We Do Not Make What We Do Not Sell: No More Trucks in Indiana

It is no mistake to say that the people at the top of Toyota, the President, CEO, Chairman and other executives all thoroughly understand production control. How many CEOs in the world can say this? In a word we might say that in TPS terms “production control” is to “make what the customer wants, when they want, in the right amount, quality and cost.” It is management itself. Much like industrial engineering, production control is a field that has been long neglected and is only slowly being recognized its importance, thanks in part to the popularity of lean manufacturing.
The more I learn about what Toyota means by production Control (生産管理), the more I see that it is different that what we mean by production control in the West. Production control is a comprehensive activity of planning, organizing production and related activities including purchasing, managing inventory and production cost controls. Production control has a very important position within Toyota, one might say that the “control” implies an integrating and oversight function for the end-to-end value stream, extending beyond production.
A Wall Street Journal article on July 11, 2008 titled Toyota Shifts Gears To Build Prius in U.S. struck me as an example of this. The North American automotive market has been hit hard by high fuel prices and the slowing economy. The Big Three automotive manufacturers have struggled with excess capacity for years and now even Toyota is experiencing same.
In Taiichi Ohno’s Workplace Management, he says repeatedly that “we do not make what we will not sell” as a simple way of explaining that their production control and even their entire manufacturing philosophy is based on synchronizing supply with demand. Ohno fought and taught for decades to make this a reality at Toyota. So when Toyota found themselves recently “making what we will not sell,” namely big, gas-guzzling pick up trucks, they stayed true to their principles and decided to idle these factories.
But Toyota has taken a different path than the Big Three in addressing the excess manpower:
The 4,400 workers affected by the plan won’t be laid off, the company said. Instead, they will undergo quality, safety and productivity training. A Toyota spokesman declined to comment on the cost of keeping those workers on the payroll.

Kaizen and respect for people. Without decades of kaizen they would not have the cash and profit to ride out these hard times by holding on to their people. Without the philosophy of respect for people, they wouldn’t do it in the first place. In their wisdom, I’m sure Wall Street will punish them for this position.
Toyota made a big push into trucks recently in order to capture a piece of that U.S. market. But instead of stubbornly sticking to a bad plan, they have identified the problem, stopped the line (literally) and they applied kaizen their business plan so that they will “only make what we can sell”. The truck plant in Indiana, and the new plant in Mississippi (planned for trucks) will both make the gas-electric hybrid vehicle Prius. The San Antonio, Texas plant will be the only place to build trucks. This is a brilliant example of the senior leadership of a company understanding production control from a total business perspective and limiting deadly overproduction.
The Prius is a fine car, but wouldn’t you rather drive a fully electric and 100% sensible Tesla? Why not lend some capacity to mass producing these beauties, Toyota?

3 Comments

  1. Karthik Chandramouli

    July 14, 2008 - 2:03 pm

    Out of this story, the really interesting lesson for big companies is to acknowledge bad news quickly and deal with it in a timely manner.
    Notice that Toyota did not slap even more incentives on the Tundra. They did not slow down the line, although I’d like to know what their takt time was when they launched, what it is today, and what it will be in November when they resume production.
    I did not expect that Toyota could bite the bullet so quickly, but they did so with compassion and grace. The ability to react quickly to bad news is what allows a big company to survive.
    Contrast this behavior with GM, Ford, and Chrysler, who, at various times, have each stuck their head in the sand and pretended that they could ignore the changing marketplace or customer demand.
    As a point of clarification, the plant in Indiana will not make the Prius, only the new plant in Mississippi will (at least for now). The Indiana plant will continue to make the Sienna minivan and will add the Highlander crossover SUV.

  2. John Santomer

    July 15, 2008 - 11:18 pm

    GM’s announcement today on cutbacks over health care, white collar jobs and suspension of stocks interest is a SOUNDING ALARM that steps has to be made to address the rising cost of oil per barrel (if not depleting).
    Why make something that would only sell for a fraction of the market share? What can be done to address the rising price on fuel? The approach to design a vehicle that would also run on a gas by product just buys the company that sells it some more time before it comes to a situation like GM. Ok Toyota sells not just in US, but how long will the other regions still be able to support Toyota sales before it succumbs to make similar adjustments as GM did in the US? Not all regions Toyota sells its vehicles are oil producing countries, sooner or later they will be affected by the rising price of oil. Toyota is able to stay afloat in the market because of the diversity of its product line that runs on hybrids and fuel saving “Green” models. Tesla, running on electicity may be a good start – but electricity is also a by procuct of oil. Unless Tesla is underway on designing a solar car that would produce the electricity to run its vehicle, even electricity cost will jump at record level heights sooner than expected.
    Bottom line, as early as now and with all the technology at Toyota’s discretion – this will be a good time to launch the search for a totally different source of energy that will run its vehicles. A design that would remodel the whole auto industry or even create one of its own. Only then will Toyota be making what ONLY sells. Its a GIANT leap (not farther away as the power looms) but only as a VISIONARY and a LEADER like Toyota today I picture can do. Isn’t this the “Jidoka” that it is looking for? After all, even if Toyota is always “All eyes and ears” for its consumers – they can only do so much to oil price and depleting oil reserves.

  3. JWDT

    July 16, 2008 - 8:38 am

    My key takeaway is the respect for the worker…instead of the typical cycle of layoff, rehire, retrain, etc., they are investing in the people via training. It would be interesting to see what the focus of the training is on…I can only imagine it is on the additional models they are making as well as the possibility to make the lines even more interchangeable.
    Jon, excellent comment on the way the Western interpretation of the Toyota terms is typically applied (i.e. production control).