In this chapter Taiichi Ohno introduces another concept that is mixed up by people. It is the difference between operational availability and rate of operation. I introduced this concept in some depth in a previous post on this blog, and Taiichi Ohno does the same in the first few pages of this chapter.
The main learning points of this chapter are the importance of preventive maintenance and other methods to improve equipment availability and to not run equipment when you do not have demand.
Taiichi Ohno says in this chapter “As I often say, the companies that make only the quantity needed and pursue lowest cost production will survive until the end.”
A quick review of the two terms:
Operational availability means that equipment is available to run when needed. This is a measure of the percentage of time that you can run the machines when you want to run the machine. This is supported by kaizen through SMED (Single Minute Exchange of Dies), TPM (Total Productive Maintenance) and other methods to improve equipment uptime. You should strive for this number to be 100%.
Rate of operation is the percentage of operation when the equipment is running profitably. This percentage can be greater than 100% if you run overtime because your demand exceeds capacity of regular hours. Rate of operation applies when equipment is making something that you will sell, rather than simply build in order to absorb cost based on traditional accounting. It is OK for this number to be lower than 100%.
Ohno says that it is better to keep the older machines in good condition and be ready for when business picks up again so that you can be the low cost production leader.
Ohno introduces a practice at Toyota Boshoku which he calls “scrap and build” in which the government paid companies to destroy old machines during economic downturns. This money was then used to buy the latest technology machines, presumably to make the company more competitive. This creates an illusion of a high rate of operation, though in fact it is not.
Taiichi Ohno clearly warns that an apparent high rate of operation can be the result of a “keep the machine running” mentality driven by the need to absorb depreciation cost. The old machine, if well-maintained, could have a high operational availability (able to run when needed) and yet these new machines at Toyota Boshoku were run a lot, causing overproduction. The rate of operation was not high, because the machines were run when parts are not needed.
Ohno goes slightly off track at the end of the chapter and makes a surprising statement. First he warns against measuring productivity in terms of direct labor only. Labor productivity may improve but this is only a small part of the overall labor cost (direct and indirect) when there is automation advances. When management and administrative salary raises are given based on direct labor productivity improvement, this raises the costs a lot.
What’s so odd is that Ohno ends the chapter by saying “It is difficult enough to raise direct labor productivity by 10%. Raising the productivity of all people in the company by 10% is impossible.” He is probably sending a message to the managers at Toyota Boshoku for making a decision that he did not approve of, but his statement goes against both Ohno’s philosophy of kaizen and my direct experience with doing kaizen in the office to hear him say that it is impossible to improve productivity by 10% across all areas of a company.