Balaji chandrasekaran ID: 1058RDRD1009

Table of Contents
Introduction/Executive Summary ................................................................................................ 2 Birth of Lean Production System ................................................................................................ 2 Impact on Manufacturing ............................................................................................................ 2 Impact on Supply Chain Management ......................................................................................... 3 Lean Production System and Competitiveness ............................................................................ 3 Pitfalls of Lean Production System ............................................................................................. 4 Expansion of Toyota ................................................................................................................... 4 Consequences of Rapid Growth .................................................................................................. 4 Recommendations for Toyota and Other Companies ................................................................... 5 Conclusion .................................................................................................................................. 5 References .................................................................................................................................. 6 Bibliography ............................................................................................................................... 7

Balaji chandrasekaran ID: 1058RDRD1009

Introduction/Executive Summary
The automobile industry went through many changes in the way it handled the manufacturing process and the corporate management. The automobile industry went through various production systems such as craft production system, mass production system and lean production system. Each system had a huge impact on the growth of the automobile industry. However, the lean production system revolutionized the concept of production and supply chain management. It helped the automobile industry to achieve high standards of manufacturing and management. In this writing, I attempt to find out the underlying concepts of the lean production system, its impact on manufacturing and supply chain management; and how it affected the competitiveness and rapid growth of Toyota.

Birth of Lean Production System

According to Womack and Jones (1996), Lean production system was developed by Toyota out of absolute necessity arising from the circumstances that Toyota was functioning. The Second World War forced Japan into economic crisis and as a result Toyota too was in trouble in terms of financial crunch. Toyota had a great vision of becoming an efficient automobile manufacturer, but they did not have the capital to compete with its rivals such as Ford and General Motors. Toyota plants had space constraints and money constraints for having a large inventory similar to the ones kept by Ford. Therefore, Toyota desperately wanted a system where they can use minimum input and gain maximum outputs. Taichi Ohno (1988) of Toyota found that the large batch and queue assembly production followed by the leading automobile companies such as Ford, Chrysler, and General Motors created huge material waste and was not efficient. To remedy that Toyota introduced flexible mixed production which reduced waste and the just in time system which maintained a lean inventory. Later onwards, quality aspect of production was also added into the lean production system to ensure that the cars manufactured in Toyota were of highest quality. In the words of Taichi Ohno, one of the founders of the Lean Production System, the ultimate aim of lean production system is to reduce the timeline taken from time of the customer order and the delivery of the car. This is achieved through waste reduction, error free production, and quality assurance.

Impact on Manufacturing
To understand how the lean manufacturing system influenced the manufacturing process across all companies, it is important to analyze the manufacturing systems that preceded the lean production system. During the beginning of the 1990s automobile companies used the craft production system in which one car at a time was manufactured. There was no scientific management of the manufacturing process and the production was not in relation with the demand. The mass production system followed the craft production system. The mass production
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Balaji chandrasekaran ID: 1058RDRD1009

system introduced by Ford aimed to manufacture cars in mass numbers by using the division of labor. This system used a large inventory and created lots of material waste. The quality of the cars was very low. Lean production system developed by Toyota, which followed the mass production system of Ford, aims at improving the manufacturing process to achieve the optimum productivity with highest quality. The lean production system gave much emphasis on the quality assurance of the cars being manufactured. The pull system of the lean production allowed the employees to stop the operation when they spot a quality issue in the manufacturing. This helped Toyota to prevent the faults before it reaches the customers. When Toyotas rivals Ford and General Motors were following a bureaucratic management set up, Toyotas lean production advocated a management philosophy where the employees opinions were taken into account. This allowed Toyota to continuously improve the manufacturing process. The Total Quality Management system, which is an integral part of lean production system, ensured that all the components and products manufactured in Toyota meet the highest quality standards.

Impact on Supply Chain Management

Supply chain is a set up where many companies work together in the flow of products, services, finances, or other business resources. The supply chain management is the systemic coordination of multiple business functions of a company or different companies with an aim to increase the business performance of the company (John T. Mentzer, 2001). The supply chain management of Toyota is hugely directed by their lean production system. The supply chain principles of Toyota were developed by Eiji Toyoda. The lean production system advocates to have only the products or supplies that are urgently required for the manufacturing. This way, the need to have a huge inventory is eliminated. Most of the companies incur huge cost in having huge inventories. According to Jeffrey P. Wincel (2004), the lean production helps a company to reduce its cost of production by having a lean supply chain. This means by having a small inventory, companies can reduce the cost of stocking and maintenance. This reduction in cost can be passed on to the customers, which will in turn increase the market share for the company.

Lean Production System and Competitiveness

When Toyota started its automobile manufacturing, its production and market share were negligible. The competitiveness of Toyota was nowhere near to the rival automobile companies such as Ford, Chrysler, and General Motors. According to Jeffrey K. Liker (2004), the success of Toyota and its competitiveness has direct relation to the implementation of the lean production system in the company. Lean production system gave Toyota a method to use minimum inputs and produce maximum outputs. This means waste reduction, error proofing of production, and
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Balaji chandrasekaran ID: 1058RDRD1009

high quality assurance. These practices enabled Toyota to take advantage of the oil embargo of 1977 and produce fuel efficient small cars. This provided Toyota an easy access to the US and the European market.

Pitfalls of Lean Production System

The lean production system is now used not only in Toyota, but also in many other companies including service companies. However, the lean production system is not perfect. By advocating maintaining a lean inventory, this system puts pressure on the suppliers. Also, by focusing on continuous improvement of the quality and production process, the lean production increases the word pressure of the employees. For this reason, some of the business management authors call this system as the management by stress (Slaughter, 1990).

Expansion of Toyota
It is very obvious that the growth and success of Toyota can be attributed to the development and implementation of the lean production system in Toyota. The lean production system helped Toyota to overcome its disadvantages in the production of the automobiles. When the global automobile market was dominated by automobile giants such as Ford and General Motors, Toyota was struggling to survive in the market. The growth of Toyota in the initial years of its entry into the global market was directed by the core principles of the lean production system adding value to the customer. By focusing on waste reduction, lean inventory, just in time supply chain, and total quality management, Toyota steadily captured the global automobile market. Its growth was such that the rival companies, such as Ford, also started to implement the lean production system (Jeffrey K. Liker, 2004). From their small capacity of manufacturing only hundreds of cares in 1937, Toyota became the largest automobile manufacturer in the world with a capacity of manufacturing 7.5 million cars per year. In 2008, Toyota achieved a milestone by surpassing the General Motors in terms of sales and production. Currently, Toyota has its business presence in more than 140 countries.

Consequences of Rapid Growth

Around 2002, Toyotas objectives and strategies shifted from being customer focused towards market focused. Toyota focused much on increasing its market share and in the process let down the quality assurance. Toyotas focus was on rapid expansion than achieving high quality or adding value to customers. This resulted in recalls of several Toyota cars from the market. Even though Katsuaki Watanabe, the former CEO of Toyota noticed that the rapid expansion was causing the company its reputation, nothing was done to take corrective actions. Akio Toyoda, the current CEO accepts that the quick expansion of Toyota made them to neglect the core principles of the lean production system. In the process, Toyota allowed several unfamiliar
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Balaji chandrasekaran ID: 1058RDRD1009

suppliers, such as CTS Corp. who supplied faulty components. For the sake of mindless expansion, Toyota over stretched the lean production system to a point till the whole system broke down causing massive recalls of faulty cars. Now, Toyota is facing Congressional inquiries into its mismanagement of the production procedure and for resulting accidents in the US.

Recommendations for Toyota and Other Companies

y y Many companies have implemented the lean production system. These companies must evaluate whether the lean production system suits their organizational objectives. The episode of Toyotas failures reminds us that the lean production system is prone to be misused to achieve objectives that are not related to its main goals. Therefore, it is important that companies implement tracking systems to keep track of how the lean production system is being used in the company. Identify the limitations of the lean production system and develop systems to remedy the limitations. Toyota must recall all the faulty cars and refund or replace them with new cars. Review the suppliers, especially tier two and tier three suppliers.

y y y

Conclusion
The lean production system in its true sense is designed to achieve high customer satisfaction through high quality products and services. However, when the lean production system is over stretched to achieve the narrow goals of the companies, the system produces opposite results as evident from the case of Toyota.

Balaji chandrasekaran ID: 1058RDRD1009

References
y Art Smalley (2004), Creating level pull: a lean production-system improvement guide for production control, operations, and engineering professionals, 1st Edition, Lean Enterprise Institute, Inc. Xiaohua Yang (1995), Globalization of the automobile industry, 1st Edition, Library of Congress Cataloging-in-Publication Data

David Mann (2005), Creating a lean culture: tools to sustain lean conversions, 1st Edition, Productivity Press David John Lu, Nihon Nritsu Kykai (1989), Kanban just-in-time at Toyota: management begins at the workplace, 2nd Edition,Productivity Press Stephen A. Ruffa (2008), Going lean: how the best companies apply lean manufacturing principles to shatter Uncertainty, drive innovation, and maximize profits, 1st Edition, Library of Congress Cataloging-in-Publication Data Joel D. Wisner, Keah-Choon Tan, G. Keong Leong (2009), Principles of Supply Chain Management, 2nd Edition, South-Western Cengage Learning. John R. Black (2008), Lean production: implementing a world-class system, 1st Edition, Industrial Press, inc. James William Martin (2007), Lean six sigma for supply chain management: the 10-step solution process, 1st Editoin, McGrow-Hill Womack, James P. and Jones, Daniel T. (2003), Lean Thinking: Banish Waste and Create Wealth in Your Corporation, Revised and Updated, HarperBusiness James P. Womack, Daniel T. Jones, Daniel Roos (1990), The machine that changed the world, 1st Edition, McGraw-Hill

Balaji chandrasekaran ID: 1058RDRD1009

Bibliography
y Cusumano, Michael A., The Limits of Lean, Sloan Management Review, Summer 1994. Mentzer, J.T. et al. (2001): Defining Supply Chain Management, in: Journal of Business Logistics, Vol. 22, No. 2, 2001 Spear, Steven, and Bowen, H. Kent (1999), "Decoding the DNA of the Toyota Production System," Harvard Business Review Ford, Henry; with Crowther, Samuel (1922), My Life and Work, Garden City, New York, USA, 1st Edition, Garden City Publishing Company, Inc Georgano, G. N. (1985), Cars: Early and Vintage, 18861930,1st Edition, GrangeUniversal.