What Went Wrong at Toyota?

Some are pointing at the recent activity at Toyota and saying that Lean and the Toyota Production System (TPS) doesn't work. We say differently, as lean reduces variation, waste, complexity, and the number of suppliers so that you can standardize the product you manufacture.

Lean and TPS do work, and have allowed Toyota to grow and prosper from the early beginnings to the largest car company in the world. Toyota has been benchmarked and Fortune 50 companies globally have adopted the TPS into their own production system. Many others now have their own production system modeled after Toyota's.

Toyota has an operating model to run their business and everyone from the lowest level in the company and the CEO knows the rules and the game plan. As long as they were sticking to the game plan, Toyota was able to sustain a very strong quality system.

Where Toyota went wrong was in not following its own playbook. As we heard in the recent congressional hearings, their drive to be number one led to the situation the company finds itself in today. In the desire for growth, internal resources and the supply chain were stretched by the opening of so many new plants and locations around the world. Quality and Genchi Genbutsu (Go to the source to get the facts) are hallmarks of the Toyota Production System. These fundamentals are what drove Toyota to become a large respected company, and abandoning these fundamentals is how things began to go wrong.

Four areas that drove Toyota off track:

Drive to be #1: In 2002, Toyota set a target to be the #1 Global Automobile manufacturing company in the world, an aggressive goal that required 50% growth. This is the equivalent of Toyota starting up a company the size of Honda Automotive in just 7 years. Because of this focus, Toyota decided to stop their goal of slow and steady growth, which had allowed them to continue to make quality cars and grow market share. This growth stretched their resources and their supply base. It became harder for them to stay focused on quality when they were growing so fast.

Complacency: Toyota invented the Toyota Production System and it was working so well that they felt they didn't need to worry about being vigilant with their manufacturing processes anymore. They felt that they had all of the answers and took their eye off the ball. In fact, Katsuaki Watanabe, the former president of Toyota, admitted in 2006 that the company had quality problems. At that time, Watanabe acknowledged that lengthening development times might be necessary. Instead, the company continued in its drive for rapid growth.

Top Down Decision Making: Toyota's philosophy of "Genchi Genbutsu" (Go to the source to get the facts) became harder when there were many levels of management between the decision makers and the problems. As a result of their rapid growth, manufacturing was taking place all over the world. However, corporate headquarters in Japan continued to make the decisions at a distance instead of taking input from local 'sources' where the factories were located. Management stopped crossing the Lean Bridge. Lean is the vehicle that builds a bridge between management and the process/owner operator. Performance is made visual so the two groups can come together and solve problems/issues. Process efficiency and effectiveness is measured and made visible to all so management can go to the process and work with the owner to solve problems. The problems within Toyota were known -- however, the management system broke down and solutions were not developed and implemented. Toyota had too many layers of management not getting to the process to help lead solutions.

Cost Reduction Pressures: All automobile manufactures had this pressure and so did Toyota. Toyota started a program of buying products manufactured locally to their plants instead of shipping in all components from Japan. This created more suppliers and more complexity in the Toyota system. This added additional strain on the engineering teams and the business as they also were growing at a fast pace.

As we have seen this play out in the news over the last several weeks, it is clear that other factors contributed to the scale and public fallout of Toyota's difficulties. No doubt a faster response to customer complaints, more visibility of the CEO and better public relations could have limited the level of damage to the company. Nevertheless, the problems began in manufacturing, and the lesson other manufacturing companies can learn is that it is vital to be constantly checking in that the principles of Lean are being applied and that implementing these principles is an ongoing process.

Stan Gwizdak is Manufacturing Vice President and Dennis McRae is Vice President of Operations for Celerant Consulting. Celerant Consulting is a global management consultancy that delivers operational improvement. www.CelerantConsulting.com