Gemba Keiei by Taiichi Ohno, Chapter 36: Only the Gemba Can Do Cost Reduction

Taiichi Ohno begins the chapter by demonstrating the Toyota philosophy of “aim for 10X improvement, not 10% improvement”. He instructed Human Resources to give the shop floor 10 people even though they had asked for 100 people. Let them struggle and they will figure out how to get it done with 90 less people than they thought they needed. That’s how Human Resources can make a 90% improvement, he says.

Ohno says that in a similar way Finance can do kaizen by using the cash freed up through inventory reduction on the gemba to make more money. The point is that when Finance allocates costs or requires cost savings from design or production this is not really kaizen. Finance must create value, but they depend on the gemba for this.

“The gemba must become fanatical about cost reduction with ‘Only the gemba can do cost reduction’ as a belief.” Says Ohno.

Taiichi Ohno makes a very interesting and important distinction between cost knowledge and cost awareness.

“People are overly concerned with knowledge of cost, but this displaces cost awareness. I say you don’t need cost knowledge. I’m not even interested in learning the terminology.”

He goes on to make the point that cost calculation and cost reduction plans based on monthly targets are unreliable. When times are good and volumes are high, results may come quickly while at other times it may take a lot longer to see results. Implementing robots or computers can yield quick results, or they can take a lot longer than planned. Ohno emphasizes the importance for patience and perseverance when doing kaizen, particularly when volumes are reduced.

The word for ‘perseverance’ in Japanese that Ohno uses is 辛抱 (shin-bo). When people say “We must do 辛抱” in Japanese this means “We must endure hard times” and implies personal sacrifice. It is different from persevering as in simply working hard and not giving up. Understanding this and considering GM’s struggles today, Ohno’s following comment becomes poignant:

“If General Motors’ UAW had the perseverance to accept a reduction in wage they would become a formidable competitor (to Toyota). In Japan we are not there yet, and suggesting a reduction in wages would cause an outcry…”

Ohno switches themes mid-chapter. I would have taken the second half of this chapter and made it a separate chapter named “Follow the Rules You Make”. He talks a lot about rules, setting of rules, how people perceive and sometimes resist rules that are set, how kanban and Standard Work both rely on setting and following rules, as well as how Standard Work should be frequently improved updated on the gemba.

Certainly these things are related to cost reduction on the gemba, but Ohno does not make an explicit connection. I think he was telling his stories and might have drifted a bit. Nonetheless it makes for a chapter rich in the wisdom of Taiichi Ohno.