Kanban Just-in Time at Toyota

Management Begins at the Workplace

JapanManagementAssociation, Japan Management Association

• Publisher: Routledge
• Year: 2018
• eBook ISBN: 9781351436182
• Topic: Business
• Subtopic: Operations
• Index: Business

Toyota's world-renowned success proves that just-in-time (JIT) makes other manufacturing practices obsolete. This simple but powerful book is based on the seminars given by Taiichi Ohno and other senior production staff to introduce Toyota's own supplier companies to JIT. It teaches the philosophy and implementation of what many call the most efficient production system in the world.

• Provides a clear structure for an introductory JIT training program.
• Explains every aspect of the JIT system, including how to set it up and how to refine it once it's in place.
• Shows how to use a simple visual system to control the production process.

Every day more American companies are learning that JIT works outside Japan. Now you can get started with this step-by-step book which guides you through the implementation process. Every engineer, manager, supervisor, and worker should read this book to get the clearest, simplest, and most complete introduction to JIT available in English.

Results at American companies after reading this book:

• Lead-time on one product was reduced from 12 weeks to 4 days.
• Setup time on a large blanking press was reduced from eight hours to one minute and four seconds.
• Work-in-process has been reduced 50 percent plant-wide.
• Factory floor space was opened up 30 to 40 percent in every on of their plants.

1

The Source of Profit Is In the Manufacturing Process

Commercial Profit and Manufacturing Profit

In 1976 and 1977 — shortly after the first oil shock — when Toyota Motors registered profits of ¥182.2 billion ($597.4 million)^* and ¥210 billion ($716.7 million) respectively, the company was criticized for making too much money.

For a company to succeed, making money is actually a precondition or a goal, irrespective of the industry one is in. Now, what do we mean by the phrase “making money”?

In commercial enterprises, the selling price is set by adding a certain margin over the purchase price. To make money means “to buy cheaply and to sell dearly.” Thus “making money” usually conveys a negative image, and some newspapers would even write articles condemning companies that make too much money as being engaged in anti-social activities. They reason that the companies make money by buying cheaply and selling dearly, making the consumers pay the difference.

In manufacturing, is money made by buying raw materials and parts cheaply and selling finished products at a higher price, as done in the commerical sector?

Does it mean that Toyota can somehow buy steel plates cheaper than any other car maker? Does it mean that there are suppliers who are willing to sell parts at a lower price to Toyota? No, that is not the case. Can Toyota command a higher price by the use of its brand name? The mere fact that the Toyota name is on the car does not mean that it can automatically command a price $1000 higher than any other car.

Toyota buys its raw materials, processed materials, parts, electricity and water at the prevailing market value. The price of its products is also governed by the rules of the same marketplace. If Toyota should put an unreasonably high price on its cars, it would put an end to its sales drive everywhere.

This is not confined to Toyota. All manufacturers share the same marketing consideration. The manufacturing industries derive their profit from the added value obtained through the process of manufacturing. Therefore, manufacturing industries and commercial enterprises cannot make money in the same way.

We Cannot Be Guided by Cost Alone

If profit is expressed in terms of a margin obtained by selling at a higher price than the purchase price, or by selling products above the manufacturing cost, it can then be summarized in the following equation:

$\text{Profit}=\text{Selling}\text{price}-\text{Cost}$

On the other hand, if one wishes to take into account the purchase price and manufacturing cost before adding profit, another equation may be established as follows:

$\text{Selling}\text{}\text{price}=\text{Cost}+\text{Profit}$

When the two equations are expressed in numbers, they may be the same, but at Toyota, we do not use the “selling price = cost + profit” formula.

The so-called cost principle states that inasmuch as it costs so much to manufacture a certain product, a just amount of profit must be added to it to arrive at the selling price. Thus it becomes “selling price = cost + profit.” If we were to insist on abiding by this cost principle, we would have to say to ourselves: “Well, we cannot help it if this product costs so much to make. We have to be able to make this much money out of it.” This would mean that every cost would have to be borne by the consumer. We cannot afford to take this attitude in this age of intense competition. Even if we wanted to, we could not use this formula.

Returning to the first equation, it is stated that profit is the balance after subtracting cost from the selling price (profit = selling price — cost). As discussed earlier, the price of a car is determined generally by the marketplace. Thus in order to make a profit, the only recourse left to us is to lower the cost as much as possible. Herein lies the source of our profit.

SAYINGS OF OHNO

Don’t confuse “value” with “price.”

When a consumer buys a product, he does so because that product has a certain value to him.

The cost is up, so you raise your price! Don’t take such an easy out. It cannot be done. If you raise your price but the value remains the same, you will quickly lose your customer.

True Cost Is the Size of a Plum Seed

Cost can be interpreted in many different ways. Cost consists of many elements, such as personnel cost, raw materials cost, cost of oil, cost of electricity, cost of land, cost of buildings and cost of equipment. Some people may add all of these costs and obtain a total and say that it costs this much to manufacture a certain product. But is this the true cost? No, when one considers it carefully, what emerges is that the total just obtained does not seem to reflect the true cost at all.

The expression “true cost” may sound odd. But there is a notion that in making a passenger car the true personnel cost is about this much, and that only a certain amount of the cost of materials is sufficient. That is an approximation of the true cost.

Let us now take the personnel cost as an example. In order to make any given product, a worker must work a requisite number of hours to process a certain amount of material needed for the day. That is close to the true cost. But suppose the worker processes those materials needed for tomorrow and the day after tomorrow?

The excess materials which are manufactured, if kept in the same workplace, will hinder the orderly functioning of the workplace. So they are shipped somehere. This means that a process called shipping has to be created, and a need for a storage place also arises. Furthermore, someone has to count and rearrange these materials in the name of management. If the number increases, slips will be needed to show that certain items are placed in storage and certain items are removed from storage. Next comes the need for storage clerks, and then workers monitoring various processes…. Just because someone has overproduced, there is created a need for an unlimited amount of work and additional personnel.

Those people who are engaged in these newly created tasks must be paid, and that cost is counted as part of the personnel cost. In the end, their salaries and wages become part of the cost of that product.

The same thing can be said about the materials cost. If you have just enough materials for today’s work, your day’s work can run smoothly. And you may keep a ten-day supply, for the sake of your suppliers. That, of course, is more than sufficient. But in many companies, when inventory is taken, it is often discovered that they have supplies sufficient for one or two months lying idly in storage. It is not uncommon to have a supply for six months, which is not an acceptable condition.

Do not forget that these materials are already paid for. In addition to the materials cost, there is the interest charge. Furthermore, during storage, materials may be rusted, broken or disjoined to become odd pieces that cannot be used. In a more serious case, you may have design changes making the materials in storage obsolete. Then there are instances in which a shift in your sales may obviate the need for some materials. In any event, storage can create waste.

This waste, the cost of unused materials which are discarded, is also entered as the cost of materials by your accounting department, and it becomes part of the cost of that particular product.

In most instances, when people speak of cost, it is expressed in terms of a hybrid of just and unjust costs, and in the case of the latter, it includes those portions of personnel and materials costs that are not really necessary in manufacturing a product.

In Toyota we have a saying: “The true cost is only the size of a plum seed.” The trouble with most managers is that they have a penchant for bloating the plum seed into a huge grapefruit. They then shave off some unevenness from the rind and call it cost reduction. How wrong can they get?

Change Your Manufacturing Method, Lower Your Cost

At Toyota, we do not adhere to the so-called cost principle. Behind the cost principle lies the notion that “no matter how differently we manufacture our products, the cost remains the same.” If it is proven correct that, regardless of the manufacturing methods, cost remains constant, then all industries must abide by the cost principle.

However, by changing its manufacturing method, a company can eliminate its personnel cost, which does not produce added value, and its materials cost, which pertains to those materials not used. By changing the manufacturing method, cost can be substantially reduced.

There is a Toyota subsidiary that makes metal-stamped parts and is located next to the Toyota headquarters. In 1973, it was at a standstill and all officers were replaced. Starting anew that year, employees did their very best, and two years later, in 1975, the company was completely recovered.

Today that company is a very profitable one. According to its president, one day an inspector from the National Tax Administration Agency came, ready to grill its officers. “Why is it that your company experienced a sizable deficit in 1973 when economy was at the height of a boom,” asked the inspector, “and a good income in 1976 when there was a recession?”

The president’s response was typical of Toyota: “That is what we call improvement and effort by the company.” The inspector remained incredulous. At any rate, cost is changed by the method of manufacturing. Naturally the profit picture changes along with it, and the above provides a good example.

Production Technique and Manufacturing Technique

Today Toyota produces well over 200,000 units per month. In 1952, it took ten employees one month to produce one truck. In 1961, Toyota’s monthly production was 10,000 units. There were 10,000. employees then, and it meant that every month one employee produced one passenger car. In the last couple of years, the monthly production ranged from 230,000 to 250,000 units, and we have 45,000. employees. This means that each employee is credited with making five passenger cars each month.

Toyota has a number of assembly plants overseas. There the number of processes required in assembling the same Corolla ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Publisher’s Foreword
• Translator’s Preface
• Figures
• 1. The Source of Profit Is in the Manufacturing Process
• 2. Basic Assumptions Behind the Toyota Production System
• 3. Leveling — Smoothing Out the Production System
• 4. Just-In-Time and Automation
• 5. Workplace Control Through the Kanban System
• 6. Reality of Workplace-Determined Standard Operations
• 7. Improvement Activities for Man-Hour Reduction
• 8. Producing High Quality with Safety
• Appendix A Production Planning Linking Toyota Motor with Dealers and Parts Manufacturers
• Appendix B Toyota Management at an Overseas Plant: The NUMMI Venture
• Index