Toyota's Real Secret: Hint, It's Not TPS



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Industry Week said:
Toyota's Real Secret: Hint, It's Not TPS
Manufacturers sometimes assume Toyota's success begins and ends with the Toyota Production System. In truth, though, implementing the TPS is just the first step toward optimizing all the functional processes of an enterprise. The next competitive step: the Toyota Product Development System.

Thursday, February 01, 2007
By John Teresko

Many manufacturers find themselves trying to solve the Toyota Production System conundrum: More and more, adopters of the lean manufacturing practices of TPS find they aren't guaranteed a competitive edge. TPS merely brings their manufacturing prowess on par with other adopters. What these companies are still missing is as important to their enterprise as a powertrain is to an automobile: the Toyota Product Development System.

The experts say that lean product development as Toyota practices it can surpass even the potential performance and cost-reduction advantages of TPS. In addition, there is only so much waste that TPS can squeeze out of the production process before engineering of the products and processes becomes a critical constraint, says Jeffrey K. Liker, professor of industrial and operations engineering, University of Michigan at Ann Arbor and the co-author (with James M. Morgan) of The Toyota Product Development System (2006, Productivity Press).

Among automakers, lean manufacturing practices are becoming less of a competitive differentiator, says Ron Harbour, president, Harbour Consulting, Troy, Mich. The growing proliferation of lean manufacturing practices is evident in a recent Harbour Consulting study, which observes that the labor productivity gap continues to narrow among all North American carmakers. The difference between the most and least productive in terms of total labor hours (assembly, stamping and powertrain) was 7.33 hours per vehicle in 2005, down from 9.08 in 2004 and less than half the 16.56 hours per vehicle gap in 1996.

While the six major auto manufacturers are closer than ever on labor productivity, there remain larger gaps on several other manufacturing attributes, including capacity utilization. Toyota, Nissan and DaimlerChrysler are producing at between 94% and 106% of their North American capacity. Honda and General Motors operate at 91% and 90% respectively, while Ford's assembly plants run at 79% of their potential output.

Capacity utilization is a big cost element and is being impacted by each manufacturer's flexibility, a factor often influenced by product development considerations. When assembly plants can produce multiple models, even from multiple platforms, a company is much more likely to fully use its human capital and equipment.

While Toyota still maintains its impressive performance in applying lean practices, less of that edge now comes from TPS and more comes from adopting lean product development practices. In turn, those best practices provide synergy to TPS.

For example, the Harbour study notes that in-plant quality improvement has been the biggest driver of productivity improvement and is better for all automakers. In addition, the report documents that U.S. automakers are learning the lessons of lean manufacturing. General Motors is cited as having five of the 10 best assembly plants in North America, improving 3%, despite declining volume. The report names Ford Atlanta as the best single assembly plant at 15.37 hours of assembly time per vehicle, followed by General Motors' Oshawa, Ont. #2 line that produces the Pontiac Grand Prix, Buick Lacrosse and Buick Allure mid-size sedans.

To put Ford's 15.3 hours into perspective, compare that assembly time per vehicle with a 1980s statistic -- 40 hours per vehicle at a GM plant in Framingham, Mass. (Ironically, Ford will close the Atlanta plant as part of its "Way Forward" restructuring and GM will idle the Oshawa #2 operation in 2008.)

Lean is now the mantra of U.S. automakers -- and the rest of North American manufacturing. But while lean has progressively revised and improved the best practices of the production floor, the concept of manufacturing has evolved, too -- from mass production to mass customization.

Product Development: The Next Competitive Frontier

While TPS still delivers significant value despite the transition toward mass customization, the range and scope of product variation intensifies the development game. Not only is the development function challenged by increased product variations, but suddenly the need for lean practices between design and manufacturing multiply. For example, with an expanding product model mix, the need for product design/production collaboration increases.

In a Merrill Lynch analysis that Liker and Morgan cite, new model introductions over the past five years have grown at a tremendous pace. Between 2003 and 2005 more than 60 new vehicles were being introduced each year in the U.S.

And product developers have had to do more with less as the number of unique vehicle platforms dropped significantly. Consider the rapid proliferation of crossover vehicles. Those car/truck variations, which did not exist 20 years ago, accounted for more than 16% of total vehicle sales in North America by 2006, says Liker.

Enabling that proliferation is not the only advantage that lean product development offers. As practiced by Toyota, the central focus of the waste reduction process is on shortening the time from a vehicle concept to its showroom availability. Toyota's objective, says Liker, is to offer customers the excitement of new ideas as soon as possible. Quickly bringing new features and styling to production models helps maximize market exposure, thus increasing profit potential.

Toyota's time-to-market metrics are one measure of its lean product development accomplishments. For example, only 22 months were required to bring Toyota's U.S.-developed Tundra pickup truck from styling freeze to start of production, says Yuichiro Obu, executive chief engineer at Toyota's Technical Center in Ann Arbor, Mich. That contrasts with the 30 to 40 months that were commonplace in the U.S. during the late 1980s. Toyota averages 24 months, regularly reaches 15 months and has had instances as low as 10 months.

Developing The Core Competency

One secret behind Toyota's lean product development success is the same one supporting TPS -- the Toyota Management System and its dedication to continuous improvement. Morgan and Liker emphasize Toyota's commitment to "the importance of appropriately integrating people, processes, tools and technology to add value to the customer and society."

Another advantage derives from the company's lean manufacturing experience. "A key factor is Toyota's ability to adapt and move the lessons of TPS upstream to product development," says Brian Shepherd, division vice president, product development, with PTC, a Needham, Mass.-based provider of product development solutions. "One example is their determined efforts to synchronize processes. They try and succeed in coordinating the activities of a large number of people to enable work to progress simultaneously instead of serially. That's how they can be the fastest in the world in product development."

Suppliers and technologies are uniquely leveraged in Toyota's lean product development strategy. In some instances Toyota helps suppliers with product strategy. One example is PTC, a CAD/CAM software firm that went on to change product development after its founding in 1985. Today, PTC, with Toyota as a customer, has found an important co-development partner is optimizing its software solutions.

PTC's design solutions were first benchmarked in 2000 by Toyota's engine and powertrain operation, and in 2002 PTC's ProENGINEER was selected. "For the next year, Toyota partnered with us to optimize ProENGINEER for their use," says Shepherd. Deployment of the improved version, Wildfire 2.0, began in 2004 following field tests at Toyota sites.

Shepherd says the Toyota type of co-development is limited to PTC's most strategic customers. "What justifies the Toyota collaboration is the automaker's thought leadership in discrete manufacturing, which results in benefits for all of our customers. In effect, by choosing co-development partners, we are evolving the future direction of our product."

Shepherd highlights six areas of software improvement enabled by the collaboration:

  • Web-based database for centralizing and controlling design data and processes;
  • Managed storage and reuse of existing knowledge -- the best practices for designing and manufacturing products;
  • Integrated quick CAE;
  • Integrated and associative NC planning and machining;
  • Improved internal and supply chain collaboration and mobility;
  • Full 3-D annotation to remove drawings from critical path.

Shepherd says software co-development with Toyota continues via video conferences every two to three weeks, plus face-to-face meetings in both Japan and the U.S. He says Toyota's interest reflects the automaker's dedication toward making excellence in product development a strategic priority. "In turn the co-development improves our product quality and features for all our customers. Our involvement with Toyota over the last five years has been a continuous improvement process. Mutual success is the key to the relationship."

Since PTC started the software co-development program with Toyota, more participants have been added, including Boeing, Airbus and the Automation and Drives Divisions of Siemens, adds Shepherd. He says the benefits of the co-development programs derive from commitments to continuous improvement and studying how technology can implement those improvements more easily.

Shepherd offers an admonition for anyone embarking on the lean product development journey: "Be prepared to discover the difficulties in measuring success. In engineering and product development, the cycle times are longer, and measures are more complicated and not nearly as precise. While that makes deploying lean development more difficult than lean manufacturing, keep in mind that because you're working at the up-front part of the process, the opportunities for competitive advantage are larger. In addition, lean product development is key to the long-range success of the enterprise."

Adds Liker, "In addition to presenting more opportunities for competitive product benefits, lean development strategies can unlock broader opportunities in the manufacturing process."

Start With A Lean Enterprise

Are you considering emulating TPS or the Toyota Product Development System? First evaluate Toyota's implementations in terms of its lean enterprise strategy, cautions Liker. "At Toyota, TPS and lean product development are not point solutions, but successful instances of how the fundamental principles of lean have shaped and sharpened all of the corporation's functions." (See The 13 Principles Of Lean Product Development.)

"Two key aspects of our development process are that it always has to be customer-driven, and that the lean principles of TPS apply," says Toyota's Mark Schrage, executive program manager at the Ann Arbor Technical Center. "The fundamental philosophies [of lean] are the same."

Another factor to consider is Toyota's ability to internally balance deep functional expertise and cross-functional integration.

Schrage's integration example is with manufacturing. "One of the responsibilities of engineering is to design the quality into the product from the beginning -- even before we have a physical part," he explains. "One of the things that help design engineers is that manufacturing people are involved at the very beginning stages. The idea is for product development to learn what design attributes will help manufacturing build in the quality the customer expects. The manufacturing side also participates at the earliest stages of design. In the case of the Tundra development, they were even involved in some of the early reviews of the clay models."

To guide product development through the functional integration process, Toyota has developed a chief engineer system to integrate development from start to finish. Morgan and Liker describe them "not as project managers, but as leaders and technical systems integrators for Toyota models. It is to these individuals that difficult decisions are brought for resolution. The unique role of Toyota's chief engineers is to be the glue that holds the whole product development system together." The position's ultimate responsibility: delivering value to the customer.

Schrage points to workplace culture as the fundamental enabler underlying Toyota's pursuit of excellence and relentless improvement.

"On culture, the key point is that people must be receptive to input from different areas of the organization. Sometimes the manufacturing side will have to challenge engineering to make designs easier to process, to assemble or to assure high quality."

Beginning with Prius chief engineer Takeshi Uchiyamada, cross-functional integration of ideas began taking place in regular obeya (big room) meetings.

"By meeting face-to-face we can easily and quickly collaborate and clarify issues and design alternatives," says Schrage. "For example, a single meeting can quickly reveal and resolve problems and result in cross-functional commitment. In the obeya, all of that can happen at the earliest product concept stage -- before any tooling or manufacturing costs are incurred."

Liker and Morgan argue that with competitive factors evolving more complex product development challenges, lean product development must become a core competency-one that must be built in a lean enterprise environment.


Uh, Toyota also does not pay 4,000 people $100k/year in wages & benefits to sit around and read the newspaper. (It's called a Job Bank.) Funny, none of the "Quality" mags bring that up when they try to hype the Big 3's competitiveness!

Remember Actionline Magazine's recent fawning over Bill Ford, giving him an award, and referring to him as a "hero."(?) Now he's gone, and they just reported their worse quarter in history! Guess his "Forward" plan got stuck in reverse.

"The danger lies not in the lie, but in the myth."
John F. Kennedy

The Madfox


Moved On
Just like most people in the auto industry, these are all (only) measures of production which slant the picture. So what, if Ford's build times are close to Toyota's? If the vehicle at the end of the Trim, Chassis & Final line then gets knocked down for defects, how much did it cost Ford? I'm not sure if the folks at Harbor ever consider that kind of thing, but to me it seems as if there's a lot more going on at these companies than meets the eye. It certainly is more of an agregated score of costs than just the (conventional) build costs/labor costs etc.

What about all those corporate types who (for example) continually audit plants etc?? Does Toyota have those as an overhead too? I rather doubt it!



Super Moderator
What about all those corporate types who (for example) continually audit plants etc?? Does Toyota have those as an overhead too? I rather doubt it!


Knowing the Japanese they probably consider it an investment with a return expectation.
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