Taiichi Ohno starts the chapter with the surprising statement “We have done a lot of rationalization on the production floor and we are near the limit. It’s becoming common sense that administrative processes still need a lot of rationalization, but we can still do a lot of kaizen on the production floor. However the impact of kaizen is will get smaller compared to the effort required.”
Ohno observes that while getting the last one percent of improvement is hard, on the other hand heijunka (leveling the volume and mix of production) is quite effective yet people don’t realize this. By focusing on the proper sequencing of assembly (final assembly) and synchronizing the production of subassemblies, you can limit overproduction and improve the efficiency of the overall system.
When rationalization is focused on individual processes they may increase the output from 100 to 120 but if only 100 is needed to support the heijunka sequence of final assembly, the true kaizen would be to make only 100 using fewer resources.
“The important thing is to produce in sets.” Says Taiichi Ohno. Although this might make the unit cost of the part appear higher, the overall cost of the product will somehow be lower. Even if you produce engines very cheaply (unit cost) if you have several month of inventory but not one of every part you need to finish assembly and ship the product, this is not effective kaizen. The role of production control is to make heijunka and set production happen, says Ohno.
“You can only sell the parts when you have a set that is a product” says Ohno. “It’s a very simple idea to make only what you can sell in the amount that you can sell, but nothing is harder to do.”
Ohno foreshadows the need for Lean accounting when he says “When you think about producing in sets you realize that overproduction is a very bad thing. But the troublesome thing is that calculations don’t show this.”
Ohno says that you have to view overproduction (producing too much or producing too early) as a bad thing that should be the focus of kaizen. Rationalization can lead to individual process optimization so there is a limit but we can do lot more kaizen if you look at things this way.
Being able to produce 20% more with effort is worth less than just making the 100 that you can sell. In fact if you have the extra capacity to make 20% that you should realize that you have too many people. “When you look at administrative work from this perspective, it’s very wasteful.”