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Taiichi OhnoTPS Benchmarking

Taiichi Ohno’s Three Lessons for the New Toyota President

Avatar photo By Jon Miller Updated on April 28th, 2023

Yesterday Kevin Meyer provided a useful summary of how Toyota is getting back to basics, as described in the Wall Street Journal article titled “A Scion Drives Toyota Back to Basics”. Here are the key takeaways from both sources, rephrased in the style of Taiichi Ohno, complete with a mustache twitch and an exclamation point to drive home the point.

Getting Back to Basics: Taiichi Ohno’s Principles for Toyota’s Success

Here are the three steps according to Taiichi Ohno.

1. Synchronize supply to demand!

This requires a just-in-time production approach – something that Toyota has moved away from in recent times as they expand its global production capacity to capture a larger market share. As Taiichi Ohno famously said, “We do not make what we will not sell.” Although this principle is typically associated with factory production during times of growth, it must be applied throughout the entire business to be truly effective.

2. Deliver value at a low price!

As Taiichi Ohno once remarked, “Costs do not exist to be calculated; costs exist to be reduced.” Although he probably never imagined we’d have to add, “Costs do not exist to be increased,” the point remains the same. Regardless of our feelings about the value of technological innovations or features, or our assumptions about the market’s willingness to pay, we must keep our costs low and our value high in order to stay competitive. This is simply good business. The world economy has suffered due to “demand push” excesses. We constructed homes without real demand, created financial instruments with no actual value, and produced more cars than necessary, leaving them parked on racetracks.

car lot

 

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 appears that Toyota has adopted the second formula to boost its profits. This approach assumes that a profit of 20 yen is necessary, and as long as this margin is achieved, everything is satisfactory. However, if the cost and price of a product are both 100 yen, there is no 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 products at an increased price. The Wall Street Journal cites an increase in feature-related costs 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.”

Taiichi Ohno’s Legacy: Lessons for Business Success in the 21st Century

According to the article, Akio Toyoda understands the importance of Ohno’s philosophy and likely will lead Toyota down the philosophical footsteps of Taiichi Ohno. Shoichiro Toyoda, Akio’s father, also recognizes the significance of the company’s basic values and expressed concern a few years ago about senior management losing focus on them. He even questioned, “When did Toyota become a company like this?” In the WSJ article, Shoichiro is quoted as saying, “We are not gods, we are not infallible,” acknowledging that even the management team can make mistakes. He added, “Sometimes even Tiger Woods misses a shot.” But Tiger Woods wouldn’t put a gold lining in his golf club to begin with.


  1. Nancy Kress

    February 27, 2009 - 9:52 am
    Reply

    As a manager in a university library, I have to translate any reference to selling a product to not-for-profit service. Reading: “we do not make what we will not sell” immediately made me think of the recent furniture and equipment requests. I thought “we do not buy what we will not use.” Considering services, I thought “we do not offer services our customer will not use.” Any why do we offer services now they do not use? Because someone thought it would be good for the customer – without going to the source and asking.

  2. Mike

    April 20, 2009 - 6:41 pm
    Reply

    In #3 above, Genchi genbutsu! is mentioned along with talk of “internal customers”. In true value stream flow, there are no internal customers. If everything is one flow, then there is no next-customer internally.

  3. Jon Miller

    April 20, 2009 - 9:09 pm
    Reply

    Hi Mike,
    Thanks for your comment.
    I would argue that there will be internal customers as long as there is more than one person i.e. more than one process. Even if you have smoothly connected one-piece flow across the entire material and information flow chain, the subsequent process and the people who work there are your customers – the internal customers.
    We don’t need to think of internal customers only as people who are “on the other side of the wall” because they could be immediately next to us, relying on the work we do to do their work, and as a result serving the end customer.
    Let me know if I have misunderstood your meaning.

  4. Todd

    May 7, 2010 - 12:28 pm
    Reply

    Being in a transactional service industry (health insurance)we’ve had the debate over whether or not there are “internal customers”. My position is that the most (perhaps only real) important customer is the one paying the bills, but for many processes the immediate customer is internal. The challenge is to ensure that the internal customer’s requirements are driven by the external (real) customer, not the internal customer’s wants.

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