IMPLEMENTING TOYOTA-STYLE SYSTEMS

IN HIGH VARIABILITY ENVIRONMENTS



by

Eduardo Lander



A dissertation submitted in partial fulfillment
of the requirements for the degree of
Doctor of Engineering
(Manufacturing)
in The University of Michigan
2007








Doctoral Committee:

Professor J effrey K. Liker, Chair
Professor Izak Duenyas
Assistant Professor Sebastian Fixson
J ames M. Morgan, Ph.D., Ford Motor Company

UMI Number: 3257511
3257511
2007
Copyright 2007 by
Lander, Eduardo
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© 2007
Reserved Rights All
Lander Eduardo







ii
DEDICATION




To Ina, Alix, and Matías, in thanks for their patience and support.










iii
ACKNOWLEDGEMENTS


My interest in Toyota began with admiration for the quality and reliability of their
vehicles; especially since at the time J apanese goods were supposed to be cheap
imitations of American and European products. In 1993, however, while working on my
Masters degree at Cornell University, my admiration grew to include the company as
well. Among other books on manufacturing, I had to read The Machine That Changed the
World by Womack, J ones, and Roos. It made perfect sense to find out that those great
cars were coming out of a great company. After that I became an avid reader of books on
Toyota, Lean Manufacturing, and J apanese management in general.
Back in Venezuela I went to work for Soltuca (a steel pipe manufacturing company).
By then I was convinced that Toyota had a superior system that was worth emulating, so
I set out to try. Unfortunately my understanding was very limited and, although we made
significant progress, I always felt that there was more to it. I had gotten a glimpse of
Toyota’s philosophy from reading Ohno’s books, and a glimpse of TPS tools from many
others. However, I could not piece all the parts into a cohesive whole that I could apply
effectively. My impression was that I was looking at Toyota’s system through a series of
small windows. Each showing me a small portion of the whole, but none giving me the
complete picture or even displaying how the pieces connected to each other. After four
years at Soltuca, I decided that reading books was not enough. If I was really going to
learn about Toyota’s system I would have to do something else.
That is when I decided to come to The University of Michigan. Working on a
doctoral degree was just an excuse to study Toyota in depth. Here, little by little and with
a lot of help I began to understand. Truly, the more I learn about Toyota, the more I
realize how little I know. And yet, my understanding has come a long way. I can now see
the system that eluded me and I can use it to generate progress in firms operating in

iv
diverse environments. I have come to appreciate that Toyota’s main objective is its long-
term survival, which can only be ensured if every team member works relentlessly at
improving and learning to continuously increase the value the firm generates for society.
Learning and improving are at the core of Toyota’s system and are the key enablers that
have driven its development. Toyota is a true learning organization that continues to
evolve by relentlessly identifying and solving the problems that stand in the way of its
pursuit of perfection, while at the same time learning how to learn at an ever faster rate.
Learning, and learning to learn, are thus key features of any true Toyota-style system.
Developing such a system in other firms is thus necessarily a process of discovery where
problems are identified and countermeasures are developed, tested, and retained at the
organizational level (individual learning is not enough) when they result in
improvements. Repeating this process over and over again while involving everyone in
the firm results in the emergence of a sociotechnical system that shares critical
characteristics with Toyota’s system. It is not enough to develop a technical solution,
which could perhaps be copied from Toyota. The process of discovery is what develops
the social system necessary to sustain the system and drive its continued evolution. I am
very grateful to everyone that has helped me see and understand.
I am particularly indebted to Professor J eff Liker for his support, guidance, and
patience. Not only has he helped shape my understanding and way of thinking about
Toyota’s system, but he has also opened (and continues to open) doors that are turning to
be great opportunities for the future. I feel very lucky I was able to work with him these
years.
Special thanks to Mike Rother for his generosity with his time and ideas, for
highlighting some of the connections between Deming’s and Toyota’s philosophy, and
for teaching me about normal vs. abnormal. Also to J ohn Shook, who perhaps
unknowingly, has given me many nuggets of information, making me think hard, and
helping me deepen my understanding of Toyota’s system.
I am very thankful to everyone at Motawi Tileworks and Zingerman’s Mail Order for
serving as guinea pigs as I learned about using Toyota-style systems in high variability
environments. Thanks for your trust and willingness to keep on trying and trying… and
trying. I just hope our work together was as beneficial for you as it was for me. Nawal

v
and Karim, thank you for opening your doors to me, for questioning my proposals hard to
ensure they were right for Motawi Tileworks, and for teaching me all I still do not know
about making tile. Celibeth and Thomas, and the rest of the crew at Motawi, thanks for
your patience and your willingness to put up with me week after week. Mo, Tom, J ude,
and Toni, thanks for all the great food! Oh and also for many great discussions on
Toyota’s system, for letting me propose a few changes, and for teaching me about
Zingerman’s Way and the mail order business. Betty, Lisa C, and Lisa M, thanks for
driving the change even when it did not seem entirely logical. Betty, may you always find
a smaller pot! The rest of the crew at ZMO, thanks for putting up with a continuously
changing process and with constantly changing requirements.
I am also thankful to every one that made possible the observational cases studies.
J im Morgan for giving me a crash course on die making basics, showing me how dies are
made, and generally making it possible for me to write the Die Making case. Hiro
Sugiura for his time and detailed explanations of how Toyota makes dies and why their
performance is better than their North American competitors. J eff Rivera for teaching me
about Lean warehousing and showing me how it is done at Menlo Worldwide. Keith
Allman for letting me into Merillat, and Bob Winterhalter and J ames Greene for their
time and collaboration.
However, none of this would have been possible without the support of my family
and friends throughout this process and before. My parents, grandparents, brother, uncles,
wife, and many close friends have shaped who I am. They have taught me about
perseverance, the joy of learning, and the lifelong fulfillment that can come from the
pursuit of knowledge, especially if it can then be used to help others. They have also
provided invaluable encouragement throughout my studies (even when things seemed to
drag beyond reasonableness). And of course, my daughter and son who did a great job of
keeping me sane by ensuring I had enough play time everyday.

vi
TABLE OF CONTENTS


DEDICATION................................................................................................................... ii
ACKNOWLEDGEMENTS ............................................................................................ iii
LIST OF FIGURES.......................................................................................................... x
LIST OF TABLES......................................................................................................... xiv
LIST OF APPENDICES ................................................................................................ xv
CHAPTER
1. Introduction and Problem Definition..................................................................... 1
1.1 Problem Definition.......................................................................................... 2
1.1.1 Main Research Question: How can Toyota’s system be adapted
to high variability environments?........................................................... 2
1.1.2 Main Research Hypothesis: Toyota-style thinking +environment
=customized Toyota-style system......................................................... 9
1.2 Why use Toyota as a Model?......................................................................... 11
1.3 Why use Demand and Task Variability......................................................... 16
2. Literature Review .................................................................................................. 23
2.1 Origins of Lean.............................................................................................. 23
2.2 Lean as Tools................................................................................................. 25
2.3 Lean as a System........................................................................................... 32
2.4 Lean as a Way of Thinking............................................................................ 39
2.5 Lean in High Variability Environments........................................................ 45
3. Research Methodology .......................................................................................... 56
3.1 Defining a Theoretical Model........................................................................ 56

vii
3.2 Identifying Impediments to Lean Implementation........................................ 57
3.3 Analyzing Cases of Lean Implementation..................................................... 58
3.4 Implementing Toyota-style Systems............................................................. 62
4. Environmental Framework – 2x2 classification matrix ..................................... 69
4.1 Explanation and how to use the classification matrix................................... 69
4.2 Implications................................................................................................... 77
4.2.1 Similar Environments Mean Similar Problems and Result in
Similar Toyota-style Systems.............................................................. 77
4.2.2 “Lean Does Not Provide Solutions For High Variability
Conditions”.......................................................................................... 77
4.2.3 Impediments to the Use of Lean Tools in High Variability
Environments....................................................................................... 80
4.2.4 Combined Effect of Variability for Each Quadrant............................. 90
5. Toyota’s System...................................................................................................... 93
5.1 Overall System............................................................................................... 93
5.2 Organizational Identity.................................................................................. 98
5.2.1 Sense of Purpose.................................................................................. 98
5.2.2 Strong and Stable Culture.................................................................. 100
5.2.3 Long-term Perspective....................................................................... 100
5.2.4 Customer Focus.................................................................................. 102
5.3 People.......................................................................................................... 102
5.3.1 Respect for Humanity........................................................................ 103
5.3.2 Mutual Trust and Mutual Responsibility........................................... 104
5.3.3 Teamwork.......................................................................................... 105
5.3.4 Effective Leadership.......................................................................... 106
5.3.5 Education and Development.............................................................. 108
5.4 Process......................................................................................................... 108
5.4.1 Stability.............................................................................................. 110
5.4.2 J ust-In-Time....................................................................................... 111
5.4.3 Built-In-Quality.................................................................................. 112
5.5 Continuous Improvement............................................................................ 114
5.5.1 Spirit of Challenge............................................................................. 116
5.5.2 Relentless and Continuous Improvement........................................... 117
5.5.3 Thorough Decision-Making Based on Facts...................................... 119
5.5.4 Ensure Organizational Learning........................................................ 121
5.5.5 Improve Learning Capability (learn to learn) .................................... 123
5.6 Business Objectives Provide Insights into Toyota’s Philosophy................ 125
5.6.1 Long-term survival of the organization.............................................. 127
5.6.2 Whoever improves the fastest consistently will be ahead in the
long run.............................................................................................. 129
5.6.3 Price is set by the market (Price – Cost =Profit)............................... 130
5.6.4 It is not possible to sell more product than customers want.............. 133

viii
5.6.5 Minimize the cash flow cycle............................................................ 135
5.6.6 Align all functions and people to support the strategic intent of
the organization.................................................................................. 139
6. Comparative Cases of Lean Design.................................................................... 144
6.1 Observational Cases..................................................................................... 146
6.1.1 Die Making........................................................................................ 146
6.1.2 Menlo Worldwide.............................................................................. 161
6.1.3 Merillat............................................................................................... 173
6.2 Action Research Cases................................................................................ 184
6.2.1 Motawi Tileworks.............................................................................. 184
6.2.2 Zingerman’s Mail Order .................................................................... 201
6.3 Comparative Analysis of Case Studies........................................................ 217
6.3.1 Case Studies Support Initial Hypothesis............................................ 217
6.3.2 How to Adapt Toyota-style Systems to High Demand
Environments is Still Unresolved...................................................... 220
6.3.3 Position Change in the Matrix Throughout the Lean J ourney........... 232
6.3.4 Use and Adaptation of Tools to Satisfy the Principles that Define
Toyota-style System........................................................................... 234
7. Developing Toyota-style Systems at Motawi and Zingerman’s Mail Order .. 239
7.1 Process of Intervention and its Objectives at Motawi Tileworks and
Zingerman’s Mail Order.............................................................................. 240
7.2 Motawi Tileworks........................................................................................ 241
7.2.1 What Led Them to Lean?................................................................... 241
7.2.2 Development of a Toyota-style System at Motawi............................ 241
7.2.3 Effect of Motawi’s Toyota-style System on the People and How
They Think......................................................................................... 299
7.3 Zingerman’s Mail Order.............................................................................. 302
7.3.1 What led them to Lean?..................................................................... 302
7.3.2 Development of a Toyota-style system at Zingerman’s Mail
Order .................................................................................................. 303
7.3.3 Effect of ZMO’s Toyota-style System on the People and How
They Think......................................................................................... 363
8. Developing Toyota-style Systems........................................................................ 366
8.1 Principle-based Approach............................................................................ 367
8.2 Pull Improvements to Develop Toyota-style Systems................................. 371
8.2.1 Physical Improvements to the Process............................................... 374
8.2.2 Continuous Improvement................................................................... 379
8.3 Developing Toyota-style Systems is About Developing Learning
Organizations............................................................................................... 384


ix
APPENDICES............................................................................................................... 387

BIBLIOGRAPHY......................................................................................................... 599



x
LIST OF FIGURES


FIGURE

1-1 Classification Matrix............................................................................................ 4
1-2 Implications of definitions for Toyota-style system............................................ 6
1-3 Main research hypothesis..................................................................................... 9
1-4 Toyota yearly sales in North America............................................................... 15
1-5 Lovejoy’s Law................................................................................................... 18
2-1 Visual Systems make abnormal conditions obvious.......................................... 27
2-2 Toyota Production System................................................................................. 33
2-3 Kaizen and innovation to improve and maintain standards............................... 37
2-4 Shewhart’s original PDSA cycle....................................................................... 38
2-5 4P model of the Toyota Way............................................................................. 44
2-6 Duggan’s two-by-two classification matrix....................................................... 49
2-7 Demand patterns................................................................................................ 50
2-8 Classification of Mixed Model Value Streams.................................................. 53
4-1 Classification matrix.......................................................................................... 70
4-2 Classification of demand variability.................................................................. 71
4-3 Two-by-two classification matrix...................................................................... 76
4-4 Effect of variability on Lean tools..................................................................... 90
5-1 Organizational Building Blocks......................................................................... 94
5-2 Toyota-style thinking......................................................................................... 96
5-3 Toyota-style thinking and supporting axioms.................................................... 97
5-4 Layered model of learning............................................................................... 124
5-5 Axioms and principles of a Toyota-style system............................................. 126
5-6 Minimize cost to maximize profit margins...................................................... 132
5-7 Cash flow cycle................................................................................................ 136
5-8 Reduced cash flow cycle.................................................................................. 137
5-9 No alignment means slow progress and frequently in the wrong direction..... 140
5-10 Aligned efforts move the organization where it wants to go........................... 141
5-11 Toyota uses several methods to achieve high alignment of efforts................. 143
6-1 TPS House....................................................................................................... 145
6-2 Die Making classification matrix..................................................................... 150
6-3 Mass Die Making sample value stream map (no TPS).................................... 151
6-4 Sample layout for Mass Die Making............................................................... 152
6-5 Lean Die Making sample value stream map.................................................... 154

xi
6-6 Sample layout for Lean Die Making................................................................ 156
6-7 Menlo Worldwide classification matrix........................................................... 164
6-8 Initial state value stream map for a Spare Parts Warehousing type Menlo
facility (before TPS) ........................................................................................ 165
6-9 Current state value stream map for Menlo’s GLLLC Spare Parts
Warehousing (after TPS) ................................................................................. 167
6-10 Current state value stream map for Menlo’s GLLLC Packaging (after
TPS) ................................................................................................................. 168
6-11 Current state value stream map for Menlo’s GLLLC Component
Warehousing (after TPS) ................................................................................. 169
6-12 Merillat classification matrix........................................................................... 175
6-13 Initial state value stream map for cabinet assembly at Merillat (before
TPS) ................................................................................................................. 176
6-14 Current state value stream map for cabinet assembly at Merillat (after
TPS) ................................................................................................................. 177
6-15 Motawi's 2005 demand volume variability...................................................... 186
6-16 Motawi’s 2005 daily demand mix variability.................................................. 187
6-17 Flow diagram of the tile making process......................................................... 187
6-18 Motawi Tileworks classification matrix.......................................................... 188
6-19 Initial state value stream map for Motawi Tileworks (before TPS) ................ 189
6-20 Current state value stream map for Motawi (after TPS).................................. 193
6-21 ZMO’s 2005 demand volume variability......................................................... 203
6-22 ZMO’s 2005 daily demand mix variability..................................................... 204
6-23 Flow diagram for order fulfillment.................................................................. 204
6-24 Zingerman’s Mail Order classification matrix................................................. 206
6-25 Initial state value stream map for Zingerman’s Mail Order (before TPS)....... 207
6-26 Current state value stream map for Zingerman’s Mail Order (after TPS)....... 209
6-27 Changes in productivity................................................................................... 217
6-28 Position of case studies in the classification matrix......................................... 218
6-29 Use of TPS tools for different levels of demand variability............................ 222
6-30 Use of TPS tools for different levels of task variability.................................. 223
6-31 Firm classification and built-in-quality usage.................................................. 224
6-32 Firm classification and their effectiveness at eliminating sources of
defects.............................................................................................................. 225
6-33 Time using a Toyota-style system is a better indicator of TPS tool use.......... 226
6-34 The effect of variability on the use of standardized work............................... 227
6-35 The effect of time doing Lean on the use of standardized work...................... 228
6-36 Position change in the classification matrix..................................................... 233
7-1 Timeline for the development of Motawi's Toyota-style system.................... 244
7-2 First iteration of bisque marketplace (left) and pressing kanban board
(right) ............................................................................................................... 248
7-3 Pressing make-to-order kanban board............................................................. 249
7-4 Finished goods marketplace (left) and glazing kanban board (right) .............. 250
7-5 Allocation board and process box.................................................................... 251
7-6 Kanban system for frames............................................................................... 252
7-7 Improvements to the bisque and finished goods markets................................ 253

xii
7-8 Scheduling system........................................................................................... 255
7-9 Allocation process box and dip glazing boards............................................... 257
7-10 Redefined trigger point in finished goods kanban board................................. 258
7-11 Process charts track daily production as compared to target........................... 262
7-12 PDCA process for defect elimination.............................................................. 272
7-13 Time series of kiln crud defects....................................................................... 274
7-14 Time series of total defects.............................................................................. 276
7-15 Storage carts used in the bisque marketplace.................................................. 279
7-16 Old two-person dip glazing process................................................................. 281
7-17 New one-person dip glazing method............................................................... 282
7-18 Motawi’s key financial indicators.................................................................... 286
7-19 Production and overall productivity improvements......................................... 293
7-20 Lead-time tracking charts................................................................................ 294
7-21 Changes in project lead-time........................................................................... 296
7-22 Improvement in on-time delivery and lateness................................................ 297
7-23 Timeline for the development of ZMO’s Toyota-style system....................... 305
7-24 Product stored under the line is hard to find and disrupts production............. 307
7-25 Gift box/basket area before and after redesigning the line.............................. 309
7-26 Redesigned fulfillment line.............................................................................. 311
7-27 Visual cues for 'help your neighbor' ................................................................ 314
7-28 Initial bread, pastry, and cheese markets......................................................... 317
7-29 Old and new dry goods racks........................................................................... 320
7-30 Temporary substitution kanban........................................................................ 323
7-31 Initial condition and sequencing of first order................................................. 330
7-32 Conditions after first iteration and sequencing of second order...................... 330
7-33 Conditions after all orders have been sequenced............................................. 331
7-34 Orders sorted according to the sequence generated......................................... 332
7-35 Batch prepping and constantly changing labor on the line.............................. 336
7-36 Minimal initial prep to get the line running and then replenish
continuously through the day........................................................................... 337
7-37 Reduction in external mistakes........................................................................ 341
7-38 Mistake resolution form................................................................................... 345
7-39 Cheese room (before state) .............................................................................. 348
7-40 Cheese room (after state)................................................................................. 350
7-41 Cheese passport cell after improvement.......................................................... 353
7-42 PDCA- continuous improvement meetings..................................................... 356
7-43 Order start progress chart................................................................................. 362
8-1 People transformation...................................................................................... 375
8-2 Continuous improvement system..................................................................... 380
A-1 Principle 1 - Sense of Purpose......................................................................... 387
A-2 Principle 2 - Strong and Stable Culture........................................................... 391
A-3 Principle 3 - Long-term Perspective................................................................ 397
A-4 Principle 4 - Customer Focus........................................................................... 402
B-1 Principle 5 - Respect for People....................................................................... 410
B-2 Principle 6 - Mutual Trust and Mutual Responsibility.................................... 421
B-3 Principle 7 – Teamwork................................................................................... 430

xiii
B-4 Toyota’s small team structure.......................................................................... 436
B-5 Leadership - getting people to follow.............................................................. 439
B-6 Leadership - developing others........................................................................ 440
B-7 Principle 8 - Effective Leadership................................................................... 441
B-8 Principle 9 - Education and Development....................................................... 445
B-9 Making people................................................................................................. 448
B-10 Develop Thinking Process............................................................................... 449
B-11 Develop Mental Models................................................................................... 451
B-12 Develop Core Values and Beliefs.................................................................... 452
C-1 Principle 10 – Stability..................................................................................... 457
C-2 Sources of process variability and where it manifests itself............................ 458
C-3 Principle 11 - J ust-In-Time Production............................................................ 470
C-4 Principle 12 - Built-In-Quality......................................................................... 479
D-1 Principle 13 - Spirit of Challenge.................................................................... 485
D-2 Principle 14a - Relentless and Continuous Improvement (part a)................... 494
D-3 Principle 14b - Relentless and Continuous Improvement (part b)................... 495
D-4 Usual approach – compromise solution........................................................... 501
D-5 Toyota's approach – no compromise solution.................................................. 502
D-6 Toyota-style system components that require recognition of normal and
abnormal conditions......................................................................................... 507
D-7 Normal and abnormal conditions..................................................................... 509
D-8 Practical Problem Solving................................................................................ 518
D-9 PPS step one..................................................................................................... 519
D-10 TPS tools are used to eliminate waste to achieve the objectives of TPS......... 531
D-11 Principle 15 - Thorough Decision Making Based on Facts............................. 533
D-12 Different approaches to consensus................................................................... 538
D-13 Principle 16 - Ensure Organizational Learning............................................... 541
D-14 PDCA cycle..................................................................................................... 550
D-15 Individual and organizational knowledge........................................................ 556
D-16 Prinicple 17a - Learning to learn (part a)......................................................... 561
D-17 Principle 17b - Learning to learn (part b) ........................................................ 562
D-18 Individual learning to learn.............................................................................. 563
D-19 Organizational learning to learn....................................................................... 565
D-20 Tacit knowledge is widely shared to ensure organizational learning.............. 570
E-1 Axiom 1 - Long-term survival of the organization.......................................... 572
E-2 Axiom 2 - Whoever improves the fastest consistently, will be ahead in the
long run............................................................................................................ 576
E-3 Axiom 3 - Price - Cost =Profits...................................................................... 581
E-4 Axiom 4 - It is not possible to sell more products than customers want......... 583
E-5 Axiom 5 - Minimize the cash flow cycle......................................................... 589
E-6 Costs incurred throughout the cash flow cycle................................................ 590
E-7 Eliminating overproduction eliminates unneeded items in inventory............. 591
E-8 Eliminating the reasons why inventory is needed improves flow and
reduces the cash flow cycle.............................................................................. 593
E-9 Axiom 6 - Align all functions and people to support the strategic intent of
the firm............................................................................................................. 595

xiv

LIST OF TABLES


TABLE

1-1 Comparative financial results (year 2003 - 2004).............................................. 13
1-2 Comparative sales and profit per vehicle (year 2003 - 2004)............................ 13
4-1 Demand variability level scores......................................................................... 72
4-2 Classification of processing variability.............................................................. 74
4-3 Classification of route variability....................................................................... 75
4-4 Description and typical problems for each quadrant in the classification
matrix................................................................................................................. 91
6-1 Use of TPS tools at Lean Die Making............................................................. 158
6-2 Performance improvements from using Lean in die making........................... 161
6-3 Use of TPS tools at Menlo GLLLC................................................................. 170
6-4 Performance improvement in 2005 at Menlo’s GLLLC.................................. 173
6-5 Use of TPS tools at Merillat's Adrian plant..................................................... 180
6-6 Performance improvement at Merillat's Adrian plant...................................... 184
6-7 Use of TPS tools at Motawi ............................................................................. 195
6-8 Performance improvement at Motawi Tileworks............................................ 200
6-9 Use of TPS tools at Zingerman's Mail Order................................................... 212
6-10 Performance improvement at ZMO................................................................. 216
6-11 Tool use rating for all case studies................................................................... 221
6-12 Average tool use rating.................................................................................... 221
6-13 Key Toyota Way principles in practice in all case studies.............................. 235
7-1 Differences in the conditions faced by Motawi and the challenges they
impose.............................................................................................................. 242
7-2 Productivity improvement in dip glazing........................................................ 282
7-3 Differences in the conditions faced by ZMO and the challenges they
impose.............................................................................................................. 303
7-4 Sample batch of orders to be sequenced.......................................................... 327
7-5 Initial state sequencing table............................................................................ 328
7-6 Initial state order rating table........................................................................... 329
8-1 Changes required on prevailing mental models............................................... 377
D-1 Check Step - monitor results............................................................................ 553


xv

LIST OF APPENDICES


APPENDIX
A. Toyota’s system – Organizational Identity....................................................... 387
A.1 Sense of Purpose.......................................................................................... 387
A.1.1 Define a high level purpose that implies working for the greater
good.................................................................................................... 388
A.1.2 Create a strong sense of shared purpose............................................ 389
A.2 Strong and Stable Culture............................................................................ 390
A.2.1 Identify high level and enduring values, beliefs and philosophy....... 392
A.2.2 Identify desired behaviors that support the values, beliefs and
philosophy.......................................................................................... 392
A.2.3 Reinforce the desired behaviors......................................................... 393
A.2.4 Stable personnel ................................................................................. 394
A.3 Long-term Perspective................................................................................. 396
A.3.1 The purpose, values, beliefs, and philosophy supersede short-
term financial considerations............................................................. 397
A.3.2 Develop a long-term vision, long-term goals and a plan to
achieve them...................................................................................... 398
A.3.3 Assess current information in light of the vision............................... 401
A.4 Customer Focus........................................................................................... 401
A.4.1 Understand what the customer wants and needs................................ 402
A.4.2 Satisfy customers without giving them any hassle............................ 404
A.4.3 Do what is right for the customer....................................................... 406
A.4.4 Extend the customer focus internally................................................. 407
B. Toyota’s system – People .................................................................................... 409
B.1 Respect for Humanity.................................................................................. 409
B.1.1 Respect customers.............................................................................. 411
B.1.2 Respect employees............................................................................. 411
B.1.3 Respect stockholders.......................................................................... 413
B.1.4 Respect business partners................................................................... 414

xvi
B.1.5 Respect host societies......................................................................... 417
B.1.6 Respect competitors........................................................................... 419
B.2 Mutual Trust and Mutual Responsibility..................................................... 420
B.2.1 Company generates and maintains trust............................................. 422
B.2.2 Employees take responsibility for success......................................... 426
B.2.3 Sincere communication...................................................................... 428
B.3 Teamwork.................................................................................................... 429
B.3.1 Challenge, direction and feedback..................................................... 431
B.3.2 Personal and team reliability.............................................................. 432
B.3.3 Environment conducive to teamwork................................................ 433
B.4 Effective Leadership.................................................................................... 438
B.4.1 Actively grow leaders that personify the organization...................... 441
B.4.2 Have a system of thoughtful promotions........................................... 443
B.5 Education and Development........................................................................ 444
B.5.1 Develop a system of deep knowledge................................................ 446
B.5.2 Build people before you make product.............................................. 448
C. Toyota’s system – Process .................................................................................. 456
C.1 Stability........................................................................................................ 456
C.1.1 Eliminate variability (mura) and overburden (muri).......................... 458
C.1.2 Highlight and correct deviations from expected................................ 463
C.1.3 Use only reliable technology that supports the people....................... 464
C.2 J ust-In-Time................................................................................................. 469
C.2.1 Continuous flow................................................................................. 470
C.2.2 Pull 474
C.2.3 Synchronized Production................................................................... 477
C.3 Built-In-Quality........................................................................................... 479
C.3.1 Stop for problems............................................................................... 479
C.3.2 Prevent and contain defects................................................................ 481
C.3.3 Eliminate the root cause of defects.................................................... 482
D. Toyota’s system – Continuous Improvement ................................................... 484
D.1 Spirit of Challenge....................................................................................... 484
D.1.1 Develop willingness to accept challenges.......................................... 486
D.1.2 Provide challenges............................................................................. 490
D.2 Relentless and Continuous Improvement.................................................... 493
D.2.1 Relentless pursuit of perfection.......................................................... 496
D.2.2 All activities highlight problems........................................................ 505
D.2.3 Solve problems for good.................................................................... 513
D.2.4 Decentralized improvement system................................................... 520
D.2.5 Improve flow...................................................................................... 527
D.2.6 Eliminate muda.................................................................................. 529
D.3 Thorough Decision-Making Based on Facts............................................... 532
D.3.1 Deep understanding of the situation................................................... 533

xvii
D.3.2 Build effective consensus................................................................... 536
D.4 Ensure Organizational Learning.................................................................. 540
D.4.1 All activities promote learning........................................................... 542
D.4.2 Environment conducive to experimentation...................................... 543
D.4.3 Learn from mistakes........................................................................... 549
D.4.4 Capture new knowledge..................................................................... 555
D.5 Improve Learning Capability (learn to learn).............................................. 560
D.5.1 Individual learning to learn................................................................ 562
D.5.2 Organizational learning to learn......................................................... 564
E. Toyota’s system – Business Axioms ................................................................... 571
E.1 Long-term survival of the organization....................................................... 571
E.2 Whoever improves the fastest consistently will be ahead in the long run... 575
E.3 Price is set by the market (Price – Cost =Profit) ........................................ 580
E.4 It is not possible to sell more product than customers want........................ 583
E.5 Minimize the cash flow cycle...................................................................... 588
E.6 Align all functions and people to support the strategic intent of the
organization................................................................................................. 594





1
CHAPTER 1
INTRODUCTION AND PROBLEM DEFINITION


The Toyota Production System has led to a movement of ‘Lean production’ focused
on taking waste out of value streams. However, most applications have been to high
volume, and relatively standardized products. Under this system work becomes highly
standardized specifying to the second what the operator should do. Production is
controlled through precisely sized buffers that pull items needed through the system.
When possible, use of one-piece flow cells result in a completely balanced production
line. The performance benefits of these systems are often remarkable, greatly improving
quality, cost, and delivery simultaneously. But what of companies that are not making
standardized products at high volume? Can they also learn from Toyota?
These firms typically struggle when trying to implement Lean and the prevailing
belief is that it does not work for them. An interesting perspective if we consider that
Toyota set out to develop its system after realizing that Ford’s mass production system,
with its reliance in economies of scale as the main source of cost reduction, would not be
effective in the small and fragmented J apanese market. According to Ohno, the
“…problem was how to cut costs while producing small numbers of many types of
cars”
1
; “…the principal objective of the Toyota production system was to produce many
models in small quantities”
2
. Starting with this goal, it seems strange that they ended up
with a system that only works for making repetitive products in high volume. Perhaps the
problem is with the interpretation given to the system and/or the way it is being

1
Ohno, T. 1988a. Toyota production system : beyond large-scale production. Cambridge, Mass.:
Productivity Press. p. 1 .
2
Ohno, T. 1988a. Toyota production system : beyond large-scale production. Cambridge, Mass.:
Productivity Press. p. 2.

2
implemented. Perhaps the complications firms face is rooted in the prevailing perspective
of Lean as a toolkit where implementation amounts to copying what Toyota does.
This dissertation focuses on this issue by looking at how Toyota-style systems can be
developed and used in high variability environments. A framework is proposed to
classify value streams according to the level of demand and task variability they face.
One interpretation of Toyota’s philosophy and its system is presented. A set of axioms
are proposed to provide a logical foundation to the principles that define the philosophy.
Five case studies are analyzed. In two of them the researcher led the transformation to
Lean by helping develop a customized Toyota-style system in accordance with Toyota’s
philosophy.
The case studies show that Toyota-style systems can be used and are effective in
firms operating under very different variability conditions. By focusing on Toyota’s
philosophy it is possible to modify the tools of TPS to fit the needs of the organization
and produce the same kind of impressive results that are common from Lean
implementations in high volume repetitive manufacturing. Finally, a method is proposed
for developing Toyota-style systems by pulling improvements through the system.
1.1 Problem Definition
1.1.1 Main Research Question: How can Toyota’s system be adapted to high
variability environments?
Lean Manufacturing has become the leading paradigm in manufacturing and there are
many companies throughout the world operating under its principles. However, most
success stories of Lean implementation come from the Toyota group or from firms
operating under similar market and product technology conditions to those for which
Toyota has developed Lean improvements. First, Toyota produces a limited variety of
vehicles. There can be millions of options, but the core of the vehicle and the processes
needed to manufacture them remain mostly unchanged across all options within a given
vehicle model; furthermore, a given plant only makes a few different models –usually 2
to 6. Second, Toyota plants produce relatively high volumes making the process
repetitive. Third, Toyota has been able to maintain a relatively predictable demand that

3
can be levelized through the use of finished goods inventory and the use of incentives and
promotions.
However, as a broader base of companies from very different environments and
making very different products try to incorporate lean principles into their production
systems, and as some of the traditional users of lean try to migrate from an inventory
replenishment system to a build-to-order process, many are facing problems in applying
lean tools and methods and thus stumble in their efforts to develop a Toyota-style system.
They are facing the problem of whether Lean is really helpful in these non-traditional
applications and how to implement it. Thus, it is relevant to ask: How can Lean
Manufacturing be applied in non-traditional environments? Or, more specifically: How
can a Toyota-style system be adapted to high demand variability and/or high task
variability environments?
This dissertation will focus on addressing this question. However, before this can be
done, it is necessary to clarify what is meant by a ‘Toyota-style system’ and by ‘high
variability environment’. Furthermore, the practical implications of these definitions must
also be considered.
1.1.1.1 High variability environment
Two factors will be used to characterize the environment firms operate in: demand
variability and task variability. Demand variability refers to the level of fluctuation in
demand resulting from changes in both volume (volume variability) and mix (mix
variability) from time period to time period. It can reflect variability perceived at the
firm, value stream or process level, depending on what the focus is. Throughout the
dissertation, it will be used mostly at the value stream level. A value stream is the
sequence of actions required to transform raw materials (or inputs) into the product (or
service) the customer is willing to pay for. Demand variability is commonly used in the
literature as a factor characterizing the external environment. Duncan uses it as part of his
two-dimensional framework for assessing environmental uncertainty
3
.
Task variability refers to the repetitiveness of the internal work performed. It is
caused by the difference in the jobs required for each product made (processing

3
Duncan, R. B. 1972. Characteristics of Perceived Environments and Perceived Environmental
Uncertainty. Administrative Science Quarterly, 17(3): 313-327.

4
variability), and by the number and level of interaction of the process routes that exist
through the facility to accommodate all those products (route variability). Both sources of
task variability tend to depend on the number of products made and how frequently the
product offering changes. The higher the number of products made and/or the faster new
products are introduced, the higher the variability tends to be. Task variability is mostly a
result of the design of the parts being produced and what the manufacturing requirements
for each are (this defines the work content of each part and the sequence of processes
needed to complete it). However, in some cases it also depends on the level of
uncertainty about the work that needs to be done (as is the case of repair and
remanufacture processes). Task variability attempts to capture the level of variability at
the process level. However, it can easily be generalized to the value stream or even
sometimes to the firm level (usually for small firms with one or two value streams).
When placed on two axes, these factors form a two-by-two matrix that can be used to
visually classify factories, value streams, or processes. This research focuses on cases
that depart from the low variability quadrant labeled ‘Traditional Lean’ in Figure 1-1.


Figure 1-1 Classification Matrix
T
a
s
k

V
a
r
i
a
b
i
l
i
t
y
Demand Variability
High Low
H
i
g
h
L
o
wTraditional Lean
(assembly line)
J ob Shop
Flow Shop
Engineered Product
Shop
T
a
s
k

V
a
r
i
a
b
i
l
i
t
y
Demand Variability
High Low
H
i
g
h
L
o
wTraditional Lean
(assembly line)
J ob Shop
Flow Shop
Engineered Product
Shop

5
When trying to understand the level of demand and task variability present in a
particular organization, it is necessary to look at both short- and long-term behavior.
Short-term refers to the variability due to the current products being made (how the
current mix of products fluctuates from day to day). Long-term refers to the variability
resulting from changes in those products due to the introduction of new ones and the
elimination of others (how the product offering changes through the years). A significant
part of the total variability perceived by the firm can come from this longer-term
churning of products.
From the perspective of workers on the shop floor, demand and task variability can
combine to create a fairly chaotic environment where things are always changing,
planning is hard, and structured improvement nearly impossible. Volume changes can
result in periods of little work, followed by others of high overburden. Mix variability in
combination with processing variability (different jobs performed and different work
content for each product) can have a similar effect with the challenging result that the
task being performed is constantly changing. Having different routes through the facility
adds to the confusion by making it hard to schedule and plan due to shifting bottlenecks
and workloads as the demand mix changes. The resulting chaotic work environment
facilitates, or even promotes, the existence of other sources of variability (machine
breakdowns, inconsistent work, etc.) that compound the problem further.
This dissertation will delve deeper into this matrix later on. Section 1.3: Why use
Demand and Task Variability (page 16) provides a justification for why it makes sense to
use demand and task variability to describe non-traditional environments. Section 4.1:
Explanation and how to use the classification matrix (page 69) explains the resulting two-
by-two matrix and how to use it.
1.1.1.2 Toyota-style system
How a ‘Toyota-style system’ is defined is critical as the definition can affect the
answer to the research question. There are basically two ways to define it, (a) as a set of
specific tools that Toyota uses in a particular way, or (b) as a philosophy and way of
thinking. Figure 1-2 presents the two options and the implications of each definition.


6

The first option defines a Toyota-style system as one that uses the same tools Toyota
has implemented; that is, a system that includes kanban, error proofing, 5S, standardized
work, etc. used exactly as Toyota uses them. This definition is what most people
associate with Lean Manufacturing and seems to be the source of a fair amount of the
misconception and resistance that surrounds the term. Toyota developed and/or adapted
the tools they currently use in response to the conditions they have faced through the
years. As such, the tools are just countermeasures to problems they have encountered.
The logical conclusion to this argument is that a Toyota-style system (based on this
definition) will only be effective for organizations facing conditions very similar to the
Figure 1-2 Implications of definitions for Toyota-style system
Is a Toyota-style system applicable to
high demand variability and/or high task
variability environments?
How can it be implemented ?
How is 'Toyota-style
system' defined?
It can be looked at in 2 ways:
As the group of
tools currently
used by Toyota.
As a way of
thinking .
However the current tools
are just countermeasures
to the problems
encountered by Toyota.
Understand the objective of the
tools currently used by Toyota
and the true problems they are
trying to solve.
With this definition, a
Toyota-style system is
only possible when
facing conditions
similar to the ones
Toyota operates in.
True
understanding
of the tools and
their purpose.
Understand the philosophy (set of
principles)that governs Toyota-
style thinking ... that which led to
the development of the tools.
Toyota-style
thinking .
Understand the realizations
and convictions that led to
the Toyota way of
thinking .
Basic axioms of
business .
With this definition, a Toyota-style
system is possible when facing
conditions very different from
the ones Toyota operates in (as
long as we can replicate their
thinking in the new environment).
Implementation to
develop a
Toyota-style
system instead of
copying tools.
Trivial solution.

7
ones Toyota operates in or facing problems like the ones Toyota has already developed
solutions for. There are not many companies that fit these requirements. Unfortunately,
imitating Toyota’s tools is the predominant approach in industry (and even to some
extent in academia) and the root cause of the ‘that doesn’t apply here’ syndrome. This
definition is very limiting and if used, the research question becomes irrelevant. A
Toyota-style system cannot be effective in high variability environments and thus the
issue is not worth exploring. This is a gross oversimplification that implies that only a
handful of organizations could learn something from Toyota. Obviously this is not the
case since Lean is currently being used in many different industries and environments.
Thus, it is necessary to explore another definition.
It is worth noting that Toyota is not as one-dimensional as is often thought. The
outside perception of Toyota has been shaped mostly through the frequent tours they hold
of its assembly plants, mostly focusing on the stamping, body, and vehicle assembly
processes. The methods and tools used in these locations are what is usually associated
with Lean and TPS. Less visible to the public are Toyota’s plastics operations, die-
making operations, casting operations, prototyping operations, etc. where lean principles
are also very evident and the set of solutions (tools) is different. Toyota is also in the
home building business using TPS and even has applied TPS in its local hospital.
Going back to Figure 1-2, the second option is to define a Toyota-style system as the
result of a way of thinking. It is not a set of tools, but a set of principles that define a way
of thinking about problems and other important issues of the organization. Applying this
thought process leads to the development of the tools necessary to achieve the objectives
highlighted by this thinking. What we end up with is a production system that shares key
characteristics with the Toyota Production System (TPS) but that is adapted to the
particular needs of the organization. In other words, applying the Toyota way of thinking
to a particular firm (or value stream within a firm) results in a Toyota-style production
system even if the tools used are very different from the ones found in Toyota’s most
frequently visited factories.
This second definition (a system resulting from a way of thinking) is what will be
used through the rest of the dissertation. However, to use it, it is necessary to understand
what is meant by ‘Toyota’s way of thinking’. It will be defined as a set of principles with

8
associated methods and tools used to achieve them (see section 5: Toyota’s System, in
page 93). Going even deeper, it is perhaps possible to identify the realizations and
convictions that led to the development of the Toyota way of thinking in the form of a set
of basic axioms (see section 5.6: Business Objectives Provide Insights into Toyota’s
Philosophy, in page 125). This definition provides a much broader scope and opens the
door to the possibility of developing Toyota-style systems that are effective in many
environments, including high variability ones. The Toyota-style system as a way of
thinking is the definition that will be used throughout this dissertation. It is in agreement
with one of the main conclusions reached by Liker in his book Becoming Lean: “…lean
is ‘a way of thinking’”
4
, and also the central premise of Womack and J ones’ book Lean
Thinking
5
and Liker’s more recent book The Toyota Way
6
.
One possible problem with this definition is that it becomes harder to determine
whether a factory or value stream uses a Toyota-style system or not. It is a lot easier to
look for specific well-known tools, than for the effect of a thought process. Fortunately
there are very strong and distinct traits in Toyota’s way of thinking that will show in the
production floor (or wherever the work is done) if they are present in the organization.
Particular tools (as known in Toyota’s factories) may or may not be present, but in the
cases where they are not, there should be some other method or tool to replace them, such
that the purpose of the original tool is still satisfied.
For example, learning and improvement are core elements in the Toyota way of
thinking. A firm following Toyota’s thinking should also consider these issues as critical
and be organized to maximize them by ensuring that problems are clearly visible when
they occur, that people respond to them rapidly, that they are analyzed in depth to
eliminate their root cause, that the knowledge gained is captured and disseminated to be
used in the future, and that people grow and develop by participating in the improvement
process. Similarly, the concept of one-piece flow must be visible. It does not only mean
having a U-shaped cell. It does mean that there is an attempt to establish flow for each

4
Liker, J . K. (Ed.). 1998. Becoming lean : inside stories of U.S. manufacturers. Portland, Or.:
Productivity Press. p. 498.
5
Womack, J . P., & J ones, D. T. 1996. Lean thinking : banish waste and create wealth in your
corporation. New York, NY: Simon & Schuster.
6
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest manufacturer
(First ed.). New York: McGraw-Hill.

9
product family and that problems and waste that impede that flow are addressed through
time.
1.1.2 Main Research Hypothesis: Toyota-style thinking + environment = customized
Toyota-style system
With a clear understanding of the problem being addressed and of the definitions
surrounding it, it is now possible to propose the main research hypothesis.
Main Hypothesis: Using Toyota-style thinking in firms operating in high variability
environments results in the development of a Toyota-style system customized for the
particular firm that, in turn, leads to improved performance.
Corollary: If this is the case, then outside firms could learn a way of thinking from
Toyota that goes far beyond the usual tools.
Figure 1-3 shows a graphical representation of this hypothesis.

Toyota-style
Thinking
Toyota's
Environment
interaction
Current Toyota
System
Toyota-style
Thinking
High Variability
Environment
interaction
Customized
Toyota-style
System

Figure 1-3 Main research hypothesis

What is currently recognized as Toyota’s System has been developed through the
years by people at Toyota using Toyota’s way of thinking in their daily interactions
within the environment they operate in and in developing solutions (tools) to the
problems they have encountered. The result is the current version of TPS (which is

10
usually associated with Lean Manufacturing). ‘Current version’ is stressed here because
even though the terms TPS and Lean Manufacturing give the impression of being firmly
established concepts fixed in time, the truth is that they are constantly evolving (at least
TPS is). The Toyota system is the result of the interaction between a way of thinking and
a changing environment. As such, it must constantly evolve to keep up with external
conditions. For example, while the Toyota system is based on using a leveled schedule
(previously accomplished by fixing it for 30 days), Toyota is now moving toward a build-
to-order model in which certain vehicle specifications can change the day the car is
made
7
. Furthermore, the system is constantly changing as well in response to the internal
pressure to improve that comes from the way of thinking itself
8
.
Following a parallel process, it is plausible that applying Toyota’s way of thinking to
other firms operating in different environments will result in a Toyota-style system
customized for the particular firm and the particular environment it operates in. If this is
the case, the doors are open for organizations operating in all types of environments to
learn from Toyota and improve their performance in a highly effective way… by
developing a way of thinking and a system that is customized to their needs and that
evolves through time (as opposed to only copying the tools which may or may not fit and
which tend to remain static in time unless the thinking behind them is understood).
The research presented here begins with this idea. The purpose is to understand if and
how, Toyota’s thinking can improve the methods and tools used by any organization,
thus resulting in improved performance. In research terminology, the idea is to modify
how the organization operates in accordance to Toyota’s thinking (modify the
independent variable) and observe whether a Toyota-style system with superior
performance is created (observe the dependent variables). More detail on the
methodology followed can be found in section 3: Research Methodology (page 56).

7
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest manufacturer
(First ed.). New York: McGraw-Hill. p. 121.
8
‘There’s always a better way’ is one of the basic tenets of Toyota’s thinking (see section D.2.1: Relentless
pursuit of perfection, in page 496).

11
1.2 Why use Toyota as a Model?
In 1945, Toyota began the development of the Toyota Production System (TPS),
better known as Lean Manufacturing. The quest began with a mandate from Kiichiro
Toyoda, the president of the company at that time, to catch up with American
manufacturers in three years. At the time Toyota produced only a tiny fraction of what its
western counterparts made and had productivity “estimated to be roughly one-tenth that
of the Ford Motor Company”
9
. To make things worse, Toyota had very limited resources
and the J apanese market was not big enough to handle long production runs of the same
car. All these conditions forced Taiichi Ohno and Kiichiro Toyoda to rethink some of the
most basic principles of the predominant mass production model. “Kiichiro’s goal was to
match Toyota’s unit cost of producing 20,000 to 30,000 units per year to that of
American models’ producing several hundred thousand units per year. Therefore, Toyoda
modified the Ford production system for small-volume production.”
10

After World War II, the J apanese economy boomed and for some 25 years Toyota
worked at perfecting the system and extending it to their supplier base with little attention
from anyone outside the company. It was in the early ‘70s with the first oil crisis that
people started noticing that there was something odd going on at Toyota. While the
economy went into recession and many companies posted losses or were forced to close
their operations, Toyota also suffered but continued to make money
11
. And as the
recession ended, they were the first large J apanese company to bounce back to pre-
recession levels of production and profits. They came back even stronger than before.
How was this possible? Taiichi Ohno and his collaborators had perfected a system that
focused on the complete elimination of waste and the methodic identification and
elimination of problems interfering with a smooth operation. Furthermore, it provided the
flexibility to adjust production to market conditions while maintaining per piece cost,
thus allowing them to be profitable at different levels of production. “I firmly

9
Fujimoto, T. 1999. The evolution of a manufacturing system at Toyota. New York: Oxford University
Press. p. 35.
10
Fujimoto, T. 1999. The evolution of a manufacturing system at Toyota. New York: Oxford University
Press. p. 36.
11
Ohno, T. 1988a. Toyota production system : beyond large-scale production. Cambridge, Mass.:
Productivity Press. p. 1.

12
believe…that as a production method the Toyota system is better suited for periods of
low growth [than the Ford system].”
12

With its new system Toyota was making more money than its rivals, but, when the
economy was good and car companies could sell everything they could make, the
difference was not noted. However, as the economy slowed, Toyota was in a much
stronger position than its competitors and could continue to be profitable. Since those
early days, Toyota has continued to improve its system and the same pattern has repeated
over and over again each time the economy slows down. Even in 2002 and 2003, when
most companies reported a reduction in sales and profits, Toyota posted record years
including the most profitable 6 months in its history until then (ending September 30
th
,
2001), with a net income increase of 82.4% with respect to the same period the previous
year. And this performance is not a fluke. In 2004 they posted a net income increase for
the year closing on March 31
st
of 54.8%. That was after a strong year closing on March
31
st
2003, where the net income increase was of 53.4%
13
.
These statistics should help convince any incredulous people left out there that there
is something different and better about Toyota and their system! In case they do not,
following are some more facts that may help tip the scale:
Toyota continues to steadily outperform its competition:
− In the year closing in March 2004, Toyota posted net profits of $11.15 billion
on sales of $166.01 billion for a profit margin of 6.72%. See Table 1-1 for a
comparison with other automakers.









12
Ohno, T. 1988a. Toyota production system : beyond large-scale production. Cambridge, Mass.:
Productivity Press.p. 97.
13
Toyota financial statements can be downloaded at: http://www.toyota.co.jp/en/ir/financial_results/.

13
Table 1-1 Comparative financial results (year 2003 - 2004)
14

Company Profit Sales Profit Margin
Toyota $11.15 billion $166.01 billion 6.72%
Honda $4.39 billion $77.23 billion 5.68%
GM $3.82 billion $185.52 billion 2.06%
Ford $0.50 billion $164.20 billion 0.30%
DaimlerChrysler $0.56 billion $171.87 billion 0.33%

− In the year closing in March 2004, Toyota had average net income of $1,660
per vehicle sold
15
. See Table 1-2 for a comparison with other automakers.

Table 1-2 Comparative sales and profit per vehicle (year 2003 - 2004)
16

Company Vehicles Sold Profit per
Toyota 6,719,000 $1,660
Honda 2,983,000 $781
GM 8,098,000 $472
Ford 6,720,000 $74
17

DaimlerChrysler 4,355,200 $129

− Toyota vehicles are consistently ranked at the top of their category in quality
by third party organizations such as J D Powers and Consumer Reports.
− Toyota vehicles are consistently ranked at the top of their category in
reliability by third party organizations such as J D Powers and Consumer
Reports.
− Toyota vehicles are consistently ranked at the top of their category in resale
value by third party organizations such as J D Powers, Consumer Reports and
Kelley Blue Book.

14
Data presented is from the financial statements of each company. Toyota’s and Honda’s results are for
the year closing on March 31
st
2004. GM’s, Ford’s and DaimlerChrysler’s are for the year closing
December 31
st
2003. Honda’s results include sales of motorcycle, automobiles and power products.
15
Calculated by dividing profit by vehicles sold.
16
Data presented is from the financial statements of each company. Toyota’s and Honda’s results are for
the year closing on March 31
st
2004. GM’s, Ford’s and DaimlerChrysler’s are for the year closing
December 31
st
2003. Honda’s results only include automobile sales and profits originating from those sales.
17
Actually Ford looses money with every car they sell. In 2003 the income for their Automotive sector
showed a loss of $1.96 billion (which translates to losing and average of $291 per vehicle sold). The only
reason Ford shows a profit is that their Financial Services sector posted an income of $3.33 billion.

14
− Toyota and Lexus have 17 vehicles in the Consumer Reports’ list of
recommended vehicles out of 49 listed, and none in the list of vehicles to
avoid
18
.
− Toyota consistently develops cars in half the time or less than its competitors.
“New cars and trucks take 12 months or less to design, while competitors
typically require two to three years.”
19

− As of November 5
th
, 2004, sales incentives in the US for Toyota averaged
$624 per vehicle, compared to GM’s $4,051, Ford’s $3,425, Chrysler’s $3,539
(this number does not include Daimler), and Honda’s $698
20
. This further
improves the significant cost advantage Toyota already holds over
competitors.
Toyota has an enviable record of steady growth. As an example, Figure 1-4 shows
sales by year in North America.


18
Information published by Consumer Reports on May 2004. See
http://www.consumerreports.org/main/detailv4.jsp?CONTENT%3C%3Ecnt_id=113417&FOLDER%3C%
3Efolder_id=113261&bmUID=1099766406547.
19
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest manufacturer
(First ed.). New York: McGraw-Hill.
20
See CNN Money online magazine at
http://money.cnn.com/2004/11/05/news/fortune500/auto_incentives.reut/.

15

Figure 1-4 Toyota yearly sales in North America
21


Other companies that have embraced Toyota-style production systems have also
begun to out-perform their competition.
As of March 31
st
, 2004, Toyota holds over $41.3 billion in cash and marketable
securities
22
(up from $32.49 billion in 2003) to use for research and development
of new vehicles and new technologies, and to fuel its continued growth.
Toyota’s market value ($129.00 billion) is almost as large as the market value of
GM ($22.48 billion), Ford ($25.27 billion), DaimlerChrysler ($43.46 billion) and
Honda ($47.08 billion) combined ($138.29 billion)
23
.
Toyota’s (and its supplier’s) incredible success has made TPS the new paradigm in
manufacturing. Toyota has become the benchmark in the auto industry as well as for
many other organizations wanting to improve their operations. Based on this, it seems
only logical to use them as a model in a study dealing with improving operations in
organizations, even when the firms considered operate in very different environments and
deal with much higher variability than what Toyota faces.

21
Inaba, Y. 2005. Focus on Winning Customers, not on Beating Rivals, Vol. 2005: Toyota Motor
Corporation.
22
Data extracted from Toyota’s balance sheet and disclosure for Marketable Securities and Other Securities
Investments in the 2004 annual report.
23
Market values as of 11/06/04.

16
1.3 Why use Demand and Task Variability
There are three main reasons why demand and task variability were chosen to frame
the research. First, variability (in some degree) is faced by every organization and is
something that must be dealt with if the firm wants to be effective. Furthermore, the
design of processes and the organization in general depend significantly on the level of
variability it faces. Second, these factors are in good measure out of management’s direct
control and mostly unaffected by short and even mid-term company policy and decisions
(except for the decision of changing businesses which would basically change the
environment faced by the firm). That is, they are mostly exogenous to the firm’s direct
control. Also, they can be generalized across company, industry, and country boundaries.
Third, there is a myth in industry, and to some extent in academia, that Toyota-style
systems are not effective if variability is excessive. The claim has its origin in the fact
that some of the TPS tools such as kanban, one-piece flow, standardized work, and others
encounter problems when used in high variability environments. If correct, this
perspective would greatly reduce the pool of organizations that can improve their
operations by learning from Toyota.
Variability is everywhere
It is now generally recognized that variability hurts operations by making them hard
to manage, hard to learn from, and by increasing costs. Traditionally however, variability
was usually taken as a given (part of the process) and dealt with by buffering everything
with inventory. At Toyota however, their efforts to eliminate Muda (waste) went against
this practice. Inventory is one of the seven wastes that must be eliminated and variability
is the source of many of the other ones (variability in the process or in raw materials
leads to defects, variability in consumption leads to overproduction and/or waiting, etc.).
This forced them to reevaluate some of the assumptions underlying the traditional
thinking. They concluded that instead of living with the variability and trying to patch it
with inventory a more effective solution would be to strive to eliminate it. This
understanding has been fully internalized at Toyota and has become a driving force in
designing and improving operations. Mura, the J apanese word for variability is one of

17
three things they always strive to eliminate or reduce in their improvement efforts: Muda
(waste), Mura (variability) and Muri (overburden).
Unfortunately, even with Toyota’s efforts, variability in the great majority of cases
cannot be completely eliminated. Part of the reason for this is that not all the sources of
variability are under the direct control of the firm. There is always some left that has to be
dealt with, and the amount depends in good measure on the environment the firm
operates in. That is, there is a level of variability that is inherent to the products being
made and the business the organization is in. This inherent variability more or less
defines the minimum level that the firm must deal with. Managerial decisions and
policies can reduce or increase the perceived variability (very significantly in some
cases). However, at the firm level, reductions are bounded by this inherent variability
given by the product and the business positioning. For example, regardless of how good a
job shop is run, the variability it faces will always be higher than that encountered by a
continuous process manufacturer, even if this one is run very poorly. At the process level,
where variability is really an issue, managers have much more leverage and the way the
manufacturing system is designed can result in a very variable or a very stable
environment.
Lovejoy developed an interesting visual representation of the interaction between
variability and the ways of dealing with it: reducing it, buffering with inventory, or
buffering with excess capacity (see Figure 1-5)
24
. Every organization falls somewhere in
the feasible region defined by the triangle, and every point there represents a certain level
of variability that is buffered against by using a combination of inventory and excess
capacity. If an organization manages to reduce the variability it faces, it moves towards
the lower left corner and the need for inventory and capacity buffers is reduced. This is
what Toyota pursues and what any firm can do by reducing the sources of variability
directly under its control, such as process variability caused by machine breakdowns,
defects, company policy (choosing to produce in large batches), lack of reliable

24
When talking about demand volume variability, there is a third type of buffers that some organizations
can use: delaying orders. This option has a direct impact on the customer and thus is not desirable, but it is
available and frequently used, especially by small companies making customized products to order. This
however, does not mean Lovejoy’s model is flawed since delaying orders just means using future capacity
(when demand goes down) to process current orders, and thus it is just another way of using capacity to
handle variability.

18
standards, etc. However, once this is done, the firm still remains somewhere inside the
triangle. That is, there is still some inherent level of variability that remains (as discussed
above). Since organizations will always have to deal with it, variability becomes an
important issue when considering the universality of Toyota-style systems.

Figure 1-5 Lovejoy’s Law
25



Factors out of management’s direct control
Following the same direction of thought as above, it is possible to separate the
variability observed in a firm into inherent or exogenous variability and managerial or
endogenous variability. Inherent variability is that which results from factors that are
either external to the firm or given by the nature of the process itself, and are not under
the direct control of management. It can still be affected, but to do it usually takes time,

25
Adapted from: Lovejoy, W. S. 2003. Integrated Operations. Ann Arbor: University of Michigan Business
School. Ch. 3, p. 27.
Inventory
Capacity
Higher
Capacity
Higher
Inventory
Lower
Variability
Infinite capacity:
•No inventory is needed.
•Level of variability is irrelevant.
Zero extra capacity:
(capacity =demand)
•Low variability or high
inventories are needed.
Infinite inventory:
•No extra capacity is needed.
•Level of variability is irrelevant.
Zero extra inventory:
(only have pieces being worked on)
•Low variability or high capacity
are needed.
Zero variability:
•No inventory is needed.
•No extra capacity is needed.
Infinite variability:
•Infinite capacity and/or
inventory are needed.
Higher Variability Isobar:
Any point on the line represents a
feasible combination of excess
capacity and inventory to deal with
this level of variability.
Lower Variability Isobar:
Reducing variability while
maintaining capacity means less
inventory is needed.
1 2
Variability

19
involves dealing with groups outside the organization, and happens through indirect
action. In most cases, affecting inherent variability implies a fundamental redesign of the
process. For example, demand patterns of customers can be affected by offering
incentives for them to purchase during low demand periods instead of doing it at the peak
of the season. In this case, this is an indirect action that may or may not have the desired
effect.
Endogenous variability, on the other hand, originates from factors inside the
organization and can be affected directly by action taken by members of the firm. It may
not be easy to eliminate, but it is the result of problems and/or policies internal to the
firm. Examples of this include how products are grouped into cells, the size of production
and transfer batches, and equipment location.
In a way, the distinction between managerial and inherent variability parallels
Deming’s common and special causes of variation
26
. He stressed the need to separate
common variation (random), which is inherent to the system, from special variation,
which has a clear assignable cause (a change in an input parameter has occurred). These
are also known as controllable and random variation. “Controllable variation occurs as a
direct result of decisions”
27
, while “random variation is a consequence of events beyond
our immediate control.”
28
A stable or under control process is one where all special
causes of variation have been removed (only random variation remains) and it is possible
to define what to expect from it in the future (expected results can be defined using a
distribution which depends only on random variation). During regular operation,
intervention is only needed when special variation occurs to correct the deviation and
return the process to its original condition. When improving a process, we start by
removing the causes of special variation, which leads to a reduction in the overall
variation and an improvement in performance due to increased process stability. Once all
special causes of variation are removed, only random variation remains and further
improvement can only be achieved through a fundamental change in the process. Going
back to the initial concepts above, managerial variability is similar to special variation.

26
Deming, W. E. 2000. Out of the crisis (1st MIT Press ed.). Cambridge, Mass.: MIT Press. p. 309.
27
Hopp, W. J., & Spearman, M. L. 1996. Factory physics : foundations of manufacturing management.
Chicago: Irwin. p. 249.
28
Hopp, W. J., & Spearman, M. L. 1996. Factory physics : foundations of manufacturing management.
Chicago: Irwin. p. 249.

20
By eliminating managerial causes of variability it is possible to reduce the total perceived
variability and move towards the lower left corner in Lovejoy’s triangle (see Figure 1-5).
However, once all or most sources of managerial variability are eliminated what remains
is the inherent variability and this cannot be reduced using the same approach. Further
reductions in variability require a major redesign of the system and/or influencing
exogenous sources of variability.
Demand and task variability were chosen as the parameters to classify the case
studies because of two important characteristics. First, they represent the majority of the
exogenous variability that organizations have to deal with. Second, they are factors that
can be generalized across industry and country boundaries. Demand variability is external
to the organization and clearly outside of its direct control. Task variability is not as easy
to categorize since it tends to be confounded with internal sources caused by policy
choices. However, high task variability usually comes from making many different
products with relatively low demand. The only way the firm can generate enough sales
and continue growing is by adding new and different products. The result is that high task
variability is imposed on the firm by the nature of the business they are in. As used in the
framework (see Section 4: Environmental Framework – 2x2 classification matrix, in page
69), task variability attempts to capture mostly exogenous sources by considering only
the variability caused by differences in the products made and differences in the routes
29

used to make them. Although perceived only inside the organization, these factors are
mostly exogenous to the firm since they are caused by characteristics of the work (which
is dictated by product requirements). Unfortunately, they are also affected by internal
decisions, in particular by the way in which the firm chooses to organize its production
(choice of equipment and how it is laid out, batch size used, etc.). In this sense, a result of
implementing Lean could be a shift in position of the value stream within the
classification matrix.
Since this research focuses on the use of Toyota-style systems in firms operating in
environments where Lean has not been traditionally used, the defining factors used to
characterize these environments, must be mostly exogenous to the manufacturing

29
A process route is defined as the sequence of steps that a product must follow to go from raw material to
finished good. Two products requiring the same processes, in the same sequence, have the same route.

21
process. Besides being hard to generalize across organizations, internal factors are greatly
dependent on the capability and knowledge of the managerial team and the employees in
general. They may lead to differences in implementation and effectiveness, but they do
not force the differences since they are the result of choices made by the firm. External
factors, on the other hand, tend to force the need for different approaches; which is what
we are after.
Belief that high variability precludes the use of Toyota-style systems
There is a significant number of people in industry and academia that are convinced
that TPS is not applicable to highly variable environments. Probably this belief comes
from Toyota’s insistence on eliminating Mura (variability) and from their use of very
visible tools to achieve it, such as Heijunka (leveled production). Reducing variability
allows Toyota to reduce inventory, which is costly and a hindrance to improvement since
it hides problems. From any perspective that we look at it, there is a clear drive within
Toyota to eliminate variability. Furthermore, it is definitively true that there are many
tools in the TPS toolkit that have problems or even become ineffective if there is too
much variability. Thus, it is not unreasonable to make the assumption that the Toyota
system breaks down if variability is excessive.
Take the case of kanban, for example. One way of calculating the number of kanban
is to use the following equation
30
:

Number of Kanban =
Average Daily Demand⋅ Lead Time⋅ (1+ Safety Coefficient)
Container Capacity


As long as variability in consumption is low, inventory levels will be reasonable.
However, if variability is significant, the safety coefficient has to be set high enough to
cover consumption peaks. If these peaks only occur a few times a year, designing the
system to cover them means that there will be excessive inventory (which translates to
higher costs and hidden problems) during most periods when consumption is not at its
peak. In some cases, the resulting inventory after implementing a kanban system may be

30
Monden, Y. 1998. Toyota production system : an integrated approach to just-in-time (3rd ed.).
Norcross, Ga.: Engineering & Management Press. p. 282.

22
higher than what was needed before when production was scheduled directly through the
use of a system such as MRP. In this case, the use of kanban will increase the overall cost
of the system and may seem to defeat its own purpose.
Even though there are clear problems with some tools, is it reasonable to generalize
and assume that the entire system does not work and that there is nothing applicable of
the Toyota system to high variability environments? What about the thinking behind the
system? It seems that even if some specific tools of TPS are not appropriate under certain
conditions, based on the definition of Toyota-style system (see Section 1.1.1.2: Toyota-
style system, in page 5) there should be many others that can be used to support the
process. More importantly, there should be a principle in Toyota’s way of thinking that
leads to the development of an appropriate tool for the particular situation. Even those
tools that do not work could be modified to operate well with higher variability or
perhaps be replaced by something else that achieves the same purpose but through other
means. Returning to the kanban example above, someone with little knowledge of Lean
trying to copy TPS may see the increase in inventory as a detriment and forgo the use of
kanban. A Lean expert, on the other hand, may see it and say: “The kanban system is
working fine… the inventory is needed to address the high level of variation and all the
parts that were added are showing us there is an underlying problem. Now we can
analyze the issue, identify why the extra inventory is needed and work to eliminate the
root cause, making the overall system stronger.”
31
In other words, the additional
inventory is necessary as a temporary countermeasure until the roots of the problem can
be identified and addressed.
The final reason for choosing demand and task variability for the framework is the
perception that variability is a constraint to the use of Toyota-style systems. If the
constraint was broken the doors would be open for many more organizations to benefit by
learning from Toyota.

31
Mike Rother uses a version of this comment during his Learning to Levelize lecture (Rother, M. 2005.
Learning to Levelize: Do You Know Your EPEI?: 44. Ann Arbor.) to illustrate how Toyota people
perceive any tool as working correctly if it is highlighting problems that they can then address to make the
overall system stronger.

23
CHAPTER 2
LITERATURE REVIEW


The literature covering the tools of Lean Manufacturing and the Toyota Production
System is abundant. By no means will this be a comprehensive presentation of everything
available. On the contrary, this will only highlight some of the most important works and,
in some cases, discuss how each one has helped shape the current body of knowledge and
understanding of the topic.
The literature has been divided into five sections. The first covers general topics on
Lean. The next three present three different perspectives on Lean and parallel the way its
understanding has evolved, from perceiving it as a set of tools, to seeing an integral
system, to understanding it as Toyota’s philosophy. The fourth section deals with using
Lean in high variability environments.
2.1 Origins of Lean
The term Lean Manufacturing was coined in 1990 by Womack, J ones, and Roos in
their book The machine that changed the world
32
, which presented the results of a five-
year Massachusetts Institute of Technology in-depth study of the automotive industry
worldwide. They compared automakers in North America, J apan, and Europe and came
to the conclusion that J apanese companies were far superior on key metrics. According to
Womack, J ones, and Roos’ findings the difference can be roughly summarized as

32
Womack, J . P., J ones, D. T., & Roos, D. 1991. The machine that changed the world : how Japan's
secret weapon in the global auto wars will revolutionize western industry (1st HarperPerennial ed.). New
York, NY: HarperPerennial.

24
follows
33
: J apanese quality was higher (less than half the number of defects per car), their
cost was lower (less than half the number of labor hours per vehicle, half the space used,
half the investment in tools, and a fraction of the inventory), and their product
development was much faster (half the time to develop a new vehicle using half the
engineering hours). Even though this study grouped all J apanese companies into a single
category, it soon became obvious that Toyota was by far the best in its group (as was later
revealed in Lean Thinking
34
). Although this book was not the first one written about
J apanese manufacturing and management practices, it was the first one to present a clear
and compelling explanation of why J apanese automakers were operationally better. It
ruled out the prevailing explanation that blamed J apanese superiority on unfair trading
practices and favorable exchange rates. As such, it became a real eye-opener to the
western world.
As presented in The machine that changed the world, Lean is a new and distinct
system bound to replace mass production much in the same way that mass production
replaced the craft system that existed before. Although this is probably a fair assessment,
it can be argued that Lean Manufacturing is much more an evolution from the previous
mass production system than it is a breakthrough innovation. It took Toyota over 30 years
to develop it into a mature system before people outside began to take notice. Fujimoto,
in The Evolution of a Manufacturing System at Toyota
35
presents this perspective. He
makes the case that TPS emerged (and continues to evolve) from a combination of
conscious decisions, responses to external environmental forces, and adapting of external
technologies, combined with a very strong ability to learn from mistakes. “While its
initial attempts were more or less imitation and a patchwork of American automobile
technologies, in both product and process, Toyoda was an active receiver of the
technologies in combining them and adapting them to J apanese conditions. Kiichiro
Toyoda did not try to introduce the Ford system directly, but did apply its elements

33
Womack, J . P., J ones, D. T., & Roos, D. 1991. The machine that changed the world : how Japan's
secret weapon in the global auto wars will revolutionize western industry (1st HarperPerennial ed.). New
York, NY: HarperPerennial. p. i.
34
Womack, J . P., & J ones, D. T. 1996. Lean thinking : banish waste and create wealth in your
corporation. New York, NY: Simon & Schuster.
35
Fujimoto, T. 1999. The evolution of a manufacturing system at Toyota. New York: Oxford University
Press.

25
selectively to J apan…”
36
The system that we observe today, more than 50 years after
Toyota began departing from traditional practices, is the result of this evolution.
Along these lines, it can be argued that the first Lean thinker was Henry Ford (see
Henry Ford's lean vision
37
) and that mass production was actually an aberration resulting
from his successor’s misuse of his principles. This was facilitated and maybe even driven
by a compliant external environment rich in resources and with an ample market willing
to purchase everything and anything that was produced. In fact, during their initial years,
Toyota studied Ford Motor Company and Henry Ford’s books Today and Tomorrow
38

and My Life and Work
39
extensively while developing their system. They also learned
Training Within Industry (TWI) from the US government and Statistical Quality Control
(SQC), Total Quality Management (TQM), and PDCA from Deming, J uran, and others.
It was the integration of all these concepts, refined and combined with their own ideas,
such as J IT and J idoka, that became TPS and the Toyota system. “…their achievement
lay in putting all the pieces together to create the complete system of lean
manufacturing…”
40
.
2.2 Lean as Tools
As the world became aware of the superior system being used by Toyota, many
people and organizations started on a quest to learn from it. At the beginning, they
observed Toyota facilities and saw many tools and methods that were very different from
what they were used to. Believing this was the source of Toyota’s competitive advantage,
many companies set out to copy them. The main tools are summarized below:

36
Fujimoto, T. 1999. The evolution of a manufacturing system at Toyota. New York: Oxford University
Press. p. 36.
37
Levinson, W. A. 2002. Henry Ford's lean vision : enduring principles from the first Ford motor plant.
New York, NY: Productivity Press. Note: This book analyzes some of the main lean principles and traces
them back to Henry Ford. Although many elements of Lean were present before Henry Ford, and though he
developed others, it was Toyota who put it all together, converted it into an extremely effective system, and
used it to become the powerhouse they are today. Besides, Toyota made very significant contributions of
their own (such as J IT, kanban, jidoka, etc.) that are as, or even more important than the tools they learned
from Ford and the US.
38
Ford, H., & Crowther, S. 1988. Today and tomorrow. Cambridge, Mass.: Productivity Press.
39
Ford, H., & Crowther, S. 1973. My life and work. New York,: Arno Press.
40
Womack, J . P., J ones, D. T., & Roos, D. 1991. The machine that changed the world : how Japan's
secret weapon in the global auto wars will revolutionize western industry (1st HarperPerennial ed.). New
York, NY: HarperPerennial. p. 277.

26
5S
41,42
: is the process of cleaning the workplace, eliminating unnecessary items,
arranging the remaining ones in a way that is convenient for use, and sustaining these
conditions through time. The name 5S comes from five J apanese words: seiri (sort),
seiton (set in order), seiso (shine or clean), seiketsu (standardize).
Visual management: “The bedrock of manufacturing is standards: what is supposed to
happen. The bedrock of excellence is adherence: the extent to which these standards
are followed. A visual workplace is intentionally designed to ensure that standards are
met. It creates an environment in which compliance is the natural and predictable
response.”
43
“A visual workplace is a work environment that is self-explaining, self-
ordering, self-regulating, and self-improving…”
44
Creation of a visual workplace
requires the use of 5S and the implementation of visual devices that tell us “…at a
glance how work should be done and whether it is deviating from the standard (see
Figure 2-1).”
45
Imai
46
defines the type of information that should be shared by
grouping it into 5 areas: manpower, machines, materials, methods, and
measurements. Having a visual workplace facilitates management of the process and
is fundamental for continuous improvement. Ohno’s mandate was to “Make your
workplace into a showcase that can be understood by everyone at a glance. In terms
of quality it means to make defects immediately apparent. In terms of quantity, it
means that progress or delay, measured against the plan, is made immediately
apparent. When this is done, problems can be discovered immediately, and everyone
can initiate improvement plans.”
47
“A well developed visual control system increases
productivity, reduces defects and mistakes, helps meet deadlines, facilitates

41
Hirano, H. 1995. 5 pillars of the visual workplace : the sourcebook for 5S implementation. Portland,
Or.: Productivity Press.
42
Productivity Press Development Team, & Hirano, H. 1996. 5S for operators : 5 pillars of the visual
workplace. Portland, Or.: Productivity Press.
43
Galsworth, G. D. 1997. Visual systems : harnessing the power of the visual workplace. New York:
American Management Association.p. 21.
44
Galsworth, G. D. 1997. Visual systems : harnessing the power of the visual workplace. New York:
American Management Association. p. 21.
45
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest manufacturer
(First ed.). New York: McGraw-Hill. p. 152.
46
Imai, M. 1997. Gemba kaizen : a commonsense low-cost approach to management. New York:
McGraw-Hill. p. 96.
47
Ohno in J apan Management Association, & Lu, D. J . 1989. Kanban just-in-time at Toyota :
management begins at the workplace (Rev. ed.). Cambridge, Mass.: Productivity Press. p. 76.

27
communication, improves safety, lowers costs, and generally gives the workers more
control over their environment.”
48




Standardized work
50,51,52
: is “…the safest, easiest, and most effective way of doing
the job that we currently know.”
53
. “It provides a consistent framework for performing
work at the designated takt time and for illuminating opportunities for making
improvements in work procedures.”
54
It has the paradoxical role of ensuring stability
while promoting change. It helps stabilize the process and improve its reliability by
defining the one way of performing the job. At the same time, it also highlights
opportunities for improvement and serves as the benchmark against which proposed
changes are compared. The standardized work is usually captured in a one-page
document that defines the work sequence, the cycle time, and the standard WIP.

48
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest manufacturer
(First ed.). New York: McGraw-Hill. p. 158.
49
Suzaki, K. 1987. The new manufacturing challenge : techniques for continuous improvement. New
York, London: Free Press ; Collier Macmillan Publishers. p 107.
50
Monden, Y. 1998. Toyota production system : an integrated approach to just-in-time (3rd ed.).
Norcross, Ga.: Engineering & Management Press.
51
Suzaki, K. 1987. The new manufacturing challenge : techniques for continuous improvement. New
York, London: Free Press ; Collier Macmillan Publishers.
52
J apan Management Association, & Lu, D. J . 1989. Kanban just-in-time at Toyota : management begins
at the workplace (Rev. ed.). Cambridge, Mass.: Productivity Press.
53
Dennis, P. 2002. Lean production simplified : a plain language guide to the world's most powerful
production system. New York: Productivity Press. p. 47.
54
Toyota. 1998. The Toyota Production System: 44. Toyota City, J apan: Toyota Motor Corporation. p. 32.
Figure 2-1 Visual Systems make abnormal conditions obvious
49


28
Heijunka or production leveling: “…means distributing the production volume and
mix evenly over time”
55
. Not doing this “would distance the pattern of production
from the pattern of sales in the marketplace”
56
, thus creating “…chronic inventories
of finished goods…”
57
. “Worse, it would impose a disproportionate burden on one
team at a time in the preceding processes. Some teams would be idle while others
were busy.”
58
“The smoothing of production is the most important condition for
production by kanban and for minimizing idle time in regard to manpower,
equipment, and work-in-process”
59
. Rother
60
proposes using the EPEI (Every Part
Every Interval) calculation to level production throughout the value stream. Smalley
61

provides a methodology to create a Lean production control system that levels
production across all value streams in a facility.
Takt time: “…is how often you should produce one part or product, based on the rate
of sales, to meet customer requirements.”
62
It is “…the tool to link production to the
customer by matching the pace of production to the pace of actual final sales.”
63

“Producing according to takt time puts customer requirements out in front of
everyone all the time.”
64
It can be calculated as:

Takt Time =
Daily AvailableTime for Production
Daily Demand


One-piece flow or continuous flow: is the ideal production method. “In its purest
form, continuous flow means that items are processed and moved directly to the next

55
Dennis, P. 2002. Lean production simplified : a plain language guide to the world's most powerful
production system. New York: Productivity Press. p. 79.
56
Toyota. 1998. The Toyota Production System: 44. Toyota City, J apan: Toyota Motor Corporation. p. 13.
57
Toyota. 1992. The Toyota Production System: 53. Toyota City, J apan: Toyota Motor Corporation. p. 20.
58
Toyota. 1998. The Toyota Production System: 44. Toyota City, J apan: Toyota Motor Corporation. p. 13.
59
Monden, Y. 1998. Toyota production system : an integrated approach to just-in-time (3rd ed.).
Norcross, Ga.: Engineering & Management Press. p. 8.
60
Rother, M. 2005. Learning to Levelize: Do You Know Your EPEI?: 44. Ann Arbor.
61
Smalley, A. 2004. Creating level pull : a lean production-system improvement guide for production-
control, operations, and engineering professionals. Brookline, MA: Lean Enterprise Institute.
62
Rother, M., & Shook, J . 1999. Learning to See : Value Stream Mapping to Create Value and Eliminate
Muda. Brookline MA: Lean Enterprise Institute. p. 44.
63
Shook in: Liker, J . K. (Ed.). 1998. Becoming lean : inside stories of U.S. manufacturers. Portland, Or.:
Productivity Press. p. 55.
64
Shook in: Liker, J . K. (Ed.). 1998. Becoming lean : inside stories of U.S. manufacturers. Portland, Or.:
Productivity Press. p. 56.

29
process one piece at a time. Each processing step completes its work just before the
next process needs the item, and the transfer batch size is one.”
65
“True one-piece
flow would have us manufacture items with essentially no waiting time, no queuing,
and no batches.”
66
This tight coupling between processes raises productivity
67
by
eliminating waste, reduces lead-time and WIP, improves quality, promotes teamwork,
and highlights problems for continuous improvement. However, achieving it is not
always possible. It requires very reliable processes that are physically located next to
each other and operated by cross-trained workers
68
. Rother & Harris
69
provide a
methodology for designing effective manufacturing cells operating under one-piece
flow.
Pull: “…means that nobody upstream should produce a goods or service until the
customer downstream asks for it.”
70
Toyota
71
advocates pulling items through the
system (instead of pushing them) as an enabler to producing J IT. Pull systems are
often implemented by using kanban, “...a simplified self-regulating visual control
system that focuses on the production floor and makes it possible to respond to
changes in production quickly and simply.”
72
“…the kanban system is a foolproof
way of making the right part at the right time in the right amount.”
73
Also, “…the
kanban system itself is a tool for kaizen. By making the entire material and
information flow transparent to everyone, problems surface and improvements are
easy to find…”
74
. Harris, Harris, and Wilson
75
provide a detailed methodology for

65
Dennis, P. 2002. Lean production simplified : a plain language guide to the world's most powerful
production system. New York: Productivity Press. p. 145.
66
Shook in: Liker, J . K. (Ed.). 1998. Becoming lean : inside stories of U.S. manufacturers. Portland, Or.:
Productivity Press. p. 54.
67
Monden, Y. 1998. Toyota production system : an integrated approach to just-in-time (3rd ed.).
Norcross, Ga.: Engineering & Management Press. p. 10.
68
Ohno, T. 1988a. Toyota production system : beyond large-scale production. Cambridge, Mass.:
Productivity Press. p. 11.
69
Rother, M., & Harris, R. 2001. Creating continuous flow : an action guide for managers, engineers &
production associates. Brookline, MA: Lean Enterprise Institute.
70
Dennis, P. 2002. Lean production simplified : a plain language guide to the world's most powerful
production system. New York: Productivity Press. p. 68.
71
Toyota. 1992. The Toyota Production System: 53. Toyota City, J apan: Toyota Motor Corporation. p. 23.
72
Shingo, S., & Dillon, A. P. 1989. A study of the Toyota production system from an industrial
engineering viewpoint (Rev. ed.). Cambridge, Mass.: Productivity Press. p. 228.
73
Shook in: Liker, J . K. (Ed.). 1998. Becoming lean : inside stories of U.S. manufacturers. Portland, Or.:
Productivity Press. p. 54.
74
Shook in: Liker, J . K. (Ed.). 1998. Becoming lean : inside stories of U.S. manufacturers. Portland, Or.:
Productivity Press. p. 54.

30
designing a system to handle the flow of materials inside the plant using
supermarkets, kanban, and delivery routes.
Quick changeover: Toyota pursues small-lot production (with the ideal batch being a
single piece) to be more responsive to customer orders by reducing lead-time and to
eliminate the wastes of overproduction and inventory. Manufacturing in small batches
requires being able to change rapidly between products
76,77
. Shingo developed a
methodology for rapid changeovers, which he called Single Minute Exchange of Die
(SMED). Shingo’s insight was to differentiate internal from external operations in the
setup. Internal elements are those “that can be performed only when a machine is
stopped”
78
, while external elements are those “that can be conducted while a machine
is in operation”
79
. The first step in improving setups is to separate internal from
external elements and perform external elements while the machine is running. Next,
convert internal operations into external. The final step is to “streamline all aspects of
the setup operation”
80
. Rother
81
uses the EPEI calculation to determine the target
changeover time required for processes given a desired EPEI (1 day for example).
This provides a clear and measurable objective for a changeover improvement
project, thus providing a reason for both requiring the improvement and for how
much improvement is needed.
J idoka: is the J apanese word for automation. However, at Toyota it is written (and
thought of) with an additional kanji element that suggests a human presence.
“Toyota’s jidoka means investing machines with humanlike intelligence.”
82
It has
usually been translated into English as autonomation or automation with a human

75
Harris, R., Harris, C., & Wilson, E. 2003. Making materials flow : a lean material-handling guide for
operations, production-control, and engineering professionals. Brookline, MA: Lean Enterprise Institute.
76
Ohno, T. 1988a. Toyota production system : beyond large-scale production. Cambridge, Mass.:
Productivity Press. p. 96.
77
Hopp, W. J., & Spearman, M. L. 1996. Factory physics : foundations of manufacturing management.
Chicago: Irwin. p. 55.
78
Shingo, S. 1985. A revolution in manufacturing : the SMED system. Stamford, CT: Productivity Press.
p. 22.
79
Shingo, S. 1985. A revolution in manufacturing : the SMED system. Stamford, CT: Productivity Press.
p. 22.
80
Shingo, S. 1985. A revolution in manufacturing : the SMED system. Stamford, CT: Productivity Press.
p. 30.
81
Rother, M. 2005. Learning to Levelize: Do You Know Your EPEI?: 44. Ann Arbor. p. 23.
82
Toyota. 1992. The Toyota Production System: 53. Toyota City, J apan: Toyota Motor Corporation. p. 16.

31
touch
83
. It “…means that a machine can stop itself by using its own judgment.
Automation without a human touch is merely an ability to move.”
84
“…Autonomation
is not automation, but the autonomous check of the abnormal process.”
85
J idoka seeks
to eliminate the generation of defects by stopping production when a problem occurs.
“The most fundamental effect of jidoka, though, is the way it changes the nature of
line management: it eliminates the need for an operator or operators to watch over
each machine continuously –since machines stop automatically when abnormalities
occur– and therefore opens the way to major gains in productivity.”
86
“Basically,
jidoka means building in quality and designing operations and equipment so that
people are not tied to machines but are free to perform value added work that is
appropriate for humans.”
87
“J idoka thus is a humanistic approach to configuring the
human machine interface. It liberates operators from the tyranny of the machine and
leaves them free to concentrate on tasks that involve exercising human judgment.”
88

“Autonomation changes the meaning of management as well. An operator is not
needed while the machine is working normally. Only when the machine stops
because of an abnormal situation does it get human attention. As a result, one worker
can attend several machines, making it possible to reduce the number of operators and
increase production efficiency.”
89
Management by exception can also be extended up
the hierarchy, with support provided when an abnormal situation occurs.
Andon: “…means ‘lantern’ in J apanese. J ust as a lantern may guide people walking in
the dark, an andon light helps expose abnormal conditions in the factory.”
90
“The
andon is a visual control that communicates important information and signals the

83
Ohno, T. 1988a. Toyota production system : beyond large-scale production. Cambridge, Mass.:
Productivity Press. p. 6.
84
Ohno in: J apan Management Association, & Lu, D. J . 1989. Kanban just-in-time at Toyota :
management begins at the workplace (Rev. ed.). Cambridge, Mass.: Productivity Press. p. 72.
85
Monden, Y. 1998. Toyota production system : an integrated approach to just-in-time (3rd ed.).
Norcross, Ga.: Engineering & Management Press. p. 12.
86
Toyota. 1998. The Toyota Production System: 44. Toyota City, J apan: Toyota Motor Corporation. p. 26.
87
Shook in: Liker, J . K. (Ed.). 1998. Becoming lean : inside stories of U.S. manufacturers. Portland, Or.:
Productivity Press. p. 50.
88
Toyota. 1992. The Toyota Production System: 53. Toyota City, J apan: Toyota Motor Corporation. p. 10.
89
Ohno, T. 1988a. Toyota production system : beyond large-scale production. Cambridge, Mass.:
Productivity Press. p. 7.
90
Suzaki, K. 1987. The new manufacturing challenge : techniques for continuous improvement. New
York, London: Free Press ; Collier Macmillan Publishers. p. 95.

32
need for immediate action by supervisors.”
91
Thus, the andon itself is just a display
system to call attention to workstations were problems have occurred. The important
thing about an andon system as a whole is the reaction of the team leader who gets to
the workstation and solves the problem to keep the line running (usually within takt
time), and then investigates the root cause of the problem to eliminate the possibility
of recurrence. “At Toyota, the simple rule is that recurrence must be prevented.”
92

Error proofing or poka-yoke: “Poka means inadvertent error, and yoke means
prevention.”
93
“A poka-yoke device is an improvement in the form of a jig or fixture
that helps achieve 100 percent acceptable product by preventing the occurrence of
defects.”
94
“It recognizes that machines and people make mistakes sometimes, and it
finds ways to keep those errors from turning into defects”
95
To operate without
buffers and to achieve the highest quality, defects “…must be prevented from
occurring altogether. To do so, inspection must prevent defects, not merely find
them.”
96
Also, “Poka-yokes reduce a worker’s physical and mental burden by
eliminating the need to constantly check for the common errors that lead to defects.”
97

2.3 Lean as a System
After some time and a lot of frustration trying to copy tools without much success, it
became obvious that they alone were not the trick. Further studying led to the revelation
that the tools support each other and as a group comprise a highly integrated technical
system
98
. Implementing a few tools could result in some improvements, but it would

91
Shingo, S., & Dillon, A. P. 1989. A study of the Toyota production system from an industrial
engineering viewpoint (Rev. ed.). Cambridge, Mass.: Productivity Press. p. 74.
92
Shingo, S., & Dillon, A. P. 1989. A study of the Toyota production system from an industrial
engineering viewpoint (Rev. ed.). Cambridge, Mass.: Productivity Press. p. 120.
93
Dennis, P. 2002. Lean production simplified : a plain language guide to the world's most powerful
production system. New York: Productivity Press. p. 91.
94
Shingo, S., & Dillon, A. P. 1989. A study of the Toyota production system from an industrial
engineering viewpoint (Rev. ed.). Cambridge, Mass.: Productivity Press. p. 118.
95
Productivity Press Development Team, & Shingo, S. 1997. Mistake-proofing for operators : the ZQC
system. Portland, Or.: Productivity Press. p. 14.
96
Shingo, S., & Dillon, A. P. 1989. A study of the Toyota production system from an industrial
engineering viewpoint (Rev. ed.). Cambridge, Mass.: Productivity Press. p. 117.
97
Dennis, P. 2002. Lean production simplified : a plain language guide to the world's most powerful
production system. New York: Productivity Press. p. 91.
98
Although people have always played a central role in Toyota’s system, people outside the company have
focused mostly on the technical side of the solution.

33
never come close to the benefits that were possible from implementing the whole system.
This realization led to a new level of understanding and a much more effective transfer of
Lean practices to different firms.
With a system perspective, TPS was now seen as “…a system for the absolute
elimination of waste”
99
and depicted as a house (see Figure 2-2) where the “…two pillars
needed to support the system are: just-in-time [and] autonomation…”
100
. A strong
foundation provides stability, the pillars of just-in-time and jidoka support the people
who perform the work and continuously improve the system to achieve the objectives of
highest quality, lowest cost, and shortest lead-time (simultaneously). “Each element of
the house by itself is critical, but more important is the way the elements reinforce each
other.”
101



Figure 2-2 Toyota Production System
102



99
Shingo, S., & Dillon, A. P. 1989. A study of the Toyota production system from an industrial
engineering viewpoint (Rev. ed.). Cambridge, Mass.: Productivity Press. p. 67.
100
Ohno, T. 1988a. Toyota production system : beyond large-scale production. Cambridge, Mass.:
Productivity Press. p. 4.
101
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill. p. 32.
102
Adapted from: Shook, J . 2002. Lean Learnings, University of Michigan 8th Annual Lean
Manufacturing Conference: 47. Hyatt Regency, Dearborn MI: J TMP. p. 15.

34

J ust-in-time (J IT): “…is having the needed goods arrive in the needed amount at the
needed time”
103
. The concept can be traced back to Kiichiro Toyoda, the founder of
Toyota Motor Corporation. In the 1930’s, when Toyota was starting to make cars,
Kiichiro studied Ford’s mass production system and set out to implement it at Toyota.
He noted however, that to keep Ford’s system running smoothly required large
amounts of inventory. This was something Toyota could not afford since they were
short on cash, had no space, and needed to produce low volumes of many different
models. “Kiichiro’s solution was to provide the different processes in the assembly
sequence with only the kinds and quantities of items that they needed and only when
they needed them.”
104
Providing the ‘right part, in the right amount, at the right time’
thus becomes the desired condition. “If we can master production of exactly what is
needed when it is needed, then waste (muda), unevenness (mura), and
unreasonableness (muri) can be eliminated from the workplace. Productivity will
increase dramatically.”
105
Trying to achieve the just-in-time ideal with a system
flexible enough to adapt to changing conditions, led Ohno and others within Toyota
to develop TPS tools such as takt time, continuous flow, pull systems, quick
changeover, and production leveling.
Built-in-quality: is the extension of jidoka to all processes in the organization (not
only machines). The idea originated with Sakichi Toyoda, the founder of the Toyota
Group, when he “invented a loom in 1902 that would stop automatically if any of the
threads snapped.”
106
“Sakichi Toyoda instilled in Toyota the concept that we must
invest machines with humanlike intelligence. Only if machines have intelligent
functions –jidoka– can we really get them to do useful work for us; otherwise, we end
up serving the machines.”
107
The idea is to build quality into the process (as opposed
to inspecting it in at the end of the production line) by distinguishing between normal
and abnormal conditions, stopping production when there is a problem, and calling

103
Ohno, T., & Mito, S. 1988. Just-in-time for today and tomorrow. Cambridge, Mass.: Productivity
Press. p. 9.
104
Toyota. 1998. The Toyota Production System: 44. Toyota City, J apan: Toyota Motor Corporation. p. 5.
105
Ohno, T., & Mito, S. 1988. Just-in-time for today and tomorrow. Cambridge, Mass.: Productivity
Press. p. 33.
106
Toyota. 1992. The Toyota Production System: 53. Toyota City, J apan: Toyota Motor Corporation. p. 4.
107
Toyota. 1992. The Toyota Production System: 53. Toyota City, J apan: Toyota Motor Corporation. p. 4.

35
attention to it to ensure that it’s root causes are found and eliminated. “Quality can be
assured reasonably only when it is built in at the process and when inspection
provides immediate, accurate feedback at the source of defects.”
108
“Stopping the
machine when there is trouble, forces awareness on everyone. When the problem is
clearly understood, improvement is possible. Expanding this thought, we establish a
rule that even in a manually operated line, the workers themselves should push the
stop button to halt production if any abnormality appears.”
109
“…to stop the line
means to ensure that it will become a stronger line which will not have to be stopped
for the same reason again.”
110
“If a problem is left neglected where the supervisor
does not know, improvement is not made and the cost does not fall.”
111
Besides
autonomation, Toyota uses tools such as automatic and manual stops, andon, error
proofing, and visual management to build quality into the process.
Continuous improvement: “For a manufacturer to minimize costs and to respond
flexibly and promptly to ever-changing demand, improvements must happen
continually in the production process.”
112
At any time when we are not improving,
our organization is falling behind others that are. Standing still (mantaining the status
quo) actually means falling behind the competition. “Kaizen is teams of employees
revising their work procedures and standards continuously to achieve improvements
in efficiency, quality, and working conditions.”
113
This definition emphasizes the role
of people and standards and makes kaizen the central element of TPS, integrating the
pillars of J IT and Built-in-quality to produce the desired results of highest quality,
lowest cost, and shortest lead-time. “Kaizen fosters process-oriented thinking, since
processes must be improved for results to improve. Failure to achieve planned results
indicates a failure in the process.”
114
According to Imai, “Improvement is a mind-set

108
Shingo, S., & Dillon, A. P. 1989. A study of the Toyota production system from an industrial
engineering viewpoint (Rev. ed.). Cambridge, Mass.: Productivity Press. p. 18.
109
Ohno, T. 1988a. Toyota production system : beyond large-scale production. Cambridge, Mass.:
Productivity Press. p. 7.
110
J apan Management Association, & Lu, D. J . 1989. Kanban just-in-time at Toyota : management begins
at the workplace (Rev. ed.). Cambridge, Mass.: Productivity Press. p. 73.
111
Ohno in: Toyota. 2001. The Toyota Way 2001: 13: Toyota Motor Corporation. p. 7.
112
Toyota. 1992. The Toyota Production System: 53. Toyota City, J apan: Toyota Motor Corporation. p. 43.
113
Toyota. 1992. The Toyota Production System: 53. Toyota City, J apan: Toyota Motor Corporation. p. 38.
114
Imai, M. 1997. Gemba kaizen : a commonsense low-cost approach to management. New York:
McGraw-Hill. p. 4.

36
inextricably linked to maintaining and improving standards. In a still broader sense,
improvement can be defined as kaizen and innovation, where a kaizen strategy
maintains and improves the working standard through small gradual improvements,
and innovation calls forth radical improvements as a result of large investments in
technology and/or equipment [see Figure 2-3].”
115
“Whereas innovation is a one-shot
deal whose effects are gradually eroded by intense competition and deteriorating
standards, kaizen is an ongoing effort with cumulative effects marking a steady rise as
the years go by.”
116
For an improvement system to be effective, people in the
organization must perform two types of activities on a daily basis: maintenance and
improvement. “Maintenance refers to activities directed toward maintaining current
technological, managerial, and operating standards; improvement refers to those
directed toward improving current standards.”
117
Without maintenance, it is
impossible to get consistent products and any improvement made would soon
deteriorate into oblivion. Without improvement the organization remains at the status
quo and will soon be driven out of business by competitors that do improve. “If
standards exist only in order to maintain the status quo, they will not be challenged so
long as the level of performance is acceptable. Kaizen…means a constant effort not
only to maintain but also to upgrade standards.”
118



115
Imai, M. 1986. Kaizen, the key to Japan's competitive success. New York: Random House Business
Division. p. xx.
116
Imai, M. 1986. Kaizen, the key to Japan's competitive success. New York: Random House Business
Division. p. 26.
117
Imai, M. 1986. Kaizen, the key to Japan's competitive success. New York: Random House Business
Division. p 5.
118
Imai, M. 1986. Kaizen, the key to Japan's competitive success. New York: Random House Business
Division. p. 26.

37

Figure 2-3 Kaizen and innovation to improve and maintain standards
119


At Toyota, continuous improvement is performed within a PDCA framework. The
Plan-Do-Check-Act cycle was originally developed by Walter Shewhart and taught to
J apanese managers by W. Edwards Deming. At that time it was known as the
Shewhart cycle or the Plan-Do-Study-Act cycle
120
(see Figure 2-4). It is a cycle
designed to promote learning and provide structure to the improvement process.
“Plan refers to establishing a target for improvement…and devising plans to achieve
the target. Do refers to implementing the plan. Check refers to determining whether
the implementation remains on track and has brought about the planned improvement.
Act refers to performing and standardizing the new procedures to prevent recurrence
of the original problem or to set goals for the new improvements.”
121
“PDCA is thus
understood as a process through which new standards are set only to be challenged,
revised, and replaced by newer and better standards.”
122
“PDCA means never being
satisfied with the status quo.”
123



119
Imai, M. 1986. Kaizen, the key to Japan's competitive success. New York: Random House Business
Division. p. 27.
120
Deming, W. E. 2000. Out of the crisis (1st MIT Press ed.). Cambridge, Mass.: MIT Press. p. 131.
121
Imai, M. 1997. Gemba kaizen : a commonsense low-cost approach to management. New York:
McGraw-Hill. p. 4.
122
Imai, M. 1986. Kaizen, the key to Japan's competitive success. New York: Random House Business
Division. p. 63.
123
Imai, M. 1997. Gemba kaizen : a commonsense low-cost approach to management. New York:
McGraw-Hill. p. 5.

38


Waste elimination: through waste elimination is how the TPS objectives of best
quality, lowest cost, and shortest lead-time are achieved. Although Henry Ford
advocated it
125
, the extreme focus on waste elimination that prevails at Toyota
originated with Kiichiro Toyoda’s early mandate to catch American manufacturers in
3 years. At the time, Toyota’s productivity was ten times lower than Ford’s. “But
could an American really exert ten times more physical effort? Surely, J apanese
people were wasting something. If we could eliminate the waste, productivity would
rise by a factor of ten. This idea marked the start of the present Toyota production
system.”
126
Waste are those “elements of production that add time, effort [or] cost,
but no value”
127
. A simple test of value can help us identify waste: “Would the
customer be willing to pay for this?”
128
However, to eliminate it, it is necessary to
deal with the reasons why the waste exists. “Waste is really a symptom rather a root

124
Deming, W. E. 1994. The new economics for industry, government, education (2nd ed.). Cambridge,
MA: Massachusetts Institute of Technology, Ctr. for Adv. Eng. Study. p. 132.
125
Ford, H., & Crowther, S. 1988. Today and tomorrow. Cambridge, Mass.: Productivity Press.
126
Ohno, T. 1988a. Toyota production system : beyond large-scale production. Cambridge, Mass.:
Productivity Press. p. 3.
127
Shook, J ., & Verble, D. 2001. Organization and Leadership for Effective Value Stream Management,
University of Michigan 7th Annual Lean Manufacturing Conference. Hyatt Regency, Dearborn MI:
J TMP. Slide 11.
128
Shook, J . 2002. Lean Learnings, University of Michigan 8th Annual Lean Manufacturing Conference:
47. Hyatt Regency, Dearborn MI: J TMP. p. 79.
Figure 2-4 Shewhart’s original PDSA cycle
124


39
cause of the problem, …[it] points to problems within the system… we need to find
and address causes of waste”
129
. Ohno proposed seven categories into which all
wasteful activity can be classified
130
:
1. Overproduction: Producing more than is needed, faster than needed, or before it is
needed. It is the worst waste of all since it generates many of the other ones.
2. Waiting: Idle time that occurs when two dependent processes are not fully
synchronized or when operators watch machines as they run.
3. Transportation: Movement of materials, parts, or finished goods that do not add
value to the product.
4. Overprocessing: Effort that adds no value to a product and is transparent to the
customer. Processes performed that do not add value to the final product.
Providing higher quality than is necessary.
5. Inventory: Any supply of materials, parts or finished goods in excess of the next
process’ J IT needs. Inventory covers problems that are thus, seldom solved.
6. Motion: Movement of people or machines that do not add value to the product.
7. Defects: Repairing, reworking or scrapping materials or products.
2.4 Lean as a Way of Thinking
Understanding Lean as a system and being able to replicate the tools, led to a
significant expansion in its use. However, there are still problems with this approach.
First, in some facilities where Lean has been implemented, quality, productivity, cost,
and lead-time reduction gains are very significant at the beginning, but after a while
progress begins to stagnate and some deterioration even occurrs. This sticks out in
contrast to Toyota where, after 50 years, they continue to make significant improvements
every day. Second, most of the expansion of Lean use has occurred in firms operating in
environments somewhat similar to Toyota’s –large companies making relatively high
volumes of a few products with a somewhat predictable demand. Smaller organizations,
making smaller volumes of many different products, and dealing with high demand

129
Rother, M., & Shook, J . 2000. Training to See : A Value Stream Mapping Workshop. Brookline MA:
Lean Enterprise Institute. p. 26.
130
Ohno, T., & Mito, S. 1988. Just-in-time for today and tomorrow. Cambridge, Mass.: Productivity
Press. p. 2.

40
variability, tend to find it hard to duplicate Toyota’s system and conclude that Lean does
not work for them. This suggests there is still not a deep enough understanding of the
system. Even though experts such as Womack and J ones
131
, Liker
132
, and Shook
133

(among others), have been preaching for years that it is necessary to dig deeper and gain
a better understanding, the common practice still seems to be to scratch the surface and
focus on the tools.
There is still something missing. It is necessary to go even beyond the perspective of
Lean as a system of tools that support each other. The full power of a Toyota-style
system is only realized when the tools are combined with the proper people structure into
a cohesive socio-technical system. However, developing such a system requires deeply
understanding the thinking that led to Toyotas’s system.
Considering the socio-technical system as a whole, it is possible to redefine TPS in a
way that highlights the importance of the philosophy behind it. TPS is “A manufacturing
philosophy that shortens the time line between the customer order and the shipment by
eliminating waste.”
134
It “… is a system of production, based on the philosophy of total
elimination of waste, that seeks the utmost in rationality in the way we make things.”
135

The explicit reference to a philosophy helps widen the focus from the core technical
system to include the thinking that goes with it. Whatever the definition we decide to use,
the important thing is that when studying Toyota it is necessary to dig deep enough. We
must get to “…understanding lean as an entire system that must permeate an
organization’s culture.”
136


131
Womack, J . P., & J ones, D. T. 1996. Lean thinking : banish waste and create wealth in your
corporation. New York, NY: Simon & Schuster.
132
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill.
133
J ohn Shook in: Liker, J . K. (Ed.). 1998. Becoming lean : inside stories of U.S. manufacturers.
Portland, Or.: Productivity Press. p. 40-69.
134
J ohn Shook in: Liker, J . K. (Ed.). 1998. Becoming lean : inside stories of U.S. manufacturers.
Portland, Or.: Productivity Press. p. 7.
135
J apan Management Association, & Lu, D. J . 1989. Kanban just-in-time at Toyota : management begins
at the workplace (Rev. ed.). Cambridge, Mass.: Productivity Press. p. 23.
136
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill. p. 7.

41
Womack and J ones, define Lean Thinking by proposing five steps that can be used to
develop Lean systems
137
: define value from the customers perspective, identify the value
stream, make materials flow, pull product through the system, and pursue perfection.
Spear and Bowen indicate that Toyota’s system presents a paradox where every
activity is rigidly scripted, yet the system is enormously flexible and adaptable. “To
understand Toyota’s success, you have to unravel the paradox –you have to see that the
rigid specification is the very thing that makes flexibility and creativity possible.”
138

“…the Toyota Production System creates a community of scientists. Whenever Toyota
defines a specification, it is establishing sets of hypotheses that can be tested.”
139
If work
does not proceed as expected, the hypothesis is not proven indicating that there is a
problem that needs fixing. “…standardization –or more precisely, the explicit
specification of how work is done before it is performed– is coupled with testing work as
it is being done. The end result is that gaps between what is expected and what actually
occurs become immediately evident. Not only are problems contained, prevented from
propagating and compromising someone else’s work, but the gaps between expectation
and reality are investigated; a deeper understanding of the product, process, and people is
gained; and that understanding is incorporated into a new specification, which becomes a
temporary ‘best practice’ until a new problem is discovered.”
140
“To make any changes,
Toyota uses a rigorous problem-solving process that requires a detailed assessment of the
current state of affairs and a plan for improvement that is, in effect, an experimental test
of the proposed changes.”
141
“…the system actually stimulates workers and managers to
engage in the kind of experimentation that is widely recognized as the cornerstone of a
learning organization. This is what distinguishes Toyota from all the other companies we
studied.”
142


137
Womack, J . P., & J ones, D. T. 1996. Lean thinking : banish waste and create wealth in your
corporation. New York, NY: Simon & Schuster. p. 16-26, 29-98.
138
Spear, S., & Bowen, H. K. 1999. Decoding the DNA of the Toyota Production System. Harvard
Business Review: 95-106. p. 97.
139
Spear, S., & Bowen, H. K. 1999. Decoding the DNA of the Toyota Production System. Harvard
Business Review: 95-106. p. 98.
140
Spear, S. 2004. Learning to Lead at Toyota. Harvard Business Review, May 2004.: 78-86. p. 79.
141
Spear, S., & Bowen, H. K. 1999. Decoding the DNA of the Toyota Production System. Harvard
Business Review: 95-106. p. 98.
142
Spear, S., & Bowen, H. K. 1999. Decoding the DNA of the Toyota Production System. Harvard
Business Review: 95-106. p. 98

42
Spear and Bowen, also propose four rules that define the DNA of the Toyota
Production System
143
. (1) All work shall be highly specified as to content, sequence,
timing, and outcome. (2) Every customer-supplier connection must be direct, and there
must be an unambiguous yes-or-no way to send requests and receive responses. (3) The
pathway for every product and service must be simple and direct.(4) Any improvement
must be made in accordance with the scientific method, under the guidance of a teacher,
at the lowest possible level in the organization. “All the rules require that activities,
connections, and flow paths have built-in tests to signal problems automatically. It is the
continual response to problems that makes this seemingly rigid system so flexible and
adaptable to changing circumstances.”
144

However, gaining a true understanding of Toyota’s philosophy perhaps requires
going beyond TPS and Lean to understand the Toyota Way
145,146
. According to Gary
Convis, “The Toyota Way, along with the Toyota Production System, make up Toyota’s
‘DNA’.”
147
For Toyota, the Toyota Way is defined by two main guiding principles:
Continuous Improvement and Respect for People
148
. For Fujio Cho, these principles
summarize “…the unique and outstanding elements of our company culture…”
149
.
“Continuous improvement… defines Toyota’s basic approach to doing business.
Challenge everything. More important than the actual improvements that individuals
contribute, the true value of continuous improvement is in creating an atmosphere of
continuous learning and an environment that not only accepts, but actually embraces
change. Such an environment can only be created where there is respect for people…”
150
.
Continuous Improvement is characterized by the statement: “We are never satisfied
with where we are and always improve our business by putting forth our best ideas and

143
Spear, S., & Bowen, H. K. 1999. Decoding the DNA of the Toyota Production System. Harvard
Business Review: 95-106. p. 98.
144
Spear, S., & Bowen, H. K. 1999. Decoding the DNA of the Toyota Production System. Harvard
Business Review: 95-106. p. 98.
145
Toyota. 2001. The Toyota Way 2001: 13: Toyota Motor Corporation.
146
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill.
147
Gary Convis in: Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's
greatest manufacturer (First ed.). New York: McGraw-Hill. p. xi.
148
Toyota. 2001. The Toyota Way 2001: 13: Toyota Motor Corporation.
149
Fujio Cho in: Toyota. 2001. The Toyota Way 2001: 13: Toyota Motor Corporation. p. 1.
150
Gary Convis in: Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's
greatest manufacturer (First ed.). New York: McGraw-Hill. p. xi.

43
efforts.”
151
It includes the principles of Challenge, Kaizen, and Genchi Genbutsu. Respect
for People is characterized by the statement: “We respect people, and believe the success
of our business is created by individual efforts and good teamwork.”
152
It includes the
principles of Respect and Teamwork.
Liker describes the Toyota Way by defining 14 principles grouped into four
categories (see Figure 2-5) and highlights that this is the true source of Toyota’s success.
“Toyota has turned operational excellence into a strategic weapon… But tools and
techniques are no secret weapon for transforming a business. Toyota’s continued success
at implementing these tools stems from a deeper business philosophy…Its success is
ultimately based on its ability to cultivate leadership, teams, and culture, to devise
strategy, to build supplier relationships, and to maintain a learning organization.”
153
The
Toyota Way “…is a culture, even more than a set of efficiency and improvement
techniques.”
154
This is the perspective that will be used throughout this dissertation.







151
Toyota. 2001. The Toyota Way 2001: 13: Toyota Motor Corporation. p. 3.
152
Toyota. 2001. The Toyota Way 2001: 13: Toyota Motor Corporation. p. 3.
153
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill. p. 6.
154
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill. p. 36.

44

Liker’s 14 principles are as follows
156
:
Long Term Philosophy
1. Base your management decisions on long-term philosophy, even at the expense of
short-term financial goals.
The Right Process Will Produce the Right Results
2. Create continuous process flow to bring problems to the surface.
3. Use ‘pull’ systems to avoid overproduction.
4. Level out the workload (heijunka).
5. Build a culture of stopping to fix problems, to get quality right the first time.
6. Standardized tasks are the foundation for continuous improvement and employee
empowerment.
7. Use visual control so no problems are hidden.

155
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill. p. 6.
156
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill. p. 37-41, 71-265.
Figure 2-5 4P model of the Toyota Way
155

Philosophy
(Long-term Thinking)
People and Partners
(Respect, Challenge and Grow Them)
Process
(Eliminate Waste)
Problem
Solving
(Continuous
Improvement and Learning)
• Base management decisions on a
long-termphilosophy, even at the
expense of short-termfinancial goals
• Grow leaders who live the philosophy
• Respect, develop and challenge your people and teams
• Respect, challenge, and help your suppliers
• Create process “flow”to surface problems
• Level out the workload (Heijunka)
• Stop when there is a quality problem(Jidoka)
• Use pull systems to avoid overproduction
• Standardize tasks for continuous improvement
• Use visual control so no problems are hidden
• Use only reliable, thoroughly tested technology
• Continual organizational learning through Kaizen
• Go see for yourself to thoroughly understand the situation
(Genchi Genbutsu)
• Make decisions slowly by consensus, thoroughly considering all
options; implement rapidly (Nemawashi)
G
e
n
c
h
i
G
e
n
b
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t
s
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K
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t

+
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e
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l
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Toyota’s
Terms
Philosophy
(Long-term Thinking)
People and Partners
(Respect, Challenge and Grow Them)
Process
(Eliminate Waste)
Problem
Solving
(Continuous
Improvement and Learning)
• Base management decisions on a
long-termphilosophy, even at the
expense of short-termfinancial goals
• Grow leaders who live the philosophy
• Respect, develop and challenge your people and teams
• Respect, challenge, and help your suppliers
• Create process “flow”to surface problems
• Level out the workload (Heijunka)
• Stop when there is a quality problem(Jidoka)
• Use pull systems to avoid overproduction
• Standardize tasks for continuous improvement
• Use visual control so no problems are hidden
• Use only reliable, thoroughly tested technology
• Continual organizational learning through Kaizen
• Go see for yourself to thoroughly understand the situation
(Genchi Genbutsu)
• Make decisions slowly by consensus, thoroughly considering all
options; implement rapidly (Nemawashi)
G
e
n
c
h
i
G
e
n
b
u
t
s
u
K
a
i
z
e
n
R
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e
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Toyota’s
Terms

45
8. Use only reliable, thoroughly tested technology that serves your people and
processes.
Add Value to the Organization by Developing Your People and Partners
9. Grow leaders who thoroughly understand the work, live the philosophy, and teach it
to others.
10. Develop exceptional people and teams who follow your company’s philosophy.
11. Respect your extended network of partners and suppliers by challenging them and
helping them improve.
Continuously Solving Root Problems Drives Organizational Learning
12. Go and see for yourself to thoroughly understand the situation (genchi genbutsu).
13. Make decisions slowly by consensus, thoroughly considering all options; implement
decisions rapidly (nemawashi).
14. Become a learning organization through relentless reflection (hansei) and continuous
improvement (kaizen).
Liker also highlights the importance of the Toyota Production System its interrelation
with the Toyota Way principles. “The Toyota Way and the Toyota Production
System…are the double helix of Toyota’s DNA; they define its management style and
what is unique about the company.”
157
“TPS is the most systematic and highly developed
example of what the principles of the Toyota Way can accomplish.”
158

2.5 Lean in High Variability Environments
The literature specifically related to implementing lean in high variability
environments is fairly limited. Conner
159
provides a summary of Lean and how to apply it
to a model line in a job shop. He is conscious of the difference in applying TPS tools in a
job shop dealing with low volumes of many different parts as compared to more
traditional automotive examples dealing with higher volumes and lower levels of

157
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill. p. 7.
158
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill. p. 27.
159
Conner, G. 2001. Lean manufacturing for the small shop. Dearborn, Mich.: Society of Manufacturing
Engineers.

46
variability in demand. “Depending on size, number of customers, sales distribution (mix)
and a multitude of other factors, there are endless differences and therefore numerous
approaches to applying the Lean approach to the job shop.”
160
He further recognizes that
using Lean tools is not the only requirement. “Becoming Lean is as simple as identifying
where the non-value-added actions are taking place, selecting the right tool to eliminate
the non-value-added-actions, and then not allowing the repair to come undone. Then,
doing it again and again, every day.”
161

He indicates that not all tools are applicable and that some need to be modified to be
useful. “… a job shop dealing with 3,500 active part numbers, none of which are
adequately forecasted by the customer, will have a much harder time developing precise
takt times, flawless flow patterns, or perfect pull systems. The approach will only work if
it is modified for the job shop.”
162
However, he stops short of providing a comprehensive
solution. He proposes the use of “…a hybrid system that allows smaller companies to
retain their nimble nature that makes them so attractive to customers who need low
volume, one-of-a-kind products, or proto-typing services, while at the same time meeting
the needs of customers who order on a more routine basis.”
163
“…a hybrid approach is
usually the best option for the number of unique challenges that job shops face.”
164

This hybrid system is defined by grouping products based on their demand patterns
and dividing the shop into two or more systems, each one designed to deal with the
specific challenges resulting from each pattern. Four types of demand pattern are
proposed: gradient, cyclical, erratic, and smooth. Another option is to use Pareto’s 80-20
rule to segregate high runners (which usually have a smoother demand) from low volume
product (which usually have an erratic demand). “[Companies] should follow the 80-20
rule, setting up their shop to effectively flow the products that make up 80 percent of

160
Conner, G. 2001. Lean manufacturing for the small shop. Dearborn, Mich.: Society of Manufacturing
Engineers. p. 57.
161
Conner, G. 2001. Lean manufacturing for the small shop. Dearborn, Mich.: Society of Manufacturing
Engineers. p. 56.
162
Conner, G. 2001. Lean manufacturing for the small shop. Dearborn, Mich.: Society of Manufacturing
Engineers. p. 91.
163
Conner, G. 2001. Lean manufacturing for the small shop. Dearborn, Mich.: Society of Manufacturing
Engineers. p. 91.
164
Conner, G. 2001. Lean manufacturing for the small shop. Dearborn, Mich.: Society of Manufacturing
Engineers. p. 57.

47
what they produce.”
165
Lean tools are then applied to the high volume portion of the mix.
“Takt times are used for those [products] that fit the mold of being moderately repetitive,
proven, capable, and stable.”
166

However, no concrete solution is provided for the products that fall into the low
volume category, which usually represent the majority of the part numbers (and the
majority of the headaches). The suggestion is to “Think outside the box. There has to be
an answer other than the hard and fast rule that says; ‘It’s takt time, one-piece flow, and
pull, or it’s nothing.”
167
The rationale is that if we “set up the process to deal most
effectively with the 80 percent [of the product made], the 20 percent will take care of
itself. If you insure that your are effectively processing the bread-and-butter parts, you
will have plenty of time to deal with the dogs and cats.”
168

J ina, Bhattacharya, and Walton
169
identify three difficulties associated with
implementing Lean in high variability low volume (HVLV) organizations. (1) The lack
of clarity of what HVLV is and the wide range of firms that are classified as such, make
it very hard to define generally applicable Lean methods that help these organizations. (2)
‘Turbulence’ resulting from variability and uncertainty of inputs. (3) How the
manufacturing system can be managed (for example, finished goods cannot always be
used to buffer production from variability). Their solution includes (1) designing products
for logistics and manufacture (common parts, modular design, staged engineering
changes, and use of multifunctional teams), (2) organize manufacturing by grouping
products by volume into runners, repeaters, and strangers, and (3) increase the bargaining
power with suppliers (common parts result in higher volumes, single sourcing). On the
manufacturing side the solution is similar to Conner’s. Lean is suggested for the runners,
while outsourcing, batching, or job shop production is suggested for the repeaters and
strangers.

165
Conner, G. 2001. Lean manufacturing for the small shop. Dearborn, Mich.: Society of Manufacturing
Engineers. p. 59.
166
Conner, G. 2001. Lean manufacturing for the small shop. Dearborn, Mich.: Society of Manufacturing
Engineers. p. 91.
167
Conner, G. 2001. Lean manufacturing for the small shop. Dearborn, Mich.: Society of Manufacturing
Engineers. p. 91.
168
Conner, G. 2001. Lean manufacturing for the small shop. Dearborn, Mich.: Society of Manufacturing
Engineers. p. 60.
169
J ina, J ., Bhattacharya, A. K., & Walton, A. D. 1997. Applying lean principles for high product variety
and low volumes: some issues and propositions. Logistics Information Management, 10(1): 5-13.

48
Although the idea of having different systems within the factory to deal with different
types of products seems sensible, demand patterns are perhaps not the best way of
grouping product or defining Conner’s hybrid system. In essence, what we are doing by
following this approach is putting all the easy to deal with products together and applying
Lean tools to them. Not bad so far. But what happens to the rest of the items? What we
have left probably presents a much harder problem than before. With this approach, we
are basically making one group of products much easier to work with at the expense of
another group. If the benefits obtained on the high runners through Lean implementation
outweigh the increase in problems on the other products, then this approach will lead to
an overall improvement in performance. However, this is not necessarily always the case.
For one thing, if the equipment needed for the high runners cannot be dedicated 100% of
the time, the interruptions caused by the low volume items can negate the expected
benefits. Furthermore, following this grouping by volume approach means accepting that
performance improvement will be confined to only a portion of the products made. The
potential for improvement is thus limited from the start. Finally, it also precludes the
option of exploiting the differences between products for the benefit of the overall
system. For example, if we separate products with erratic demand from those having a
smooth pattern, we forgo the possibility of using inventory of the smooth high volume
runners as a way of ‘storing capacity’ to use in making erratic products on demand
170
.
There may be advantages in some cases to using the approach proposed by Conner
and by J ina, Bhattacharya, and Walton, but it is not a global solution for the whole
organization. In fact, in some cases, it may be detrimental to the overall performance of
the facility. Furthermore, no proposals are made on how to deal with real high variability
low volume items. In essence, their solution attempts to solve the problem of applying
Lean to high variability environments by applying it to the low variability portion of the
mix of products (that which resembles traditional environments where Lean has been
used), while forgetting about the remaining products where high variability and the
problem of how to implement Lean persists. What is needed is a comprehensive solution

170
Sox, C. R., Thomas, L. J ., & McClain, J . O. 1997. Coordinating Production and Inventory to Improve
Service. Management Science(September).

49
that encompasses the full spectrum of parts produced by manufacturers operating in high
variability environments.
Duggan
171
provides a step-by-step methodology for implementing Lean in mixed
model value streams. His focus is on the use of tools (as opposed to the culture), although
he does indicate that “…the secret to a successful lean implementation is not to apply
lean tools to convert a company, but to teach a company how to see the sources of waste
and guide them through a process of eliminating them.”
172
This should be done to reduce
the lead-time through the facility. “The longer the lead-time, the more chaos enters into
the system. Long lead-times make it almost impossible to predict what is needed far
enough in advance.”
173

Duggan proposes the use of a two-step approach to classify value streams to
determine when the mixed model concepts are needed. First, a two-by-two matrix charts
the degree of customization against the number of different products made (see Figure
2-6). The second step characterizes the demand pattern for the products under study (see
Figure 2-7).


Figure 2-6 Duggan’s two-by-two classification matrix
174



171
Duggan, K. J . 2002. Creating mixed model value streams : practical lean techniques for building to
demand. New York, N.Y.: Productivity Press.
172
Duggan, K. J . 2002. Creating mixed model value streams : practical lean techniques for building to
demand. New York, N.Y.: Productivity Press. p. xiv.
173
Duggan, K. J . 2002. Creating mixed model value streams : practical lean techniques for building to
demand. New York, N.Y.: Productivity Press. p. 18.
174
Duggan, K. J . 2002. Creating mixed model value streams : practical lean techniques for building to
demand. New York, N.Y.: Productivity Press. p. 19.

50

Figure 2-7 Demand patterns
175


The case example used throughout the book is a discrete manufacturer with a high
mix (case 2) and high variation in demand (case C). A detailed methodology is provided
to implement mixed model production for this particular case by developing cells for
properly selected product families and dedicating resources to them. “Mixed model
production means producing a variety or mix of products or product variations through
the same value stream at the pull of the customer.”
176
It “…is really a countermeasure to
variability. We apply mixed model techniques where [demand] variability is high, as
mixed model is very flexible and can respond to the variability as needed. Therefore, it is
not necessary for a consistent, level schedule for lean principles to apply.”
177
This is a
significant claim, since Toyota predicates that level schedules are part of the foundation
required for TPS to work properly. However, if we examine in detail what Duggan
proposes, we realize that what he is actually doing is, through the use of inventory and/or

175
Duggan, K. J . 2002. Creating mixed model value streams : practical lean techniques for building to
demand. New York, N.Y.: Productivity Press. p. 20.
176
Duggan, K. J . 2002. Creating mixed model value streams : practical lean techniques for building to
demand. New York, N.Y.: Productivity Press. p. 21.
177
Duggan, K. J . 2002. Creating mixed model value streams : practical lean techniques for building to
demand. New York, N.Y.: Productivity Press. p. 27.

51
flexible labor, leveling the schedule and rationalizing production for the cell. That is,
after using Duggan’s methodology, what the workers perceive is a fairly leveled
workload that matches the current capacity of the cell. He has not found a way to use
Lean without a leveled schedule. What he has found is a clever way to convert variable
customer requirements into a fairly leveled schedule that matches production capacity.
Duggan discusses the advantages of combining products into families in terms of
added flexibility to meet customer requirements by taking advantage of uncorrelated
fluctuations in demand volume for the different products. “Combining products with the
same processing steps into a product family, makes us more flexible in responding to
customer demand. As demand increases for one product, it may decrease for another,
allowing more capability to respond to changing customer demands.”
178
Thus, “In mixed
model production, any mix of products for a product family can be produced, as long as
the total [demand] volume does not exceed the total family [capacity] volume.”
179

Uncorrelated demand (or negatively correlated, which would be even better) helps level
production requirements. This advantage is completely lost if the grouping is done by
volume as proposed by Conner and by J ina, Bhattacharya, and Walton.
Several options are proposed to balance flow and rationalize production to meet
variable customer requirements. The last two are interesting
180
. One is to produce to
customer demand, but use a finished goods supermarket (stocked with high runner items
only) as a buffer for peak days. Even with a changing product mix and with different
work contents for each product, the total workload is kept stable for the day and thus the
number of workers does not need to change from day to day (it only changes when there
are significant changes in total demand volume). This is precisely the capacity storing
approach discussed above and that is precluded when products are grouped by volume.
The other option is to produce to customer demand and vary the number of workers used
according to the total workload imposed on the system by the customer’s demand for the
day. In both cases, the workload perceived by each operator remains constant.

178
Duggan, K. J . 2002. Creating mixed model value streams : practical lean techniques for building to
demand. New York, N.Y.: Productivity Press. p. 24.
179
Duggan, K. J . 2002. Creating mixed model value streams : practical lean techniques for building to
demand. New York, N.Y.: Productivity Press. p. 27.
180
Duggan, K. J . 2002. Creating mixed model value streams : practical lean techniques for building to
demand. New York, N.Y.: Productivity Press. p. 95.

52
Duggan also proposes the use of ‘Mix Logic Charts’ as a standard way to decide
whether a particular value stream can build the mix of products required by the customer
and how to do it. These charts show visually the questions that need to be asked (which
are based on the restrictions of the particular value stream) and the specific actions that
need to be taken in each case. “They allow us to know quickly if we need to revise a mix,
work overtime, or pull from the supermarket.”
181
Once a decision is made on what will be
produced, the next step is to level the mix for the day by using a heijunka box and
assigning parts to each interval considering again the limitations of the value stream (for
example, it may be better to run certain parts in sequence, or some may require bringing
in an additional worker and thus should run together
182
).
In summary, Duggan provides a very detailed and comprehensive methodology for
creating mixed model value streams. However, his methodology is designed for a specific
case: repetitive products (low customization, according to his own classification) that can
be grouped neatly into medium size families (although the case example is classified as a
high mix, indicating many different products, I would argue that ‘many’ for this
methodology is in the low tens, not in the hundreds of different parts), made in one-piece
flow or in small batches, with processes that can be placed in sequence. This case,
although significant, still leaves many non-traditional applications without clear
guidance. It is one step above the traditional low variability applications, but still far from
the high demand and high task variability present in many manufacturing facilities, such
as job shops. What this methodology provides the higher variability cases is with ideas
that can be extended to other environments much in the same way as some Lean concepts
and tools from traditional applications can be extended as well. In the two-by-two
classification matrix used in this research to classify production environments, Duggan’s
mixed model production would be placed as shown in Figure 2-8.


181
Duggan, K. J . 2002. Creating mixed model value streams : practical lean techniques for building to
demand. New York, N.Y.: Productivity Press. p. 139.
182
Duggan’s example assumes that there is a significant change over between parts being run in the cell.
So, even though one-piece flow is achieved within the batch for a particular part, the cell does not run in
mixed model continuous flow mode (where every part being processed is different from the previous one
and from the one coming next). With true mixed model continuous flow high labor content parts could be
mixed in with lower labor content parts to level the workload (they offset each other) and enable the cell to
run at a steady pace.

53

Two other books also deal with using Lean in high variability environments.
Unfortunately, the authors’ understanding of Lean does not seem to be sufficiently deep
to propose solutions that capitalize on its principles or tools. They provide at best a
cursory treatment of Lean, sometimes stating facts that are outright wrong. They attempt
instead to propose their own system, perhaps with the intention of leapfrogging Lean.
Mahoney
183
covers the basics of J IT (providing a very complicated explanation for the
use of kanban that offers nothing new to high variability environments), theory of
constraints, MRP, and other computerized approaches, resulting in a complex (and in my
opinion) unwieldy solution for producing in high variability environments. This mirrors
the common western approach of solving very complex problems by proposing even
more complex solutions. An approach that has resulted in systems such as ERP that
frequently over-promise and under-perform.
Bozzone
184
takes a different tack by looking for simple solutions and frequently
including action steps for implementation. He focuses exclusively on job shops and does

183
Mahoney, R. M. 1997. High-mix low-volume manufacturing. Upper Saddle River, N.J .: Prentice Hall
PTR.
184
Bozzone, V. 2001. Speed to market : lean manufacturing for job shops (2nd ed.). New York:
AMACOM/American Management.
Figure 2-8 Classification of Mixed Model Value Streams
T
a
s
k

V
a
r
i
a
b
i
l
i
t
y
Demand Variability
High Low
H
i
g
h
L
o
wTraditional Lean
(assembly line)
J ob Shop
Flow Shop
Engineered Product
Shop
Mixed Model
Value Streams
T
a
s
k

V
a
r
i
a
b
i
l
i
t
y
Demand Variability
High Low
H
i
g
h
L
o
wTraditional Lean
(assembly line)
J ob Shop
Flow Shop
Engineered Product
Shop
Mixed Model
Value Streams
Mixed Model
Value Streams

54
provide some sound advice that can result in performance improvements. The
overarching recommendation (as suggested by the books title) is to reduce lead-time.
This is definitively a Lean proposition, unfortunately Bozzone presents it as a
differentiator between J ob Shop Lean and the more traditional Assembly Line Lean.
Similarly, he claims that job shops are ahead of traditional Lean producers since by
manufacturing to order, they already operate in a pull system. If we look at the job shop
as a whole, this may be true, however, internally their systems tend to be as push as can
be. Besides these and other similar examples, the relation to Lean tools and principles is
tenuous at best. It is certainly not enough to call this ‘Lean Manufacturing for J ob Shops’.
The best recommendation, one that could actually lead to the development of a Lean
system if the proper guiding principles were used along the way, is to install a
‘management report’ that tracks key performance metrics and is reviewed weekly by
management. Besides allowing the organization to react promptly to ensure that promises
made to customers are kept, it also pinpoints problematic areas that can then be targeted
for improvement.
Thus, although significant inroads have been made, there is not yet a comprehensive
solution to the problem of implementing a Toyota-style system in high variability
environments. In part this is due, as proposed by J ina, Bhattacharya, and Walton, to the
great variety of processes, approaches to manufacturing, and products made. With so
much diversity, it is hard to propose a generally applicable solution. If we focus on a
particular type of manufacturing (as Duggan did), we can propose a fairly complete
solution to that specific problem, but it may not be too helpful to others operating under
somewhat different conditions. On the other hand, if we try to help everyone, the solution
may be too general, remaining in the realm of theory, and making it hard to use. The
result: we don’t help anyone.
This seems to present a paradox. However, this discussion assumes that the solution
we are seeking has to come in the form of a methodology or a set of tools. This will not
work since the tools are very closely tied to the problem they were designed to solve. An
alternative approach is needed. One option is for the solution to come as a way of
thinking (or even better, as a way of developing that thinking) that we can then apply to
the environment we operate in to develop the methodologies and tools needed to develop,

55
implement and operate a Toyota-style system. This is the approach pursued in this
research.



56
CHAPTER 3
RESEARCH METHODOLOGY


The work done for this research can be separated into four distinct areas, although
with significant interaction between them. They are: (1) define a theoretical model, (2)
identify impediments to Lean, (3) analyze cases of Lean implementation, and (4)
implement Toyota-style systems. The following sections define the purpose of the work
in each one, describe the methods used, and refer to other portions of the dissertation
where more detailed explanations of the results are provided.
3.1 Defining a Theoretical Model
The work done here is mostly theoretical and can be divided into two areas: (a) define
a way to classify organizations according to characteristics that are relevant for the use of
Toyota-style systems, and (b) define what a Toyota-style system is. With respect to the
classification scheme, several alternatives using different variables and different
classification methods were tried. The objective was to find a way of grouping similar
organizations to be able to generalize lessons learned within the group and to compare
differences between groups. An explanation for why the final variables were chosen is
provided in section 1.3: Why use Demand and Task Variability (page 16). Further details
on the resulting matrix and how to use it, can be found in section 4: Environmental
Framework – 2x2 classification matrix (page 69).
A core portion of this research was the definition and understanding of what a
Toyota-style system is. This is used as the basis for the field research performed by
visiting and/or working directly with organizations involved in Lean implementation. A

57
theoretical model was developed based on the existing literature as well as knowledge
gained from the case studies (an iterative process resulted where the theory fed the field
research and vice-versa), and by hypothesizing about the types of structures and the way
of thinking required to obtain the kinds of results and behaviors that are common at
Toyota. The purpose here was to develop an understanding of what a Toyota-style system
is and what having one implies. In a way this defines the lens through which I look at
organizations and their efforts to implement Lean.
Most of the work done here consisted of rearranging knowledge (either from the
literature or gained during the course of the research) in such a way that it became
possible to see how the different features in the system relate and support each other. In
essence, the purpose was to be able to see the system. The challenge lied in mapping a
complex socio-technical system in a way that was simple enough to be understood
entirely, yet keeping enough detail to make it useful in practice (as opposed to remaining
at a high theoretical level) and effective in helping us understand the thinking that led to
its development.
One caveat of the model that resulted and that finally helped me define Toyota’s
system, is that it is too complex for anyone else to use
185
. To simplify it and present it in a
way that makes sense, I have broken it down into several diagrams covering different
aspects of the system. To support this, I have also provided detailed explanations that
cover both the diagrams presented and what was lost when the diagrams were separated
(see section 5: Toyota’s System, in page 93).
3.2 Identifying Impediments to Lean Implementation
Some time was spent initially trying to identify the issues that lead managers to think
that Lean is not applicable to their organizations. Several companies were visited to
observe first hand the problems they were facing, and many informal discussions were
held with managers (some in person, but many more through on-line forums
186
) to try to
discern these impediments to Lean. In all discussions, questions were asked regarding the

185
The model is 8 pages long filled with interconnected boxes and using very small print.
186
Two online forums were used for most of this: J ob Shop Lean (J SLEAN at
http://finance.groups.yahoo.com/group/J SLEAN/) and The Northwest Lean Networks (NWLEAN at
http://finance.groups.yahoo.com/group/NWLEAN/).

58
type and level of variability and how it affected the business (the problems caused by
variability). Questions were also asked about whether they thought that Lean would apply
to their organizations and why. From these discussions, from observations, and from
analysis of the Lean tools and systems, the major impediments to using Lean in high
variability environments were identified. Details on these impediments are provided in
section 4.2.2: “Lean Does Not Provide Solutions For High Variability Conditions” (page
77), section 4.2.3: Impediments to the Use of Lean Tools (page 80), and section 4.2.4:
Combined Effect of Variability for Each Quadrant (page 90).
3.3 Analyzing Cases of Lean Implementation
Two types of case studies are used throughout this research. The first one includes
organizations operating in high variability environments that have made significant
progress in implementing Lean. Three such ‘observational’ cases are presented. These
were analyzed to understand their approach and the adjustments they made to TPS tools
to create their own Toyota-style systems. Although these organizations have significantly
improved their performance through the use of Lean, the purpose in this section is not to
develop an argument in favor of its use. Thus, the focus is not on metrics or in
quantifying the improvements they have made (although indicators of their
accomplishments are provided). Instead, the idea is to understand the system they have
implemented, how they have modified the typical Lean tools, what new tools they have
developed in response to particular conditions in their environment, and why they have
done it.
The development of these cases leads to learning through observation. “Observation
is an important and useful way for generating primary data particularly in the social
sciences…”
187
The main advantages of using observational research include that it relies
“…not on what people say they do or feel…but rather on actual observations of what
they do”
188
, “…it can often generate data and findings that would have been impossible

187
Lancaster, G. 2005. Research Methods in Management : a concise introduction to management and
business consultancy (First ed.). Oxford, UK: Elsevier Butterworth-Heinemann. p. 97.
188
Lancaster, G. 2005. Research Methods in Management : a concise introduction to management and
business consultancy (First ed.). Oxford, UK: Elsevier Butterworth-Heinemann. p. 99.

59
to discover by any other means”
189
, and it “…allows much richer and detailed data to be
generated…”
190
However, the methodology also has disadvantages that could threaten the
validity of the conclusions reached through its use. The two most critical ones are
subjectivity and observational reactivity. Due to the way in which information is gathered
and interpreted, “…there is a particular potential for the observer’s predispositions,
predilections and value systems to affect the data collection.”
191
Reactivity refers to how
the behavior of the observed, and even that of the observer, can be altered just through
the act of observation. In the Hawthorne Studies, it was demonstrated that the work
groups under study changed their behavior in response to being the subjects of the study
in progress. One other issue threatens, not the validity of the research, but it’s usefulness.
“It is often argued that because observational research often concentrates on relatively
limited and unstructured observations… it cannot be used to collect data so as to enable
the deductive development of theory. If this assertion is correct, this means that
observational research findings cannot be generalized to situations outside of the situation
and circumstances under which the observation data was generated.”
192
These
disadvantages do not preclude the use of observational research, but they do require
consideration to mitigate their effect.
By the nature of this portion of the research, the potential for observer bias and
observational reactivity is low. As discussed above, the focus is on learning how the
organization is using Lean and not to prove its usefulness. Possibly, we could end up
having a biased perspective of the effect of a particular tool, but, since that is not what we
am trying to determine here, it will not affect the research. We believe it will be hard to
claim that observations were biased if all that is sought is to understand what the
organization is doing and how they are using a tool. With respect to reactivity, in this
portion of the research we will not be involved with the people enough for this to be an
issue. In most cases, the level of interaction was limited to one or two plant tours.

189
Lancaster, G. 2005. Research Methods in Management : a concise introduction to management and
business consultancy (First ed.). Oxford, UK: Elsevier Butterworth-Heinemann. p. 99.
190
Lancaster, G. 2005. Research Methods in Management : a concise introduction to management and
business consultancy (First ed.). Oxford, UK: Elsevier Butterworth-Heinemann. p. 99.
191
Lancaster, G. 2005. Research Methods in Management : a concise introduction to management and
business consultancy (First ed.). Oxford, UK: Elsevier Butterworth-Heinemann. p. 109.
192
Lancaster, G. 2005. Research Methods in Management : a concise introduction to management and
business consultancy (First ed.). Oxford, UK: Elsevier Butterworth-Heinemann. p. 110.

60
Besides, the focus is on the process (what they do, how they do it, and why) and not so
much on the people or the results they are obtaining.
The issue of generalizing the lessons learned does pose a problem. Thus, conclusions
drawn from these cases can only be prescriptive for situations and circumstances very
similar to where the observations were made. For organizations with different conditions,
the lesson becomes a lot more about what can be done and not so much about what
should be done. They provide a direction and examples of potential actions, but will
probably not provide a recipe defining exactly what to do or how to do it. Although we
are convinced there is significant value for organizations in seeing what others have done,
this issue rightfully prevents us from claiming universal applicability of the observations
made. Having said this, we are also convinced there are general high-level conclusions
that are valid across many different operating conditions. The two-by-two classification
matrix (see section 4: Environmental Framework – 2x2 classification matrix, in page 69)
provides some help by defining a method to group together organizations with similar
environmental conditions. Anyway, the purpose of this research is to determine whether a
Toyota-style system can be used in many different operating conditions and to understand
how organizations adapt it to fit their particular needs. These two lessons will be useful to
everyone regardless of the locality issue.
In a sense, direct observation seems appropriate as a tool in any research related to a
Toyota-style system, as it is precisely what Genchi Genbutsu (go and see) is about.
Below are the general steps that are followed to learn from these organizations and to
develop the case studies. Following this process provides some degree of structure to
ensure that learning actually occurs and to minimize the potential for wasting time.
Identify potential organization: Potential organizations to study were mostly
identified through referrals. Some of the companies studied correspond to cases in the
literature
193
. Others have been read about in magazine articles or recommended by
Professor Liker or other Lean practitioners as companies that are doing good things with
a Toyota-style system or at least with some of the Lean tools.

193
For example: Liker, J . K. (Ed.). 1998. Becoming lean : inside stories of U.S. manufacturers. Portland,
Or.: Productivity Press.

61
Determine the level of variability faced by the organization: This was done at a
general level for the whole organization and for particular value streams if significant
differences were observed in the level of variability corresponding to different part
families. The information needed was gathered from data (if available and the
organization was willing to share it) and through interviews. The purpose here was to
classify the organization or value stream and place it in the two-by-two matrix to
determine if it is a relevant case worth of further study. Later, this information was also
used to identify trends in Lean implementation for the four quadrants in the matrix. For
more information on the classification matrix and how to use it see section 4:
Environmental Framework – 2x2 classification matrix (page 69). This usually happened
in the first visit to the organization or in the analysis thereafter.
Identify learning opportunities: For those organizations classified as relevant above,
further study and analysis was performed to identify what they have done with Lean. This
involves finding answers to questions such as: Which Lean tools are they using? Do they
have a Lean system or do they only have disjointed tools in place? Have their operations
been rationalized? Is continuous improvement an integral part of operations? Are there
systems in place to develop people or are they considered a variable asset? The answers
to such questions help identify what can be learned about these companies. Observation
and interviews were the preferred research tools at this stage.
Study focus areas: Those areas where a particular organization was strong (as
identified above) were studied in more detail through further observation and questions.
The idea was to get insight into what they were doing and why. What they were doing
was analyzed in detail to understand the new processes and how the Lean tools have been
modified from the more traditional Lean applications.
Although this relatively structured process was followed, the observational research
itself (occurring mostly in the last two steps) was relatively unsystematic to exploit the
flexibility provided by this research methodology. This allows the researcher to
“…observe and monitor all aspects that seem relevant to the problem at hand.”
194
“The
more unstructured the observation, the greater the potential for observer bias, but also the

194
Lancaster, G. 2005. Research Methods in Management : a concise introduction to management and
business consultancy (First ed.). Oxford, UK: Elsevier Butterworth-Heinemann. p. 101.

62
more flexible data collection can be with less danger of potentially significant data being
missed.”
195
Bias, as discussed above should not be an issue. Missing significant
information is the greater risk, so a relatively unstructured approach seemed to be the
better option.
3.4 Implementing Toyota-style Systems
The second type of case study involves organizations operating in high variability
environments and interested in Lean, but that had made very little or no progress at all. In
other words, they were at the beginning of their Lean journeys. In this case the roll of the
researchers shifted from observer to participant, acting as outside consultants to improve
operations by developing and implementing Toyota-style systems customized to the
particular environment the firms operate in. The purpose here was to show how a Toyota-
style system could be used to make significant improvements in organizations operating
in very different environments and to define a methodology for developing and
implementing such a system in a sustainable way. Two ‘action research’ cases are
presented.
These case studies take the research a step further, from passive observation to active
implementation. This approach leads to learning by doing, which also fits Toyota’s
approach to learning: try things out and reflect on what went well and what did not. Only
when you try things out and test them can you get a true and deep understanding of the
situation and the processes at hand. This approach combines genchi genbutsu, with a bias
for action (just do it, try ideas out), and the PDCA process for continuous improvement.
Action research is usually the term used to describe this type of study. “…action
research -which in turn leads to action learning- is an approach to research involving
practical hands-on field research in an organization where the researcher has the objective
of solving practical problems…”
196
“…action learning is learning by doing things

195
Lancaster, G. 2005. Research Methods in Management : a concise introduction to management and
business consultancy (First ed.). Oxford, UK: Elsevier Butterworth-Heinemann. p. 101.
196
Lancaster, G. 2005. Research Methods in Management : a concise introduction to management and
business consultancy (First ed.). Oxford, UK: Elsevier Butterworth-Heinemann. p. 13.

63
(actions) in real life situations.”
197
“Action research seeks improvement by
intervention.”
198
It “…is concerned with changing situations, not just interpreting
them.”
199
“The action scientist is an interventionist who seeks both to promote learning in
the client system and to contribute to general knowledge.”
200
The main characteristics of
action research
201,202,203
are that it is problem-driven (the focus is to solve an existing
problem), client-centered, the researcher is an active participant in seeking the solution to
the problem, it is cyclical and responsive (meaning that a feedback loop is used to ensure
learning from previous actions and to adjust future ones to improve even further), and it
follows a systematic process based on the scientific method (identify a problem, imagine
a solution, implement it, evaluate the outcome, act upon the knowledge gained).
Even though action research seems like the perfect match for the type of study in this
section, it suffers from the same problems that observational research does (as described
in the previous section). The potential for validity problems arising from subjectivity and
observational reactivity are relatively high. Both problems crop up since the researcher
becomes closely involved with the organization under study. It is hard to determine our
level of objectivity (let alone remain objective) when we are physically, mentally, and
emotionally involved with the ideas being generated and the solutions being
implemented. A way out of this is for the researcher to assume that objectivity is not
possible and to find alternate ways to evaluate the results obtained. “…action research
requires validation to demonstrate the truth of the research and to enhance its

197
Lancaster, G. 2005. Research Methods in Management : a concise introduction to management and
business consultancy (First ed.). Oxford, UK: Elsevier Butterworth-Heinemann. p. 13.
198
David Forward in: Lomax, P. 1989. The Management of change : increasing school effectiveness and
facilitating staff development through action research. Clevedon, Avon, England ; Philadelphia:
Multilingual Matters. p. 30.
199
David Forward in: Lomax, P. 1989. The Management of change : increasing school effectiveness and
facilitating staff development through action research. Clevedon, Avon, England ; Philadelphia:
Multilingual Matters. p. 33.
200
Argyris, C., Putnam, R., & Smith, D. M. 1985. Action science (1st ed.). San Francisco: Jossey-Bass. p.
36.
201
Lancaster, G. 2005. Research Methods in Management : a concise introduction to management and
business consultancy (First ed.). Oxford, UK: Elsevier Butterworth-Heinemann. p. 124.
202
David Forward in: Lomax, P. 1989. The Management of change : increasing school effectiveness and
facilitating staff development through action research. Clevedon, Avon, England ; Philadelphia:
Multilingual Matters. p. 31-32.
203
Argyris, C. 1983. Action Science and Intervention. The Journal of Applied Behavioral Science,
Volume 19(Number 2): 115-135. p. 115.

64
credibility.”
204
“A technique particularly useful to action researchers for assessing
reliability and aiding validation is triangulation.”
205
For this study, methodological
triangulation, which uses “…multiple methods to study a single event…”
206
, seems to be
the most appropriate type. In this respect, qualitative observations by the researcher will
be supported with quantitative data tracking key performance metrics and with interviews
with members of the organization under study.
Observational reactivity at the highest levels of the organization will be hard to
mitigate. Evaluating, let alone compensating for whether owners and high-level managers
of the organization are modifying their behavior in response to the study, and will revert
to their old ways after the study is over, will be nearly impossible. However, it can be
argued that at the top of an organization, people are sufficiently motivated to retain an
improved behavior once they understand it and see its benefits. In this sense,
observational reactivity did not pose a problem for them. The potential for reactivity at
lower levels was minimized by involving everyone in implementing improvement, by
developing an improvement process that can continue to be used after the study is over,
and by driving change initiatives through the people structure already in place (managers
and supervisors will be the ones implementing and evaluating the solutions). The idea is
that if the structure and processes for improvement remain in use after the study is over,
the effects, if any, of observational reactivity, will also remain. That is people will
continue to behave as if they were under study. Also, most metrics used to measure
progress will be gathered on a continuous basis, thus minimizing the possibility that
reactivity leads to unreal results the day that observations are made. Another factor that
minimizes the effect of reactivity is the length of the study and the approach used. Having
regular meetings (usually weekly), over an extended period of time (more than two

204
David Forward in: Lomax, P. 1989. The Management of change : increasing school effectiveness and
facilitating staff development through action research. Clevedon, Avon, England ; Philadelphia:
Multilingual Matters. p. 34.
205
David Forward in: Lomax, P. 1989. The Management of change : increasing school effectiveness and
facilitating staff development through action research. Clevedon, Avon, England ; Philadelphia:
Multilingual Matters. p. 34.
206
David Forward in: Lomax, P. 1989. The Management of change : increasing school effectiveness and
facilitating staff development through action research. Clevedon, Avon, England ; Philadelphia:
Multilingual Matters. p. 35.

65
years), and focusing on making improvements, turns the researcher into one more
member of the organization, thus reducing reactivity.
The issue of generalizing the lessons learned poses a problem in much the same way
as it does for the first type of case study described above. Again, it is not possible to
claim general applicability of a prescriptive solution. Even so, these case studies are
valuable since some high level lessons will have general applicability and since insights
into usability and deployment of a Lean system can be gained from understanding how a
particular organization uses a Toyota-style system to improve its operations. Anyway, the
objective here is not to define a recipe, but to provide examples of where and how
Toyota-style thinking can be used to create a superior Toyota-style system. Care will be
exercised when defining the methodology for implementing a Toyota-style system (see
section 8.2: Pull Improvements to Develop Toyota-style System, in page 371) to ensure
that it is sufficiently broad to have general applicability or, when going specific, to ensure
that it is clearly indicated which conditions it applies to.
Below is a general guideline of the procedure that was followed to develop these case
studies. Following this process provides some degree of structure to start the research and
provides some direction along the way. However, due to the length of the study, and
since the method for implementation is part of what is being researched, these provided
only general guidelines that framed the work. The precise and detailed research
methodology was defined and adapted as necessary as the cases progressed. As much as
possible, a somewhat unstructured approach was used to ensure that all necessary
observations were made and to minimize the potential for missing significant data. This
however, did not preclude the use of a systematic approach in some portions of the
research and, certainly not, in the Lean implementation process itself. In fact, as the cases
developed, some structure was defined and a portion of the research became more
systematic, but without completely choking the flexibility of the less structured approach.
The idea was to combine the power of an unstructured approach at a high level (where
the problem is ill defined and there are many unknowns) to capture as much information
as possible, with the power of the scientific method at lower levels (where problems are
much more concrete and predictable) to maximize the potential for learning from each
action. In this sense, the procedure below provides general guidelines (such as identify

66
opportunities for improvement) without prescribing a recipe (such as start by leveling
production). Once a decision on what to do was made, the improvement was formulated
in the form of a hypothesis to be tested to ensure that learning occurred from each success
and every failure. The general methodology used in these case studies is as follows.
Identify potential organization: Potential organizations were identified through
referrals and by searching for organizations near Ann Arbor, MI. Location was important
since these organizations were going to be visited regularly and frequently (once a week
in most cases).
Determine the level of variability faced by the organization: This was done at a
general level for the whole organization and for particular value streams if significant
differences were observed in the level of variability corresponding to different part
families. The information needed was gathered from data (if available) and through
interviews. The purpose here was to classify the organization or value stream and place it
in the two-by-two matrix to determine if it is a relevant case worth of further study. Later,
this information will also be used to identify trends in Lean implementation for the four
quadrants in the matrix. For more information on the classification matrix and how to use
it see section 4: Environmental Framework – 2x2 classification matrix (page 69). This
happened in the first couple of visits to the organization or in the analyses thereafter.
Understand the process and identify main improvement opportunities (PLAN): A
current state map and a spaghetti diagram (when needed) were developed by touring the
facility to understand the flow of product as it is transformed from raw materials into
finished goods. This was done for each product family if more than one route through the
facility had already been clearly defined. Further facts were gathered regarding
scheduling, information flow, and why processes were performed as they were (sequence,
operating policies, etc.). The objective here was to get a good grasp of the situation the
organization was in before the study began. This data was analyzed to identify the main
improvement opportunities. The findings were presented to the leaders of the
organization and, jointly with them, one problem was selected to focus the initial
improvement efforts. The idea was to make some visible improvements so that members
of the organization could see change happen and perceive how things could get better
easily (thus gaining their buying into the improvement process). To ensure this, the

67
problems selected needed to have two characteristics. First, they had to be important,
such that improving them would have a significant impact on the whole organization and
changes would be visible to everyone. Second, they had to have a high probability of
being solved without high capital expenditures to maximize the potential for success.
Improvements were carried out within the PDCA framework.
Develop a future state and implementation plan (PLAN): For the area selected, jointly
with members of the organization, a future state map was created to provide a vision for
what wanted to be achieved with clear targets to be achieved for key metrics (a baseline
and a method for collecting data were defined at this stage as well when needed). An
implementation plan was developed clearly indicating what needed to be done, by whom,
and by when. A detailed plan was made (A3s were used as much as possible),
recognizing that the members of the organization would perform most of the work, and as
much of the planning as possible. The idea, besides having a successful pilot project to
show that significant improvement was possible, was to empower people to make
improvements themselves. To ensure that a sustainable and customized Toyota-style
system was developed and implemented, the people in the organization had to be
involved and actively participating. If an external person came and imposed a set of
solutions, perhaps improvement would have happen faster, but people in the organization
would have learned very little about how to improve by themselves. Besides, initially I
did not know much about the organization’s processes and idiosyncrasies, thus, solutions
that I had worked in isolation would probably have discrepancies with the realities of the
work being performed. My role as an external consultant was to ensure that the solutions
developed moved the organization in the right direction according to the Toyota
philosophy. Finally, most organizations had processes already in place for proposing
improvements and making changes. Working through such familiar channels, facilitated
the implementation of the pilot and increased the chances of having further improvements
being proposed and tackled by members of the organization by themselves.
Implement improvements (DO): After all the planning was done, implementation
began. The plan was followed as much as possible, while remaining flexible to adjust
both the schedule and the solutions themselves in response to new information or if it was
discovered that something would not work as expected. Progress was reviewed

68
periodically (at weekly meetings) tracking the implementation process as well as the key
metrics that the changes should have been improving.
Verify improvements and act accordingly (CHECK & ACT): Once the solutions had
been implemented, results were verified to ensure that the proposed targets for the key
metrics had been reached. If not, the causes were analyzed to determine why and the
cycle was initiated again proposing new improvements. If the targets had been reached,
another problem was selected and the improvement cycle was initiated for it.
Develop thinking processes to achieve and sustain a Toyota-style system: To ensure
that a customized Toyota-style system that matches the needs of the organization is
developed and sustained, people within the organization must learn how to identify
problems and make improvements. This requires the development of visual systems to
highlight abnormal conditions as well as a structure that defines how improvements are
carried out. Furthermore, a clear direction for improvement must be provided to ensure
that everyone pushes in the same direction and the organization moves along the desired
path. After the first successful improvement cycle, the focus was turned to this by
establishing parallel processes to continue implementing a Toyota-style system. Changes
following the PDCA process (as described above) were continued to ensure that
improvements did not stop, that people’s problem solving skills were developed further,
and that new Lean principles were demonstrated. At the same time, visual systems to
highlight abnormal conditions, the improvement structure needed to deal with them
(people and methods), and systems to capture the knowledge generated, were developed
and implemented. These became the basis for a continuous improvement system and
would lead to organizational learning.
Developing these case studies was a lengthy process as it implied transforming the
organizations under study. Regular weekly meetings were held over the course of several
years. These meetings were used mostly for planning and for tracking progress.
Additional, more action-oriented meetings were scheduled as needed to support the
process. Through all this time, detailed notes were kept describing the actions taken, the
reasons for them, the results obtained, and other observations. This was also supported by
quantitative data collected and/or generated as needed. The observation and analysis was
performed on the whole socio-technical system that comprises the organization.

69
CHAPTER 4
ENVIRONMENTAL FRAMEWORK – 2X2 CLASSIFICATION
MATRIX


4.1 Explanation and how to use the classification matrix
As was discussed in section 1.1.1.1: High variability environment (page 3), a two-by-
two matrix is proposed as a way of classifying value streams into groups facing similar
environmental conditions. Doing this will enable us to propose Lean solutions
customized to the particular needs of each group. Demand and task variability have been
chosen since they are given (mostly) by external conditions out of the direct control of
management. That is, they represent conditions exogenous to the organization (see
section 1.3: Why use Demand and Task Variability, in page 16). The two-by-two matrix
that results is shown in Figure 4-1.

70


The question now is how to locate value streams consistently in the matrix such that
those grouped together actually share similar conditions with respect to the type and level
of variability they face. Following is a description of the process used for this through out
this dissertation.
Demand variability
Demand variability originates in uneven ordering patterns on the part of the
customers. The level of demand variability perceived is given by the combination of
volume variability and mix variability. A set of charts, similar to what Duggan
207

proposes (see Figure 2-7, in page 50), will be used to characterize demand volume
variability. For our purpose, only three charts will be used (see Figure 4-2).


207
Duggan, K. J . 2002. Creating mixed model value streams : practical lean techniques for building to
demand. New York, N.Y.: Productivity Press. p. 20.
Figure 4-1 Classification matrix
T
a
s
k

V
a
r
i
a
b
i
l
i
t
y
Demand Variability
High Low
H
i
g
h
L
o
wTraditional Lean
(assembly line)
J ob Shop
Flow Shop
Engineered Product
Shop
T
a
s
k

V
a
r
i
a
b
i
l
i
t
y
Demand Variability
High Low
H
i
g
h
L
o
wTraditional Lean
(assembly line)
J ob Shop
Flow Shop
Engineered Product
Shop

71


To place a value stream into the classification matrix, managers are asked to identify
the level of daily demand volume variability they face as compared to these charts. That
is, they have to indicate whether the volume changes they face from day to day with
respect to average demand are typically
208
less than 10%, between 10% and 50%,
between 50% and 100%, or more than 100%. A demand volume variability score is
assigned to each zone: 1 if variability is less than 10%, 2 if it is between 10% and 50%, 3
if it is between 50% and 100%, and 4 if it is higher than 100% (see Table 4-1). Managers
are also asked whether weekly, monthly, or yearly (seasonal) fluctuations are bigger than
the daily variability. A different symbol is used on the chart depending on the timeframe
for the largest variability faced by the organization: triangle for daily, square for weekly,
diamond for monthly, and circle for yearly seasonality. When possible (that is, when the
organization is willing to provide it) this information is corroborated against historic
demand data.




208
Typical is defined as including at least 90% of the days being analyzed. For example, for a firm’s
demand to be designated as low, the volume of orders received in 90% of the days must be within 10% of
the mean. 90% was chosen here since it means getting one order every other week above the established
percentage.
Figure 4-2 Classification of demand variability
Low Variability
(<10%)
0
20
40
60
80
100
120
140
160
180
200
1 2 3 4 5 6 7 8 9 10
Time
High
Variability
0
20
40
60
80
100
120
140
160
180
200
1 2 3 4 5 6 7 8 9 10
Time
Medium Variability
(<50%)
0
20
40
60
80
100
120
140
160
180
200
1 2 3 4 5 6 7 8 9 10
Time

72
Table 4-1 Demand variability level scores
Score 1 2 3 4
Demand
variability level
Low: less
than 10%.
Medium low:
10% to 50%.
Medium high:
50% to 100%.
High: more
than 100%

A similar approach (using the same charts and table) is used to quantify mix
variability. In this case, however, managers are asked to think about the behavior of each
product as a percent of the total daily demand
209
(demand for the product divided by the
total demand for the day) and indicate what percent of their product offerings have each
type of variability. That is, they must specify what fraction of their products has very low,
medium low, medium high, or high variability (as compared to the charts shown in
Figure 4-2). A 1 to 4 score is again assigned (see Table 4-1), but this time it is a weighted
average based on the percent of products in each category. For example, if ‘a’ is the
fraction of products that have variability of less than 5%, ‘b’ the fraction of products that
are between 5% and 20%, ‘c’ the fraction of products that are in the 20% to 60% range,
and ‘d’ the fraction of products that have more than 80%, the final score would be
calculated as follows:
Demand mix variability score = 1⋅ a + 2⋅ b + 3⋅ c + 4⋅ d
To get the final value for demand variability both scores (for volume and mix
variability) are added. This results in a value ranging from 2 to 8 that can now be placed
more precisely on the classification matrix (see Figure 4-3). It must be noted that
accuracy is not as important as consistency, since the purpose is to group value streams
facing similar conditions together. Exactly where they are placed in the matrix is
secondary as long as they are in the correct general vicinity (proper quadrant). As
discussed above, different symbols are used in the matrix to indicate the time period that
has the highest variability level. When the timeframe is different for demand volume and
demand mix variability, use the symbol corresponding to the highest variability (that is, if
volume variability is bigger, use the symbol corresponding to the highest volume
variability period). Although daily variability is the hardest to deal with, high weekly,
monthly, and yearly variability all can pose considerable problems having significantly

209
Looking at demand as a percent of the daily total is necessary to separate volume from mix fluctuations.

73
different solutions. This makes it attractive to capture and display this additional
dimension on the matrix even if it is not used for classification purposes.
Task variability
Task variability originates from either differences in the products made or from
introduction of new products. It reflects how repetitive the work performed is. The level
of task variability perceived is given by the combination of processing variability and
route variability. Processing variability is given by differences in the jobs required, at the
operator level, for the products made. That is, processing variability refers exclusively to
the job each operator performs. More specifically, it is a result of differences in the work
content (and thus cycle time) and in the job the operator performs (given by the tasks the
worker does and their order – the in-process sequence of tasks) for the products made. It
is also a function of whether products repeat, and the operator is always dealing with the
same well known products, or each one coming along is significantly different and will
not be seen again. To place value streams on the classification matrix, a scale of 1 to 4
will be used. Table 4-2 provides some guidance to help choose the proper level
consistently.






















74
Table 4-2 Classification of processing variability
Characteristic 1 2 3 4
Work content
(cycle time)
Difference
between
products less
than 5%.
Difference
between
products 5% to
30%
210
.
Difference
between
products 30%
to 50%.
Difference
between
products more
than 50%.
J ob of operator
(tasks
performed and
in-process
sequence)
Mostly the
same (even
when dealing
with different
products).
Somewhat
different (1 or
2 operations
change or are
skipped).
Different
(some
operations
and/or their
sequence
change).
Very different
(most
operations
and/or their
sequence
change).
Products repeat
Product
offering is
very limited
and there is no
customization.
All products
repeat and
operators can
easily become
familiar with
them.
Product
offering is
limited with
very minor
customization
possible. All
products repeat
(a few may
have minor
changes), but
some are made
infrequently.
Wider product
offering with
some
customization
possible. The
majority of
products
repeat.
High
customization,
with the
majority of
products being
made only
once.

The number that quantifies the level of processing variability corresponds to the
column that more closely describes the work being done at the operator level. Even
though the critical factor is consistency, if more accuracy is desired, an average can be
used between the three characteristics. For example, if work content fluctuates about 40%
(3), work operations are very different (4), and there is some customization but most
products repeat (3), then, the processing variability can be rated as 3.33. For even more
accuracy, in value streams where the processing variability differs significantly from one
operator to another, an average of the scores for each worker can be used.
Route variability is given by the number of different routes (sequence of processes –
between-process sequence; e.g. prep, mill, drill, assembly) that parts follow through a
facility, by how frequently those routes change (as new different products are introduced

210
Kevin Duggan uses 30% as a guideline for the upper limit of the variability level that can be handled
with his Mixed Model methodology. See: Duggan, K. J . 2002. Creating mixed model value streams :
practical lean techniques for building to demand. New York, N.Y.: Productivity Press. p. 37.

75
and old ones are discontinued), and by the degree of interaction between those routes.
This type of variability appears at the plant level instead of at the value stream level, so it
may seem odd that it is used to classify value streams. However, it attempts to capture the
level of variability imposed on a value stream by other value streams. To place a
particular value stream on the classification matrix, a scale of 1 to 4 will again be used in
the same manner as above. Table 4-3 provides some guidance to help choose the proper
level consistently.

Table 4-3 Classification of route variability
Characteristic 1 2 3 4
Number of
routes
One route.
Few routes (2
or 3 max).
Some routes
(about 10 or
less).
Many routes.
Interaction
between routes
Zero
interactions.
Low
interaction
(only material
handling is
shared).
Some
interaction (1
or 2 processes
shared).
High
interaction
(many
processes
shared).
Frequency of
route changes
Steady routes
(very few
changes, once
every few
years if at all).
Mostly steady
routes (few
changes).
Frequently
changing
routes.
Constantly
changing
routes.

As with task processing variability above, the number that quantifies the level of
route variability corresponds to the column that more closely describes the behavior of
the routes in the plant. If more accuracy is wanted, an average can be used between the
three characteristics.
It can be argued that the level of route variability faced by an organization is mostly
under the control of management. After all, they can choose to operate with a process
layout having many different routes with high interactions between them, or they can
group product into families and reorganize the floor into dedicated cells, thus reducing
route variability by getting rid of the interactions. This may be the case for many
organizations, especially those producing high quantities of repeatable parts. However,
for smaller companies with reduced production volumes, it may not be feasible to

76
dedicate equipment and/or people to a particular product family. This problem is
exacerbated for facilities dealing with customized products that are significantly different
from one another. How can they group workstations and equipment into a fixed product
layout when the next job may require a different set of processes and in a different
sequence? For these organizations, creating dedicated cells may result in loosing the
flexibility to make any part needed. Thus, a significant portion of the route variability
present (or all of it in many cases) is given by the products made and the business the
organization operates in and thus is, at least to some extent, exogenous to the
organization and remains in part out of management’s direct control.
To get the final value for task variability both scores (for processing and route
variability) are added. This results in a value ranging from 2 to 8 that can now be placed
more precisely on the classification matrix (see Figure 4-3).





Figure 4-3 Two-by-two classification matrix
T
a
s
k

V
a
r
i
a
b
i
l
i
t
y
Demand Variability
High Low
H
i
g
h
L
o
w
2 3 5 6 8
2
3
5
6
8
4 7
4
7
Traditional Lean
(assembly line)
J ob Shop
Flow Shop
Engineered Product
Shop

77
The discussion above focused on placing value streams on the matrix. Although this
is the proper use for it (and the one that will be mostly used throughout this dissertation),
with some precautions, it can also be extended to a higher level to classify a whole plant,
or to a lower level to classify a specific process. At the plant level it is only effective if
the variability faced by all value streams inside is similar. At the process level, it is
always possible to use the matrix, but it may be of little use, since little progress (if any)
will be made by applying Lean flow methods to a single process in a value stream.
4.2 Implications
4.2.1 Similar Environments Mean Similar Problems and Result in Similar Toyota-
style Systems
As discussed above, the purpose of the classification matrix is to group together
organizations facing similar environmental conditions. The idea is that similar
environments should require similar Lean solutions and probably a similar Lean
implementation process. Thus, if a particular Lean solution is identified for a particular
value stream, then it should be applicable to others located nearby on the classification
matrix. Furthermore, a Toyota-style system for an organization somewhere in the matrix
should be similar to Toyota-style systems developed for other organizations nearby. This
is precisely what is proposed in the hypothesis shown in Figure 1-3 (page 9). Remember
that “TPS is nothing more, or less, than a set of solutions designed to achieve the ‘lean’
ideal.”
211
That is a set of solutions to a set of particular problems faced by Toyota. If
those problems originate in the environment, and are properly captured by the matrix (see
section 1.3: Why use Demand and Task Variability, in page 16), then the argument above
holds: organizations located nearby on the matrix face similar problems and thus should
have similar Toyota-style systems.
4.2.2 “Lean Does Not Provide Solutions For High Variability Conditions”
The predominant claim among people that believe that Lean cannot be used under the
conditions they operate in is that Lean does not provide solutions for high variability

211
J ohn Shook in: Liker, J . K. (Ed.). 1998. Becoming lean : inside stories of U.S. manufacturers.
Portland, Or.: Productivity Press. p. 44.

78
conditions. Or, along the same theme, that only a few of the Lean tools can be used (such
as 5S), but others (especially those dealing directly with the variability, such as a pull
system) are not applicable. This belief leads to easily discarding Lean (even the parts that
could be useful) and, either continuing operations as before and hoping for survival, or
initiating a search for some other solution from scratch (the preference in this case is of
course a golden bullet that can be turned on and all problems go away by the next
morning… usually related to a scheduling software).
If I had to select the one major impediment to the use of Lean in high variability
environments it would definitively be the lack of knowledge and understanding about
what Lean really is, what a Toyota-style system looks like, and what it is trying to
achieve. In this respect, my findings from interviews with industry people, consultants,
and academics, boil down to two things: (a) there is not enough knowledge and
understanding of what a Toyota-style system really is, and (b) there is an excessive
reliance on textually copying the most obvious Lean tools.
In every discussion about Lean that I’ve had with people from industries operating in
high variability environments, there is always a comment along the lines of “we are
different so that doesn’t apply here” or “we already tried that Lean stuff and it didn’t
work”. I would always follow such comments with a question such as: why is that? What
in particular makes you different? Why do you think it did not work? The answers varied
significantly depending on the level of knowledge of the person and on the time they had
spent trying to implement Lean. However, as I started to discern trends on the answers I
was getting, I noted two things. First, the variety I thought I was getting was mostly in the
level of specificity with which the person could pinpoint the problem. Those who had
tried to implement Lean could tell me precisely where they thought the failure was, while
the ones who only had read about Lean talked in very general terms. Second, they were
all talking about Lean tools. I never heard anyone refer to the purpose of the tools and
how to adapt them for their use, or refer to the need to understand and repriduce Toyota’s
way of thinking. They all talked about not being able to use takt time, or about how hard
it would be to create standard work, or about the problems with kanban. They did not
have enough knowledge about Toyota-style systems to understand that the tools
associated with Lean are just a solution to the particular problems Toyota has faced. As

79
such, they really apply only to conditions similar to the ones Toyota operates in. If we
depart from those conditions, it is necessary to understand what the tools are trying to
achieve (their purpose) and adapt or create new tools that fulfill the same objectives. A
superficial understanding of the tools is not enough (by a long shot) to be able to do this.
It seems to me that the problem is further exacerbated by the huge variety of
manufacturing methods used by companies operating in high variability environments
and by trying to develop a comprehensive solution (one size fits all) that is based only on
tools and methods. The academics and consultants that think that Lean is not applicable
to high variability environments are trying to propose their own better solutions for
everyone to use. However, most of the proposals are just another set of tools. Probably
very effective for the particular case for which they were developed, but not very useful
for a somewhat different application. The result is excessive confusion and frustration as
industry people try to implement all these different things only to find they do not work
as expected. We should either dig deeper to develop a comprehensive solution that
provides practitioners with the knowledge to develop the tools needed for their own
application (again, the tools we tend to copy from Toyota are only countermeasures to the
particular problems they face), or, if focusing on tools, provide a clear definition of the
cases where it is applicable (such as Duggan
212
does). To be fair, consultants and
academics are not the only ones at fault, the managers who try only to copy tools instead
of adapting them to their own conditions are the root-cause of the problem and share the
blame for their own failures.
The next two sections identify and analyze in more detail specific problems that arise
when trying to use Lean in high variability environments. Section 4.2.3: Impediments to
the Use of Lean Tools (page 80), analyzes the effect of variability on the most affected
Lean tools. Section 4.2.4: Combined Effect of Variability for Each Quadrant (page 90),
groups these effects according to the quadrants in the classification matrix and provides a
description of the problems that can be expected according to the level and type of
variability the organization faces.

212
Duggan, K. J . 2002. Creating mixed model value streams : practical lean techniques for building to
demand. New York, N.Y.: Productivity Press.

80
4.2.3 Impediments to the Use of Lean Tools in High Variability Environments
As discussed above, the predominant sentiment is that Lean is not useful in high
variability environments, a perception that arises mostly from focusing exclusively on the
Lean tools and from a lack of understanding of the deeper philosophy that defines a
Toyota-style system. Even though this is the case, it must also be understood that high
variability does pose problems to several key Lean tools and thus it is understandable that
many people conclude that Lean is not applicable. The classification matrix groups value
streams according to the level and type of variability they face, thus enabling the study of
their effect on Lean implementation and use. This section focuses on understanding the
problems that variability causes to a Lean system at the tool level. Below the effect of the
four types of variability (demand volume and mix, and task processing and route) are
analyzed for the tools mostly affected by them. In general, the problems described get
worse with increased levels of variability.
Level Production
Level production is precisely Toyota’s countermeasure to having variability in both
demand volume and mix. The more level the production is, the smaller the buffers
(inventory, capacity, and in some cases time in the form of delayed orders) needed will
be, and the lower the cost of production (see section 1.3: Why use Demand and Task
Variability, in page 16, and Figure 1-5: Lovejoy’s Law, in page 18). Although it is
always possible to smooth production somewhat (by affecting demand or by carrying
finished goods), high variability will have a determinant effect on how level production
can get and how costly leveling is.
Demand Volume: Direct contradiction. High fluctuations in volume are the exact opposite
of what level production seeks. Thus, the bigger the fluctuations in demand volume,
the harder it becomes to level production. Fluctuations in demand volume generate
unevenness (mura), overburden (muri), and thus waste (muda) in the main production
line as well as in supplying processes.
Demand Mix: Changes in the mix can lead to uneven production (mura) and overburden
(muri) in certain production areas (if work content is significantly different from part
to part) and/or certain component suppliers (if some products use some components

81
but others do not). In some cases, fluctuations in the mix can be leveled through
proper sequencing. However, having changeovers between parts and/or making
product with very different cycle times, limits this option. Long changeovers preclude
the use of sequencing in this fashion completely.
Task Processing: Significant differences in work content from part to part, make it harder
to level production, especially in the presence of high demand mix variability.
Reinforces unevenness (mura), overburden (muri), and thus waste (muda).
Task Route: Several interacting value streams compounds the problem since leveling
each one independently may not be the best solution due to interactions at the shared
resources. Frequently changing routes also complicates it since existing mechanisms
used to aid in leveling demand (inventory, for example), may not help with the new
routes.
Standard Work
Demand Volume: By itself, demand volume variability poses comparatively minor
problems for standardized work. Fluctuations in demand volume means that different
work standards (for different numbers of people assigned to the process) are required
for different levels of production. Developing and implementing them means
additional work. Constantly changing production volume means constantly switching
the standard work documents.
Demand Mix: Having a wide range of products and a mix of them that constantly
changes, does pose a bigger problem, in particular when there are custom items that
may be made only once. First, mix changes that result in requiring different numbers
of people lead to the same problem as described above for demand volume
variability. Second, there is a significant amount of work that needs to be done
upfront to develop standard work for all parts made. Third, it is necessary to devise a
way to display and make the standard work easily available to the operators to ensure
they and their supervisors use it. Fourth, custom parts may not be possible (or worth)
to standardize, but not having a standard for them may cause problems on the floor
and sends the wrong signal to the people there.

82
Task Processing: Different products with different work sequences and different work
contents require different standardized work documents. With many different
products it becomes hard to standardize them all and cumbersome to use and display.
Task Route: Standardized work must be developed for each product made (for each
workstation in the route). At shared resources, the problem described above about
displaying the standard work may be compounded since it is necessary to display it
for all products from several value streams.
Visual Management
Definitively the worst and most pervasive effect that variability has is the confusion it
creates on the shop floor. In high variability environments, the perception is that things
are constantly changing, understanding and managing the system effectively (let alone
efficiently) is hard, and identifying and solving problems nearly impossible. The result is
a chaotic environment, focused on firefighting, and where improvement occurs slowly if
at all. This situation is made even worse by the fact that variability becomes a very
convenient excuse for not making improvements (especially when it is perceived as
external). Visual systems become harder to define and use in the presence of variability,
however, they are also key in helping make sense of the workplace and thus helping both
the management and improvement of the system.
Demand Volume: Visual aids, especially those related to production volume, need to be
adjusted to the particular demand requirements of the period.
Demand mix: Visual aids must be adjusted for the particular mix of products being made.
A constantly changing mix, especially when combined with a high task processing
variability, makes defining and using visual systems hard. In particular, visual aids
related to production quantity and efficiency are difficult to handle since they tend to
be based on averages and significant changes in the mix may easily render averages
useless as a base for comparison.
Task Processing: Visual aids must consider the work content and in-process work
sequence, and probably need to change as frequently as the products do.
Task Route: Visual aids become almost an imperative need at shared resources, and they
must consider all products going through them. Route variability just compounds the
problems (discussed above for demand volume, demand mix, and task processing

83
variability) at the shared resource. Changing routes may require updating of some of
the visual aids.
Takt Time Planning
Demand Volume: Changes in volume imply changes in takt time unless flexible labor is
used and production hours are changed in the same proportion as demand changes.
Constantly changing takt time, and the uncertainty of that change, causes problems at
both the design stage and during production. During design and planning, it makes it
hard to define the production rate the line should accommodate. For production, a
changing takt time becomes a moving target requiring significant work to change
from one to another (change standard work, the number of people assigned to an area,
the frequency of material deliveries, etc.) and complicates managing and
understanding of the production process.
Demand Mix: Has no effect on takt time. If the volume and working hours remain the
same, takt time will be constant regardless of the mix. However, especially if the
products made have different work contents (task processing variability), a changing
mix may result in different production rates that depart significantly from takt time. If
this is the case, takt time looses its relevancy as a measure of how well production is
running at any given time.
Task Processing: Has no effect on takt time. If the volume and working hours remain the
same, takt time will be constant regardless of how different the products made are.
Task processing variability however, may have a significant effect on how relevant
takt time is as a means to evaluate production, as well as on pitch and on the
frequency/loading of delivery routes (which are both defined based on takt time). If
different parts have different work contents, production of each part type will be
different during a given pitch. This will cause variable loading to the materials
handlers (unless the frequency of their trips is adjusted) and a variable pull of
components through the value stream. Furthermore, chances are that pitch will not
divide evenly by the cycle time for all parts. Mismatches translate into waiting
(waste) for either the process or the material handler, and thus higher costs.
Task Route: If the volume and working hours remain the same, takt time will be constant
regardless of how many routes there are and of their level of interaction. However,

84
changes in takt time in one value stream (due to changes in volume for those parts),
modifies the available time for producing parts for other value streams at the shared
resources. Thus, a change in the takt time for one value stream, affects the takt for all
value streams that interact with it, but only at the shared resources. Changing routes,
may lead to changing takt time (as volume is added and/or removed from some
processes). If routes change very frequently, it may be hard to calculate and hold takt
time for any significant amount of time.
Continuous Flow
Demand Volume: Is not a showstopper for continuous flow but may affect its efficiency
and does add significant work to the planning job. That is, if the only fluctuation that
occurs is in volume, the operation can still be performed under single piece flow
regardless of demand level. The main problem arises from having to constantly
change staffing to match capacity to a constantly changing demand. This requires a
significant amount of prep work, in the form of standard work instructions for each
staffing level, as well as real-time planning effort to reassign people in or out of the
cell as needed. Besides this, since adding and removing people results in a capacity
step-function (which sometimes can be dampened with overtime), in many cases
there may be slight overcapacity mismatches that result in lower efficiencies and
higher costs (cost per piece may have some variation). A bigger problem may come
from the uncertainty of the fluctuations. If demand volume changes are very
significant and unpredictable, management may be reluctant to dedicate equipment to
a particular family of products since it could mean reducing the flexibility available to
deal with the fluctuations. This precludes the use of cells and eliminates the option of
operating under continuous flow.
Demand Mix: Frequent and significant changes in the mix of products (especially in the
presence of demand volume variability) may make managers reluctant to dedicate
equipment to a particular product family. As with demand volume variability above,
this precludes the use of cells and eliminates the option of operating under continuous
flow. Besides this, an ever changing mix requires a constant planning effort to
determine whether the mix demanded can be produced, to determine the best
sequence in which to make the product, and, in the presence of processing variability,

85
to determine the right staffing level (which again requires prep work in the form of
standard work, etc.). Even at constant total volume, each mix of products will have a
different total workload possibly requiring a different number of operators.
Task Processing: Significantly different work contents will create imbalances in the cell
(perhaps requiring inventory) and changes in the output rate. Making parts with
significantly different work contents makes planning and tracking progress harder.
Knowing whether production is on time or not becomes an involved issue. It is not as
easy anymore as counting output and comparing it to a takt count. When making high
content items, it may be possible to fall behind takt and still be on time. In
combination with demand mix variability, different work contents at different
workstations for different products may cause moving bottlenecks.
Task Route: Every time a resource is shared, continuous flow is broken. Thus, having
many interacting value streams and/or changing routes for custom products, is a
major impediment to continuous flow. Furthermore, if routes constantly change due
to customized products or due to the fast churning of products, it may be hard or
impossible to define cells that are effective over a significant period of time.
Pull System
Demand Volume: During design and planning, it creates problems when trying to size a
market place and when trying to define what the replenishment cycle should be.
During production, fluctuations bigger than expected may lead to stock outs or to
excess inventory. With excessive volume variation, using a pull system may actually
lead to increased inventory, since parts need to be stocked to accommodate the peaks.
Demand Mix: Producing many different products in a constantly changing mix, makes it
hard to define which parts to keep in the market place and the quantities to stock for
those. Having a market with all parts (including low runners) can become
prohibitively expensive. Non-stock items need to be handled outside the regular
system (possibly with a generic pull system). Even though pull signals are used
(kanban) it may be hard to decide what to produce next.
Task Processing: Has only a minor effect on a pull system. The replenishment cycle for
inventory parts may be affected depending on which parts are made and their

86
quantities. This is exacerbated by having to produce new or custom parts with
different work contents.
Task Route: Having many different routes, which may translate into having undedicated
processes (process layout), leads to a complicated pull system that has to
accommodate a high number of possible links between processes. Changing routes
further exacerbates the problem by requiring the establishment of new links when
new routes develop.
Quick Changeovers
Demand Volume: Has no effect on changeovers.
Demand Mix: Has a minor effect on changeovers. Making many different products may
complicate and prolong setups unless significant standardization of tools and fixtures
is done. Custom products do exacerbate the problem by using general-purpose
fixtures (special fixtures are usually not made for items that will be produced only
once) that are slow to change. A changing mix only introduces the complication of
needing to have the proper tools and fixtures for the proper part at the right time. In
the presence of sequence dependent changeovers, a constantly changing mix may
complicate the development and effective use of a production sequence that
minimizes setups.
Task Processing: Has no effect on changeovers.
Task Route: Having many different interconnected routes worsens the problems (as
described above for demand mix variability) at the shared resources if they require a
setup.
Error-Proofing
Demand Volume: Has no effect on error proofing.
Demand Mix: Producing many different parts through the same equipment does make
error-proofing all of them very hard or even impractical. Adjusting sensors and/or
stops for each type of part made essentially introduces a setup delay. Easy to swap
part-specific fixtures (that include the error-proofing mechanism) may help get
around this. The fact that the mix of products changes also introduces the

87
complication of making sure that the right error proofing mechanism is used for each
part.
Task Processing: The bigger the difference in the products run (difference in tasks
performed on them), the harder it will be to error-proof all of them. As above, easy to
swap part-specific fixtures (that include the error-proofing mechanism) may help get
around this.
Task Route: Makes the problems described above worse at the points of interaction
between value streams (where all parts for two or more value streams need to be
error-proofed). Changing routes introduce the need for new error-proofing devices.
Root-Cause Analysis
Any type of variability makes root-cause analysis harder since it introduces additional
factors that need to be considered in the analysis and that may appear only once in a
while. Even worse, variability can easily become the culprit of all ailments, getting
blamed for all problems and thus preventing a rigorous search for the true root-cause of
the problem. Blaming variability for the problems identified is an easy way out,
especially if it is labeled as product variability or as generated by the customer: ‘there is
nothing we can do about that!’ In this cases, variability not only provides the perfect
explanation for why things go wrong, it also absolves everyone from doing anything
about the problems it creates since it’s out of their control.
Demand Volume: Significant changes in volume usually require significant changes in
staffing levels. This implies different responsibilities for employees, which in itself
could be the cause of problems. If it is not, the constant change may get confounded
with other sources of problems, making true root cause difficult to identify.
Demand Mix: Producing many different products in a constantly changing mix introduces
a myriad of possibilities that need to be considered in the root-cause analysis. The
cause of problems arising from interactions between products (particularly if the same
sequence is not always followed) may be particularly hard to identify. Similarly,
identifying and solving the cause of problems for products made infrequently is hard
since there may be a significant time lag between proposing a cause and being able to
verify it (next time the product is run). If products have different work contents (task

88
processing variability), a changing mix may also require changing staffing levels
leading to problems similar to those described above for demand volume variability.
Task Processing: Significant differences between products is yet another source of issues
to consider in a root-cause analysis as well as a source of excuses.
Task Route: Interactions between value streams can make root-cause analysis
significantly harder since problems in one value stream now may be caused by
another value stream. For example, if process A is shared by value streams I and II,
and part x (from vale stream I) is periodically missing, it is not sufficient to review
the performance of value stream I to identify the reason for the stock outs. The
problem may arise every time part m (which has a high work content part in process
A) is run by value stream II. Changing routes may also make finding root-causes
harder since the conditions that lead to a particular problem may not be easily
replicable.
Continuous Improvement
As with root-cause analysis above, continuous improvement, and especially learning,
can be greatly hampered by high variability of any type. In general, variability makes
improvements harder and/or slower, and this effect is proportional to the level of
variability. Part of the problem comes from the root-cause analysis itself. If the wrong
root cause is identified, then changes made to correct it may not result in the
improvements expected. This delays the improvement process, as it is now necessary to
go back to the root cause analysis step and start again from scratch. Blaming variability
for problems identified has an even more pervasive effect, since it may completely stifle
improvement. If the problem is caused by variability (which, of course, is out of our
control) then the problem cannot be solved and there is no point in trying to improve.
Variability also makes generalizing problems and solutions harder (some solutions may
be effective for some conditions or some products, but not for others), thus making the
choosing of a solution and identifying its effect after implementation harder. The lack of
a clear direct link between problem and solution, and perhaps the introduction of a time
lag between them, makes learning more complicated.
Demand Volume: Changing demand volume usually means changing staffing levels
accompanied by a change in responsibilities for employees. If this is constantly

89
occurring, the resulting lack of repetitiveness (from the operators perspective, the job
is different every day) makes it harder to identify waste, to propose improvements,
and to learn from the changes made.
Demand Mix: A constantly changing mix may also result in a non-repetitive process with
similar effects as those described above for demand volume variability.
Task Processing: Significant differences between products makes the problems described
above for demand mix variability worse.
Task Route: Interactions between value streams further exacerbates the problem for
shared processes (and for the value streams as a whole) by combining variability from
two or more product families. Constantly changing routes also reduce repetitiveness
and make learning and improving harder.
Figure 4-4 summarizes the discussion presented above by showing the different types
of variability, their definitions and the main problems they generate. It also shows
possible countermeasures that can be used to mitigate the negative effects of variability.






90

4.2.4 Combined Effect of Variability for Each Quadrant
The discussion above analyses the effect of each type of variability on the most
affected Lean tools. However, by definition, the matrix contains all the types of
variability (albeit at different levels) in each quadrant. Table 4-4 provides a description
for each quadrant and the problems that can be expected in each.






Figure 4-4 Effect of variability on Lean tools

91
Table 4-4 Description and typical problems for each quadrant in the classification matrix
ENGINEERED PRODUCT SHOP
Demand variability: Low
Task variability: High
Description: Medium number of different
products. High customization possible.
Mostly steady runners. Several different,
interacting, and frequently changing
routes (process layout typical). J ob of
operators change frequently. Mostly
build to order, with some build to stock
possible.
Typical Problems:
1. Significant differences in work
content between products may
complicate smoothing the workload
(mixed sequencing may not work).
2. Hard to use cells since route changes
may render a product layout
ineffective (problematic for
continuous flow).
3. Shared resources (due to interacting
value streams) result in breaks to
continuous flow.
4. Complex material flow with long
material movement distances.
5. Complicated pull system.
6. Changing routes make it hard to
create, maintain, and use standard
work.
7. Changing routes may make takt time
hard to define. Significantly different
work content between products,
complicate following a steady
production rate.
8. Hard to understand the system and to
identify problems and its causes
(makes learning and improvement
difficult).
JOB SHOP
Demand variability: High
Task variability: High
Description: Very high number of
different products, with many being
customized. Few or no steady runners.
Many different, highly interacting, and
constantly changing routes (process
layout typical). J ob of operators
constantly changing. Build to order with
almost no build to stock possible.
Typical Problems:
1. Hard to level production. Requires
significant and costly buffers in the
form of inventory, capacity, or time
(delays to the customer).
2. Very hard to use cells since
constantly changing volume, mix, and
routes make permanent product
layouts ineffective (problematic for
continuous flow).
3. Shared resources (due to interacting
value streams) result in breaks to
continuous flow.
4. Very complex material flow with
long transportation distances.
5. Very complicated pull system.
6. Hard to create and use standard work.
7. Constantly changing volume and
routes make takt time hard to define.
Constantly changing mix and
significantly different work content
between products, complicate
following a steady production rate.
8. Very hard to understand the system
and to identify problems and its
causes (makes learning and
improvement difficult).

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TRADITIONAL LEAN
Demand variability: Low
Task variability: Low
Description: Low number of different
products. Low (if any) customization
and only within predefined options.
Mostly steady runners. One or very few,
non-interacting, and steady routes
(product layout typical). J ob of operators
change infrequently. Mostly build to
stock possible.
Typical Problems:
This is the reference quadrant. Problems
in other quadrants are defined in
comparison to this one.
FLOW SHOP
Demand variability: High
Task variability: Low
Description: High number of different
products, with some being customized.
Several steady runners. Few, low
interacting, and mostly steady routes
(product layout typical). Moderate
changes in the job of operators. Mostly
build to stock possible, with some build
to order required.
Typical Problems:
1. Hard to level production. May require
significant and costly buffers in the
form of inventory, capacity, or time
(delays to the customer).
2. Hard to use cells since constantly
changing volume and mix may make
permanent product layouts ineffective
(problematic for continuous flow).
3. If a process layout is used, material
flow may be complex and
transportation distances may be long.
4. Changing mix makes it hard to create,
maintain, and use standard work.
5. Changing volume makes takt time
hard to define. Constantly changing
mix may complicate following a
steady production rate.
6. Hard to understand the system and to
identify problems and its causes
(makes learning and improvement
difficult).

To find solutions to the problems described above (at both the tool and the combined
matrix quadrant level), and thus be able to use Lean in high variability environments, it is
necessary to dig deeper into Toyota’s system. The next section defines Toyota-style
systems as resulting from following a way of thinking defined by a set of principles (see
section 5: Toyota’s System, in page 93).

93
CHAPTER 5
TOYOTA’S SYSTEM


As other car manufacturers can attest, implementing a Toyota-style system is not
easy, even when facing problems similar to the ones for which Toyota developed the
system. Implementing it in a completely different industry and with higher variability is
much harder still. Perhaps one of the reasons it is so hard to use Toyota’s system is
because is not well understood. A problem that is only made worse by all the different
interpretations that exist regarding what is important about it. Hoping not to add to the
confusion, in this section I will explain what I consider to be a Toyota-style system. If
nothing else, this will clarify what I mean by the term and provide a conceptual basis for
the case studies (in particular the ones where I have been part of the Lean
transformation). Quoting Deming: “To copy an example of success, without
understanding it with the aid of theory, may lead to disaster.”
213
This section attempts to
provide that theory.
5.1 Overall System
At the most basic level, an organization can be seen as people performing processes.
Every function in a company (manufacturing, sales, product development, etc.) is a
collection of processes performed by people. It is all these activities that people do that
result in whatever good or service the organization provides and what enables its
continued existence. On top of this, for an organization to survive, it must adapt to
changing conditions and continually get better at what it does. This requires some sort of

213
Deming, W. E. 1994. The new economics for industry, government, education (2nd ed.). Cambridge,
MA: Massachusetts Institute of Technology, Ctr. for Adv. Eng. Study. p. 103.

94
improvement mechanism. Finally, there are characteristics that define the identity of the
organization and that distinguish it from others (what makes the organization unique).
This leaves us with four basic building blocks to assemble organizations from:
Organizational Identity, People, Process, and Continuous Improvement. Figure 5-1 shows
this proposition graphically indicating how the four building blocks interact among
themselves and with other components of the organization.


Figure 5-1 Organizational Building Blocks

At Toyota, as is probably the case in many other organizations, it is very hard to
clearly separate and define strict boundaries for the four organizational building blocks,
since they are closely inter-woven into a tight socio-technical system. In particular,
people, processes, and continuous improvement all become blurred. People perform

95
processes to transform inputs into outputs for the customer, while at the same time, they
are also constantly trying to improve their performance.
Since these four blocks can be used to construct any organization and any function
inside it, if we manage to define (and truly understand) what a Toyota-style system
implies for each of them, we should be able to recreate Toyota-style systems under any
environmental condition (including high variability). To gain this level of understanding,
it is necessary to dig deep and go beyond the superficial observable tools. Each of the
four building blocks will be analyzed and defined at three levels: principles, methods and
tools/practices. The collection of all the principles (for all four building blocks) defines
the philosophy of the organization, which in turn is a key defining factor of the overall
culture. The methods delineate the general way in which the principles are implemented.
Finally, the tools/practices are specific devices used and/or actions taken by the people in
the organization to perform the jobs under the guidelines defined by the principles. Since
the literature is extensive at the tool level the analysis here will focus mostly on
understanding their purpose and how they interact with other practices and other parts of
the system. Figure 5-2 shows a general map (not fully exploded) for the Toyota system
using the basic building blocks and the three levels of knowledge depth. All principles
will be fully exploded and explained in the following four sections.


96


The diagram in Figure 5-2 provides one perspective into Toyota’s thinking. Having a
good understanding of these concepts should allow us to recreate a Toyota-style system
in different environments. However, this still requires a leap of faith. It is necessary to
believe that the principles are correct and to use them as the foundation for developing
the proper culture and systems required to run the organization. Some of the principles
seem logical enough that they do not need to be questioned. Others on the other hand, are
not so obvious and adherence to them may not seem like an important requirement or
Figure 5-2 Toyota-style thinking
Philosophy
• Sense of purpose
• Strong and stable culture
• Long termperspective
• Customer focus
Methods Tools/Practices
• Purpose and beliefs
supersede short term
financial results
• Long-termvision and
plan to achieve it
• Asses current info in
light of the vision
• HoshinKanri
• PDCA
• Respect for humanity
• Mutual trust and mutual
responsibility
• Teamwork
• Effective leadership
• Education and
development
• Develop a systemof
deep knowledge
• Build people before you
make product
• Knowledge is built on
theory and practice
• Define expectation
(predicted by theory)
• Scientific method
• Compare prediction to
actual (go see)
• Spirit of challenge
• Relentless improvement
• Thorough decision
making based on facts
• Ensure organizational
learning
• Learn to learn
• All activities promote
learning
• Environment conducive
to experimentation
• Learn frommistakes
• Capture new knowledge
• No blame environment
• Job security
P
e
o
p
l
e
P
r
o
c
e
s
s
C
o
n
t
i
n
u
o
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r
o
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e
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n
t
O
r
g
a
n
i
z
a
t
i
o
n
a
l
I
d
e
n
t
i
t
y
• Stability
• JIT
• Built in quality
• Continuous flow
• Pull
• Synchronized processes
• Cell layout
• Reliable and predictable
processes
• Cross-trained team
members
• Rapid problem solving
• Quick changeovers

97
even the right thing to do. In light of this, it seems appropriate to inquire about what led
to Toyota’s development of those principles. What kinds of insights led them to develop
their thinking and the philosophy that defines it? If we could identify undisputable
axioms that logically lead to the principles, then we would have a complete system that
stands on its own and requires only logical thought (instead of faith) to develop. Figure
5-3 shows a proposed set of axioms and how they relate to the principles.



The rest of this section is dedicated to explaining in detail the diagrams shown above
(Toyota-style thinking). The next four subsections analyze the principles, methods, and
tools/practices for each of the building blocks (the principles have been defined mostly
based on The Toyota Way 2001
214
and The Toyota Way
215
, although the focus has been

214
Toyota. 2001. The Toyota Way 2001: 13: Toyota Motor Corporation.
Figure 5-3 Toyota-style thinking and supporting axioms
Philosophy
• Sense of purpose
• Strong and stable culture
• Long termperspective
• Customer focus
Methods Tools/Practices
• Purpose and beliefs
supersede short term
financial results
• Long-termvision and
plan to achieve it
• Asses current info in
light of the vision
• HoshinKanri
• PDCA
P
r
o
c
e
s
s
C
o
n
t
i
n
u
o
u
s
I
m
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r
o
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g
a
n
i
z
a
t
i
o
n
a
l
I
d
e
n
t
i
t
y
Axioms
1. Long-termsurvival of
the organization
2. Whoever improves the
fastest consistently will
be ahead in the long
run
3. Price is determined by
the market; to improve
profits, focus on cost
reduction
(price - cost =profit)
4. Make only what can be
sold; be profitable at
any production volume
5. Minimize the cash flow
cycle
6. All functions, people,
and processes must be
aligned to support the
strategic intent of the
organization
P
e
o
p
l
e
• Respect for humanity
• Mutual trust and mutual
responsibility
• Teamwork
• Effective leadership
• Education and
development
• Develop a systemof
deep knowledge
• Build people before you
make product
• Knowledge is built on
theory and practice
• Theory enables
prediction
• Scientific method
• Compare prediction to
actual (go see)
• Stability
• JIT
• Built in quality
• Continuous flow
• Pull
• Synchronized processes
• Cell layout
• Reliable and predictable
processes
• Cross-trained team
members
• Rapid problemsolving
• Quick changeovers
• Spirit of challenge
• Relentless improvement
• Thorough decision
making based on facts
• Ensure organizational
learning
• Learn to learn
• All activities promote
learning
• Environment conducive
to experimentation
• Learn frommistakes
• Capture new knowledge
• No blame environment
• Job security

98
on connecting them to tools and practices that can be used directly in implementation).
The final subsection explains the axioms and their relationship with the principles. Each
section will start by explaining the building block. Each principle will then be defined,
providing a brief explanation, followed by a diagram for it, and accompanied by a
detailed description of the methods and tools/practices associated with it.
5.2 Organizational Identity
Organizational Identity sticks out when compared with the other more concrete
organizational building blocks: People, Processes, and Continuous Improvement.
Organizational Identity is the most philosophical of the building blocks since it does not
define hard action items but focuses more on defining the general thinking and
orientation of the organization. It, however, includes four principles that have a very
strong influence on the overall philosophy of the organization and permeate down to
influence the principles and methods of the other three building blocks. Each of these
principles is described and analyzed below. Organizational Identity thus sets the stage on
which the other building blocks develop, and establishes general guidelines that help
shape them into a congruent system.
5.2.1 Sense of Purpose
Organizations must have a reason why they exist (usually known as the mission). The
most typical one, at least in western companies, is to make money (although it tends to be
adorned with being the best at something or other, and/or with people related statements
that do not mean much in practice). This purpose derives directly from the utilitarian
perspective, according to which “…revenue minus costs is a direct measure of the net
social value created by the firm.”
216
This perspective however assumes that markets are
perfect (which they never are) and competitive (which they are frequently not) and that
laws reflect the exact desires of society (which they seldom do due to unfair distributions

215
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill.
216
Lovejoy, W. S. 2003. Integrated Operations. Ann Arbor: University of Michigan Business School.
Chapter 4: The Ethical Imperative, p. 10.

99
of power, the intervention of special interest groups, and the time lag between identifying
a need and converting it into a law) and thus define the rules of the game. When these
underlying assumptions are not met, it is not uncommon for maximizing profits to go
against the good of the greater society. In these cases, “profit maximization, or
‘maximizing shareholders’ wealth’ as a goal and objective loses its moral footing and
reduces to avarice.”
217

Another more practical problem with such a mundane purpose is that it is not very
inspiring. It does not rally people to follow the company leadership or to put the
company’s interest ahead of personal ones. On the contrary, it may create division
between company owners and employees since ‘making money’ really means making
money for the owners. The natural response of employees to this is: what’s in it for me?
At any revenue level, more money for the owners means less for employees, so even
conceptually this is a divisive approach when what is needed is an integrating ideology
that serves to bring everyone together and foster teamwork. Furthermore, this perspective
defines the company as a market-based
218
organization where people do only what they
are paid for. Market-based integration is not necessarily a bad thing always, but having it
at this very high philosophical level can be very limiting.
A better alternative at this level is to start with a values-based organization where
people behave in a certain way because they know it is the right thing to do. This requires
a higher purpose with which employees can identify themselves and which will inspire
them to give their best effort. “We must discard our narrow self-interests and endeavor to
serve the greater good.”
219
The purpose of the organizations is the core element that can
set the stage for this to happen.
Further details on this principle are presented in Appendix A.1: Sense of Purpose
(page 387).

217
Lovejoy, W. S. 2003. Integrated Operations. Ann Arbor: University of Michigan Business School.
Chapter 4: The Ethical Imperative, p. 1.
218
According to Lovejoy, there are three integrating mechanisms that hold organizations together:
Constraint-based integration, Market-based integration, and Values-based integration. Lovejoy, W. S. 2003.
Integrated Operations. Ann Arbor: University of Michigan Business School. Three Ways to Manage, p. 1.
219
Kiichiro Toyoda in: Toyota. 2001. The Toyota Way 2001: 13: Toyota Motor Corporation. p. 11.

100
5.2.2 Strong and Stable Culture
A strong and stable culture is the next requirement to get all employees focusing on
what is best for the organization. “Culture provides members with a sense of
organizational identity and generates a commitment to beliefs and values that are larger
than themselves.”
220
Thus, the right culture must be in place… one that supports the
purpose of the organization and the direction it is trying to move in. It is the culture what
allows members of an organization to work together effectively. Without culture there is
no clear expectation of what behaviors are acceptable or even clear ways for people to
communicate. Without a shared culture every transaction between individuals has to start
at level zero. This would make work sluggish at best. The stronger the culture, the clearer
the expected behaviors become and the higher the effectiveness of the organization.
Stability contributes to the strength of the culture by providing a continuity of purpose
that allows it to develop and grow progressively instead of constantly backtracking and
changing without a clear direction. Stability, however, does not mean that the
organization becomes set in stone and never changes. An important shared value in the
culture of any effective and enduring organization must be the need for constant
improvement (with a sense of urgency to combat complacency) to get better at whatever
the company does and to be able to adapt to changes in the environment. What must be
stable are the core values of the organization.
Further details on this principle are presented in Appendix A.2: Strong and Stable
Culture (page 390).
5.2.3 Long-term Perspective
In today’s fast paced economy, stock markets exert significant external pressure on
companies’ leaders to perform well and deliver better than expected results every quarter.
Similarly, inside most organizations, fast paced promotions are becoming the norm and a
measure of the success of the individual, resulting in managers and leaders that need to
show exceptional results in one or two years (usually without much regard to what
happens afterwards) to get the next promotion rapidly and move on to the next job. The

220
Daft, R. L. 2001. Organization theory and design (7th ed.). Cincinnati, Ohio: South-Western College
Publishing. p. 314.

101
problem is further exacerbated by a reliance on MBA-type leaders that believe that
anyone can manage any process by looking at financial numbers alone (a direct
contradiction with the system of deep knowledge promoted by Toyota)
221
. The coupling
of these internal and external forces results in a very strong bias for a myopic short-term
perspective. A direct consequence is that exceptional short-term results are frequently
achieved by cutting corners that will come back to hurt the organization in the long run.
Not a very good business model for any company. “A management career should be
about building a business that will survive and succeed over the long term.”
222

Most people would agree that focusing on short-term financial results at the expense
of the long-term health of the organization is not the best approach. However, taking a
long-term view is not easy in the presence of significant pressure to perform in the short-
term. To be successful, an organization must develop ‘constancy of purpose’, which
Deming included as the first of his 14 points of management: “Create constancy of
purpose toward improvement of product and service, with the aim to become competitive
and to stay in business, and to provide jobs.”
223
This requires a long-term perspective and
a strong dedication to improving the competitive position of the organization to ensure
that it remains alive and healthy into the future. Constancy of purpose is something that
Toyota has certainly no lack of. It is enough to see any chart showing yearly sales (see
Figure 1-4, in page 15) or profit to see its effect on Toyota’s performance… a steady
upward trend. There are no huge jumps up or down, just continuous progress. This is a
direct reflection of how Toyota is managed: with a “…focus on patient execution of
sensible but ambitious plans… there are no takeovers, no dramas or miracle cures, just
relentless, grinding professionalism…”
224

To allow managers to disengage themselves from short term pressures and develop a
longer-term mentatily, we need a counter-acting force that results in a more balanced
framework where short-term financial requirements can be weighed against longer-term
philosophical and cultural considerations.

221
These 3 factors coincide with three of Deming’s seven deadly deseases: emphasis on short term profits,
job hopping, and management using figures alone. See: Deming, W. E. 2000. Out of the crisis (1st MIT
Press ed.). Cambridge, Mass.: MIT Press. p. 97.
222
Iverson, K., & Varian, T. 1998. Plain talk : lessons from a business maverick. New York: Wiley. p.
186.
223
Deming, W. E. 2000. Out of the crisis (1st MIT Press ed.). Cambridge, Mass.: MIT Press. p. 23.
224
Glauser, E. C. 2005. The Toyota Phenomenon, Vol. 2005: The Swiss Deming Institute. p. 1.

102
Further details on this principle are presented in Appendix A.3: Long-term
Perspective (page 396).
5.2.4 Customer Focus
Even though making money should not be the main objective of an organization,
profits are what sustains it and what enables it to achieve its higher purpose. Profits are
generated by satisfying customer needs by providing valuable products and/or services.
Thus, focusing on the customer must be a top priority for any organization that wants to
stay in business long-term.
But what does customer focus means? J udging by all the publicity companies are
currently directing at highlighting their concern for their customers, we all should be very
satisfied consumers. Yet, transacting with these same organizations is usually a
disappointment filled with unnecessary hassles and hidden fine print. This again is a clear
example of the difference between talking and doing. Most organizations talk a lot about
the importance of the customer but do little to develop the culture and practices that will
result in higher customer satisfaction. Focusing on the customer means doing what is
right for them and satisfying their needs effectively with no aggravations.
Further details on this principle are presented in Appendix A.4: Customer Focus
(page 401).
5.3 People
Almost every organization today will say that people are their most valuable asset,
and Toyota is no exception. According to Eiji Toyoda, “People are the most important
asset of Toyota and the determinant of the rise and fall of Toyota.”
225
The problem is that
very few companies actually behave in a way that supports this claim. In most cases,
these statements are just lip service to an ideology leaders do not know how to
implement. In the worst instances, they are an attempt to manipulate the workforce by
trying to get employees to give their best to a firm that does not care about them. If
people are really the most important asset, then the actions taken by the organization

225
Eiji Toyoda in: Toyota. 2001. The Toyota Way 2001: 13: Toyota Motor Corporation. p. 12.

103
should support them and certainly not harm them. But this is hardly what we see today
when corporation’s first reaction to an economic downturn, or even just a business cycle
decline, is to fire people to reduce costs. This is definitively not the proper response if
people are the most important asset. But what is? How can these ideas be translated into
action? How do we go beyond mere words? At Toyota this starts with something they
call respect for humanity or respect for people, which, along with continuous
improvement, conform the two pillars of the Toyota Way
226
.
Either way, given their due value or not, people are a central piece of any
organization and as such are the next building block that will be analyzed. Five principles
are proposed below along with their accompanying methods and tools/practices.
5.3.1 Respect for Humanity
Respect really defines how Toyota relates to others, and extends not only to
employees, but also to suppliers, stockholders, host societies, and even competitors. As
mentioned above, Respect for People is one of the main tenets of The Toyota Way and
certainly one of the dominating threads in their culture. Every decision at Toyota is
weighed against the effect it will have on people. If the effect is negative for one option,
chances are that another alternative will be selected even if the second one is more costly
on the short term. However, respect for people goes far beyond this. Everything at Toyota
– every action taken and every system implemented – is directed at supporting people in
doing and improving their jobs, and guided by their respect for humanity. J obs are
designed to utilize people’s time usefully and thus avoid wasting the life that employees
give to the company. Technology is adopted to support employees, not replace them.
Growth is managed carefully to avoid disruptive downturns that could be harmful to
employees, suppliers and host communities. Layoffs and plant closures are out of the
question
227
for those same reasons. Respect for humanity means putting the interests of
people at the forefront in all decisions and doing what is right for them.

226
Toyota. 2001. The Toyota Way 2001: 13: Toyota Motor Corporation.
227
Layoffs are only considered if the existence of Toyota as a whole is threatened. The last layoff Toyota
had was in 1950 when Toyota was floundering and needed to cut 1600 employees to remain in business.
Kiichiro Toyoda took responsibility for the failure to support the people and resigned as president of the
company.

104
Further details on this principle are presented in Appendix B.1: Respect for Humanity
(page 409).
5.3.2 Mutual Trust and Mutual Responsibility
A note on terminology… To avoid confusion, the explanation of this principle will
use the terms organization and employees as the two counterparts in the mutual trust and
mutual responsibility relationship. Although the organization is represented by
management, I’ll refer to it as the organization since the climate for the relation with
employees is not set by a single manager or even a group of them, but by the collective
action of management over a prolonged period of time. Furthermore, managers are also
employees and have themselves a relationship with the ‘organization’, in this case
represented by managers at higher levels. From this perspective, the term management
could refer to them as employees or as representatives of the organization. The terms
organization and employees eliminate this ambiguity.
The principle of mutual trust and mutual responsibility gets to the heart of the
relationship between the organization and its employees at Toyota. It is a result of
understanding that the organization and its employees are in the same boat and that the
best results for everyone are reached by working together. Mutual trust refers to the
reciprocal trust required for employees and the organization to work together effectively
in a cooperative way. In general terms, from the perspective of the organization, this
means it can trust employees to do their job right and to do what is needed to ensure the
long-term success of the company (within defined ethical guidelines and business
principles, of course). From the perspective of employees, it means they trust the
organization to look after their interests and ensure their livelihood. It means they believe
in the organization and are willing to follow the direction defined by its leaders. Without
mutual trust, work (and especially change) becomes much harder since leaders have to
spend huge amounts of energy explaining why things need to be done and convincing
employees about every little detail and why it is necessary. They also have to spend
significant time making sure the people do what they are supposed to.
Mutual responsibility is the natural partner of mutual trust. If the organization and its
employees work together (enabled by mutual trust), it is logical that they both take

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responsibility for results. The point is not to share the blame when things go wrong
(although everyone should understand they carry part of the load). The main idea is that
they should jointly take responsibility for working proactively to ensure good results.
From the perspective of the organization, this means taking calculated risks that ensure its
long-term success (well balanced decisions that properly weigh the potential benefits and
dangers). It also means providing resources and otherwise setting the stage that will allow
employees to succeed and be effective at their work. From the perspective of employees,
it means understanding that every person’s job has an effect on the overall performance
of the organization, focusing on doing the work right, constantly looking for better ways
to do things, and developing systems to reliably and consistently deliver products and/or
services to the customer at ever increasing levels of performance.
Further details on this principle are presented in Appendix B.2: Mutual Trust and
Mutual Responsibility (page 420).
5.3.3 Teamwork
Teamwork can be defined as “organized cooperation.”
228
Since organizations are
made up of people, teamwork should be the natural way to get things done inside them.
This implies the cooperative effort of a group of people working together to achieve a
desired output. Although few people would argue with the need for teamwork within an
organization, and although it has been proven that teams tend to outperform individuals,
true teamwork at a company-wide scale is not easy to find. At best, there tend to be
islands of teamwork centered on demanding challenges and good leaders that have
managed to pull their groups together into effective teams. The problem is that even if
these teams produce exceptional results, the effect on the overall firm is far from its
potential if true teamwork existed throughout the whole organization. Exceptional
performance at a company wide level does not come from extraordinary results achieved
by a few people or teams. It comes from the coordinated effort of everyone. “The idea is

228
Ehrlich, E. H. 1980. Oxford American dictionary. New York: Oxford University Press. p. 945.

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teamwork – not how many parts were machined or drilled by one worker, but how many
products were completed by the line as a whole.”
229

Unfortunately, the more common scenario does not even have patches of effective
teamwork… it has people working at cross-purposes even within the same functional
group and certainly within the same company. Organizations are made of people grouped
into functions and departments; however, just putting individuals together does not make
them a team or turn their efforts into teamwork. “Teams do not become teams just
because we call them teams…”
230

At Toyota, perhaps due to a J apanese cultural trait that tends to place the group and
the community ahead of the individual, their focus has been on developing teamwork and
using teams as the primary unit within the human resource element. Individuals and
individual effort are still recognized, but the focus is on getting people to cooperate and
work together in teams to achieve results much greater than what individuals alone could
reach. However, even after 40 or 50 years, true teamwork is still hard at Toyota and
needs to be reinforced every day.
Further details on this principle are presented in Appendix B.3: Teamwork (page
429).
5.3.4 Effective Leadership
Organizations must secure effective leadership through time if they want to ensure
their long-term survival. After all, it is the leaders who shape the company and guide it in
the right (or wrong) direction. Consistently having effective leadership requires
constantly developing leaders and promoting them to the proper jobs at the right time.
At the most general level, effective leaders must be capable of doing two things: get
people to follow their lead and develop others. Leaders can be effective with only the first
condition, but only for a short period of time. These leaders will never build a strong
culture or a long-lasting organization. For long-term effectiveness, developing others

229
Ohno, T. 1988a. Toyota production system : beyond large-scale production. Cambridge, Mass.:
Productivity Press. p. 24.
230
Katzenbach, J . R., & Smith, D. K. 1993. The wisdom of teams : creating the high-performance
organization. Boston, Mass.: Harvard Business School Press. p. 4.

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becomes critical since it is the only way to ensure that the legacy of the leader continues
after he moves on to a higher position or even after he retires or leaves the organization.
This discussion will differ greatly from most presentations on leadership since the
focus is on what leaders must do instead of the personal characteristics that make them
great. At Toyota every person is a leader at some point or other. Any person with people
in her charge is a leader of her group. Staff people frequently lead quality circles or
kaizen exercises. Workers in the line frequently take the lead in projects to implement
their ideas. With so many people in leadership positions, it is impossible for all of them to
have the right personal traits that make them natural leaders, so the focus must be on
learnable skills and on what they need to do to be able to lead effectively regardless of
personal characteristics. Of course, personal attributes can make the task much easier for
some people.
Leadership is about getting others to think and work such that the organization moves
in the direction the leader wants. “Senior management is simply a flag-bearer when a
business decision is made. It is of no use unless others follow the flag.”
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Title and rank
may get people doing what the leader wants, but it will only be obedience. People will do
what they are told and nothing more, and do it because of fear of getting reprimanded.
Getting people to follow wholeheartedly and give their best is much more complicated,
and requires more effort and time, but is the true work of an effective leader. Leaders
should first focus on talking and connecting to the people they intend to lead. Listening
and understanding others first shows caring and respect and opens the door for the leader
to propose and explain his vision to a more receptive audience. People will follow
wholeheartedly and give their best if they feel the leader cares about them and if they
understand what the leader proposes and why it is needed. The best leaders never have to
pull rank on people for others to do what they say. The key is to strive to ‘Lead as though
you had no power’.
Further details on this principle are presented in Appendix B.4: Effective Leadership
(page 438).

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Eiji Toyoda in: Toyota. 2001. The Toyota Way 2001: 13: Toyota Motor Corporation. p. 12.

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5.3.5 Education and Development
As was discussed above, people are the most important asset for Toyota, and thus
education and development of employees are seen as crucial for the well being of the
organization. After all, its long-term survival and endurance depends on growing people
that can carry on with the legacy of the company as they replace the older generation that
retires. At Toyota, however, education and people development take a different approach
from most other organizations. Their focus is on learning by doing and on providing
practical on the job training. More than transferring knowledge (as is the case with most
training programs at other companies), their objective is to develop in people the
curiosity and thinking processes that will allow them to find and/or develop the
knowledge they need by observing the process and questioning what they see. The
purpose is to develop independent thinking so that people can solve problems and figure
out novel ways to improve the process. Toyota realized that the first step in becoming a
true learning organization was for its people to develop true learning capabilities
themselves. This makes education and development of subordinates and peers a
necessary process that becomes part of everyone’s everyday job. Getting to the point
where the thinking process is ingrained in employees’ brains and becomes the natural
response when faced with a challenge is hard, takes time, and, truthfully, can only be
achieved by having the person go through the exercise many times.
Further details on this principle are presented in Appendix B.5: Education and
Development (page 444).
5.4 Process
Performing processes is what allows people to transform the organization’s inputs
into the outcomes customers are willing to pay for. Every activity performed to directly
or indirectly support this transformation can be seen as a process and analyzed as such.
Having effective and efficient processes is the most critical determinant of how
successful the company is in satisfying the customer’s needs today. The remaining
building blocks (organizational identity, people, and continuous improvement), define
how the organization got to where it is and how successful it will be in the future. In this

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sense, they are even more important than the more tactical process principles for the
long-term survival of the organization. However, at the present moment (at the time when
you need to make parts or deliver a service), it is the existing processes (assuming they
are carried out as expected) that define what outputs the organization can provide, their
quality, their cost, and when they can be delivered… all the main drivers of customer
satisfaction. Although for the most part, the discussion will focus on manufacturing
processes, the concepts are equally applicable to service and administrative activities.
At Toyota, great care and effort is put into developing the best possible processes and
improving them continuously. “Toyota leaders truly believe that if they create the right
process the results will follow.”
232
Liker summarizes it as “The right process will produce
the right result.”
233
In a way this parallels and is supported by their build people before
you make parts approach to people developing. The idea is that if the right sociotechnical
(people and process) system is in place, the products and services delivered to customers
will be right as well. Minoura further explains this focus on the process: “When we talk
about defects in our factories, we are talking about defective processes. If there’s a
defective process, it's going to turn out defective products. However hard you examine a
defective product, it doesn't improve the process. So we should focus on defective
processes.”
234
In other words, the focus is always in getting the process right. Good
products or services are the natural consequence of good processes.
But what is this right process? How does a right process looks? The ideal process is
one that produces zero defects, has no waste, produces exactly what the customer wants,
when she wants it (see True North in Appendix D.2.1: Relentless pursuit of perfection, in
page 496), and does this reliably and consistently. The right process is the one that
approximates this ideal as much as possible within current limitations (such as existing
technology and available resources).
The rest of this section will focus on defining how to achieve this right process. The
structure will be slightly different from the one used so far for the two organizational
building blocks discussed above. Although the tools/practices will still be discussed, the

232
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill. p. 87.
233
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill. p. 85.
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Minoura, T. 2003. The Toyota Production System, Vol. 2005: Toyota Motor Corporation.

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focus will be on how they support the principle and how they relate to each other.
Additional details on specific tools can be found in section 2.2: Lean as Tools (page 25).
5.4.1 Stability
Stability is about having reliable and predictable processes and about running
smoothly at a steady pace. Stability is usually where a Lean implementation initiative
begins since it provides the foundation required for other tools to be effective. A
predictable process is one that reliably produces the expected quantity, with the expected
quality, and does it when required. Stable and predictable processes are of key
importance to a Toyota-style system since they enable accurate planning and the use of
support systems with lower levels of waste. For example, a highly predictable
manufacturing process running smoothly requires less inventory, less extra capacity at
previous and subsequent processes, and can be supplied by tight material handling routes
running at regular intervals. Reliable and predictable processes are also easier to manage
and control. They require less attention from management since they must intervene only
when problems occur, and they are easier to improve since it is easier to grasp the
situation, test causal hypotheses to determine the root cause of problems, and predict the
effect of changes.
Stability is not only about internal processes, although that should be the initial focus
since this variability can be affected directly by actions taken by management and/or
employees running the processes (see endogenous and exogenous variability in section
1.3: Why use Demand and Task Variability, in page 16). However, a significant portion
of the variability an organization faces usually comes from the environment it operates in,
and thus it is necessary to deal also with external sources. It can come from erratic
customer ordering patterns, unreliable suppliers, unpredictable government regulations,
etc. Whatever the source, operating with high variability will be costly and difficult, and
thus should be reduced as much as possible. When this is not possible or it is
prohibitively expensive, the next best thing is to isolate the variability by shielding the
processes through the use of buffers.
Further details on this principle are presented in Appendix C.1: Stability (page 456).

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5.4.2 Just-In-Time
J ust-in-time production breaks with one of the main paradigms of mass production:
the general belief that producing in large batches is more efficient. Early on Toyota
realized that piles of inventory necessarily accompanied production in batches. Batching
was perhaps the most efficient way to produce from the perspective of the particular
process, but it certainly was not the best for the overall system. For one thing, it meant
having big amounts of money tied up in parts and materials instead of being available for
more pressing needs of the organization. In part compelled by being in a tight financial
situation, Kiichiro Toyoda decided that there had to be a better solution; one that would
optimize the overall system instead of only individual process. “…Kiichiro’s idea was to
switch over entirely to a flow-type production system. He reasoned that this would
eliminate large stocks of material… If once this production system got under way, we
were able to sell our finished product before payments were due on our materials and
parts, we would no longer have any need for operating capital. What Kiichiro had in
mind was to produce the needed quantities of the required parts each day.”
235
This idea
was developed and fine-tuned further through the years, becoming the current J IT system
Toyota employs today.
For an organization that focuses on the customer, that has limited financial resources
(or one of its cultural values includes minimizing the cash-flow cycle), and that
constantly strives to eliminate waste, J IT will appear as a logical solution. However, if
one or more of these elements is missing, J IT will seem less relevant and the problems
that must be solved to run J IT will seem insurmountable and hassles that do not need to
be tackled. J IT is deeply rooted in serving the customer by providing exactly what is
needed, in the quantity needed, and when it is needed. Having a customer focus
extending through the whole organization, where every person strives to satisfy the needs
of her immediate customer, provides the necessary mindset to understand the importance
and benefits of producing J IT. The need (or desire) to reduce the cash-flow cycle and
eliminate waste, provide the drive required to overcome the obstacles that impede the use
of J IT production. By producing only what is needed, when needed, the wastes of over-

235
Toyoda, E. 1987. Toyota, fifty years in motion : an autobiography (1st ed.). Tokyo ; New York
New York, N.Y.: Kodansha International ;
Distributed in the U.S. through Harper & Row. p. 57.

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production and inventory are greatly reduced. Inventory cuts, in turn result in a reduction
in lead-time that minimizes the cash-flow cycle.
Other benefits of J IT, perhaps unforeseen by Kiichiro, include improved quality and
faster problem solving and improvement. Tightly linked processes with very little slack
in the form of inventory between them help surface problems and allow for very fast
feedback when quality defects or other problems are detected. Being able to analyze the
process as the problem occurs (or very shortly thereafter) facilitates root-cause analysis
and getting rid of the problem for good. Also, the lack of inventory makes problems very
visible by idling several processes rapidly when one goes down, thus forcing involvement
of workers and management in a common effort to restore the line to production and,
later, to prevent the problem from recurring.
The idea of just-in-time is simple and even logical if seen from a system-wide
perspective. However, implementing it is not easy. And for Toyota it was even harder,
since they had a vision of were they wanted to go (which they thought would work), but
not the means to get there. Luckily for us, over the past 70 years Toyota has developed a
set of very robust methods and tools that can be copied and/or adapted to implement J IT
in other organizations.
Further details on this principle are presented in Appendix C.2: J ust-In-Time (page
469).
5.4.3 Built-In-Quality
J ust as J IT, built-in-quality goes against the prevailing ‘common sense’ of mass
production. It proposes that to provide high quality and high value products to the end
customer it is not enough to catch and repair defects in final inspection. Instead, each
process should strive to provide only high quality parts to its internal customer as well. In
this way, quality is built through the whole production process (at each station) instead of
attempting to inspect it in at the end. The built-in-quality approach has several advantages
over the traditional method. First, the quality of the product delivered to the end customer
tends to be significantly higher. Regardless of how thorough final inspection is, there will
always be problems that it will not detect. The built-in-quality system on the other hand,

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ensures that each component is good and that it is assembled correctly, thus greatly
minimizing the possibility of things going wrong at the end.
Second, built-in-quality is a more cost-effective approach. It eliminates the need for a
troop of final inspectors and repair personnel to detect and correct problems. It releases a
significant amount of plant space otherwise used for repairs (it is not uncommon in the
auto industry for the repair zone to occupy one fourth or more of the total assembly plant
and still have frequent overflows into outside parking lots; in contrast, Toyota tends to
have space for only 10 or so vehicles and the line stops if they fill up). Furthermore, the
earlier problems are found the cheaper it is to correct them. Starting with the customer,
since fewer problems escape the factory to be caught by them, there are fewer warranty
issues (which, besides money, tend to cost future sales as well). Defects found in final
inspection, although less problematic than the ones found by the customer, are still very
costly to correct since they tend to require significant disassembly and rebuilding (or
completely scrapping the product in some cases). Making things right the first time is
certainly the cheapest approach (no defects means no costly repairs). But even if things
do not run perfectly every time, detecting and correcting defects at the component level is
cheaper than doing it at the end after the final product is assembled.
Third, built-in-quality facilitates finding and eliminating the root cause of problems to
further improve the quality of the product (helping to build the product right the first time
around). Since defects are being found as they are being created (or very soon thereafter),
it is relatively easy to go back and identify what caused them and implement a
countermeasure that effectively prevents the problem from recurring. When final
inspection is used, even if the same defect is identified, it is almost impossible to
determine where or why the problem was generated. Even if the culprit station is found,
there tends to be such a long time lag between building and inspection, that conditions
have usually changed and the station is back to producing perfectly good parts by the
time anyone arrives there to find out what happened. The typical result thus is that the
root cause is not found and the problem is not eradicated, allowing it to recur and be the
source of defects again as soon as the same operating conditions reappear.
In theory, building quality as the product is built is a relatively easy concept to
understand (even if it may take longer to believe in its benefits). However, implementing

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it is a whole different story. Built-in-quality is translated to the production floor by
implementing systems and utilizing mechanisms that ensure that only high quality parts
are made and transferred to the next station and that problems are detected and eliminated
for good when they happen.
Further details on this principle are presented in Appendix C.3: Built-In-Quality (page
479).
5.5 Continuous Improvement
“Improve constantly and forever the system of production and service, to improve
quality and productivity, and thus constantly decrease costs.”
236
Continuous improvement
is the final organizational building block, and the one that keeps the others alive,
constantly adapting and improving to ensure the long term survival and success of the
organization. Without a vigorous and thriving continuous improvement building block,
the organization is doomed to failure. It will remain frozen in time without learning,
without adapting to changes in the environment, and without making any progress. Very
soon it will see competitors overtake it and its products and/or services fall out of favor
with customers.
In a way, this is what happened to Ford in the late 1920’s. Henry Ford built an empire
by successfully creating a manufacturing process that could make a car for the masses,
the Model T. Initially, customers were happy to get any car, since it was a novelty and
there were not many options. Besides, with the Model T they could even choose any
color as long as it was black! However, after 20 years, as cars became more prevalent,
buyers started developing a taste and an understanding of the features they wanted. One
model was not enough anymore to satisfy everyone. By offering several vehicles, loaded
with features and options, GM overtook Ford and never looked back. Ford failed to see
and adapt to a changing environment.
The current decline of the U.S. big three and the rise of the J apanese automakers (in
particular Toyota and Honda) can be explained in similar terms. They initially made
inroads into the American market by capitalizing on Detroit’s failure to see the

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5
th
of the 14 Points for Management: Deming, W. E. 2000. Out of the crisis (1st MIT Press ed.).
Cambridge, Mass.: MIT Press. p. 23.

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importance of fuel efficient vehicles in times of high gas prices
237
. As in the case of GM
above, the J apanese newcomers took advantage of a change in the environment not
perceived (or ignored) by the established manufacturers. However, this only got them a
foot in the door. The real advantage that has allowed Toyota to overtake Ford and go now
after GM, comes from its manufacturing prowess. Toyota developed a much better
approach that allows it to make better cars, cheaper, and in less time. More importantly,
the system continues to evolve and improve every day enabling Toyota to stay ahead of
the competition. Internal process and people improvements are the true source of
Toyota’s competitive advantage.
These two examples highlight the importance of continuous improvement and its two
most important objectives: improve the whole organization (people, processes, and even
the culture and philosophy) to adapt to changes in the external environment and to
become more effective and efficient at delivering the products and services that customers
want. Improvement is thus paramount to any organization wanting to remain viable long-
term. Although this is a fairly logical assertion, and most people would agree with it
when discussed abstractly (in a setting not directly related to their work or themselves),
human nature seems to lead us to seek the comfort of established routines and things we
know. Instead of striving to improve, the more common practice is to endeavor to
maintain the status quo. After all, why should we put ourselves through the traumas of
change if we have always performed our process the same way with acceptable results?
At Toyota maintaining the status quo is not an option, as stated by its chairman Okuda:
“… you should regard doing nothing and changing nothing as the worst thing to be
done…”
238
Perhaps this drive for improvement is a J apanese cultural trait, or maybe they
just took one of Deming’s famous sayings literally: “It is not necessary to change.
Survival is not mandatory.”
239

Continuous improvement is such a deeply rooted concept at Toyota that it is
inextricable from the rest of the organization, from other tools in the system, and even

237
Is it possible that this is happening again? Gas prices are very high, and do not seem to be coming down
any time soon, yet Ford, GM and Chrysler continue to make gas guzzling engines. Toyota and Honda, on
the contrary have introduced hybrid vehicles that greatly improve mileage without decreasing performance.
Is this the coup de grace for Detroit? It seems obvious where rational buyers will do their shopping.
238
Hiroshi Okuda in: Toyota. 2001. The Toyota Way 2001: 13: Toyota Motor Corporation. p. 6.
239
W. Edwards Deming in: Orsini, J . N. 2000. The Deming Difference, Vol. 2005: Advanced
Manufacturing.

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from employees’ everyday activities (as discussed above). In this sense, placing
continuous improvement into a separate organizational building block and analyzing it as
a separate entity from the process, the people, and the organizational identity, may cause
more damage than good in trying to understand Toyota’s system as a whole. It may even
be a futile attempt, especially at the tools/practices level needed for effective
implementation. On the other hand, at a conceptual level, having a parallel continuous
improvement system working to further develop the people, the process and the
organization as a whole as it goes about its regular business, appears to be a natural
division into component parts. This is the perspective that will be followed in the
discussion below. The focus is on the methods and tools/practices, that are needed to
have a thriving improvement system that keeps the organization evolving and in tune
with its environment.
5.5.1 Spirit of Challenge
At Toyota, continuous improvement begins and ends with people. After all, it is the
people who make the changes that lead to improvement. This is the main reason why
people are the most valuable asset for Toyota. For continuous improvement to be
effective, employees must have the right attitude and mindset. They must be willing to
accept challenges and put their best effort into overcoming the obstacles that get in their
way; all for the betterment of the organization. They must have a strong desire to make
things better in order to spend the effort necessary to propose a new solution, test it, and
change the process if results are positive, or keep trying if results are not as expected. It is
always easier to remain at the status quo and continue to do things as they have always
been done. As discussed above though, remaining static is not an option at Toyota.
This willingness to get involved and drive improvement through the organization is
the result of a mindset that reflects what Toyota calls the spirit of challenge. “We accept
challenges with a creative spirit and the courage to realize our own dreams without
loosing drive or energy. We approach our work vigorously, with optimism and a sincere
belief in the value of our contribution.”
240
Challenges are seen as opportunities for
improvement and personal development and approached with the conviction that any test

240
Toyota. 2001. The Toyota Way 2001: 13: Toyota Motor Corporation. p. 4.

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and trial they include can be overcome. The spirit of challenge is the attitude that enables
people to do this. To welcome problems (the harder the better) as a test of their
knowledge, skills, and abilities and as a way of improving them. With this attitude,
seeking, tackling, and overcoming challenges becomes a way of life that does not
conceive shying away from problems. Having people that embody the spirit of challenge
ensures improvement for the organization as they embrace, tackle and overcome the
problems that crop up. Accepting challenges thus becomes a drive for progress.
Further details on this principle are presented in Appendix D.1: Spirit of Challenge
(page 484).
5.5.2 Relentless and Continuous Improvement
One of the most striking differences between Toyota and other companies is the
conviction regarding the possibility of improving. At Toyota, people tend to think that
improvement is always possible and that there is always a better way of performing a job.
This attitude allows them to see current methods just as the present incarnation of a
continuum of change. As part of this continuum processes are better today than they were
yesterday and are expected to be even better tomorrow. Change is the norm and not the
exception. Improvement is expected from every process, every activity, and every piece
of equipment regardless of whether it is bran new or 50 years old (in fact, new machinery
is installed with the expectation that it will be heavily modified in the first few years of
operation to customize it for the particular needs of the company).
In contrast, most other organizations tend to see the current work design as the best
they can achieve. After all, having spent significant time, effort, and resources in
designing a process and installing the best possible equipment, it seems reasonable to
think that it will perform at the peak of possibility and that improvement will only occur
when the process is redesigned in the future to include more advanced technology. This is
the process design engineer’s thinking that has been transferred to the whole
organization. In fact, it is an unfortunate legacy from the early 1900s and the Taylorist
view of management as thinkers and workers as doers (made much worse by the current
practice of engineers who prefer to stay comfortable in their offices far removed from the
process). Under this precept engineers design the best possible process, set it up, and then

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turn it over to workers who just run it. Improvement only occurs in infrequent redesigns
and, in most cases, only by introducing better machinery.
This difference in attitude became strikingly clear to me in a visit to an automobile
supplier some years ago. Nissan, which was one of their customers, had granted them a
new contract, so they were in the process of installing a new line. We visited the plant
and saw a Toyota line, the old and the new Nissan lines and a few others used to supply
Detroit’s Big Three as well as aftermarket parts. Surprisingly, the lines were very
different. In part this was because some where fairly old while others were bran new. A
bigger part of it though, was that improvements and lessons learned in one line were not
transferred to other existing lines. With help from Toyota, the relatively old Toyota line
had been improved and adapted until it was capable of reliably satisfying Toyota’s needs.
Even though everyone recognized that the Toyota line outperformed the others, no other
line had been modified to incorporate what they had learned. The only exception was the
new Nissan line where they had included some features from the Toyota line mixed up
with new technology. They only introduced changes and improvements when new lines
where installed. However, the most revealing detail in the whole visit came during the
debriefing at the end of the visit. During the discussion of the new Nissan line, the
conversation drifted towards the market conditions and how hard it was becoming to
make a profit with OEMs requesting annual price reductions. At that point, one of the
managers turned to the consultant I was with and asked him: “How are we supposed to
give them a discount every year? They are squeezing us out of our profits. Take the
Nissan line… it is bran new and has state of the art equipment. This year we’ll make a
profit with it, but with the price reduction Nissan wants, we’ll probably be running at a
loss by the second or third year.” Of course, the obvious answer to his question is
continuous improvement. The OEM’s request for price reductions is based on the
assumption that the cost per part will decrease as the supplier learns how to make the
parts and improves the process accordingly. However, if there is no continuous

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improvement and the job design is frozen
241
between major line redesigns, then costs are
not going down and price reductions come straight out of profits.
Even without the pressure of OEMs requesting price reductions, improvement should
be happening all the time. Every day that nothing is improved our organization falls
behind the competitor that did make an improvement. “The message of the kaizen
strategy is that not a day should go by without some kind of improvement being made
somewhere in the company.”
242
Toyota uses the proverb “Improvement is endless and
eternal”
243
to emphasize this notion. There is always a possibility to improve and, once an
improvement is made the benefit is retained forever (as long as we have systems in place
to sustain the new level of performance), thus, we should constantly strive to make things
better. “The kaizen philosophy assumes that our way of life –be it our working life, our
social life, or our home life– deserves to be constantly improved.”
244

Further details on this principle are presented in Appendix D.2: Relentless and
Continuous Improvement (page 493).
5.5.3 Thorough Decision-Making Based on Facts
Making decisions based on facts may seem such an obvious statement, that it is not
even worth discussing. How else would you make decisions? The truth is though, that
most managers in most companies make decisions based on very limited information
usually derived from reports generated and summarized by subordinates. Reports that at
best tell only part of the story. Unfortunately, this type of gut-feel decisions tend to
prevail over truly rational ones. At Toyota, making decisions based on facts refers to
personally verified facts that are thoroughly analyzed. Go to the source of the issue and
see personally what is happening. This does not mean that they end up having perfect
information and all decisions work out as expected. Neither does it mean that they have

241
In this company, standardized work sheets (of which they were very proud), dated in most cases to the
time when the line had started running, several years before the date of our visit. A clear indication of the
lack of continuous improvement.
242
Imai, M. 1986. Kaizen, the key to Japan's competitive success. New York: Random House Business
Division. p. 5.
243
Toyota proverb in: Dennis, P. 2002. Lean production simplified : a plain language guide to the world's
most powerful production system. New York: Productivity Press. p. 47.
244
Imai, M. 1986. Kaizen, the key to Japan's competitive success. New York: Random House Business
Division. p. 3.

120
forgone the use of reports and data. Far from it. However, by getting personally involved,
they do gain a much better and intimate grasp of the situation that includes understanding
of many subtle nuances that are hard or impossible to capture in numbers or even in
detailed descriptions provided by others. This thorough understanding enables them then
to interpret the data in reports in ways not possible from just reading them. Mixing these
insights with the knowledge they have gained through observation leads to very effective
analyses, which in turn result in successful solutions. According to Taiichi Ohno “‘Data’
is of course important in manufacturing, but I place greatest emphasis on ‘facts’”.
245

Besides improving the information used to make decisions, going to the source to
personally verify the facts, also helps reduce conflict between people with different
perspectives and interests (as long as they have some common ground such as wanting to
do what is best for the organization). This is especially true if they go and observe
together. Direct observation tends to highlight the critical issues and, with the help of
good visual aids, leads to a shared understanding of the situation. Trying to get to a
solution based only on data (instead of facts) can lead to much higher levels of useless
conflict and take much more time since each person can interpret the numbers differently
and, in many cases, there is truly no way of telling which explanation is correct from the
report alone.
For Toyota, the process of making decisions is just one more process of the many
they perform every day, and thus, they apply to it the same philosophy as they would to
other processes: “the right process will produce the right result”
246
. They know (and
accept) that people make mistakes and that not all decisions turn out to be perfect. So,
instead of focusing on the correctness of any particular decision, they focus on the
process through which the decision was reached. “…management will forgive a decision
that does not work out as expected, if the process used was the right one.”
247
As with any
other process, consistency of output is the most important feature. Even the best decision
making process can yield a bad result. However, just as the sporadic defect coming out of
a good manufacturing process, a wrong decision that is reached following a known

245
Taiichi Ohno in: Toyota. 2001. The Toyota Way 2001: 13: Toyota Motor Corporation. p. 8.
246
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill. p. 85.
247
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill. p. 238.

121
process can be analyzed to determine what went wrong. A countermeasure can then be
implemented to improve the decision-making process and prevent the same type of
mistake from happening again. Having a process focus on decision-making, has thus
three distinct advantages. First, there is consistency in the decisions that are made.
Furthermore, knowing whether the established process was followed and how it was
performed, may allow supervisors to filter some decisions before they are implemented
and send the person back to refine some part of it. Before the decision is made and
implemented, it is not really possible to know if it will result as expected. However,
knowing how it was reached allows more experienced employees to identify things that
have been missed and that could affect the end result. Second, the process itself can be
improved by looking at what went wrong when bad decisions are made. Third, the
process can be taught to others, which also enables mentors and supervisors to develop
their people by forcing them to question both the results they obtain and the process
through which they reached the decisions. Insisting on using only personally verified
facts and a proven decision-making process leads thus to better decisions, arrived at
faster, and that tend to face less resistance during implementation.
Further details on this principle are presented in Appendix D.3: Thorough Decision-
Making Based on Facts (page 532).
5.5.4 Ensure Organizational Learning
Learning necessarily needs to be tightly coupled to improvements for them to stick,
for them to transfer to other similar situations in other parts of the organization, and for
them to serve as stepping-stones for further progress. Learning here refers to updating our
theories of how things work in order to develop deeper understanding and deeper
knowledge of the situation at hand (see Appendix B.5.1: Develop a system of deep
knowledge, in page 446). Improvements that take place without learning are just the
result of chance, and even if they lead to a very significant increase in performance, their
long-term effects will be negligible. On the other hand, small improvements that are
accompanied by developing deeper knowledge add up to produce significant long-term
effects. Learning is thus a critical element of an effective continuous improvement
system.

122
“To ‘learn’ means having the capacity to build on your past and move forward
incrementally…”
248
Learning can occur at the individual or the organizational level, with
the difference between the two being given by where the knowledge resides. A true
learning organization requires both. In fact, according to Peter Senge, “Organizations
learn only through individuals who learn. Individual learning does not guarantee
organizational learning. But without it no organizational learning occurs.”
249
George P.
Huber indicates that “…an organization learns if any of its units acquires knowledge that
it recognizes as potentially useful to the organization.”
250
Fujimoto goes one step further
by including the use of that knowledge as a requisite for learning: “…when an
organization learns, it changes its routines to adapt better to the environment and/or
revises its shared knowledge about the relationship between the routines and their
effects.”
251
By combining these statements, it is possible to gain a better understanding of
individual and organizational learning and how they are linked together. An individual
learns when she updates her mental models and theories through the acquisition of new
knowledge. Organizations learn when this new understanding and new knowledge
become widely available and widely used; that is, when knowledge is transferred from
individuals to the wider collective. Organizational learning thus occurs when individual
learning is shared with others (it becomes part of the organizational knowledge base by
residing in many different people in the organization), when it is embedded into the
process, or when it is codified into documents and/or policies used by the organization to
define its behavior or that of its employees.
Toyota spends significant effort and time to ensure that both individual and
organizational learning happen continuously. They start by infusing employees with the
ability to think independently and learn, and provide them with strong mental models of
the processes they use (see section 5.3.5: Education and Development, in page 108).
They also immerse people in an environment conducive to experimentation and learning,

248
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill. p. 252.
249
Senge, P. M. 1990. The fifth discipline : the art and practice of the learning organization (1st ed.).
New York: Doubleday/Currency. p. 139.
250
Huber, G. P. 1991. Organizational Learning: The Contributing Processes and the Literatures.
Organization Science, 2(1): 88-115. p. 89.
251
Fujimoto, T. 1999. The evolution of a manufacturing system at Toyota. New York: Oxford University
Press. p. 21.

123
provide them with methods and practices to identify and solve problems, and give them
tools to capture the new knowledge they develop by sharing it with others or codifying it
in a useful form.
Further details on this principle are presented in Appendix D.4: Ensure
Organizational Learning (page 540).
5.5.5 Improve Learning Capability (learn to learn)
For Toyota, it is not enough to improve and learn. They also want to do it at an ever-
increasing rate. They can achieve this by either involving more people in the
improvement effort or by constantly improving their learning capability. Getting
everyone involved in making the process better is achieved mainly by having a
decentralized improvement system (see Appendix D.2.4: Decentralized improvement
system, in page 520), by pushing responsibility for improvement to the lowest possible
level, and by providing support and guidance to the people dealing directly with the
process. Learning to learn will be the focus here. It means developing and improving the
skills, methods, and processes that result in learning. “To become a true learning
organization, the very learning capacity of the organization should be developing and
growing over time…”
252
J ust as continuous improvement can be seen as a betterment
cycle working on the current process capability and learning can be seen as a cycle
solidifying improvements and developing the level of knowledge of people and the firm,
learning to learn is a betterment cycle working on the current learning capabilities of
individuals and the organization as a whole. Fujimoto provides a model along this lines
by proposing three layers of organizational capability
253
. The innermost layer, routinized
manufacturing capability, defines the level of manufacturing performance at a given point
in time. The middle layer, routinized learning capability, affects the pace of continuous
improvement, as well as recoveries from system disruptions and deterioration. This layer
includes improvements made on the process as well as the individual and organizational
learning that accompany them. The outermost layer, evolutionary learning capability,

252
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill. p. 251.
253
Fujimoto, T. 1999. The evolution of a manufacturing system at Toyota. New York: Oxford University
Press. p. 17.

124
affects the creation of the capabilities defined by the two inner layers. This is what I am
referring to as learning to learn. As was discussed above (see section 5.5.4: Ensure
Organizational Learning, in page 121), even though learning is necessary to sustain
improvements and to use them as a baseline for further improvement, it is possible to
better the performance of a process without much learning taking place. In particular, it is
easy and common to make improvements that are never followed by organizational
learning. Such improvements never fulfill their potential and have very little impact in the
long-term performance of the organizational as a whole. Thus, the model proposed here
has four layers as shown in Figure 5-4. Either way, the important issue for this discussion
is that learning to learn is necessary and is just one more improvement cycle operating on
top of the learning cycle.



J ust as with learning (see section 5.5.4: Ensure Organizational Learning, in page 121),
learning to learn can (and must) happen at both the individual and the organizational
level. For an organization to enhance its learning capability it must work at improving
those things that facilitate and foster both individual and organizational learning.
Further details on this principle are presented in Appendix D.5: Improve Learning
Capability (learn to learn) (page 560).
Figure 5-4 Layered model of learning
Improve
Learn
Learn to learn
Process
Performance

125
5.6 Business Objectives Provide Insights into Toyota’s Philosophy
The previous sections provide a conceptual framework for Toyota’s system with
respect to the four building blocks (organizational identity, people, process, and
continuous improvement) that can be used to construct a Toyota-style system for a given
organization. Although most of these principles seem logical, some of them may not,
especially during an implementation process when they come into conflict with
established practices and/or short-term requirements. Based on the principles as defined
above, implementing a Toyota-style system still requires a good measure of faith. It is
necessary to believe the principles are correct and pursue their development even in the
face of contrary evidence. Although this scenario is typical in any lean implementation
(and probably in any significant change effort), having a leap of faith at the very
foundation of our conceptual understanding of the system may introduce doubts that, as
the implementation progresses, may lead to a partially implemented system that does not
reach its potential or, even worse, to a complete failure. Not having a solid conceptual
foundation that can carry us through the problems that will certainly be faced is perhaps
one of the reasons why Toyota-style systems are not more widely used.
This section attempts to tackle this issue by defining a set of business objectives that
can then be used to support the principles, thus eliminating (or at least reducing) the need
to believe in the principles. The idea is to try to understand the kinds of insights that have
driven leaders at Toyota to develop their thinking processes and their system. If we could
identify a set of undisputable axioms that logically lead to the principles, then we would
have a complete system that stands on its own and requires only logical thinking to
develop and implement. Unfortunately, the business world tends to be very complex and
extremely varied so it is practically impossible to capture it in a set of axioms that apply
to every situation. The approach used here was to define a set of very general, yet simple,
business objectives. Although an exception can be found for most of them, they are very
widely applicable and thus approach axiom status (they will be referred to as axioms in
the discussion below). Understanding them, even if they are not accepted as axioms,
helps explain some of the insights that led to the development of Toyota’s thinking,
which is precisely what is needed to support the principles through a logical construct.

126
Figure 5-5 shows the six business axioms and their relation to the principles.
Additional details will be provided in the following sections, where similar diagrams are
used to link the axioms to the principles required to support them. Those diagrams,
include additional details about the axiom (in the form of premises that support the
axiom) that clarify its meaning and define the main conditions that must be met to satisfy
it. Discussion of each axiom will include an explanation of why it can be accepted as an
axiom, evidence of its influence on Toyota, and its connection to the principles that
define Toyota’s philosophy.

People
Continuous Improvement
Axiom2:
Whoever improves the
fastest consistently will be
ahead in the long run
Spirit of
challenge
Relentless and
continuous
improvement
Ensure
organizational
learning
Thorough
decision-
making based
on facts
Respect for
humanity
Teamwork
Mutual trust
and mutual
responsibility
Education and
development
Effective
leadership
Improve
learning
capability
(learn to learn)
Axiom1:
Long termsurvival of the
organization
Axiom3:
Price is set by the market
(Price - Cost =Profits)
Axiom4:
It is not possible to sell
more product than
customers want
Axiom5:
Minimizing the cash flow
cycle strengthens the
organization
Axiom6:
Align all functions and
people to support the
firm's strategic intent
Organizational Indentity
Process
Customer focus
Long-term
perspective
Sense of
purpose
Strong and
stable culture
Stability
Built-in-Quality
J IT

Figure 5-5 Axioms and principles of a Toyota-style system

127

5.6.1 Long-term survival of the organization
With very few exceptions (such as small startups created in the hopes that a bigger
player in the industry will buy them out), the intention of most companies is to remain in
business indefinitely. In other words, at least conceptually, long-term survival is towards
the top of the wish list for most firms. In most cases it also tops the list for all
stakeholders related to the organization. Long-term survival is in the best interest of
owners, employees, suppliers, host societies, and even customers. After all, if the
organization disappears, its money generating capability goes away, jobs are eliminated,
supplier’s sales go down, tax revenues diminish, and the firm’s products and services are
not available to customers anymore. Thus, long-term survival is a core purpose for the
vast majority of organizations. Unfortunately, more often than not, it remains a nice thing
to achieve, but rarely drives the creation of a coherent strategy that translates into the
policies and actions that ensure survival in the future. In most cases, short-term
requirements (meet quarterly and yearly numbers) prevail in defining what to do. The
problem with this myopic approach is that strategies and plans based on short and mid-
term requirements frequently lead to actions that harm the company in the long run.
Furthermore, they tend to change frequently and eliminate the possibility of having a
sustained constancy of purpose. The result is that the organization is constantly changing
focus and direction, which leads to confusing stakeholders and to huge swings in
performance.
By long-term survival, we are talking about 10, 20, 30 years out, not the 1 to 5 years
that most companies plan for. Short and mid-term planning and execution are also
necessary to ensure survival, but they should not be the predominant force when defining
strategy or even when creating major operational policies. “The next quarterly dividend is
not as important as existence of the company 10, 20, or 30 years from now.”
254
Deming
was convinced that most of the problems organizations face today are the result of actions
(or lack of them) taken in the past in response to some short-term requirement that
seemed crucial then. “The problems of today are for a large measure matters for which

254
Deming, W. E. 2000. Out of the crisis (1st MIT Press ed.). Cambridge, Mass.: MIT Press. p. 25.

128
we did not provide in the past.”
255
Take for example the case of relations between unions
and car manufacturers in the U.S. The current adversarial interaction is a result of years
and years of reciprocal abuse and partial truths, mostly motivated by the pursuit of short-
term benefits. Managers trying to meet their cost reduction targets may cut some non-
contractual employee benefits (reduce training, eliminate cafeterias and recreation
facilities, etc.), allow working conditions to deteriorate, or even fire people. Union
leaders seeking reelection may organize wildcat strikes to force concessions from the
company even if they know it cannot sustain them in the future. The result is a complete
lack of trust and a relation framed as a win-lose situation where each side pulls in its own
direction. Each side wins some battles and loses some others, but the true outcome is that
both loose the war against other organizations and the pie gets smaller for everybody. If
both sides were thinking long-term instead of focusing on their short-term self-interests,
they would realize that survival of the organization (and the benefits it brings to both) can
only be assured by working together. In fact, through cooperation and respect for each
other they can change the relation to a win-win situation focused on growth and
benefiting everyone.
Focus on its long-term survival is what drives Toyota to have a relation with
employees (and all stakeholders) based on respect and mutual trust, to do what is right for
the customer even if it means a short-term reduction in profits, and to embrace
continuous improvement as a core activity. It is also currently driving a push for
environmentally friendly technologies. They have realized that as they continue to grow,
their products will have a significant impact on the global environment and thus Toyota’s
long-term survival requires developing a sustainable model where vehicles consume less
fuel, put out fewer emissions, take fewer resources to make, and can be recycled easily.
“Without environmental responses, the automobile industry has no future, and Toyota is
convinced that only automakers that succeed in this area will be acceptable to society.”
256

“The impact on the environment of the cars Toyota builds and sells is a matter of great
concern and management is trying to get everyone in the company to understand that

255
According to Deming lack of constancy of purpose is to blame for much of our current problems.
Latzko, W. J., Deming, W. E., & Saunders, D. M. 1995. Four days with Dr. Deming : a strategy for
modern methods of management. Reading, Mass.: Addison-Wesley Pub. Co. p. 120.
256
Toyota. 2000. Environment: Earth Charter / Action Plan, Vol. 2005: Toyota.

129
their future depends on making that impact smooth and even beneficial.”
257
And this is
just one example. In general, top people at Toyota are always looking seriously into the
future and trying to position the firm in a way that ensures its long-term survival by
defining enduring and sustainable policies, while taking action today.
Long-term survival is the main business axiom proposed here. An organization that
focuses on its long-term survival will need to deal with the other five axioms and/or will
be helped significantly along the way by paying attention to them. Further details on this
axiom are presented in Appendix E.1: Long-term survival of the organization (page 571).
5.6.2 Whoever improves the fastest consistently will be ahead in the long run
Assuming it can remain viable long enough, an organization that improves faster than
the competition, and does it consistently, will constantly gain on them until it becomes
the leader in whatever business it is in. Once it is ahead, continuing to improve faster than
competitors provides a formidable competitive advantage that allows the organization to
pull away from others in its industry. In fact, “…the ability to learn faster than
competitors may be the only sustainable competitive advantage.”
258
Making
improvements and learning faster than competitors is really the only thing that can
consistently ensure a firm that it will maintain a lead over its rivals. Such a strong
competitive advantage goes a long way in ensuring the long-term survival for the
organization.
Toyota is a clear example in support of this axiom. When it started making cars,
European and in particular U.S. manufacturers had a very significant head start. Even
after a few years in the business volumes at Toyota were only a fraction of what Ford or
GM made, and productivity was about 10 times lower. They had their share of troubles
and at least one very close brush with bankruptcy, but they managed to survive and, by
focusing on improving and getting better every day, they have become the preeminent
automotive manufacturer in the world. For some 20 years now they have been the
company to beat and all other car manufacturers (as well as suppliers and firms from a

257
Reingold, E. M. 1999. Toyota, People, Ideas and the Challenge of the New. London, England: Penguin
Books. p. 178.
258
De Geus, A. P. 1988. Planning as Learning, Harvard Business Review, Vol. March-April 1988: 70 - 74.
p. 71.

130
wide range of other industries) have copied their methods. In 2004 they surpassed Ford in
volume of cars sold and are now rapidly closing the gap to overcome GM and become the
biggest automaker with a worldwide market share target of 15%. Furthermore, they
consistently make a profit and their margins are the highest in the industry (see section
1.2: Why use Toyota as a Model?, in page 11). By consistently and relentlessly
improving its processes, Toyota eliminated the productivity gap and other advantages
industry leaders had over it. Then, it just kept going and now continues to increase its
lead while most other automakers face their own survival issues and scramble to catch
up. Even today the focus continues to be on driving employees to improve and to try new
approaches in doing their jobs, as the following quote from Hiroshi Okuda attests: “I am
trying to show people that failure to change is even riskier than change itself.”
259

Complementing the long-term survival axiom discussed above (see section 5.6.1:
Long-term survival of the organization, in page 127), which focused on strategic issues
such as defining the business the firm wants to be in and the type of organization it wants
to be (values and philosophy), this axiom focuses on more tactical matters to ensure that
the organization becomes the best in the type of business it chose to participate in.
Further details on this axiom are presented in Appendix E.2: Whoever improves the
fastest consistently will be ahead in the long run (page 575).
5.6.3 Price is set by the market (Price – Cost = Profit)
The equation
260
above is fairly simple, however, the insight it provides led Taiichi
Ohno to focus on waste elimination (for cost reduction) to the point that it became one of
the basic tenets of TPS. The key is to understand that the selling price for any product is
determined by what customers are willing to pay given the value they perceive the item
has. In other words, price is ultimately set by a third party over whom the organization
has no control. The traditional practice (and one that continues today, at least to some
extent in some firms) was to set the price by calculating costs and adding a ‘reasonable’
margin on top of it: price =cost +profit. At Toyota, they realized that this practice was
neither appropriate nor sustainable in the highly competitive industry they participate in.

259
Hiroshi Okuda in: Reingold, E. M. 1999. Toyota, People, Ideas and the Challenge of the New. London,
England: Penguin Books. p. 5.
260
Ohno, T. 1988b. Workplace management. Cambridge, Mass.: Productivity Press. p. 21.

131
Imposing an arbitrary price on customers (based on the firm’s costs) could easily drive
them away.
Setting prices based on cost is certainly the wrong approach in highly competitive
markets where many producers supply many customers, capacity exceeds demand, and
the product is a commodity. These are conditions under which one particular supplier has
little or no leverage on the market and setting an arbitrary price above market value
would rob the firm of sales. If we depart from these circumstances, there are some cases
where producers have sufficient control of the market that they may go around this rule
and set the selling price high enough to obtain the profit they want. However, even here
there are limits to the price they can set and the time they can sustain it for. Even in
monopoly or semi-monopoly environments, prices are limited by substitutes to the
product that may become attractive or viable if the product in question becomes too
expensive. Take for example oil. OPEC has a semi-monopolistic position and thus (as
they have proved in the last few years) can have a very strong influence on the price oil
sells for. However, letting prices soar has led consumers to look for ways to reduce
consumption (one of the reasons hybrid vehicles are doing so well) and has led
governments to seriously look for and develop alternative sources of energy (renewable,
clean coal, and nuclear sources have all seen renewed interest in the last few years). In
the long-term, if demand is reduced sufficiently it will exert pressure on producers to
lower prices. Besides these market forces, high profit margins may also attract new
entrants that add capacity to the industry and force prices further down. Going back to the
oil example, in the late 1990’s exploration and extraction of oil in the North Sea had all
but stopped when prices were at around $9 per barrel. In 2005, with prices hovering
around $60, exploitation of the North Sea is again a very profitable business. Finally, in
the case of business-to-business sales, very high prices may make it tempting for
customers to vertically integrate, taking the supplier out of the loop. In summary, the
long-term sustainable selling price of any item is always significantly influenced by the
market and what customers are willing to pay, so ignoring this by setting prices based on
cost is a very dangerous practice.
The alternative is to let the market define the price and then focus on reducing costs
to maximize profits. Figure 5-6 shows a graphical comparison of the two options

132
available to increase profit margins: increase price or reduce costs. With the traditional
approach, the selling price is increased to accommodate a higher desired profit that is
added to the costs, which remain the same. This approach can price the product above
market value and results in reduced sales. Even if the profit margin is greater for each
item, lower sales may result in lower overall profits for the organization. At Toyota, to
obtain the same desired profit margin, the approach is to reduce costs through waste
elimination, while maintaining the selling price stable. Their assumption is that “…the
selling price is fixed, so the manufacturer has no choice but to lower costs.”
261
Besides,
focusing on reducing costs through waste elimination challenges the organization and
makes it stronger and better prepared to deal with hard times when they arrive. It also
gives a significant competitive advantage (in the form of higher margins or the ability to
charge lower prices) over others in the industry that do not manage to reduce their costs.


261
Ohno, T. 1988b. Workplace management. Cambridge, Mass.: Productivity Press. p. 23.
262
Adapted from: Anderon, R. 2005. Back to Basics - Introduction to Lean Principles, University of
Michigan 11th Annual Lean Manufacturing Conference. Marriott Eagle Crest Resort, Ypsilanti MI:
J TMP. p. 4.
Figure 5-6 Minimize cost to maximize profit margins
262

Cost
Profit
Cost
Profit
Cost
Profit
Cost
Profit
Price
1
Price
2
Traditional
Approach
Toyota’s
Approach
Higher price usually means
reduced sales volume

133
Further details on this axiom are presented in Appendix E.3: Price is set by the market
(Price – Cost =Profit) (page 580).
5.6.4 It is not possible to sell more product than customers want
Regardless of how efficient an organization is it cannot sell more of its products than
customers are willing to buy. This is another statement that is fairly obvious, yet has
profound implications if taken to its logical conclusion. Externally, making more than is
demanded means that product remains unsold and thus results in wasted effort and
materials and forces manufacturers to offer discounts to move the unwanted items and/or
to have secondary outlets (selling usually at a loss) to try to recoup at least part of the
cost. Looked at it in this way, making more than can be sold certainly seems like a
foolish proposition, however it is a fairly common and a strongly justified mode of
operation (that is, until we start questioning some of the underlying assumptions it is
based on).
In fact, making more than is needed results from following the typical push system
that prevailed before Toyota came along (and which sadly still exists in many industries
and remains in use in many companies). Based on economies of scale, the logic is that
high volume production is more efficient and less costly and thus should result in higher
profits for the organization. Unfortunately this is a myopic perspective that seeks to
minimize the cost per piece at each process while forgetting that what is truly important
is the total cost of the system. This is the accounting version of local optimization that is
so prevalent in mass production. If our minds have been trained to think about economies
of scale, the logical conclusion is that high volume production is the best option since it
minimizes manufacturing costs. This is fine when demand is higher than capacity. The
more you produce (if you can sell it) the lower your costs will be and the higher the
profits will result (since fixed costs are spread over more parts, costs per part go down).
However, when demand is lower than the expected production volume, accounting
alarms start to go off (the cost per part balloons, overhead variances go haywire, etc.),
and all efforts turn to figuring out how to sell more product to get back to the ‘ideal
production volume’. At some point, prices have to be lowered to keep sales going. This
squeezes profit margins further and drives bean counters to call for more cost reductions.

134
In the ‘economies of scale’ world, the main method for cost reduction is to increase
production volume. This of course, pushes even more unwanted product onto the market
and the cycle repeats with worse and worse results. If capacity exceeds demand, working
with a push system always results in excess product that cannot be sold. The cost of all
these items needs to be paid by the product that was sold, thus reducing, or even
eliminating, the overall profit made.
Getting out of this mentality required someone to question (or be forced to question,
as in the case of Toyota) the underlying assumptions of economies of scale by focusing
on minimizing the total system cost. Toyota was driven into this position by trying to
compete with much larger and more efficient companies while operating in a market that
was small and segmented. They did not have the capital to buy the equipment that would
make long runs possible particularly cost effective. And even if they had had it,
producing one or two vehicles in high volume would not have satisfied the J apanese
market that was small and required many different vehicles. They were thus forced to
look for alternative ways of improving efficiency and reducing costs without relying on
economies of scale. Instead of trying to increase production volume, the focus shifted to
improving the process such that they could produce inexpensively the exact amount that
was needed. The result is what we know today as the Toyota Production System.
Internal operations for most organizations tend to parallel the behavior described
above for external customers. Producers focused on economies of scale tend to apply the
same principle to all internal process: define the optimum volume for a process and run it
at that rate. This is usually also accompanied by an optimum batch size (read large batch
size) for processes that need to make more than one item. The idea is that optimizing
each process results in an optimum system. Unfortunately, this could not be further from
the true behavior of a manufacturing facility. Optimizing individual processes results in
piles of unwanted items while downstream processes wait for the items they really need.
If we extend the insights of this axiom to internal operations in the firm, then the
conclusion is that each process must make only what the immediate customer
downstream needs. J ust as making more products than external customers will buy leads
to product that cannot be sold, making more parts than immediately needed by internal
customer, results in useless inventory. A system designed with the objective of producing

135
only what is needed links processes tightly and runs them at the speed needed (perhaps at
sub-optimal levels: slower speed and smaller batches) that result in improved overall
performance.
Further details on this axiom are presented in Appendix E.4: It is not possible to sell
more product than customers want (page 583).
5.6.5 Minimize the cash flow cycle
All organizations need cash to run their operations. At a minimum to remain in
business, they must finance their expenses from the time when they pay for the resources
used until the time when money is collected from customers for the sale of the products
and/or services that used those resources. The time between these two events is the length
of the cash flow cycle or cash-to-cash cycle, and can be determined using the following
equation:

Cash flow cycle = Inventory + Receivables Outstanding - Payables Outstanding

All terms are in units of time (typically number of days). To convert the cash flow
cycle length to a currency value, just multiply by the average daily expense incurred by
the firm. The resulting quantity is the needed operating capital, which represents the
amount of working capital that must be committed to running operations (and thus cannot
be used to fund growth). Figure 5-7 provides a graphical representation showing the
length of the cash flow cycle and its corresponding currency value. At time zero, one
day’s worth of expenses is incurred (cash out). Cash to pay for them will come in at day
10 (cash in). In the meantime, nine more daily expenses are added to the amount the
organization must finance to sustain operations. At day 10 cash comes in but additional
expenses are incurred, so, in this example, cash requirements remain stable at ten days’
worth of expenses.


136

Depending on the length of the cash flow cycle and the level of daily expenses
incurred by the organization, the amount of cash that must be committed just to running
the firm can be very significant, to the point where it may rob the organization of the
possibility of taking advantage of other opportunities that may appear. In any case,
regardless of the amount, this is cash that is tied to daily operations (mostly in the form of
inventory), not generating any additional profits, and, worst yet, is unavailable for other
higher return purposes (such as funding growth or making process improvements). In
fact, the portion of your working capital that is tied in the cash flow cycle “…is the
investment you are making in the inefficiencies of your processes and procedures plus
your investment in your suppliers’ and your customers’ inefficiencies too…”
263

Eliminating those inefficiencies can lead to reducing the cash flow cycle and releasing
significant amounts of cash that can then be put to better use. Furthermore, reduced cash
requirements for daily operations also strengthen the firm by making it easier for the
organization to fund its operations in the future. Figure 5-8 shows a diagram similar to
the one above, except that the cash flow cycle has been cut in half. As a result, cash
requirements have also been cut in half to five days’ worth of expenses, tying less cash in
operations and releasing five days’ worth of expenses to be used for other purposes
264
.


263
Bizmanuals. 2005. Effective Policies and Procedures: 4 Parts of the Complete Cash to Cash Cycle, Vol.
2006: bizmanuals.
264
When the cash flow cycle is reduced, there is a one-time release of cash that may actually result in a one
time bump in profits. After this initial increase, additional benefits come from putting to better use the
money that is now not needed to keep operations running.
Figure 5-7 Cash flow cycle
Cash out Cash in
1 2 3 4 5 6 7 8 9 0 10
Cash committed =
10 days of expenses
Cash-flow cycle length =10 days
15 20
Cash out Cash in
1 2 3 4 5 6 7 8 9 0 10
Cash committed =
10 days of expenses
Cash-flow cycle length =10 days
15 20

137

Minimizing the cash flow cycle thus results in both short and long term benefits for
the organization, and can signify the survival or failure of the firm. This is particularly
true for organizations that are short of cash; such as Toyota was when it began making
cars. The best situation for a firm to be in is to have a negative cash flow cycle, where the
organization receives payment for the product it sells before it has to pay its suppliers
(Dell operates in this manner). In this case, not only does the organization avoid tying its
cash to operations, but it in fact generates extra funds from its accelerated cash flow
cycle. This condition, among other things, facilitates growth (as long as the extra demand
exists) since no additional funding is required for daily operations.
Cash flow cycle is usually a term associated with manufacturing operations.
However, the ideas presented above work just as well for service organizations and for
other functions (such as product development) in manufacturing firms. In all cases, the
firm must finance the expenses incurred until money comes in from the customer. And in
all cases minimizing the amount needed results in direct benefits to the organization.
Early on, Toyota realized that it needed to look for ways to minimize its cash flow
cycle if it was going to survive and be successful. Not only was it competing with much
bigger companies that were years ahead in their capability to build and sell vehicles, but
it was also short of cash and, during and after WWII, it had to face scarcity of parts and
materials as well. Faced with these conditions, leaders at Toyota were forced to rethink
their way of doing business. They had to produce only what customers wanted when they
wanted it while making only the parts that went into those products when they were
needed (this is the fundamental idea behind J IT), to ensure that materials and other
resources were used where they were most needed (they could not afford to use steel to
Figure 5-8 Reduced cash flow cycle
Cash out
1 2 3 4 5 6 7 8 9 0 10
Cash committed =
5 days of expenses
Cash in
Cash-flow cycle length =
5 days
15 20
Cash out
1 2 3 4 5 6 7 8 9 0 10
Cash committed =
5 days of expenses
Cash in
Cash-flow cycle length =
5 days
15 20

138
make a body that was not going to be sold immediately). Then they needed to deliver the
vehicle to the customer and collect payment right away to funnel the money back to fund
the expenses for the next vehicle to be made. “…Kiichiro’s idea was to switch over
entirely to a flow-type production system. He reasoned that this would eliminate large
stocks of materials and parts, doing away with the need for warehouses. Cutting back
running stock also would reduce capital outflow. If, once this production system got
under way, we were able to sell our finished product before payments were due on our
materials and parts, we would no longer have any need for operating capital. What
Kiichiro had in mind was to produce the needed quantity of the required parts each
day.”
265

This is an extension of what Ford had achieved with the introduction of the assembly
line. While producing only the Model T, Ford had operated, for the most part, in the way
Kiichiro Toyoda wanted to. Unfortunately, when Ford began production of several
different vehicles the company deviated from the tightly linked flow system and, having
the resources to do it, introduced all kinds of inventories to decouple processes to allow
them to run at ‘optimum’ speeds and batch sizes, thus entering into the world of local
optimization and diverging from the optimal global solution of continuous flow.
Following Kiichiro Toyoda’s idea, and not having the resources to do otherwise, Toyota
continued to operate and develop their tightly linked flow system. They struggled solving
problem after problem until Taiichi Ohno came along and put it all together with the
introduction of the pull system (using kanban) and his insistence on minimizing batch
sizes (to approximate Kiichiro Toyoda’s mandate of producing J IT and to satisfy his own
pursuit of complete waste elimination) through the reduction of changeover times.
Further details on this axiom are presented in Appendix E.5: Minimize the cash flow
cycle (page 588).

265
Toyoda, E. 1987. Toyota, fifty years in motion : an autobiography (1st ed.). Tokyo ; New York
New York, N.Y.: Kodansha International ;
Distributed in the U.S. through Harper & Row. p. 57.

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5.6.6 Align all functions and people to support the strategic intent of the
organization
Every time there is a group of people working together, there are bound to be
disagreements about what to do and how to do it. The bigger the organization, the more
and potentially worse the differences will get, as people become more specialized and
have less in common with others in the firm. However, the disagreements per se are not
the problem. In fact, they are healthy and ensure that different perspectives come to bear
on any given issue and that several options are explored. This diversity in thinking and
points of view tends to improve the quality of decisions made by the group, especially by
protecting against groupthink –a phenomenon where individuals adapt their views to
conform to what is believed to be the consensus of the group, to the point where they
rationalize assessments and decisions that they would clearly reject under other
circumstances. Differences in opinion do become a problem when conflict escalates to
the point where individuals cannot come to an agreement on how to proceed, and each
person goes its separate way and does what she thinks is best. This could easily lead to
people working at cross purposes, canceling their efforts out and probably making things
worse for the organization as a whole.
And conflict is not the only source of this problem. The same can occur if a clear
direction is lacking and/or if it is missing the details and objectives that enable people at
all levels in the organization to take action on it. In this case, even without open
disagreement people just go their separate ways, do what they think best and probably
also end up working at cross-purpose with others in the firm. This second case can
potentially be even worse, since there is not even a discussion of the issues and no one
even realizes that there is a problem. Not having an effective way of aligning people to
work towards common goals can seriously handicap an organization as everyone pushes
his own agenda, and, to make it worse, consumes resources doing it.
Figure 5-9 shows a graphical representation for this situation. The black arrows inside
the circle represent the direction in which the people (or departments) in the organization
are exerting their efforts. The result is that the organization moves in a direction (red
arrow) significantly different than where it wants to go (green arrow) and does it at a
much slower speed than desired. Without alignment people’s efforts and resources are

140
wasted and the organization does not get the desired results, even with every employee
working as hard as they can.



Fortunately, organizations can be much more effective with the same (or even less)
level of effort exerted by its employees if they manage to align everyone to push in the
desired direction. This is, after all, what management is about: coordinating and
integrating activities from a diverse group of people (or departments) to achieve a desired
result. Innumerable methods and approaches have been developed for this purpose
ranging from army-like structures that rely on a strong hierarchy and strict rules to
achieve coordination to extremely decentralized organic systems that require complex
and often hard to implement market and/or value based integration mechanisms
266
.
Whatever approach is used, the important thing is to get every member of the
organization working on the things that are important and pushing the organization in the
direction it wants to go. Figure 5-10 depicts an organization where alignment has been
achieved (parallel black arrows) and everyone is working to reach the desired objectives
(green arrows). The result is that the organization moves where it wants to go and at the

266
For a discussion on the three methods of integration (constraints, markets, and values), see: Lovejoy, W.
S. 2003. Integrated Operations. Ann Arbor: University of Michigan Business School. Three Ways to
Manage, p. 1.
Figure 5-9 No alignment means slow progress and frequently in the wrong direction
Intended direction
and speed
Real direction
and speed
Intended direction
and speed
Real direction
and speed

141
desired speed. Achieving alignment of all functions and people to support its strategic
intent can become a formidable competitive advantage.


Toyota is no different from any other organization in the sense that it needs alignment
of efforts just as anyone else. However, it has understood, perhaps better than most that
this is a critical issue and that lack of coordination results in wasted resources and missed
opportunities that can hurt the firm’s performance. “Toyota intuited many years ago that
it must focus on survival and the integration of all corporate functions towards ensuring
that survival.”
267
Because of this, it has given thoughtful consideration to developing and
implementing an integral system to maximize the potential for alignment of all functions
and to coordinate everyone’s efforts to achieve the desired objectives. The key difference
between Toyota and other organizations is that Toyota’s system is truly an integral and
comprehensive one.
They use hoshin kanri (see Appendix A.3.2: Develop a long-term vision, long-term
goals and a plan to achieve them, in page 398) to deploy the goals defined by top
management by developing detailed plans and objectives for everyone in the
organization. This provides each person with a game plan and clear targets of what they

267
J ohn Shook in: Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's
greatest manufacturer (First ed.). New York: McGraw-Hill. p. 82.
Figure 5-10 Aligned efforts move the organization where it wants to go
Intended direction
and speed
Real direction and
speed
Intended direction
and speed
Real direction and
speed

142
must achieve to support corporate goals. Hoshin planning thus provides the means
through which top management can define what people in the organization should focus
on during a given period of time (for example throughout the year). Although they
seldom do at Toyota, hoshin objectives could potentially change radically from one
planning period to the next, and thus constitute the tool that top management can use to
adjust the course of the corporation.
Although Toyota is probably better than most organizations at using hoshin kanri to
achieve alignment of efforts, they do not stop there. In addition, they also utilize other
mechanisms that increase coordination (as well as stability) by providing longer-term
direction for a broader range of situations. At the philosophical level, their culture is
anchored in very strong values such as long-term survival of the organization, customer
focus, respect for humanity, and continuous improvement; values that are usually at the
forefront in most discussions and certainly provide guidance in all decisions of
significance. At the process level, the True North (see Appendix D.2.1: Relentless pursuit
of perfection, in page 496) and the drive to eliminate waste (see Appendix D.2.6:
Eliminate muda, in page 529) provide clear objectives and ways to measure progress,
thus maximizing the probability of having everyone’s efforts contributing to move the
organization where it wants to go. As depicted in Figure 5-11, high level philosophical
values work in conjunction with more concrete process level objectives to provide
general alignment and keep everyone moving more or less in the desired direction, while
hoshin kanri fine-tunes that direction and highlights what particular areas people should
be focusing on at any given time (for example: improving quality, increasing market
share, becoming a greener organization). The result is that Toyota can operate in a very
decentralized manner, allowing it to react, change, and improve rapidly without the
burden of a strict hierarchy that can easily become overloaded, yet it achieves a very high
level of coordination and alignment of efforts.

143


Further details on this axiom are presented in Appendix E.6: Align all functions and
people to support the strategic intent of the organization (page 594).
Figure 5-11 Toyota uses several methods to achieve high alignment of efforts
Focus provided by
hoshin kanri
General direction provided
by values, the True North,
and waste elimination
Focus provided by
hoshin kanri
General direction provided
by values, the True North,
and waste elimination

144
CHAPTER 6
COMPARATIVE CASES OF LEAN DESIGN


As mentioned in the research methodology (see section 3: Research Methodology, in
page 56), two types of cases were used during this research, differentiated by the level of
involvement with the firm and by the methodology used. ‘Observational’ case studies
included firms that were in the process of implementing TPS practices on their own and
had already made significant strides along the journey. These were low involvement
cases where the focus was on learning from the organization about the Lean tools they
use and how they have adapted them. There are three of these cases: Die Making, Menlo
Worldwide, and Merillat. ‘Action research’ case studies required much higher
involvement as they included firms that were interested in using TPS but knew very little
about it. Work was done with them over a period of more than two years to develop a
Toyota-style system customized to their particular needs. Two of these cases are
presented: Motawi Tileworks and Zingerman’s Mail Order.
For each case study, a brief description of the company and what they do is provided.
Then the environment they operate in is characterized and the organization is placed in
the two-by-two classification matrix (see section 4: Environmental Framework – 2x2
classification matrix, in page 69). The focus turns then to the TPS tools they use and
which ones they’ve had to modify. The previous section (see section 5: Toyota’s System,
in page 93) defined what a Toyota-style system is. Unfortunately, it is not possible to
perceive directly the majority of the principles described there. Instead, what can be
observed is the result of applying them: TPS-like tools or other tools that are different yet
achieve the same purpose. For example, perhaps kanban cards are not used to pull
material through the facility, but there needs to be a self-adjusting system that ensures

145
that everyone works on the right thing at the right time by providing real-time
information in a clear manner that everyone can understand. Figure 6-1 shows the TPS
house that will be used as the framework for this analysis.

Figure 6-1 TPS House
268


For each case study, their use of each tool (each bullet point in Figure 6-1 above) is
described briefly and a 0 to 5 rating is assigned based on how widely throughout the firm
the tool was being used, the level of development it presented, and how integrated it was
with other tools and to other systems used by the organization. The rating intends to
capture the degree of use of the tool and not how good the organization is at using it. In
other words, a low rating only means the that tool is not widely used (perhaps due to

268
Adapted from: Liker, J. K. 2004. The Toyota Way : 14 management principles from the world's
greatest manufacturer (First ed.). New York: McGraw-Hill. p. 33.
Continuous Improvement
There is always a better way.
•J idoka
(autonomation&
manual stops)
•Andon
•Person-machine
separation
•Error proofing
•In-station QC
•Eliminate sources
of defects
Satisfy customers by providing
Highest Quality - Lowest Cost - Shortest Lead Time
through shortening the production flow by eliminating waste
J ust-In-Time
Right Part, Right Amount,
Right Time.
Built-In-Quality
Prevent and contain defects by
making all problems visible.
•Takt time
planning
•Continuous flow
•Pull system
•Quick
changeovers
•Integrated
logistics
People
Respect for humanity.
•Teamwork
•Common goals
•Small-team
structure
•Involvement
•Cross training
•J ob security
Learning for Long-Term Survival
•Performance standards
•Preventive maintenance
Stable & Safe Processes
Provide stability and predictability.
•Heijunka(leveled production)
•Visual management
•Problem solving
(PDCA, 5-whys)
•True North
•Eliminate waste
•Genchi genbutsu
•No-blame
environment
•Value stream
view
•Standardized work
•Workplace organization (5S)
Continuous Improvement
There is always a better way.
•J idoka
(autonomation&
manual stops)
•Andon
•Person-machine
separation
•Error proofing
•In-station QC
•Eliminate sources
of defects
Satisfy customers by providing
Highest Quality - Lowest Cost - Shortest Lead Time
through shortening the production flow by eliminating waste
J ust-In-Time
Right Part, Right Amount,
Right Time.
Built-In-Quality
Prevent and contain defects by
making all problems visible.
•Takt time
planning
•Continuous flow
•Pull system
•Quick
changeovers
•Integrated
logistics
People
Respect for humanity.
•Teamwork
•Common goals
•Small-team
structure
•Involvement
•Cross training
•J ob security
Learning for Long-Term Survival
•Performance standards
•Preventive maintenance
Stable & Safe Processes
Provide stability and predictability.
•Heijunka(leveled production)
•Visual management
•Problem solving
(PDCA, 5-whys)
•True North
•Eliminate waste
•Genchi genbutsu
•No-blame
environment
•Value stream
view
•Standardized work
•Workplace organization (5S)

146
limitations faced by the organization or just because they have not gotten around to
working on it). The rating used is as follows:
0 =The tool was not in use and the objectives of the tool were not being satisfied
through other means.
1 =A crude form of the tool is present in one or few locations; usually means that the
organization is just beginning to use it.
3 =The tool is in use in several locations and has evolved into a more sophisticated
and effective tool that is beginning to be integrated with other tools and/or with the
managerial process in the firm.
5 =The tool is used throughout the organization as needed and is sophisticated
enough to fulfill its purpose effectively and to adapt to changing conditions. It is also well
integrated with other tools and processes and has been assimilated into the firm’s
management system.
Ratings of 2 and 4 are also used and represent intermediate levels to those described
above. The rates thus assigned will be used in the comparative analysis presented in the
last part of this section (see section 6.3: Comparative Analysis of Case Studies, in page
217) where the position each company holds in the matrix and the tools they use will be
analized to identify trends on how to develop and use Toyota-style systems for
organizations operating in different environmental conditions.
6.1 Observational Cases
6.1.1 Die Making
This case is somewhat different from the others presented in this chapter since it does
not compare the before and after Lean states in the same organization or even different
locations in the same organization. Instead, it shows how dies are made traditionally
269


269
The perspective presented in the traditional approach was compiled by visiting several die and mold
manufacturing facilities in the US.

147
using mass and craft production concepts (will be referred to as Mass Die Making) in
comparison to Toyota’s approach
270
(will be referred to as Lean Die Making).
6.1.1.1 Company description
The companies that were used to define the ‘before’ die making process (Mass Die
Making) range in size from some having less than 30 employees and making $6 million a
year to others having hundreds of employees. The products they make also cover a wide
spectrum including stamping dies and injection molds of varying sizes and complexity.
Each firm however, tends to specialize on a particular niche of this wide range (they
focus on a few types of dies or molds). This specialization results in some differences in
the particular processes used. They however, appear remarkably similar if specific
process names are replaced by more generic terms such as machining, assembly, etc. At
this level, the value stream in all these firms becomes basically the same. More
importantly, the way these organizations are run is also very similar, with all of them
presenting elements of the craft and mass production eras. The biggest customers for
most of these companies are either auto manufacturers or their suppliers. Some of them
belong to an OEM or have most of their sales coming from a single OEM group while
others offer their services to several OEMs and their suppliers as well as to other
industries.
The ‘after’ state (Lean Die Making) is based on the general process that Toyota uses
for making dies, based mostly to what is in use at their Motomachi facility in J apan
271
.
The focus here is exclusively on stamping dies, but covering a wide range of sizes and
complexity. Toyota is the sole customer for all the dies made at their facilities.
6.1.1.2 Environment and position in matrix
Placement in the classification matrix for this case study is less rigorous than for the
others shown in this chapter since the level of variability faced was estimated from
information obtained during the tours but without direct consultation with the managers
on where their value stream should fall on the matrix. The Mass and Lean Die Making

270
Unfortunately, it was not possible to visit a Toyota facility so this side of the comparison is based on the
research done by J im Morgan and on conversations with Hiroaki Sugiura, a former Toyota die making
manager in J apan.
271
This is the facility where Hiroaki Sugiura worked and the one visited by J im Morgan during his
research.

148
value streams will be shown separately on the matrix as they show significant differences
in both axes. Part of the dissimilarity arises from the relationship with their customer (for
example, die making at Toyota is much better integrated into the overall product
development process than any of the external companies will ever be… even if they were
supplying Toyota) or other factors that are imposed on the organization (due to its size
for example). However, a significant portion of the difference comes from the way each
business is run.
Firms operating under the Mass Die Making model face a higher level of both
demand and task variability. These companies are frequently second or third tier
suppliers in the auto industry and are frequently used by their customers as relief valves
for their own operations (customers give them work when their own die making
operations are working at capacity). Demand variability (including volume and mix) is
estimated at 4.5. This classifies it as ‘medium’ in the classification scale (see Table 4-1,
in page 72) for placement into the two-by-two classification matrix (see section 4:
Environmental Framework – 2x2 classification matrix, in page 69).
In general, task variability is affected by the size of the business (volume can help
reduce task variability by increasing the possibility of specializing jobs) and the choices
management has made on how to organize it. With the aid of the route variability
classification table (see Table 4-3, in page 75), route variability for Mass Die Makers can
be characterized as having some routes through their facilities (3), that interact highly
with each other (4), and change frequently (3) over time (even though specializing in a
particular segment of the die and mold market tends to provide work that is similar and
could follow the same route through the facility, equipment availability frequently results
in jobs being shuffled around, thus changing the real route followed), for an average route
variability value of 3.33. With respect to processing variability, there are some
differences between processes in the value stream (in particular in assembly where die
makers usually have to make decisions about die components, fabricate small parts, and
assemble the mechanical, hydraulic, and electrical components). An estimated average,
representative of all jobs, will be assigned to each characteristic used in the processing
variability classification table (see Table 4-2, in page 74). Work content may vary hugely
(4) from job to job in most processes. Most operators perform work that is similar in

149
general terms, although each die may present significantly different challenges (3).
Finally, all products are customized, with a rare exception happening when the same die
has to be made more than once (4). This results in a processing variability value of 3.67
and a total task variability value of 7.00. These values for demand and task variability
characterize the environment Mass Die Makers operate in, and places the firm on the
engineered product shop (top left) quadrant of the classification matrix (see Figure 6-2).
Making dies following a Lean approach results in significantly reduced demand and
task variability. Die shops at Toyota are an integral part of the product development
process and so it is considered a resource that needs to be scheduled when deciding when
to run new programs. This approach, complemented by having the option of sending
extra work to other shops within the Toyota group, makes the demand variability faced
by Toyota’s die shop fairly stable in both demand and mix. Demand variability (including
volume and mix) is estimated at 3.5. This classifies it at around ‘medium low’ in the
classification scale (see Table 4-1, in page 72) for placement into the two-by-two
classification matrix (see section 4: Environmental Framework – 2x2 classification
matrix, in page 69).
With the aid of the route variability classification table (see Table 4-3, in page 75),
route variability for Lean Die Making can be characterized as having some (3) steady (1)
routes with low to zero interaction between them (1.5), for an average route variability
value of 1.83. With respect to processing variability, there are some differences between
processes in the value stream. An estimated average, representative of all jobs, will be
assigned to each characteristic used in the processing variability classification table (see
Table 4-2, in page 74). Work content may vary somewhat (2) from job to job. Most
operators perform work that is somewhat different (2) from die to die. Finally, all
products are customized, with a rare exception happening when the same die has to be
made more than once (4). This results in a processing variability value of 2.67 and a total
task variability value of 4.50. These values for demand and task variability characterize
the environment for Lean Die Making and place it on the traditional Lean (bottom left)
quadrant of the classification matrix (see Figure 6-2).


150
Classification Matrix
2
3
4
5
6
7
8
2 3 4 5 6 7 8
Demand Variability .
T
a
s
k

V
a
r
i
a
b
i
l
i
t
y


Mass Die Making
Job Shop
Flow Shop
Traditional Lean
(assembly line)
Engineered Product
Shop
Lean Die Making


6.1.1.3 Mass Die Making
Figure 6-3 shows a general value stream map for Mass Die Making. As new vehicles
(or other products) are developed, the dies needed to make them are also designed and
then transferred (‘over the wall’, hopefully never to be seen again) to the die making
facility where they are scheduled along with other jobs coming from other programs.
Lack of coordination between programs results in significant fluctuations in demand. Die
designs provide enough information for the die to be built, but tend to leave details of
how the die is constructed to the discretion of the die maker. “…the tool and die making
process is primarily considered to be a craft type process … and is carried out by skilled
trades people each of whom is allowed considerable latitude in process and work
methodology.”
272
The production schedule used is basically a set of deadlines showing

272
Morgan, J. M. 2002. High Performance Product Development: a systems approach to a Lean product
development process. University of Michigan, Ann Arbor. p. 200.
Figure 6-2 Die Making classification matrix

151
when the dies should complete major stage in the process if they are going to be ready by
the expected completion date. Gaps in the schedule (such as when to run a particular job
and what to run next) are filled in by the shop supervisor.


Figure 6-3 Mass Die Making sample value stream map (no TPS)

Castings for a particular die are received from the foundry and get in queue. In the
first operation, the blocks of steel are prepared for further processing (for example, hooks
are installed for moving them). Then they go to machining where the blocks are faced,
squared, and drilled as needed. This is followed by die construction or build-up, where
the casting is mounted on the shoe and steel blocks are bolted to it at strategic locations
such as high wear areas. Die makers frequently make decisions on some of the parts they
will need (at this stage and for final construction) only when the die reaches their station.
At this point they either order the parts from other processes or go machine them
themselves, resulting in unnecessary delays. The next process is machining of the final
3D surface (dies that will produce outer surface parts tend to be hand worked to achieve
the desired finish). Final construction finishes the die by installing all movable parts, as
well as electrical and hydraulic components. The dies are then mounted on spot presses to
make sure the top and bottom halves match and adjustments (including lots of grinding)
are made as needed. At tryout, the dies are loaded into fully functional presses (although
lacking the automatic material feed) and trial pieces are made. Adjustments are usually
needed and work is frequently done at the tryout press to avoid setups. Bigger issues (not

152
uncommon) are dealt with by sending the die back to machining or die construction.
After several iterations, dies are approved by the facility that will use them (usually near
perfect parts are required for this) and the dies are shipped there to go through further
testing and adjustments in home line tryouts.
However, the biggest distinctions between Mass and Lean Die Making are not clearly
visible in a value stream map since they are not in the sequence of processes or even in
the information flow. Instead, the true differences relate to how the shops are organized,
how they are managed, and how information is used (see Figure 6-4).

Figure 6-4 Sample layout for Mass Die Making
273



273
More than being true to the layout at any of the die makers visited, the intention of this diagram is to
show some typical craft and mass production features present in all of them: functional layout, batch and
queue processing, significant rework, excessive waste, hard to communicate.

153
As can be seen,

all processes are distributed in the facility according to a function.
When not being worked on, dies sit in storage at a somewhat ‘random’ location (there is
no clear indication of where they came from or where they are going) without fixed limits
on the number of dies allowed (the only limit on inventory seems to be imposed by the
space availability in the building). Excess inventory and the general, deadline-based
schedule used make it very hard to know the status of each die. In fact, dies that are late
are frequently identified only when a deadline is reached and the die has not completed
the required stage, leading to expediting and reshuffling of priorities. This ‘loose’ system
results in frequent fire-fighting, excessive variability, and does not promote learning. On
the contrary, it frequently hinders it by preventing true problem solving and
implementation of durable improvements. Some learning may occur at the individual
level, but they seldom translate into organizational learning. Communication between
departments is hard and not particularly effective due to the functional layout and
because it is hard to generalize lessons learned since each die is seen as a different from
all others (dies are not grouped by type).
6.1.1.4 Lean Die Making and use of TPS tools
Figure 6-5 shows a general value stream map for Lean Die Making. Vehicle programs
are scheduled considering available capacity at all stages in the process (including die
making) and coordinated to level demand on particular resources as much as possible. To
deal with the remaining variability, Toyota works hard to build capacity flexibility
through cross training of employees and by developing and regularly using partners to
take part of the workload. “Processes and equipment are largely standardized and
personnel are regularly transferred between Toyota and these subsidiaries to create a
homogenous workforce with similar experience and predictable skill levels.”
274
As a
program evolves, dies are designed using checklists and standards that capture all
previous knowledge on how to make dies. Die designers consult frequently with die
makers and other experts as needed when they have to modify a feature beyond the
specifications shown in the checklist or when they need to add a new one. Even during
construction and tryout, die designers ‘own’ their dies and are expected to work closely

274
Morgan, J. M. 2002. High Performance Product Development: a systems approach to a Lean product
development process. University of Michigan, Ann Arbor. p. 203.

154
with die makers to solve any problems that show up. This close partnership between
design and construction fosters learning in both groups, and ensures that any knew
knowledge is incorporated into the next die that comes along. Learning is further ensured
through formal hansei events. One is held at the completion of each die to analyze the
things that went well, define countermeasures for the problems found, and update the
checklists and standards as needed. Scheduling (known as fundoshi scheduling) is done at
a very detailed level, showing expected start and end times for each die in each process. It
defines exactly what should be happening at any given moment in time thus allowing
close monitoring of the progress of each die and highlighting problems as they occur.


Figure 6-5 Lean Die Making sample value stream map

At this general value stream level, Lean Die Making looks very similar to Mass Die
Making. In both cases, the process steps followed are more or less the same and all
stations receive work orders from production control. The main differences here relate to
scheduling and the rework cycle. As shown in the diagram, the system appears to be over
determined. There is a limited amount of FIFO inventory between processes, which in a
regular pull system is sufficient information for it to run smoothly as long as the first
process in the FIFO chain receives a work order. And yet, in the VSM above, each
individual work center is also scheduled to the minute when it should start and end each
job. Is the fundoshi schedule really necessary? In reality, as in any Toyota operation, the

155
floor is managed through visual systems, so workstations respond to the work they have
available (FIFO inventory) and to a system of tickets (work orders) that serve as kanban.
This by itself would be a sufficiently good system if it were not for the fact that die
making, even with the high level of standardization existing at Toyota, is still a fairly
variable and complex process with each new die that comes through presenting its own
set of challenges. This variability in processing times and the uncertainty of unexpected
problems requires buffers in the form of inventory (FIFO lanes), capacity, and extra time
allotted for problems to ensure that dies are completed on time. However, introducing
these buffers and relying on them also results in a fairly loose system that can afford not
to improve. Since complacency is one of the biggest fears at Toyota, this is not an
acceptable situation. The fundoshi schedule works on top of the visual controls on the
floor to tighten the whole system (both the performance of all processes and the links
between them) and counter the variability by providing clear and stringent expectations
(what should be happening) that are constantly compared to reality (what is happening).
Discrepancies between the schedule and reality highlight possible opportunities for
improvement (see Appendix D.2.2: All activities highlight problems, in page 505). J ust as
important, having this very detailed schedule also allows Toyota to react early to possible
delays and implement countermeasures to ensure that the die (and those coming behind
it) are finished when expected.
Major rework, common in Mass Die Making, has been virtually eliminated at Toyota.
The use of checklists to capture and use what has been learned in previous dies, a highly
standardized process, and the machining methods used (high precision, high spindle
speeds, small step increases) ensure that most dies require only minor adjustments. One
or two iterations through the spot and tryout presses are anticipated and included in the
fundoshi schedule. If significant adjustments are needed, dies are pulled off-line and a
major review is convened to determine how to resolve the issue and, more importantly, to
define countermeasures to ensure that the same problem does not recur (this is considered
a major failing in the system). These meetings usually lead to modifications in the
standards and/or checklists to ensure that the lessons learned become part of the body of
knowledge of the company and are used in the next design. Other differences between
Lean and Mass Die Making are highlighted in Figure 6-6.

156


Figure 6-6 Sample layout for Lean Die Making
275


The most significant difference between Lean and Mass Die Making is that Toyota
has turned what is generally perceived as a craft process into a streamlined system that
resembles the flow of an assembly line. Dies have been classified into six categories
according to size and five ‘lines’ have been created to make them (the bigger A and A0
dies run in the same line) in a product-oriented layout. This has allowed Toyota to right
size the equipment used
276
, facilitated the development of standardized work, and enabled
the design of balanced jobs that have similar work content and keep dies flowing at a

275
As with the Mass Die Making diagram, this one is not true to the layout at any Toyota facility. Its
intention is to highlight the level of flow that Toyota has achieved through the use of TPS.
276
This is in contrast to Mass Die Making where they seem to follow the rule, as a manager in one of the
facilities visited put it: “big size fits all”.

157
uniform rate. Besides improving flow and reducing lead-time, these changes have
resulted in additional benefits that include reduced capital expenditure and space usage,
increased reliability and predictability of the process, and improved quality of the dies
and the parts they make. Furthermore, by eliminating a significant portion of the
perceived variability and integrating tools such as standardized work, visual systems,
standards and checklists, and fundoshi schedule, they have facilitated learning and
improvement ensuring that Lean Die Makers continue to pull ahead of those that retain
their old Mass and Craft ways.
Table 6-1 below provides a summary of the TPS tools described above as well as
others also evident in Lean Die Making. Those TPS tools not mentioned in the table were
excluded because not enough information was available on them. However, since this
analysis is based on a Toyota facility, the expectations is that all those tools (or
something to replace them) are fully implemented and in use. The table shows how the
TPS tools are being used, particular problems encountered, and their rating.


















158
Table 6-1 Use of TPS tools at Lean Die Making
Tool Use / Comments, problems and improvements needed Rate
Workplace
organization
(5S)
Highly organized workplace. Tools needed at each station
are visible and accessible. Components and machined parts
needed for each die are delivered in a cart. A parts list has
pictures for each one and shows its location in the cart.
5
Visual
management
All work is supported by visual systems. Central control
boards (updated daily) show the status of each die, what is
being worked on, who is assigned where, the weekly and
monthly plans for each area, and the level of training of
each employee. Area and work center-specific boards
provide additional information.
5
Preventive
Maintenance
Equipment is maintained at ‘as new’ or better condition to
achieve 100% on demand availability.
5
Performance
standards
Key metrics are tracked and posted along with their targets
at levels ranging from facility wide to work center specific.
5
Standardized
work
Starting with die design, the whole process of die making is
highly standardized. Standardized work and/or checklists
are used in all jobs.
5
S
T
A
B
L
E

P
R
O
C
E
S
S
E
S

Heijunka
(leveled
production)
Workload is kept stable by considering die-making capacity
when scheduling new programs and by sharing excess load
with other Toyota and partner company facilities.
5
Takt time
planning
Used for capacity planning and to determine the necessary
production rate.
5
Achieved in sections of die build and construction.
Continuous
flow
Small inventories are still needed between processes to
compensate for differences in the work content of dies and
at the tryout phase where things may not go as planned.
4
Die making seems to be more a push than a pull system.
However, limits in the dies allowed between processes and
the fundoshi schedule ensure that the benefits of pull (rapid
identification of problems, coordination of processes to
make and deliver components J IT, everyone working on
what is needed, etc.) are perceived.
Pull system
Fundoshi scheduling requires a small troop of people to run.
4
J
U
S
T
-
I
N
-
T
I
M
E

Quick
changeover
Extensively used in machining centers and the spot and
tryout presses.
5








159
Tool Use / Comments, problems and improvements needed Rate
J idoka
(autonomation
& manual
stops)
Processes stop for problems and most of them are solved on
the spot. Bigger problems that can threaten on-time delivery
of other dies are taken off line where a solution is developed
and a countermeasure to avoid recurrence defined.
Machining centers stop automatically when problems occur.
5
Person-
machine
separation
Highly used in machining processes where each employee
tends several machines and production continues unattended
through nights, weekends, and holidays.
5
In-station
quality control
All operators check the quality of their work and avoid
sending defective product downstream.
5
B
U
I
L
T
-
I
N
-
Q
U
A
L
I
T
Y

Eliminate
sources of
defects
All defects and problems are analyzed and countermeasures
determined to prevent their recurrence. 5
Problem
solving
(PDCA, 5-
whys)
Problem solving is part of everyday operations and used as
a fundamental part of continuous improvement and people
development.
5
True North
(direction)
Clear and shared notion of the ideal process and the desired
direction for improvement.
5
Eliminate
waste
Constant and strong focus on waste elimination as a way to
reduce costs and reduce lead-time.
5
Genchi
genbutsu
‘Go and see’ is ingrained into every person’s behavior and a
requirement to gain true understanding before a discussion
can be had on a given situation.
5
No-blame
environment
When problems occur, the focus is on the processes and the
systems used and never on the people performing the jobs.
‘Not sufficiently trained’ is as close as blame assignment
comes to individuals.
5
C
O
N
T
I
N
U
O
U
S

I
M
P
R
O
V
E
M
E
N
T

Value stream
view
Global improvement and performance always supersedes
local optimization.
5













160
Tool Use / Comments, problems and improvements needed Rate
Heavily promoted and an everyday part of everyones job.
Teamwork
Due to the size of the equipment and the need for some
inventory between processes the link between operators is
weaker.
4
Common
goals
Cascading goals from the plant to the team level are defined
and displayed.
5
A small-team structure is used to provide effective support
for problem solving and process improvement.
Small-team
people
structure
As with teamwork, the weaker link between workers may
make some teams less cohesive.
4
Involvement
Involvement and participation are expected and constantly
encouraged. All employees are involved in improving their
areas and the system as a whole through problem solving
and waste elimination.
5
Operators are actively cross-trained and their proficiency
tracked and displayed.
Cross training
Due to the specialization of the jobs it is hard to have full
cross-training across and between areas.
4
P
E
O
P
L
E

J ob security
Providing job security is a core value at Toyota and every
effort is made to ensure all employees have jobs for life.
5

6.1.1.5 Benefits of using a Toyota-style system
The differences between Mass and Lean Die Making shown in the value stream
diagrams and layout sketches above translate into very significant performance levels. As
part of his dissertation, J im Morgan compared Toyota’s die making process to that of a
North American Competitor (NAC). His observations are included in Table 6-2.











161
Table 6-2 Performance improvements from using Lean in die making
Metric Mass
(NAC)
Lean
(Toyota)
% Change
Casting time
a

[months]
2.0 0.5 -75.0%
Machine and construction time
[months]
8.0 3.0 -62.5%
Tryout time
[months]
8.0 2.0 -75.0%
Home line tryout time
[months]
2.5 3.0
b
20%
Total time 20.5 8.5 -58.5%
a
Casting was not considered in the discussion above (castings are usually made by an external company)
but was included here to provide a complete picture of the whole die making process.
b
Home line tryouts at Toyota are performed in 6 to 8 hour intervals 2 or 3 times per week. So the three
months can be reduced significantly if necessary.

In addition to the lead-time improvement shown above, quality and cost have also
been improved. Higher quality is achieved by incorporating very rapidly the lessons
learned in one die to all future ones, by using standardized work and checklists, and by
utilizing effective and proven machining and assembly practices. Significant cost
reduction have been achieved by eliminating the need for rework and by achieving man-
machine separation, thus allowing operators to run several machines.
6.1.2 Menlo Worldwide
6.1.2.1 Company description
Menlo Worldwide is a $1.3 billion in sales company that provides third party logistics
to a variety of customers over a wide range of industries. This case study will focus on
the Great Lakes Lean Logistics Center (GLLLC) located in Brownstown Township,
Michigan. This facility was the first Lean warehouse in the Menlo system (they have
eight as of early 2006) and continues to be the ‘go-see’ location for Lean practices in
their network. When the GLLLC was schedule to begin operations, the leadership at
Menlo decided to run it as a Lean warehouse from the start. They hired J eff Rivera and
put him in charge of developing a blueprint for its operation. Based on Toyota principles
and using TPS tools J eff developed the processes needed for the job, the continuous
improvement system to make it better every day, and the people system that holds it all
together and that has ensured this initiative became a success.

162
In its almost three years of operation (since J une 2003), the GLLLC has grown to $12
million in sales. It now has 205 employees (up from 27 when it started), of which 192
work on the shop floor
277
. As of April 1
st
2006, the facility has 333,000 ft
2
and some 60
dock doors. The GLLLC serves three automotive customers through four value streams:
Spare Parts Warehousing, Packaging, Component Warehousing One, and Component
Warehousing Two. Spare Parts Warehousing stores spare parts (6800 part numbers and
growing) and ships them directly to dealers at their request. Packaging receives parts in
bulk (2000 part numbers), packages them individually, and ships them to the customer’s
distribution centers. For the Component Warehousing One, the GLLLC stores parts
received mostly from Europe and provides kitting and sequencing (20 commodities
sequenced regularly for this customer) services as needed. Parts are than delivered J IT to
the assembly plant. The Component Warehousing Two business is similar to that of
Component Warehousing One, except that parts come in from China and are shipped to
several assembly plants.
6.1.2.2 Environment and position in matrix
Menlo’s GLLLC has four distinct value streams that should be placed separately on
the matrix. However, after determining the level of demand and task variability for each,
it was found that they fall very close to each other. Thus, a single point will be used to
show the GLLLC on the matrix and will be placed using the average ratings determined
for the four value streams. All ratings were defined in a discussion with J eff Rivera.
The GLLLC faces demand volume variability of about 15% from the mean. This
classifies it as ‘medium low’, with a value of 2 points in the classification scale (see
Table 4-1, in page 72) for placement into the two-by-two classification matrix (see
section 4: Environmental Framework – 2x2 classification matrix, in page 69). Demand
mix variability (looking at the demand for each value stream as the mix) behaves in a
similar manner ranging from 10% for Component Warehousing One and Component
Warehousing Two to about 20% for Packaging. This classifies the demand mix

277
Another interesting fact about the workforce is that of the 205 people in the warehouse only 47 are
Menlo employees, while the remaining 158 are temps hired through an external HR firm. This is done to
reduce costs (temps do not get all the benefits Menlo employees do and they do not participate of yearly
bonuses) and to increase labor flexibility while being able to provide lifetime employment to Menlo
employees (although this is not formally offered). Even with so many temps, worker rotations is fairly low.

163
variability for all value streams as ‘medium low’, with a value of 2 points in the
classification scale (see Table 4-1, in page 72). Adding the rating values for demand
volume variability and demand mix variability results in a total demand variability rating
of 4.
On the task variability axis, as mentioned above, there are four distinct value streams.
With the aid of the route variability classification table (see Table 4-3, in page 75), and
averaging results for all value streams, route variability for the GLLLC can be
characterized as having four (3) mostly steady (2) routes with a low level of interaction
(2) between them (people are shared), for an average route variability value of 2.33.
With respect to processing variability, once again an estimated average,
representative of all jobs in the facility, will be assigned to each characteristic used in the
processing variability classification table (see Table 4-2, in page 74). Work content can
vary significantly (3) from part to part in the majority of processes, most operators have
jobs that change somewhat from part to part (2), and each value stream deals with a wide
range of different part numbers (3) with new ones being added constantly. Furthermore,
each order that comes in is potentially different from all others, as it may combine any of
the items the particular value stream deals with. This results in a processing variability
value of 2.67 and a total task variability value of 5.00. These values for demand and task
variability characterize the environment Menlo’s GLLLC operates in, and places the
facility on the left side of the matrix, right on the axis between the Engineered Product
Shop and the Traditional Lean quadrants on the classification matrix (see Figure 6-7).


164

Classification Matrix
2
3
4
5
6
7
8
2 3 4 5 6 7 8
Demand Variability .
T
a
s
k

V
a
r
i
a
b
i
l
i
t
y


Job Shop
Flow Shop
Traditional Lean
(assembly line)
Engineered Product
Shop
Menlo


6.1.2.3 Initial state
As discussed in the company description above, the Menlo GLLLC facility started as
a Lean facility so a non-Lean initial state does not exists. However, there are other non-
Lean facilities in the Menlo network and J eff Rivera has in fact led the transformation to
Lean at other brownfield locations. The discussion presented below focuses on the intial
state found in those facilities for the more common Spare Parts Warehousing type of
value stream.
Figure 6-8 shows a schematic of the value stream. Parts are pushed into the facility by
the suppliers following instructions from the customer who places orders based on a
forecast. Menlo is not involved at all in triggering the replenishment of parts. Once they
arrive at the facility, parts are unloaded and received by checking them against the
shipping documents. Parts are left in a staging area from where material handlers then
Figure 6-7 Menlo Worldwide classification matrix

165
move them to storage in locations assigned by a central computer (locations tend not to
be fixed for each item; instead, they tend to be assigned based on the space available at
the time). Parts then sit in storage until an order requiring them is received. Pickers get
the parts and take them to shipping where they are matched to other items in the same
order, packed, and loaded onto trucks.


Figure 6-8 Initial state value stream map for a Spare Parts Warehousing type Menlo facility (before TPS)

Some of the problems that exist in facilities not using TPS tools include the
following. There is no concept of takt time planning to determine expected labor and
equipment needs or to adjust them in real-time to adapt to changes in demand. Standard
operating procedures are created by engineers and frequently not followed on the floor.
There is no clear vision of the value stream, so optimization of individual processes
prevails over global improvements. As a result, each job is made as ‘efficient’ as possible
with little or no consideration for the repercussion some of the changes may have on
other processes or on the whole value stream. Operators also seek to perform their jobs as
easily and as fast as they can and tend to cut corners in their haste. This frequently leads
to a disorganized workplace with parts placed wherever there is an empty space and tools
everywhere except where they are needed. Also lacking are visual aids to help understand

166
what is happening and, consequently, there is no visual management in use. Finally,
improvement is an ad hoc process when it happens at all.
6.1.2.4 Current Process and use of TPS tools (after state)
The four value streams that exist in the GLLLC will be discussed below. However,
one striking characteristic across all of them is the complete lack of automation. All
processes are performed manually guided by paper slips generated by a central computer
system. Keeping processes manual maximizes flexibility and minimizes capital
investment (costs at the GLLLC amount to the building, racks, a few tables, and some hi-
lo’s), two factors critical to a business that is constantly changing and that runs on
relatively short term contracts (3 years for the Spare Parts Warehousing, for example)
with customers on which it depends completely for its existence (if their main customer
chooses to take its business elsewhere, over half the facility will need to shut down).
Figure 6-9 shows a map of the Spare Parts Warehousing value stream. Parts come in,
are unloaded, received, and set in a staging area. Cones of different colors placed on top
of the items indicate their status. Items that have a green cone can proceed to the next
step. Some of them go through unitizing, where items coming in bulk containers are re-
packed into single unit boxes. All parts are then put into racks arranged by size into three
categories (bin, bulk, and semi-bulk items) to optimize the use of storage space and to
facilitate the picking job. Orders come in and are processed to generate picking
assignments (pick sheets) containing items located in the same area of the warehouse.
The majority of pick sheets are grouped into 20 minute assignments to help maintain the
pace of production, aid in tracking progress through the day, and highlight problems by
showing when team members fall behind. Items that require additional packaging
(especially small bin items), are packed as they are picked
278
. Single line orders (those
containing only one item) go straight to shipping. Multi-line orders go to sorting where a
system of bins is used to marry all the items in the order
279
. When the order is complete,
items are taken to shipping and sent to the corresponding dealer as a single shipment.

278
The carts used to pick these items have been designed to carry the necessary packaging materials, thus
avoiding the double handling that would be required if the parts had to be taken to a packaging area prior to
shipping.
279
Remember that orders were split into separate pick sheets according to the location of items in the
warehouse.

167


Figure 6-9 Current state value stream map for Menlo’s GLLLC Spare Parts Warehousing (after TPS)

Figure 6-10 shows a map for the Packaging value stream. Hundreds of suppliers push
parts in bulk into the facility. Menlo’s job is to re-pack everything they receive into
single-item packaging and ship it to the customer’s distribution centers in less than 48
hours. Parts come in and go into a staging area. Material handlers then match them to the
proper packaging and deliver both to six FIFO lanes that feed packaging tables. All the
work is done manually keeping the process extremely flexible and capable of dealing
with the huge variety of shapes and sizes the parts have.


168

Figure 6-10 Current state value stream map for Menlo’s GLLLC Packaging (after TPS)

Figure 6-11 shows a value stream for the Component Warehousing business.
Although they operate separately and the processes look differently (they handle very
different parts), the value stream for Component Warehousing Two looks just like the
one for Component Warehousing One. Conceptually, a good portion of these businesses
run in the same way as the Spare Parts Warehousing one does. The two main differences
are that some parts are sequenced and that shipments are made J IT to assembly plants.
Parts requiring sequencing are taken out of the packaging in which they were received
from suppliers and placed on sequenced racks for shipment according to the orders
received from the customer. Items are pulled from storage as needed.


169

Figure 6-11 Current state value stream map for Menlo’s GLLLC Component Warehousing (after TPS)

Table 6-3 below provides a summary of the TPS tools described above as well as
others also in use at Menlo GLLLC. It shows how the TPS tools are being used,
particular problems encountered, and their rating.
















170
Table 6-3 Use of TPS tools at Menlo GLLLC
Tool Use / Comments, problems and improvements needed Rate
Good 5S in some areas (like in the Spare Parts Warehousing
storage and sorting), with people assigned to maintaining it.
Carts have a place and are kept there when not in use.
Workplace
organization
(5S) Not as strong in the newer businesses or in unloading and
receiving. Pick aisles are sometimes blocked by parts.
2
Some visual aids in use (colored cones to indicate the status
of items in receiving, colored layouts showing location of
items by type, bins in sorting to marry multi-line orders).
Good visual tracking of metrics in shipping.
Visual
management
Not widely spread. Good in some areas but lacking in many.
2
Key process indicators are used to measure performace and
drive improvement. KPIs are defined with customers and
cascaded to the teams who use them to measure their
performance and as targets for improvement. A gap closure
plan is generated monthly.
Performance
standards
No daily status at a glance.
4
Widely used with team members generating their own.
Standardized
work
Audits not performed as regularly as they should. Standard
times not used as much as they could.
3
Labor is moved as needed in the facility to allow the
workload for everyone to remain relatively stable even in
the presence of variability in demand volume. A small
buffer of containers in the yard provides some leveling to
unloading, receiving, and put-away for some value streams.
S
T
A
B
L
E

P
R
O
C
E
S
S
E
S

Heijunka
(leveled
production)
Not enough is done with customers and suppliers to level
the schedule (inbound variability, which is under direct
control of the customer, is much higher that outbound).
2
Used at picking and shipping to determine production rate
and labor needs.
Takt time
planning
Not used in all areas.
2
Some flow achieved in picking through shipping.
Continuous
flow
Potential areas for true continuous flow, such as Packaging
are not being exploited.
2
Items picked and shipped only to customer orders. Used in
sequencing area and to order cardboard from suppliers.
Pull system
Pull systems in use need to be refined. Pull could also be
used to trigger replenishment of some items from suppliers.
3
Used in Packaging to change between items. Quick
changeover Not many opportunities for using it.
3
Work is done with customers to integrate Menlo into their
operations and provide them with improved solutions for
their logistics needes.
J
U
S
T
-
I
N
-
T
I
M
E

Integrated
logistics
Process needs to evolve to help eliminate waste for both.
4

171
Tool Use / Comments, problems and improvements needed Rate
Most processes stop to solve problems or at least to flag
them so that they are resolved at a later time.
J idoka
(autonomation
& manual
stops)
All processes are performed manually, so there are no
opportunities for autonomation.
3
Built into the process (such as bin system at sorting) to
achieve extremely low defect rates. Random alpha code
ensures items are placed in the correct location. Scanners
are used to verify picking of correct item.
Error proofing
For the most part, devices help prevent mistakes but do not
ensure that they don’t happen.
3
High on customer complaints (they are thoroughly
investigated and countermeasures implemented).
B
U
I
L
T
-
I
N
-
Q
U
A
L
I
T
Y

Eliminate
sources of
defects
Low on supplier compliance (not enough follow-up with
suppliers to ensure problems are eliminated for good).
3
5-whys and A3 problem solving used extensibly for
customer complaints and internal processes (on the floor as
well as in administrative processes).
Problem
solving
(PDCA, 5-
whys) No tracking of problems in pareto chart for prioritizing.
4
Processes are improved autonomously by hourly employees
on the floor and changes tend to go in the right direction.
Metrics and an understanding of the need to eliminate waste
ensure that changes continue to develop the Lean system.
True North
(direction)
No articulated notion of the ideal process.
3
There is a good understanding of the seven wastes and
eliminating them is a driver for improvement. Eliminate
waste During busy times people revert to fire-fighting instead of
addressing the underlying waste and/or problem.
4
Genchi
genbutsu
Processes are improved directly where they are performed.
There is a current initiative to get directors to visit facilites,
observe the floor, and help improve operations.
4
No-blame
environment
Focus is always on the process and never on the person.
There is no finger pointing.
4
The facility is organized into separate value streams for
each customer and run by separate teams. Value stream
maps are used to prioritize kaizens and to generate SMART
targets and action lists.
C
O
N
T
I
N
U
O
U
S

I
M
P
R
O
V
E
M
E
N
T

Value stream
view
A good job is not being done to sustain progress in all cases.
3









172
Tool Use / Comments, problems and improvements needed Rate
Everyone works in teams. There is strong teamwork in each
team and within each value stream. Teamwork
Teamwork is weak across value streams.
3
KPI targets and bonuses tied to them define clear and
common goals. Works well within value streams.
Common
goals
There are no overarching goals to tie value streams together.
3
Small teams (4 to 10 members) are used throughout the
warehouse. Teams drive the improvement process.
Small-team
people
structure
Training and growth of team members and leaders needs to
be strengthened.
4
Everyone is involved in improving operations. Older
employees have a better understanding of why.
Involvement Lacking in training of new employees to provide them
sufficient understanding of the system to gain their full
involvement (their involvement is not as deep).
3
People tend to learn several jobs, even across value streams.
Level of training for each person is displayed on the floor.
Cross training There is no structured cross-training program (done only
when there is a chance or an immediate need) and no
system to rotate people through jobs.
2
Although no formal offer is made, the GLLLC tries to
provide jobs for life to Menlo employees.
P
E
O
P
L
E

J ob security Temps (which constitute the majority of the workforce) do
not benefit from this and are in fact used as a buffer to
protect Menlo employees from business fluctuations.
3


6.1.2.5 Benefits of using a Toyota-style system
As mentioned above, the GLLLC used Lean from its inception. J eff Rivera
established the initial processes following Toyota’s ideas for Lean warehousing and using
TPS tools. This provided the groundwork for good performance and, more importantly,
also established the mechanisms for continuous improvement, people involvement, and
teamwork. A strong focus on improvement supported by a participative and involved
workforce is what continues to drive performance to higher and higher levels. Even
though from the start the GLLLC performed better than other non-Lean facilities in the
Menlo network, it continues to experience significant improvements year after year.
Table 6-4 provides a summary of the benefits perceived between J anuary and November
of 2005 as a result of their continued Lean effort.

173

Table 6-4 Performance improvement in 2005 at Menlo’s GLLLC
Metric % Change
Warehouse productivity 32%
Error rate -44%


Besides these significant improvements in two (cost and quality) of the three main
Lean objectives, performance was exceptional in the third one as well with on-time
delivery at more than 99% on every month and hitting 100% on eight of the eleven
months between J anuary and November 2005. Needless to say, this exceeds customer’s
expectations. Other impressive results include inventory accuracy of 99.9906% (or
94ppm) and the shipment of some 8,000 orders without a single mistake (in part type or
quantity) in the last two weeks of October 2005
280
. Finally, this high level of performance
as well as the improvements realized, result in direct savings for GLLLC’s customers
who just received a $250,000 payment as their share of the cost reductions achieved.
Additional savings and corresponding quarterly payouts to customers are expected to
continue at least through 2009.
6.1.3 Merillat
6.1.3.1 Company description
Merillat was founded in 1946 by Orville Merillat and, from its humble beginnings,
has grown to become the largest kitchen and bath cabinet manufacturer in the US with
annual sales of about $800 million. At present it has eleven manufacturing facilities and
employs over 4200 people. In 1985 Merillat was bought by Masco Corporation, a
construction conglomerate based in Detroit. Merillat offers three distinct product lines
according to their level of luxury and price: Masterpiece, Classic, and Essentials.
However, from an assembly perspective (the focus of this case), they are all part of the
same family and are processed through the same lines. The vast majority of customers are
large homebuilders and distributors.

280
Forger, G. 2005. Menlo gets lean, Vol. 2005: Modern Materials Handling.

174
This case study will focus on the assembly operation at Merillat’s plant in Adrian
Michigan. Merillat has setup its manufacturing operations with separate component and
assembly plants, for the most part. Component factories serve all assembly plants while
these ship to customers by region. The Adrian facility is the original Merillat location and
is a hybrid component and assembly plant. It assembles and ships cabinets for customers
in the North East region and makes laminated and painted components for its own
consumption as well as for other assembly facilities. As a whole, it is a 270,000 ft
2

facility with sales of about $200 million per year and employing some 750 employees.
Assembly can make about 9,000 cabinets per day.
6.1.3.2 Environment and position in matrix
The ratings used below were defined in a discussion with Bob Winterhalter, the plant
manager of the Adrian, Michigan plant. Assembly at the Adrian plant builds directly to
customer orders. With no buffers of any kind and a fixed lead-time of five days (cabinets
are delivered to customers five days after they order them), it must be able to cope
directly with the entire range of demand variability. Volume variability stands at about
20% from the mean, which is defined as ‘medium low’, with a value of 2 points in the
classification scale (see Table 4-1, in page 72) for placement into the two-by-two
classification matrix (see section 4: Environmental Framework – 2x2 classification
matrix, in page 69). Demand mix variability is significantly higher and was estimated as
‘medium high’, with a value of 3 points in the classification scale (see Table 4-1, in page
72). Adding the rating values for demand volume variability and demand mix variability
results in a total demand variability rating of 5.
On the task variability axis, the value for route variability is determined using the
route variability classification table (see Table 4-3, in page 75). There are ten assembly
cells that, being identical and self-contained, do not introduce scheduling complexity or
issues with shared workstations. Route variability can be characterized as having ten (3)
steady (1) routes with a low level of interaction (2) between them, for an average route
variability value of 2.
With respect to processing variability, an estimated average representative of all jobs
in assembly, will be assigned to each characteristic used in the processing variability
classification table (see Table 4-2, in page 74). Work content can vary significantly (3)

175
from part to part in the majority of processes (about ±50%), jobs for most operators
remain practically the same from part to part (1), and there is a very wide product
offering (3) with some 30,000 end items. This results in a processing variability value of
2.33 and a total task variability value of 4.33. These values for demand and task
variability characterize the environment Merillat operates in, and place the facility on the
bottom half of the classification matrix, right on the axis between the Traditional Lean
and the Flow Shop quadrants (see Figure 6-12).

Classification Matrix
2
3
4
5
6
7
8
2 3 4 5 6 7 8
Demand Variability .
T
a
s
k

V
a
r
i
a
b
i
l
i
t
y


Job Shop
Flow Shop
Traditional Lean
(assembly line)
Engineered Product
Shop
Merillat
(assembly)


6.1.3.3 Initial state
The value stream in Figure 6-13 shows how Merillat used to run before the Lean
initiative began. An MRP type system was used to develop a schedule for assembly,
machining, the component plants, and to place orders with suppliers. To improve the
Figure 6-12 Merillat classification matrix

176
efficiency of each process, the schedule tended to batch similar cabinets together. The
idea was to maintain a stock of finished cabinets and to supply customers from it when
they ordered. Following the schedule, machining would cut batches of wood and put
them into storage where it joined other parts coming from component plants or external
suppliers. Pickers would get the parts needed to make the cabinets called for on the
schedule and deliver them to assembly where a group of operators would put them
together, pack them, and send them to the warehouse. When an order came it was sent to
the floor and workers attempted to fill it from the finished goods stock. It usually took
about 10 days to deliver the orders.


Figure 6-13 Initial state value stream map for cabinet assembly at Merillat (before TPS)

As can be expected, this push system had significant problems. For one thing, trying
to keep inventory for a high number of items with variable demand required a dedicated
warehouse where some 20,000 cabinets were kept. This was a costly solution and one
that did not entirely solve the problem of delivering to customers in a timely manner.
Even this many cabinets were not enough to ensure that all orders could be filled from
stock. For one thing, the sales forecast was never right so there were always excess
cabinets of one type and not enough of others. Missing cabinets had to be expedited
causing disruptions to the carefully planned schedule, which in turn resulted in other
missing cabinets and further disruptions. Other internal problems such as missing raw

177
materials and components, machine failures, and absenteeism also caused havoc to the
schedule. Furthermore, introducing new models, new woods, or even just adding a color
to the product offering meant that the finished goods inventory had to be increased
significantly. This imposed limits on the variety of products that could be offered and
affected the sales growth potential. Finally, having significant amounts of inventory
between processes ensured that each one operated as an isolated island and reduced both
the firm’s capability for improvement and its rate of progress.
6.1.3.4 Current Process and use of TPS tools (after state)
The first step taken in Merillat’s Lean journey was to eliminate the finished goods
inventory. This implied changing from the make to stock model described above to a
build to order system, and required a complete redesign of the manufacturing process
including order processing and scheduling. After years of hard work, the current system
uses ten identical assembly cells running in parallel. Figure 6-14 shows the current value
stream for one of these cells.


Figure 6-14 Current state value stream map for cabinet assembly at Merillat (after TPS)

As orders come in, they are grouped into truckloads according to where they need to
be shipped. Truckloads are assigned sequentially to cells as they get to the end of the
previous batch. Truckloads typically have some 100 cabinets, and thus can keep a cell
busy for about two hours. Once a truckload has been assigned to a cell, pick-sheets are
printed for the components required to make the first 25 cabinets. The pick sheets

178
indicate the slot in the cart where each part must be placed; this is used to sequence the
components and minimize the amount of inventory that needs to be kept at the cell (less
than one hour for most items). Material handlers get the parts from the market (i.e.,
intermediate parts inventory) and deliver them in sequence to the cell. The operator at a
given station picks the next part in the cart and builds the corresponding cabinet. Despite
the high variety of cabinets and the fact that each one coming down the line is potentially
different, standardized work has been developed for each station and is used effectively.
There is space for about two cabinets between stations. Even though stations have been
designed to have a balanced workload, excessive variability in the product and its mix
requires a small amount of WIP to accommodate for fluctuations (work content ranges
between 30 and 90 seconds per cabinet). Once the cabinet has gone through all stations, it
gets packed and loaded directly to the truck. The machine that seals the boxes also serves
as a type of pace maker by accepting boxes only about every 60 seconds.
When a cart of components is finished, operators press a button (electronic kanban) to
call for another one (there are always two carts on the line… one being worked from and
the next one that will be needed). E-kanban is used to ensure that cells are served in the
order in which they require materials
281
. When a material handler becomes available she
goes to a central station, prints the next pick sheet, and goes to the market to pick those
parts. A computer tracks when and what has been delivered to each cell and signals an
alarm when a cell has gone for too long without reordering. This triggers the material
handler coordinator to call the cell’s team leader and verify the situation.
Building cabinets to order means that finished goods inventory cannot be used to
level production. This leaves capacity as the only lever that can be adjusted to adapt to
fluctuations in demand (see Figure 1-5: Lovejoy’s Law, in page 18). Merillat regulates its
capacity in four ways. First, plants can share work when one is overloaded and another
one has spare capacity. This may add travel distance to the shipment but helps absorb
some of the variability. Second, during slow days entire cells are shut down while their
workers take vacation or go through training. Third, work is pulled ahead. Every evening,
when the day’s work is finished, the second shift continues making cabinets that need to

281
A more visual system was replaced by an electronic version since the old one tended to provide faster
service to the cells located closer to the material handler’s hub.

179
ship the next day. The amount of work that is pulled ahead is variable (depending on the
size of the current day and how well production ran) and thus helps level daily
fluctuations. Fourth, overtime can be added by starting the first shift early and ending the
second one late. Although none of these tactics reduce demand variability, they shield
production from it, allowing the cells to always run at a constant planned cycle time of 60
seconds.
Table 6-5 below provides a summary of the TPS tools described above as well as
others also in use at Merillat’s Adrian facility. How the tools are used, their problems,
and their ratings were defined mostly in a discussion with J ames Greene (the Quality
Manager who until recently held the position of Continuous Improvement Manager) and
modified slightly based on the observations made at the plant. The table shows how the
TPS tools are being used, particular problems encountered, and their rating.



















180
Table 6-5 Use of TPS tools at Merillat's Adrian plant
Tool Use / Comments, problems and improvements needed Rate
For the most part, things are kept in order. Each shift rates
the previous one.
Workplace
organization
(5S)
There are some problems with sustainability (production
tends to takes priority over 5S).
3
Kanban, lights, and other indicators are used to support the
production process. Key indicators clearly display how each
cell is performing.
Visual
management
Some visual cues were lost with the introduction of the e-
kanban.
4
There have been some initial successes in the saws.
Preventive
maintenance
TPM started recently so it is not used through out the whole
facility; most of it is done on 3
rd
shift.
2
Performance
standards
Key metrics for each cell are tracked in comparison to their
targets and displayed publicly. These are rolled up into plant
level metrics and displayed along with others to provide an
at-a-glance indication of the health of the organization.
4
All operations are standardized and most workers perform
their job according to it. There is a rigorous audit system by
team leaders multiple times per day.
Standardized
work
Some team leaders do not perform in-depth audits, just
going through the motions to satisfy their boss.
4
Work is shared among plants when one is overloaded.
Volume variability within the plant is handled by adjusting
the number of cells used (which run at the same rate), by
pulling work ahead (2
nd
shift works on next day orders), and
through overtime.
S
T
A
B
L
E

P
R
O
C
E
S
S
E
S

Heijunka
(leveled
production) Making to order precludes the use of finished goods
inventory as a leveling tool. However, shutting down cells
and working ahead results in volume leveling. Past attempts
at leveling the mix did not improve performance.
3











181
Tool Use / Comments, problems and improvements needed Rate
A standard planned cycle time of 60s is used for all cells
and is maintained constant regardless of volume (demand
fluctuations are handled as described in heijunka above to
avoid modifying the speed of the cells).
Takt time
planning
The last machine at packing serves as a pace setter.
However, since stations in the cell are not physically
connected its ability to set the pace is limited. It does
provide an upper boundary on the speed of the line (how
frequently cabinets get to the truck), which, in face of
existing variability, is a mixed blessing since it limits the
ability of the cell to recover lost production or to run faster
when low work content cabinets are being built.
3
Used in all assembly cells.
Continuous
flow
Most stations in the cell are separated by enough space to
hold about two cabinets. This weakens the link between
stations, but is necessary to accommodate differences in
work content between products. Some stations, such as
drawers, can (and do) run ahead building unneeded WIP.
4
Carts with 25min worth of sequenced parts are delivered to
the cells and replenished once they are used. Picking parts
from the markets triggers replenishment from upstream
processes, component plants, and suppliers.
Pull system
Some low volume components are held in larger quantities
and for longer periods than desired.
4
Quick
changeover
All stations in the cell can changeover within the planned
cycle time, and some, like the clamps, can change instantly.
5
J
U
S
T
-
I
N
-
T
I
M
E

Integrated
logistics
Specific cabinets are assigned to the cells by grouping
orders into truckloads according to their delivery location.
Cabinets are built and loaded directly into the trucks. Daily
trucks from suppliers and component plants replenish what
was used recently.
4


















182
Tool Use / Comments, problems and improvements needed Rate
The cells stop for obvious and recurring problems. J idoka
(autonomation
& manual
stops)
Mostly manual processes with little to no automation. The
cells usually do not stop when problems are found in only a
few cabinets (the issue is communicated to the team leader).
3
Used to identify material replenishment needs, to call for
the team leader, and for maintenance. Andon
Response is not always as fast or effective as it should.
3
Poke-yoke used on most stations (saw, staple gun, hinge).
Error proofing
Some known mistakes are still possible.
4
Self-checking of work is expected.
In-station
quality
control
Pressure to meet production numbers sometimes results in
reduced in-station QC, with some people letting defects
pass even when they see them.
3
Team leaders analyze defects to determine and eliminate
their causes. Operators are retrained as needed.
B
U
I
L
T
-
I
N
-
Q
U
A
L
I
T
Y

Eliminate
sources of
defects
Band-aids are more common than root cause solutions.
Problems with component plants are not always fixed.
3
Root cause analysis and PDCA are widely used and a
critical contributor to overall improvement efforts.
Problem
solving
(PDCA, 5-
whys)
Going to 6-sigma for bigger projects, although simpler tools
will continue to be used on the floor.
4
Direction and focus for improvement is dictated by targets
for key performance metrics (customer and corporate input
is used to determine the desired target).
True North
(direction)
No clearly articulated notion of the ideal process.
3
A yearly value stream map is used to identify opportunities
to eliminate waste. Most people understand the seven
wastes and are constantly analyzing their processes in an
effort to eliminate them.
Eliminate
waste
Newer workers are more conscious of waste. Some of the
older people feel that inventory is a safety net and that
walking provides a needed break.
4
When problems occur, direct observation is typical.
Genchi
genbutsu
There is an over reliance on looking at numbers to identify
problems and propose solutions at the expense of more
process oriented observations and discussions.
2
Environment open to risk takers. People do not get punished
for failing as long as they learned from the experience.
No-blame
environment
At lower levels over reliance on metrics sometimes
penalizes workers when targets are not met due to causes
out of their control.
3
C
O
N
T
I
N
U
O
U
S

I
M
P
R
O
V
E
M
E
N
T

Value stream
view
Yearly value stream map used to identify opportunities for
improvement helps generate a global perspective of the
business. Global metrics also help focus on achieving
overall improvements as opposed to optimizing locally.
4

183
Tool Use / Comments, problems and improvements needed Rate
Teamwork is actively promoted. Most employees work as
part of a team and have clear feedback on how their
performance affects others. Teamwork
Some people still focus only on their assignment and
provide little or no assistance to others.
4
Most metrics tend to focus on team performance (rolled up
to the plant level) and prizes and bonuses for achieving
them are given to the team as a whole.
Common
goals
Some of the metrics used to define the goals are sometimes
partially out of the control of the team.
4
Teams of about 15 team members per team leader, with 5
teams per supervisor. Focus at the team level is on getting
the needed cabinets on the truck.
Small-team
people
structure
System works well for production but not for improvement.
Some improvement happening at the supervisor level, but
not so much at the team leader level. With so many workers
in their charge, team leaders are over extended and thus
focus almost exclusively on today’s production with little
time left to spend on making tomorrow better.
3
People are expected to contribute their ideas and effort for
the benefit of the firm. Involvement is actively promoted by
including a wide range of people (including workers from
the floor) in the decision process for most changes. Involvement
Standardized work and kaizen events have highlighted to
people that they can make a difference and thus increased
their involvement.
4
Cross training
Workers are cross-trained and rotate between jobs every
two hours. A process matrix for each cell is used to visually
track the level of training each operator has achieved.
4
P
E
O
P
L
E

J ob security
A specific commitment has been made to the people that
anyone freed up through improvements will remain
employed.
4


6.1.3.5 Benefits of using a Toyota-style system
Throughout its Lean journey, which started in 1991, Merillat’s Adrian plant has
undergone a huge transformation that has affected every aspect of their business and
resulted in major improvements in performance, as summarized in Table 6-6.



184
Table 6-6 Performance improvement at Merillat's Adrian plant
Metric Before After % Change
Lead-time [days] 10 5 -50%
Finished goods inventory [cabinets] 20,000 0 -100%
Product offering [skus] 9,800 30,000 206%

Going to an assemble-to-order system has allowed Merillat to significantly increase
the product offering, going from about 9800 items the customer could choose from in
1998 to over 30000 in 2006. Such an end-product proliferation, which has been an
important contributor to the growth in sales that Merillat has experienced, would not have
been possible if finished goods had to be maintained for all items, as was the case in the
previous build-to-stock system.
6.2 Action Research Cases
As discussed previously, the research in these cases involved working for a
prolongued period of time with the firms involved (three years with Motawi and two and
a half years with Zingerman’s Mail Order) to change the way they conduct their business
by introducing a Toyota-style system.
6.2.1 Motawi Tileworks
6.2.1.1 Company description
Motawi Tileworks was founded in 1992 and is owned and managed by Nawal and
Karim Motawi. It is a manufacturer of high-end, handmade decorative tiles with sales
closing on $2 million a year and has some 20 employees. They make a high variety of
parts in relatively low volumes, including both standard products from a catalogue
offering of over 6400 different end items, and custom made parts ranging from slight
adaptations of existing items (a custom cut, for example) to completely new ones
designed and made to customer specifications. The majority of products are made only
after a customer order is received (made to order). Each year about 10% to 15% of the
parts are renovated by introducing new ones and dropping ones that were not selling. The
tiles produced can be classified into three types: field, relief and polychrome. Field tiles

185
are glazed by dipping them manually in a single color and have no additional decoration.
They include flat tiles in many different shapes and sizes as well as moldings and edge
pieces. Relief tiles are similarly glazed in a single color but have a bas-relief pattern to
them. Polychrome tiles are pressed with an embossed design that is then hand glazed in
different colors to produce remarkable decorative pieces. These three types of tiles can be
further grouped into two families based on the processes they require. Field and relief
tiles are part of the dip-glazing family, while polychrome ones conform the bulb-glazing
family. Customers include end users, designers, and distributors in the form of tile
showrooms and art galleries.
6.2.1.2 Environment and position in matrix
Motawi Tileworks operates in a highly variable environment, with less than 90% of
the days having a demand within ±100% of the mean. In fact, daily demand in 2005
peaked at 15.9 times the mean. This classifies the demand volume variability Motawi
faces as ‘high’, with a value of 4 points in the classification scale (see Table 4-1, in page
72) for placement into the two-by-two classification matrix (see section 4: Environmental
Framework – 2x2 classification matrix, in page 69). Weekly demand volume variability
follows a similar behavior, with the maximum weekly demand reaching 353% of average
sales. Even at the monthly level, where demand for all months was within ±100% of the
mean, variability was still significant, ranging from 44% of the mean to 162%. Figure
6-15 displays 2005 daily, weekly, and monthly demand, along with their corresponding
means and the ±10%, ±50%, and ±100% limits. These charts visually display what the
numbers above describe.










186










Demand mix variability by product family is even higher. Both families had less than
90% of the days in 2005 within ±100% of the mean. Maximum demand for the dip-
glazing family peaked at 22.1 times the mean, while for bulb-glazing it was 13.5 times
higher than the mean. This classifies the demand mix variability for both families as
‘high’, with a value of 4 points in the classification scale (see Table 4-1, in page 72).
Total demand mix variability is thus rated a 4. Figure 6-16 presents two charts showing
daily demand mix variability for both product families, along with their corresponding
means and the ±10%, ±50%, and ±100% limits. Adding the rating values for demand
volume variability and demand mix variability results in a total demand variability rating
of 8, which places Motawi at the top of the scale on the demand variability axes.

Figure 6-15 Motawi's 2005 demand volume variability
Daily Demand Volume Variability
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187


On the task variability axis, the two main product families share several processes
(especially at the front end) but also branch off into two distinct routes for others. Figure
6-17 shows a simplified version of the product flow through the studio.

Shipping Dept.
Dip Glazing Dept.
Bulb Glazing Dept.
Bulb
Glazing
Press Dryer Kiln
Dip Glaze Kiln
Kiln
QC &
Ship
Pressing Dept.
Dip glazing family
Bulb glazing family
Edge
Bisque FG
Allocate

Figure 6-17 Flow diagram of the tile making process

With the aid of the route variability classification table (see Table 4-3, in page 75),
route variability for Motawi can be characterized as having two (2) steady (1) routes with
a high level of interaction (4) between them, for an average route variability value of
2.33.
Figure 6-16 Motawi’s 2005 daily demand mix variability
Dip-Glazing Daily Demand Mix Variability
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188
With respect to processing variability, there are considerable differences between
processes in the studio. An estimated average, representative of all jobs, will be assigned
to each characteristic used in the processing variability classification table (see Table 4-2,
in page 74). Work content varies hugely (4) from part to part in most processes. Most
operators have jobs that change somewhat from part to part but may be significantly
different (3) from day to day (depending on the volume and mix required for the day and
on other related jobs that they need to perform, such as preparing glazes or framing
parts). Finally, there is a wide offering of products with some that are made only once
(3). This results in a processing variability value of 3.33 and a total task variability value
of 5.67. These values for demand and task variability characterize the environment
Motawi operates in, and places the firm on the job shop (top right) quadrant of the
classification matrix (see Figure 6-18).

Classification Matrix
2
3
4
5
6
7
8
2 3 4 5 6 7 8
Demand Variability .
T
a
s
k

V
a
r
i
a
b
i
l
i
t
y


Job Shop
Flow Shop
Traditional Lean
(assembly line)
Engineered Product
Shop
Motawi


Figure 6-18 Motawi Tileworks classification matrix

189
6.2.1.3 Initial state
Figure 6-19 shows the value stream map for Motawi Tileworks before the Lean
initiative began. As orders came in, they would go to the pressing department, where the
first thing done was to check for availability of parts in the bisque WIP location. If parts
had to be made, the process would start with raw clay that was formed into the desired
shape in a hydraulic press. Tiles were then trimmed, and some were edged, followed by
drying and firing resulting in bisque ready to be painted. The orders and parts would then
be transferred to the glazing departments. Glazing would be done by either dipping the
tile into a bucket of a single color or by applying multiple glazes using a bulb fitted with
a nozzle. Tile would then go to the kilns for a second time to fire the glaze. Finally, at
shipping, tile would be inspected and packed to be sent to the customer.


Figure 6-19 Initial state value stream map for Motawi Tileworks (before TPS)

Motawi used to operate as a typical mass producer, attempting to optimize individual
processes without realizing the problems that was causing to the system as a whole.
Optimization at the process level attempted to make them more efficient by producing in
large batches to minimize the number of setups they needed to make. At pressing this
meant that whenever a mold was loaded, they would make a few more than needed…
sometimes hundreds more (two years later some of these optimally produced parts were
still in inventory until it was decided to throw them out). The extra parts (not needed for
the current order) would go all the way through the first kiln firing and sit as bisque

190
inventory. About three months worth of parts were kept here, unfortunately a good
portion of that were low volume items that were ordered infrequently and thus were the
wrong items to have for most orders.
For both dip and bulb glazing, the process started by dipping the backside of the tile
in wax to prevent glaze from sticking to it. At dip glazing, tile was then manually
submerged into a bucket filled with the desired glaze. At bulb glazing, different color
glazes were applied to the tile using a bulb fitted with different sized nozzles. Glazers
could work independently or in teams sitting around rotating tables with each person
glazing one color on all the tiles on the table. Bulb and dip glazing followed an
optimization approach similar to that of pressing by batching like colors. In the case of
bulb glazing there was even an in-house developed database where all orders were loaded
to provide visibility on what was coming. This allowed the bulb glazing coordinator to
type in a particular color way and get a list of all items in the pipeline that needed it.
From this she would choose the items to make. Of course, a few extra would be made
here as well to compensate for quality problems and to avoid glazing the same thing too
frequently. ‘Good’ extras would sit as finished goods inventory or go to the front office
display.
This approach to running the business had three main problems. First, batch
optimization made people work on items needed well into the future or not at all. This
significantly reduced the capacity available to work on what was actually needed to get
the current orders out the door. Second, batching across orders significantly increased
customer lead-time as each order needed to wait for all the items requested, which could
potentially be processed over a period of several days or even weeks. Third, batching also
introduced a lot of sorting of orders and/or parts in all departments. This was the most
visible symptom of the batching problem: dozens of open orders waiting for parts
(unnecessarily increasing the order to cash cycle). Pressing needed to mark the items
made on each order, but since each order could take a week or more to be fully pressed it
always had a large pile of orders in process. When items came out of the kilns, allocating
them correctly was a cumbersome and time consuming process that required sorting
through all the open orders to find where each part should go. And for each open order
there was a box with the parts that were already finished. This translated into shelves of

191
little boxes with a few items in each… many of them being held up by one or two low
volume pieces that had not been made yet. At bulb glazing, the computer system
described above ‘helped’ in selecting the items to work on, but it was still necessary to
sort through the orders to match them to what was being produced. Dip glazing worked
on the orders being released from pressing but would hold some back to match them with
others that required the same color glaze.
At shipping however, was where the problem became more evident. Product would
come out of the glaze kilns and be laid out on tables for inspection. The tiles would then
be packed into boxes marked with the order number. Unfortunately, since orders where
not processed together, it was frequent for the first items in an order to reach shipping
before the order itself did. This meant that either items stayed on the tables reducing the
space available for shipping to process additional items that continued to come out of the
kilns, or the shipper needed to go hunting through the studio for the order to which the
items on the tables belonged. Then, when the items were finally in their boxes, they still
had to wait for the missing pieces instead of being shipped to the customer. On average
orders sat one and a half to two weeks here before all parts made it to shipping. This
introduced another huge sorting issue as tile coming out of the kilns had to be matched to
the right orders (40 or 50 orders sitting here made this a very wasteful process).
Scheduling was done using a log that had a very tenuous connection to the reality on
the floor. An expected rate of production for each family was defined and was used as the
capacity limit for scheduling. As orders came in, they would fill these capacity buckets in
the log and would be given an expected ship date based on where they could be fitted.
Production would try to comply with these dates, but the disconnect between the logs and
the floor meant orders were frequently shipped late.
6.2.1.4 Current Process and use of TPS tools (after state)
As most Lean initiatives, Motawi’s began by focusing on improving flow to get
orders out the door faster. This meant implementing a pull system to ensure that everyone
worked on what was really needed at any moment in time. The first consequence of this
is that all parts of an order now flow through the studio together. This eliminated most of
the time parts spent waiting for other components in their order and thus led to a
significant reduction in production lead-time. It has also significantly reduced the number

192
of open orders at each department eliminating most of the sorting that was required.
Finally, it replaced the predominant process level optimization by a focus on value stream
improvement.
However, making processes follow customer demand by tying them together through
a pull system had the potential to introduce excessive variability into the studio. In
accordance with Lovejoy’s Law (see Figure 1-5, in page 18) Motawi uses inventory and
extra capacity to minimize the impact of demand variability on internal processes.
Finished goods inventory, WIP, and flexible customer lead-times
282
(the ship date quoted
to customers floats with the workload being experienced by the studio) function as
permanent buffers that shield the studio from most daily and weekly variability. Overtime
provides some extra capacity as needed. Hiring temporary help is used as a last resort to
cover extended periods of high demand. The combined effect of all these buffers offer
sufficient protection from demand variability to allow internal processes to run at a fairly
leveled schedule throughout the year (with targets revised monthly) even when demand
variability remains extremely high.
The production steps in the current process are basically the same as those described
for the initial state. The biggest changes have occurred in the flow of information and the
work that is done in response to it. Orders come in and are placed into day slots in a
scheduling box (there are two boxes, one for orders. The size of each slot is defined based
on the takt rate calculated from the yearly sales plan and the expected mix of products
(dip vs. bulb glazed). Each order that comes in is placed in the next slot not yet full. This
procedure results in an ordered list of jobs that the studio processes in FIFO sequence. It
also generates an expected start date for each order (when the studio should begin
working on it) and defines the ship date to be quoted to customers.
Every day, pressing and shipping pull one day’s worth of orders from the ‘other’ box
and from the ‘gift catalogue’ box correspondingly and take them to their ‘in-process’ box.
Each department has one of these boxes (or a board), which have a fixed limit on the
square footage allowed in them and thus work as fixed-size FIFO lanes linking processes
together and limiting the total amount of work that can be in the studio at any given time.

282
Flexibility in the lead-times quoted to customers translates into extra capacity as orders in excess of
current capacity are pushed back into periods of lower demand.

193
Besides promoting improvement by linking processes together, this method ensures that
processing lead-times remain fairly stable and turns scheduling into the simple process of
dropping the new job into the ordered queue and adding the expected lead-time to the
current backlog to get the expected ship date. The start date is given by the current
backlog.
At allocation, orders are filled by pulling items from the bisque inventory. For those
items not in stock (either they are not kept or their level is too low to fill the order) a
make-to-order (MTO) kanban is generated to trigger its production at the press. MTO
kanban, along with bisque kanban (triggered by depleting the bisque inventory) go
upstream to the press kanban board and define its schedule for the day (see Figure 6-20).
At the press, parts are formed, trimmed, and and edged as needed. At the end of the day,
all go into the dryer for an overnight cycle (kanban go into the dryer box as a visual
indication of what is in the dryer). The next day they are loaded into the kilns for a two-
day cycle (kanban move to the box corresponding to the particular kiln), after which they
come out as bisque ready to be allocated to specific orders or to refill the bisque
inventory.


Figure 6-20 Current state value stream map for Motawi (after TPS)


194
Gift catalogue orders that go straight to shipping are picked from the finished goods
inventory. As this is depleted, production kanban go upstream to the bulb glazing kanban
board to trigger replenishment of the items used.
The dip-glazing branch of production works mostly as a FIFO
283
process from
allocation to shipping. Glazers receive order tickets and the corresponding items to be
glazed from allocation at the daily takt rate. They group items by kiln protocol and
proceed to glaze enough of them to fill a kiln. At the end of the day, all parts go into the
kilns for a two-day cycle. When they are done, parts are unloaded from the kilns and
taken to shipping.
Bulb glazers have to deal with a mixture of FIFO

orders coming from allocation and
kanban coming from the finished goods inventory. Once the pieces they are working on
are finished, glazers go and get either the next FIFO or choose the tile to work on next
from the kanban board that replenishes the finished goods inventory. In the second case,
they must also go and collect the items from the bisque market. Items are then waxed and
bulb glazed. At the end of the day all items are dipped in a clear glaze and loaded into the
kilns for a two-day cycle. When they are done, parts are unloaded from the kilns and
taken to shipping.
At shipping, parts are laid out on tables for visual inspection. Defective parts are
classified by type of defect and then segregated to be sold as seconds (for the most part).
Rework orders are generated as needed. Good parts are either placed in the finished
goods inventory or grouped by order and packed for shipping.
The kanban and the ‘FIFO lanes’ described above combine into an effective pull
system that ensures that everyone works on what is needed to get orders through the
studio in a fast and reliable way. They also link all processes together ensuring that
problems become rapidly visible and get the attention needed to get them solved.
Table 6-7 below provides a summary of the TPS tools described above as well as
others also in use at Motawi. It shows how the TPS tools are being used, particular
problems encountered, and their rating.

283
FIFO may not always be followed in choosing the next order to glaze since different glazes require
different protocols in the kilns and dip glazers need to choose the right orders to fill the kilns with items
having the same heat work requirements. However, dip glazers have, at the most, only two days worth of
visibility from which to choose orders and as much as possible try to work on jobs based on order release
date, so the loss of FIFO is minimal.

195

Table 6-7 Use of TPS tools at Motawi
Tool Comments, problems and improvements needed Rate
For the most part, things are kept in order and cleaning and
organizing routines are part of all jobs.
Workplace
organization
(5S) No formal 5S system in place.
3
Kanban cards and boards, as well as schedule and process
boxes are used to provide visual support for the pull system.
Charts show performance at each process.
Visual
management
Visual systems must be refined and others added to improve
shared understanding at the value stream and process level.
2
Minimum use of preventive maintenance to minimize
sources of defects (tighten kilns to minimize kiln crud).
Preventive
maintenance
Lack of PM results in unplanned disruptions to production.
1
Production performance and targets are tracked and
displayed for all processes. Quality is tracked at a company
wide level based on final QC. Customer backlog is tracked
and displayed daily. Lead-time, % on-time delivery, and
lateness are reviewed monthly. Sales are reviewed monthly
and quarterly against the yearly plan. Costs are reviewed
quarterly (analysis of P&L Statements).
Performance
standards
Processes used to track and share metrics, and to review
targets, must be improved. More specific standards (such as
completion times) are needed to help drive improvement.
Deviations from plan must be followed by specific actions
taken immediately as the discrepancy is discovered.
3
General routines for each department are being developed
that define what should be done, when, and what the
expected completion time is. These should highlight
problems, improve process predictability, and enhance
coordination between departments.
Standardized
work
Hard to use in a traditional way due to the high number of
parts being made and the difference in work each requires.
1
Finished goods and bisque markets, in combination with
variable lead-times quoted to customers, buffers internal
processes from external demand variability.
S
T
A
B
L
E

P
R
O
C
E
S
S
E
S

Heijunka
(leveled
production) Even with leveled schedules, significant differences in work
content between parts make process output variable.
3




196
Tool Comments, problems and improvements needed Rate
A daily takt rate
284
(ft
2
/day) is defined based on planned
sales and reviewed monthly to set targets for each
department, thus improving coordination between
departments and ensuring a steady throughput sufficient to
satisfy demand.
Takt time
planning
Too many items with very different work content make a
traditional takt time useless. The system used to monitor
and adjust the takt rate must be improved.
3
Continuous flow objectives of reducing lead-time and
exposing problems by tightening the links between
processes are being pursued. Less than two days
285
of WIP
now separates most departments. Continuous
flow The batch nature of the process makes true continuous flow
throughout the studio impossible. It could be approximated
within processes, but even there, drying times preclude the
use of true one-piece flow.
1
A pull system is used to control production throughout the
main value stream (scheduling to shipping) and is being
expanded to peripheral areas (frames and samples).
Pull system
Improvement is needed in the process of reviewing kanban
quantities to adjust markets to changing demand conditions
and as a tool to expose problems by reducing inventory.
4
A quick changeover device is in use at the press and has cut
changeover time by about 2/3. Quick
changeover Progress is still possible by focusing on the methods used.
Must be extended to other departments.
1
J
U
S
T
-
I
N
-
T
I
M
E

Integrated
logistics
Minor integration with key suppliers (clay and frames) and
with the outgoing carrier.
1











284
Using a daily rate is not a bad compromise for Motawi since the nature of its processes define it as a
batch operation with the tile moving from one department to the next once per day or even less frequently.
285
Two days of inventory may sound high. However, considering the dryer runs overnight and the kilns
work on a 2-day cycle, one day is as low as they can go without major capital investments not really
justified by their production volumes.

197
Tool Comments, problems and improvements needed Rate
Manual processes usually stop production when defects or
problems are detected.
J idoka
(autonomation
& manual
stops)
Very little automation and no autonomation are in use. If
problems detected cannot be solved on the spot, they are put
them aside and be solved later. Usually the right people get
involved in solving them, but the time lag makes it hard to
determine the root cause of the problem. It may also reduce
the visibility some problems get.
2
Everyone is used to asking for help (and they do it
frequently) when they have a problem. Andon
There is no formal system in place.
1
Quality is inspected and defects detected are corrected at
each station.
In-station
quality
control
Most defects can only be detected after the final firing (at
final QC), making in-station quality control only partially
effective. Corrections made to defects detected in-station
tend to focus on the particular item being made and rarely
transcend into durable process improvements.
2
Defects detected in final QC are classified and analyzed to
determine which is the main problem affecting quality
(pareto diagram). This is then addressed in a company wide
effort to find and eliminate its root causes.
B
U
I
L
T
-
I
N
-
Q
U
A
L
I
T
Y

Eliminate
sources of
defects
Works well at the macro level, but is slow to produce results
since only one defect is worked on at a time and it does not
address problems as they happen, so it is necessary for the
condition to reappear before it can be analyzed. The system
must become part of the regular management process.
2















198
Tool Comments, problems and improvements needed Rate
5-whys is the method of choice to find the root cause of
problems, defects, and late orders.
Problem
solving
(PDCA, 5-
whys)
There is no structured improvement process. Even the use
of the 5-whys lacks the rigor necessary to ensure that true
root causes are consistently identified and eliminated.
1
Some understanding of the need to decrease variability,
reduce batch size, and eliminate waste. Significant efforts
undergone to eliminate defects.
True North
(direction)
No articulated notion of the ideal process.
1
Most people have a basic understanding of the seven wastes
and significant waste has been eliminated at all stations.
Eliminate
waste
Waste elimination is not yet a driver for improvement. Most
waste is perceived as inevitable (it is caused by variability),
insignificant (no need to address it), or even needed (a
welcome break from the work being performed).
1
Problems are solved by first observing the process.
Genchi
genbutsu
Observation skills need to be developed further, along with
a system to teach those skills to new comers.
3
Problems tend to be seen as opportunities for improvement
and hardly ever is blame placed to people.
No-blame
environment
A view of problems as a system failure is frequently
missing. Variability or one-time events are frequently
blamed precluding improvement.
3
For the most part, improvements made to the value stream
as a whole prevail over local optimization.
C
O
N
T
I
N
U
O
U
S

I
M
P
R
O
V
E
M
E
N
T

Value stream
view
Links between processes and the effect of changes made are
not always clear due to variability and the lag between
action and effect (caused by the long dryer and kiln cycles).
3












199
Tool Comments, problems and improvements needed Rate
Cooperation and working together is the norm. Open
communications, weekly coordinator’s meetings, and
monthly all-staff lunches are used to promote integration.
Departments frequently help each other and people tend to
go out of their way to assist others. Teamwork
To capitalize on the existing spirit of cooperation, indicators
and guidelines must be put in place and integrated into an
autonomous system that allows people to move between
jobs to support the processes that need it the most.
4
The yearly sales forecast is used to set goals for sales and
daily targets for production (takt rate). The monthly defect
analysis provides a common focus for quality improvement.
Common
goals
Philosophical, long term, and more enduring goals to drive
continuous improvement (such as Toyota’s notion of the
ideal process) are lacking. It also needs to be integrated into
the regular managerial process.
2
Departments behave as small teams with a working
coordinator in charge of training, achieving production
targets, solving problems, and improving processes.
Small-team
people
structure The teams focus on achieving production targets, so
firefighting is more common than long-term improvement.
3
Participation and involvement are encouraged and expected.
Involvement The structure to take advantage of this involvement in a
systematic way is lacking.
3
Some cross training that allows movement of some
employees across departments.
Cross training No formal system to cross-train employees, to track their
level of proficiency, or to rotate them periodically through
the jobs to maintain their level of proficiency.
2
Basic awareness of the problems coming from high
employee turnover and the need to not fire employees as a
result of improvements.
P
E
O
P
L
E

J ob security
No formal commitment to employees or a plan to save jobs
in a downturn of the business.
1


6.2.1.5 Benefits of using a Toyota-style system
In the three years since Motawi started implementing a Toyota-style system, it has
undergone a significant transformation that has resulted in major improvements in
performance, as summarized in Table 6-8.


200
Table 6-8 Performance improvement at Motawi Tileworks
Metric Before After % Change
Profit and owner’s compensation
(Aug 03 to Dec 05)a [$]
$111,518 $311,307 179.2%
Profit and owner’s compensation
(Aug 03 to Dec 05)a [% of sales]
12.3% 20.1% 63.4%
Labor cost
(Aug 03 to Dec 05)
a
[$ salary/$ sales]
$0.44 $0.39 -11.3%
Productivity
b

(Jan 03 to Dec 05) [$ sales/labor hour]
$41.63 $61.34 47.4%
Average customer lead-time
b

(Jan 03 to Dec 05) [days]
17.4 10.7 -38.5%
Quoted customer lead-time
(Aug 03 to Dec 05) [weeks]
6 to 8 3 to 5 -50.0%
On-time deliveries
(Jul to Dec 05)
c
[% of total orders]
79.0% 93.1% 17.9%
Average lateness
(Jul to Dec 05)
c
[days]
8.2 6.0 -26.8%
Inventory
(Aug 03 to Dec 05) [months]
3.75 1.30 -65.3%
Inventory turns
(Aug 03 to Dec 05) [turns per year]
3.2 9.2 187.5%
% Defective
b

(Aug 04 to Dec 05) [ft
2
defective/ft
2
sold]
9.8% 7.5% -23.5%
a
Compares the average for a full year closing on the specified dates.
b
Based on trend line to compensate for monthly variability.
c
Data is not available prior to J uly 2005 (the expected delivery date was being overwritten in the system).


The focus on improving flow has greatly reduced the time jobs spend in the studio,
allowing Motawi to transform orders into cash much faster than before. This has resulted
in significant financial benefits (as seen by the increase in profits & owners’s
compensation) as well as in improved customer service in the form of shorter lead-times.
J ust the 5 cents per $ of sales improvement in productivity and an estimated 1.7 cents
coming from defect reduction contribute over $100,000 straight to the bottom line (on
sales of $1.5 million). Better use of inventory (which has been greatly reduced), capacity,
and scheduling (flexible lead-time quoted to customers) buffers, enables all departments
in the studio to work to a leveled schedule that greatly reduces waste in the system. The
combination of improved flow, better use of buffers, and simplified yet more accurate
scheduling has also resulted in additional benefits to the customer as seen by
improvements in on-time deliveries and average lateness of orders. Lead-times quoted

201
have also decreased by about 50%. Furthermore, reductions in the order to cash cycle has
decreased the need for operating capital, which, in combination with additional funds
from increased profits, now allows Motawi to operate and fund its growth without
needing to resort to external sources of capital. Even with a 70.5% increase in sales,
focusing everyone on working only on what is needed along with improvements made in
productivity, has kept capacity increases to a minimum and by-passed the need to expand
the facility. Finally, increased profit levels and a renewed drive for improvement have
enabled the owners to propose a profit sharing program to create a link between the
firm’s performance and the pay employees receive. The idea is to share the benefits of
good company-wide performance with employees while at the same time motivating
them to further improve the processes.
6.2.2 Zingerman’s Mail Order
6.2.2.1 Company description
The Zingerman’s group of businesses was started by Paul Saginaw and Ari
Weinzweig in 1982 with the founding of the Zingerman’s Deli in downtown Ann Arbor.
In 1992 the Zingerman’s Bakehouse was added to make breads and pastries for the deli
and other customers. That same year began a search for ways to grow the business and
increase innovation, while maintaining the characteristics that had made the company
great: “…close contact with a community, intimacy with customers, team spirit among
employees, and exceptional quality of food and service”
286
. The result was the 1994
launch of the Zingerman’s Community of Businesses (ZCoB), which groups a diverse
selection of businesses jointly owned (Zingerman’s founding partners retain a majority
stake in all businesses) yet independently operated (managing partners are fully in charge
of their operations). The unifying theme for all these businesses? They “…share a passion
for great food and great service”
287
.
Zingerman’s Mail Order (ZMO) was started in 1996 and is one of these ZCoB firms.
With sales of $7 million per year, ZMO is a mail retailer specializing in high quality
artisan foods brought from around the world. They do processing of some foods and

286
Burlingham, B. 2003. The Coolest Small Company in America, Vol. 2006: Inc.com.
287
Burlingham, B. 2003. The Coolest Small Company in America, Vol. 2006: Inc.com.

202
repackaging of others, but the bulk of their processes relate to picking, packing, and
shipping orders to customer. The core crew includes 40 employees, but it can grow to
more than 300 during the holiday season (Thanksgiving through Christmas, where they
sell 50% of their yearly volume). Although each order processed is potentially different
from every other one (customers can pick any combination of products from an offering
of more than 600 items), there are three distinct types of orders: those containing gift
boxes, those containing gift baskets, and those containing neither (‘other’ orders). Gift
boxes include a selection of items (although customization is allowed) chosen along a
certain theme and packed into a Zingerman’s designed box. Gift baskets are similar to
gift boxes except that they are packed in a shrink-wrapped basket. ‘Other’ orders include
whatever the customer selected from the items ZMO offers (and some not in their
catalogues that they will procure from the Deli if a customer orders them). Note that gift
box and basket orders can include loose items as well. Grouping products into these three
families is a natural consequence of the processes they go through. Besides picking,
checking and packing (common to all orders), gift boxes and baskets need to be arranged
into their corresponding box or basket (and these processes are significantly different as
well). Although they have some corporate clients, customers are mostly individual users
(or eaters, in this case) that buy for their own consumption or as gifts for friends and
family. They also have other food retailers as customers for whom they do periodic
fulfillment. Finally, ZMO does some processing of foods that are then sold by other
Zingerman’s businesses.
6.2.2.2 Environment and position in matrix
Zingerman’s Mail Order operates in a highly variable environment, with slightly
more than 90% of the days having a demand within ±100% of the mean (but only 42%
being within ±50%). In fact, daily demand in 2005 reached a peak of 17.2 times then
mean. This classifies the demand volume variability ZMO faces as ‘medium-high’, with a
value of 3 points in the classification scale (see Table 4-1, in page 72) for placement into
the two-by-two classification matrix (see section 4: Environmental Framework – 2x2
classification matrix, in page 69). Weekly demand volume variability follows a similar
behavior, with the maximum weekly demand being 9.8 times higher than average sales.
Even at the monthly level, where demand in eleven months (over 90%) was within

203
±100% of the mean, variability was still significant, ranging from 42% of the mean to
497%. Figure 6-21 displays 2005 daily, weekly, and monthly demand, along with their
corresponding means and the ±10%, ±50%, and ±100% limits. These charts visually
display what the numbers above describe.


Demand mix variability by product family behaves in a similar fashion. Gift boxes
and gift baskets had more than 90% of the days in 2005 within ±100% of the mean. Other
orders had a slightly higher variability with less that 90% of days being within ±100% of
the mean. Maximum demand for the gift box family reached a peak at 22.2 times the
mean, the gift basket family reached a maximum of 23.6 times the mean, while other
orders peaked at 14.3 times their daily average
288
. This classifies the demand mix
variability for the gift box and gift basket families as ‘medium-high’, with a value of 3
points in the classification scale (see Table 4-1, in page 72). Demand mix variability for
other orders falls in the ‘high’ category, with a value of 4 points in the scale. Total
demand mix variability is thus rated a 3.33. Figure 6-22 presents three charts showing
daily demand mix variability for all product families, along with their corresponding
means and the ±10%, ±50%, and ±100% limits. Adding the rating values for demand
volume variability and demand mix variability results in a total demand variability rating

288
These peaks all occur during the Christmas holiday. The rest of the year demand is much more stable.
Figure 6-21 ZMO’s 2005 demand volume variability
Daily Demand Volume Variability
0
1000
2000
3000
4000
5000
6000
7000
8000
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/
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9
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Date
Weekly Demand Volume
Variability
0
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15000
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2 5 8 11 14 17 20 23 26 29 32 35 38 41 44 47 50 53
Week
Monthly Demand Volume
Variability
0
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10000
15000
20000
25000
30000
35000
40000
45000
50000
1 2 3 4 5 6 7 8 9 10 11 12
Month

204
of 6.33, thus placing ZMO around the middle of the right side of the classification matrix
along the demand variability axis.


For classification on the task variability axis, the three main product families share
most of the line. Gift boxes and baskets share the first process, then they split up to get
assembled and then all three families flow together through the rest of the line. Figure
6-23 shows a simplified version of the product flow through the studio.


Figure 6-23 Flow diagram for order fulfillment
Figure 6-22 ZMO’s 2005 daily demand mix variability
Daily Other Demand Variability
0
500
1000
1500
2000
2500
3000
3500
4000
4500
1
/
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/
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5
Date
Daily Gift Box Demand Variability
0
500
1000
1500
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3000
1
/
3
/
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0
5
Date
Daily Gift Basket Demand
Variability
0
100
200
300
400
500
600
700
1
/
3
/
0
5
2
/
3
/
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Date

205

With the aid of the route variability classification table (see Table 4-3, in page 75),
route variability for ZMO can be characterized as having three (2) steady (1) routes with
a high level of interaction (4) among them, for an average route variability value of 2.33.
With respect to processing variability, there are some differences between stations.
An estimated average value, representative of all jobs, will be assigned to each
characteristic used in the processing variability classification table (see Table 4-2, in page
74). Work content varies significantly (3) from order to order depending on the items
being dealt with, however, the jobs operators perform remain more or less the same (1) at
each station (in most cases the change is in picking, or packing, or wrapping one item
instead of another one). Finally, there is a wide offering of products and customization
289

is allowed (3). This results in a processing variability value of 2.33 and a total task
variability value of 4.67. These values for demand and task variability characterize the
environment ZMO operates in, and places the firm on the flow shop (bottom right)
quadrant of the classification matrix (see Figure 6-24).

289
Customization includes shipping items that are not in the ZMO catalogues but that are sold by another
ZCoB member, as well as changing items in a gift box or basket.

206
Classification Matrix
2
3
4
5
6
7
8
2 3 4 5 6 7 8
Demand Variability .
T
a
s
k

V
a
r
i
a
b
i
l
i
t
y


Job Shop
Flow Shop
Traditional Lean
(assembly line)
Engineered Product
Shop
ZMO


6.2.2.3 Initial state
A modified initial state value stream map that also provides a schematic of the layout
is depicted in Figure 6-25. Products were ordered from suppliers using an MRP-type
logic based on a sales forecast. Orders came in and were assigned the next regular
shipping date
290
. Pick sheets (one for each order) were printed in a daily batch (except for
Wednesday when two add-on runs were allowed
291
) and sent to the order starter.
Matching end of day totals (sheets indicating the total amount of each item needed for the
day) were also printed and given to the corresponding support process.


290
Orders containing perishable items can be shipped only on Monday, Tuesday, or Wednesday. They
could also go out on Thursday but they would need to be overnighted.
291
This is done to maximize the shipping potential for each week by extending the cut-off time for
accepting regular-shipping orders with perishable items well into Wednesday.
Figure 6-24 Zingerman’s Mail Order classification matrix

207

Figure 6-25 Initial state value stream map for Zingerman’s Mail Order (before TPS)

At the beginning of the day each support process would work to prepare the product
indicated in the end of day sheets. The line would only start running when all support
processes were done with their prep work and all products were available for picking. At
this time, the order starter would place pick sheets in tubs and put them on the conveyor
as fast as the line would take them. If she saw that a station had little work, she would
sort through the orders and release some that increased the load for that person.
Alternatively, she would also move people from low to high load areas to try to speed up
the line. Unless done very carefully, the combination of these two practices created
waves of orders that exacerbated the imbalances and further amplified precisely the
problem the order starter was trying to solve.
When they got an order, pickers would get the items from their area (according to the
pick sheet) and place them in the tub. If the order did not require more products it would
go to a center conveyor and straight to the checkers. If there were additional items the

208
order would continue down the line. Orders were checked and if nothing was wrong,
were packed and labeled for shipping. Orders with mistakes were pulled from the line
and left to the side until someone had a chance to deal with them.
While running, the line achieved some level of flow (although interruptions were
common). Support processes on the other hand, were a textbook example of mass
production. They each received a schedule and worked down through it by processing all
items of the same type together (bag all the Farm bread needed before starting with
Paesano). This batching was done seeking to improve the efficiency of each process.
Unfortunately, as it frequently does, local optimization resulted in reduced performance
for the value stream as a whole. Batching products by type meant that the line could not
start running until the work at all support processes was completed. Otherwise orders
could be released requiring product that was not yet available causing problems for
pickers and possibly stopping the line. To make matters worse, gift box and basket
making, which also had to be ready before the line could start, could not begin until the
bread had been bagged, the pastry packed, and the cheese cut and wrapped. The operation
thus proceeded sequentially in large batches. A lot of effort would be expended in one
area to create a huge amount of WIP (bagged bread). Then everybody would move to the
next location and consume that inventory (or at least part of it) and generate another pile
of WIP (gift boxes). Finding space to put all this inventory was a problem
292
and moving
it around and searching for the item needed created a lot of waste. To complicate matters
even more, the line was constantly changing speed as people came on it when they
finished their work in other areas or left when they were needed elsewhere. In
combination with the variability coming from the orders, this labor instability made the
line very hard to manage. Finally, all the prepped items had to match the end of day totals
and caused significant disruptions when they did not (which happened frequently).
6.2.2.4 Current Process and use of TPS tools (after state)
Upfront order taking remains mostly unchanged. After that, things have changed
significantly. Orders are now sequenced before being released to the line to level the

292
During the holidays there was literally no space to put all the gift boxes that were ordered (which were
prepared the night before), and thus frequently ended up blocking aisles or other product and making it
very hard to run the line during the first hours of operation.

209
workload between stations and the consumption of parts through the day. End of day
totals are also generated, but now only for the most perishable items that cannot stay on
the markets overnight (bread and some pastry) and for non-standard items (such as a
portion of cheese that does not match any of the standard sizes). Figure 6-26 shows a
modified current state value stream map that also provides a schematic of the new layout.


Figure 6-26 Current state value stream map for Zingerman’s Mail Order (after TPS)

The biggest changes have been made to the layout and how it is being run. In the new
system, support processes start running before the line does, but only to fill the markets

210
with a predetermined initial stock (small quantities of all products) and then continue to
run all day to replenish the markets as product is used.
Based on the number of orders a takt time to run the line at is chosen and orders are
released to the line in the order defined by the sequence. Gift box and basket orders are
picked from the gift box picking area (a set of markets containing all the items needed for
standard gift boxes and baskets). Gift baskets are transferred to their own line. Gift boxes
are picked in the order indicated by the sequence and given to the order starter who
releases them to the line according to takt. From this point on, the line runs in continuous
flow and mostly in FIFO order for the most part
293
.
Gift baskets makers assemble the baskets, shrink-wrap them, and return them to the
line. This is a high work content and highly variable process. Gift box makers pick tubs
that contain gift boxes and place them on their table, while pushing other orders down.
They assemble the order into a gift box and return them to the line.
At pastry, the picker first sorts orders, sending finished orders (those with only gift
boxes or baskets) down the center lane and straight to the checkers. Orders that only
require cheese and/or dry goods are placed on the furthest lane. For orders that require
pastry, the picker gets what is needed from the pastry market place and follows the
sorting procedure again. The same process repeats after this for bread, perishables,
cheese, and dry goods. Depending on the speed the line is running at, several of these
stations can be manned by the same person, or there may be several employees at each
location.
Once the order is complete, it goes to the checkers who bubble-wrap fragile items and
verify that the items picked and their quantity match what the customer requested.
Correct orders continue down the line to packaging. When a mistake is found, the pick
sheet for that order is marked to indicate the problem, a colored sheet is placed in the tub
with the order (to indicate to packers that they should not touch the order), a counter is
clicked to indicate that another mistake was found, and the order is returned to the line.
At the next station, orders with no mistakes are packed into proper sized boxes and
placed on the outgoing line, where they flow to the UPS station to get labeled. Orders

293
FIFO is broken for mistake orders and at the sorting that occurs at the pastry and bread picking areas (as
described below).

211
then slide into a semi (which sits permanently at the dock) and are stacked to maximize
space utilization.
Mistake orders flow past the packers and get to the end of the line where the order
starter and/or supervisor look at the problem and find a solution. When items are missing
or were picked incorrectly, the order is returned to the beginning of the line and allowed
to go around again. The colored paper indicating a problem remains with the order and
serves as an indication for pickers to solve it. More serious problems are handled directly
by the supervisor who may get other people involved as needed.
Variability in the time it takes to process an order, along with not having a perfectly
leveled sequence of orders, combine to create overloading situations of certain stations at
different points in time. Since there is little inventory between stations on the line, every
time a station backs up, others feel it rapidly. To counter the effects of this overloading a
‘help your neighbor’ system is in use. A set of rules and visual cues tell operators when
they should go help adjacent areas that are backing up. The system is intended to run
autonomously and provide real-time capacity adjustments to maximize overall line
throughput. These little alterations in labor distribution help push small waves of uneven
workload through the line preventing them from accumulating and becoming a disruptive
tsunami.
Line side markets are replenished using kanban and timed. For some products (like
cheese) the kanban go back to a processing area where the products are prepared on
demand before the next delivery route comes around. Other products (such as dry goods)
are refilled from back stock. Route timings and kanban in each loop are adjusted to
accommodate the speed of the line. The pull system is currently being extended to use
kanban to trigger replenishment from suppliers and as a verification step when receiving.
Table 6-9 below provides a summary of the TPS tools described above as well as
others also in use at Zingerman’s Mail Order. It shows how the TPS tools are being used,
particular problems encountered, and their rating.





212
Table 6-9 Use of TPS tools at Zingerman's Mail Order
Tool Comments, problems and improvements needed Rate
Markets, markings on the floor, and signs tend to keep
things in order at the line. Cleaning is done frequently.
Workplace
organization
(5S)
No formal 5S system in place. As volume increases
orderliness decreases considerably.
2
Whiteboards are used to track routes. Boards show the main
problems being worked on. Visual
management Existing visual systems must be refined and additional ones
added to promote shared understanding of the process.
2
A detailed plan defines financial expectations and metrics.
Variances from plan are investigated.
Performance
standards
Over reliance on financial metrics at the expense of process
metrics and standards. No metrics or targets for them are
displayed on the floor.
1
Standard work sequences are being developed for each job.
Standardized
work
Hard to use due to significant differences in the work done
for each order. Implementation focuses on the sequence of
steps, reducing its usefulness as a baseline for improvement.
2
Flexible labor and variable end of day times enables the line
to run at a steady speed within brackets of daily volume
294

(this provides part of the stability and benefits coming from
running to a leveled schedule). Releasing orders in the
proper mix balances the workload across stations.
S
T
A
B
L
E

P
R
O
C
E
S
S
E
S

Heijunka
(leveled
production)
ZMO cannot change the ship date of orders, so the so they
are forced to follow volume shifts in demand. Too many
possible order combinations preclude the use of finished
goods to level production. WIP can help level the workload
in some station, but even there product perishability limits
the total inventory and restricts its ability as a leveling tool.
3













294
For example, at a takt of 60s, 480 orders would require a full 8 hour day, while 300 orders would require
running the line for only 5 hours.

213
Tool Comments, problems and improvements needed Rate
Line speed is chosen from a predefined set of takt times for
which staffing levels have been established for the line and
for support processes. This facilitates managing the floor,
ensures coordination between the line and support
processes, and facilitates improvement. Takt time
planning Significant work is still needed for this system to work
effectively. A comprehensive set of takt time levels along
with corresponding labor requirements, visual systems, and
standards need to be defined and supported by a method to
move easily between them.
3
The line and some support processes (such as cheese
passport making) run in continuous flow.
Continuous
flow
Some inventory is needed between stations in the line to
accommodate differences in order work content. Problems
are not being surfaced as much as they should since the line
does not stop for them (mistakes are dealt with at the end).
4
Pick sheets trigger production on the line. Consumption of
product triggers replenishment from support processes.
Pull system
Needs to be extended further upstream to trigger supplier
replenishment. Improvement is needed in the process of
reviewing kanban quantities to adjust markets and routes to
changing demand conditions and as a tool to expose
problems by reducing inventory.
3
J
U
S
T
-
I
N
-
T
I
M
E

Integrated
logistics
Some integration with the outgoing carrier.
1
Missing product and other problems are communicated, for
the most part, to supervisors and others who can solve them. Andon
No formal system in place.
1
Improving the system instead of hoping for people to ‘work
better’ is being adopted as the way to reduce mistakes.
Redesigning the process eliminated some types of mistakes.
Changes to the pick-sheets and rearrangement of the
markets have reduced the possibility of mis-picks.
Error proofing
Processes are far from error-proofed. Most countermeasures
reduce, instead of eliminate, the possibility of mistakes.
1
Marking on the pick-sheet what has been picked serves as a
form of self-verification.
In-station
quality
control
Not particularly effective since wrong items and wrong
quantities of them continue to be picked.
1
Weekly meetings are used to discuss external problems and
internal mistakes and decide how to address them.
B
U
I
L
T
-
I
N
-
Q
U
A
L
I
T
Y

Eliminate
sources of
defects
Although effective, it is slow since it deals with only a few
problems at a time. In addition, the time delay between the
mistake and the analysis makes root cause analysis hard.
2

214
Tool Comments, problems and improvements needed Rate
Weekly improvement meetings focus on problem solving,
are based on PDCA, and use 5-whys for root cause analysis.
Problem
solving
(PDCA, 5-
whys)
Progress coming from these meetings is slow. Scientific
method, PDCA, and 5-why mentality must be expanded
throughout the firm and applied to all processes.
2
Wide understanding of the need to decrease variability,
reduce batching, improve quality, and eliminate waste.
True North
(direction)
No articulated notion of the ideal process.
2
Basic understanding of the seven wastes. Significant
amounts of waste have been eliminated.
Eliminate
waste
Waste elimination is not yet a driver for improvement.
1
Going to the source and observing the process is the usual
response of the leaders involved in the Lean initiative. Genchi
genbutsu Observation skills need to be developed further, along with
a system to teach them to others.
3
Problems tend to be seen as opportunities for improvement.
Although employees in general are some times faulted for
mistakes, blame is not placed on particular individuals. No-blame
environment A view of problems as a system failure is frequently
missing. Problems are blamed on variability and the nature
of the business, and thus fail to drive to improvement.
3
In production the focus is on improving the whole value
stream instead of optimizing individual processes.
C
O
N
T
I
N
U
O
U
S

I
M
P
R
O
V
E
M
E
N
T

Value stream
view
This value stream view must be extended to other parts of
the business to gain a better integration of all functions.
2




















215
Tool Comments, problems and improvements needed Rate
Cooperation tends to be the norm. Open communications
and meetings (ending with recognitions of good work done
by others) promote integration and teamwork. On the line,
helping the neighbor is a routine part of the job. Teamwork
Improvements are needed to fully capitalize on the spirit of
teamwork that prevails. ‘Help your neighbor’ system needs
further refinement. During the holidays teamwork suffers.
3
A yearly plan defines targets for key metrics (including
financial goals, service scores, and food quality measures).
Progress is tracked weekly and made public. Profit is shared
on attainment of the plan.
Common
goals
Deployment of the plan through targets directly related to
the processes people perform is lacking.
3
A small team structure is beginning to develop. During the
holidays the core crew become leaders for their areas.
Small-team
people
structure
Not sufficiently developed to capitalize on the potential of a
small-team structure for problem solving and improvement.
2
Participation and involvement are encouraged at all levels.
Involvement The structure to take advantage of this involvement in a
systematic way needs to be developed further.
3
Everyone in the core crew can do most jobs.
Cross training
No formal system to cross-train employees, track their level
of proficiency, or rotate them periodically through the jobs.
The holiday crew gets no cross training.
2
Leaders are aware of the problem of improving people out
of their jobs and make significant efforts to size the crew to
give everyone enough work hours. Some level of
commitment exists for the core crew.
P
E
O
P
L
E

J ob security
No formal promise has been made or a plan devised to save
jobs in the event of a turndown in business.
2


6.2.2.5 Benefits of using a Toyota-style system
In the two and a half years since ZMO began implementing a Toyota-style system, it
has undergone a significant transformation that has resulted in major improvements in
performance, as summarized in Table 6-10.





216
Table 6-10 Performance improvement at ZMO
Metric Before After % Change
Labor cost (Jul 03 to Jul 06)
a

[$ production salary/$ sales]
10.98% 6.79% -38.2%
Productivity (before and after line
redesign) [boxes/labor hour]
3.49 5.14 47.2%
Inventory turns (Jul 03 to Jul 06)
a

[turns per year]
18.8 19.2 2.1%
% Defective
b
(before and after Jul 05)
[customer complaints/boxes shipped]
0.53% 0.43% -18.4%
% Cost of Mistakes
b
(before and after
Jul 05) [$/boxes shipped]
$0.17 $0.12 -28.9%
Waste (Jul 03 to Jul 06)
a
[$/$ sales]
0.32% 0.14% -56.3%
a
Fiscal year closing on the indicated date.
b
Only mistakes attributed to production are included.


The biggest improvements, as can be observed above, have been in productivity,
resulting in a 38% reduction in operation labor costs (includes production and
purchasing). This is not surprising since most changes have focused on the line and in
making easier the jobs of the people running it. As shown in Figure 6-27 (which includes
only production hours), productivity increased significantly after the initial line redesign
(over 47%). After that, productivity seems to be going down. However, the truth is that
increased work content has hidden further productivity improvements. For example, the
third period highlighted shows a productivity of 4.15 boxes per labor hour, down from
5.14 on the previous period (a 19.3% decrease). However, for the second period
production had taken on the additional work of running routes (about 12% to 15% more
labor content), had to deal with a more ‘appealing’ gift message (about 1.5% more labor
content), and included training of the holiday crew (about a 12% productivity penalty for
the whole period). If we consider these factors, then productivity actually increased by
about 6% between these two periods. In fact, if we group the data into just before and
after the Lean implementation began, productivity has improved by 27%, even with the
increase in work content.

217

Defects and waste have also seen very significant improvements. Although they
represent only a small fraction as a percent of sales, their contribution goes straight to the
bottom line and is significant in a business where the majority of costs are very hard to
change (44% of sales is spent in food, 12% is used by marketing, and 7.5% goes out as
royalties). Finally, inventory turns have shown a marginal improvement even when SKUs
have increased by about 20% in the same period and little work has been done directly to
reduce the total amount of inventory in the building.
6.3 Comparative Analysis of Case Studies
6.3.1 Case Studies Support Initial Hypothesis
Figure 6-28 shows the placement in the classification matrix of the five case studies
presented above. A typical Toyota assembly plant and one from a North American
Company (NAC) have also been placed on the matrix for reference purposes. The wide
range covered by the cases implies that Toyota-style systems can be used and are
Figure 6-27 Changes in productivity
Productivity
Average 3.49
Average 5.14
Average 4.15
Average 3.40
0
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Date
B
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p
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h
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BPH-before Lean Average BPH-before Lean
BPH-routes by purchase Average BPH-routes by purchase
BPH-routes by production Average BPH-routes by production
BPH-summer package & train 06 Average BPH-summer package & train 06
47.2% improvement
(apples to apples)

218
effective in high variability environments and sheds some light on the doubt implicit in
the main research question (see section 1.1.1: Main Research Question: How can
Toyota’s system be adapted to high variability environments?, in page 2) regarding
whether Toyota-style systems are useful for organizations operating in these
environments. Although this conclusion probably holds no matter what the level of
variability faced by the firm is, additional research is needed to make a truly solid claim.
In particular, additional cases are needed of firms dealing with higher task variability.
These however may prove hard to find since implementing Lean tends to reduce the
perceived task variability significantly by rationalizing the manufacturing process
through layout redesign, grouping of products into cells, and the use of TPS tools as such
standardized work. The change in position in the matrix that occurs as Lean is
implemented will be discussed in more detail below (see section 6.3.3: Position Change
in the Matrix Throughout the Lean J ourney, in page 232).

Classification Matrix
2
3
4
5
6
7
8
2 3 4 5 6 7 8
Demand Variability .
T
a
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k

V
a
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i
a
b
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l
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t
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Motawi
ZMO
Menlo
Toyota (assy)
NAC (assy)
Mass Die Making
Job Shop
Flow Shop
Traditional Lean
(assembly line)
Engineered Product
Shop
Lean Die Making
Merillat

Figure 6-28 Position of case studies in the classification matrix

219


Further support for the main hypothesis proposed (see section 1.1.2: Main Research
Hypothesis: Toyota-style thinking +environment =customized Toyota-style system, in
page 9) is found in the description of the current state (after implementing Lean) for each
firm, which shows how the TPS tools have been altered to create a customized Toyota-
style system that fits the organization and the environment it operates in. Being able to
modify the TPS tools as needed requires a deep understanding not only of the tools
themselves, but also of the underlying system and the reasons why certain methods are
important even if they seem odd at first glance. This supports the idea of defining a
Toyota-style system as a way of thinking instead of as a strict set of tools. With the
proper thinking, it is possible to modify existing tools or create new ones that fit specific
peculiarities faced by the firm, yet satisfy the same purpose as the original tool. It must be
noted that even with a deep understanding of the principles, this process of adapting
and/or developing tools is highly iterative. Trying different approaches and learning from
each attempt, is the only way to develop a solution that works effectively for the
particular conditions the firm faces.
Finally, the section titled ‘Benefits of using a Toyota-style system’ for each case
study shows the positive effect that the Lean efforts have had for each firm and provides
the last element needed to support the main hypothesis: the use of Toyota-style systems
has resulted in improved performance. Thus, at this point we can conclude that: using
Toyota-style thinking in firms operating in high variability environments, it is possible to
develop a Toyota-style system customized for the needs of the firm and that results in
improved performance. Other factors may exist that preclude the use of Toyota-style
systems, but variability does not seem to be one of them. This result opens the door for
all firms (at least from the perspective of variability) to learn from Toyota’s system to
improve their performance.

220
6.3.2 How to Adapt Toyota-style Systems to High Demand Environments is Still
Unresolved
Although the case studies provide support for the main hypothesis, the main research
question has not been answered entirely yet. Part of the initial intent of the classification
matrix was to group value streams according to the level of variability they face to try to
identify common trends in their use of Lean methods. These could then be used to define
how a Toyota-style system can be developed and used under different environmental
conditions. Unfortunately, the classification matrix does not seem to provide sufficient
insights on this respect.
Table 6-11 shows all the case studies and the level at which they are using the TPS
tools. Table 6-12 summarizes the data by averaging the tool ratings for each part of the
TPS house (stability, J IT, etc.). It also shows the variability values used to place each
case study in the classification matrix. The data in this table is used to plot tool usage
against demand variability (Figure 6-29) and against task variability (Figure 6-30). As
can be seen from the charts, there is a bit of a downward trend for tool use with
increasing variability, but it’s not entirely clear. Lean Die Making has one of the lowest
overall variability levels in the sample and, as expected, has one of the highest levels of
tool use. However, from then on variability is not a very good predictor of tool usage.
This supports the idea that Toyota-style systems can be used in a wide range of
variability levels, but does little to resolve the issue of how to develop them.












221
Table 6-11 Tool use rating for all case studies
Lean Die
Making
Mass Die
Making
Menlo
Worldwide
Merrillat
Motawi
Tileworks
Zingerman's
Mail Order
Workplace organization (5S) 5 2 2 3 3 2
Visual management 5 2 2 4 2 2
Preventive maintenance 5 3 0 2 1 0
Performance standards 5 1 4 4 3 1
Standardized work 5 0 3 4 1 2
Heijunka 5 0 2 3 3 3
Takt time planning 5 0 2 3 3 3
Continuous flow 4 0 2 4 1 4
Pull system 4 0 3 4 4 3
Quick changeovers 5 2 3 5 1 n/a
Integrated logistics ? ? 4 4 1 1
Jidoka 5 2 3 3 2 0
Andon ?
a
0 0 3 1 1
Person-machine separation 5 0 n/a 0 0 n/a
Error proofing ?
b
1 3 4 0 1
In-station quality control 5 2 0 3 2 1
Eliminate sources of defects 5 1 3 3 2 2
Problem solving (PDCA, 5-whys) 5 1 4 4 1 2
True North (direction) 5 0 3 3 1 2
Eliminate waste 5 2 4 4 1 1
Genchi genbutsu 5 1 4 2 3 3
No-blame environment 5 1 4 3 3 3
Value stream view 5 2 3 4 3 2
Teamwork 4 1 3 4 4 3
Common goals 5 2 3 4 2 3
Small-team people structure 4 1 4 3 3 2
Involvement 5 2 3 4 3 3
Cross-training 4 1 2 4 2 2
Job security 5 0 3 4 1 2
n/a: not applicable; ?: not enough information available; 0: not used when it could be.
a
b
P
e
o
p
l
e
Although no specific informantion on the use of andon was obtained, it is probably used widely since the shop floor is still
managed visually with similar tools as those used in production.
Problems are thoroughly investigated and countermeasures to prevent their recurrence are implemented, so error proofing
mechanisms certainly exist even when no specific information on them was obtained.
S
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Table 6-12 Average tool use rating
Lean Die
Making
Mass Die
Making
Menlo
Worldwide
Merrillat
Motawi
Tileworks
Zingerman's
Mail Order
Stability 5.0 1.3 2.2 3.3 2.2 1.7
Just-In-Time 4.5 0.5 2.8 4.0 2.0 2.8
Built-In-Quality 5.0 1.0 1.8 2.7 1.2 1.0
Continuous Improvement 5.0 1.2 3.7 3.3 2.0 2.2
People 4.5 1.2 3.0 3.8 2.5 2.5
Average 4.8 1.0 2.7 3.4 2.0 2.0
Demand Variability 3.50 4.50 4.00 5.00 8.00 6.33
Task Variability 4.50 7.00 5.00 4.33 5.67 4.67



222
Demand Variability & Tool Use
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Figure 6-29 Use of TPS tools for different levels of demand variability

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Task Variability & Tool Use
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Continuous Improvement People Average
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Another option to find patterns in the data is to look at the location of the firms in the
classification matrix and compare their tool usage. Figure 6-31 shows an example of the
‘bubble’ charts that were used for this purpose. Each circle shows the location of a firm,
while its size (numbers in red shown under the firm’s name) represents the level of tool
usage. Besides showing a low usage of built-in-quality tools across the board (except for
Lean Die Making), there is little else that can be concluded from this chart. Similar charts
for other tool groups present the same problem.

Figure 6-30 Use of TPS tools for different levels of task variability

224
Classification Matrix
(Plot of Built-In-Quality)
1.2
1.0
2.7
1.8
5.0
1.0
2
3
4
5
6
7
8
2 3 4 5 6 7 8
Demand Variability
T
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V
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y
Mass Die Making
Menlo
Lean Die Making
Motawi
ZMO Merillat
Job Shop
Flow Shop
Traditional Lean
(assembly line)
Engineered Product
Shop



Figure 6-32 presents a similar chart as the one above, but instead of showing the
aggregate level of built-in-quality, it shows a single tool: eliminate sources of defects.
Again, there is little that can be discerned from the grouping of firms, the quadrant they
belong to in the matrix, and their use of this tool. Similar charts for other tools display the
same type of behavior.

Figure 6-31 Firm classification and built-in-quality usage

225
Classification Matrix
(Plot of Eliminate Sources of Defects)
3.0 5.0
3.0
1.0
2.0
2.0
2
3
4
5
6
7
8
2 3 4 5 6 7 8
Demand Variability .
T
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V
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Mass Die Making
Menlo
Lean Die Making
Motawi
ZMO
Merillat
Job Shop
Flow Shop
Traditional Lean
(assembly line)
Engineered Product
Shop


Now, there are several reasons why patterns and trends are not discernible in the data.
The first and most obvious one is that the number of case studies is not enough to draw
strong conclusions about the behavior of firms in each quadrant. Similarly, the location of
the case studies is not optimal since they are all bunched around the center of the task
variability range. Other case studies that represent a greater range of variation would need
to be included in the data set if we wanted to overcome these limitations. However, there
are other things to consider before going down this road.
Based on the case studies analyzed, a much stronger indicator of tool usage is the
time the organization has been doing Lean. As can be seen in Figure 6-33, the usage
rating for all tool groups goes up the longer the organization has been using Toyota-style
systems. This is hardly surprising. However, what is interesting is that all tool groups go
up regardless of the level of variability the firm operates in. Once again this seems to
Figure 6-32 Firm classification and their effectiveness at eliminating sources of defects

226
indicate that Toyota-style systems can be used throughout the whole variability spectrum,
but provide little help on defining how to develop a Toyota-style system for a particular
environment. To eliminate the effect of the time doing Lean, it would be necessary to
look at case studies facing different levels of variability but that started developing their
Toyota-style systems at about the same point in time.

Time Using a Toyota-style System & Tool Use
0
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Length of Lean journey [years]
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Continuous Improvement People Average
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Individual tools behave more or less as the tool groups shown above do. As an
example, let us take a look at one that is generally believed to have problems in high
variability environments: standardized work. Figure 6-34 shows two charts that display
the usage rating for standardized work for each case study against demand and task
variability respectively. Although there are some ups and downs, there appears to be a
downward trend of usage as variability increases (for both types). However, this
Figure 6-33 Time using a Toyota-style system is a better indicator of TPS tool use

227
observation does not take into account that the time doing Lean may be a better indicator
for this tool’s usage as well. In the charts, the dashed line shows the time each case study
has been using a Toyota-style system. Those firms that have been doing Lean longer have
a better rating on standardized work usage. This trend can be better seen in Figure 6-35
that shows the usage rating for standardized work for each firm against the time they
have been using a Toyota-style system.



Figure 6-34 The effect of variability on the use of standardized work
Task Variability & Standardized Work
2.08
3.08
2.67
11
30
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5
4 5 6
Task variability
T
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5
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a

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Standardized work Time using Toyota-style system
L
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Demand Variability & Standardized Work
3.08
2.08
2.67
30
11
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1
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3 4 5 6 7 8
Demand Variability
T
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5
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Standardized work Time using Toyota-style system
L
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Time Using a Toyota-Style System & Standardized work
0
1
2
3
4
5
0 5 10 15 20 25 30
Length of Lean journey [years]
T
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U
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Unfortunately, in the data used there is a confounding effect between the level of
variability and the time the firm has been using a Toyota-style system. From the charts
above it is hard to tell whether excess variability leads to low usage of standardized work
or whether maturity of the Toyota-style system results in a higher usage rating.
Invariably, the firms that have been at it longer show the best results, but these are also
the ones facing the lowest levels of variability. This perhaps is not a coincidence since a
key feature of Toyota’s system is the elimination of variability (see section 6.3.3:
Position Change in the Matrix Throughout the Lean J ourney, in page 232). Without hard
data it is not possible to tell for sure, however it seems reasonable (based on the work
done at Motawi and ZMO) to think that as the companies that are newer to Lean mature
their systems, their tool usage ratings will increase regardless of the level of variability
they face. For some tools, such as standardized work, perhaps these firms will never get
to the level of precision that can be found at Toyota’s assembly lines (where every
motion is standardized and times are specified to tenths of a second). After all, if the time
Figure 6-35 The effect of time doing Lean on the use of standardized work

229
to complete each work element is significantly different from part to part, then specifying
a very precise completion time is useless in a standard for a station dealing with many
different items with different work contents. But then again, standardized work does not
need to be perfect to be effective and help drive improvements.
The introduction of standardized work at Motawi began towards the end of our
research engagement with them (one of the reasons why it shows a lower than expected
rating in Figure 6-35). Due to the many different parts they make and the differences in
work content between them, it was decided to focus on the steps required to perform the
job and their sequence. The time required to complete each step was not even specified
(at least not in the initial phase). Even so, by the end of the first session on standardized
work, significant improvements had been made to the dip glazing station. First, a process
that was somewhat hectic and was performed differently by each employee was
transformed into a cyclical repeating process where a best method could then be defined.
Second, what used to be a two-person job can now be performed by only one and
duplicated as needed to meet capacity requirements. Also, by running in parallel, two
different orders can be processed simultaneously, thus adding flexibility to the
workstation. Third, productivity improved through the elimination of unnecessary work
elements and the reduction of motion waste. Fourth, changing the method and using
simple collection pans to reuse excess glaze reduced the amount that was being wasted.
This is the essence of standardized work. Helping improve the process is one of its
two main objectives, and certainly the most important one when the standard is being
developed. As discussed above, this was not an issue at Motawi. The second objective,
improving stability by achieving a consistent output in quantity and quality, was fulfilled
as well. The sequence of steps that was codified into the standard is being followed by all
operators (audits are performed to ensure this is the case and to continue to improve the
standard further) and has resulted in improved consistency of results. From this
perspective, as their systems mature, there is no reason why Motawi, ZMO, and other
firms operating in high variability environments could not achieve a tool rating of five in
their use of standardized work and other tools. It may take more time and perhaps more
inventiveness to adapt the tools as needed (as compared to a firm operating in a lower

230
variability environment) but the level of variability does not seem to impose a limit on
their use or their effectiveness.
Another reason why trends have proven hard to find in the data is that there are other
factors, not captured in the matrix, that combine with variability to define how a Toyota-
style system is developed and used. An example of these factors is the use, or not, of
finished goods inventory. When used, it provides a barrier between the existing external
variability and what internal processes perceive. The added stability comes with many
benefits, such as allowing processes to run at a steadier pace, allowing capacity to be
sized much closer to average demand, and facilitating problem solving and learning.
Motawi uses both finished goods and an internal market to reduce the level of variability
that gets to the production processes. This allows them to keep the work force fairly
stable and to have a high utilization of their installed capacity, even in the face of very
high demand variability.
On the other hand, ZMO cannot hold inventory since the food is perishable and
customers can order any combination of items from the thousands they offer. Forced to
work exactly to customer demand they are constantly changing the number of people in
the building in response to the number of orders received. Furthermore, sales (and the
crew) go up by about 15 times during the Christmas holiday. Since they require capacity
to handle that peak, their facility and equipment are underutilized for the vast majority of
the year. The constant shift in personnel also introduces additional variability that makes
it harder to implement and use other Lean tools such as standardized work.
Merillat, although having the option to hold finished goods for a few of the higher
volume models (as Motawi does) has chosen not to keep inventory, and thus their
solution relies heavily on adjusting their capacity, just as ZMO does. However, high
volume production of parts with a relatively high work content has led them to use ten
duplicate cells that they turn on or off according to the day’s demand level. This allows
them to maintain production stable at the cells when they run, thus minimizing the effects
of demand volume variability).
Even though it could be argued that Motawi, facing the highest variability of the
three, has the biggest need for inventory and that is why they use it, the truth is that the
position in the matrix is not a reliable indicator of whether a firm will need or use

231
inventory. Since having finished goods or not is an important factor that helps shape the
production system for the firm, the position in the matrix is not a reliable indicator of the
type of Toyota-style system that will result. ZMO could not hold finished goods even if
their demand variability reached Motawi’s levels. Furthermore, Toyota’s assembly plants
(located on the opposite side from Motawi, towards the bottom left corner) use finished
goods to almost completely buffer demand variability over a period of time. Other factors
that combine with variability or that influence the effect that variability has on the
performance of a value stream and thus contribute to define how a Toyota-style system is
developed and used include sales volume (higher volume allows for separation of
products into multiple value streams), type of product (perishable or not), number of
products offered, level of customization, and the processes required (batch, discrete, or
continuous; manual or automated; level of investment needed to duplicate lines).
Finally, the last reason for the apparent ineffectiveness of the matrix to predict how a
Toyota-style system will develop and be used is perhaps the most relevant. A common
approach to developing Toyota-style systems for all locations in the matrix seems
possible by focusing on the principles that define Toyota’s thinking. If we focus on this
deeper level, then many of the problems introduced by variability (or the combination of
variability and other factors) that could require a different approach to implementation
become irrelevant. This also makes the classification matrix irrelevant for this purpose. In
other words, no trends can be discerned from the case studies because there are none. By
focusing on Toyota’s thinking, a common methodology can be used to develop Toyota-
style systems for all firms regardless of the environment they operate in. This in fact
suggests that the initial idea of trying to predict which tools to use and how to use them
based on demand and task variability (as proposed in section 4.2.1: Similar Environments
Mean Similar Problems and Result in Similar Toyota-style Systems, in page 77) may not
have been the right one. A better approach may be to ask how companies can get the
depth of understanding needed to adapt the tools to their specific circumstances by
following the principles.
Up until now, the main research question remains only partially answered. For the
most part, the rest of the dissertation will focus on completing the answer by defining a
common approach for developing Toyota-style systems. Section 7.2: Motawi Tileworks

232
(page 241) and Section 7.3: Zingerman’s Mail Order (page 302) provide detailed
descriptions of the work performed in the two Action Research case studies, focusing on
how the respective Toyota-style systems were developed. Section 8.2: Pull Improvements
to Develop Toyota-style System (page 371) puts it all together to propose a common
methodology for developing Toyota-style systems for all firms regardless of the level of
variability they face. Before we move on and discard the matrix, however, there are other
interesting conclusions that can be drawn from its use and from the case studies described
above.
6.3.3 Position Change in the Matrix Throughout the Lean Journey
Operating in high variability environments is expensive. It requires the use of costly
buffers in the form of inventory or extra capacity (see Figure 1-5: Lovejoy’s Law, in page
18) and makes processes hard to understand and improve. The classification matrix was
setup such that the lowest possible variability is located at its bottom left corner. Value
streams located in this area require smaller buffers to run effectively and can thus operate
with lower costs. Furthermore, their behavior and the problems that afflict them are easier
to understand, thus facilitating managing the process and making it better. From this
perspective, moving towards the bottom left corner of the matrix is always beneficial for
the firm (as long as customer service and/or product offering are not sacrificed along the
way).
The good news is that implementing a Toyota-style system tends to move the value
stream in this direction. There are two shifts that tend to occur throughout the Lean
journey. One moves the whole value stream down and/or to the left of the matrix as the
rethinking and rationalization of the whole manufacturing process forces the firm to look
for and eliminate sources of variability. For example, in the case of demand variability,
organizations may eliminate discount practices that provide incentives to customers that
order erratically in large batches (order size discounts) and replace them by others that
help level production (provide discount for stable orders, or to those clients ordering
during slow seasonal periods). Task variability can be reduced by grouping products into
families and assigning them to separate production cells (basically creating separate value
streams, each one dealing with a portion of the variability introduced by the products

233
being made). Even without breaking the value stream, redesigning and rationalizing the
process and improving the division of labor on the floor can also help reduce task
variability. This is what happened at ZMO with the redesign of the line, reassignment of
job responsibilities on it, and the introduction of markets and routes to ensure that pickers
always have the products they need. The shift in position for ZMO’s value stream is
shown in Figure 6-36 (see ‘ZMO VS
295
before’ and ‘ZMO VS now’). A similar shift can
be seen for Die Making if we consider Mass Die Making as the before state and Lean Die
Making as the current one.



The second kind of shift comes from a reduction in the variability perceived at the
process level. Even though the external variability faced by the value stream as a whole

295
VS stands for Value Stream level and refers to the external variability perceived by the value stream as a
whole.
Figure 6-36 Position change in the classification matrix
Classification Matrix
2
3
4
5
6
7
8
2 3 4 5 6 7 8
Demand Variability
T
a
s
k

V
a
r
i
a
b
i
l
i
t
y
Motawi
(VS before & now)
ZMO (VS now)
Menlo (VS now)
Toyota (assy)
NAC (assy)
Motawi (P now)
ZMO (P now)
Mass Die Making (VS)
Job Shop
Flow Shop
Traditional Lean
(assembly line)
Engineered Product
Shop
Lean Die
Making (VS)
Merillat
(VS now)
ZMO (VS before)
Merillat
(P now)

234
remains unchanged, processes are isolated from it by using a buffer (usually finished
goods inventory, as in the case of Motawi) or other methods such as establishing a
production policy (like Merillat’s decision to always run the cells at the same rate and
adjust capacity by shutting cells down). This decouples the external variability faced by
the firm from the variability that processes need to deal with and thus allows them to
work more efficiently. As was the case for the shift in position of the value stream as a
whole, implementing a Toyota-style system also promotes the shift at the process level
towards a zone of reduced variability in the matrix. Tools such as preventive
maintenance, standardized work, and 5S help stabilize individual processes thus
eliminating the variability they introduce into the system. Improving setup times to
reduce batch size and connecting processes through pull systems or continuous flow
makes them produce small quantities of what is needed, thus reducing the variability they
impose on their supplier processes by eliminating erratic demand patterns. Finally,
working to improve level flow forces the organization to use inventory buffers and/or to
define methods of operation that minimize the effect of external variability on the value
stream. Thus, even if external variability remains unchanged, the use of TPS tools tends
to result in a reduction in the variability perceived by the processes in the value stream.
The position shift at the processes level for Merillat, Motawi, and ZMO are shown in
Figure 6-36 (see ‘Merillat P
296
now’, ‘Motawi P now’, and’ ZMO P now’).
Variability must be reduced to improve the effectiveness and efficiency of value
streams. This moves them towards the bottom left corner of the classification matrix. Not
surprisingly (since Toyota advocates the elimination of muda, mura, and muri),
implementing a Toyota-style system helps in this respect. Additional details on variability
reduction can be found in Appendix C.1.1: Eliminate variability (mura) and overburden
(muri) (page 458).
6.3.4 Use and Adaptation of Tools to Satisfy the Principles that Define Toyota-style
System
Even though, it is not possible to identify patterns that tie tool usage with the value
stream’s position in the matrix, it is possible to see how each emerging Toyota-style

296
P standas for Process level and refers to the variability that processes within the value stream perceive.

235
system has been adapted to operate effectively in the conditions it faces. The adaptation
of specific tools (as described for each case study in the corresponding TPS tool usage
tables) is the observable result of each firm’s interpretation of Toyota’s philosophy and
the application of its way of thinking to the particular conditions the firm faces. Table
6-13 highlights some of the principles that define Toyota’s thinking, showing what each
case study has done to fulfill the requirements of the principle. Even though the
observable processes and methods are different, they are the result of a common thought
process. This is precisely what was proposed in the original research hypothesis. With a
common thought process, Toyota’s philosophy in this case, similar Toyota-style systems
will emerge. The differences between them can be attributed to the environments the
firms operate in and to the time they have been working on implementing Lean.

Table 6-13 Key Toyota Way principles in practice in all case studies
Principle
Lean Die
Making
Menlo
Worldwide
Merillat
Motawi
Tileworks
Zingerman’s
Mail Order
PEOPLE
Teamwork
Small teams
are the basic
HR structure.
Process design
supports
teamwork.
Employees
organized in
small teams
for production
and
improvements.
Employees
organized in
medium sized
teams with
incentives tied
to team
performance.
Employees
organized in
small teams
with a working
coordinator.
Team structure
varies with the
size of the
crew. Helping
neighbors in
the line is part
of the job.
PEOPLE
Employee
development
Extensive on
the job training.
Problem
solving used to
develop
employees.
On the job
training.
Kaizen events
used to
develop
employees.
On the job
training.
Kaizen
projects used
to develop
employees.
On the job
training.
Weekly and
monthly
meetings used
to develop
employees.
On the job
training.
PDCA and
metric
meetings used
to develop
employees.
PROCESS
Demand
variability
reduction (or
minimize its
effect)
Integrate die
making into
product
development
planning. Send
excess work to
partner firms
with same
capabilities.
Effective
move of
personnel to
where they are
needed most
(keep pick
intervals set).
Fixed number
of containers
unloaded.
Load sharing
between
plants.
Flexible
capacity (and
labor) with
fixed line
speed.
Finished goods
and WIP
inventory.
Work to an
average takt
rate.
Flexible labor
with step-
changes in line
speed.

236
Principle
Lean Die
Making
Menlo
Worldwide
Merillat
Motawi
Tileworks
Zingerman’s
Mail Order
PROCESS
Task
variability
reduction (or
minimize its
effect)
Standardize
dies, group
them by size,
and use an
assembly-line
style process.
Standardize
packaging,
assign specific
standard jobs
to employees.
Standardize
cabinets, use
duplicate
assembly-line
style cells,
Rationalize
production,
improve the
division of
labor, improve
new product
introductions.
Redesign
layout,
rationalize
production,
improve the
division of
labor.
PROCESS
Internal
variability
reduction (or
minimize its
effect)
No machine
failures,
standardized
work, check
lists, fundoshi
scheduling,
high precision
machining to
minimize
rework.
Standardized
work, timed
pick
assignments
by zone.
Standardized
work,
preventive
maintenance,
timed pick
assignments
by zone,
within cycle
change over
times.
Defect
elimination,
rapid
changeovers,
standard size
dies, labor
sharing, reduce
batch size.
Reduce batch
size, ‘help
your
neighbor’,
standardized
work, timed
replenishment
routes.
PROCESS
Highlight and
correct
deviations
from expected
Fundoshi
schedule
defines what
should happen.
Detailed
metrics are
tracked and
compared to
targets.
Detailed
metrics are
tracked and
compared to
targets.
Daily
production
compared to
targets. Other
metrics also
tracked.
Detailed
metrics are
tracked.
Production is
compared to
daily plan.
PROCESS
J ust-in-time
Fundoshi
schedule and
visual systems
ensure
synchronizatio
n of processes.
Daily takt
defines labor
needed in each
area. Fixed
time pick
assignments
tied to ship
windows.
Daily takt
defines
number of
cells to run.
Continuous
flow and pull
keep processes
synchronized.
Average daily
takt rate
defines
production
targets.
Kanban pull
the needed
products.
Daily orders
define line takt
and labor
needs.
Continuous
flow and pull
keep processes
synchronized.
PROCESS
Built-in-
quality
Processes stop
when problems
occur. Defects
are analyzed
and their root
cause
eliminated.
Visual systems
help prevent
mistakes. Root
causes are
identified and
eliminated
when they
occur.
Error proofing
devices reduce
defects. Root
causes are
identified and
eliminated
when they
occur.
Defects are
analyzed and
their root
causes
eliminated.
Process
redesigns are
used to reduce
defects. Main
mistakes are
analyzed and
their root
cause
eliminated.
IMPROVE
Continuous
improvement
Clear notion of
ideal process
and of
expectations.
Root cause of
discrepancies
from plan and
problems are
identified and
eliminated.
Decentralized
improvement
system.
Clear facility
level
expectations.
Weekly
improvement
meetings and
frequent
kaizen events
analyze and
eliminate the
root cause of
main
problems.
Clear targets
for process and
facility level
metrics.
Deviations
from them
highlight
problems
solved through
kaizen projects
and weekly
meetings (5
whys and 6-
sigma in use).
Clear targets
for process
metrics.
Scheduled
quality,
production,
and delivery
meetings
identify main
problems and
analyze them
to eliminate
their root
causes.
Clear facility
level and daily
production
expectations.
PDCA
meetings used
for main
problems.

237
Principle
Lean Die
Making
Menlo
Worldwide
Merillat
Motawi
Tileworks
Zingerman’s
Mail Order
IMPROVE
Organizational
learning
Designer and
die-maker
interaction help
learning.
Checklists,
standards and
changes to the
process capture
knowledge.
Standardized
work captures
best-known
method.
Standardized
work and
changes to the
process
capture best-
known method
(standard time
for average
cabinet).
Standardize
work, ‘Books
of knowledge’,
and changes to
the process
capture best
practices for
each process.
Standardize
work and
changes to the
process
capture
knowledge.

In the table above, it is interesting to see what the different firms have done to fulfill
the requirements of the principles that define Toyota’s philosophy. For some principles
the response has been very similar across all case studies, while for others the solutions
have diverged significantly. Take for example teamwork. Although there are some
differences, the general solution for all firms is the same: organize in small teams and
design the system to encourage (or even ensure) that employees collaborate and work
together. They all use a small-team structure with a leader that takes on some managerial
responsibilities but whose main job is on the line with the rest of the team. They also
promote teamwork through joint incentives, job design, methods used, and/or policies
established.
Employee development is another case were a similar solution was implemented
across the board. All firms use on the job training combined with some kind of problem
solving activity to develop employees and help them grow. The effectiveness and depth
of the system varies significantly from case to case (with the best examples found in the
firms that have been using Toyota-style systems longer), but the general solution is the
same.
Variability reduction, on the other hand, shows significant differences. In the case of
demand variability Motawi has chosen to shield its processes from it by using inventory
and flexible customer lead-times. Menlo, Merillat, and ZMO rely mostly on extra
capacity and flexible labor. However, even within this group, the particular solutions are
different. Merillat copes with volume changes by turning production cells on and off, but
runs them at the same speed when they are operating. Instead, ZMO varies the speed of
the line by adding or removing people. Menlo relies on cross-training and effective
methods to move people between jobs as needed. Finally, Lean Die Making has focused

238
on eliminating the variability all together by becoming an integral part of new vehicle
development (capacity constraints in die making are considered when scheduling new
vehicle programs).
The implementation of J IT also presents significant differences. ZMO uses a
continuous flow line to fulfil orders and a card based pull system to keep the line stocked
with the products needed. Line speed and the number of people running it change from
day to day according to the volume of orders. Being an inherently batch process, Motawi
relies on physical kanban cards to trigger production. Regular kanban are used for steady
runners kept in inventory, while make-to-order ones are generated as needed for custom
and highly variable products. Processes run to a daily takt rate revised monthly and
defined based on expected sales for the year ahead. Merillat relies on a computer-based
system to group orders by truckload (according to their delivery location) and assign
them to continuous flow cells on a first-come-first-serve basis. Electronic signals are used
to trigger replenishment of sequenced parts to the cells. Menlo also uses a computer
system to generate fixed time pick assignments. Then uses time windows (which are tied
to shipping windows) to coordinate the order fulfillment process in a sort of managed-
push system. Paradoxically, the highest degree of scheduling (the hallmark of a push
system) is found in Lean Die Making’s fundoshi schedule. However, it is mainly used as
a way to define clear expectations and to decide how to react to problems, while the dies
are made in continuous flow lines (as much as possible) with processes coordinated
through visual systems and physical job tickets that serve as kanban.
Regardless of whether organizations use the same proven methods and tools that
Toyota has developed, or adapts and/or develops new ones that better fit their particular
circumstances, the key to having a Toyota-style system is to understand the principles
that define Toyota’s philosophy and to deploy an integral system that fulfills their
purpose. Table 6-13 shows examples for only a few of these principles, chosen because
physical evidence of their use was clearly visible in the case studies. As their systems
mature, those firms that develop true Toyota-style systems should begin to show
evidence that the rest of the principles are being used as well.


239
CHAPTER 7
DEVELOPING TOYOTA-STYLE SYSTEMS AT MOTAWI AND
ZINGERMAN’S MAIL ORDER


This chapter provides a detailed description of the process through which Toyota-
style systems were developed at Motawi and at Zingerman’s Mail Order (ZMO). The
purpose is to show the reader how the systems evolved with the intention of later drawing
conclusions to define a methodology that can be used to create similar systems in other
organizations. It presents both things that worked and things that did not to highlight the
try-and-learn approach necessary to customize Toyota’s system to the particular
conditions faced by a given firm. For each organization in every environment, it is
necessary to understand how Toyota’s principles apply and how Toyota’s tools can be
adapted to fit the needs of the firm. Trying things out and learning from the results (good
or bad) provides invaluable feedback for this. Developing Toyota-style systems is an
evolving learning process, not the application of a fixed solution, so learning by doing is
a critical requirement. Although the process followed can be generalized and used for
firms operating in any type of environment, the specific approach followed at each one
can vary significantly, just as the resulting Toyota-style systems may look very different
in each case.
The descriptions presented in both cases focus on the development of the technical
solution. Although ultimately the objective is to develop an integrated Toyota-style
sociotechnical system, at this early stage it was decided to allow the physical changes to
the technical system to begin reshaping people’s behavior. In other words, the idea was
that the development of the social system required to support the technical solution would
begin to take shape in response to the changes people experience in their daily jobs.

240
7.1 Process of Intervention and its Objectives at Motawi Tileworks and
Zingerman’s Mail Order
In a transformation to a true Toyota-style system, at least two effects should be
clearly observable. First, there should be a significant improvement in key performance
indicators. Going from a traditional Craft or Mass production system to a Lean one must
translate into measurable improvements. Second, improvements achieved should be
sustained and the organization should develop the capability to continue making progress
on its own. In other words, continuous improvement should become part of the daily
activities of every employee and should lead to organizational learning. J ust maintaining
the status quo is inconceivable in a true Toyota-style system. These effects suggest an
approach with two objectives for the intervention process at Motawi and ZMO: make
process changes that achieve significant improvements in performance, while at the same
time developing the firm’s capability to identify and solve problems such that they
become self-sufficient in improving their operations in the future. The work done at both
firms focused on these two themes.
With this in mind, the interaction with both organizations was designed around
weekly meetings focusing mostly on using Toyota Way concepts and TPS tools to solve
specific problems faced by the organization at the time. The intention here was to
develop within both firms the capability to identify and solve problems while at the same
time providing them with a holistic view of the tools that were being used to make
improvements. Holistic here refers to providing a complete picture of the tool, starting
with very specific ‘how to’ instructions (how to calculate the number of kanban needed),
while also explaining why the tool is important in the context of a lean system (kanban is
an autonomic real-time scheduling system that ensures processes work on what is really
needed), how it supports the improvement process (kanban facilitates understanding of
the flow of parts and information and creates a clear connection between processes that
can be tightened to show problems and drive improvement), and the philosophical
reasons why it is needed (kanban is used to implement a pull system and enable the
facility to approximate J IT production thus eliminating sources of waste such as
overproduction). In some instances physical changes to the process were made as part of
the weekly or other specially scheduled meetings. For the most part, however, the focus

241
was on the conceptual development of the solution while the physical implementation
was performed by the employees of each firm to ensure that they learned from the
process and to guarantee that both organizations developed the capability necessary to
sustain, replicate, and continue to improve any system developed.
7.2 Motawi Tileworks
7.2.1 What Led Them to Lean?
By 2003, after growing the business for 11 years and establishing it as a nationally
recognized name in tile manufacturing, Motawi’s owners had a feeling that the business
was stagnating. Although sales continued to grow most years, profits did not always keep
up. Margins were being squeezed by higher operating costs and lead-time to customers
was higher than they wanted to see it. Also, running the shop floor was becoming a
headache and was taking an increasing amount of the owner’s time at the expense of
sales and new product development. Being constantly on the lookout for ways to improve
their business, Nawal and Karim came across Lean Manufacturing and decided to give it
a try. This set the stage for the research engagement with Motawi, and by the fall of 2003
Motawi Tileworks had begun its Lean journey. It is important to note here that the
interest in developing a Toyota-style system was generated within Motawi and at the
highest level. This played a critical role throughout the transformation by keeping the
owners involved in technical decisions and in the implementation process.
7.2.2 Development of a Toyota-style System at Motawi
Throughout the Lean transformation, Nawal and Karim Motawi have been very
receptive to new ideas. Yet they have always displayed a strong need to thoroughly
understand any suggestion and, especially in the first few months, they pushed back hard
until they were convinced that any change proposed made sense and that it would benefit
their organization. Perhaps this slowed down progress initially, but it has proven
invaluable throughout the transformation process since the level of knowledge developed
at Motawi became much deeper than it would have otherwise. Furthermore, the solutions
that were ultimately developed and implemented through this process of strong

242
questioning were significantly better than they would have been if they had gone ahead
and just executed as they were told (after all, they are the ones who truly know their
business). This in turn helped them develop a high level of trust in the researcher and in
the Lean approach in general; trust that could have been jeopardized if incomplete or
flawed solutions had been implemented.
Motawi operates in a very different environment to that for which Toyota developed
TPS and so it faces a set of challenges that make the translation of Lean to its operations
far from trivial. Table 7-1 shows a summary of the main differences and the challenges
that result.

Table 7-1 Differences in the conditions faced by Motawi and the challenges they impose
Characteristic Traditional TPS Motawi Challenge
Demand
variability
Low Very high
Variable takt time and
unleveled schedule
Cycle time Fixed
Variable (different for
each item)
Hard to balance work
and standardize jobs
Product variety Low
High (many custom
items as well)
Hard to standardize,
cannot hold all items
in inventory
Production runs
Long with stable
batch size
Short with variable
batch size
Hard to plan for and
unleveled schedule
J ob of operators Repetitive
Different for each
product
Hard to standardize
Work
knowledge
Structured (routine
procedures)
Tacit Hard to standardize
Specialization
of people and
equipment
High (separate cells
for different parts)
Low (volume does
not justify separate
lines)
Single line has to deal
with the full product
variability
Quality
standards
Metric driven Aesthetic Hard to standardize
Feedback loops
in production
Short (if system is
well designed)
Long (kilns introduce
days of delay)
Hard to learn from
past actions

243
Characteristic Traditional TPS Motawi Challenge
Predominant
paradigm
Steady and efficient
production of few
items in high volume
Craft production of
many and/or unique
items in low volume
Low process
discipline, no
standard methods, and
low drive to eliminate
waste

Moreover, these challenges also interact with each other to make implementation
even harder. For example, TPS seeks to define highly specified standardized work to
remove seconds of waste per cycle. This assumes that cycle times are fixed for a
particular task, that takt time is stable, that work can be clearly specified, and that there is
a clear way to measure whether the product meets the standard. But what if none of these
are true?
The artistic mentality predominant in the studio also imposed its own challenges on
the transformation process. Things at Motawi are hardly ever black or white. The grey
area of ‘maybe’ characterizes a lot of what might ordinarily be thought of as good or bad
practice. For example, motion and transportation waste are frequently perceived as
necessary breaks for operators and defects are not necessarily bad since they may result
in more interesting pieces. This ambivalence makes it hard to impose a tight and
disciplined Lean system where all the cogs need to be carefully synchronized and work as
expected.
Figure 7-1 displays a timeline with the main events that helped shape the Motawi’s
Toyota-style system. Between the dates shown significant work was being done to either
achieve the events highlighted or to refine the solutions implemented after learning from
the new processes. This timeline provides a chronological map for the development of
Motawi’s Toyota-style system.


244

Figure 7-1 Timeline for the development of Motawi's Toyota-style system


245
7.2.2.1 First steps: grasp the situation and develop an initial solution
As with most Lean efforts, the journey at Motawi began with the generation of a
current state value stream map (a simplified version can be seen in Figure 6-19, in page
189) that served the dual purpose of allowing the researchers to gain a good
understanding of the process while highlighting problems that Motawi’s owners
themselves had not realized they had. Although the mapping itself was done in one day, it
took several sessions of discussion to agree on a graphical representation of the process
and of the problems it presented. As was described in section 6.2.1.3: Initial state (page
189) the main problem identified was the use of a ‘Push’ system where each department
optimized its production locally by batching across orders. This resulted in long lead-
times and in having too many orders ‘in-process’ waiting for a fraction of the job to be
finished in the next batch of similar parts. Flow was poor and there was the impression
that capacity was not sufficient as employees worked on things that were needed well
into the future or not at all, expending precious time that could have been used to produce
items to complete orders that could be shipped immediately. Defects hovered near 15%
(making the process unreliable and further exacerbating the lead-time and capacity
issues) and problems were hard to see and thus nearly impossible to eliminate. All these
factors contributed to contracting margins and low profits.
During the first two months of working with Motawi, the majority of the time was
spent in discussing the current situation at the time, in developing a comprehensive
solution to alleviate some of the problems identified, and in laying an initial foundation
of awareness and understanding by Motawi’s owners of what a Toyota-style system is. At
the time this focused mostly on the tools of TPS and how they would affect the process of
making tile, but always showing them as part of a system and tying them to the principles
that define why they are needed. No significant physical changes were made during this
period. The initial state value stream map was a key resource that served as an easy to
understand medium for discussion. From it, a future state map was developed and used as
a blueprint to determine the work that needed to be done. Although the physical solution
has been adjusted significantly and continues to be revised frequently, the high level
conceptual solution has remained mostly the same (it can be seen in the simplified value
stream map shown in Figure 6-20, in page 193). The pull system proposed became the

246
backbone of the Lean transformation and the majority of the changes made to the process
were related to it either directly (to implement kanban, for example), or indirectly by
improving some aspect of production in support of the pull system. Even seemingly
unrelated changes, such as those involving the continuous improvement system, tended to
be linked back to the pull system through the effect they would have on it.
The use of value stream mapping began a much needed paradigm shift from local to
global optimization. The prevailing approach had been to optimize each process by
running it as efficiently as possible, but without a clear view of how it affected the overall
value stream. The objective for the future state became to get orders out the door as fast
as possible by improving the flow of product through the facility, even if this meant
running individual processes sub-optimally. Although this represented a very significant
change in perspective, the general concept was accepted by most people with relative
ease. The main reason why is that everyone could see and was affected by the waste and
problems generated by the local-optimization/push approach. The new system promised
to relieve the problems and make their jobs easier. Developing a more holistic
perspective such that people could apply it to the process however was much harder.
Even after three years of doing Lean, there are still issues of when departments should
support each other instead of focusing on meeting their performance targets (to be fair
part of the problem is that excessive demand variability makes it hard to define clear cut
rules to help employees make the right decisions).
As was discussed in section 6.2.1.4: Current Process and use of TPS tools (after state)
(page 191), improving the flow of orders to get them faster to the customer required the
implementation of a pull system that ensured that each station worked on what was really
needed at the time to complete whole orders. Doing this would prevent wasting capacity
by working only on pieces that were sold or that would sell rapidly. It would also
eliminate most of the waiting that was commonplace for partial orders and thus result in a
significant reduction in lead-time. Finally, it would also reduce the number of open
orders at each department eliminating most of the sorting required.
The solution represented in the future state map also considered the policy of building
direct to actual customer orders. This seems lean from an inventory perspective.
However, working to customer orders would introduce two new problems. First, all

247
processes would be exposed to the full level of demand variability, which in Motawi’s
case is extreme (shifts of 10 times the volume from one day to the next are not
uncommon, see Figure 6-15, in page 186). Second, it would require a huge increase in the
number of changeovers needed, something the majority of processes could not handle at
the time. These problems were resolved by developing a Toyota-style system customized
for Motawi’s situation, as is described below.
7.2.2.2 Implementation: pull system to tie all processes together
Once an initial solution was agreed upon in early December 2003, the implementation
process began. The initial focus was on establishing a bisque market to control what
pressing made while ensuring that downstream processes (bulb and dip glazing) had the
parts they needed when they needed them. This market would allow some batching to
occur at pressing, although quantities made would be significantly smaller than those
being produced until then (it was estimated that pressing needed to go from the three
changeovers per day they were averaging to about six or eight). This necessarily required
reducing changeover time.
As work was being done at the press, the bisque marketplace was set up and excess
inventory was flushed out of the system. A kanban board was installed at pressing to hold
the cards coming back from the bisque market and to provide a visual scheduling aid. The
kanban board was very well received as it helped prioritize the work and indicated
precisely the amount that had to be pressed of each item. Making these two decisions
used to be a source of stress for the coordinator and would consume a significant amount
of his time as he had to sort through orders to select what to make and then go and check
bisque levels to decide how much to make. Figure 7-2 shows pictures of the bisque
market as it was being set up (left) and of the initial pressing kanban board (right).

248


It soon became obvious that keeping all parts in the bisque market was wasteful and
prohibitively expensive in both space and money. Besides, the system did not provide a
solution for custom made parts. To tackle this issue, a second kanban board was added
for make-to-order cards (see Figure 7-3) to handle all the items that would not be held in
the bisque market (a detailed explanation of which items would be stocked is provided
below in section 7.2.2.4: Implementation: level production to optimize the use of
resources, in page 263). Under this system, orders would go to allocation where someone
from the pressing department would attempt to fill them with parts kept in the bisque
market. As parts were consumed, kanban for depleted items were collected. Make-to-
order kanban would also be generated for those parts not held in inventory. These cards
would then go to the make-to-order kanban board at pressing. The addition of the make-
to-order cards meant that pressing (except for the person doing the allocation) did not
need to see the orders. All they had to do was focus on producing according to what the
boards told them. Breaking the habit of looking at orders though was a lot harder than
setting up the new system and employees continued to second-guess the boards for a long
time by peeking ahead at the orders that were coming. The make-to-order cards however
also introduced a problem: pressing now had to mesh the priorities defined by the two
boards, and do it for its two customers (dip and bulb glazing). To help with this, a set of
priority rules were defined based on the ship dates for the make-to-order board, the
Figure 7-2 First iteration of bisque marketplace (left) and pressing kanban board (right)
Label and kanban
Kanban
‘Press Now’ indicator

249
number of cards on the board for bisque kanban items, and the expected mix of field to
plychrome tile. Over the course of the next two years the rules were revised and refined
many times. Each iteration improving the prioritization, but frequently introducing
problems of its own that resulted in specific parts beign delayed and causing late
shipment of orders containing them. After several iterations the rules were simplified and
now pressing concentrates on making every day enough parts to give one day of work to
each of its customers (this will be discussed in more detail towards the end of this
section).



The kanban boards at pressing simplified and clarified the job so much that after a
few weeks running them, other departments began inquiring about similar systems they
could use. A finished goods market was soon established for items (mostly polychrome
tile) offered through Motawi’s gift catalog and a kanban board (see Figure 7-4) was
installed to control production at bulb glazing (as well as a fraction of the volume for dip
glazing). This second board also eliminated the use of a computer based system that was
set up exclusively to allow bulb glazing to batch production across orders by giving it
Figure 7-3 Pressing make-to-order kanban board
Hand-written
make-to-order kanban

250
visibility of what was coming. Not only was the kanban system simpler and easier to use,
but it also eliminated the need for updating this parallel database.



By early April 2004 both kanban loops were running, albeit in a somewhat crude
form and with some links between processes that were not entirely clear or tight enough.
Although parts were being pulled through the system, orders were still being pushed
through. There were no limits on how many of them could be in the studio or where, so
they were released as soon as they were received and pressing worked on them as soon as
it had a chance regardless of the load on other departments downstream. This variable
inventory of orders resulted in a variable production leadtime that prevented sales from
providing realistic ship dates to customers and was part of the reason why the percent of
orders shipped on-time was low (this will be discussed in more detail below).
This became the main focus for the first revision of the system, which began as soon
as the initial kanban were up and running. By the end of April, the next major redesign
had been defined and was in the process of full implementation. This included the
addition of a board at allocation (see Figure 7-5) to hold orders (job tickets) that were
Figure 7-4 Finished goods marketplace (left) and glazing kanban board (right)
‘Out of Stock’ card

251
ready for glazing. The square footage allowed on the board was limited and thus
restricted how far ahead of glazing pressing could run. A similar effect was achieved for
all other processes by using process boxes to hold a limited square footage of orders
(these process boxes behave as FIFO lanes). The boards and process boxes for orders
completed the pull system and really linked all processes in the shop floor together since
upstream processes could only produce enough to replenish the empty space in its
outgoing box. This concept however was much harder to understand than the physical
markets and kanban. It was hard to understand why the size limits were needed. To some
extent they were perceived as an arbitrary constraint that reduced their flexibility to
produce efficiently. For a long time people frequently tried to ‘improve’ on the system by
working around the rules. Only by auditing the process week after week and discussing in
detail the problems found did the concept begin to gel and become an accepted part of
system.


While the researcher focused on further refinements to the main kanban system, on
other major improvements, and in developing a continuous improvement system (see
next section 7.2.2.7: Implementation: continuous improvement , in page 284), Motawi
personnel decided to go ahead and apply what they had learned to other areas. By
Figure 7-5 Allocation board and process box
Allocation process box
Allocation board
Orders with only field tile
Mixed orders
Orders with only polychrome tile

252
September 15 2004 they had set up a marketplace to control and order wooden frames
297

from their supplier (see Figure 7-6). They set this up entirely by themselves proving they
had reached a level of understanding about pull systems that allowed them to develop
new systems and improve the ones the researchers were leaving in place. Furthermore,
the system was very effective in reducing delays in shipping to customers, which were
common due to missing frames. It also highlighted problems with the reliability of the
supplier. Another kanban system soon followed to control individual tiles used for
sample ranges
298
.


During this time Motawi also took complete ownership of the revision and adjustment
of the main kanban systems. This became a quarterly process in which, based on recent
demand, ‘kanban parts’ were reviewed to decide whether they should remain in kanban,
‘non-kanban parts’ were reviewed to see if they should become ‘kanban parts’, and the
number of cards and quantities per card were adjusted to match expected demand.

297
Besides selling it’s decorative tiles as individual pieces, Motawi also offers some of them mounted on
hand-made wooden frames.
298
Sample ranges are used by showrooms selling Motawi’s tile to show their customers the range in
appearance they can expect if they order a particular glaze.
Figure 7-6 Kanban system for frames
kanban
Used kanban waiting for
order to be placed
kanban for order
placed to supplier

253
Besides maintaining the right parts and the right amounts in the markets, the revisions
brought a significant improvement in the orderliness and appearance of the marketplaces
(see Figure 7-7).



Small improvements to the pull system and to the way it is maintained continued to
be made frequently, however, major changes did not happen till the end of August 2005.
At this time the final link was added by tying scheduling to production. Up until now,
scheduling was done by filling weekly buckets in a log with the orders that came in. The
main problem was that the connection between the buckets and actual conditions in the
production floor was tenuous at best. If someone in the office noticed that orders were
piling up, then they would block a few days in the scheduling log to allow production to
catch up. Was the reaction happening on time all the time? No. Were the days blocked
enough or too many? Hard to tell. And, worst of all, when production fell behind there
Figure 7-7 Improvements to the bisque and finished goods markets
Bisque
marketplace
Finished goods
marketplace
Sample of bisque marketplace labels
Sample of bisque marketplace labels and cards

254
was no analysis to determine why it had happened; partly because it was never clear
whether it was a production or a scheduling problem. The result, as discussed above, was
that scheduler’s pushed work onto the shop and promised customers delivery dates that
were frequently impossible to meet.
The much-needed connection between production and scheduling was achieved by
introducing in the office the concept of the process box used in production. Two boxes
were used: one for gift items to be supplied from finished goods inventory (shipping
picks orders from this box), and one for orders with made-to-order parts (pressing picks
orders from this box). These represent the two information streams going to production at
shipping and allocation (see the value stream map depicting the process after the Lean
transformation in Figure 6-20, in page 193). Both boxes have the same rules and behave
in similar ways. Basically, they are divided into daily slots and the schedulers drop
incoming orders into the next slot that has space available
299
. The size of each slot, in
square feet of tile, is defined by the daily takt rate being used at the time (see section
7.2.2.3: Implementation: use takt rate to synchronize production to demand, in page 259).
The date for the slot in which the order was dropped becomes its designated start date.
The expected ship-date to be quoted to the customer is determined by adding a standard
production lead-timeto the order’s start date. Standard lead-times are defined based on
where the items in the order are stored (if they are). By early August 2004, the first
attempt at defining fixed lead-times was made. This was revised and refined several times
and by February 2006 three standard lead-times had been defined: for items in finished
goods, for items in the bisque marketplace, and for items not stored in either place. The
lead-time for a particular order is given by the longest lead-time item it contains.
The connection to production is maintained by reshuffling orders frequently (ideally
as frequently as production takes orders from the box). In this process orders in the box
are moved back to fill slots with later dates if production is making less tile than defined
by the expected takt rate. This has the effect of increasing the backlog and pushing the
start and ship dates of new orders coming in further into the future, thus preventing new
orders from being delayed due to problems with other orders already in the system.

299
For orders where the customer requests a specific shipment day (instead of requesting items be delivered
as soon as possible), orders are placed into the slot corresponding to the required start date to ship on time
(this is the customer’s request ship date minus the standard lead-time for the items ordered).

255
Orders are pulled forward to fill slots production has emptied if they run faster than the
takt rate. This reduces the backlog and assigns start and ship dates to orders coming in
that are closer to today’s date (new orders are not placed ahead of existing ones; they are
given the same date as the last one in the box). Figure 7-8 shows a picture of the
scheduling box and the chart used to track the backlog.


Displaying the start date clearly in the job ticket gives production a clear indication
(every time they get an order from the schedulers) of how they are doing compared to
where they should be to meet the ship date promised to customers (every order they pick
should have a start date of today or in the future if promised ship dates will be met). This
has become an important indicator of production’s performance. Another metric that is
also highlighted by the new system is the backlog, given by the difference between the
start date being assigned to new orders and today’s date. This is tracked and displayed in
a chart to see both the current value and where it is trending (see bottom of left picture in
Figure 7-8).
The resulting scheduling system is simple and easy to use, and yet, for it to work,
significant improvements in several areas were required. A takt rate for the facility had to
Figure 7-8 Scheduling system
Backlog trend
Daily scheduling
slots
Dates needed for
scheduling orders

256
be defined based on expected customer demand, production targets for each department
needed to be derived from this, standard lead-times had to be identified, and, most
importantly, all production processes had to become reliable and run consistently as
expected. Without this stability none of the other factors would make much of a
difference and the dates assigned at scheduling would be mostly meaningless. Laying out
the foundation with all these requirements took time and is the main reason why it took
so long to implement this last piece of the pull system puzzle.
Implementing this approach to extending the pull system all the way to scheduling
faced similar problems as the process boxes did in production. Not surprising since it is
the same concept with the added difficulty that it needs to be shuffled every day. Old
habits have been hard to break and even today (6 months after implementation), instead
of relying entirely on the information provided by the box, one of the schedulers keeps a
parallel log similar to what was used for scheduling before.
Once a complete pull system was in place, tying together the whole process from
order receipt to shipping, and the pull mentality began to settle in, changes started to
focus on how to use the system to improve coordination between departments and
improve the overall performance of the organization. One such change was introduced in
J anuary 2006 and consisted of making pressing directly responsible for keeping its
customers (dip and bulb glazing) busy. In a way this had been the case since the first
kanban began circulating. However, the link had always been an indirect one, where
pressing produced parts (based on a set of priority rules that tried to make some sense of
the conflicting instructions it was getting) that eventually filled an order and made it
available for glazing. After trying many different combinations of rules, they were
simplified and pressing was made responsible for releasing, every day, enough work to
keep the glazers busy one day. It was accomplished by modifying the allocation process
box to add four slots for orders (it takes four days for a pressed tile to be available for
glazing). Each one should hold one day of work for dip glazing at any time. Every day, as
parts come out of the kilns, pressing takes out one day worth of work from the end of the
box (and hangs it on the dip glazing board), moves orders in the other slots backwards to
the next division, and gets from scheduling enough orders to replenish, into the first slot,
the same amount that was taken out (this enforces the pull connection between dip

257
glazing, pressing, and scheduling). For this approach to be possible pressing had to
achieve dramatic improvements in changeover times and it was necessary to define what
‘one day of work’ meant (see section 7.2.2.3: Implementation: use takt rate to
synchronize production to demand, in page 259).
Figure 7-9 displays the allocation process box and the order boards that make up this
part of the system. This improvement has been particularly critical for dip glazing since
there is no excess inventory between them and pressing. Bulb glazers feed off the bisque
market for the majority of their work, and thus can work somewhat independently. Under
the new system, pressing makes a fixed amount of polychrome tile (defined as a percent
of the daily takt rate and corresponding to the mix of polychrome to field tile that is being
sold at the time) to keep bulb glazers busy, and then gets from the schedulers and makes
whatever tiles are needed to replenish what was removed from the last slot in the
allocation box. The amount made can range from zero tiles (if orders are filled directly
from the bisque market) to a full day of dip glazing production (if the orders in queue do
not include items that are available in the bisque inventory). Any time left is used to
make field tile to replenish the bisque market.



Figure 7-9 Allocation process box and dip glazing boards
Dailyslots in allocation
process box
Mixed field & poly order
ready for glazing
Field only order
ready for glazing
Allocation process box

258
Even after running and fine-tuning the pull system for over two years, it still allowed
for some unacceptable stock-out conditions caused by the interaction of variability, the
way the system was set up, and the replenishment delay for items in both bisque and
finished goods inventory. Seeking to identify the root cause of the stock-out problem,
triggered an in-depth review and redesign of the kanban system in late May 2006 (with
changes implemented in early J uly during the quarterly kanban quantity review). This
resulted in the rationalization of the number of cards in the system for each item, the
quantities per card, and the production trigger points (cards in the red) on the kanban
boards. The quantities per card were standardized and storage containers were sized to
match these quantities (minimizing the need to count the number of parts when
restocking or auditing a market). The number of cards was adjusted to ensure that there
were at least 3 cards in the system for every part. Trigger points were adjusted so that
there were at least two red slots for each item and production’s mandate became to make
the items as soon as the first card was in the red zone in the kanban board. If all red slots
were filled (two cards on the red for most items), the parts had to be produced that same
day. Changing the trigger point (see Figure 7-10) is what ultimately alleviated the stock-
out problem by making it easier to control the safety stock and ensuring that it remained
as inventory instead of as kanban hanging on the board.
Figure 7-10 Redefined trigger point in finished goods kanban board
Two red slots per item

259

The pull system in its current incarnation is the result of several iterations and is a
clear example of the try and learn approach required to adapt Toyota’s system to different
environments. The pull system has resulted in very significant performance
improvements and has made a major contribution in shifting the way everyone thinks at
Motawi. Kanban are now used to trigger production ensuring that parts are only made
when they are needed, thus reducing overproduction and helping the value stream come
closer to the ideal of just-in-time manufacturing. Empty space in the process boxes serve
the same purpose by pulling the next order(s) when needed. This focus on producing to
satisfy the downstream customer has helped replace the prevailing local optimization
paradigm by a wider value stream perspective. Both kanban and process baoxes also
impose a limit on the amount of inventory to be held and establish clear customer-
supplier relations that create a tight link between processes. This is critical to highlight
problems for continuous improvement. On top of this, the pull system has brought
visibility to the production system making it easier to understand and manage and has
gotten people in non-production areas (in the office) involved, by allowing them to see
the effect of their actions on the performance of the manufacturing operation and the
organization as a whole.
7.2.2.3 Implementation: use takt rate to synchronize production to demand
Motawi uses a daily takt rate instead of the traditional takt time used by Toyota since
takt time is hard to use in their environment. The high number of different items made
and the variation in processing times they present makes systems based on a uniform takt
time useless. The daily takt rate is defined as the average amount of tile (in square feet)
that needs to be produced each day to satisfy expected demand. It is mainly used in two
ways: to establish the size of buffers between departments and to define production
targets for each process.
From early on in the Lean process, the existence of limited size buffers has been a
key part of the pull system solution. For customer orders (as opposed to looking at
individual pieces where kanban pull them through the system) these buffers provide the
necessary link between departments by limiting the square footage that can sit in each
process box. If a downstream department has a problem and slows down, the square

260
footage in the process box feeding it rapidly reaches its limit and upstream processes
have to slow down as well or change what they are making to supply other processes or
replenish their marketplace. The result, as expected from any pull system, is that supplier
processes cannot run too far ahead of their customers, thus keeping overproduction in
check. This in turn places a cap on the maximum WIP in the system and keeps
production lead-times constant and predictable (a necessary condition for the scheduling
system described at the end of section 7.2.2.2: Implementation: pull system to tie all
processes together, in page 247). In any case, by April 2004 the first fixed-size process
boxes were up and running, although at this point the size was set mostly based on
capacity considerations. The daily takt rate was not in use yet.
Definition and use of production targets began in late J uly 2004 with the introduction
of process charts to track daily production in every department. The idea was to get
visibility into the output of each department and its variability, as well as into any trends
those values presented. Very soon it became obvious that more than capacity, the biggest
problem was excessive variability. About a month after the charts were introduced,
production targets were set for all processes and the mandate to employees became to try
to hit them every day by adjusting the mix of items they made (targets were mostly set
based on capacity consideratios). The result was a reduction in the output variability of
all departments, although in different degrees. Pressing (and consequently dip glazing
since they are closely linked) had the smallest improvement and, even today after many
other changes, continue to show the most variable behavior. Bulb glazing, on the other
hand, became fairly stable (mostly because they are buffered by markets on either side).
This change highlighted the fact that part of the variability perceived in the studio was
being generated internally and initiated the process of understanding that its level could
be affected. Until then the prevailing belief was that variability was given by the nature of
the business and that there was little that could be done internally to reduce it.
At this point a takt rate per se was not yet in use since customer demand had little to
do with how the buffers were sized or how the targets were set. This was soon to change,
though, as production began to shift from having an exclusively internal focus to a
broader perspective that emphasized customers’ demand. Several attempts were made at
defining targets and buffer sizes based on different factors, with every new iteration

261
giving a heavier weight to customer demand, until it became the sole component. Initially
it was hard for people at Motawi to define production targets that did not consider
production capacity and/or historical performance (to some extent it was considered
unfair to the workers). When it was understood that the only way to develop the
capabilities the firm needed was to base the targets on customer requirements (demand, in
this case) a true daily takt rate was created. Initially it was reset each month based on
expected sales for the coming month. This frequently resulted in severe changes that were
hard to cope with in production. The system evolved and currently the takt rate is revised
monthly, but looks at expected sales one year out. The takt rate is set to match the
expected daily average demand for the year. This results in small adjustments to the takt
rate every month. By early August 2005 buffers were resized based on this takt rate,
enabling the definition of accurate expected lead-times that were used in tying scheduling
to production (see previous section for a detailed explanation). In J anuary 2006, using the
forecast for that year, a new daily takt rate was set and targets and buffer sizes were
defined based on it. Since then, the daily takt rate is revised monthly and changes to
targets and buffers are rolled out as needed. Figure 7-11 shows pictures of the charts
being used to track daily production and display the corresponding target.


262


Although using a daily takt rate does not result in a system anywhere near as tight as
one using the traditional takt time, it still has had a significant impact on Motawi’s
operation. In general, by providing a clear daily and weekly production target for each
process, the daily takt rate has facilitated understanding of the overall tile-making process
and what should be expected from it. Anyone can come up to a process and see how it
has been performing by looking at its production numbers in comparison to its target
(both displayed on its production chart). Also, basing departmental targets on the daily
takt rate gives them validity and makes it easy for everyone to understand why the
numbers need to be met. Similarly, it has made the pull system more effective, more
intuitive, and easier to use by defining buffer sizes that are directly related to the volume
of product the studio should be making. In addition, as any takt number should, it has
improved the synchronization between processes and has introduced a pacing effect to all
jobs in the studio. Finally, trying every day to achieve a target that has been defined
based on expected customer orders, has begun to shift production’s focus from purely
Figure 7-11 Process charts track daily production as compared to target
Pressing process chart
Bulb glazing process chart
Target Daily production

263
internal to a broader one where customers’ demand play a central role in decisions about
daily operations as well as longer term projects.
7.2.2.4 Implementation: level production to optimize the use of resources
Dealing with high variability requires the use of costly buffers in the form of
inventory or extra capacity. Of course, the best solution to this problem is to reduce
variability. However, this is usually not easy and frequently not an option at the
beginning of a Lean transformation process. In such cases (which Motawi was), the
solution developed must help the organization cope with the level of variability it faces
by minimizing the effect it has on internal processes. Here is where buffers come in.
From the initial discussions in December of 2003, it was assumed that the solution
implemented at Motawi would use a combination of inventory and extra capacity to cope
with the extreme variability it faces. The problem was defining how to do this. Since
achieving proficiency in most jobs takes time due to the artistic nature of the process, it is
not easy to adjust capacity rapidly. This left inventory as the main lever available to level
production requirements. Extra capacity in the form of overtime could de used in
response to problems and to deal with the variability that would inevitably still reach
internal processes.
The problem with using inventory as the main buffer at Motawi is that they make
custom parts as well as a thousands of different items with very volatile demand patterns.
This made it impractical (and in fact impossible without expanding the building) to hold
inventory of every product offered. As described in the pull system discussion above (see
section 7.2.2.2: Implementation: pull system to tie all processes together, in page 247),
the solution used two markets: finished goods and bisque. The main idea was to level
production by storing high volume items. During periods of high demand, orders
requiring high volume parts would be filled from inventory freeing up production
capacity to work on slower moving items not in stock. During periods of low demand,
extra capacity is used to replenish the markets. In essence, the system ‘stores’ capacity in
high volume items by making them during slow periods, and using them when demand

264
peaks. The idea behind this was proposed in a 1997 paper by Sox, Thomas, and
McClain
300
.
The initial selection of items for the bisque market, made in December 2003, stayed
true to the high volume requirement, although it soon became clear that stability of
demand was also an important factor to be considered. In fact, for the bisque market,
which ‘stores’ pressing capacity, stability was found to be at least as important as
volume. The reason is that pressing had a considerably long changeover time (between 20
and 30 minutes before any improvements were made) so, even if the volume of a stable
part was low, the amount of capacity it ‘stored’ could be significant when changeovers
were considered. In any case, the items that need to be kept in such a market are those
that have the highest probability of being ordered during periods of high demand. These
are high volume products with stable demand (ordered frequently).
During the second revision of the kanban system in April 2004, stability of demand
was considered in selecting the items for the bisque market. A process that sorted
products by sales volume and by their coefficient of demand variation was adopted soon
afterwards as the standard approach for selecting items for this market.
Although its main purpose was also to level production, the finished goods inventory
behaved somewhat differently. For one thing, it was also expected to significantly reduce
the lead-time for orders that contained only items held at this market. Furthermore, due to
the explosion in product variety that occurs at glazing (over 30 different possible glazes
to choose from and combine) even the highest and more stable items at bisque are broken
into so many different end-items that they become slow movers and their demand
becomes excessively erratic. Instead of using volume and demand stability to choose the
items to keep in inventory here, it was decided that the finished goods area would hold all
the products featured in the gift catalogue. Such an arrangement certainly satisfied the
second objective of the finished goods market by ensuring that galleries (the main
customers of gift tile) could have their orders filled directly from inventory and shipped
in just a few days. With respect to leveling however, it worked very well for bulb glazing,
but not so much for dip glazing since only a minuscule fraction of their volume is sold as

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Sox, C. R., Thomas, L. J ., & McClain, J . O. 1997. Coordinating Production and Inventory to Improve
Service. Management Science(September).

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gift tile. Even so, it has been a satisfactory arrangement that has resulted in improved
performance and added stability.
Further leveling of production was also achieved by quoting variable lead-times to
customers depending on how loaded the studio was at the time when their order was
received. This was a practice that at least in theory, was already being used before the
Lean initiative began. However, since there was no true link between scheduling and
production, the dates quoted to customers were at best informed guesses. Add the fact
that FIFO was not respected and the result was that expediting was common (creating
waves of unleveled work) and orders frequently shipped late. Both problems went away
with the introduction of the process boxes in late April of 2004 and the direct connection
of scheduling to production in August of 2005 (at this point orders began to be processed
based on earliest start date, except for shipping that works based on the earliest due date).
Variable lead-times help level production by delaying demand (as seen by the production
floor) and pushing it into slower periods. It is another form of capacity adjustment and
can be seen as the complement to storing capacity in high runners as described above. In
fact, it has the exact same effect, except that instead of working ahead by building
inventory to be used during peak demand, it works on the backlog created during the
peak after it has passed and demand slows down. As long as customers are willing to wait
(which they are in Motawi’s case as long as the lead-time does not grow excessively),
using variable lead-times is a much cheaper alternative to building inventory ahead or
having extra capacity on hand.
All these methods isolate demand variability and reduce its effect on the shop floor
enabling processes to work at a fairly leveled pace. However, to be able to run at the
daily takt rate every day, production still must be able to deal with the fluctuations that
manage to get through the buffers, with the variability intrinsic to the product (such as
different cycle times for different parts), and with variation originating in other internal
sources (such as unexpected downtime and absenteeism). Effective use of overtime and
labor sharing between departments can provide the extra short-term flexibility needed. In
both cases the question is when to use them. When should overtime be authorized? When
should someone leave her station and go help in another department? Effective use of the
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Overtime must be watched carefully as it increases labor expenses, which at Motawi
already accounted for nearly 50% of total costs before the Lean initiative began. But even
labor sharing, if not done conscientiously, can cause more harm than good since it is
possible to over do it, moving people around in response to today’s crisis, without
understanding that by doing so we are creating tomorrow’s problems. This could rapidly
lead to an out of control system further establishing fire fighting as the norm.
The fact that the organization as a whole would be better off by moving people to the
department that needed them the most, even if it meant that performance suffered in their
home department, was a hard concept for people to embrace and put into practice. For
one thing, even though global metrics captured the overall performance of the firm (and
the profit sharing paid out based on them), most people felt more identified with local
metrics tracking the health of their own department. To begin countering this, several
iterations of improvements, starting in early October 2004, were made to develop and
refine visual cues to help define when overtime or labor sharing should be used. The first
step was to define the objectives for overtime and labor sharing. Overtime should be used
when customers are being affected (orders are not shipping on time), or when doing so
would increase sales by capturing orders that would otherwise be lost. Labor should be
shared when a department has no work or is running ahead of plan and another
department is in trouble, or when one department has an unexpected problem (a person
missing, for example) and not receiving help would seriously reduce its output and affect
the overall throughput of the organization. With these clear objectives in hand, kanban
boards, inventory levels, process charts, and other reports are reviewed frequently to help
decide whether labor should to be adjusted. In some situations it is obvious, but in others,
it is still not clear and decisions continue to be made to some extent based on gut feel.
The time delay between parts being processed in one department and the next one getting
them (about 2 days in most cases), along with the number of different items being made
(resulting in a constantly changing mix), and the level of variability still present
contribute to making the situation hard to understand and hard to respond to. The current
system requires much fine tunning still. The ideal condition would be to have an
autonomic system triggered by visual cues that told everyone where they are most
needed.

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The countermeasures described above isolate variability and add flexibility to the
system to help processes cope with the variation that still hits them. However, none of
them address the root cause of the problem: the fact that variability exists. As happens in
most firms, the general belief at Motawi was (and still is to some extent) that variability
was completely out of their control and thus they needed to find ways of dealing with it,
but affecting it was out of the question. In 2005, however, it became increasingly obvious
that some of the variability was being generated internally and was partially under their
control. One way Motawi advertises and sells its tile is by participating in art fairs and
shows. These are relatively short events (a few days at the most) and thus require that all
the tile that will be displayed and sold be at the show before the start date. The amount of
tile needed varies significantly, but in general any of these shows requires considerably
more tile than the amount contained in most customer orders or represented by most
kanban. The usual practice at Motawi to prepare for a show was to release a single
internal order (for the most part treated as a regular order) with all the items needed. This
was done well in advance of the show, and yet it was common that when the time to ship
the items came around the order was not filled completely. Even worse, when one of
these orders hit, it would wreak havoc in the marketplaces and their supply processes as it
would wipe clean the inventory for many items at the same time (and more than once for
some of them). This left nothing for regular orders coming through the system and
resulting in late shipments to customers.
Once this issue was understood, in early December 2005 a schedule was created to
reserve capacity at scheduling for picking and replenishing items to be taken to shows
and art fairs. The schedule started by defining what was needed for each show and by
when. Then it broke the quantities required into a fraction of the kanban amounts in the
markets and generated several orders that were released into production spaced apart by
several days and blocking out the corresponding capacity in the scheduling box.
Requesting small quantities of each item ensured that the orders could be filled directly
from inventory and that kanban could operate regularly to replenish what was used.
Reserving capacity at scheduling prevented overloading processes and ensured that other
orders shipped on time. Shows in 2006 were run using this process and the result was that
the variability (and consequent hassle) introduced by the previous batch method was

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eliminated and replaced by a very leveled and well-mixed request for items that the
regular kanban system can handle. Since volume handled in this way accounted for more
than 50% of the total polychrome tile scheduled during the ‘show season’, this process
had a very significant impact on the levelness of the overall production process.
The success of this procedure also inspired the schedulers to create a similar process
for dealing with large customer orders that exceeded kanban amounts. These orders
introduced the same variability and problems into the system as show orders did. By late
April 2006 large customer orders began to be broken into several smaller ones that the
kanban system could handle. These would then be reassembled at shipping before
sending them to the customer, or would be sent as partial orders when they were ready
(depending on the customer’s preference). For the most part, large orders for items held
in finished goods come from galleries that are just replenishing their stock but buy in
large quantities since they place orders infrequently (partly a response to the long
supplier lead-times common in their industry, but mostly due to the prevalent batch
mentality). For these customers, getting partial orders is actually beneficial since they get
some items before they could ever get the full order, it reduces the amount of tile they
receive at one time, and cuts the space needed to store the product. This is true as long as
each partial order contains a mix of a few pieces of all items ordered (as opposed to all
the items of one type and none of others). Of course, such variety is exactly what makes
the system work at Motawi as well, so it is a win-win situation for everyone. When this
was explained to large customers, most of them agreed and even authorized Motawi to
break their orders however was convenient for production. A few customers also order
tiles for shows they are preparing. In this case, orders are broken for internal processing
but are shipped as one. These customers tend to place their orders well in advance, so this
process is transparent to them.
This process has had such good results for Motawi and for its customers, that only
after a few months of running it, a good portion of the customers that used to place large
orders have adjusted their ordering patterns to place smaller orders more frequently. Even
the few that continue to order in large amounts are accepting partial shipments and
beginning to comment on the advantages this gives them (reduced inventory held at their
location, the ability to adjust orders and ship dates in response to actual customer

269
demand, etc.). And of course, the biggest benefits are being reaped at Motawi where
more orders are now handled directly by the kanban system and fluctuations in demand
are getting smaller.
The use of inventory to isolate variability, of overtime and labor sharing to cope with
remnant variation, and the latest initiatives to reduce sources of variability have led to a
better utilization of resources, thus reducing costs while improving on-time deliveries.
J ust as important, they have significantly improved the stability of the production process
making it easier to understand, manage, and continue to improve. Finally, their effective
use has also contributed to changing the mental models of people at Motawi. For one
thing, it is becoming more and more obvious that batches are disruptive and that it is
better for everyone if processes work at a steady pace making small batches of the things
their immediate customers need. Also, it is now clear that variability and/or its effect can
be reduced through direct action to improve the performance of the organization.
Variability is not a given anymore. And, perhaps more importantly, it cannot be blamed
for problems, a response that was typical and that used to leave many problems without
satisfactory countermeasure.
7.2.2.5 Implementation: eliminate defects to improve reliability and reduce costs
Most people would agree that defects are bad since they waste materials and labor.
Although this was mostly the perception at Motawi as well, some defects fell into a
grayish zone where maybe it was not too bad to have them. After all, theirs is an artistic
process and some variations from the standard, normally considered defective in other
industries, may result in more interesting pieces. In fact, some customers go to the studio
specifically looking for such items. And these ‘good defectives’ are sold at wholesale or
even at retail price in some cases, so there may be no reduction in the income they
generate. Add to this the fact that Motawi’s defective rate was on par or better than their
competitors and you find a situation where it was easy to disregard them as a minor
inconvenience that could be shrugged off. This was the perception at Motawi and the
main reason it was very hard to get initial traction for a defect elimination program.
Let us now broaden the scope of analysis to see if the perception of defects as a minor
inconvenience holds when other effects are considered. First, defects introduce variability
into the output of processes, making them unreliable and requiring the use of costly

270
buffers to maintain customer service. Second, every time a defect (even a ‘good
defective’) occurs in a made-to-order part (about 2/3 of Motawi’s sales volume), the
order is potentially delayed. Third, if the part turns out to be a ‘good defective’ we are
using today’s much needed capacity for something that will hopefully sell in the future.
This is overproduction and exactly one of the problems the pull system implemented is
trying to avoid. And this is the best scenario. If the part turns out not to be a ‘good
defective’ then the capacity and resources that went into making it were just wasted.
Fourth, a good portion of the orders Motawi makes need to be processed together since
the glaze on all parts need to match. If some parts in such orders turn out to be defective,
they have to be remade. Sometimes more than once until the glazes match. To avoid this,
they make more parts than are needed (overproduction again) and when things go well
they end up with extra pieces that are hard to sell (these orders contain mostly field tile).
Furthermore, extra means about 10% above what was ordered. Which of course is
rounded up. For orders with small quantities, which are common, the overage percentage
grows rapidly, all the way to 100% when a single part is ordered. It was estimated that
this extra production consumed about 15% of Motawi’s capacity.
So, defects at Motawi are not just a minor inconvenience (even if they are perceived
as such). They are a major problem driving costs up and making the overall
manufacturing process unreliable. However, with so many other opportunities for
improvement and with so much variability in the system, it was hard initially for people
at Motawi to grasp the importance and urgency of eliminating defects. After a lot of
insistence, a process for reducing defects was established and by J une 2006 it was
running almost autonomously and producing good results. The process was simple and
kept the wheel grinding away at the sources of defects one after the next.
Even though the ideal approach is to build quality into the system by stopping and
solving problems when they occur (see section 5.4.3: Built-In-Quality, in page 112), this
approach could not be used at Motawi since most defects are only apparent when the tile
comes out of the second kilns at the very end of the process. And this happens, at the very
least, two days after the defect was generated. Only a few defects such as cracks, missing
lines, and warping that can be detected on bisque tile, but the percentage of these is very

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small. With this in mind, the system was designed to work on the defect data generated at
final inspection.
The first thing that was done in the defect elimination process was to define
categories of defects and to start tracking them. By mid May 2004, a shelf was arranged
with boxes (one for each type of defect), where defective tile would be dropped as they
were identified at final inspection. At the end of the week, the tile in the boxes would be
tabulated and then discarded or moved to the seconds’ area to be sold at a discount. The
amounts per defect type were recorded in a weekly log. The definition of defect types
went through a few iterations and even today continues to be reviewed when new defects
are tackled.
For more than a year, little was done with the information that was being gathered.
The process to classify and quantify the defects was fine-tuned until it produced reliable
data and some discussions took place about the defects that were being observed. A few
changes were even implemented to try to address some of the problems. But defect
elimination remained a sideline issue until late May 2005 when a structured PDCA based
process was defined to select the main defect to tackle, identify its root causes, develop
appropriate countermeasures, implement them, and measure success (see Figure 7-12).


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For the first round of improvement, the data that had been gathered was analyzed and
a Pareto chart of defects was prepared. Kiln crud (imperfections on the glaze caused by
small particles that fall on the tile) stood out as the biggest defect and thus was chosen as
the first one to be tackled. Possible root causes were discussed and several experiments
were run to determine which one caused the most trouble. People unloading the kilns
were given the job of mapping where (level and position in the shelf) defective tile was
found; kilns were tightened and the lids for some were replaced; periodic vacuuming was
implemented; a new type of kiln shelf was tried. Tests were conducted for all these
options and compared with kilns where nothing had been done to determine which
improvements made a difference. Although all actions had some effect since they
eliminated debris that had the potential of generating the kiln crud defect, the biggest
improvement came from the new shelves. Although much more expensive they had some
Figure 7-12 PDCA process for defect elimination

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clear advantages over the older ones. They were lighter and thinner (making them easier
to handle and decreasing energy consumption by reducing the thermal mass in the kilns),
lasted longer, and virtually eliminated the kiln crud problem. After testing the shelves for
a few weeks, new sets were bought progressively until all glaze kilns were using them.
Tightening the kilns and their lids, as well as vacuuming them, were incorporated into the
beginnings of a preventive maintenance program.
The result of all these changes was that kiln crud defects dropped from 2.4% of the
total volume sold on April 2005 (before any changes were made), to 0.15% in December
2005. That is a 94% improvement. As can be seen in Figure 7-13 the rate at which kiln
crud was being reduced increased significantly after the program was started in May
2005
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. After December 2005, when most initiatives were already in place, the level of
kiln crud defects was maintained for a few months. After that, it can be seen creeping
back up. This is an indication that the countermeasures implemented, although very
effective, did not eliminate the problem entirely. For example, part of the current increase
is probably due to aging of the new shelves.

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It’s hard to tell if the improvement trend shown for the period before the structured defect elimination
process began is due to lack of data or due to ad hoc initiatives that were being implemented to eliminate
the defect (for example, one set of the new kiln shelves was in house and being tested, although not as a
solution to kiln crud).

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Although the increase in kiln crud defects is not good, the defect elimination
program, because of the way itn which it was set up, will eventually come back to
tackling it. Every month a new Pareto of defects is created and the largest defect becomes
the main focus for improvement (more than one may be tackled at once if there are
sufficient resources for it). If kiln crud continues to increase (or if other defects are
reduced) it will soon return to the spotlight and become again the main defect to tackle.
This is a key feature of the program, not only because it returns the focus to defects that
are recurring, but because it also forces the revisiting of defects that although reduced had
not been completely eliminated, even if they remain at their reduced levels. As the first
defects in the Pareto chart are eliminated or reduced, they disappear from the chart or
move to the right, while the defect that was sitting in the number two position now
becomes the one the studio will focus on. As this process continues, defects are revisited
again and again, each time chipping at it and making it a smaller percent of total defects
and pushing it to the right of the Pareto chart. As this wheel continues to turn the focus
Figure 7-13 Time series of kiln crud defects
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for improvement is always on the defect causing the most problems and by addressing it,
the total defect level continues to go down. The hardest part of the process, one that
people continue to struggle with today, is performing a thorough root cause analysis.
Without it, countermeasures are only superficial and have little long-term effect.
Being the first defect tackled, more time than was probably needed was spent on kiln
crud after the countermeasures to eliminate it had been implemented. However, by the
end of March 2006 the next defect had been selected and was being analyzed. As its
name implies, over fired tile results when the heat work done on the tile is higher than it
should have been. Such tiles end up having a different color than expected, usually with a
burnt look to them. The process followed was the same as for kiln crud. Discussions
identified potential root causes that were then verified through testing. This pointed to
problems with the methods used (kilns stopped based on cones that were sometimes hard
to see and always hard to interpret, employees expected to turn the kilns off on time
while at the same time having to perform other duties away from the kilns) and with the
equipment (element, controller, and/or thermocouple malfunctions). It was also identified
that one reason tile was over fired was that it had been first under fired. That is, a kiln
that had an element fail or a thermocouple misread would fire colder than expected. In an
attempt to save the tile, the kiln would be fired again, frequently over firing at least part
of it. Once the root causes were determined, countermeasures were defined and
implemented. As with kiln crud, the result was an immediate decrease in over fired tile.
After running it for about a year and going through two iterations, the defect
elimination program was sufficiently integrated into the managerial process that it
became business as usual and started to pick up speed with new defects being tackled
almost every month and several being addressed at once. The amount of defective tile
continued to decrease, to the point where people in the studio began to joke about not
having enough seconds (defective tile and those made in excess of what was needed) to
sell in Motawi’s bi-annual studio sale in J une of 2006. Figure 7-14 shows the downward
trend in defects as a percent of sales since the program was initiated in May 2005 if
August 2006 is excluded (if August is included, then the trend is mostly flat).
The exclusion of August can be justified since this month (as well as J uly and
September to some extent) was not representative of the defect rate prevailing at Motawi

276
and the causes for the excessively high defective rate can be clearly identified. In this
month, several new polychrome tiles were launched, with one of them becoming an
unexpected high seller. Unfortunately, the most popular colorway was one that turned out
to be problematic, resulting in ‘bleeding’ of the glazes and causing about half the tile
made to be classified as defective. Furthermore, during August and September several
new people were hired and others were moved between departments, causing some
instability that also contributed to excessive defects. In all, these two causes explain
about 35% of the defects for the month.


After spinning wheels for a while, the defect reduction process finally got under way.
It is now integrated into the regular managerial process and producing important
improvements. Even though interesting ‘defective’ parts are still admired and sold for
good money it has become clear that defects (regardless of how ‘good’ they are)
Figure 7-14 Time series of total defects
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negatively affect the performance of the firm and as such need to be eliminated. Instead
of asking why defects need to be addressed, the question has shifted to why they happen
and how they can be eliminated. This represents a very significant paradigm shift that
sets the foundation for Motawi to reap significant benefits as the process is refined and
people learn to solve problems thoroughly.
7.2.2.6 Implementation: improve processes to eliminate waste
Although all processes in the studio displayed obvious waste that could be eliminated
to improve their performance, it was decided that the Lean transformation would focus
initially on linking processes together to improve the flow of product through the facility.
Improvements to individual processes would be made mostly as needed to support the
broader company-wide initiatives. This section highlights the main ones performed
outside of the continuous improvement system being implemented.
As Motawi implemented its pull system, processes were required to work on what
their immediate customer needed. This meant reducing batch sizes and increasing the
number of different parts made each day. Although this meant a new way of working for
all processes most of them could cope with the initial requirements. The exception was
pressing, so it became the focus of the first process improvement initiative. The biggest
impediment to a smoother flow here was the setup time which took between 20 and 30
minutes and was done only 3 or 4 times per day. Motawi’s owners designed and built a
quick changeover fixture that, along with changes in the methods used (refined through
trial and learning), reduced the changeover to the current level of between 2 and 5
minutes (more than 80% improvement). The new jig was up and running by late February
2004, but since all molds had to be remade (old molds had to use the old fixture), it took
over a year before pressing could reap its full benefits. The time spent in pressing also
brought the first of many layout redesigns and a myriad of other smaller improvements to
the way tile was made and hoew the work was performed.
The next area addressed was shipping in late August 2004. Besides packaging and
shipping tile to customers, this area includes final inspection, framing, and handling of
the finished goods inventory. After observing and analyzing how the work was
performed the layout was redesigned, resulting in improved flow of product, reduced
walking, and a more orderly workplace with clear locations for the different job stations

278
as well as for tools and consumables. A station to frame tile was created (with dedicated
tools in handy locations) along with a standard method to do the job. Improving this
operation was important since non-shipping personnel frequently performed it and there
had been problems with poorly framed tile. Although not exactly standardized work, the
resulting process and documentation significantly improved productivity and reduced
customer complaints by defining the method to be used and ensuring consistency across
the different people performing the job. Most improvements in the shipping area were
made to eliminate waste. Even though every one had been exposed to some extent to the
seven wastes, this was the first time they went through the process of identifying and
eliminating them. This practical experience made the wastes tangible for most people and
eliminating them a real possibility.
Soon after, Motawi personnel took the initiative to apply some of the same layout
concepts discussed during the improvement of the shipping area to other locations. The
bisque marketplace was redesigned into two distinct areas (as opposed to two sides of the
same shelving unit as before), with the shelves for each located at 90° forming a ‘T’. The
new layout reduced walking by orienting the shelves in the direction the people using
them had to walk through the area. Further walking and motion waste were also reduced
for high volume field tile with the introduction of storage carts.
The process around this market involves loading the tile coming out of the kilns into a
cart, rolling it to the shelves, and then unloading the tile unto the appropriate boxes.
Later, when the tile was needed, it would be taken from the shelf and placed on boxes or
a cart to be taken to glazing. Although time consuming, the process is effective for slow
moving items where small amounts of many different parts come out of the kilns and
even smaller amounts are ordered by customers. However, for higher volume items,
where several hundred tiles need to be moved at one time, it was extremely wasteful. The
new process introduced the use of storage carts (see Figure 7-15) that are rolled to the
kiln when high volume items are coming out of them, the tile is unloaded directly unto
the carts, and then they are rolled back to their storage location, thus eliminating the need
to double handle each tile.


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For the next year and a half, changes to individual processes were mostly incremental
upgrades handled through the continuous improvement system that was being put in
place. In fact during this time, the Lean initiative focused mostly on fine-tuning the pull
system, achieving leveled flow, and creating the structure and visual cues that would
become the backbone of the continuous improvement system. In mid J une 2006 the focus
turned again to analyzing and improving specific operations, but now with the added
objectives of implementing standardized work and expanding the capability of Motawi’s
managers and supervisors to analyze and improve specific processes by themselves.
Although the need to implement standardized work had been discussed extensively from
very early in the research engagement, it was not implemented sooner since it faced
resistance from employees and the owners did not think the potential benefits were worth
the effort. Most employees are artists and to them talk of standardization meant that they
would be forced to follow a process that would stifle their creativity. Besides this,
developing effective standardized work for all operations seemed like a huge task due to
the level of process variability (differences in the process or each different tile) faced.
However, as more and more parts of the process began to work to a standard (production
Figure 7-15 Storage carts used in the bisque marketplace
Bisque storage cart

280
happens in response to a specific signal, departments produce to a pre-determined target,
the lead-time quoted to customers is fixed given the tiles they order) it became clearer
that significant improvement opportunities were being lost by ignoring how the work was
performed in detail at each station. This realization began to tip the scale to the point
were most people were at least willing to give standardized work a chance.
The pressing changeover was analyzed and recommendations to further reduce it
were made. Then the focus turned to trying to implement flow within the pressing area by
connecting pressing and trimming. Up until then, pressing, trimming, and edging, the
three main operations here, were performed independently from each other. Carts were
filled with tile at pressing and rolled to a waiting area until someone was available to trim
them. After trimming they would sit again in another cart before being edged. Although
true one-piece flow cannot be achieved since the tile needs to dry before it can be
handled, creating tighter links between the processes helps make the overall system easier
to understand, the current situation at any given time easier to comprehend, and waste
and problems more visible to everyone. The work started by attempting to link pressing
and trimming and several options were tried, including a gravity conveyor, which
unfortunately did not hold enough tile to allow for enough dry time. In the end, the carts
had to remain in use since they were the only feasible way to provide enough drying
time. However, the number of them was reduced and their flow regulated. Although the
resulting link was not particularly tight, it did facilitate teamwork by providing clear
information to the presser and trimmer about when the other one needed help (no carts
available for pressing means that it is running faster than trimming and the presser should
go help trim; the inverse is also true when the tile available for trimming is not dry
enough). Furthermore, the process of creating the link also led to learning. The most
significant lesson was understanding that trimming frequently runs slower than pressing
(depending on the tile being made). Up until then, pressing had always been the priority,
to the point that the trimmer was in charge of feeding the clay to pressing. Not only was
this wasteful since the trimmer had to walk further, but it was also the exact opposite of
what should be happening if we wanted to maximize the output of the department.
Dip glazing was the next process tackled (in September 2006) and the first one where
standardized work was used. After looking at all the operations happening in the dip

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glazing area (selecting tile, waxing, cleaning tile, dip glazing, loading kilns, etc.) it was
decided to start by creating a standard for the operation where the tile is glazed. Up until
then, it was run as a two-person job, with one doing the dipping and throwing the wet tile
on the table and the other person picking the tile up and wiping it. The main problem with
this method was that the operations were never balanced. For the most part the person
wiping the tile was waiting on the person dipping the tile. Although she tried to help by
unloading tile to be glazed from the cart and loading back the finished one, she still had
plenty of waiting time. Furthermore, the table had to be wiped thoroughly when changing
to a new glaze to prevent cross-contamination. Figure 7-16 shows how the process used
to work.


After analyzing the process, it was redesigned for a single person. The person unloads
one tray of tile on one end of the table, dips the tile and places it on a rack over a catch
pan on the other side of the glaze tray. Once all the tile on the tray is dipped (a little wait
time is needed for the glaze to dry before the tile can be handled), the person moves over
to wipe the tile, picking it up from the catch pan, wiping it over a sponge, and then
placing it on a cart tray (see Figure 7-17). When the tray is full, it is loaded on a cart
Figure 7-16 Old two-person dip glazing process

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waiting on the other end of the table
302
. The process is repeated as long as there are trays
with tile that require the same glaze. The setup can be replicated and people added as
needed to match capacity requirements.



The changes resulted in significant productivity improvements (see Table 7-2) and
the reuse of a portion of the glaze that was previously being wasted on the table.

Table 7-2 Productivity improvement in dip glazing
Old method
New method
(same day)
New method
(1 week later)
Labor minutes to
dip 60 3x3 field tile
and clean tools
29:00 23:57 18:33
% Improvement 17.4%
303
36.0%

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When two people work on the same table they unload tile from their cart leaving a space for the person
on the other side of the table to load the tile she just glazed. This arrangement allows for a neat flow of tile
and trays from one end of the table to the other and does not require the use of extra carts.
Figure 7-17 New one-person dip glazing method

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It is interesting to note that the second 18% improvement was achieved entirely by
Motawi’s personnel on their own. By applying what they had learned about observing the
process and eliminating waste, they were able to fine-tune the process and double, within
a week, the productivity improvement gained in the first day. And this happened after
significant skepticism at the beginning of the process. Dip glazing had always been a
two-person operation and during the redesign process all the ‘benefits’ of that approach
were constantly emphasized. The conviction that the new process was better came when
labor hours were compared for both methods. Although the one-person approach took
more time, it used 17.4% fewer labor hours. Once people understood the magnitude of
this improvement they set out to use and improve the new method and managed to gain a
further 18% improvement within one week. The significance of the improvement also
opened the door to the use of standardized work since everyone wanted to ensure that the
productivity gains were not lost.
Thus, a standard work document was created to capture what was learned and to
define how the process should be performed (at least until it was challenged and
improved) to prevent it from reverting to the old method. This was the first true use of
standardize work at Motawi and its implementation differed slightly from traditional
applications. First, the time for each step in the process was not defined. Being part
specific, defining standard times would imply creating a standard for each part made –not
a feasible solution, especially considering that one of a kind custom parts are not
uncommon. Second, standard WIP was also ignored for similar reasons. The layout
design imposed a one-tray limit on WIP, but the number of pieces on the tray can vary
significantly. The sequence of steps, on the other hand, was the same for all parts as long
as the statements defining them specified only what to do and not how (‘grab tile’ instead
of ‘grab tile with left hand’). The sequence thus became the focus of the standardized
work document. A ‘tips’ column was also used extensively to specify how the actions in

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The comparison included the clean-up time which was not greatly affected in the comparison since the
catch pans were used for both test runs. In this sense, 17% improvement is a conservative estimate. Also,
3x3 is one of the easiest tiles to dip glaze. For bigger and/or more complicated tile (large relief pieces) the
second person waited even longer, so the productivity improvement should be even greater.

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the sequence are performed for different types of parts (smaller parts are handled with
only one hand). A diagram of the work area completes the standard.
As expected, the use of standardized work brought stability to the process by defining
how everyone would do the work. It also enabled future improvement by establishing a
baseline against which to compare possible changes. However, lacking standard times
makes the baseline more cumbersome to use. Instead of running the process with a new
method and comparing the results against the standard, it is necessary to run a baseline
test first. In other words, a batch of the same type of parts is split in two (preferably a few
trays for each run). The first half is run using the old method and the time taken is
recorded. Then the second half is run with the new method and the results for both are
compared. If the new method is better, then the changes become part of the new standard.
Besides increasing performance, going through the process of observing an operation,
analyzing it, proposing changes, testing them, and creating standardized work for the
resulting method, has had the additional benefit of beginning to generate a structured and
standard approach to process improvement while helping develop Motawi’s personnel.
Their way of thinking and their capability to improve their own operations has been
greatly enhanced.
7.2.2.7 Implementation: continuous improvement for long term survival
Improving every day is a fundamental feature of Toyota’s system
304,305,306,307
and thus
necessarily had to be an integral part of Motawi’s if it would evolve into a true Toyota-
style system. As the changes to the physical process (as described above) were being
made, work was being done in parallel to develop a self-sustained continuous
improvement system. Self-sustained refers to Motawi’s capability to improve without
external intervention; a key characteristic required to satisfy the initial objective of
developing a system that continued to evolve after the research engagement ended. The

304
Sugimori, Y., Kusunoki, K., Cho, F., & Uchikawa, S. 1977. Toyota production system and Kanban
system: Materialization of just-in-time and respect-for-human system. International Journal of
Production Research, 15(6): 553-564.
305
Womack, J . P., & J ones, D. T. 1996. Lean thinking : banish waste and create wealth in your
corporation. New York, NY: Simon & Schuster.
306
Toyota. 2001. The Toyota Way 2001: 13: Toyota Motor Corporation.
307
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill.

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continuous improvement system that was developed started with the premise that
motivated and involved employees will improve their processes (and consequently the
performance of their firm) if they can see the problems they face, have a clear direction
for improvement, and are allowed to try new approaches to doing their work (more
details on the theoretical background of this system is presented in section 8.2.2:
Continuous Improvement, in page 379). Motivation, involvement, and an environment
that allowed experimentation already existed to some degree at Motawi before their Lean
journey began. However, there was no clear direction for improvement and problems
were hard to see (mostly due to excessive variability and long feedback loops) and were
only addressed in an ad hoc manner when they became hard to ignore.
A good portion of the work done to develop the continuous improvement system was
thus focused on defining visual systems and metrics to highlight problems that members
of the organization could then tackle to better their processes. Work began by looking at
financial metrics as a way to gauge the overall health of the organization. This was an
easy place to start since financial documents were already in use and readily available
308
.
The Profit & Loss statement has been the main document used, and by early February
2004, the first before-and-after analysis was performed, showing already some
improvements in profits as a percent of sales for the year closing on December 2003 as
compared to the year closing on August 2003 (just before Motawi began its Lean
journey). The same analysis has been performed every quarter ever since (always looking
at the whole year closing at the end of the quarter). The purpose here was twofold: to
understand how the money was being spent and to track profits as an overall measure of
the success of the Lean initiative
309
. Figure 7-18 shows a sample of the charts used to
analyze quarterly results. The pie charts display the expenses as a percent of sales. The
left one corresponds to the year ending on August 2003, right before Lean was used; the
one on the right corresponds to the year closing on September 2006. The chart below

308
Since Motawi is a relatively small and simple organization, financial statements provide a fairly accurate
reflection of the health and performance of the organization. This approach may not be as good for larger
organizations where the complexity of the accounting system tends to obscure problems and their source.
309
Again, this was effective in this case since Motawi is a small and simple firm and because the Lean
initiative affected a significant portion of the organization. Looking so closely at profits may be useless or
even counterproductive in more complex organizations or those where the Lean transformation is only
affecting a small portion of the company (one line of many, for example).

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them shows the progression through time of sales, salaries, and profit & owner’s
compensation.



These financial metrics provided a good indication of the overall health of the firm
and of whether the Lean initiative was paying off. Their greatest contribution perhaps
was in helping the owners (who were the main consumers of this information) gain a
better understanding of the situation the firm was in and begin shifting from a somewhat
‘gut-feel’ management style to one based more on hard evidence. However, as useful as
they were, financial metrics were usually not very helpful at pinpointing what to work on
Figure 7-18 Motawi’s key financial indicators
Expenses & Profit as a % of Sales
(1 year closing on Aug 31, 03)
Salaries
44.4%
Materials
9.3%
Purchase to
Resell
2.2%
SG&A
8.4%
Taxes
2.5%
Others
1.3%
Rent/Insure/Fi
nCharge
7.7%
Utilities
4.3%
Equipment
4.2%
Shipping
3.5%
Profit &
Owner's Comp
12.3%
Expenses & Profit as a % of Sales
(1 year closing on Sep 30, 06)
Salaries
37.3%
Materials
6.7%
Purchase to
Resell
8.3%
SG&A
9.1%
Rent/Insure/Fin
Charge
4.7%
Profit &
Owner's Comp
22.3%
Shippin
g
Equipment
2.2%
Utilities
3.2%
Taxes
1.6%
Others
1.8%
Rolling Yearly Results for Motawi Tileworks
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$400,000
$600,000
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when things were not going well and even worse at defining priorities when things were
moving in the right direction. It soon became clear that other metrics were also needed. In
particular process metrics tied directly to the performance of individual departments and
even specific processes. As mentioned above (see section 7.2.2.3: Implementation: use
takt rate to synchronize production to demand, in page 259), on J uly 2004 process charts
were introduced in all departments to display daily production. There was some initial
resistance as people perceived the charts as additional work that did nothing to help them
with their jobs. On the contrary, it now made their shortcomings public and brought
attention to the department when things were not going well. Highlighting problems is a
key requirement of any effective continuous improvement system, but it can come as a
shock when people are not used to it. This is especially true in our western culture where
the focus tends to be on showing how good things are going while bad news are swept
under the rug. About a month later production targets were defined and displayed as well.
By clarifying expectations, this made the charts useful to the workers and was the first
step in breaking the initial resistance.
After only a few weeks of use, the charts began to show problems. The most notable
one was excessive variability in output, a problem that affected all departments. The
intial reaction was that this was unfortunate because there was nothing that could be done
about it (at this time variability was still perceived as a given). However, after a while, by
asking why specific swings had happened, it became obvious that part of the variability
was the result of decisions made internally and that there were things that could be done
to reduce it. Markets, variable customer lead-times, and improvements in the selection of
the mix of parts to be made each day were eventually used to help stabilize the output of
all processes. The charts also became a good visual management tool. By highlighting
days when production had not gone well it was soon possible to begin understanding the
problems that reduced output and affected flow
310
.
Furthermore, daily production numbers were summarized and plotted as weekly
values in another set of charts (located in the conference room) and used in the weekly
coordinator’s meeting. Besides showing when processes had failed to meet their weekly
targets, displaying all departments together also highlighted the lack of synchronization

310
Learning also occurred by asking what had gone well in those days when the target was exceeded.

288
between them and the difference in their trends. The pull system (kanban and fixed size
process boxes) and the daily takt rate helped improve the synchronization of processes
and helped ensure that the rate of production for each department matched the average
rate of sales. On March 2005, the way to look at trends was improved with the
introduction of a cumulative sales and production chart. Its advantage is that it showed
cumulative sales and the cumulative production of all departments making it very easy to
observe when one or more departments were deviating from what was needed to satisfy
customer demand. When things are running as expected, all lines in the chart should be
more or less parallel (dip and bulb glazing have to be added for this). Deviations from
this means that one process is consistently falling behind or overproducing.
Even before the Lean initiative began, daily reports by department were used to
record key indicators mostly related to production volume. On September 2004, a new
section was added to them for the department’s coordinator to define the production plan
for the day before the tile was processed. The purpose was to introduce a key feature of
Toyota’s system: the ability to distinguish between normal and abnormal situations in
real time (see Appendix D.2.2: All activities highlight problems, in page 505) by creating
a clear expectation of what the department should be working on at any given time. When
such a system is at work, problems are detected as they happen, their effect is clearly
visible, and countermeasures can be implemented rapidly to get back on track and to
prevent their recurrence. Unfortunately, an excessive number of different products with
varying cycle times (including custom parts that are made only once), made it very hard
to accurately estimate completion times for all the items included in the schedule. With
this uncertainty, when a discrepancy between the plan and the actual performance was
observed (which happened daily) it was not possible to determine if it had been a
planning error or an execution problem. The plan was usually blamed, since it was the
easier thing to do, and thus it soon became just a list of the parts to make (frequently not
even in the order in which they should be made) and without defining expected times.
Completely useless for its original purpose. It was retained however as a communication
tool within the department.
Even though this attempt failed and the level of quick response that could have been
achieved if the system had worked as planned has not been reached, lessons were learned

289
and several other visual systems have been put in place and are working together to
highlight abnormal conditions. Comparing production volume with the daily takt rate
(displayed in the process charts) indicates whether the department is producing as
expected. Accumulation of kanban on the red zone (make as soon as possible) or the
appearance of emergency cards (make now) are an indication that the department is not
responding fast enough to the needs of its immediate customer. The difference between
the start date on the orders released to production and today’s date define how far ahead
or behind production is with respect to the scheduler’s plan. Comparing the ship date on
the orders that are shipped with today’s date indicate whether production is adhering to
the planned lead-time and whether customers will receive their product when promised.
The backlog of orders (how far into the future new orders coming in are being scheduled)
and whether it is going up or down, gives an indication of how much faster or slower the
rate of production is as compared to the rate of sales. Thus, even though the initial
proposal failed, the current system has evolved to include an arrangement of indicators
that work together to highlight abnormal situations.
The next initiative in developing the continuous improvement system defined a
process to analyze and resolve problems by creating a forum for discussion and a
methodology to follow. On late October 2004 weekly departmental meetings (a
simplified version of quality circles) dedicated to process improvement were initiated.
The proposed process was based on PDCA (see Appendix D.4.3: Learn from mistakes, in
page 549) and defined as a set of steps to follow in the meetings to select and analyze
problems, propose countermeasures, evaluate results, and standardize new best practices.
Although improvements were made in all departments by following this approach,
overall results were mixed. As the method was used, it became clear that conceptual and
implementation issues were limiting its effectiveness. Following are some of the key
problems identified:
1. The PDCA based process that was defined was too complex and cumbersome for
some of the problems the groups dealt with and for the level of training they received.
This left coordinators in some departments trying to run a process they did not fully
understand and that were ill prepared to perform at the thoroughness required to truly
eliminate problems.

290
2. Not enough time was allotted for the meetings, resulting in incomplete discussions
that led nowhere and that had to be restarted the week after.
3. The time spent on the meetings was frequently perceived as wasted (in part because
not enough time was spent on them and progress was slow).
4. The lack of preparation and the desire to reduce ‘wasting’ time resulted in lack of
discipline in following the process. This in turn affected the quality of the solutions
reached and limited the effectiveness of the program.
5. Even though the owners were involved, oversight of the process was poor. The
owners could not attend every meeting in every department, so part of the oversight
was done at the weekly coordinators meeting. However, as a small part of a busy
agenda, following up on progress was hard and some departments slowed to a halt.
6. Participants felt that some of the problems they were working had little relevance.
Even thought they made the list of problems and selected what to work on, they felt
that solving the problems had little effect on their work and no impact on the
performance of the firm.
All these problems fueled employee resistance to the process making it very hard to
achieve the momentum required for the program to continue running by itself. The last
problem in particular led to a revision and redesign of the process and in mid May 2005,
the weekly departmental meetings were eliminated and replaced by a more top-down
approach. Broad problems affecting the firm were discussed in the coordinator’s
meetings and assigned to departments (or cross-departmental groups) as needed, where
they were tackled using the same PDCA based approach that had been defined before.
This approach resolved several of the problems mentioned above. First and foremost, it
eliminated the relevance issue. If the problem was big enough to get to the coordinator’s
meeting, it was relevant, and solving it would certainly have an impact on the
performance of the firm. Second, oversight was straightforward since everyone
understood what the problem was and progress was easy to follow. Third, the perception
of ‘wasted time’ was eliminated since production was not stopped regularly for
improvement meetings and when it was, everyone understood the importance of the work
being done. Fourth and most importantly, it fit well with the existing organizational
structure and with the way the firm was used to functioning.

291
The new approach however also had some disadvantages as compared to the original
proposal. One was that the number of problems being tackled simultaneously was cut
drastically. Also, replacing the original bottom-up process for a more top-down one
implied replacing the everyday problems that were being addressed for higher-level ones.
This is not a problem per se, except that it eliminated the only structured approach that
was in place to deal with the everyday problems that operators face while trying to
perform their jobs. Making small improvements every day (by solving these small
problems) is a key feature of a continuous improvement system and is a sure way of
gradually improving the performance of the organization.
In any case, with the new system in place, the issue became how to ensure that
problems were systematically visible at the coordinator’s meeting. The weekly
production numbers per department as compared to their targets (as discussed above)
became a central piece of the strategy here. However, they had to be supplemented with
other indicators that related directly to the objectives of TPS: best quality, lowest cost,
and shortest lead-time. Tracking of productivity began in March 2005 and lead-time
(order to delivery) followed in May. Also, to be able to determine whether orders were
shipping on time, the expected ship date (what was being quoted to the customer) began
to be recorded in J une. Quality was addressed with the introduction of the defect
elimination process (described in section 7.2.2.5: Implementation: eliminate defects, in
page 269). Past data for lead-time and productivity was available, so it was immediately
possible to see how the Lean initiative had affected them and where these indicators were
trending.
Due to significant differences in the products made and the price charged for them, it
has been difficult to find a unique productivity measure that fully reflects the
performance of the firm. After several alternatives were analyzed, two productivity
metrics were retained: ($ sold / labor hours) and (ft
2
shipped / labor hours). Neither is
perfect and thus it is necessary to look at both and where they are trending to determine if
progress is being made. The dollar-based metric tends to go up when the percent of
polychrome tile being made increases, regardless of whether productivity gains are being
made. The opposite happens for the square footage based metric. Furthermore, it is hard
to correct for the shifts in mix because polychrome tile varies widely in both price per

292
square feet and the time it takes to make the tile. Thus, the effect of a shift to a higher
polychrome mix on the productivity metrics can range from mild to pronounced. As can
be seen in Figure 7-19, although highly variable, production’s productivity is trending up
at a rate of about 7.05 $/labor hour/year and 0.04 ft
2
/labor hour/year, while overall
productivity (including the office) is increasing at a rate of 3.84 $/labor hour/year and
0.02 ft
2
/labor hour/year. The charts show numbers for both production alone and for the
organization as a whole with the intention of seeing also whether the office is keeping up
with improvements made on the production floor.






















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Lead-time was tracked monthly for the organization as a whole (excluding studio
sales where customers buy from what is available and having a lead-time of zero is not an
indicator of good or bad performance) as well as for each of the main sales channels:
gift/galleries, showrooms, projects, internet, and mail order. Gift/galleries and internet
deal only with items held in finished goods. Projects and showroom are complex and
usually require only a few pieces from finished goods while the bulk is made to order.
Mail order sits in between. These distinctions result in very different lead-times and make
it necessary to track them separately to gain a better understanding of the situation.
Figure 7-19 Production and overall productivity improvements
Productivity
(based on $ sold)
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Figure 7-20 shows the charts used to track lead-time for the whole organization as well as
for the main sales channel. Dollars sold are also shown as an indication of volume
increase. Since all display significant variability, trend lines are used to better understand
where lead-time is going. As can be seen, there is an overall decrease in lead-time.
However the trend appears to be increasing for projects and showrooms. In the case of
galleries the change was so dramatic in the first half of 2005 that it was noticed by
customers who (besides mentioning it) adjusted their ordering patterns to take advantage
of the lower lead-times by placing smaller more frequent orders. Needless to say, this had
a positive leveling effect on Motawi’s workload. Unfortunately, Motawi was too
successful and, starting in J une, the lead-time trend reverted due to unexpectedly high
demand for polychrome tile. This lasted until May 06 when capacity caught up with
demand.

Figure 7-20 Lead-time tracking charts
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Tracking each sales channel independently has also helped understand how the Lean
initiative affects them. For example, when the pull system was introduced, orders were
released to the floor and processed based on earliest due date. As was learned the hard
way, this works well as long as all orders are equal. But when some of them require more
time to produce than others, the system that was set up helped make larger jobs late. This
was not obvious at the start, in part because scheduling was being done by filling
production slots on a log. If capacity was adequately reserved for all orders, production
should have been able to ship them all on time. Part of the problem however was that
large orders would be pushed back in the log, giving them a late due date. After all, they
required more time and, being big, it was hard to fit them in the smaller slots left in
earlier weeks. This practice though left empty slots that were later filled with other orders
that received earlier due dates than the large job. In production, since they prioritized
work based on due date, the newer smaller orders would slip past the larger jobs to be
processed earlier. Thus, even though the schedulers were probably giving large orders
sufficient time, the way information and priorities were communicated to the floor
ensured that the extra time was squandered in waiting before the job was started. This
problem was discovered by analyzing the lead-time data for projects. As can be seen in
Figure 7-21, it was trending up before the Lean initiative began, but the slope increased
dramatically as soon as the pull system was introduced, even when overall lead-time was
trending down. When the problem was realized a ‘start date’ was added to the order
tickets and all production departments (except for shipping) reset their priorities to work
based on earlier start date
311
. As the chart shows, lead-time began trending downward
almost immediately.


311
Around the same time, the scheduling system was changed to link it directly to production and ensure
FIFO processing of orders (see section 7.2.2.2: Implementation: pull system to tie all processes together, in
page 247).

296

Until J une 2005, the only way of knowing if orders were shipping on time was to
look at the physical job tickets that had been used on the floor to process them. This of
course was a very tedious and time-consuming process so it was never done, resulting in
a very poor understanding of Motawi’s delivery performance. Late orders were only a
problem when customers complained about them. Otherwise, being late was considered,
both within Motawi and by most of its customers, as a normal part of doing business in
an artistic setting. Being late a week or so, did not even register as late in the minds of
most people at Motawi. Not surprisingly, when it was first measured, on-time deliveries
were under 80%. In just a few months, after the link between scheduling and production
had been established and the ‘start date’ had been introduced to ensure that orders were
processed when they should, on-time deliveries and average lateness began to improve.
Figure 7-21 Changes in project lead-time
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Not only were orders shipping on-time more often, but also when they shipped late, the
number of days late was less than before. Figure 7-22 clearly shows this progression
312
.


In April of 2006 the weekly coordinators’ meetings were redesigned to refocus them
on improving the performance of the organization by better utilizing the information that
was being generated from tracking the metrics described above
313
. A monthly rotating
schedule was generated and specific topics assigned to each meeting. The first meeting of
the month was focused on production. The new forecast was reviewed, production targets
were redefined as needed, and a plan to achieve them in each department was developed.
The second meeting of the month focused on delivery. Average customer lead-time,

312
The deterioration in the metrics observed in the beginning of 2006 was due to a higher than expected
surge in sales that took some time to bring back under control as it required a significant increase in
capacity. Overall sales volume increased by 30% when only 15% growth was expected. To make things
worse most of the growth came on the polychrome side of the business and during what had traditionally
been a slow period of the year.
313
Until then the information was being used in an ad hoc basis mostly by the owners and the researchers.
Figure 7-22 Improvement in on-time delivery and lateness
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percent on time, and average lateness were analyzed, problems identified, and ways to
improve were defined. The third and fifth (when there is one) meetings of the month were
not assigned any specific topic. The fourth meeting focused on quality and followed the
methodology described in section 7.2.2.5: Implementation: eliminate defects to improve
reliability and reduce costs (page 269). Beside the special topic, all meetings included a
set of common points in the agenda: production volume per department (against their
targets and against their predictions of the previous week), backlog (both for make-to-
order and for finished kanban jobs), number of late orders (brief discussion of why),
number of reworks (brief discussion of why), and defect reduction (brief account of
status). The purpose here was to add structure to the improvement process and to ensure
that all the key Lean indicators (quality, cost, and delivery) were being reviewed and
discussed at least once per month.
Since the numbers and charts used at the coordinator’s meeting became one of the
main ways to detect problems, the next logical step was to work on standardizing their
collection and data processing. Without good numbers, the continuous improvement
system would break down. This initiative began in late September 2006 and focused on
ensuring that the numbers were available when needed and that they were consistent
through time (based the same assumptions every time). Starting with the meeting
schedule explained above, the numbers and charts needed for each one were studied to
determine what data it required, how it was collected, how it was processed (cleaned,
summarized, etc.), and how it was displayed. Once a standard process was defined for a
number, it was assigned to a person, who became responsible for having it ready for the
meeting that needed it.
Not surprisingly, implementing a continuous improvement system at Motawi has
proven significantly harder and more time consuming than any of the physical changes
made to the value stream. The main problem has been that excessive variability hides
problems and makes those identified hard to solve. In fact, it even affects the willingness
of people to take action even when a clear opportunity for improvement is in front of
them. With so much variability almost any problem can be blamed on it and dismissed as
a one-time event. If the issue we are facing only happened due to the combination of
many factors that will never coincide again to cause the same problem, why should we

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expend time and effort on solving it? If the problem is really a one-time event, then
perhaps it may make sense to let it go and focus our efforts in other more important
things. However, it is frequently not possible to distinguish clearly between recurring and
one-time problems. Once we get into this cycle, it is easy to dismiss all problems and
forego the real improvements that would come from eliminating their root causes.
In addition, long feedback loops imposed by the process (minimum of five days for
pressing and two days for glazing), impede learning and further hinder problem solving.
These long delays make it almost impossible to perform root cause analysis on specific
problems and makes learning from past actions hard. In fact, when a problem is
identified, meticulous testing is required just to determine a causality relation, let alone
find a solution. For example, when a new 4”x12” tile was introduced, warping was a
problem. That is usually caused by the way the clay is cut and placed on the press, but
other factors (such as the mold used and the way the tile is dropped from the mold) can
also intervene. Extensive trial and error testing over several weeks was required to
determine the right combination of parameters that brought warping within tolerable
limits.
Even with these difficulties, the continuous improvement system has produced
significant benefits. It is also becoming part of the regular course of business as it gets
integrated into the existing managerial structure and driven by Motawi’s employees. In
other words, improvement is becoming part of everyone’s everyday job. This in turn
helps people grow and develop and prepares them for tackling the next set of problems
more effectively. The result is a virtous cycle of personnel growth and process
improvement. As an added benefit, the metrics and other visual systems used are helping
everyone gain a better understanding of the situation they are in and what is coming at
them. The owners now frequently say that they were driving blindfolded before.
7.2.3 Effect of Motawi’s Toyota-style System on the People and How They Think
After only three years doing Lean, Motawi’s Toyota-style system is still in its
infancy. However, even at this early stage it has already produced significant quantifiable
improvements as described in section 6.2.1.5: Benefits of using a Toyota-style system
(page 199). More importantly, it presents key elements of Toyota’s system (both at the

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tool and the philosophical level) that will prevent it from backsliding to previous
practices, while enabling its continued development in the future. Vital to this effort are
the evolution of the prevailing mental paradigms regarding how the business is run and
the introduction systems and methods that promote organizational learning.
As Motawi’s Toyota-style system evolved, it imposed changes in the work
environment. It went from having departments work independently choosing and
batching work for their own convenience, to having processes linked and working
together to drive whole orders through the studio as fast as possible. From having
employees choose what to make and work at their own pace with little feedback on their
performance, to having the system tell them what to make, the pace set by a daily takt
rate, and performance closely monitored and displayed publicly. From having unclear
goals, to having unambiguous targets, defined from clear business needs and tracked
frequently. And from improving sporadically, to improving continuously as part of
everyone’s everyday job.
As people got used to working with the new system and began to understand it, their
mental models began to change through an evolutionary learning process. As their jobs
changed people needed to adapt their behavior and the way they performed their jobs.
Seeing how the new methods improved performance, forced them to question their
prevailing paradigms and their beliefs began to shift little by little until the previous
mental models were completely replaced. The batch-and-queue mentality, where large
batches are thought to be more efficient, was replaced by a small-batch J IT philosophy
where overproduction is not tolerated. The pursuit of local optimization was replaced by
a quest for company-wide performance improvement (global optimization). Instead of
fighting fires to get through the day, the focus turned to planning for the future to make
sure that the required capabilities will be in place when needed. Instead of ignoring
problems and trying to work around them, they are now actively sought and their root
causes eliminated. The previous acceptance of waste and variability as a natural
consequence of the business was replaced by the need to reduce them.
The shift in paradigms was paralleled by an evolution in the understanding of
Toyota’s system. Initially the focus was exclusively on the tools and how each one
affected the physical process. This soon evolved to a system perspective where each tool

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was seen as an integral part of a wider whole. As the implementation progressed and
tools needed to be refined and adapted, it became necessary to look beyond their physical
aspect to truly understand how they work and why they are needed. At this point
understanding the principles that define the thinking behind the tools became necessary.
As an example, the view on kanban evolved from seeing it as a mere way to control
production to an autonomic system that tied processes together to highlight problems,
synchronized their production, responded to fluctuations in demand, and ensured that
only needed parts were worked on. After this shift in perception, implementation of the
pull system changed from following a recipe and mechanically putting cards in inventory
boxes to pursuing the development of a holistic system critical to the performance of the
firm and requiring constant tending and continuous fine-tuning.
The shift in mental paradigms provides a direction for future improvements (zero
defects, 100% value added, J IT production) and a fertile ground for Motawi’s Toyota-
style system to continue developing. The continuous improvement process introduced
provides the means to do it while at the same time developing people further and pushing
performance to new levels. The continuous improvement system is designed to surface
problems through the use of visual systems and by tracking process specific metrics and
comparing them to expected results, thus enabling people to improve the process by
solving them. A PDCA based approach is then used to identify the root causes of the
problem, propose countermeasures, implement them, and evaluate results. Organizational
learning is ensured by making physical changes to the process (embedding new
knowledge in the system) and by using standardized work.
The three years of research work at Motawi have shown not only that Toyota-style
systems are possible in environments very different from those for which Toyota
developed its system (as discussed in section 6.3.1: Case Studies Support Initial
Hypothesis, in page 217), but also have contributed to defining a process to develop such
a system. This will be discussed in detail in section 8.2: Pull Improvements to Develop
Toyota-style System (page 371).

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7.3 Zingerman’s Mail Order
7.3.1 What led them to Lean?
Although ZMO was a successful company by all accounts in 2004, the owners
realized that it was facing some important challenges for which they did not have
effective answers. First, order fulfillment (their production process) was a hassle most of
the year and turned into a nightmare during the holidays (from Thanksgiving through
Christmas). Even though the orders were shipped as needed (for the most part)
production operated in permanent firefighting mode, was frequently unreliable, and
mostly unpredictable (in part due to the high demand variability faced). The combination
of all these factors resulted in a process that was very hard to manage. Furthermore,
planning for the holidays, when the volume increases by more than 10 times, was almost
impossible. No one could accurately predict the space and resources that would be
needed. This became such a problem that it was viewed by the owners as the biggest
impediment to growth.
The second challenge came from being too successful. Their high growth rate had
forced them to move constantly to ever larger facilities about every two years. Needless
to say this was costly, introduced additional variability into the system, and distracted the
leaders, preventing them from dedicating more time to other activities that could improve
the performance of the organization.
Burdened with these problems, they came across Lean and decided to give it a try. In
their minds Lean was a way to improve operations making processes more efficient and
more reliable. Better methods and better control over them should also facilitate planning
for the holidays and enable a potentially higher rate of better controlled growth. Some of
the typical Lean tools, such as working to takt and using markets and kanban, were also
attractive as they could help establish an autonomic system that could handle at least a
portion of the daily problems and begin the shift away from constant firefighting. Also,
the most commonly known feature of Lean is that it uses fewer resources and less
inventory, which seemed like the perfect countermeasure to the constant grow and move
pattern they were in. In addition, the people side of Lean that focuses on involvement and
participation fit nicely with the open book finance approach that ZMO used. Finally, they

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also believed that Lean could help them develop an effective methodology for
improvement. All these reasons fueled the owner’s enthusiasm to pursue the development
of a Toyota-style system at ZMO and set the stage for our research engagement. By late
May 2004 ZMO had begun its Lean journey.
7.3.2 Development of a Toyota-style system at Zingerman’s Mail Order
The Lean transformation at Zingerman’s Mail Order (ZMO) was accomplished by
working directly with three of the owners: Mo Frechette, Tom Root, and J ude Walton,
and with the production managers: Betty Grattop, Lisa Clark, and Lisa Maskill. The main
focus was on the order fulfillment process, from receiving product, through processing it,
picking it into orders, and shipping it to customers. From the very beginning there was
significant interest in understanding what the effect of improvements would be and how
the new systems worked. This ensured that proposed changes were explored in depth and
that potential pitfalls were resolved before implementation, often resulting in
customization of the tools and methods suggested. In some cases, implementation was
needed before everyone saw the benefits and got behind the new ideas. Reducing the size
of batches and moving towards one-piece flow is one example where initial resistance
was replaced by quasi-religious fervor after people were able to see it at work.
ZMO operates in a very different environment to that for which Toyota developed
TPS and so it faces a set of challenges that make the translation of Lean to its operations
far from trivial. Table 7-3 shows a summary of the main differences and the challenges
that result.

Table 7-3 Differences in the conditions faced by ZMO and the challenges they impose
Characteristic Traditional TPS ZMO Challenge
Demand
variability
Low High
Variable takt time and
unleveled schedule
Cycle time Fixed
Variable (different for
each item and each
order)
Hard to balance work
and standardize jobs
Product variety Low Medium-high Hard to standardize

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Characteristic Traditional TPS ZMO Challenge
Type of product Durable Perishable
No finished goods
inventory and WIP
has to be removed
from the line each day
Production
model
Make-to-stock based
on forecast
100% make-to-order
No finished goods
inventory
Production runs
Long with stable
batch size
Days are independent
(no volume sharing);
number of orders
changes significantly
from day to day
Variable takt time and
hard to level volume
J ob of operators Repetitive
Some are different for
each item and each
order
Hard to standardize
Predominant
paradigm
Steady and efficient
production of few
items in high volume
Run as fast as
possible and get the
orders out today
Low process
discipline, few
standard methods,
firefighting

Figure 7-23 displays a timeline with the main events that shaped the development of
the Toyota-style system at ZMO. Between the dates shown significant work was being
done to either achieve the events highlighted or to refine the solutions implemented in
other areas after learning from running the new processes. This timeline provides a
chronological map for the development of ZMO’s Toyota-style system.


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Figure 7-23 Timeline for the development of ZMO’s Toyota-style system

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7.3.2.1 First steps: grasp the situation and develop an initial solution
The Lean journey at ZMO began with the creation of a current state value stream map
(a simplified version that also shows a schematic of the layout can be seen in Figure 6-25,
in page 207) that ensured that ZMO’s personnel and the researchers had a common
understanding of the situation. As was described in section 6.2.2.3: Initial state (page
206) the main problem identified was the use of sequential large batch processing. This
created huge piles of inventory as breads, pastries, meats, and cheeses were prepared
before making gift boxes and baskets, which in turn preceded running the line. The
amount of inventory generated at each step was often more than the available space could
handle (certainly the case during the holiday season), frequently getting in the way and
forcing people to waste time and effort looking for items, sorting through boxes, and
rearranging inventory. Furthermore, it was not uncommon to approach the end of the day
only to find that some items were missing while there was too much of others. Were the
prepared amounts wrong or had the wrong items been picked and shipped by mistake?
Regardless, when this happened, it was necessary to go back to the particular prep area
and get more products ready. By this time however, the area had been cleaned and
arranged for the next day and the person had moved on to help run the line or gone home.
Either way it implied a major disruption to the process.
When the line finally started it would be run as fast as possible. But it was never clear
whether that was fast enough. People would come in and out of the line as they became
available or were needed somewhere else, constantly introducing fluctuations in the
speed at which the line could run. And this was on top of the variability in processing
times inherent to the orders. The line leader struggled to maintain a balanced line by
moving people to the stations that seemed to be running slower and by sorting through
orders to release those that contained items for an area that seemed to be running out of
work. This game went on all day long with people moving with the waves of orders
going through.
In the meantime, pickers on the line attempted to pick the items shown on the orders.
When something was not in the shelves, they would set the order aside and call for a
purchasing person or go hunt for the item themselves (leaving their position unattended
and slowing the line). During the holidays, product was stored in every available place

307
(see Figure 7-24), so finding a particular item frequently required that the person that had
received and stored the product remembered where it had been placed.


Without written work instructions, training was mostly an on-the-job description of
what needed to be done with little to no explanation of how to do it or why. The result
was that each person developed her own method for the job. This affected the consistency
of the system by introducing variability in both processing speed and quality when people
were moved around. This approach became particularly problematic during the holidays
when the crew grew by more than ten times and when people did not work at ZMO long
enough to understand the process and develop a method to perform their jobs effectively.
Productivity suffered and mistakes soared.
Finally, improvement happened inconsistently at best. Problems were hard to see and
even harder to understand. Those that were identified were usually perceived as a mistake
someone made (as opposed to the result of a poorly designed system) and frequently
assumed to be one-time occurrences. As a consequence, the solution focused almost
exclusively on resolving the issue to ensure that orders continued to ship that day (e.g.
hunt for the missing product and deliver it to the line) without attempting to prevent the
problem from recurring the next day (e.g. develop a system to ensure that product is
always available when needed).
The above description depicts a somewhat chaotic environment (which it certainly
was during the holidays); however, it is important to note that even before it began its
Figure 7-24 Product stored under the line is hard to find and disrupts production
Product stored
underneath the line

308
Lean journey ZMO was already a successful company with double digit growth and
healthy profits.
The first few months of work at ZMO focused on understanding the situation
described above and on defining a course of action. Early on it was decided that
redesigning the production line would be a good place to start. First, this is where most of
the value added work is performed, so making sure that this was done efficiently was a
priority anyway. Second, the line is the core production process, so starting there
facilitated tying other changes into a coherent plan as they were introduced to better
support the line. Third, it had to be done. ZMO had recently purchased the building and
was taking control of its entirety, effectively doubling the space they had before.
Implementing the new line would also require the introduction of a pull system to feed it.
This included line-side markets, routes, and back stock markets.
7.3.2.2 Implementation: improve flow for core value adding processes
By early August 2004 an initial design for the line had been completed. The solution
built on the process that was in place before by using non-motorized conveyors to create
a line tying all fulfillment processes together. Workers remained at their stations while
tubs (each one containing an order) moved to them on the conveyor line. When a tub got
to a station, the person performed the required operation (pick items, check, pack, ship),
and pushed the order along. Items picked and consumables used were replenished by
support personnel. The main changes introduced at this point were to incorporate gift box
and basket making into the fulfillment line and to reduce waste (mostly motion in the
form of walking, reaching, and sorting through inventory) for the value added workers on
the line.
Making gift boxes and baskets directly on the line was the first step in moving away
from the prevailing sequential large batch processing. Instead of making all gift boxes
and baskets needed for the day before the line started running, in the new system they
would be made one by one as needed. Gift box and basket making were placed at the start
of the line. When a packing slip containing a box or basket was grabbed from the pile of
remaining orders, a gift box/basket picker would pick the product needed from dedicated
markets containing only the items used in them (see Figure 7-25). Gift boxes would then
go to the gift box line where packers would build the gift box. The same happened for

309
gift baskets on their own line. Other orders (those containing neither boxes nor baskets)
would be released through the gift box line and ignored by the gift box makers (just
pushed along the line). The gift box and basket lines merged before getting to the next
picking station (bread, in the first iteration of the line).


The change from building gift boxes and baskets ahead of time to building them as
needed was a very significant change and thus was hard for people to embrace it fully
from the start. It was a particularly stressful change for the production managers that
needed to run the floor. They were used to the batch and queue model and felt safe
having piles of pre-made boxes and baskets when the line was running. It was one less
thing to worry about. Workers on the line also had their share of misgivings. Before the
line redesign, boxes and baskets were picked and assembled in batches by the same group
of people. They would be assigned to making a certain type of box or basket and left on
their own until they finished. They would get all the items needed, assemble them into
the boxes or baskets, and wrap them as needed (in the case of baskets). This meant that
Figure 7-25 Gift box/basket area before and after redesigning the line
Gift box area before changes
Gift box area after line redesign
Gift basket line Gift box line
Pastry market Dry goods market
Cheese market
Gift boxes were
picked from here
Gift boxes were made
in batches here
Most products needed for gift
box/basket were kept here

310
they had significant variety in their jobs (starting with walking all over the building to get
the items they needed), could do the work as they saw fit (as long as the end result was
acceptable), and did it at their own speed. In the new line, the job was split. Some people
picked the items needed while others working on the line assembled the boxes and
baskets. Although pacing was not imposed by the line (orders are pulled off line to work
on them), with everyone working together, it became clear when someone was working
at a slower pace or when the station as a whole could not keep up with the rest of the line.
Also, supervision was much easier and some people felt they were now being policed
(this was more a perception issue than reality). Unfortunately a few employees (mostly
the temporal ones that were hired during the holidays) disliked the new system and
decided that it was not for them. However, the improvements in performance were
undeniable, so the system was retained and improved upon.
Also as part of the redesign, waste was pulled away from the value adding workers on
the line mainly by improving part presentation and ensuring that items were available
when needed. Walking and reaching were reduced and sorting through inventory
eliminated by using markets that included the full variety of product needed at each
station. The objective was to present all the items for an area in a compact and easy to use
format. The biggest improvement came in the bread area. Before, bread used to be kept in
bread-racks (about the size of a pallet) stacked 8 or 10 high, sometimes with several types
of bread in each stack and others with several stacks of one bread (depending on the
day’s needs). With nineteen types of bread (plus a few seasonal ones) this required a
large footprint. When an order for bread came along, the picker would walk to the bread
racks, search for the right bread (sometimes having to move and/or un-stack the racks),
grab the desired loaf, and then walk back to the line where the tote with the order was
waiting. In the new system, the picker looked at the order, turned around, grabbed the
bread from the market, turned back, and placed it in the tub. Done. Support personnel
bagged bread and delivered it to the line to replenish what was consumed. This same
approach was used for all products. Figure 7-28 (page 317) shows before and after
pictures of the bread area. In general, the introduction of markets that improved part
presentation were welcomed by everyone without reservations.

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The new line was up and running by November 1, 2004 (Figure 7-26 shows the full
holiday crew working on it). Conceptually it was similar to an auto assembly plant. It ran
in close to continuous flow except that there was space on the line for several orders
between stations. Although this weakened the link between subsequent processes, it was
necessary to handle the high variability in processing time per order experienced at each
station. An order without bread would be pushed to the next station after only a few
seconds, while one requiring 10 loafs could take a couple of minutes to fulfill (especially
if they did not fit in a single tub). Without space between stations on the line, this level of
variability would result in constant stoppages as workers alternated between being
blocked by the downstream process and being starved by their supplier.


Figure 7-26 Redesigned fulfillment line
Gift box line
Gift basket line
Cheese and dry goods pick line
Express lane to checking
Bread and pastry pick line
Packing line

312

Even though the extra space for inventory helped, it soon became obvious that it was
not enough. Variability exceeded the buffering effect provided by the extra space
available on the line. The initial solution was to go back to the practice of moving people
around. When things started to back up, the line leader would assess where the problem
was and move people there from areas that seemed less loaded. This provided some relief
if done skillfully. If not, the variability problem could actually be exacerbated by
overcompensation. It also was slow to respond to changing conditions on the line since
the backup of tubs had to be significant enough for the line leader to notice. By this time,
there were probably several people that had been working intermittently for a while and
the problem was so big that it required a somewhat drastic solution (move one or more
people to the problematic station). The result was that even with an attentive line leader,
orders moved through the system in big waves and people had an uneven workload
(alternating between waiting for work and having too much of it).
By late November 2004, brakes were introduced between stations on the line. These
were just interruptions in the flow of tubs. Operators on the line had to slide the tubs past
the physical obstruction once they were finished with the order. Although it introduced
some waste as each tub had to be moved past the brake, it provided invaluable visual
information about the condition on the line. The line leader could now take a quick scan
of the line and determine which stations were running too slow (those where the
conveyor was full of tubs) and which had too many people (those with no tubs). This
improved performance somewhat by reducing the reaction time to move people around to
where they were most needed.
However, even with the brakes, the labor adjustment system was still centralized and
its effectiveness depended entirely on how focused the line leader was on the behavior of
the line. Not the best situation since this person had other responsibilities as well.
Besides, adjusting capacity by moving people around meant that the smallest possible
increment was a whole person. When the imbalance between stations was only a fraction
of a person (for example, stations manned by only one person where one had a work
content 10% higher than the others), moving people around would push the wave through
the station where orders were being held up but would create another one as now the

313
imbalance had moved to another station (this overcompensation in the correction needed
potentially introduced even more variability than already existed). To counter this, in
early J une 2005, the ‘help your neighbor’ system was launched. The idea was to enable
the people on the line to make decisions about where they were needed the most (limited
to their station and the two adjoining ones, for the most part). Besides releasing the line
leader to do other work (such as problem solving and improvement), this would lead to a
self regulating system that could react more rapidly to much smaller fluctuations in the
operators’ workload. The waste of waiting for work would be virtually eliminated
(allowing the line to run faster with the same labor) and the large waves of orders that
characterized the flow on the line would be replaced by small frequent ripples. The ‘help
your neighbor’ system thus attempted to maximize overall line throughput and efficiency
by constantly making small adjustments in labor distribution to maintain a smooth flow
of orders through the line. With the system running properly, and assuming that labor
assignments were reasonably balanced, the line leader only needed to monitor and adjust
the overall speed of the line (controlled by the frequency of release of orders at the
beginning of the line; see section 7.3.2.5: Implementation: use takt time to pace
production and plan labor, in page 333). When first introduced, the system was based on
two simple rules:
1. If your station is blocked, go downstream and help at the next station.
2. If your station is starved, go upstream and help at the previous station.
Although easy to understand in theory and most people saw the benefits immediately,
in practice there were complications that slowed adoption and affected the effectiveness
of the system. First, additional training was required since now the ‘swingers’ had to
know two or three jobs. Second, it was not always clear what starved and blocked meant
at each location, especially when there were several people in the same station (the
‘swinger’ should react and move before her station got in trouble to prevent her
companions from waiting). Third, moving upstream and/or downstream was not an
option in some cases (at the beginning of the line or around gift box packing during the
high season when all stations were already manned).
This is not to say that the system was not beneficial, it produced notable results in line
stability from the very beginning. However, it did require further refinements and

314
constant reinforcement. In mid J uly 2006, the rules were revised and translated into
exactly what they meant for each station. And in early October, visual cues were added to
the line (colored tape with instructions on the side of the conveyor) to make it easier for
‘swingers’ to decide when to move to another station and for the line leader to verify that
‘swingers’ are making the right decisions. Figure 7-27 shows an example of the
indicators used. Instructions written on the tape tell workers what to do when they have to
go get work beyond the place where the tape is located.


The changes described above resulted in significant performance improvements,
made the line much simpler to manage, and easier to understand and improve. However,
the line is still far from ideal. With respect to its design, there are two main problems.
First, many products are held at two locations on the line (at the gift box and at line side
market places), making it significantly bigger than it needs to be. As additional products
are added and volume increases, this will become an even bigger problem. Second, the
line is designed for the high season, a one month period when the volume of orders is
over ten times higher than the average volume the rest of the year, and is not easy to
resize (even though most markets are on wheels). This results in excessive walking
eleven months of the year. Other challenges abound as well, such as the need to further
remove waste from processes, eliminate mistakes, and ensure that the right product is
always available when needed. Improvements in all these fronts have been made and are
described in the sections that follow.
Figure 7-27 Visual cues for 'help your neighbor'
If pastry is blocked,
picker goes help bread.
If bread is starved,
picker goes help pastry.
If pastry is blocked,
picker goes help bread.
If bread is starved,
picker goes help pastry.

315
7.3.2.3 Implementation: pull to replenish the line and coordinate supplier processes
Regardless of how well the line is designed, achieving good flow on it is only
possible if support systems are in place and working effectively. Perhaps the most
important of these is a pull system to replenish the line, keeping it stocked with the
product needed to fulfill the orders. Line side markets, replenished regularly in response
to kanban signals, mostly using scheduled routes that bring product from back stock
locations or from supplying processes, were used for this purpose. The design and
implementation of the markets and the way to replenish them was intimately tied to the
design and implementation of the line. In fact, the markets needed defined the size of the
line and in some occasions even dictated the order in which items would be picked and
where the line could be physically located.
Design of the pull system began in late J une 2004 with the development of a Plan-
For-Every-Part (PFEP) database. A file was created to collect information about all the
products sold (or consumed, such as packing boxes). When the basic information was
available in mid August, it was used to define the size of the markets needed. Initially
only the bread and pastry markets for gift box/basket and line side and the cheese market
for gift box/basket were developed since time was limited before the holiday season. Dry
goods had been traditionally picked from pallet racks that could be transformed into
workable (although far from optimal) markets. Line side cheese was picked directly from
doors opening into the cheese room, where trays of cheese were arranged in carts. The
only thing missing for this to be an effective market were kanban cards to signal the need
for replenishment. Due to time constraints and the perceived need to cut cheese in
batches ahead of time to better utilize the labor during the weekends, it was decided to
ignore the cheese room in this first round of improvement. By early October the markets
were fully designed and an outside vendor was hired to build them.
Attention turned then to designing the replenishment system that would keep the line
fed. Bread would be replenished continuously by personnel working behind the markets.
The layout was designed such that the bread storage and bagging areas were directly
behind the bread markets on the line. Pastry replenishment would work on a somewhat

316
similar way, except that the pastry boxing area was further away
314
so there would be
some natural batching going on (several kanban would be picked up and replenished in
each cycle). Other goods would be placed on scheduled routes. Unfortunately, due to the
many changes happening at once, the lack of clear information about the volume of items
that would need to be replenished at each market on each route (excessive variability in
demand made estimating this very hard), how long it would take to run the route, and the
difficulty in testing them without the rest of the system in place, routes were not designed
in sufficient detail and thus became the weak link in the system. To make things worse
without a clearly designed system, rapidly training the amount of people needed was
nearly impossible. At the peak of the holiday timed routes had been forgotten and
material handlers were just doing continuous replenishment and cramming as much
product into the markets as possible (or leaving ‘reserve’ piles behind them) to avoid
having to go get that same product again shortly.
In any case, the new line, the markets (see Figure 7-28), and an initial form of routes
were up and running as scheduled on November 1
st
2004. As can be expected from any
major change, using pull effectively required retraining everyone and took some getting
used to. The system itself also required adjustments to deal with problems that had not
been foreseen. To enable this adaptation process, no other major changes were introduced
to the pull system for about nine months. Although during this time the markets and
routes had to be completely resized for the low demand volume that prevails for most of
the year.

314
This was resolved during the Fall of 2005 by setting the pie and cake storage and boxing area right
behind the market. It now works just as bread does.

317


Building on what was learned from implementing the pull system on the line and
armed with the conviction that significant improvements would result, in mid August
2005 work began to extend the concept to other areas.The next initiative incorporated the
kitchen into the process by tying it to its suppliers (purchasing) and to its immediate
customer (the production line). This is one area where the processes depart from the pick
and pack operations that prevail in the rest of the business. Here foods are mixed, cooked,
cut, portioned, frozen, and otherwise prepared for shipment to the customer. For the line
to kitchen loop, two markets (product is needed in different locations) were added to the
line to hold items coming from the kitchen, kanban were introduced to signal the need for
replenishment, and a route was created to deliver the product. Inside the kitchen several
markets were created to accommodate the many different items and processes it has to
deal with. Salads for example are prepared in batches but portioned off as needed by the
line. A market was implemented to hold the large portions and a replenishment signal
Figure 7-28 Initial bread, pastry, and cheese markets
Old pick location for bread
New pastry and cheese markets
New bread market
Old pick location for bread
New pastry and cheese markets
New bread market

318
incorporated to indicate when more needed to be prepared. For the most part meats are
frozen before shipping them, so they are cut and then put into a freezer. A market and
kanban were implemented to supply the line and indicate when more should be cut and
frozen. Other meats require cooking, which is usually done in batches, so an additional
market is needed. All these markets and kanban served as visual indicators dictating
when and what work needed to be done. To keep the kitchen supplied with the items
needed, kanban were added to indicate to purchasing what they had to order. In general,
markets and kanban in the kitchen were readily accepted since production had had some
experience using them and because they defined very clear priorities for the work that
had to be done. On the purchasing side however, these was their first exposure to kanban,
and for a long time they were not entirely trusted so orders continued to be placed using
the traditional computer-based inventory system.
An important additional benefit that resulted from introducing pull in the kitchen was
the realization that preparing food in large batches was not efficient since it required
larger inventories, created an uneven workload, and increased the risk of obsolescence.
As a result, batch sizes were reduced and the goal is now to make a little of everything
every day to replenish what the line has used. Perhaps the effects of batching were easier
to see here or perhaps it was just from seeing it again, but the introduction of pull in the
kitchen was the turning point in the replacement of the large batch paradigm.
Towards the end of September 2005, in preparation for the holiday season it was
necessary to tackle routes again. They were transferred from purchasing to production
and completely redesigned. Four separate routes were created: food, packaging 1,
packaging 2, and dry goods. Products and consumables were assigned to the different
routes trying to minimize walking as much as possible. During slow periods all routes are
performed by a single person and run every four hours. The food route deals with bread
and pastry stored directly on the floor behind the line or in a freezer on the south end of
the building, with products coming from the kitchen (located on the southeast end of the
building), and with gift box/basket cheeses. Although a lot of product is moved in this
route it deals with fairly short walking distances. During high demand periods, bread and
pastry go into continuous replenishment, greatly reducing the loading and allowing this
route to run at 30 min intervals. The two packaging routes deliver boxes, baskets, ice

319
packs, and other packaging materials to several locations on the line. Most of it is stored
on the southwest end of the building and the bulk of these materials are delivered to the
gift box basket and packaging areas also located nearby. During the holidays, additional
people are added and materials are delivered every 30 min. The dry goods route is the
longest and most complicated one. It deals with low to mid volumes of hundreds of
different items delivered to two dry goods markets (gift box/basket and line side). Dry
goods are stored on the northwest corner of the building and the line side market is
located nearby. However, the oil and vinegar market (also in this route) is in the center of
the facility, and the gift box/basket market is on the south side, making it necessary for
the route person to traverse the entire building. During the holidays this route is usually
broken in two, converting delivery to the gift box/basket into a stand-alone loop.
Additional people are added as well to go to deliveries every 30 min. A schematic of the
routes and how they run can be seen in Figure 6-26 (page 209). After the redesign,
implementation and training focused on consistency to ensure that routes were run when
they should. A schedule was defined and route runners recorded when each route began
and ended. Ensuring consistency in deliveries is crucial to size marketplaces, makes
managing the routes easier, and helps in problem solving by facilitating root cause
analysis.
One reason the dry goods route was problematic is that the markets still used pallet
racking to store products. The gift box/basket market could at least be fed from behind
(although without gravity feed this was only a marginal benefit), but the oil and vinegar
and the line side market had to be replenished from the front, with the route person often
getting in the way of pickers, taking a long time, and potentially compromising the proper
rotation of inventory. To solve these problems, in mid May 2006, a process to replace the
racks was initiated. The objective was to convert them into inclined, fed from behind
racks similar to those used for bread and pastry. The main challenge was the variety in
size and shape of the items (and their packaging). Furthermore, since they are artisan
products, their packaging sometimes changes, and thus some flexibility would be
required. A prototype rack was designed and built in-house (in part to ensure that ZMO
gained the capability to create and adjust their racks as needed) and tested with different
types of products. Using what was learned, the rack was redesigned and eight similar

320
ones were built to accommodate all the line side dry goods. They were in use by early
December 2006 (see Figure 7-29). This was accompanied by a change in the computer
system that enabled picking by location instead of by code. When the code was used,
products had to be arranged alphabetically making it cumbersome to add new items and
wasting space since all shelves needed to accommodate the tallest containers. Picking by
location solved this and also made it possible to group items by usage or any other
criteria (such as ‘usually bought together’). The benefits were immediately obvious, in
particular for the route runners and the pickers on the line.


The final link in the pull system was to use kanban to trigger the purchase of items to
replenish the back stock inventory. The traditional approach had been to use historical
data, padded as needed, to create a forecast of what was expected to sell and order from
suppliers accordingly. Due to the high demand variability faced by ZMO and the long
lead-time for imported items, some of this will always be necessary. Fortunately, for the
most part, the biggest peaks in demand happen at predictable times (Mother’s day,
Father’s day, Thanksgiving, Christmas, etc.)
315
. Towards the end of August 2006 kanban
began to be implemented to create a hybrid pull/forecast system. Markets were sized
according to expected demand (based on past data) and kanban created to trigger
purchasing. Route runners would come to the purchasing market and pull the items they

315
Although they know that overall volume will increase and can guess fairly accurately by how much, it is
much harder to translate that into individual items.
Figure 7-29 Old and new dry goods racks
Old dry goods racks:
Load from front, flat, wasted space, alphabetical
New dry goods racks:
Load from back, gravity feed, high density
of products, pick by location
Old dry goods racks:
Load from front, flat, wasted space, alphabetical
New dry goods racks:
Load from back, gravity feed, high density
of products, pick by location

321
need. They would replace the purchasing kanban on the boxes by the ones they brought
from the line and take the product with them. The purchasing kanban would be dropped
in a predefined location and used by purchasing to place orders with suppliers. For
vendors that delivered fixed amounts at variable times, the cards would be placed into
vendor buckets (one for each supplier) and purchasers would check them daily to see if
an order needed to be placed. The cards for vendors that delivered variable quantities at
fixed intervals had colored dots that represent the day of the week when they are ordered.
These would go into color coded buckets. Each day the purchaser would grab the kanban
in that day’s bucket and place the necessary orders. During this process, the purchaser
would also look ahead to see if sales were expected to be above average for the items
being ordered during the next replenishment cycle (was there a known holiday or catalog
offering coming up that would cause demand for the items to spike?). If sales were
expected to be high, they would order extra product and generate the corresponding
number of temporary kanban (for the most part, these would be taken out of the system
when the items they were attached to were consumed). All regular and temporary kanban
would then go on a board arranged by the order’s expected date of arrival (keeping them
bundled by supplier). When a delivery arrived, the receiver would look in the slot for the
day, grab the kanban for that supplier, and attach them to the product as it was being
verified. The product then went into the back stock market where it was available for
picking by the route runners and the cycle would start again.
Even though purchasing product using kanban could help with some items, high
demand variability, coupled with long replenishment lead-times for some products (ZMO
directly imports some of the items it offers), makes stock outs a reality. One way they
deal with it is by substituting missing products by similar ones in gift boxes and baskets.
When a product is getting low (if it is also sold as a stand alone item) or when it is
completely out (if it is used only in gift boxes and baskets), a substitute is chosen and gift
boxes and baskets made after that use the new item instead. In the previous system, the
route runner would come to the back stock market with a kanban and find the slot empty.
Since he could not take the items back to the line, he would leave the kanban at a
designated location as a signal for purchasing that an item was missing. Frequently this
was not noted (or there were too many items to deal with at once, especially during the

322
holidays) and the need for a sub was only recognized when the picker on the line went to
grab an item and found there was none. At this time, something had to be done since
orders were being held up. Unfortunately, only a handful of people could decide what the
sub could be, so it was necessary to find one of them. Once the decision was made,
purchasing would take the new item to the line placing it in the slot labeled for the
original item. From then on, pickers would pick the new item whenever the old one was
called for and it would be replenished by the route runner as usual. This system had
several problems and created major disruptions to the regular work in both production
and purchasing. First, the regular flow of orders was interrupted as some gift
boxes/baskets could not be picked. And the disruption could continue down the line to
the gift box/basket makers and even further down if not resolved rapidly. Second, one of
the people that could choose the sub had to be hunted down (urgently since orders with
the missing items were piling up) when ever a new sub was needed (this required
someone to do the hunting and necessarily interrupted the work of the sub chooser as
well). Third, it required purchasing to get involved in re-stocking the line. Another
wasteful interruption to their busy schedule.
Once kanban was in use in the back stock market, it became possible to streamline the
sub process to make it part of daily operations instead of a major disruption to the
process. The objectives for the new approach were to prevent stock outs at the line and to
use the regular replenishment system (kanban and routes) to handle the movement and
stocking of subbed items on the line. The solution was to use temporary kanban at the
back stock market to guide route runners to the substitute product they should take back
to the line when one was needed. A list of standard subs was developed to ensure that
most times anyone at purchasing could choose a substitute product when needed.
Purchasing would monitor the back stock area daily (more frequently during the high
season) and when a sub was needed, they would create temporary kanban containing the
information for both the previous and the new item (see Figure 7-30). These kanban
would be placed at the front of theitem location in the back stock market. When the route
runner came looking for an item to take back to the gift box/basket market and found one
of these kanban, he would go to the designated location and pick that item instead (these
kanban act as pointers to another location). If the route runner was looking for items to

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take back to the line, then he would simply ignore the sub kanban (only items in gift
boxes/baskets can be subbed).


Implementing a pull system at ZMO brought many benefits to the way the business is
run and contributed to significant performance improvements. First, it improved the flow
of product through the facility and helped ensure that items were available when and
where needed. Second, it brought stability to the line by eliminating the off cycle job of
looking for items when they were not available. People on the line can now concentrate
(except for the occasional glitch) on fulfilling the orders at a constant pace to keep the
line running smoothly. Third, it synchronized and coordinated production of supply
processes such as the kitchen. Fourth, it simplified managing the whole operation and
reduced the response time to problems, by making the flow of material visible and
missing items obvious. Finally, it has made it easier (and even compelling) to continuing
to improve by creating tight links between processes that highlight problems and help
identify their root causes.
7.3.2.4 Implementation: sequence orders to level workload and consumption
Production leveling is a key feature of Toyota’s system since it makes it possible to
reduce buffers and allows connections between processes to be much tighter. This
reduces costs and helps surface problems that can then be tackled to strengthen the
Figure 7-30 Temporary substitution kanban
If P-DBM is needed, pick
P-DIJ instead.
If P-DBM is needed, pick
P-DIJ instead.

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system. Leveling at ZMO is particularly critical due to the high demand variability they
face. Unfortunately, it is also very hard to achieve since it is not possible to hold finished
goods inventory and orders are expected to go out on the next possible ship date
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, so
transferring volume from one day to the next to level the volume is usually not an option.
ZMO deals with day-to-day and seasonal volume variability by adjusting capacity to
match demand each day. They add or remove people as needed and are very adept at
doing it. Due to the restrictions discussed above, this is a necessary feature of their
system and there is little that can be done to level demand between days further
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.
Within a given day, however, the problem and the options available are very
different. Here we are concerned with the variability in the mix and not the volume. The
wrong mix of orders going down the line will cause workload imbalances and runs on
products potentially resulting in stock outs that cause ‘mistakes’. Both problems
introduce waste into the system and thus reduce the overall efficiency of the line.
Given the high number of different items and the almost infinite number of possible
combinations in which they can be ordered, leveling the mix is not a trivial exercise. The
first attempt at achieving some kind of leveling began in mid November 2004 with the
development of a sequencing aid that determined the right ratio (for that day) of ‘gift
box’ to ‘other’ orders to release to the line. The idea was to level the workload between
the gift box area and the other picking locations by sequencing the packing slips released
to the line. For the most part, orders with gift boxes do not have other items in them, so
they need to be worked on only by the pickers in the gift box/basket area and by the gift
box packers. ‘Other’ orders go untouched through these stations and require work from
the pickers further down the line. This resulted in a natural distinction between the two
areas and generated the need to balance the workload between them. Checking, packing,
and shipping saw all the orders, so the initial leveling attempt ignored them.
Unfortunately, this first stab at leveling was launched along with too many other
changes and too close to the holiday season. Once the volume started going up, people on
the line began to revert to their old methods for some of the more subtle changes. At this

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What the ‘next shipping date’ means depends on the type of items ordered and when the order is placed.
For perishable items ordered Thursday through Sunday, the next ship day is Monday. Tuesday orders go
out on Wednesday along with Wednesday orders up to a cutoff time.
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They do order fulfillment for other companies and there is some potential for leveling there.

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time the benefits of sequencing were not fully understood and thus were rapidly
overruled when it seemed to fail to keep the line full. The order starter reverted to
previous practices and began to release orders based on what she thought the line needed
at the moment. This soon evolved into two separate order release positions: one at the
beginning of the line for ‘gift box’ orders and a second one that released ‘other’ orders
right after the gift box packers to ensure pickers never ran out of work. At both locations
orders were placed on the line as fast as possible. This solution did maintain both areas
busy. Unfortunately it also introduced additional waste. It required an additional person
releasing orders and someone bringing tubs to the new location. It also created flow
problems as the picking line was now frequently overflowing with tubs causing backups
on the gift box line and preventing new gift box orders to be added to the line. Most
importantly, it hid problems and made it impossible to gauge whether one part of the line
needed help. The only indication was at the end of the day when one side had finished
while the other one still had a stack of orders. This was particularly problematic if
picking finished before gift boxes were completed.
Sequencing was introduced again in early May 2005 using an improved version of the
sequencing aid and providing more training. As before the idea was to level the workload
between the gift box area and the other picking operations. Without the holiday volume,
working only with the core crew, and after everyone had gotten used to running with the
new line in place, implementation this time went better. Some changes had to be made to
the way the packing slips were being handled at both the office and the floor, but in a few
weeks it was working fairly well and the effect on the line was undeniable. It in fact
marked the beginning of another paradigm shift: from running the line as fast as possible
and adjusting the loading by moving people around and selecting which orders to release
to the line, to manning the line for the expected volume, running at a steady pace (see
section 7.3.2.5: Implementation: use takt time to pace production and plan labor , in page
333), and allowing it to autonomously handle small fluctuations in loading at each station
before they built up into major problems (see section 7.3.2.2: Implementation: improve
flow for core value adding processes, in page 308). Achieving a smoother flow by
sequencing the orders was also an important factor in transitioning away from constant
firefighting.

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Thus far the solution helped level the workload between the gift box/basket area and
the rest of the line, but did little to level the workload at the different pick locations
(bread, pastry, dry goods, etc.) or the consumption of individual products. Pick locations
could still be overloaded (or starved) and runs on products could still cause stock-outs at
the markets. Although the need to improve sequencing to better level the workload and
the consumption of products was a frequent topic of discussion, the conceptual solution
did not change for well over a year. During this time the focus was on improving the way
the solution was implemented and on learning how the line behaved under different
conditions. On September 2006 however, the problem was tackled again and by the end
of the month an algorithm had been defined that would enable the computer to sequence
the orders to level both the workload at each station and the consumption of individual
items. Orders would be printed in sequence and handed over to production. The
algorithm is recursive and places one order in the sequence for each iteration. Following,
an example is used to explain the conceptual solution.
Table 7-4 shows the group of ten sample orders that will be sequenced. It also shows
the location where the items are picked from (first column on the left), the total loading
each order causes on the workstations (bottom four rows) and the total amount ordered
for each item (last column on the right).














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Table 7-4 Sample batch of orders to be sequenced


The process begins by getting all the orders that need to be shipped in a given period
(usually a day) and creating a sequencing matrix (see Table 7-5 for a sample matrix in its
initial state) that contains all the items ordered and any other feature that must be leveled
(the workstation where items are picked, in this case). The first column contains the
features to be leveled. In this example product consumption is leveled by including the
item codes, while station workload is leveled by including the pick locations for those
items. The second column (A) contains the total amount ordered for each item and the
third one (B) the amount of each item ordered per order (A / total number of orders). This
last one defines how often the item (or leveling feature) should appear in the sequence.
The fourth column (C) contains the total amount scheduled of each item so far (initially
set to zero) and the fifth column (D) the fraction of items per order sequenced so far (C /
number of orders already in the sequence). The difference between the fraction of items
scheduled so far (D) and the per order quantity for that item (B) is shown in column six
and defines whether a particular item should be scheduled. A positive difference means
A B C D E F G H I J
G-BRS-10 1 1
G-BBM 1 1
G-GRA-1 1 1 1 3
B-8GR 1 1
B-PEP 1 1
B-CHO 1 1 2
B-PAE 1 1 1 3
P-PIQ 1 1 1 3
P-COF-BPC 1 1
P-DDL 2 2
P-MRN 1 1
C-GRU 1 1
C-STI 1 1
C-PAR 1 1 2
Gift box 1 1 2 1 5
Bread 2 1 1 2 1 7
Dry good 2 2 1 1 1 7
Cheese 2 1 1 4
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that the item has been over scheduled in the orders that have been sequenced so far and
thus an order containing it should not be added to the sequence. A negative difference
means that the amount that has been scheduled for this item is not sufficient for the
number of orders that have been sequenced. Orders containing items with negative
differences are good candidate to be added to the sequence. In this way, the next order to
be added to the sequence is selected by looking at the items it contains and how heavily
they have been scheduled so far. The one selected should contain items and locations (or
any other feature that needs to be leveled) that have been under scheduled. Columns one,
two, and three are fixed for each batch of orders sequenced. Columns five and six change
with every iteration, while column four changes only for the items contained in the latest
order sequenced.

Table 7-5 Initial state sequencing table


G-BRS-10 1 0.10 0 0 -0.10
G-BBM 1 0.10 0 0 -0.10
G-GRA-1 3 0.30 0 0 -0.30
B-8GR 1 0.10 0 0 -0.10
B-PEP 1 0.10 0 0 -0.10
B-CHO 2 0.20 0 0 -0.20
B-PAE 3 0.30 0 0 -0.30
P-PIQ 3 0.30 0 0 -0.30
P-COF-BPC 1 0.10 0 0 -0.10
P-DDL 2 0.20 0 0 -0.20
P-MRN 1 0.10 0 0 -0.10
C-GRU 1 0.10 0 0 -0.10
C-STI 1 0.10 0 0 -0.10
C-PAR 2 0.20 0 0 -0.20
Gift box 5 0.50 0 0 -0.50
Bread 7 0.70 0 0 -0.70
Dry good 7 0.70 0 0 -0.70
Cheese 4 0.40 0 0 -0.40
A B C D
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An order rating matrix is used to determine which is the best order to place next in the
sequence (Table 7-6 shows a sample initial state matrix). Each cell in the table contains
the current sequencing indicator for the item or pick location (the sixth column in the
sequencing table), multiplied by the quantity required by the order. For example, order A
requires 2 breads, so the Bread cell for order A contains negative 1.4 (=-0.7*2). The total
rating for the order is obtained by summing over all the leveling features. The next order
to be placed in the sequence is selected by choosing the one with the lowest rating (in this
case order E).

Table 7-6 Initial state order rating table


Figure 7-31 shows the initial condition for the three matrices and includes order E as
the first one in the sequence.

A B C D E F G H I J
G-BRS-10 0.00 0.00 -0.10 0.00 0.00 0.00 0.00 0.00 0.00 0.00
G-BBM -0.10 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
G-GRA-1 0.00 -0.30 -0.30 0.00 -0.30 0.00 0.00 0.00 0.00 0.00
B-8GR -0.10 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
B-PEP 0.00 0.00 0.00 0.00 0.00 0.00 -0.10 0.00 0.00 0.00
B-CHO 0.00 0.00 0.00 0.00 -0.20 0.00 0.00 0.00 -0.20 0.00
B-PAE -0.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.30 -0.30
P-PIQ 0.00 0.00 0.00 0.00 -0.30 0.00 -0.30 0.00 0.00 -0.30
P-COF-BPC 0.00 0.00 0.00 0.00 -0.10 0.00 0.00 0.00 0.00 0.00
P-DDL 0.00 0.00 0.00 0.00 0.00 -0.40 0.00 0.00 0.00 0.00
P-MRN 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.10 0.00 0.00
C-GRU 0.00 0.00 0.00 -0.10 0.00 0.00 0.00 0.00 0.00 0.00
C-STI 0.00 0.00 0.00 0.00 -0.10 0.00 0.00 0.00 0.00 0.00
C-PAR 0.00 0.00 0.00 -0.20 0.00 0.00 0.00 0.00 -0.20 0.00
Gift box -0.50 -0.50 -1.00 0.00 -0.50 0.00 0.00 0.00 0.00 0.00
Bread -1.40 0.00 0.00 0.00 -0.70 0.00 -0.70 0.00 -1.40 -0.70
Dry good 0.00 0.00 0.00 0.00 -1.40 -1.40 -0.70 -0.70 0.00 -0.70
Cheese 0.00 0.00 0.00 -0.80 -0.40 0.00 0.00 0.00 -0.40 0.00
Total rating -2.40 -0.80 -1.40 -1.10 -4.00 -1.80 -1.80 -0.80 -2.50 -2.00
Items and
pick locations
Orders

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Initial condition
Sequencing table
Orders table Number of orders 10 Order rating table
A B C D E F G H I J A B C D E F G H I J
G-BRS-10 1 1 G-BRS-10 1 0.10 0 0 -0.10 G-BRS-10 0.00 0.00 -0.10 0.00 0.00 0.00 0.00 0.00 0.00 0.00
G-BBM 1 1 G-BBM 1 0.10 0 0 -0.10 G-BBM -0.10 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
G-GRA-1 1 1 1 3 G-GRA-1 3 0.30 0 0 -0.30 G-GRA-1 0.00 -0.30 -0.30 0.00 -0.30 0.00 0.00 0.00 0.00 0.00
B-8GR 1 1 B-8GR 1 0.10 0 0 -0.10 B-8GR -0.10 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
B-PEP 1 1 B-PEP 1 0.10 0 0 -0.10 B-PEP 0.00 0.00 0.00 0.00 0.00 0.00 -0.10 0.00 0.00 0.00
B-CHO 1 1 2 B-CHO 2 0.20 0 0 -0.20 B-CHO 0.00 0.00 0.00 0.00 -0.20 0.00 0.00 0.00 -0.20 0.00
B-PAE 1 1 1 3 B-PAE 3 0.30 0 0 -0.30 B-PAE -0.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.30 -0.30
P-PIQ 1 1 1 3 P-PIQ 3 0.30 0 0 -0.30 P-PIQ 0.00 0.00 0.00 0.00 -0.30 0.00 -0.30 0.00 0.00 -0.30
P-COF-BPC 1 1 P-COF-BPC 1 0.10 0 0 -0.10 P-COF-BPC 0.00 0.00 0.00 0.00 -0.10 0.00 0.00 0.00 0.00 0.00
P-DDL 2 2 P-DDL 2 0.20 0 0 -0.20 P-DDL 0.00 0.00 0.00 0.00 0.00 -0.40 0.00 0.00 0.00 0.00
P-MRN 1 1 P-MRN 1 0.10 0 0 -0.10 P-MRN 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.10 0.00 0.00
C-GRU 1 1 C-GRU 1 0.10 0 0 -0.10 C-GRU 0.00 0.00 0.00 -0.10 0.00 0.00 0.00 0.00 0.00 0.00
C-STI 1 1 C-STI 1 0.10 0 0 -0.10 C-STI 0.00 0.00 0.00 0.00 -0.10 0.00 0.00 0.00 0.00 0.00
C-PAR 1 1 2 C-PAR 2 0.20 0 0 -0.20 C-PAR 0.00 0.00 0.00 -0.20 0.00 0.00 0.00 0.00 -0.20 0.00
Gift box 1 1 2 1 5 Gift box 5 0.50 0 0 -0.50 Gift box -0.50 -0.50 -1.00 0.00 -0.50 0.00 0.00 0.00 0.00 0.00
Bread 2 1 1 2 1 7 Bread 7 0.70 0 0 -0.70 Bread -1.40 0.00 0.00 0.00 -0.70 0.00 -0.70 0.00 -1.40 -0.70
Dry good 2 2 1 1 1 7 Dry good 7 0.70 0 0 -0.70 Dry good 0.00 0.00 0.00 0.00 -1.40 -1.40 -0.70 -0.70 0.00 -0.70
Cheese 2 1 1 4 Cheese 4 0.40 0 0 -0.40 Cheese 0.00 0.00 0.00 -0.80 -0.40 0.00 0.00 0.00 -0.40 0.00
A B C D Total rating -2.40 -0.80 -1.40 -1.10 -4.00 -1.80 -1.80 -0.80 -2.50 -2.00
Scheduled? 0 0 0 0 0 0 0 0 0 0
Sequence
Position 1 2 3 4 5 6 7 8 9 10
Order E
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Itemsand
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updated and the next order is selected, in this case order A (see Figure 7-32).

After iteration
Sequencing table
Orders table Number of orders 10 Order rating table
A B C D E F G H I J A B C D E F G H I J
G-BRS-10 1 1 G-BRS-10 1 0.10 0 0.00 -0.10 G-BRS-10 0.00 0.00 -0.10 0.00 0.00 0.00 0.00 0.00 0.00 0.00
G-BBM 1 1 G-BBM 1 0.10 0 0.00 -0.10 G-BBM -0.10 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
G-GRA-1 1 1 1 3
G-GRA-1
3 0.30 1 1.00 0.70 G-GRA-1 0.00 0.70 0.70 0.00 0.70 0.00 0.00 0.00 0.00 0.00
B-8GR 1 1 B-8GR 1 0.10 0 0.00 -0.10 B-8GR -0.10 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
B-PEP 1 1 B-PEP 1 0.10 0 0.00 -0.10 B-PEP 0.00 0.00 0.00 0.00 0.00 0.00 -0.10 0.00 0.00 0.00
B-CHO 1 1 2 B-CHO 2 0.20 1 1.00 0.80 B-CHO 0.00 0.00 0.00 0.00 0.80 0.00 0.00 0.00 0.80 0.00
B-PAE 1 1 1 3 B-PAE 3 0.30 0 0.00 -0.30 B-PAE -0.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.30 -0.30
P-PIQ 1 1 1 3 P-PIQ 3 0.30 1 1.00 0.70 P-PIQ 0.00 0.00 0.00 0.00 0.70 0.00 0.70 0.00 0.00 0.70
P-COF-BPC 1 1 P-COF-BPC 1 0.10 1 1.00 0.90 P-COF-BPC 0.00 0.00 0.00 0.00 0.90 0.00 0.00 0.00 0.00 0.00
P-DDL 2 2 P-DDL 2 0.20 0 0.00 -0.20 P-DDL 0.00 0.00 0.00 0.00 0.00 -0.40 0.00 0.00 0.00 0.00
P-MRN 1 1 P-MRN 1 0.10 0 0.00 -0.10 P-MRN 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.10 0.00 0.00
C-GRU 1 1 C-GRU 1 0.10 0 0.00 -0.10 C-GRU 0.00 0.00 0.00 -0.10 0.00 0.00 0.00 0.00 0.00 0.00
C-STI 1 1 C-STI 1 0.10 1 1.00 0.90 C-STI 0.00 0.00 0.00 0.00 0.90 0.00 0.00 0.00 0.00 0.00
C-PAR 1 1 2 G-PAR 2 0.20 0 0.00 -0.20 C-PAR 0.00 0.00 0.00 -0.20 0.00 0.00 0.00 0.00 -0.20 0.00
Gift box 1 1 2 1 5 Gift box 5 0.50 1 1.00 0.50 Gift box 0.50 0.50 1.00 0.00 0.50 0.00 0.00 0.00 0.00 0.00
Bread 2 1 1 2 1 7 Bread 7 0.70 1 1.00 0.30 Bread 0.60 0.00 0.00 0.00 0.30 0.00 0.30 0.00 0.60 0.30
Dry good 2 2 1 1 1 7 Dry good 7 0.70 2 2.00 1.30 Dry good 0.00 0.00 0.00 0.00 2.60 2.60 1.30 1.30 0.00 1.30
Cheese 2 1 1 4 Cheese 4 0.40 1 1.00 0.60 Cheese 0.00 0.00 0.00 1.20 0.60 0.00 0.00 0.00 0.60 0.00
A B C D Total rating 0.60 1.20 1.60 0.90 9.99 2.20 2.20 1.20 1.50 2.00
Scheduled? 0 0 0 0 1 0 0 0 0 0
Sequence
Position 1 2 3 4 5 6 7 8 9 10
Order E A
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With two orders in the sequence, the sequencing and order rating tables are updated
and the next order is selected. The process is repeated until all orders have been
Figure 7-31 Initial condition and sequencing of first order
Figure 7-32 Conditions after first iteration and sequencing of second order

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sequenced. Figure 7-33 shows the final sequence and the end condition of all three
matrices.

After iteration
Sequencing table
Orders table Number of orders 10 Order rating table
A B C D E F G H I J A B C D E F G H I J
G-BRS-10 1 1 G-BRS-10 1 0.10 1 0.10 0.00 G-BRS-10 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
G-BBM 1 1 G-BBM 1 0.10 1 0.10 0.00 G-BBM 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
G-GRA-1 1 1 1 3 G-GRA-1 3 0.30 3 0.30 0.00 G-GRA-1 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
B-8GR 1 1 B-8GR 1 0.10 1 0.10 0.00 B-8GR 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
B-PEP 1 1 B-PEP 1 0.10 1 0.10 0.00 B-PEP 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
B-CHO 1 1 2 B-CHO 2 0.20 2 0.20 0.00 B-CHO 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
B-PAE 1 1 1 3 B-PAE 3 0.30 3 0.30 0.00 B-PAE 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
P-PIQ 1 1 1 3 P-PIQ 3 0.30 3 0.30 0.00 P-PIQ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
P-COF-BPC 1 1 P-COF-BPC 1 0.10 1 0.10 0.00 P-COF-BPC 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
P-DDL 2 2 P-DDL 2 0.20 2 0.20 0.00 P-DDL 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
P-MRN 1 1 P-MRN 1 0.10 1 0.10 0.00 P-MRN 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
C-GRU 1 1 C-GRU 1 0.10 1 0.10 0.00 C-GRU 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
C-STI 1 1 C-STI 1 0.10 1 0.10 0.00 C-STI 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
C-PAR 1 1 2 G-PAR 2 0.20 2 0.20 0.00 C-PAR 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Gift box 1 1 2 1 5 Gift box 5 0.50 5 0.50 0.00 Gift box 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Bread 2 1 1 2 1 7 Bread 7 0.70 7 0.70 0.00 Bread 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Dry good 2 2 1 1 1 7 Dry good 7 0.70 7 0.70 0.00 Dry good 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Cheese 2 1 1 4 Cheese 4 0.40 4 0.40 0.00 Cheese 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
A B C D Total rating 9.99 9.99 9.99 9.99 9.99 9.99 9.99 9.99 9.99 9.99
Scheduled? 1 1 1 1 1 1 1 1 1 1
Sequence
Position 1 2 3 4 5 6 7 8 9 10
Order E A D F C G I H B J
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Figure 7-34 shows the orders placed in their corresponding sequence. As can be
observed the sequencing resulted in a very even distribution of the products without any
runs that could deplete the markets. Work load at the gift box and bread areas show a bit
of clustering (as highlighted on the chart), but nothing too critical that could not be
handled by the ‘help your neighbor rules’ and by the buffers existing between stations. In
fact, two or three orders coming together for a particular area probably introduce the
same overload as a single large order, so it should not be a problem for the station.

Figure 7-33 Conditions after all orders have been sequenced

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Final sequence
E A D F C G I H B J
G-BRS-10 1
G-BBM 1
G-GRA-1 1 1 1
B-8GR 1
B-PEP 1
B-CHO 1 1
B-PAE 1 1 1
P-PIQ 1 1 1
P-COF-BPC 1
P-DDL 2
P-MRN 1
C-GRU 1
C-STI 1
C-PAR 1 1
Gift box 1 1 2 1
Bread 1 2 1 2 1
Dry good 2 2 1 1 1
Cheese 1 2 1
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Programming of the sequencing algorithm was performed during October 2006, and
initial trial runs and debugging began in early November. During the holidays, packing
slips are expected to be printed in sequence to have the line running with leveled
workload and leveled product demand. This is one of the most anticipated changes and
there hopes are high that working to a leveled sequence will allow stations to run
smoothly and eliminate the majority of stockout situations.
Although leveling across days cannot be achieved, leveling within days has been
effective and will greatly improve as the new algorithm comes on line. By sequencing the
orders and releasing them at a steady rate it is possible to level both the workload at all
stations and the consumption of individual items. Workers on the line now work at a
regular pace. Fluctuations in workload have been reduced sufficiently that small buffers
and the ‘help your neighbor’ initiative are able to handle them. Similarly, runs on
Figure 7-34 Orders sorted according to the sequence generated

333
products are being eliminated making it possible for route runners to maintain the line
side markets well stocked. These two factors have contributed to increasing the
throughput and efficiency of the line while also eliminating significant sources of waste
(such as having to expedite product to the line when a market was empty, carrying excess
inventory at the line, scheduling additional people and having extra stations to handle the
waves of orders flowing through the system). Without the need to run around getting
missing product, firefighting is being replaced by working in advance to develop the
capabilities the firm needs.
7.3.2.5 Implementation: use takt time to pace production and plan labor
At ZMO the approach to production had been to run as fast as possible. People
assigned to prepping operations were expected to be done as soon as they could and then
go help on the line. Orders were released to the line as fast as it would take them and
every effort would be made to keep the line crammed with tubs. The belief was that a full
line improved efficiency by ensuring that everyone had plenty of work. In reality though
everyone kept busy, but not necessarily doing value added work (people would walk to
where orders were available, sort through tubs to find one that needed work, etc.). Too
many tubs on the line also meant that all stations were coupled ensuring that any
fluctuations in processing times (from problems or just from the variability inherent to
the orders) were transmitted rapidly up and downstream to other stations causing delays
for everyone. Furthermore, working ‘as fast as possible’ did not provide a clear
expectation of how fast work needed to be done or whether the current rate was a good
one. Not surprisingly, days frequently ran over the planned length. In addition, working
as fast as possible also meant pushing as much work onto the next station as possible.
This practice made it hard to see when a station got in trouble until it was causing major
delays. And, since the solution when this happened was to bring people from other areas
to help, the underlying problems that were causing the delays were not resolved and the
system did not improve. Finally, support areas necessarily had to operate in firefighting
mode since there was no way they could pace their work. After all, working as fast as
possible necessarily means that sometimes work is done very rapidly and others more
slowly. This constant change in production rate introduces waste and variability into the
system and requires the use of extra resources and costly buffers.

334
The preferred solution is to work at a steady pace that satisfies demand. This makes
expectations clear and makes it possible to evaluate progress and current rate of
production accurately at any moment in time. It also helps highlight problems, facilitates
labor planning and assignments, and improves efficiency by reducing waste and
variability. For ZMO as a whole to achieve a steady pace of work necessarily meant that
the production line had to run at a steady pace. If this was achieved, then it would be
possible to start moving out to establish paced rates for other processes such as routes
(running at fixed times) and further out to supplier processes like cheese cutting, the
kitchen, and purchasing. The only way to control the pace of production on the line was
to control the release of orders, so this is were the effort began.
The first attempt at establishing a paced rate was made in early December 2004. The
idea was to use takt time to determine the rate at which the line should run. At ZMO takt
time can be calculated as in any traditional application. The only thing to consider is that
the available work time can change everyday. It is established depending on the total
number of orders for the day and the size of the crew that will be used. Available time
and crew size are interrelated and need to be determined simultaneously as a function of
the number of orders for the day. This introduced the first impediment to using takt.
Since production had been running as fast as possible, there was no reliable way to
determine how long it should take to process a given volume of orders or how many
people would be needed. Guesstimates were used initially, which in the minds of the
people on the line made the calculated takt time unreliable and easy to discard when
things did not go as planned. It was easier to say that the takt was wrong and forget about
it than to look at the line and identify the problems there. The calculated takt time was
certainly to always feasible, but to assume that it was wrong every time it departed from
the reality experienced on the line, defeated the purpose of attempting to run at a
predictable and steady pace. Beyond this, implementation on the production floor had its
share of problems as well, ranging from how to physically time order releases to match
the desired takt, to more cultural issues such as ensuring that takt was not exceeded when
it was possible to add more orders to the line.
Part of the difficulty arose because working at a steady pace was such a an alien
concept for ZMO, that most people had a very hard time understanding what it meant and

335
the benefits that it would bring. J ust as with the first attempt at leveling production (see
section 7.3.2.4: Implementation: sequence orders to level workload and consumption, in
page 323) this one failed as well, and for many of the same reasons. The implementation
timing was wrong and as soon as volume started to increase for the holidays the order
starter would not hold back and release orders at a paced rate if there was space available
on the line to add more. The general belief on the production floor was that waiting to
release orders at takt was holding the line back. This would have been enough to ensure
that the use of takt time was discarded at least during the holiday period. However, there
was an even more fundamental problem that made running at a steady pace impossible
and truly rendered the takt time useless. As discussed above, due to the way production
was run, people were constantly coming in and out of the line, which meant that the
speed at which it could run was constantly changing as well. This made the takt
calculation and the rate it defined completely irrelevant to the people running the line.
When workers came into the line, processes would speed up and the ‘order starter’ had to
release orders faster or the new labor would be wasted.
To be able to run all day at a steady rate defined by the takt time meant that the
number of people on the line had to be held at the same level all day long. This was a
huge departure from the way production had always been run at ZMO. Although some
progress had been made in this direction by incorporating gift box/basket making into the
line and producing them only as needed, daily batching still prevailed for all prepping
operations. Due to the perishable nature of the products ZMO deals with, the line and
many markets have to be emptied at the end of each day. Before the line can start running
the next day, product is prepped and brought back to the markers. At the beginning of the
day a few people would be assigned to bagging bread and they would prep all that was
needed for the day and (if possible) deliver it to the line all at once. The same would
happen with pastry, cheese, and products coming from the kitchen. When these people
finished their prepping work they would go to work on the line. As has been discussed
before, pre-batching also generated excess inventory and created disruptions when items
were missing at the end of the day. Figure 7-35 displays a chart showing the use of
people and how they move from prepping (dashed blue line) to the production line (solid
red line) and away from it. As can be seen in this example, at 11:15 it was noted that an

336
item was missing and someone was pulled off the line to prepare it. Every time the
number of people working on the line changes its speed does as well.


Once this issue was identified, it became obvious that a constant line-speed, and thus
a stable crew, was a prerequisite for running at takt. One way to achieve this is to
transition from batch prepping to continuous replenishment. This proposal was met with
some skepticism. The general belief was that the line would be constantly out of product
if the prepping was not done in advance. Additional resistance came from the perception
that some labor flexibility would be lost. Even in the face of these misgivings, in early
J une 2005 the transition was initiated. With the new system, the day began by prepping a
predefined amount (start quantity) of each item that was just enough to get the line
running. Prepping was done first for items in the gift box/basket markets. When the initial
quantities had been delivered, the order starter (and/or gift box/basket pickers) began
picking gift boxes until the initial buffer was full (usually three boxes). At this point the
line officially started running and the order starter began to release orders according to
Figure 7-35 Batch prepping and constantly changing labor on the line
Prepping before running the line
0
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the day’s sequence. The gift box packers came into the line after a few sequences had
been released. As tubs progressed through the line, people came into their stations until
the line was fully manned (this usually took about an hour during slow demand periods).
This staggered line start meant that people could be scheduled to come in at different
times and even do some prep work until they were needed at their stations without
affecting the line’s speed. A few workers were not assigned any positions on the line and
remained as support personnel to keep the line fed with product (running routes, prepping
items needed, etc.) throughout the day. Figure 7-36 displays a chart showing the use of
people when running under continuous replenishment. As can be seen, once the line starts
running, the number of people in it remains stable and its speed can be held constant.


Going to continuous replenishment thus set the stage for running the line at a steady
speed and in late J une 2005 a second attempt was made to run at takt time. The first trial
run was extremely successful with high productivity and, most importantly, with the
people on the line feeling that the paced rate facilitated their job and made the day very
‘unstressful’. This quick buy-in made a huge difference this time and soon running to takt
Figure 7-36 Minimal initial prep to get the line running and then replenish continuously through the day
Continuous replenishment
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was the norm. The order starter would release orders according to the calculated takt
time. To accommodate the sequencing used for leveling, orders were not released one by
one, but in groups of ‘gift box’ and ‘other’ orders making up a repeating pattern. For
example, two ‘others’ and a ‘gift box’ (for a 2:1 mix) released every 90 seconds (for a 30
second takt). Seeing the benefits of paced production made people much more forgiving
this time around when things did not work out perfectly. Even when they had to use a
system where not all the technical issues had been resolved. For example, the right timer
had to be found and more had to be learned about the relation between line speed and
labor requirements to be able to plan appropriately.
Working on the planning problem, it was decided to define a set of five or so standard
takt time levels and fine-tune labor needs, and the operation in general, for them. Without
the standard levels, the practice was to run each day at a different speed as given by the
takt time calculation for the number of orders that had to be shipped that day (this
approach assumed a fixed day length). This made each day different from all the others,
making it hard to understand the system and learn from its behavior. By late February
2006 a set of takt time levels had been selected, ranging from 6 seconds, to be used
during the holidays, to 60 seconds for slower periods, with the most common ones being
30 and 45 seconds. Each level covered a range of order volumes (for example, a takt of
60 seconds could be used for days having between 150 and 350 orders) and assumed that
the same size crew would be used whenever the line ran at that level, but that the day
would end at different times depending on the exact number of orders that needed to be
processed. This approach took advantage of the flexible labor hours policy ZMO had in
place. Once the takt time levels were established, labor needs were guesstimated and fine
tuning began as soon as a day was run at that speed. Performance was analyzed and labor
assumptions were revised as needed.
Besides facilitating planning, the takt time levels also brought consistency and
stability to the line, making it easier to manage and improve. They also resulted in stable
and consistent requirements for support processes that could now be paced and
rationalized for each takt level. For example, in the case of routes, the frequency at which
they were run could be fine-tuned to better serve the line at each takt time level while at
the same time minimizing the resources used. Note that the takt time levels define the

339
initial line speed, however the rate at which orders are actually released, can be adjusted
slightly around this value to account for the variability introduced by the specific orders
being shipped. If most orders are complex and have many different items, then orders
need to be released at a slower rate. If orders are small the line can run a little faster. The
takt time levels had the same kind of stabilizing effect between production days as
running to takt time had within a production day.
The pursuit of paced production has helped transform ZMO from an organization
where everyone was expected to work as fast as possible but where no one new what fast
meant, to one where production runs all day long at a steady pace and everyone has a
clear expectation of the rate at which they must perform their jobs. As a result,
performance has improved as the system is rationalized and buffers (inventory, extra
capacity, and other just-in-case provisions) are reduced. The predictability coming from a
steady pace has also facilitated planning, a critical feature for a make-to-order system
operating in a high demand variability environment. Finally, increased stability,
consistency, and repeatability has facilitated learning and enabled continuous
improvement. It is now clear when processes are not running as expected and it is easier
to understand what the situation is and what is causing the discrepancy. This facilitates
the analysis of the problem and the implementation of countermeasures to prevent its
recurrence and to return the operation to its expected level of performance. Running the
line at takt has proved to be an integral and key attribute of ZMO’s Toyota-style system.
Implementation of the takt time system at ZMO provides a very clear example of the
learning process required to implement Toyota-style systems in other organizations. A
failure in the first attempt at using it revealed underlying problems that had to be
eliminated if producing to takt was to be achieved. Once these issues were resolved, the
second attempt at implementation went very smoothly.
7.3.2.6 Implementation: eliminate mistakes to improve customer satisfaction, increase
throughput, and reduce costs
A mistake at ZMO is anything that goes wrong with an order (if caught internally) or
anything the customer complains about. Before the Lean initiative began, the approach
that was used to minimize customer complaints (which negatively affect customer
satisfaction and increase costs) was to check and re-check every order. This followed the

340
typical mass production belief that final inspection can be used to filter the product going
to the customer. When a mistake was found, which was upwards of 10% of the orders
processed, the order would be tagged and placed aside until someone could resolve the
problem. The focus though was on solving the problem for that order, and very little was
done to prevent the same mistake from happening again in the future. For those mistakes
that got through to the customer, which is inevitable when the only line of defense is final
inspection, the approach was similar. The focus was exclusively on making things right
for the customers by replacing the problematic item and by giving them gifts to entice
them to order from ZMO again. This is not necessarily wrong. After all one of the main
reasons why clients keep buying from ZMO is the customer service they receive (people
at ZMO truly want to ensure that the customer has the best possible experience). The
issue here, as with internal mistakes, was that nothing was being done to prevent the
same problem from recurring. With the prevailing paradigm, if too many defects were
reaching the customer, the problem was at checking and the solution was to check even
more.
Since the beginning of the Lean transformation, the issue of relying on final
inspection to ensure quality to the customer was part of many philosophical debates.
Even though the need to reduce this reliance was frequently discussed, not much was
done until the summer of 2005. In mid J uly, the first step towards building quality into
the system was taken by making external defects part of the discussion on weekly
huddles (meetings in ZMO lingo)
318
. The idea was to get information from sales about
the problems that customers were having and share it with the production crew to get
their input on the causes of the mistake and on possible solutions. The meeting was action
oriented, with possible solutions implemented immediately and their effect tracked to
ensure they had a positive effect on the problem. The mistakes tackled ranged from
dented cans and miss-picked items, to moldy salami and hard bread. And the solutions
introduced included educating the customer by adding instructions about the food (moldy
salami is fine) and how to handle it (reheat the bread), relocating items and/or changing
their codes to reduce the possibility of picking the wrong one, and changing the

318
This process was initiated and performed entirely by ZMO personnel (without intervention from the
researcher) and carried out initially by Mo Frechette, one of the partners.

341
packaging used for specific products. Soon after the program was started, customer
complaints began to decrease, as can be seen in Figure 7-37. The top chart shows the
percent of orders shipped that resulted in a customer complaint (external defect). Before
the mistake initiative, on average 0.53% of orders had a problem. Afterwards it dropped
to 0.43%. An 18.4% improvement and the trend continues to go down. The bottom charts
shows the cost of mistakes per box shipped. It presents a 28.9% improvement and a
continued downward trend.

Figure 7-37 Reduction in external mistakes
Customer Complaints
(attributed to production)
Average 0.53%
Average 0.43%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
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)Defective (before mistake initiative% )Average % Defective (before mistake initiative
)Defective (after mistake initiative% )Average % Defective (after mistake initiative
)Trend-% Defective (after mistake initiative
18.4% improvement
Cost of Customer Complaints
(attributed to production)
Average $0.17 Average $0.12
$-
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6
9
/
2
/
2
0
0
6
1
0
/
2
/
2
0
0
6
Date
C
o
s
t

p
e
r

b
o
x
)Cost per box (before mistake initiative )Average cost per box (before mistake initiative
)Cost per box (after mistake initiative )Average cost per box (after mistake initiative
)Trend-Cost per box (after mistake initiative
28.9% improvement
Customer Complaints
(attributed to production)
Average 0.53%
Average 0.43%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
8
/
2
/
2
0
0
4
9
/
2
/
2
0
0
4
1
0
/
2
/
2
0
0
4
1
1
/
2
/
2
0
0
4
1
2
/
2
/
2
0
0
4
1
/
2
/
2
0
0
5
2
/
2
/
2
0
0
5
3
/
2
/
2
0
0
5
4
/
2
/
2
0
0
5
5
/
2
/
2
0
0
5
6
/
2
/
2
0
0
5
7
/
2
/
2
0
0
5
8
/
2
/
2
0
0
5
9
/
2
/
2
0
0
5
1
0
/
2
/
2
0
0
5
1
1
/
2
/
2
0
0
5
1
2
/
2
/
2
0
0
5
1
/
2
/
2
0
0
6
2
/
2
/
2
0
0
6
3
/
2
/
2
0
0
6
4
/
2
/
2
0
0
6
5
/
2
/
2
0
0
6
6
/
2
/
2
0
0
6
7
/
2
/
2
0
0
6
8
/
2
/
2
0
0
6
9
/
2
/
2
0
0
6
1
0
/
2
/
2
0
0
6
Date
%

D
e
f
e
c
t
i
v
e
)Defective (before mistake initiative% )Average % Defective (before mistake initiative
)Defective (after mistake initiative% )Average % Defective (after mistake initiative
)Trend-% Defective (after mistake initiative
18.4% improvement
Cost of Customer Complaints
(attributed to production)
Average $0.17 Average $0.12
$-
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
8
/
2
/
2
0
0
4
9
/
2
/
2
0
0
4
1
0
/
2
/
2
0
0
4
1
1
/
2
/
2
0
0
4
1
2
/
2
/
2
0
0
4
1
/
2
/
2
0
0
5
2
/
2
/
2
0
0
5
3
/
2
/
2
0
0
5
4
/
2
/
2
0
0
5
5
/
2
/
2
0
0
5
6
/
2
/
2
0
0
5
7
/
2
/
2
0
0
5
8
/
2
/
2
0
0
5
9
/
2
/
2
0
0
5
1
0
/
2
/
2
0
0
5
1
1
/
2
/
2
0
0
5
1
2
/
2
/
2
0
0
5
1
/
2
/
2
0
0
6
2
/
2
/
2
0
0
6
3
/
2
/
2
0
0
6
4
/
2
/
2
0
0
6
5
/
2
/
2
0
0
6
6
/
2
/
2
0
0
6
7
/
2
/
2
0
0
6
8
/
2
/
2
0
0
6
9
/
2
/
2
0
0
6
1
0
/
2
/
2
0
0
6
Date
C
o
s
t

p
e
r

b
o
x
)Cost per box (before mistake initiative )Average cost per box (before mistake initiative
)Cost per box (after mistake initiative )Average cost per box (after mistake initiative
)Trend-Cost per box (after mistake initiative
28.9% improvement

342

The reduction in external defects allowed ZMO to take the lead in beating an end of
year mistake challenge. The game was setup in an attempt to reduce the total number of
customer complaints for all of Zingerman’s businesses (ZCoB) over the very busy
holiday season. The target was 999 mistakes, which was less than the total complaints
received the previous year when sales were lower. Since the game covered only a short
time period in which system changes to prevent mistakes would have a limited effect at
best, the implication was that the motivating effect of the game would drive the reduction
in mistakes. The logic was that if people tried harder, mistakes would go down. This, of
course, could not be farther from the truth, and the mistake challenge had the unintended
consequence of proving it nicely. The only reason fewer than 999 customer complaints
were logged is because ZMO had reduced its defect rate significantly through the work
done during the summer and fall. The ZMO crew did not change anything in how they
conducted their business during the game period. They were too busy training and
supporting all the extra people they needed to hire for the holidays. All they did was work
within the process they had set up to prevent the occurrence of mistakes. The only reason
the customer complaint target was beaten was because the mistake level that had been
achieved was sufficiently low. None of the other businesses showed significant
improvements. Without system changes to ensure the prevention of mistakes, their defect
rate remained about constant regardless of the increased effort of their personnel
(assuming the game had the motivating effect its creators expected). This fact did not
escape the ZMO crew for whom the game was not a source of motivation at all. In some
cases it actually had the opposite effect as people realized that without the time to make
system improvements all they were being asked to do was to try harder.
Regardless of how many discussions had been had about the need to build quality into
the system, it was this initiative which truly showed what the concept meant. It
demonstrated that the crew could make improvements to the process to prevent mistakes
from happening and that this approach had an immediate and direct effect on customer
complaints. This insight began to change people’s mind about the futility of final
inspection as the sole method to assure quality to the customer. The ‘final inspection’

343
paradigm began to be replaced by a ‘build quality’ mental model that enabled the use of a
proactive approach to mistake elimination by going after its root causes.
The logical evolution after the success in preventing customer complaints was to take
a similar preventive route with internal defects. Unfortunately no information was being
gathered about problems caught internally, so the first step in this direction was to
quantify the problem. In mid March 2006 checkers were given counters that they had to
click every time they found a mistake. They were also asked to report on the type of
mistake they were finding the most (miss-picks in dry goods, for example). Total
mistakes were divided by the number of orders processed in the day to obtain the percent
defective. This number was plotted through time to create a performance baseline and to
monitor progress in reducing mistakes. The informal reporting of problematic areas was
used to investigate the source of problems and try to define possible countermeasures. A
better system would be needed to really make a difference, but given that the information
was readily available, it was used to begin tracking the main problems down.
Building on this, an improved system began to take shape in mid August 2006 with
the introduction of andon signals to call attention to problems when they happened. After
struggling for some time to identify the root cause of mistakes by going to the
problematic area after the fact (a day or so late), it was easy for everyone to understand
the benefit of responding immediately to analyze the conditions existing when the
problem occurred. Due to the high percentage of mistakes (internally it remained at about
10%) and limitations in the people available to respond, it was decided that there would
be only one ‘andon horn’ and it would be assigned to the area where most mistakes were
coming from as defined by the checkers. When the person in the area had a problem
(could not find an item, the slot for it was empty, the product was damaged, etc.) he
would blow the horn and the mistake ‘eliminators’ would show up to see what the
problem was. In the beginning, the ‘eliminator’ team was composed of someone from
production, one from routes, and one from purchasing
319
, plus a mistake mercenary. The
people representing the three functions would focus mostly on resolving the problem to
get the line back running. The mistake mercenary would then take the problem and

319
This was done initially to ensure that anyone with a stake on minimizing mistakes got involved in
understanding the problems being faced and in developing the system that would be used to deal with them.

344
follow it through, doing an in depth root cause analysis. Countermeasures would be
proposed, discussed, and implemented to avoid recurrence.
The system met some success, however, it soon became clear that it would not
eliminate all mistakes any time soon, so it was necessary to define an effective method to
deal with the defective orders that would inevitably reach the checkers. With the holiday
looming near, in October the attention turned to this. Handling mistakes during the
holidays had always been a major headache, in part because it was not planned for.
Despite overwhelming evidence against it (in 2005 the mistake area was constantly
overflowing even after assigning two permanent people to it), the underlying assumption
seemed to be that mistakes should not happen, so there was no need to plan for them. The
tracking of internal mistakes for over a year made it clear that this was not the case. A
10% defect rate with the line running at a six seconds takt, meant that about one defect
would be detected every minute. Understanding the magnitude of the problem in this way
made it clear for everyone that this was not something that could be dealt with on the side
by a few people when they had time away from their regular job. It required a work
station manned with enough people that follow a predefined standard process for mistake
resolution.
The definition of the process began by grouping possible problems according to how
they would be resolved by the mistake mercenary given the limited information they had
when tackling a new defect. A process chart was developed to show the questions that
needed to be asked at each stage and what to do depending on the answer. This
standardized the way mistakes were handled. Purchasing and Order Processing (OP) also
developed similar charts to define how their internal process worked in connection to
production’s procedure. The mistake process chart for production became the form that
was filled when a defect was detected (see Figure 7-38). This turned out to be an
extremely good visual aid that made the process very clear for the mistake mercenary (the
document being filled also indicated what to do next) and created visual patterns showing
how the mistake was resolved (the flow through the chart was highlighted with a wide
marker) that could be reviewed rapidly to gain a general understanding of the types of
problems that were affecting the line on a given day. The form also gathered information

345
about the time it took to resolve each problem. Data that would be used to determine the
labor and space that would be needed to handle mistakes.



After a few iteations, a method to resolve mistakes began to take shape. When a
problem was detected by the checkers, they would mark it on the packing slip, pull the
tub off-line, and place it with the order on a designated mistake rack. Here, the mistake
mercenary would look at it and begin filling the mistake resolution form (Figure 7-38). If
there was a problem with the packing slip, he would indicate which one, place the form in
OP’s inbox, and move the tub with the order to the OP mistake rack. If that was not the
Figure 7-38 Mistake resolution form

346
problem, the mistake mercenary would place the tub with the order and the mistake
resolution form on his cart. Once he accumulated four (or less if another mistake
mercenary arrived at the mistake sorting location), he would go to the markets where the
items were supposed to be and tried to resolve the problem. If he could (he found the
missing item, for example) he would return the tub to the line and would file the mistake
resolution form. If not, he would follow the process further by going to the active stock
location. If the problem could be solved there he would take the tub back to the line and
file the form. If not, he would go back to the mistake area and transfer the problem over
to Purchasing by placing the mistake form in Purchasing’s inbox and the tub on their
rack. Purchasing and OP would go regularly to the mistake area to solve the problems
that had reached their area. The racks where the problematic tubs were kept also served
as a visual indication of the mistake loading each department had (if the inbox for the
mistake mercenary was getting full, it meant that he was not being able to keep up and
needed some help) and whether all pending mistakes had been resolved (the racks should
be empty at the end of the day).
Mistake elimination was also helped somewhat by this process since the mistake
resolution form created a record of each specific problem found. By reviewing the forms
and sorting them by product it was possible to identify problematic items and areas. Even
though in many cases this would not go deep enough to identify the root cause and
generate a countermeasure, it at least pointed in the right direction. Problematic zones
could then be targeted by using the andon horn and responding to problems on real-time.
Even though it has produced significant benefits (in particular relating to customer
complaints which are the most costly mistakes), the mistake elimination process is still in
its infancy. Significant work is still needed to define and implement systems that
facilitate the identification and elimination of the root causes of mistakes. The mistake
resolution process, on the other hand, has evolved faster and should result in significant
performance improvements during the coming holiday. For one thing, since problems are
now resolved as they occur, it eliminates the need to spend hours solving them after the
line finishes running. It also prevents mistakes from piling up and becoming an
inconvenience to everyone working around the area. In any case, the most important
achievement here was the paradigm shift from defect detection to defect elimination. This

347
sets the foundation for defining methods and procedures to build quality into the system
instead of trying to inspect it into the product at the end of the line.
7.3.2.7 Implementation: improve processes to eliminate waste
Although most operations at ZMO have been changed and improved since the
beginning of their Lean journey, the focus of the Lean leadership team has seldom been
on improving specific processes. And even when they have been targeted, it has always
been done in support of a wider effort such as improving the flow of product, improving
the capability of the process to ensure that it can support the pull system, to illustrate the
process of developing standardized work, or to demonstrate how processes can be
improved. In fact, most process specific improvements have been performed by ZMO
personnel alone as part of their continuous improvement efforts. This section will feature
only the few instances were the lean leadership group got involved in improving specific
processes.
The first specific project happened in early November 2005 when the layout for the
cheese room and the methods used were redesigned. Up until then, cheese had been cut
and wrapped in large batches, with most of the work done during the weekends. The
cheese room basically worked on its own schedule mostly decoupled from production.
However, as the small-batch J IT mentality became the norm for other operations, this
process became unacceptable. Besides, since demand for each type of cheese is highly
variable, having the right amount of each type meant guessing right. This was hardly the
case, so they would run out of a few cheeses and had to scramble to prepare more using a
process that was ill fit to respond to the rapidly changing needs of production. Cheese
was prepped using a batch and queue process typical of mass production. A cutter would
get a wheel of cheese and take it to her work station. There she would cut the cheese into
the desired size chunks, usually filling a tray or until the wheel was gone. Then the tray
would be moved to the wrapping table, where it waited in line until a wrapper became
available. Cheese would then be wrapped and placed on another tray. Once the batch was
done, the cheese was used to refill the cheese room market and/or totes going out to other
locations on the line. For the most part cutters cut and wrappers wrapped, with little
interaction between them except when the area leader reassigned them. Since cutting and
wrapping are highly unbalanced (cutting has a longer set up time, but then runs much

348
faster than wrapping), having them run without a link between them meant that
overproduction (and the resulting inventory build-up) and/or waiting were common.
Figure 7-39 shows pictures of the cheese room before the improvement initiative.


The process redesign began by determining the number of people that would be
needed to keep up with production and do continuous replenishment throughout the day.
The cutting and wrapping operations were timed to get accurate rates and expected
demand was used to calculate the takt time at which the cheese room should operate. In
all, it was determined that eight or nine people should be enough with perhaps the
addition of one more for material handlers (moving baskets and totes to and from the
markets). It was also observed that one cutter could keep two wrappers busy. The new
process was setup using three teams of three people each (one cutter and two wrappers)
working in continuous flow at the same table. Cheeses were sorted into three groups
considering their demand and how hard it was to prep and one group was assigned to
each team. The layout was then changed to include the three tables needed and to locate
the cheeses near the teams that would be using them. The cheese room has to support
three markets: guest cheese (a line side market fed directly from the cheese room and
Figure 7-39 Cheese room (before state)
Cheese in large trays
(no replenishment
signal)
All labels in
one location
make it hard
to find the
right one
Cheese storage
Trays for cut cheese Cutting station
Cut in batches and
send to wrappers

349
accessible by pickers on the line), passport cheese (a market supporting the assembly of
‘passports’ containing four or five different cheeses sold together), and gift box cheese (a
market in the gift box area). The first two have short travel distances so small wire
baskets holding only a few pieces of cheese were used. The gift box/basket market uses
totes instead. In all cases the baskets and the totes serve as the kanban. The baskets were
introduced as a way to signal each team that a particular cheese was needed in the nearby
markets (as opposed to relying on visual inspection of the market as before).
As cheese is consumed by the line, totes and baskets are emptied and they make their
way back to the cheese room. Here they are sorted by the material handler and taken to
the corresponding team. At the table, the cutter looks at the next cheese that is being
requested by the totes and baskets and gets it from the cheese racks. She cuts the cheese
(only the amount requested by the tote or basket) and places the pieces on a tray that sits
permanently between the cutter and each wrapper. There is space for two totes worth of
cheese here to prevent the cutter’s setup from disrupting the work of the wrappers. If the
cutter gets too far ahead and has no place to put the cheese, she switches to wrapping
until the WIP goes down and a space becomes available. The switch happens only after
the cutter has finished setting up for the next cheese she needs to work on. Wrappers grab
the cheese from the tray, wrap it, and place it on the corresponding tote or basket. Once it
has been filled the tote or basket is set aside (in a predetermined location) for the internal
material handler to take it to the corresponding market (guest or passport) or to where the
route runner picks it to take it to the gift box/basket market.
The new process brought a very significant improvement in productivity
320
to the
cheese prepping process. However, the most important benefit was its increase in
responsiveness. With the new system, it was not necessary to guess at the week’s need in
advance and build a huge pile of inventory; all that was needed was to size a two to four
hour market reasonably well and let the kanban pull the needed products through. This
led to a significant reduction in disruptions to the line due to missing cheeses. And even
if the market was designed poorly for a given day’s volume, stock outs could be corrected

320
It is hard to determine exactly what the improvement was since before most of the cheese prepping
would happen during the weekends by bringing a large crew, working in and outside the cheese room and
processing (hopefully) enough cheese for the whole week. However, the reduction in labor hours was in the
30% to 40% neighborhood.

350
rapidly since the turnaround time to replenish an item was much faster than with the old
system. Finally, going through the process of transforming the cheese room also had a
very positive effect on the group that worked on the project. It illustrated how to analyze
and improve a process, it demonstrated that considerable improvements can be achieved
without major capital expenditures (zero in this case), and it highlighted the power of
some basic lean principles such as one-piece flow and the elimination of overproduction.
Figure 7-40 shows pictures of the cheese room after the improvement initiative.



The new process introduced major changes in the way the work was performed.
Although most of them were accepted readily since the people working in the process had
been part of the redesign, for a while there was a tendency to go back to producing in
large batches (sometimes building ahead) or even separating the cut-wrap cells when it
was felt that the cheeseroom was falling behind. The line and area leaders did a good job
Figure 7-40 Cheese room (after state)
Cutting station
Cheese in baskets
that serve as kanban
Labels kept with
the cheese and
picked together
Wrapping station
Cut enough
for one tote
and pass
directly to
wrappers

351
of ensuring that the process was respected and after a while the benefits became obvious
and everyone began to reconsider their large-batch preconceptions.
Building on the success at the cheese room, the group moved just outside and
addressed cheese passport making in late November 2005. This was a problematic area
and the source of many headaches. It was also somewhat self-contained and tightly
connected to the cheese room, making it an ideal choice for another round of process
specific improvements. Passports were traditionally built in batches using as many as six
people and frequently causing stock outs on the line sometimes. The passport makers
would get all the cheeses they needed to make a batch (usually the day’s requirement) of
a given type of passport and take them to their work area. They would then get the
envelopes they would need and place identification stickers on them. Next they would
place the cheese in the passport envelopes, followed by ice. Then they would select and
attach the corresponding literature to the envelope. Finally, the passports were placed in
totes and sent to the line (through a regular delivery route). There was no standard
methodology so everyone did things a little differently. For the larger crews, there was
not even a standard work surface. Overall, performance was not very good.
The improvement session began by observing how the process was performed while
timing the main value added steps (such as selecting the cheese, stuffing the envelopes,
and dealing with literature). Next, the number of people that would be needed was
estimated using the expected demand to determine the takt time at which passport making
should run. The result was somewhat surprising: one person. With this in mind the focus
turned to defining an efficient one-person operation.
The trigger for production from the line was already in place in the form of a labeled
tote that indicated what was needed. A lane was marked on the floor for the route runners
to drop the totes coming from the line. Every time they came around, they would stack
the totes they were bringing and put them into the lane pushing the ones already there
towards the passport maker. At the other end, the person making passports would grab
the next available tote (the one on top of the next pile), refill it, and send it down a return
rack. Here is where the route runner would pick full totes going back to the line. To
minimize walking and motion (for both the passport maker and the route runner), the
drop-off lane and the pick-up rack were located next to each other. The connection to the

352
cheese room (the supplier) was improved by introducing a small market for all the types
of cheese needed and with the use of wire baskets serving as kanban. As cheese is
consumed, empty baskets are placed in a designated location (next to the cheese market).
The cheese room material handler periodically comes around and takes them to the
corresponding team in the cheese room, bringing back whatever is ready from previous
cycles to replenish the passport market.
A single table was used as the work surface with just enough space to work on the
three or four passports that go into a tote. This helped prevent batching. All the products
and consumables needed to make the passports were arranged in the order in which they
were needed and in such a way as to make them readily accessible to minimize motion
waste. The idea was to design the process such that it could be performed by moving
around in a circular motion without backtracking. The passport maker would start by
grabbing the next tote from the incoming lane and then rotate left, picking the other items
needed and assembling the passports to finish with a full tote at the return rack, located
right next to the incoming lane where the cycle begins again. This ideal was not achieved
entirely and some backtracking remained. For example, the wire baskets with the cheese
were removed from the market and taken to the table. Once the passports were assembled
they had to be returned to the market or placed in the designated location for empties.
Even so, productivity increased significantly (mostly by reducing motion waste) and the
process became very visible. In addition, the ideal concept remained clear as a direction
for improvement. Figure 7-41 shows a picture of the new layout for the area.


353

With the new process, productivity increased by at least 40 to 50%
321
. However, the
biggest gains were in responsiveness to the needs of the line, in reliability, and in making
the process easier to manage, understand, and improve. The changes and how they were
accomplished also reinforced the positive perception of Lean (especially one-piece flow,
pull, and waste elimination) and helped show everyone how they could achieve
significant improvements by making relatively simple and inexpensive modifications to
the processes they perform or supervise. Deployment of the new process went very
smoothly and there was no resistance to using it. The only difference was that at the peak
of the holiday, one of the cheeseroom material handlers was frequently at the passport
area ‘helping’ by preparing envelops or doing other minor jobs.
7.3.2.8 Implementation: continuous improvement for long term survival
An important objective of the work done with ZMO was to leave them with the
capability to continue with their Lean efforts once the research engagement ended. This
necessarily meant developing a strong continuous improvement system along with a good
understanding of Toyota’s system to help define the direction for the changes. In any
case, improving continuously is a key feature of Toyota’s system and thus needed to be

321
It is hard to quantify the improvement precisely due to variability in the types of passports being made
and because of the way the process had been run before (with people coming in and out as needed).
Figure 7-41 Cheese passport cell after improvement
Incoming empty totes
Return lane for outgoing full totes
Passport
cheese
market
Passport maker’s work area

354
part of ZMO’s as well. As the changes to the physical process (as described above) were
being made, work was being done in parallel to develop such a system. It started with the
premise that motivated and involved employees will improve their processes (and
consequently the performance of their firm) if they can see the problems they face, have a
clear direction for improvement, are allowed to try new approaches to their work, and
have the skills necessary to solve problems (more details on the theoretical background of
this system is presented in section 8.2.1: Continuous Improvement, in page 374). ZMO is
a people oriented organization, so the need to motivate people and get them involved was
already part of their management style. In fact, they practiced open book finance and had
regular meetings to discuss the status of the business and get input from employees. The
owners were also conscious of the need to improve constantly, so they allowed
experimentation and had put in place mechanisms to promote the discussion and
resolution of problems. They even had ways to capture lessons learned into documents to
incorporate them into the knowledge base of the organization. None of these were
perfect, but they served as a starting point. As much as possible, the continuous
improvement system developed tried to build on what was already in place. There were
four weak areas that became the focus during the development of the continuous
improvement system:
1. Excessive demand variability, producing in large batches, producing ‘as fast as
possible’, constantly moving people around, and the prevailing firefighting mentality
(do what ever it takes to get the orders out the door) made problems very hard to see
and their root causes impossible to identify.
2. A clear direction for improvement was missing. There was no coherent philosophy
defining an ideal state or helping guide improvement efforts to ensure they moved the
organization where it wanted to go. This gap was filled by the default belief that
batching improves efficiency and by financial metrics that forecasted performance
and helped monitor it. Unfortunately, when things did not go as expected, these
metrics provided little guidance on which process to address or how to improve it.
3. A structured methodology for analyzing and solving problems that consistently
resulted in actions to eliminate them permanently was missing.

355
4. A way to capture knowledge that ensured that others would benefit from the lessons
learned (thus ensuring organizational learning) was lacking. Very few improvements
were embedded in the system and the existing documents were not necessarily helpful
and were thus frequently ignored.
Many of the physical changes being implemented would help highlight problems (a
paced line shows work imbalances, markets and kanban show problems in the flow of
product, etc.) while helping develop a philosophy that would provide a direction for
future improvements. With this in mind, work on the continuous improvement system
focused initially on developing a structured approach to selecting problems, analyzing
them, proposing countermeasures, implementing solutions, and evaluating results. Design
of the methodology and structure began in mid February 2005 and it was quickly agreed
that it should be based on PDCA (see Figure , in page 550). It was also decided that to
teach the problem solving method and to get everyone involved, the best approach would
be to launch the process in the form of Continuous Improvement Workshops (CIWs)
somewhat similar to quality circles. These would also provide a forum for discussion and
ensure that at least some time was reserved each week to work on improvements. The
teams would meet weekly for 30 minutes and follow a predefined methodology to tackle
the problem at hand and come up with action items assigned to specific people. After
implementation, the outcome would be compared to previous performance and evaluated
against expected results (which were clearly defined as targets at the beginning of the
improvement process) to decide if the changes had been effective and the problem could
be closed or if it had to be revisited.
In early March 2005 the process was launched (see Figure 7-42). Although it has
been in use ever since and some improvements have come out of it, its effectiveness has
been somewhat limited. The biggest problem is that the process is slow. During
implementation, things move along rapidly since the work is done outside the meeting.
However, with only 30 minutes of meeting time per week, setting up the problem,
identifying its root causes, and defining countermeasures becomes cumbersome and takes
a long time. Even with several problems open simultaneously it is hard to make progress
fast enough or even keep everyone actively involved. Participation in the meetings tends
to be low and it is usually the same people that contribute to the discussion and volunteer

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to do the work off-line. Having said this, the approach is producing other benefits that by
themselves make it worthwhile to keep it running. For one thing, it is helping develop
people by having them think through problems and getting them to articulate their
thoughts in ways that others can understand. It is also providing participants with a
structured method to approach and solve problems that can then be applied elsewhere. It
makes people aware of problems in areas beyond the ones they generally operate in,
giving them a wider view of the processes at ZMO. Finally, it promotes teamwork and
gives employees confidence in their ability to make positive changes to their processes.
All these benefits are laying the groundwork necessary to enable the continuous
improvement system to evolve to the point where every one is constantly looking for
opportunities for improvement and making changes to make their jobs better. Even if
such evolution occurs, the CIW process should probably remain in place to tackle the
bigger problems and as a way of training new employees.

The next thing tackled in developing the continuous improvement system was how to
capture lessons learned in a way that ensures they are used and become part of the
knowledge base of the organization. In other words, in a way that ensure that
Figure 7-42 PDCA- continuous improvement meetings
Rules for continuous improvement meetings
Problem being
addressed
Rules for continuous improvement meetings
Problem being
addressed

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organizational learning takes place. Standardized work fulfills this objective at Toyota. In
fact, it serves a dual purpose in the continuous improvement system by also defining a
performance baseline against which to compare potential changes to decide if they
improve the process and should be retained. Due to excessive variability in demand and
in the time to fulfill orders, standardized work, as used traditionally, would not work here
since it is impossible to define standard times. And even standard WIP is frequently hard
to define since it depends on many constantly changing factors such as the takt at which
the line is running, the mix of orders, the types of orders that are going down the line, etc.
It was thus decided to use a simpler version of standardized work focusing only on the
sequence of operations performed. The problem this brings is that the performance
baseline is not as clear and when a change is proposed it is necessary to run the process
twice with the same orders. The first time, the process is run with the old method to
create a baseline. Then, the same orders are processed again using the proposed changes.
If performance improves the new system is adopted as the standard.
Standardized work was first used in the cheese passport area in early J anuary 2006.
The process had recently been revised and several improvements had been made. Many
of them had been embedded in the process itself (in the way items were arranged and
presented, for example), but several others were part of the method used and thus were at
risk of being lost as different people rotated through the area. Furthermore, a few more
things had been learned by running the system through the holidays. This first attempt at
developing standardized work was a test run for both the process of developing the
standard as for using it once it had been established. The same team that had worked on
improving the area before the holidays was gathered. The process was observed, changes
were made to eliminate obvious wastes, and the sequence of steps that would make up the
new standard was defined. After testing it and making minor changes, it was printed and
posted. The person running the area, who had been part of developing the standard, used
it for the next few weeks and proposed changes as needed. Results were excellent and
very soon everyone that had participated in setting up the standard was convinced that it
made the process more consistent and predictable and facilitated improvement.
It was somewhat surprising that deployment here went so smoothly and had such a
positive reception by the users. In discussions before its introduction, a frequent topic

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was the fear that standardized work would be perceived as a negative constraint by the
people on the line. The concern was unfounded, at least for this first attempt, and the
team was encouraged to introduce standardized work to other areas.
Having an effective standardized work system requires three elements: standardized
jobs (with documents posted), audits, and a method for reviewing and approving changes
to the standard. Without audits the standard soon becomes wall paper. Without a way to
improve it the standard either becomes frozen in time and prevents further improvement
or changes constantly, not necessarily for the better. With this in mind, even though a
single process had been standardized, the audit and approval processes were defined in
early February 2006. It established that all processes would be audited weekly by
managers and monthly by a partner accompanied by the manager for the area. A schedule
for the audits would be developed and posted. Audits would focus on ensuring that the
standard existed and was available where it should, that it was being followed, and on
providing an opportunity for managers and partners to discuss the job (what works, what
doesn’t, where help is needed) with the person running it. Changes to the standard should
be proposed to the manager who would evaluate them to ensure that they did not
negatively affect other areas. Then two test runs would be set up (one with the existing
method and another one with the new one) using the same orders. Results would be
compared and if the new method performed better, the standard would be modified to
include the changes. Once all three elements were defined, they were rolled out to the rest
of the organization and the process of developing standards for all jobs was begun.
The next station tackled was order start up in late March 2006. Here is where orders
are received from Order Processing and are released to the line. During periods of slow
demand this person also picks the items for gift boxes and baskets. The objective was to
improve the job and standardize it as had been done for cheese passport making, while at
the same time developing a methodology that ZMO personnel could use to develop
standardized work for other areas by themselves. The method agreed upon was fairly
straightforward:
1. Gather a small team. This should include the people that perform and supervise the
job and possibly people from other areas to bring an outsider’s perspective.
2. Observe the process as is being performed and record each step.

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3. Compare notes after observing a few cycles to make sure everyone is on the same
page. This necessarily triggers a discussion about things that the team noted were not
being done repetitively (items grabbed in a different sequence, off-cycle work
performed only sometimes, etc.).
4. Identify obvious waste and opportunities for improvement. The process of analyzing
a job to define its standardized work presents a great opportunity to improve the
process.
5. Make changes to the process as needed.
6. Define the new standard. Write the sequence of actions that should be performed and
draw diagrams to better explain it. Use tips to provide guidance on how the actions
should be performed (grab with left hand, for example).
7. Run the process following the new standard to verify that it works and performs as
expected. Revise as needed.
Standardization of the order start job was a success, with improvements made on the
spot and resulting in a better and more reliable process. The methodology that was
defined was also effective and initiated the process of standardizing all jobs at ZMO.
Soon bread bagging, cheese wrapping, gift box making, gift basket making, packing, and
checking were added to the list.
The process of developing and using standards went smoothly for a while. However,
after some time, as audits became more common, some complaints began to surface.
Some people felt singled out by the audits and thought they were being evaluated
constantly looking for something wrong with the way they did their work. Others thought
that managers were being too picky focusing on details that made no difference as long as
the orders were processed efficiently and without mistakes. Even though most of them
had participated in developing the standard for their area, very few people felt ownership
for it. Some measures were taken to correct these faults. A schedule of audits looking out
several months was made public to mitigate the perception that specific people were
being targeted above others. Additional discussions were had regarding the purpose of
the standards, how they define the current best way of doing things, how they belong to
the users, and about the importance of following them to the letter to ensure consistency
of output volume and quality. Although neither of these initiatives resolved the issue

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completely, they did prevent the conflict from escalating and ensured that everyone at
least tolerated the system. Even though very few people fully embraced it, this was good
enough to enable the system to continue developing.
Now that the beginnings of a structure for improvement were in place (although it
needed time to mature) and standardized work was progressing, the attention turned to
defining ways to make problems visible. Many of the physical changes that had been
made so far helped with this and facilitated managing the process by making the situation
easier to understand. However, to increase performance further and to achieve a faster
rate of improvement, it was necessary to gain further visibility by using metrics compared
to expected performance. As part of their open book system, ZMO used boards that
tracked key indicators weekly against their yearly plan and against a recently revised
forecast. This system was effective in giving everyone a quick yet deep understanding of
how the organization as a whole had performed. Unfortunately, this was also its greatest
weakness. Most of the metrics tracked were financial and extracted from the computer
system at an aggregate level at the end of the week. As such, they were not very good at
helping determine what had gone wrong when the numbers differed from expectations.
This brings us to the second problem. When results were different than expected the
investigation into the cause was superficial at best and seldom resulted in fundamental
changes that improved the process to avoid having the same problem affect performance
in the future. Lastly, looking at weekly numbers did not help at all to correct performance
during the week that was in trouble. For example, if low productivity was noted on
Monday, perhaps some corrections could be made for Tuesday to ensure that the weekly
target was still attained. However, if the number is only looked at at the end of the week,
then nothing can be done to affect it. That week is gone and the extra costs of
underperforming have been incurred already. Furthermore, once the week is over part of
the incentive to take action and make changes is gone since now the counter is back to
zero and there is no reason to believe that the same problems will affect performance the
next week (particularly true at ZMO due to the high variability in demand and in the
types of orders processed). Hitting the forecast thus becomes more or less a random
occurrence, with people doing the best they can and hoping that is enough.

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In late April 2006 the first discussion on metrics was held. It focused on highlighting
the problems with the existing system and on stressing the need for using more process
oriented metrics that people on the floor could affect directly. This would require tracking
them daily or hourly (better since then it is possible to react and meet the days target) and
supplementing them with additional visual indicators on the shop floor to help workers
identify the problems they are having. The metrics had to provide an indication of
performance against Toyota’s True North (which provides a general direction for
improvement; see Appendix D.2.1: Relentless pursuit of perfection, in page 496) and thus
three types were needed: quality, cost, and delivery. Some possible metrics were
discussed along with ways to track and display them.
Although the topic was frequently part of the regular weekly meetings, not much was
done on this front for a few months. The meeting itself on the other hand, was useful in
initiating a mental shift regarding the perception of forecasted numbers. Although
everyone understood the need for better metrics, the need to track and display them
several times a day was met with some resistance until it was noted by the owners that
forecasts were not perceived as targets at ZMO. Forecasts were mostly used for planning
while the researcher kept talking about the need to take action in a timely fashion to
ensure that the weekly targets were met. The difference in semantics created a
disconnect. Forecasts in general are perceived as guesses about the future where there is
little that can be done if they don’t come true. Conversely, the word target conveys the
need for action to ensure it is achieved. Perceiving the forecast as a target necessarily
requires the implementation of feedback mechanisms to provide early information to
enable people to make corrections as needed. This mental shift opened the door to the use
of frequently tracked process metrics while also ensuring that action would result when
performance deviated from expectations.
In late August 2006 progress charts at order start and shipping were introduced as a
way to track the release and the completion of orders throughout the day. This brought
visibility to the behavior of both ends of the line and provided information to make
decisions regarding its speed and for analyzing problems. Each progress chart consisted
of a table to record the data and a chart to display it graphically (see Figure 7-43). Before
the start of the day the expected behavior was recorded, showing when the line should

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start running, the expected production rate, and breaks. Once the line started, actual
production numbers were added. Every hour, the line leader would come around and get
information from the order starter and the shipper and update the charts. Doing this gave
her (and anyone else who cared to look) clear visibility of how the line was performing.

When the charts were first introduced, they were filled mechanically and little
analysis was made regarding the information they conveyed. Since they did not result in
any action, their usefulness began to be questioned. Further training and explanations
were provided until it became clear that the purpose was not to produce a nice chart, but
to evaluate the performance of the line at regular intervals. The reason the line leader was
required to fill the chart every hour was to ensure that she evaluated how the line was
running at frequent intervals and decided whether action was needed to return to the
planned condition or if the line could be sped up to exceed the plan.
As a general rule, any discrepancy between the planned and actual behaviors should
be investigated and actions taken to correct the problem and to return the line to its
expected performance. Since line speed was limited by the rate of order release, and this
was strictly done according to takt, discrepancies meant less production than expected.
When things were running as expected (in particular at order start) the question to ask
was whether the line could be sped up. Besides the obvious reason of increasing
productivity, the line should be sped up whenever possible to identify opportunities for
improvement and to test the hypothesis inherent in the relation established between line
Figure 7-43 Order start progress chart
Actual production
(better than plan)
Planned production

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speed and number of people. Speeding up the line (by reducing takt a few seconds at a
time) would soon show the area that was running closest to its capacity limit. By
eliminating waste there, the whole line could be made to run faster with the same number
of people. This process replaces Ohno’s approach of removing inventory between
processes to create instability and force improvement. If this is repeated enough times,
sufficient waste should be eliminated from the process to allow the line to run
consistently faster (resulting in a change to the standard takt levels) or at the same speed
but with fewer people (resulting in a change to the standard crew for that takt level).
Although still in its early beginnings, the continuous improvement system at ZMO is
beginning to take shape. CIW meetings are a regular part of how business is conducted,
they have been run by ZMO managers and partners for more than a year, and have
resulted in significant improvements. More important though is the fact that the
structured process is being followed and is helping develop the ability to solve problems
in all employees. Standardized work has provided the means to capture knowledge about
each job to ensure organizational learning while at the same time improving the
reliability of the process. Physical changes to the process, along with the tracking of
metrics, have provided visibility to facilitate understanding of the situation, highlight
abnormal conditions, and make managing the process easier. These three elements, along
with the understanding of what a Toyota-style system is (developed over the more than
two and a half years of using Lean), has brought the drive for improvement and ZMO’s
capability to do it to a whole new level. The continuous improvement system has also
contributed to a mental shift in the partners, managers, and workers who now have a
better understanding of the process, know where they want to go, and have the conviction
that everyone can make a difference by making changes that have a significant and
positive impact on the performance of the firm (after all, they’ve been doing it for two
and a half years).
7.3.3 Effect of ZMO’s Toyota-style System on the People and How They Think
At two and a half years into their Lean journey, ZMO has only begun to scratch the
surface of the benefits they can reap from their developing Toyota-style system. Even so,
at this early stage, the transformation that has taken place has already resulted in

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significant performance improvements (see section 6.2.2.5: Benefits of using a Toyota-
style system, in page 215), has led to a shift in the prevailing mental models, and to a
transformation in the way people think. This, in combination with the structured
improvement system implemented and the empowerment that comes from having been
part of a successful change process should ensure that the system continues to evolve and
that the organization (and everyone in it) continues to learn.
The evolution of the technical system (as described in the previous sections) imposed
changes on people’s behavior and led to the development of new mental models
regarding how to think about ZMO’s business and its processes. Key among them is the
shift from assuming that efficiency comes from producing in large batches, to
understanding that producing J IT is ideal. From assuring quality by detecting mistakes
and solving the problem for that order, to building quality into the system by preventing
mistakes through the elimination of their root causes. From seeing problems as caused by
operator error, to perceiving them as caused or at least allowed by an imperfect system
(problems are now perceived as opportunities for improvement and solved by modifying
the system instead of focusing on getting people to try harder). From ‘doing the best we
can’ (but never knowing if that was enough), to having clear expectations for each
process (which define what should be happening and highlight problems when things do
not go as expected) and reacting to discrepancies to return to the planned condition and
eliminate the problem that caused the deviation. From working as fast as possible, to
working at the needed rate as efficiently as possible. From centralized control and
decision making (centered on the few people that possessed sufficient institutional
knowledge), to decentralized autonomic systems where decision making is embedded in
the process or at least enabled by it to ensure that the people closest to the issue can make
the right choice. From accepting variability as a natural part of their business, to
understanding the costs it imposes on the system and striving to eliminate it (or at least
isolate it) to reduce its effect on the process.
The end result of all these paradigm changes, and perhaps the most telling fact about
the status of ZMO in their Lean journey, is that people are energized and having fun with
the transformation process (especially those in the Lean leadership group that get to see
and participate in the design of the whole system) and can now perceive the system as

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logical. A comment that has been made in different occasions is that developing the
system is like assembling a giant puzzle. At least the leaders have learned enough that
they can now understand how different parts fit together and support each other, and they
are beginning to see where the holes that still need plugging are. In fact, the whole
transformation process is turning into a virtuous cycle of learning and improvement,
feeding on its successes to continue making progress. The new mental models that have
emerged are creating a congruent picture of the ideal state, while changes made to the
system facilitate understanding of the current situation and of problems affecting
performance. This generates a clearly visible gap that drives improvement efforts (what
Peter Senge
322
calls creative tension). Changes to the process are made, understanding
deepens, mental models are refined, learning occurs, and the cycle is reinforced and starts
again.
The two and a half years of research work at ZMO have shown not only that Toyota-
style systems are possible in environments very different from those for which Toyota
developed its system (as discussed in section 6.3.1: Case Studies Support Initial
Hypothesis, in page 217), but also have contributed to defining a process to develop such
a system. This will be discussed in detail in section 8.2: Pull Improvements to Develop
Toyota-style System (page 371).


322
Senge, P. M. 1990. The fifth discipline : the art and practice of the learning organization (1st ed.).
New York: Doubleday/Currency. p. 142.

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CHAPTER 8
DEVELOPING TOYOTA-STYLE SYSTEMS


The research presented in this dissertation was aimed at answering a simple question:
How can Toyota’s system be applied at firms operating in environments different from
those for which it was developed? To narrow the scope it was decided to focus on
manufacturing organizations operating in high variability environments. Although not
explicitly stated, answering this question necessarily requires finding out if Toyota’s
system is useful in such environments. This issue was addressed in section 6:
Comparative Cases of Lean Design, in page 144). Case studies prepared for five firms
facing different levels of variability suggest that Toyota-style systems can be developed
and are effective regardless of the variation faced by the firm (see section 6.3.1: Case
Studies Support Initial Hypothesis, in page 217).
This finding reinforces the relevance of the main research question, which, as
formulated, necessarily requires the research to define a methodology for developing
Toyota-style systems in these non-traditional environments. The original expectation was
that by grouping firms according to the type and level of variability they face, it would be
possible to identify common patterns of implementation that could be used to define a
method for developing Toyota-style systems for firms operating under similar variability
conditions. As discussed in section 6.3.2: How to Adapt Toyota-style Systems to High
Demand Environments is Still Unresolved (page 220) this does not seems to be the case.
What appears possible however is to define a common methodology that can be used in
all cases, regardless of the level of variability. This result is stronger than originally
expected. The previous chapter (see section 7: Developing Toyota-style Systems at
Motawi and Zingerman’s Mail Order, in page 239) provided a detailed description of

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how Toyota-style systems were developed at Motawi and ZMO. This chapter focuses on
drawing conclusions from the process followed for those two firms with the intention of
defining a method for developing Toyota-style systems in non-traditional environments.
This will complete the answer to the original research question.
8.1 Principle-based Approach
Typically when people refer to Lean or TPS, what they are talking about is a set of
tools used to remove waste from processes. They go to a ‘Lean’ facility and observe
kanban, supermarkets, delivery routes, quick change-over mechanisms, cords that stop
the line, error-proofing devices, and one-page job instructions. Then they see charts
displaying amazing improvements in key performance metrics and decide that they want
to try this Lean stuff. Back at their own companies they sort through the tools they
observed and choose kanban (for example) as the one that will produce the biggest bang
for their buck. After all, implementing a pull system will reduce inventory and help the
business move closer to just-in-time production (by now we all know that J IT is good and
inventory is bad, right?). Full speed ahead cards are made, markets are built (to hold half
as much WIP as before since the plant visited reported a 68% reduction in inventory),
routes are defined, and the system is turned on. Managers relax and sit back to wait for
the promised improvements in performance. After a few days, things are not so rosy. The
production line keeps running out of parts and throughput is down. Managers make it
clear that this situation is unacceptable, but without a true understanding of the system,
they offer little help in finding a solution. People on the line add inventory back and
begin by-passing the kanban system. Soon the process reverts to its initial condition and
the initiative is forgotten, possibly replaced by another flavor of the month program. The
conclusion: “Lean doesn’t work for us… we are different”.
Of course the answer is that every company is different. But that is not the problem.
Difficulties arise from trying to apply tools in a formulaic way when they were never
intended to be used as a cookie cutter template. In fact, the perspective of lean as a toolkit
in which to reach to grab the most applicable or handy tool represents a fundamental
misconception of TPS. Each of the Lean ‘tools’ is in fact a countermeasure that Toyota

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developed for a particular problem it was facing. Copying a tool and implementing it
exactly as Toyota uses it will only be beneficial if the firm is facing exactly the same
problem. And even then, its effectiveness will be limited at best. Toyota developed the
tool within the context of a wider sociotechnical system and without it, the tools are
bound to fail or at least under perform. Going back to the simplified example above, there
are many reasons why the initiative was not successful. Lack of discipline in handling the
cards is a typical issue (cards are lost, pulled at the wrong times, etc.). As are routes that
run at irregular times (forklift drivers are used to working at their own pace piling up
inventory where needed and then taking a break to visit with a friend on the other side of
the facility). Supplier processes may be unreliable or have long changeovers and need to
produce in large batches. The schedule is too variable and/or suppliers and upstream
processes are not well coordinated. If inventory is reduced without dealing with any of
these underlying problems they will show up and throughput will suffer. There is no free
lunch. To implement an effective pull system and reduce inventories it is necessary to do
the hard work of resolving the underlying issues. Interestingly enough, under similar
circumstances as those described in the example above, a Toyota person might conclude
that the kanban system was working perfectly. After all, it showed the problems that the
firm had to address to strengthen its operation.
Copying tools is not a viable way to develop a Toyota-style system. In most cases it
will lead to failure and result in the impression that Lean is not applicable. In a few
exceptions (usually when the firm faces conditions similar to those of Toyota), the tools
copied will result in some improvements. But even then, a coherent system will not
develop. At best we end up with a collection of disjointed tools that barely scratch the
potential benefits that would result from using a true Toyota-style system. Futhermore,
when copying tools the focus is on implementing a technical solution that cannot function
effectively without the supporting social system. Toyota’s system relies heavily on team
member involvement to ensure that processes are performed as defined and that
discrepancies are analyzed to drive improvement. Remove the social element and you
end up with a mosaic of tools that perform somewhat erratically and, worse yet, remain
static in time. As the needs of the firm evolve and the tools remain unchanged, the
performance benefits they contribute decrease until they become a hindrance to progress

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and need to be discarded. Another peril of focusing exclusively on the technical system
(without the social pact provided by Toyota’s respect for humanity) is that headcount
reduction can become the main reason for implementing Lean. Firing excess people once
productivity improvements have been made is the surest way of halting progress and
ensuring failure of the Lean program. Again the conclusion is that Lean does not work,
when in reality the failure came from how it was implemented. Focusing at the tool level
imposes limitations that prevent us from using Toyota-style systems in environments
different from those for which Toyota developed TPS. “Recognizing that TPS is about
applying principles rather than tools enables companies that in no way resemble Toyota
to tap into its sources of success.”
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A principle based approach provides an alternative methodology. Instead of copying
TPS tools, which are the result of Toyota applying its philosophy to the problems it has
faced, a better approach is to copy the thinking process and apply it to the problems our
organization faces to generate a comprehensive sociotechnical solution customized to
address our specific needs. This seems obvious, to the point that it is surprising that this is
not the common approach to Lean implementation. The main reason it is not is that
unlike many tools, which are in clear display for any visitor to see in a quick tour,
Toyota’s philosophy is hard to observe and understand. Fortunately, it has now been
codified into the Toyota Way
324, 325
. The interpretation of it that was used in this research
is presented in Section 5: Toyota’s System (page 93), which focuses on describing the
principles that define Toyota’s system, how they can be implemented, and how the tools
relate to them.
The principle approach, of course, has always been the methodology used inside
Toyota. Being the ones developing the system they had no alternative. They had no one
to copy tools from, so they applied their philosophy and developed countermeasures to
the problems they were facing. The most successful ones became known as TPS. The
integration of the tools resulted in a comprehensive technical system supported by the
social system that evolved in parallel. The two systems are so intertwined that it is hard to

323
Spear, S. 2004. Learning to Lead at Toyota. Harvard Business Review, May 2004.: 78-86. p. 80.
324
Toyota. 2001. The Toyota Way 2001: 13: Toyota Motor Corporation.
325
Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill.

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separate them and neither can work effectively without the other. Ohno always
emphasized understanding the true purpose of the system, implicitly highlighting the
need to understand the principles guiding the changes being implemented. He focused on
the core transformation process of converting inputs to outputs distinguishing value-
added from non-value added steps and developing technical solutions to eliminate the
latter and facilitate the former. And yet, he also had a clear vision for the human role as
problem solver and enabler of further progress. Ohno’s approach was never to implement
a particular tool, but to build appropriate social and technical capabilities to fit the
circumstances.
Following Ohno’s legacy it seems unreasonable to expect a one-size fits all set of
solutions for all manufacturing problems (as is implied when tools are copied). Instead,
we should expect to flexibly use tools based on a set of principles to accomplish the
intended purpose. We should expect that people involved in doing the work have to be
engaged in controlling variances in their process. We should expect ownership by those
inside the system to be a necessary precondition for high performance. And we should
expect that understanding and adapting to dynamic external environments is a
prerequisite for success. Only a principle based approach can lead to the development of
a sociotechnical system that satisfies these requirements.
This is exactly what was proposed in the main research hypothesis. Applying
Toyota’s philosophy to the specific conditions faced by a firm should result in a Toyota-
style system customized to deal with the idiosyncrasies of the organization. Following
this approach, the countermeasures developed, besides being targeted precisely at solving
the problems the organization faces, are also designed to work with and support the rest
of the existing system. Chances of success are thus greatly increased. Instead of copying
excellent solutions that may not work because necessary support systems are not in place,
the principle based approach generates effective solutions that will produce
improvements with whatever systems are currently in place. “Lean is not about imitating
the tools used by Toyota in a particular manufacturing process. Lean is about developing
principles that are right for your organization and diligently practicing them to achieve

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high performance that continues to add value to customers and society.”
326
The only
remaining problem is defining how to do this. The next sections focus on defining a
specific principle based methodology that can be used to develop Toyota-style systems
for firms operating in environments very different from Toyota’s.
8.2 Pull Improvements to Develop Toyota-style Systems
The objective of this methodology is to develop a Toyota-style system customized for
the needs of the firm, while at the same time producing an organization that is capable of
continuing with the evolution of the system in the future. This necessarily implies
developing a comprehensive sociotechnical system to support the people in performing
and improving their jobs. To achieve it, the approach must, be principle-based (as
described in the previous section) to avoid the formulaic implementation of specific tools,
while providing guidance to the process of learning and discovery that is what ultimately
generates the desired customized Toyota-style system. Providing a detailed recipe for tool
implementation would restrict its applicability to only the few cases that resemble those
for which the formula was generated and we would end with another niche solution
similar to the assembly line tool-based perspective on Lean that currently prevails.
Alternatively, to gain a wider application, the formula would need to be so general that it
would not be really useful. Furthermore, such an approach could lead to the
implementation of disaggregate tools that produce one-time performance increases but
then fail to improve and evolve as the needs of the organization change. Instead, the
methodology must focus on developing the firm’s capability to improve and evolve by
itself. This necessarily includes developing people and establishing the structure and
methods that will allow them to continue adapting and making improvements to their
system. The methodology needs to achieve three main objectives:
1. Create an integral system customized for the needs of the firm, instead of a
collection of disjointed tools.
2. Develop in people a profound understanding of the system and the philosophy
that supports it.

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Liker, J . K. 2004. The Toyota Way : 14 management principles from the world's greatest
manufacturer (First ed.). New York: McGraw-Hill. p. 41.

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3. Develop the firm’s capacity to improve and adapt continuously.
The traditional approach to Lean implementation has been to push changes through.
Top managers, frequently with the help of external consultants, analyze the firm, decide
what changes to make, and then create large projects (batch) to force them on the
organization. Some of this will probably always be needed to get the firm moving in the
beginning, however, this approach resembles too closely the Mass production system we
are trying to move away from. Sarcastic as it may sound, it appears that we have been
trying to use a Mass production approach to develop Lean systems. Needless to say, the
method seems out of place to implement a system that advocates focusing on the
customer, getting people involved, producing in one-piece flow, pulling product through
the system only as needed, and improving continuously. Perhaps a better method can be
developed by applying those same principles to the process of developing Toyota-style
systems. After all, this is just a process and the principles that are used to improve other
processes should apply here as well. For example, if we translate Toyota’s True North
(see Appendix D.2.1: Relentless pursuit of perfection, in page 496) and apply it here, the
ideal method for developing Toyota-style systems should be one that generates changes
that always result in improved performance and learning (zero defects), uses minimum
resources to effect change (100% value added), produces the improvements needed,
when needed (one by one, in sequence, on demand), does not threaten employees’ jobs,
and enables further improvement.
With this perspective, what we want is a methodology that pulls improvements into
the system when and where needed. The first requirement then is to be able to see the
problems that need to be fixed. This suggests that the first changes made to the
organization need to be those that help people get a better understanding of the current
situation and provide them with clear expectations for their work (see Appendix D.2.2:
All activities highlight problems, in page 505). The gap between these two conditions
indicates a problem that needs fixing.
Once problems start surfacing, it is necessary to solve them. Making problems visible
and then doing nothing about them tends to have a negative effect on morale, so acting on
them is critical. Dealing with problems requires the ability to analyze them, propose
countermeasures, implement them, and verify that performance improved (PDCA). This

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in turn requires developing people, in particular by replacing their outdated mental
models and developing their ability to tackle and solve problems (see Appendix B.5.2:
Build people before you make product, in page 448), and introducing a continuous
improvement system (see section 8.2.2: Continuous Improvement, in page 379) that
defines the methodology to follow and creates a structure that supports people in making
improvements by providing the help and resources they need.
To put this method into practice a two pronged approach can be followed. Physical
changes are made to the process to achieve performance improvements, demonstrate the
effectiveness of the system, and begin changing the prevailing mental models to develop
a profound understanding of the system. At the same time, a continuous improvement
system is developed starting with mechanisms to highlight problems to pull
improvements through the system. As progress is made down both roads the mental
models that prevail in people’s minds as well as the perception they have of their ability
to affect their jobs begin to change in time for them to tackle the problems that are
becoming visible. At this time, introducing a structured approach to making
improvements and providing coaching on problem solving helps get the continuous ball
rolling and the organization on its way towards self-sufficiency in developing and
evolving its customized Toyota-style system.
Developing a Toyota-style system following this approach develops the firm’s
capability to improve on its own and sets the foundation for the system to continue
evolving in the future. After all, the same elements of discovery and learning that are p