterly call if they were fine with Tesla ramping slowly. There have also been hints on the calls that Tesla is stretching out payments. Not buying as much stuff as promised and then being slow to pay are about the two things suppliers find most annoying. Tesla probably lags the pack for now in auto suppliers’ “who we like to work with” sweepstakes. An orderly and successful ramp of the Model 3, along with on-time payments, will probably go a long way towards their long-term success.
Principle 12 — to understand problems, see them with your own eyes
It can sometimes be tempting to assume that a verbal description is enough for you to know what the problem is, and how to solve it. Toyota’s attitude is that your most important task is to devote the time to examine the problem in detail. Otherwise, you might miss the ultimate root cause.
Principle 13 — use consensus; once it’s there, implement fast
One important reason for getting consensus is that in a complex system like a car, if you overlook one design consideration … you could find yourself stuck in a very long crisis. The holdout who thinks differently from the rest of the team is often justified in their concerns, and there’s generally more to lose from overruling them than in doing the extra work to design experiments to validate or invalidate their worries.
Given the complexity of the Model X’s falcon-wing doors, I’m sure engineers would have raised concerns. A consensus approach can mean going more slowly and giving up on the spotlight of being first to market – until they invented hybrids, Toyota was best known for being a “fast follower” instead of an innovator – but the auto industry operates on such long timescales that getting it right is better than doing it first.
The opposite often happens in software, where being first can give you the early network advantages to dominate your sector. It just goes to show that the risk/reward profile in software and automobiles are perfectly and completely different!
Principle 14 — invest time thinking about things
Kaizen, or “continuous improvement,” is a bit of a quality buzzword. Hansei isn’t, but deserves to be, since it’s the foundation of kaizen.
Hansei is reflection — specifically, about things that have gone wrong. It’s more than lessons learned, though, because there’s an acknowledgement of sincere personal culpability. At Toyota, no matter how successful a project is, the team is expected to invest time figuring out what didn’t go right, and contemplate how to do better the next time.
If people aren’t willing and encouraged to take responsibility for their mistakes, a corporate culture could develop where the people who get promoted are the ones who are best able to “spin” the problems they’ve created, or paper over their inadequacies. Neither is conducive to building a company’s greatness.
Wrap-up
So, there you have it — the 14 principles Toyota credits for helping it transform from once-bankrupt startup of legendarily bad quality, to one of the world’s biggest automakers by product volume, arguably the industry’s most respected player, and still the world’s most valuable automaker by market capitalization.
Next stop on this occasional book tour? Most likely the only book you’ll ever buy that isn’t made from a single tree …
Disclosure: while I first proposed uploading some of my old book club summaries to Zachary in January, it’s now late February as I write this. In the meantime, Toyota paid my flight expenses to the World Smart Energy Expo in Tokyo. Having decided against investing in individual stocks, I don’t own shares of Toyota or Tesla.
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