The Toyota Way-Jeffery K. Liker

By:-Harish Gawai 12218Megha Gilda 12220

Roshani Mehta 12248Sanket Aggarwal 12249

Abhishek Kale 12271

Why Study Toyota Way? Total annual profit on March 2003 was $8.23 billion-

larger than combined earnings of GM, Chrysler and Ford. Profit margin is 8.3 times higher than industry average.

Toyota shares rose 24% from their 2002 values. Market capitalization was $105 billion as of 2003 – higher than total of Big 3.

In 2002, Lexus outsold BMW, Cadillac and Mercedes Benz in the US for the third year in a row.

In 2003, sold more vehicles than Ford and Chevrolet. The company has made profit every year over the last 25

years and has approximately $20-$30 billion in cash on a consistent basis.

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More laurels In 2003, Toyota recalled 79% fewer vehicles in US

than Ford and 92% fewer than Chrysler. According to Consumer Reports, 15 out of the 38

most reliable models from any manufacturer over the last seven year came from Toyota/Lexus.

According to J.D. Powers ranking for initial quality and long-term durability, Lexus was #1 most reliable car in 2003 followed by Porsche, BMW and Honda.

Not a single Toyota car is on the dreaded “vehicles to avoid” list published by Consumer Reports. About 50% of the GMs and more than 50% of the Chryslers are to be avoided.

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How did it happen? Incredible consistency comes from operational

excellence. The operational excellence is based on the quality

improvement tools and methods developed by Toyota (under the TPS): such as JIT, kaizen, one-piece-flow, jidoka, and heijunka!

These technique triggered a “lean revolution” in the manufacturing sector.

Of course, Toyota system is much deeper and in fact is at a philosophical level!

Toyota Way – 14 principles which constitute this philosophy.

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What is “Toyota” lean?End result of applying the TPS to all areas of

business. A five-step process: Defining customer value Defining value stream Making it “flow” “Pulling” from the customer and back Striving for excellence.Taiichi Ohno (founder of TPS) “All we are doing is

looking at the time line from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-value-added waste.”

THE TOYOTA WAY Problem Solving

(Continuous Improvement and Learning)

People & Partners (Respect, Challenge and Grow

Them)

Process (Eliminate

Waste)

Philosophy (Long Term Thinking)

+Continual org learning.+Go & see yourself.+Decision slowly by consensus and implement rapidly.

+Grow leaders who live the philosophy.+Respect, develop and challenge people, teams and suppliers.

+Create process flow to surface problems+Use pull system to avoid over production+Stop when there is a quality problem. (Jidoka)+ Level out the workload. (heijunka)+Standardize tasks for continuous improvement.+Use visual control so no problems are hidden. +Use only reliable technology.

+Base management decisions on a long term philosophy, even at the expense of short term financial gains.

“4 P” MODEL OF THE TOYOTA WAY

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Story from the beginning Starts with Sakichi Toyoda who grew up in predominantly

farming community in late 1800s. Weaving was a major industry promoted by the Japanese government.

By 1894, Sakichi began to make manual looms that were cheaper but of better quality (more features and less failures).

Started working on his own to develop power-driven loom. This approach of learning and doing yourself became integral part of TPS (genchi genbutsu).

Among his inventions was a special mechanism to automatically stop a loom whenever a thread broke – building in quality as you produce the material (jidoka or poka-yoke).

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Toyota story The “mistake-proof” loom became Toyoda’s most popular

model and in 1929, his son Kichiro, negotiated the sale of patent rights to Platt Brothers of England for £100,000.

In 1930, these funds were used to start building the Toyota Motor Corp.

Kichiro’s contribution to the Toyota philosophy – JIT. What is JIT? – marriage between the Ford’s idea of

assembly line and US supermarket system of replacing products on the shelves just in time as customer purchased them.

Not much later WWII started.

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Toyota story Post-WWII, rampant inflation meant getting paid by

customers was very difficult. Cash-flow problems lead to pay cuts.

When situation worsened, 1600 workers were asked to “retire voluntarily.”

The resultant work stoppages and public demonstrations by workers led to resignation of Kichiro.

Eiji Toyoda took over as president. Eiji’s main contribution – leadership towards development

of the TPS. Eiji hired Taiichi Ohno as the plant manager and asked

him to improve Toyota’s manufacturing process so that it equals the productivity of Ford.

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Toyota story Taiichi Ohno benchmarked the competition by

visiting Ford and studied Henry Ford’s “book.” Impressed with Ford’s philosophy of eliminating

waste. Ford itself didn’t seem to practice it. Took idea of reducing inventory by implementing

“pull” system from the US supermarkets. “Pull” system was implemented by Kanban cards. Ohno also took ideas from Deming when he was

lecturing in Japan about quality and productivity.

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Toyota story Deming told the Japanese industry about meeting

and exceeding customer satisfaction. Also broadened the definition of customer to include both internal as well as external customers.

“The next process is the customer” became the most significant expression for JIT, because in a pull system it means the proceeding process must always do what the subsequent process says. Otherwise JIT won’t work.

Deming’s PDCA cycle led to Kaizen.

THE TOYOTA WAY Lean Engineering / Manufacturing / Thinking /

Enterprise /System is a: -

A Five Step Process : Defining customer value (internal / external) Defining the Value Stream (Process) Making it Flow (Process) “Pulling” from the Customer back (Inventory) Striving for Excellence (Long term)

Objectives of TPS:

Eliminating wasted time and resources

Building quality into workplace systems

Finding low cost but reliable alternatives to expensive

new technology

Perfecting business processes

Building learning cultures for continuous improvements

14 Toyota-Way PrinciplesSection I – Long-term philosophy

Principle 1: Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals.

Section II – The Right processes will produce the right results

Principle 2: Create continuous process flow to bring problem to the surface.

Principle 3: Use “pull” system to avoid overproduction. Principle 4: Level out the workload (heijunka). (work

like a tortoise not the hare.) Principle 5: Build the culture of stopping to fix

problems to get quality right the first time.

Principle 6: Standardize tasks are the foundation for continuous improvement and employee empowerment.

Principle 7: Use visual control so no problems are hidden.

Principle 8: Use only reliable, thoroughly tested technology that serves your people and processes.

Section III – Add value to the organization by developing your people and partners

Principle 9: Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others.

Principle 10: Develop exceptional people and teams who follow your company’s philosophy.

Principle 11: Respect your extended network of partners and suppliers by challenging them and helping them improve.

Section IV – Continuously solving root problem drives organizational learning

Principle 12: Go and see for yourself to thoroughly understand the situation (genchi genbutsu).

Principle 13: Make decisions slowly by consensus, thoroughly considering all options, implement decisions rapidly.

Principle 14: Become a learning organization through relentless reflection (hensei) and continuous improvement (kaizen).

So we see that the JIT, Lean, 5S etc. are just tools that enable quality and productivity. TPS is much more than that!

Long-Term Philosophy

Principle 1 - Management Decisions on a Long–Term Philosophy, even at the expense of Short-Terms Financial Goals:

Work and grow rather than making money. Generate value for customer, society and economy. Be responsible. Base Management Decisions on a Long–Term

Philosophy, even at the expense of Short-Terms Financial Goals.

Customers had complaint regarding tyre-life. So Toyota sent

the owner of every Lexus who had the specified batch of

tires, a coupon they could redeem for $500 and apologised

for inconveniency. Many of these customers had already

sold their Lexus.

The way you treat your customer when you do not owe

them anything, like how you treat somebody who can not

fight back – that is the ultimate test of character and long

term philosophy of values.

o Strive to cut waiting time to zero.

o Flow is the heart of the Lean message that shortening the elapsed time from raw material to finished goods / service will lead to the best quality, lowest cost and shortest delivery time

o Flow means when a customer places an order, this triggers the process of obtaining raw material from suppliers, flow to production plant, assemble the order, transport to dealer and deliver to customer

o Flow also forces the implementation of other lean tools such as preventive maintenance, built-in quality (jidoka), continuous improvement (kaizan) and even production (heijunka)

Process – Eliminate WastePrinciple 2. Create Continuous Process Flow to Bring Problems to the Surface

PROCESS FLOW ‘Batch & Queue’

Computer Base Dept (1 min each)

Computer Monitor Dept (1 min each)

Computer Test Dept (1 min each)

o Complete processing of first batch of 10 takes 30 minutes

o Transportation from Base to Monitor Dept is in batch of 10

o First good computer ready in 21 minutes

o There are at least 21 sub-assemblies in process at a timeBatch Processing Example

PROCESS FLOW – ‘One Piece’Computer Base Dept

Computer Monitor Dept

Computer Test Dept

o First part is ready in 3 minutes

o 10 complete assembly ready in 12 minutes

o Only two sub-assembly in process at a time

Continuous Flow Example

Product requires three processes that takes one minute each (One Piece Flow Production Cell)

Lean Thinking – Batch size - ONE

Principle 3. Use “Pull” Systems to Avoid Overproduction

“The more inventory a company has, the less likely they will have what they need” -Taiichi Ohno

Provide your down line customers in the production process with what they want, when they want it, and in the amount they want. Material replenishment initiated by consumption is the basic principle of just-in-time (JIT). It triggers at a customer’s orders of Toyota. 

Minimize your work in process (WIP) and warehousing of inventory by stocking small amounts of each product and frequently restocking based on what the customer actually takes away.

 Be responsive to the day-by-day shifts in customer demand rather than relying on computer schedules and systems to track wasteful inventory.

Principle 4. Level out the Workload (heijunka) (Work like the tortoise not the hare)

Eliminating waste is just one-third of the equation for making lean successful. Eliminating overburden to people and equipment and eliminating unevenness in the production schedule are just as important

The slower and consistent tortoise causes less waste and is much more desirable than the speedy hare that races ahead and then stops occasionally to doze. The TPS can be realised only when all move at the speed of tortoise.

Muda Waste due to Non-

value adds

Muri Overburdening

people or equipment (safety and quality

problem, breakdowns and

defects)

Mura Unevenness of

production (down time, NA parts,

defects)

Process – Eliminate Waste

Principle 5. Build a Culture of Stopping to Fix Problems(Jidoka), to Get Quality Right the First Time

Traditional production view: “Do not shut down the assembly line!” The managers are judged by their ability to deliver the numbers.

TPS view: “If you are not shutting down the assembly plant, it means that you have no problems. All manufacturing plants have problems. So you must be hiding problems. Please take out inventory so that problems surface. Then you will have to shut down the assembly line and fix the problems.”

If we continually follow this view, we can make even better-quality products more efficiently.

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Jidoka Hence we need a method to detect defects when they occur

and automatically stop production so an employee can fix the problem before the defect continues downstream.

Jidoka is also referred to as autonomation – equipment endowed with human intelligence to stop itself when it has a problem.

In-station quality is much more effective and less costly than inspecting and repairing quality problem after the fact.

Lean manufacturing dramatically increases the importance of building things right the first time.

With very low levels of inventory, there is little buffer to fall back on in case there is quality problem.

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Andon system When the equipment shuts down because of a quality problem,

flags or light, usually with accompanying music, signal that help is needed to solve the problem.

This signaling system is called the andon system. At Toyota, the andon is called a “fixed-position line stop

system.” When a workstation in the assembly line signals a problem, the

production line is not stopped immediately. The manufacturing team has until the product moves to the next

workstation to respond and address the problem, before the andon turns red and stops the assembly line.

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Andon system

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Andon system If the problem is small enough that can be solved

in the lead-time between two workstation, 100% quality is achieved without stopping the line.

If the problem is complex, the team leader can conclude that the line should stop.

In TPS, the workstation detects the defects by using countermeasures and error-proofing (poka-yoke).

Applications of andon system to service organizations like call-center are obvious!

Principle 6 – Standardized Tasks are the foundation for continuous Improvement and Employee Empowerment

It is impossible to improve any process until it is standardized Standardization, stabilize the process before continuous

improvements can be made. eg. If you want to learn Golf , you have to first learn the

fundamental skill needed to swing the club consistently, without that there is no hope of improving your golf game.

Standardization is to find that balance between providing employees with RIGID procedures to follow and providing the freedom to INNOVATE and be creative.

Coercive Vs Enabling Systems and Standards

Coercive Bureaucracy

+Rigid rule enforcement +Extensive written rules and procedures+ Hierarchy controls

Enabling Bureaucracy

+ Empowered Employees +Rules and procedures as enabling tools+ Hierarchy supports + Org learning

Autocratic + Top down control +Minimum written rules and procedures + Hierarchy controls

Organic +Empowered employees +Minimum rules and procedures +Little hierarchy

Social Structure

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Low

Bur

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Hig

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Principle 7 :Use Visual Controls so No Problems Are Hidden

Traffic signals tend to be well-designed visual controls. Good traffic signs don’t require you to study them: their meaning is immediately clear.

The visual aspect means being able to look at the process, a piece of equipment, inventory, or information or at worker performing a job and immediately see the standards being used to perform the task and if there is a deviation from standards

Visual management complements humans because we are visual, touch and audio oriented

Sort Clear out rarely used items by red tagging

(seiri)

Straighten (Orderliness)

A place for everything and everything in its

place (seiton)

Shine Clean it (seiso)

Standardize Create rules to sustain the first 3 S (seiketsu)

Sustain Use regular

management audits to stay disciplined

(shitsuke)

Clean It Up and Make It Visual – 5 S

Principle 8 - Use Only Reliable, Thoroughly Tested Technology That Serves Your People, Processes and Values

At Toyota, new technology is introduced only after it is proven out through direct experimentation with the involvement of a broad cross-section of people.

It means the technology has been thoroughly evaluated and tested to ensure it provides added value.

If it determines that the new technology can add value to the process, the technology is then carefully analyzed to see if it conflicts with Toyota’s philosophies and operating principles.

Toyota has had experience with pushing technology that is the latest and greatest, only to later regret it.

One example was an experiment in Toyota’s Chicago parts Distribution center, where the company installed a highly automated rotary-rack system.

At the time the warehouse was built, Toyota s dealers placed weekly stock orders for parts. But soon after the warehouse was completed, the company implemented daily ordering and daily deliveries to reduce lead time and lower inventories in the dealerships.

In 2002, Toyota’s parts distribution centered completed a two year systems initiative known as the Monarch project to improve its demand forecasting and inventory planning.

The focus of the Monarch system is to work behind the scenes supporting a visual system on the floor so people can go and see the actual situation.

People and PartnersPrinciple 9 - Grow Leaders Who Thoroughly Understand the Work, Live the Philosophy, and Teach It to Others

Toyota does not go shopping for successful CEOs and Presidents because their leaders must live and thoroughly understand the Toyota culture day by day.

Toyota expects its leaders to teach their subordinates the Toyota Way, which means they must understand and live the philosophy.

The characteristics of Toyota leadership, particularly the drive to meet seemingly impossible targets and the requirement to understand the work by getting your hands dirty, evolved from the leadership of two company founders (Sakichi Toyoda, who built Toyota Automatic Loom into one of the premier loom manufacturers in the world, and his son Kiichiro Toyoda, who founded Toyota Motor Company)

Figure: A Toyota leaders view of the Toyota Production System

If we look at all of the great leaders in Toyota’s history we see they share several common traits:

i. Focused on a long-term purpose for Toyota as a value-added contributor to society.

ii. Never deviated from the precepts of the Toyota Way DNA and lived and modelled themselves around this for all to see.

iii. Worked their way up doing the detailed work and continued to go to the gemba the actual place where the real added-value work is done.

iv. Saw problems as opportunities to train and coach their people.

A common phrase heard around Toyota is Before we build cars, we build people. The leader’s goal at Toyota is to develop people, so they are strong contributors who can think and follow the Toyota Way at all levels in the organization.

Principle 10 - Develop Exceptional People and teams Who Follow Your Company’s Philosophy

Fig. : Typical Toyota organization – assembly operation

Largest group5 TLs23 TMs

Smallest group4 TLs18 TMs

Team SizeTeam member5-8

Team Leader3-4

Group leader5-8Asst. manager4-10Manager

Principle 10 - Develop Exceptional People and teams Who Follow Your Company’s Philosophy

Internal Motivation Theories

Concept Toyota Approach

Maslow’s Need Hierarchy

Satisfy lower level of needs and move employees up the hierarchy towards self actualization

Job security, good pay, safe working conditions satisfy lower level needs. Culture of continuous improvement supports growth towards self actualization.

Herzberg’s Job Enrichment Theory

Eliminate “dissatisfies” (hygiene factors) and design work to create positive satisfiers (motivators)

5 S, ergonomics programs, visual management, HR policies address hygiene factors. Continuous improvement. Job rotation, and built-in feedback supports motivators.

Classic motivation theories and the Toyota way

External Motivation Theories

Concept Toyota Approach

Taylor’s Scientific Management

Scientifically select, design, standardize jobs, train, and reward with money performance relative to standards

All scientific management principles followed but at the group level other than individual learned based on employee involvement

Behaviour Modification

Reinforce behaviour on the spot when the behaviour naturally occurs

Continuous flow and andon creates short lead times for rapid feedback. Leaders constantly on the floor and providing reinforcement

Goal Setting Set specific, measurable goals, achievable challenging goals and measure progress

Set goals that meet these criteria through policy deployment. Continuous measurement of targets

Principle 11Respect Your Extended Network of Partners and Suppliers by Challenging Them and Helping Them Improve

Auto industry suppliers consistently report that TOYOTA is their best customer and also their toughest.

Have respect for your partners and suppliers and treat them as an extension of your business.

Challenge your outside business partners to grow and develop.

It shows that you value them. Set challenging targets and assist your partners in achieving

them.

Respect Your Extended Network of Partners and Suppliers by Challenging Them and Helping Them Improve

Toyota is very carefully when deciding what to outsource and what to do in house. Toyota outsource about 70% of the components. It still wants to maintain internal competency.

Even when Toyota chooses to outsource a key component, it does not want to lose internal capability.

As a general rule, Toyota wants to have at least two suppliers for every component.

Toyota is very bureaucratic in their dealings with suppliers, having extensive standards, auditing procedures, rules etc. But suppliers consider Toyota as their partner and Toyota is viewed as enabling customer who participate and solve their problems too.

Reliable

Partnershi

pEnabling Systems

Clear Expectations

Stable, Reliable Processes

Fair and Honourable Business Relations

Principle 12GO and SEE to Thoroughly Understand the Situation (Genchi Genbutsu)

Solve problems and improve processes by going to the source and personally observing and verifying data rather than theorizing on the basis of what other people or the computer screen tell you.

Think and speak based on personally verified data.

Even high-level managers and executives should go and see things for themselves, so they will have more than a superficial understanding of the situation.

GO and SEE to Thoroughly Understand the Situation (Genchi Genbutsu)

Data is of course important in manufacturing, but place greatest emphasis on facts – go and see

Think and speak based on personally verified data

See America, then design for America – to design Sienna minivan in 2004, the Chief Engineer of D&D drove extensively in US, Canada and Mexico to get a feel of what people wants in a minivan

Principle 13Make Decisions Slowly by Consensus, Thoroughly Considering All Options; Implement Rapidly

If there is a project supposed to be fully implemented in a year. A typical company anywhere would spend about three months on planning and begin to implement. But they encounter all sorts of problems after implementation and would spend rest of the year in correcting them

Toyota will spend 10 months planning, building consensus, implement it in a small pilot production – and fully implement at the end of year, with virtually no remaining problems

Nothing is assumed. Every thing is verified

Make Decisions Slowly by Consensus, Thoroughly Considering All Options; Implement Rapidly

Decide and Announce

Seek individual input, then Decide and Announce

Seek group input, then decide and announce

Group consensus, Management Approval

Group consensus with full authority

Preferred

Fallback

FallbackIf consensus not achieved

Leve

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ent

Time

Decision making is highly situationalPhilosophy is to seek maximum involvement for each situation

Get all the parties on board, iron out all the resistance, generate consensus, then

implementing

Plan-Do-Check-Act Model

Principle 14Relentless Reflection (Hansei) and Continuous Improvement (Kaizen)

Toyota’s Practical Problem Solving Process

Creating flow and PDCA

Thank You