Yesterday Kevin Meyer did a good summary of how Toyota is getting back to basics, based on the Wall Street Journal article titled A Scion Drives Toyota Back to Basics. Here are the main points from the WSJ article and Kevin’s summary, reworded as Taiichi Ohno might have said them, mustache twitching, with an exclamation mark for emphasis the scolding.
1. Synchronize supply to demand! This means producing just in time – something that Toyota has gotten away from recently as they expand their global production capacity in an effort to capture greater market share. Taiichi Ohno said, “We do not make what we will not sell” and while in times of growth most people take this to apply mainly to production within the factories, it must be applied to the whole business for it to be a useful guiding principle.
2. Deliver value at a low price! Taiichi Ohno said, “Costs do not exist to be calculated, costs exist to be reduced.” He probably never imagined that we would have to say, “Costs do not exist to be increased.” Regardless of the value the producer may place on the technological innovations or features, or our view of what price the market should bear, we need to keep our costs low and value high to be competitive. This is basic business. The world economy is tripped up now because of excesses from “demand push”. We built homes with no true demand, made up financial instruments with no real value, and decided to overproduce and park automobiles on race tracks.
In chapter 6 of Taiichi Ohno’s Workplace Management he points out the “blind spot” of mathematical calculations of cost. He explains with three formulas:
1) Price – Cost = Profit
2) Profit = Price – Cost
3) Price = Cost + Profit
It seems Toyota has drifted towards the second of Ohno’s three cost formulas in order to increase profits.
The second formula is based on the thinking that we must have a profit of 20 yen, and that as long as we do, things are all right. If the sales price is 100 yen and your cost is 100 yen this does not leave 20 yen profit. Under this formula, the self-serving answer might be to add a gold lining and sell it for 120 yen.
Of course Ohno’s point is that the price is set by the customer and that it is arrogant to expect to sell gold-lined product at an increased price. The WSJ article cites a feature-related cost increase in the Prius as an example of this recent trend.
3. Genchi genbutsu! In Taiichi Ohno’s day, woe to the Toyota manager who could not answer with a crisp “Yes!” and a recitation of the facts to the question, “Did you go to the source to check the facts for yourself?” It’s my sincere hope that this phrase makes it into the Oxford English Dictionary before the end of the decade. These words should be carved in stone at the entrances of our greatest institutions of decisions making, just as many Latin phrases are. If the leaders of Toyota had spent more time truly listening to the voice of the customer (internal and external) at the gemba, these are things they might have heard:
Voice of the customer: “The huge increase in recalls are eroding your reputation for quality.”
Voice of the dealer: “Please don’t raise the price of vehicles because it makes it harder for us dealers to sell based on value at low cost.”
Voice of the employee: “The push to be number 1 in volume is creating overburden on our engineers, suppliers, employee training, and new facility planning capability.”
The article indicates that Akio Toyoda gets these things already, and no doubt he will lead Toyota down the philosophical footsteps of Taiichi Ohno. Akio’s father Shoichiro gets it as well, having raised the alarm a few years ago on Toyota senior management’s loss of focus on the basic values, even asking “When did Toyota get to be a company like this?” The elder Toyoda is quoted in the WSJ article:
“We are not gods, we are not infallible,” says Shoichiro Toyoda, speaking of the company’s management team. “Sometimes even Tiger Woods misses a shot.”
But Tiger Woods wouldn’t put gold-lining in his golf club to begin with.