Saturday, February 22, 2014

Lean Enterprise - The Machine That Changed the World - Book Summary and Excerpts


Chapter 1 The Industry of Industries in Transition

Chapter 2. The Rise and Fall of Mass Production

Chapter 3. The Rise of Lean Production

Example of Lean Production

In American Companies, die changes required a full day. The American companies dedicated die presses to each part. To Ohno of Toyota, that was not the solution. He has to stamp all the parts he needed from only few press lines. Hence he decided to decrease the die change time and he went on decreasing the die change time to 3 minutes and he also eliminated the need for die change specialists. The operators only will change the die. In the process he made the unexpected discovery - it actually cost less per part to make small batches of stampings than to run off enormous lots (due to  small setup costs).

Making only a few parts before assembling them into a car cause stamping mistakes to show up instantly. It made the production people more concerned about quality and that eliminated defectives significantly. But to make the system a success, Ohno needed both an extremely skilled and a highly motivated work force. Workers have take the initiative to maintain quality production. Otherwise, the whole factory will come to a halt.

Ohno organized his assembly workers into teams. The teams were given a set of assembly steps, their piece of line and told to work together on how best to perform the necessary operations. They work under a team leader, who would do assembly tasks, as well as coordinate the team and would  fill in for any absent worker. In mass production plans there were foremen and utility workers used to take the place of absentees. Ohno next gave the teams the job of housekeeping, minor tool repair, and quality checking. Finally, he gave them responsibility for process improvement also. This continuous, incremental improvement process, kaizen in Japanese, took place in collaboration with the industrial engineers, who still existed in much small number.

Ohno reasoned that rework at the end of assembly due to finding errors in final inspection is a waste. He wanted even assembly workers to pass on the work only if it is defect free and in case there is a defect which they could not rectify, they can stop the line and take the time to rectify the defect even with the help of other workers. Also, problem solving through 5 Whys methods is also used to avoid recurrence of the problem. In the initial days of this practice, the line was stopped  many times and workers got frustrated, with practice, the stoppages decreased significantly. Today, in Toyota plants,  yields approach 100 percent. That is the line practically never stops.  The extra benefit due to this method was that quality of shipped cars steadily improved. You cannot build quality by inspection, you have to build quality at the production centers only.  Today, Toyota assembly plant have practically no rework areas and perform almost no rework on assembled cars. In contrast, mass-production plants devote 20 percent of plant area and 25 percent of their total hours of final-assembly effort to fixing mistakes. American buyers report that Toyota's vehicles have among the lowest number of defects of any in the world, comparable to the very best of the German luxury car producers, who devote  many hours of assembly effort to rectification.

Supply Chain to Support Lean Production

The production of a car involves enginering and fabricating more than 10,000 major components and assembling them inot around 100 major subassemblies - engines, transmissions, steering gears, suspensions, and so on.

Toyota took a new approach to organize this supply 10,000 major components. It termed the suppliers of complete sub-assemblies  as first tier suppliers. These first-tier suppliers form an integral part of the new product development team. They are given responsibility for detail engineering the sub-assembly. They are given the performance specification of the subassembly, which is developed with them as a part of the team developing the new car. The supplier has to deliver the prototype for testing and once approved, the production order was given. Thus the detailed engineering of the subassembly was done by the tier 1 supplier.  The tier 1 suppliers were encouraged to talk among themselves about ways to improve the design process.  Each first- tier supplier formed a second tier of suppliers for components.

Toyota takes some equity in some supplier companies and these companies are encouraged to take equity in Toyota. Toyota also acts as banker for its supplier group providing loans to finance the machinery for new products.

Toyota share personnel also with suppliers. It provides work-force when load surges and also deputes its managers. Toyota encourages its suppliers to produce for other companies also.

Kanban system: Kanban system is used in Toyota production system to implement Just-in-time (JIT). As a container of parts was used up, it was sent back to the previous step or the supplier and this becomes the signal to make one more container of parts. Reduction of inventories in the JIT system means any error will disrupt the production. But the power of JIT idea is to involve everybody in quality and timely production by removing safety stocks or nets.

It took Eiji Toyoda and Ohno more than twenty years to fully implement JIT within the Toyota supply chain. They succeeded and created a highly productive, high quality, responsive supply chain.

Product Development and Engineering in Lean Enterprise

Ohno and Toyoda decided early that product engineering inherently encompassed both process and industrial engineering.. They formed product design teams with experts from process and industrial engineering teams. Career paths were structured so that rewards went to strong team players without regard to their function. The consequence of lean engineering  was a dramatic leap in productivity, product quality and responsiveness.

Lean Production and Changing Consumer Demand

Toyota's flexible production system and its low cost and time product engineering let the company supply the product variety that buyers wanted with little cost penalty. In 1990, Toyota offered consumers around the world as many products as General Motors even though Toyota was only half of GM's size. Toyota requires only half the time and effort required by GM to design and produce a new car. So Toyota can offer twice as many vehicles with the same development budget.  Japanes car makers offer as many models as all of the Western firms combined.  The product variety offered by Japanese is growing where that offered by Western companies is shrinking.

Japanese on an average are producing 500,000 copies in four years, whereas western companies making 2 million copies in 10 years.

Toyota is making profit by producing only two-thirds of the life-of-the-model production volume of European specialist firms and therefore it can attack the craft-based niche producers like Aston Martin and Ferrari. American mass producers could not attack them due to insufficient volume.

Lean Production: Dealing with Customers

Toyota in its initial days only developed a build-to-order system in which the dealer sent orders for presold car to the factory for delivery to specific customers in two to three weeks. The salesmen at the dealer went directly to customers making house calls. When demand began to droop, they worked more house and also they visited households they knew more likely to buy Toyota cars. This door-to-door selling of cars is termed as aggressive selling.  Toyota built a massive data base on households and their buying preferences for Toyota products.

The Toyota sales system incorporates the buyer into the product development process. In Japan vehicle inspection take place frequently and buyers change cars after six years.  Toyota minimize the chances of losing a Toyota user by using its consumer data base to predict what buyers want next as their incomes, family size, driving patterns and tastes changed.  Thus Toyota directly goes to existing customers in planning new products.

Chapter 4 Running the Factory

Chapter 5 Designing the Car

Chapter 6 Coordinating the Supply Chain

Chapter 7 Dealing with the customers

Chapter 8 Managing the Lean Enterprise

Related Reading

Are Japanese car building techniques the best?

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