Lean beginnings

E&T assesses whether adopting lean manufacturing methods has helped western firms to catch up with their Japanese rivals.

It is today frequently supposed that Japanese management practices have rejuvenated the organisation of manufacturing practices in Western economies. Indeed, Harvard’s Michael Porter goes so far as to identify dissemina­tion of the lean production system, widely regarded as integral to the success of the car and truck divisions of Toyota, as being responsible for the resurgent strength of the US manufacturing economy relative to Japan in the 21st century – Western firms have ‘caught up’.

But while a seemingly provocative proposition, there is also accumulating evidence that many firms influenced in the 1990s by Japanese car giants like Toyota have seen deterioration across a range of business outcomes. And the reason for this may be that on a number of essential points these firms have got the message back to front when it comes to understanding the basis of past Japanese success.

Perhaps the first thing to note is that neither Toyota nor any of the other Japanese car makers have ever aspired to, or for that matter ever required, much in the way of flexibility when it comes to matching customer selections against factory production schedules. Some manufacturers – like BMW, for example – develop marketing platforms in which individual customers are offered a rich and extensive menu of options for their car, but this sort of ‘build to custom’ approach is far removed from the Toyota philosophy: the Japanese marketing platform typically avoids this kind of variety.

The potential significance is easy to see. A plant accommodating a generous selection of factory-fit options will see average lead times from sales order to delivery increase with the number of items incorporating these features. Conversely, the balance of completed goods built to stock will fall. This relationship is easily visualised as an implicit curve, with the plant in question settling at a point determined by customers’ uptake of options.

Now superficially, plants managed by a firm like Toyota seem to operate ‘off curve’, reducing sale-to-delivery lead times without building up product stocks. In other words, observations suggest a distinctive ‘Japanese’ point like point ‘J’ in the figure. But with factory-fit options non-existent, or severely curtailed, this may reflect less a superior manufacturing method than a more limited marketing aspiration. It makes little sense therefore to compare variables like stock turns or sale-to-delivery lead times across competing firms without taking due account of the character of the products. By the same token, a decision to remove plant side parts inventories while trying to maintain a market strategy that sells products to fine customer specification could be a disaster.

Yet it is far from clear that this is always understood. Indeed, the shock of the encounter between a just-in-time production regime, of a ‘Japanese’ type, with a ‘custom’-led marketing strategy, of the BMW type, has helped claim at least one major industrial victim in the UK-based car industry. Bernd Pischetsreider, then chair of BMW’s supervisory board, is recorded as describing how previous experiments in Japanese style production undermined attempts by the German firm to develop a BMW style approach when it acquired the British Rover Group. And detailed research supports the claim (see below). But it remains commonplace to see it wrongly asserted that the logistical demands of just-in-time remain wholly consistent with maximum flexibility at the point of product supply – a palpable industrial myth.

It might reasonably be objected that there is more to ‘lean’ production than the question of flexibility in day-to-day operations. And some commentators do occasionally seek to suggest a distinction: might a manufacturer be lean, even if not flexible? But the words lean production were first coined at MIT in connection with the findings of the largest ever survey of worldwide workforce productivity differentials in final assembly plants in the global car industry, as popularised in the 1990 book The Machine That Changed the World, co-authored by James Womack, Daniel Roos and Dan Jones, as well as in a host of subsequent publications. What this survey seemed to show, and what has since entered conventional wisdom about the global auto industry, was that Japan’s car assemblers enjoyed very substantial advantages in labour productivity for reasons that could not be adequately explained by reference to undoubtedly above average levels of investment in factory automation.

It is possible, however, to show that a more rigorous analysis of the very same data could have yielded a quite different set of conclusions. These are that there was in fact no conclusive evidence that factories in Japan (or Japanese transplants in North America) enjoyed a net productivity advantage over factories in North America, Australia and even most non-industrialised countries after allowing for automation.

There was, however, clear evidence that factories in Europe compared badly at all levels of automation with factories in the rest of the world. But this is subject to the qualification that the original labour productivity measure used weighted each factory operative by a single standard non-overtime shift, thus creating a bias which favoured plants working significant overtime.

This last qualification is important when considering evidence of a differential performance in Europe, compared with elsewhere. But so far as Japan’s car assemblers are concerned, claims of a global leap forward in productivity over and above what could be explained by differential investment rates have always been weakly founded. In itself this would be nothing, were it not that many would-be lean producers have taken to heart the idea that a simple reorganisation of operations is a success formula per se.

Evidence, for example, compiled at the Ann Arbor Industrial Technology Institute, University of Michigan, and comprising data on more than 1000 smaller US manufacturers updated annually since 1992, shows that firms devoting most managerial resources to implementing ‘Japanese’ supply chain and shop floor practices are also typically poor investors in hardware and software for business scheduling and quality functions, and in product development and shop floor automation. But as benchmark­ing-service director Daniel Luria has noted, these same firms score typically poorly on a range of outcomes including responsiveness to customers and value added per employee.

The divergent experiences of Japan’s auto firms over the past 15 years provide further evidence that things are not as they seemed: while Toyota, like Honda, continues to thrive, most are now controlled by foreign firms. At the same time, Ford Motor Company, recently hailed for its advances in lean thinking, now excites different comment­ary for its largest ever losses. Evidence of gains is hard to find.

An instructive example in this regard is that available data on assembly line organisation and throughput times suggests that Toyota was experiencing significant problems in Japan with line stoppages in the first part of the 1990s, at just about the same time that Western commentators began to enthuse about lean production. But remarkably neither this problem, nor its solution, appeared in these commentaries. And paradoxically, since resolution has involved deploying in-process buffers to localise and absorb stoppages on individual sections of segmented assembly lines, best practices at Toyota plants not only in Japan but also in North America would currently fail some of the popular ‘lean metrics’ supposedly deriving from Toyota’s own example.

In asking what makes Toyota successful, it may in part be that Toyota is less taken by conventional wisdoms about what it does than many of its admirers. Pressures of globalisation undoubtedly play a part in the development of shared myths about best practice manufacture. The result is what industrial psychologists might recognise as an excessive commitment to a particular vision sustained by ‘confirmation bias’: the world is consistently interpreted, regardless of what happens, in ways which support an under­lying belief. But a too ready adoption of non-discriminating assumptions about flexible or lean manufacture on a ‘Japanese’ model can be damaging to business health – a critical appraisal is overdue.

 

*Please note: This article first appeared in the June 2007 edition of Manufacturing Engineer magazine.

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