Me, Adam and Just-in-Time Production

Today’s column is pretty self-explanatory. I would have liked to say a fair bit more about the system and how it works, but there’s a haiku like pleasure in getting it down to 800 words (OK well, that’s not haiku, but you get my meaning). Here it is:

I FIRST came upon the remarkable achievement of Japanese manufacturing in 1983 while working on the new car plan for my boss, John Button. I was in awe of how the Japanese had somehow designed an entire new system of industrial production and human relations that managed to minimise bad behaviour and give people the tools and motivation to do their best.

It’s a lot easier said than done. And the story has gone on from the Japanese getting the best out of their workers and suppliers to us getting the best out of ourselves and each other on the internet.

It takes me back to Adam Smith, the founder of modern economics, explaining how slavery seemed like the cheapest form of labour but was really the most expensive because the slave had no stake in his own productivity. If he had particular aptitude or suggested ways to economise on his own labour, he would probably cop a beating for laziness.

Before Toyota radically redesigned it, factory production was built on the managers’ need to speed up the line and cut costs. They used largely unskilled labourers, whose incentive to work mixed fear and need with job insecurity, piece rates and/or production targets.

But Toyota showed how cheap labour was really more expensive. They spent 10 times more than their American competitors on training and they treated their workforce as ”knowledge workers”. Rather than pushing them to keep up with a production line over which they had no control, workers were organised into co-operative teams that met to optimise their productivity in ”quality circles”.

Eliminating waste was a great catch cry, but in Toyota’s hands, it was infused with purpose and almost Zen-like meaning. It sought to eliminate three kinds of waste:

  • Muda – triviality or unproductiveness.

  • Mura – unevenness or irregularity.

  • Muri – unreasonableness or absurdity.

Toyota factories used less space and reduced inventory holdings from weeks to hours. But the savings on rent and interest weren’t really the point. Workers were steeped in statistical control so they could endlessly hunt down mura, or irregularities. This showed up various processes for the muda (trivialities) and muri (absurdities) that they were. For instance, inspecting for quality after mistakes had been made, rather than getting it right the first time.

”Just in time” inventory further forced the elimination of irregularities and accelerated the feedback by which problems could be identified and solutions found. It also drew suppliers into the system and built trusting long-term relationships in which product and process design was shared between suppliers and the car maker.

The result was extraordinary. Japanese plants often doubled the West’s labour productivity while achieving much higher quality. When the Americans returned to learn from Toyota, they often imitated tokens and tricks, such as reduced inventory and quality circles. But as one of the architects of the new system – American process-control engineer Edwards Deming – observed, they copied, but ”they don’t know what to copy”, for they were encountering a whole system that relied as much on its understanding of people as it did on technology and systems.

Toyota’s ideas have spread throughout most Japanese manufacturing and have been transplanted on foreign shores. But, to my surprise and disappointment, none of this captured economists’ imagination. They’ve heard of ”just in time” production but regard it as no more than a shift of a curve on one of their diagrams.

It’s not utopia but the move from adversarial, rent-seeking, fearful workplaces to Toyota’s more enlightened system was something Adam Smith would have recognised as progress.

Toyota’s past achievements also pointed to the future. In tapping into the unique capabilities of all its people – not just in its own factories, but in those of all its suppliers – it anticipated today’s networked approaches. Indeed, anticipating ”open-source” production methods, Toyota insisted that its facilities, and those of its suppliers, become ”knowledge commons”, in which firms would help each other by sharing expertise.

And one of the great strengths of open-source production – for instance coding open-source software such as Linux, or contributing to Wikipedia – is the way it taps into intrinsic motivation: people do it because they want to and because they care about the outcome.

Eric S. Raymond, author of an early bible on open source, The Cathedral and the Bazaar, could be channelling Toyota’s obsession with eliminating waste when he observes: ”Painful development environments waste labour and creativity; they extract huge hidden costs in time, money and opportunity.”

Which brings me back to Smith, who gazed on the great promise of early capitalism and dreamt that human freedom, capability, dignity and wealth might grow together. That’s better than some shift on an economist’s diagram.

Postscript: In case anyone’s interested – here’s the interview of the column – though it ranges rather more widely.

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16 Responses to Me, Adam and Just-in-Time Production

  1. Albie Manton In Darwin says:

    In practice it all seemed to go well, but when a major item is held up due to the want of a small component, bolt, screw etc being in transit from the supplier or just in the system…put it simply : ” For want of a pin the rudder was lost, for want of a rudder the ship was lost.”… and surprise, surprise we lost the crew, the ship and the cargo…

  2. JB Cairns says:

    Nicholas,

    You could be the first person to accurately portray Deming.

    He always said TQM would not work unless you understood your workers.
    This is why it rarely works well in the Western world. To involve workers as you must in TQM you must understand them.

    He also was very negative about bonuses.

  3. I definitely agree that the failure of economists to see insights from actual firm behaviour and productive activities leaves them stuck is a surreal world of outdated assumptions.

    Partly it could relate to the fact that accepting the tangible results of these innovations is to accept that many economic assumptions held so dear actually fail to capture reality. You mean people can actually enjoy their work, get satisfaction from contributing to open-source projects with no direct rewards? Can be loyal? Really?

    I know there are many economists trying to capture these realities of loyalty, and other motivations, but to do so means throwing out many of the mainstream assumptions. Change is not easy.

    BTW, I appreciate these succinct, informative and thought-provoking pieces.

  4. Paul Frijters says:

    Nick,

    yes, the use of small-group loyalties in production is important, though we in the West do a lot of that too.
    A key problem in the Japanese system is that the boss is always right even if he is clearly an idiot whose brain farts will ruin the company: obedience trumps common sense any time in Japan. It is in that sense that within Western companies and organisation workers have more pride and power than they do in Japan. It is quite acceptable within Western companies and organisations to sabotage and ignore clearly stupid things. Try doing that in Japan…..

    • Dan says:

      Not at all sure I agree with this assessment.

      A pattern I have seen is: you warn your boss, they dismiss your concerns. You warn your boss again, they dismiss your concerns again.

      At that point, you are confronted with two possibilities:

      1) not deliver the (stupid) thing you have been tasked to deliver, which I don’t think organisations accept well at all.

      2) deliver the thing and be associated with something that is stupid.

      Both outcomes are bad for your track record (precisely because of the sort of ‘enlightened empowered worker’ mythology you’re voicing above).

      It may be more of a catch 22 in Japan, but it’s certainly not to be underestimated here.

      • Paul Frijters says:

        Dan,

        sure, it a matter of degrees and as the recent stouch at the university of Sydney shows, bureaucracies will follow through on really silly decisions of their boss for a long time before the legal system brings them to their senses. The culture of following the boss is really in another order in Japan than here though. Any hint that you are hurting the ‘face’ of your boss is a toxic proposition there.

  5. JB Cairns says:

    actually back 30 years ago this was called micro-micro economics prompted in part in attempting to understand the productivity paradox.

    Paul,

    I think you will find where TQM worked there was a lot of input from the employees.
    .TQM was not really utilised in the services industries which you are caricaturing

  6. Glen says:

    I’m all for succinctness, but this is one of those times where i wish you had said more Nick. Very interesting read and not something i’ve come across before in any detail. Would like to know more. Do you have a recommendation for something to read to understand how the system works, preferrably in short article form?

    Similar to what i’ve seen many times in aid and technical assistance in developing countries. There are many interventions to change structures, but it’s the cultural drivers underneath that really matter. They are much harder to understand and to influence. Imitating success is still a great way to go, just a fair bit harder than it often looks.

  7. Hi Glen,

    Steven Spear is generally considered one of the definitive analysts of the Toyota Production System. Chasing the Rabbit contains a very comprehensive case study, but for a shorter article this Harvard Business Review article is a very good primer.

  8. Pete Speer says:

    I was based in Japan 1968-71 and undertook an MBA while on active duty. Toyota, like all Japanese car manufacturers was really an assembler of parts manufactured in house and elsewhere. J-I-T involved critical training to the series of manufacturers. QC at that level was extremely important; I am sue that Toyota inspectors were at the suppliers. The unions were company oriented; companies were paternal; employment was lifetime; strikes did happen but seldom.

    Our bombings destroyed all the palnts in Japan. New Industry came from the bottom up. Mr. Honda was a bicycle repairman who graduated to motorcycles and then to cars. The first postwar cars came from old Renault plants, etc. Assembly was done in rhythm and the rhythm was never sped up Japanese workers came early, exercised before shift and met after shift to improve production methods. In one Panasonic plant making portable radios, hand operation at each station was around eleven movements per minute. At a completely different levels huge ships were being built with workers on the floor cutting steel to a projection on the steel. Later through the use of computers, huge new plants could take hot rolled steel and turn it into cold rolled in 12 hours — In U.S. plants it took eight days. This savings and the increased quality were what made Japanese production less expensive for U.S. use. So much money was saved in labor and inventory costs at the Indiana JV that they could afford the huge capital costs.

  9. Nic Stuart says:

    Thanks, Nick, a very interesting analysis of a number of factors. I also wonder if you think the wage/salary differential between workers and management may also have had a role in the productivity of the harmonious workforce that you describe. I seem to remember John Button suggesting that this particular factor may have had a significant role in motivating workers when I spoke to him back in 1990.

    • Nicholas Gruen says:

      Thanks for the comment Nic. Yes, I think the obscene salaries earned by CEOs must damage the kind of ethos one is trying to generate with the Toyota Production System, and those differentials are not the kind that exist in Japan. I believe it’s also the case that they’re not the case with Japanese transplants in the states.

      Of course the shop floor and the executive suite are a long way away in a business the size of a car company, so I doubt it would have a big effect – but who knows how much it filters down.

  10. Nicholas Gruen says:

    In case anyone’s interested – here’s the interview of the column – though it ranges rather more widely.

  11. Great points Nicholas, thank you.
    Imho, TQM etc has found fertile root the west, but it had to go via the software engineering route that you mention. I’m talking about agile, and the associated lean etc methodologies. Scrum, for instance, calls on the classic paper reporting on Japanese productivity and innovation cultures: the new new product development game.

    http://www.sao.corvallis.or.us/drupal/files/The%20New%20New%20Product%20Development%20Game.pdf

  12. Nicholas Gruen says:

    Thanks Jeremy. One thing that I find very frustrating is that so little of TQM has found its way into services. Of course it’s harder to transplant there, but really, the amount of times banks rework mortgages is really astonishing.

  13. Jeremy,

    Well, technically TQM is more closely related to Lean; Scrum isn’t really about reducing waste in the TQM sense. Scrum provides a process framework to execute non-trivial, non-routine tasks or projects in a way that prioritizes outcomes so that highest value outcomes are delivered first and less time is spent switching between priorities in a given “sprint”. You can do Lean + Scrum, of course: one doesn’t preclude the other.

    Nicholas: I don’t have a good explanation for people’s resistance to improving management methods in industries like banking. The cynic in me suggests that the root problem is a fear of transparency since if you aren’t a good manager or you aren’t adding value … the first outcome of TQM would be to get rid of you :)

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