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ALFRED
P.
WORKING PAPER
SLOAN SCHOOL OF MANAGEMENT
Key to High
Small-Lot Production:
Productivity and Quality in Japanese
Auto Manufacturing
Michael A. Cusumano
August, 1986
WP #1817-86
MASSACHUSETTS
INSTITUTE OF TECHNOLOGY
50 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139
\
Small-Lot Production:
Key to High
Productivity and Quality in Japanese
Auto Manufacturing
Michael A. Cusumano
August, 1986
WP #1817-86
sj'iriji^o
1
6 1987
Michael A. Cusumano
M.I.T., Sloan School of Management
Cambridge, MA DSA 02139
Draft 8/17/86
SMALL-LOT PRODUCTION; KEY TO HIGH PRODUCTIVITY
AND QUALITY IN JAPANESE AUTO MANUFACTURING
Managers
around
the
world,
frustrated
productivity, cost, and quality achieved by
have often
that
Japanese automakers,
complained that what Japanese companies do is unique,
without
culture,
the levels of
at
high-quality
including
Japanese
their
workers
willingness
and
to
their unique
cooperate
with
management, the performance of Japan in auto manufacturing cannot
be duplicated.
But we now know this is not necessarily the case.
Japanese-run automobile
Ohio (Honda)
,
located
plants
and California (Toyota-GM) have demonstrated levels
of productivity and quality
comparable to
and managers
in Japan. [1]
the
key
to
manufacturing
Tennessee (Nissan)
in
have achieved
the
lies
performance
as
production management as
much
in
the
A major reason is that
Japanese
of
if
what Japanese workers
not
firms
in
auto
more in their approach to
peculiar
quality
of Japanese
workers in Japan.
In
the
past,
compared
to the Japanese, U.S. and European
companies may have been at a disadvantage due to the absence of a
clear industrial policy, inadequate quality-control programs, too
much confrontation between management and labor,
1
poorly educated
blue-collar employees,
force.
But, historically,
set
standards
new
until auto producers in Japan
productivity,
of
quality
product
and
efficiency,
—
in the work
European automakers founded
U.S. and
and performed well
the industry
ethnic homogeneity
and less
general
manufacturing
cost.
The Japanese
low
at
accomplished this primarily by modifying, beginning in the 1930s,
American
European
and
techniques,
equipment,
assumptions about production management.
and traditional
[2]
For non-Japanese managers in autos and other industries such
as electronics, the challenge of the past decade has been to stop
falling behind.
set
considerable
requires
leading
determine
to
remarkably
disorganized,
got
how
standards Japan has
match the
patience
companies
Japanese
particular,
learning to
But
to
they
inefficient
precisely how
analyze
to
where
they
are;
transformed
plants
U.S.
the
and, in
dirty,
Occupation
observers saw in the late 1940s and early 1950s, into perhaps the
most superbly conceived and
the world.
[3]
run
organizations in
manufacturing
,
The Usual Explanations
There
are
several
automakers evolved
Since car
and
explanations
usual
came
to
dominate
as
the
to how Japan's
world industry.
mass production began in the U.S., it is often assumed
that Japanese firnis
equipment
copied
and years of experience.
usually goes,
details and
American manufacturing
reflecting the best American thinking
techniques
and
imported
or
And then the Japanese, or
so the story
They paid greater attention to factory
did more:
implementation
achieved better
—
aided by factors
like ethnic homogeneity, better educated employees, and "harmony"
between managers and workers, combined with now-famous techniques
supposedly
that
conditions:
of Japanese culture and geographical
out
near-fanatical attention to cleanliness and quality,
cooperation
group
grew
as
seen
quality circles, "just-in-time"
in
production using "kanban" cards to control manually and precisely
the process flow and parts deliveries.
Nor
is
this
all.
Casual
observers
of
Japan may also
identify at least two other reasons for high productivity and low
costs.
One
is
the
large investments in plant and equipment,
which appear to give Japanese workers an edge in capital. Another
is huge economies of scale achieved in the domestic market during
the
1970s,
automakers to
which
may
have
made
match international
it
possible
for
Japanese
standards of productivity and
costs and then begin large-scale exports to the U.S. and Europe.
What Historical Analysis Reveals
Studying
the
historical
evolution
of
the
two
leading
Japanese automakers,
Nissan and Toyota, as well as some relevant
numbers, suggests that the explanations outlined
above need some
clarifications and corrections.
Japanese automakers did not all copy and import American or
One;
and production-management
European equipment
was
temptation
great
to
do
most
and
so,
techniques.
(Nissan,
Mitsubishi, Hino) did, during the 1930s and 1950s.
assembly
and
manufacturing
European
of
accounted for about 30% of Japanese
models
or techniques exactly.
fact, the
under license
car production
during 1953-
Instead, it developed in-house skills and
innovation process
began an
that led
levels of productivity in the world.
The Japanese
simply a
success
matter of
in
eventually to the highest
[5]
automobiles
is
"better implementation."
proceduE^s
modifications
directly to
and
of
concepts;
Led by Toyota, in
and it was these innovations or
practices
foreign
not, therefore,
critical changes in
varying degrees, Japan's automakers all made
U.S.
Isuzu,
But Toyota deliberately avoided copying foreign models
1959. [4]
Two;
In
There
and
that led
assumptions
higher worker output, better quality, and savings in
areas such as inventory turnover.
Three;
High productivity
due simply
to huge
—
surpassing U.S. averages
—
was not
economies of scale derived from the domestic
market during the 1970s.
Toyota
and
then
Nissan
matched or
surpassed U.S. output levels per worker during the late 1950s and
early 1960s, and at merely 3%
volume in 19651
(Exhibits
1
to
and
5%
of
General
Motors' sales
2)
Nor can the Japanese performance in auto manufacturing be
Four;
attributed
simply
Nissan and
Toyota matched
higher
to
levels
then doubled U.S. productivity levels
in the 1960s with less capital per employee.
Some statistics are difficult
example, workers
the
(Exhibit
to interpret.
counterparts at
impression
that
GM, Ford,
Japanese
In
1983, for
Not so.
3).
property, and equipment)
The
and Chrysler
workers
productive because of investment levels that
(see Exhibit
3)
at Nissan and Toyota had 2 to 2.5 times as many
fixed assets as their
creating
capital investment.
of
were twice as
were twice
as high
amount of fixed assets (plant,
required to produce
one vehicle
by the
late 1970s and early 1980s was roughly equivalent in Japan and in
the U.S.
year was
(Exhibit
4)
Only
because "throughput"
twio^ as high in Japan did workers at Nissan and Toyota
show twice as many fixed assets each.
and the
per worker per
overall Japanese
But it
production systems,
was actually labor
not capital, that
were twice as productive as their U.S. counterparts.
Key Factor;
The Need to Produce in Small Lots
[6]
In attempting to explain Japan's economic
the
alike
debated
have
government officials, and businessmen
scholars,
mid-1950s,
contribution
the
unique to Japanese society and
emerges from
studying the
and talking to Japanese
concern that
cars and trucks
possible
costs,
to
a
simple "fact"
engineers:
The overriding
after World
War II
to master
that is, to produce a growing variety of
extremely
at
But
automakers to become more efficient
the need
—
policy,
history of the Japanese auto industry
drove Japanese
small-lot production
history.
production
than U.S. companies was
industrial
of
or other factors that seem
education, "luck,"
cultural harmony,
performance since
volumes
low
accommodate
a
and
the lowest
at
very small but increasingly
number of competing
sophisticated domestic market with a growing
firms. [7]
Attempts
Japan's
by
Ministry
International Trade and
of
Industry (MITI) first to convince firms to abandon
passenger car
production after World War II, and then to restrict the number of
companies
competing
economies
for
executives at
auto
industry
any
dozen firms
repeatedly
government bureaucrats.
industry
as
all
saw great
refused
to
raise
failed.
scale
Company
potential in the
to bow to the wishes of
[8]
At Toyota in particular, this
lots inspired
so
manufacturer,
one
nearly a
and
the
in
modifications in
"need"
to
produce
in small
equipment or techniques based on
fundamental engineering
textbooks and
worker
suppliers in
found
in U.S.
in the military
more than anything
Japanese managers to overturn traditional American
minimum efficient
buffer
and
lots
scales, the
inventories,
specialization,
machine
and
such as
these improvements,
And
assumptions about
manufacturing
concepts
and
non-automotive factories
aircraft industry.
else, enabled
practices
the
value of large
the importance of
role
of
labor
and
the manufacturing process, as well as the limits to
worker productivity and, ultimately,
the
to
levels
of quality
achievable at a given cost.
production in
Japanese auto
and trucks
industry.
—
of 31,597 cars
little more than one days' output for the U.S. auto
(Exhibit
5)
Four local companies shared the market
Nissan, Toyota, Isuzu, and
enter the
1950 consisted
field by
— and
1960s —
Hino
the early
half-a-dozen
more would
Mitsubishi, Honda, Mazda,
Daihatsu, Suzuki, and Prince (which merged with Nissan
in 1966).
could use American mass-production equipment
Japanese automakers
and techniques* for trucks made during World War II. They produced
these
models
relatively
in
cars), and with few
stamp
thousands
of
changes, so
It was
runs
it was
(compared to passenger
possible to
machine or
identical components, as U.S. manufacturers
did for much higher volumes,
months.
large
and
store
the
excess
for future
expensive to pay for equipment in this way, but
possible with high prices under the protected market that existed
in Japan
from 1936
to 1945
and then
from 1953
until the mid-
1970s.
[9]
Nissan's history illustrates this
strategy.
the mid-
In
entered into an agreement with Graham-Paige (which
1930s, Nissan
sold out to Dodge before World War II) and bought specialized and
machine tools and stamping presses to produce
expensive American
the U.S.
company's standard-size
American
engineers
Nissan then
operations.
profit
high
came
margins,
Japan
to
for
sold nearly
to
continued to make the same
truck
and
years
two
and set up
output, at rather
all its
Japanese
the
A dozen high-salaried
truck.
army
engine,
until
with
1945, and
only minor
changes, until the late 1950s. [10]
World
After
disappeared.
other Japanese
Nissan and
to
passenger cars.
producers, between
require
far
market
other Japanese automakers
Nissan, Toyota, and
At
1950 and 1970, cars rose from
merely 5% of t^eir output to about 65%.
came
military
trucks and buses (about 95% of
transition from
production in 1950) to
the
however,
II,
To survive,
make the
had to
War
But
passenger vehicles
equipment and options, as well as a
more
variety of styles and more frequent model changes,
especially as
the Japanese improved their vehicles incrementally.
Toyota
in
standard-size
designs.
The
1950
truck
few
produced
and
cars
one
only
small
two
major products
truck,
modeled
—
one
on German
it made were actually the small truck
8
The number
fitted with a car body. [11]
even
while
standards.
producing
Toyota
was
By the
more
the
1980s,
than
50
standard-size cars and
domestic market. [12]
(Exhibit
Changing market
largest
different
trucks)
models,
still
seemingly
preference
at
automaker was
with many (such as
low
volumes
for the
6)
requirements, not cultural predispositions,
producing
mass
automakers to confront
the traditional auto factory's
intractable dilemma:
for
producer by world
Japanese
forced Nissan, Toyota, and other Japanese
a
models increased
small-scale
very
a
of new
huge
lots
standardized
of
components; and the Japanese market's demand for a rising variety
The Japanese
of products in small amounts and at falling prices.
government helped by limiting imports to about 1% of the Japanese
market following the postwar U.S. Occupation, although prices for
Japanese-made vehicles
dropped between
early 1970s as the number of
the early
local firms
19503 and the
competing for
the few
domestic customers tripled by the early 1960s. [13]
«
in
Japan
still
international levels for comparable
small
cars
Prices
1960s. [14]
(and
unit
costs)
not match
did
until
the late
Yet an additional incentive to increase productivity
and reduce costs was the desire of Japanese automakers, beginning
with their
first attempts in the late 1950s, to expand car sales
beyond the limits of
increased
slowly
in
the
small
importance,
domestic
from
market. [15]
less
than
Exports
4% of total
production to just over 20% as late as
and small
As
1970.
quality rose
cars became more popular in the U.S., Japanese exports
passed 50% of output in 1977,
A Problem with a Solution
But in the
managers were
lean
following
years
not quite
World
War
II, Japanese
sure how to accommodate changing market
needs and potential export requirements of low-cost, high-quality
vehicles.
U.S.
engineers
and
their equipment and influenced
companies had designed much of
many of
their experiences.
Not
surprisingly, many Japanese managers, especially at Nissan, first
believed that the best way to compete in automobile manufacturing
was to copy as closely as possible the systems perfected at Ford,
GM, and other mass producers. [16]
The
"paradigm"
U.S.
concepts that assumed the
levels
of
worker
keep
the
a
set
following were
of
most efficient:
specialization;
equipment
scales with
large manufacturing
expensive
and
high
extensive
components according
was also designed
to
buffer stocks to
machines and specialized workers constantly
active; the "push" concept of production control
and delivering
techniques
production runs on huge machines requiring long
automation; long
set-up times;
and
involved
keep
most
10
of
—
manufacturing
to a master schedule, which
the
machines
running and
components coming in despite problems that might develop at
suppliers.
stations or
huge
required
lots
To inspect
few
components made in
all the
inspectors, so companies adopted
many
too
a
statistical sampling techniques to test a few parts and determine
entire lot
if an
met an "acceptable quality level," even though
this meant some defectives would pass through the system at every
stage.
U.S. automakers
also tried to bring in house as much of
the components production and
assembly
possible,
as
to insure
acceptable levels of price, quality, and supply.
In
contrast,
gradually
it
production managers that
Japanese
but
competitive
automakers
were common
lots far smaller than
Managers, led
by Toyota's
way to do this required
utilization
of
workers, and suppliers
"fixed"
costs
for
—
only did
War II have to manufacture in
in the
increase
traditional
necessary in
Not
market.
Taiichi Ohno,
an
were
Japanese
to
practices to meet the needs of
domestic
World
after
clear
modifications
and manufacturing
U.S. equipment
their small
some
became
in
U.S. or
even Europe.
realized that the best
the
"flexibility" and
manufacturing systems
—
equipment,
and a lowering, as much as possible, of
in-house
personnel,
factory or warehousing
space, and equipment, as well as variable costs, such as
for in-
process or finished-goods inventories.
Individual
Japanese
automakers
with varying degrees of success and
11
implemented
in different
this strategy
years, yet all
One, beginning in the late 19403
basic policies:
pursued three
at Toyota and in the mid-1950s at Nissan,
concept
in-house
for
production
was the "just-in-time"
or assembly and deliveries of
components.
This itself
practices:
faster
setup
times for machine tools and stamping
(techniques
first
written
about
equipment
such
presses
incorporated
presses)
,
models
or
in
required several
American
departures from U.S.
in
components
without
Danley
as
so each piece of equipment could be
and
U.S.
stamping
used for different
waiting
long
the
tighter
times;
synchronization between subassembly production, parts deliveries,
and final
assembly, to increase equipment utilization and reduce
in-process inventories; mixed scheduling
or
models
on
single
machines
or
of different components
assembly
lines,
to
avoid
specialized but under-utilized equipment and workers; and broader
job specifications,
so managers
could maintain the just-in-time
pace by shifting workers to different jobs as needed at any given
moment. [17]
These
workers
mollifications
ended
up
simultaneously,
and
resulted
operating
doing
some
in
several
of
inspection, especially in times of slow
imposed by
higher
their
productivity
different
as
machines
own maintenance and
demand.
The discipline
the just-in-time pace along with small-lot production
also tended to improve quality, as workers paid more attention to
what they
were doing
stocks if they made
and could
mistakes in
12
no longer
rely on large buffer
processing or
assembly.
Fewer
furthermore,
defectives,
resulted
in
higher yields
—
another
boost to productivity. [181
A second policy was to gain
some benefits
from the concept
of scale
economies, even at low volumes compared to the U.S., by
reducing
complexity
Beginning
late
the
in
product
in
designs
Nissan
1940s,
standardizing components across
Toyota did this by
and
different
manufacturing.
and
car
and
truck lines
(until the later 1950s), reducing the frequency of model changes,
and limiting the number of options available to customers. [19]
policy
The third
vertical
between
integration
assembly, while building up
and
loosely
decreasing
involved
affiliated
production
components
networks of
and final
lower-wage subsidiaries
subcontractors. [20]
Toyota started the
process of establishing a network of suppliers in
and founded
of in-house
levels
the late 1930s
all its major subsidiaries during the 1940s.
Nissan
took longer to set up a supplier network, although, by the end of
the 1970s
largest
and as early as the 1940s for Toyota, the
for^Nissan,
Japanese
integration"
(the
automakers
demonstrated
percentage
of
U.S.
share) that
automaker.
possible to
without
the
General
of
"group
total costs accounted for in-
house or at affiliates in which Nissan or
20% equity
levels
Toyota held
a
minimum
were far higher than the most integrated
(Exhibit
Motors.
7)
This
made it
achieve many of the benefits of vertical integration
higher
personnel
or
13
other
costs
that
formal
—
integration would have required.
example,
For
each small car they produced,
for
1983,
in
about 52% of the costs at Nissan and 47% at Toyota were accounted
for
by
subsidiaries
Exhibit 7).
merely 77%
These
companies, furthermore,
of those
by Nissan workers.
(Exhibit
Wages were
8)
their production
their components
paid wages
equal to
received by Toyota workers and 81% received
but productivity gains were not.
to improve
affiliated subcontractors (see
other
and
By working with these companies
systems as
or assembly
lower at suppliers,
well as
the quality of
services, value-added productivity
at Nissan and Toyota subsidiaries tripled between 1960 and 1983
a rate of increase faster than the 2.4- and 2.8-fold improvements
registered at
period. [21]
Nissan
(Exhibit
and
Toyota,
respectively,
in
this same
9)
The Toyota "Revolution"
•
Toyota,
•«
unlike
Nissan,
started
out
in the 1930s without
buying American design and manufacturing technology.
of the
company, Kiichiro
Toyoda, designed
The founder
his first vehicle by
copying a Ford chassis, a Chevrolet engine, and a Chrysler DeSoto
body
—
combining the "best" features of each U.S. manufacturer.
The first truck broke down on the way to the showroom, portending
a series
of technical problems in Toyota vehicles that took more
14
Nissan, by
overcome. [22]
decade to
than a
importing what was
essentially a Dodge truck, went quickly into "mass production" in
the mid-1930s and turned out a vehicle comparable
—
established
and
predilection
a
to U.S. models
American manufacturing
for
equipment and practices that managers carried through to at least
the 1970s. [23]
other Toyota managers realized they would need
Kiichiro and
to improve vehicles
with
designing
frequently,
cars
could
not
afford
to
cultivate
buy
system for
in-house
,
as well
his output.
as to
low volumes.
Toyota vehicles were unreliable, the Japanese
buy all
design skills
blueprints, equipment, and
the
American assistance Nissan purchased)
inexpensive production
In particular,
trucks independently.
and
Kiichiro's objectives were to
(he
were experimenting
they
since
set up an
Since the early
military would not
Nissan, on the other hand, had more orders
than it could fill.
To solve
-its
unique
problems, Toyota,
again departing from
Nissan, bought universal machine tools and small stamping presses
that were affordable and easily adaptable to model changes.
was the
beginning of
This
the "flexibility" in the Toyota production
system that, after World War
II,
helped
the
company introduce
numerous new models, for the domestic and export markets, quickly
and cheaply.
during the
Again, unlike Nissan, Isuzu, Hino,
1950s Toyota
chose not
15
to become
and Mitsubishi,
affiliated with a
European or U.S. auto producer to learn modern vehicle-design and
manufacturing-automation
developed
technology
in the 1940s and
early 1950s.
equipment first
Benefiting from the versatile
the 1930s
the direction of Ohno, who rose to executive
and from
vice-president in
purchased in
gradually
Toyota
company,
the
introduced a
series of innovations in manufacturing that rival the achievement
of Henry Ford and the Model T.
loom-machinery
predilections
initiated
result
in
inventory
with
producer,
in
favor
planning
the
of
and
no experience in automobiles, no
methods.
U.S.
for
extraordinarily
turnover,
Ohno joined Toyota in 1943 from a
This
one manager
virtual "revolution" that would
a
levels
high
Toyota
help
productivity
of
become
and
one
of the most
used
in Toyota's
efficient and profitable companies in history.
The development
of
techniques
key
the
production system occurred between 1948 and 1965: [24]
1948:
Ohno instituted
a "pull"
system in the machining shop
for engines, with each worker moving back to the
previous station to retrieve
the
necessary
time
in
system in
this practice
in
the
amount
needed for
He first read about the
immediate processing.
a pull
only
process, just at
work in
idea of
a Japanese newspaper which described
the
16
U.S.
aircraft
industry during
world War II and in U.S. supermarkets.
This contrasted
with the traditional "push" systems used
other automakers
the
flow
in the U.S., Japan, and Europe, where
components
of
at Nissan and
information
and
signalling
production moved in a forward direction, according to a
schedule, whether or not stations were ready to receive
The push system was not so well suited
the components.
to small-lot production
machinery
management
breakdowns
wanted
to
build
up in-
whenever stations fell behind, due
process inventories
to
tended
and
other
or
control
to
factors.
in-process inventories
losses associated
because of large financial
Toyota
with the
collapse of the military market and postwar inflation.
The pull system in the machining shop allowed Toyota to
1949:
end the intermediate stockpiling of engines.
made workers
Ohno also
sevelal
machines
not
enough
constantly.
rather
each,
autoworkers at Nissan
companies did)
in the
as
well
because demand
,
work
This
keep
to
all
procedural
machining shop operate
than specialize (like
as
U.S.
was low
and European
and there was
machines
operating
change improved worker
productivity.
Ohno then asked production workers to conduct their own
\l
17
inspections.
improved
This
quality on the line and
raised worker output by cutting down
on non-productive
inspection staff.
1950:
Toyota extended
the
policy,
demanded by
concept to marketing through
the pull
prompted
financial
by
difficulties and
company bankers, of limiting production to
orders received by Toyota Motor Sales from dealers.
Toyota synchronized engine
and
with
reduce
assembly,
final
to
transmission machining
further
in-process
inventories.
Indicator lights introduced on the engine lines alerted
supervisors to problems.
1953:
Ohno
introduced
"kanban" system, using the
early
an
exchange of paper tags to signal
or
parts
production,
into
processing operations
machining shop.
the
The
Japanese called this the "supermarket method," since it
mimicked
the
practice
in
U.S.
customers went to stores to buy
they
wanted
it,
rather
than
supermarkets
what they
wanted when
store goods, while the
supermarket replaced items on shelves as
To simplify
where
it sold them.
manufacturing, procurement, and conveyance
18
Toyota also instituted
standardization
a
program for
car and truck components.
1955:
Toyota synchronized
its body
and final assembly shops
to eliminate more in-process inventories.
Controls introduced
on
deliveries
parts
further cut
inventories.
Toyota
started
mix
to
the
loading of components in
small lots for machine tools and
final assembly
to mix
model runs on
lines to raise equipment utilization as
well as lower inventories.
Line-stop buttons
workers
introduced
authority
assembly
on
lines gave
halt production if they noticed
to
defects or if other problems arose.
1957:
Indicator
alerted
lights
installed
supervisors
outside
on
the
all
production lines
machining
shop
to
problems.
1959:
A control system for in-house to
to outside
in-house and in-house
conveyance again cut in-process inventories
and waiting time.
19
1961:
kanban
Toyota introduced the
system
to
some outside
parts suppliers.
1962:
Toyota then
extended the kanban system to all in-house
shops, placing the entire company on
small-lot, pull
a
system.
Foolproof devices added to machine tools helped prevent
defects and over-production.
Toyota lowered stamping-
As an example of rapid setup,
press changeover
dies from
times for
previous years to 15
2
or
3
hours in
techniques such
minutes, through
as automating as much of the process as possible, doing
preparations for
running,
changeover
the
training
and
Rapid setups
while
machines were
to specialize in setup.
teams
increased equipment
utilization and made
small-lot production more economical, as well as helped
reduae in-process inventories by cutting lead times.
1963:
Ohno now asked
workers
operate
to
machines
each,
compared
to
1947, and
1
in
previous
years.
3
to
an
4
average
since 1949,
This
of
2
5
in
raised labor
productivity.
1965:
Toyota extended
the kanban system to all outside parts
20
deliveries,
in-process
reducing
inventories
to
a
minimum.
Impact on Productivity and Inventory Turnover
The
results
techniques
Toyota's
of
were
impressive.
Vehicles per worker per year (unadjusted for vertical integration
or capacity
utilization) tripled at Toyota between 1955 and 1957
and then rose another 60% by
passed productivity
Toyota had
(see Exhibit 1)
and focused
.
(Exhibit
1964.
By this time,
10)
levels at GM, Ford, and Chrysler
Nissan did not adopt the kanban or pull system,
on improving
European companies did.
its levels
of automation, as U.S. and
But, at roughly the same time
or a year
or two behind Toyota, Nissan also worked at reducing setup times,
improving
synchronization,
in-house
deliveries.
Gross productivity
five-fold between 1955 and
Toyota, although
and has
never
1964,
Nissan was
caught
up,
and
controlling
parts
levels at Nissan then increased
an
improvement
comparable to
still behind Toyota in productivity
despite
U.S. productivity
doubling
levels.
Perhaps the most remarkable effects of Toyota's pull system,
and the
seen
in
clearest contrasts
inventory
into sales)
.
turnover
with Nissan
and U.S.
firms, can be
(average total inventories divided
This is one measure of how well
21
a
company controls
—
in-process stocks as well as stockpiles of finished goods. In the
mid-1950s,
Toyota,
Nissan,
Ford,
GM,
relatively low turnover levels.
Chrysler
and
experimenting
began
they
concept around 1982.
limited "just-in-time"
a
suppliers
dispersed than
more
are
From the 1930s, Nissan has also been more committed to
automation and specialized
introduced
1960s
with
early 1980s
(Exhibit 11).
Nissan's factories and
Toyota's.
a
equipment
Toyota,
than
push-system
computerized
the
in
Nissan
U.S.
thus
according to a computer-generated
directly
market
to
demand
not
is
"instantaneously" to changes in shop conditions
as in
Toyota's kanban
keep larger
The result
system.
buffer inventories
to guard
in the
production
(MRP)
manufactures
schedule that
and
and
for
control resembling "Materials Requirement Planning"
common
had
In fact, the U.S. companies made
no progress in this area between the 1950s and the
until
all
systems
automobiles
tied as
is not
adjusted
almost
or at suppliers,
is that Nissan must
against disruptions in
the supply system or inaccurate computer information. [25]
Modifications of machine tools to get more rapid setup times
as well as more
practices
which
frequent
Nissan
parts
began
accommodate product diversity
deliveries
in
at
than
in
the U.S.,
the 1950s and early 1960s to
small
volumes
and
to reduce
warehousing requirements in the expensive urban area of Tokyo and
Yokohama, brought Nissan to a level of inventory
22
turnover beyond
—
.
U.S. firms.
Yet it is still considerably behind Toyota, and only
since 1979, when
located more
Nissan
minutes or
than 20
suppliers are
connected by
make substantial
kanban
adopted
its factories
so from
on-line terminals)
progress in
achieved by the mid-1960s.
outside suppliers
for
did the company
,
inventory turnover
beyond what it
(Exhibit 12)
One indication that Toyota was not always so
American automakers
can be
mid-1950s through
different from
the fact that its inventory
seen in
turnover in 1955 was no higher
from the
(nearer
average for
than the
the early
U.S. firms
Only with better
1980s.
synchronization among processes and with parts deliveries, mixing
runs
in
parts
production
and experiments with
assembly,
and
between 1955 and
kanban and the pull system, did turnover double
1956.
It fell
for a few years while Toyota built another plant
but then rose significantly again
Toyota adopted
the kanban
between
1962
and
1963
(when
system for all in-house shops) and in
1965-1966 (when Toyota brought suppliers onto the kanban system)
Nor was
rapid^turnover
rapid increases
due to
when production volume fell
8%
in
1974 following
in sales.
Even
the first oil
shock, Toyota maintained a turnover level of more than 20 times
twice as high as U.S. firms and Nissan.
After perfecting these techniques by the
engineers and
mid-1960s, company
consultants taught the Toyota production system to
major subsidiaries and
affiliates
23
such
as
Hino
and Daihatsu.
helped produce
These efforts
well as productivity) at
in the mid-1970s. [26]
consolation in
been able
Toyota's.
realizing that
This
can
Honda, Fuji Heavy
find some
Japanese automakers have
not all
systems
effective as
as
not only at Nissan, but also at
seen
Industries
the Toyota
competitors should
just-in-time
be
(as
with Nissan followed, as did Mazda
But foreign
implement
to
in turnover
subsidiaries in
nearly all
Companies affiliated
group.
significant rises
(Subaru),
and
which have
Isuzu,
turnover rates comparable to GM, Ford, and Chrysler.
(Exhibit 13)
Implications for Managers
The
history
American lapses
Japan's
of
a
story both of
These innovations
innovations.
Japanese
and
industry is
auto
involved a spectrum of changes in American production technology,
with Toyota as the most
automakers,
typified
radical
by
most
other Japanese
incorporating
less extensive
and
Nissan,
with
modifications 3f U.S. practices and equipment.
The "quality"
Japan has
(education and discipline) of workers found in
no doubt
been important,
too.
after World War II also reflected on the
companies had
in the
1930s and
But Japanese managers
labor difficulties U.S.
then planned how to insure more
cooperation from workers and to reduce personnel costs.
this
by
undercutting
industrial
24
They did
unions and setting up company
leaders
that union
workers
after
World
employment to
select
cooperation; and
cooperate;
would
War
frequently promoting
positions, raising the likelihood
to management
union officials
workers;
white-collar
unions dominated by
groups
then
and
II
firing
workers
of
large
numbers of
offering
"lifetime"
in
return
for their
subcontractors highly dependent
using low-wage
on the original equipment manufacturers to produce 70% or more of
the components
of each Japanese car. [27]
(by value)
Management-labor
relations
unions
industrial
and
have
evolved differently in the U.S., and it is unlikely that American
managers will
be able
Japanese companies.
excuse
for
differences
But labor
important to understanding what
industry
is
what
went
American managers came
stable
or
on
happened
the
in
in
U.S:
with
technology,
"mature"
not
practices.
automobile
view
to
must
manufacturing
efficient
less
workers to the same extent as
to control
the
become an
Equally
Japanese auto
By the early 1960s,
manufacturing
certain
as a
limits
to
productivity, n!inimum efficient scales of production, unit costs,
quality, and
the ability
(or be coerced)
overall
,
as
production
of workers
well
system.
as
to
The
and suppliers to cooperate
contribute
to
original "American paradigm"
characterized by large production runs, push-type
high levels
of automation
numbers of inspectors using
improving the
of scheduling,
and worker specialization, with large
statistical sampling,
dominated the
thinking, and the goals, of U.S. as well as European managers.
25
There was nothing particularly "wrong" with this approach to
It proved
manufacturing.
remarkably effective
to be
for high-
But then market
volume production of a limited number of models.
conditions and financial constraints in Japan after World
automakers, led by Toyota, to challenge American
forced Japanese
assumptions and master small-lot production
efficiency
in
variety
a
higher
This led to greater
faster inventory
"just-in-time"
since
quality,
.
higher worker output and
areas:
of
utilization rates for machinery,
even
War II
turnover, and
systems
did
not
tolerate defectives or equipment breakdowns, and Japanese workers
producing in
smaller lots
—
were doing
what they
thousands of
found they
as
components of
paid greater attention to
American workers making
opposed to
one type, with large piles of buffer
stocks to draw on if they made mistakes.
sum,
In
manufacturing
accept
critical
was
that
practices
U.S.
turnover,
and
miraculous
responded
as
or
auto
in
only
viable
way
to
produce
about
there
Japanese
what
specific
techniques, developed
and
worker
productivity, quality,
the effective integration of equipment,
And
suppliers.
to
the
success
such as Toyota's Ohno did not
managers
capital
limits possible for
labor,
Japanese
the
did not believe that U.S. firms had reached the
automobiles, and
inventory
to
market
was
nothing
mysterious
automakers accomplished.
conditions,
creatively
or
They
using
first in the U.S., for new applications in
26
production,
automobile
standards
of
efficiency.
else from this story,
that
improvement,
possible
—
and
even
establishing
higher
If competing managers learn nothing
they should
sometimes
in
ultimately
at least
dramatic
industries
that
come away convinced
improvement,
seem
old,
is
always
stable, and
quintessentially Western.
REFERENCES
Evidence for this statement comes from numerous reports during
1985-1986 in The New York Times , The Wall Street Journal , and
Consumer Reports regarding the quality and cost of Honda Accords,
Nissan Sentras, and Chevrolet Novas
(nearly identical to the
Toyota Corolla and made by the GM-Toyota joint venture) produced
in the U.S.
1.
2. For a fuller treatment
of the
arguments in this article see
Michael
A.
Cusumano,
Automobile Industry;
The
Japanese
Technology and Management at
(Harvard
Toyota
Nissan
and
University Press, 1985).
descriptions of the chaos and low productivity that
3. Vivid
existed in the postwar Japanese auto industry can be found in the
company histories of Nissan and Toyota, the two largest auto
producers in J^an, then and now:
Nissan Jidosha Kabushiki
Kaisha, Nissan Jidosha sanju-nen shi (A thirty-year history of
Nissan Motor), Tokyo, 1964, and Toyota Jidosha Kabushiki Kaisha,
Toyota Jidosha sanju-nen shi
(A thirty-year history of Toyota
Motor), Toyota City, 1967.
Also of historical importance in
documenting that the Japanese did not always establish clean and
well-organized factories are several field reports written by
American engineers from Western Electric, working as part of the
U.S.
Occupation forces, who visted Fujitsu, Matsushita, Oki
Electric,
Sony,
and other Japanese communications equipment
producers in 1949: Charles Protzman and Homer Sarasohn, "Survey
of
Six Japanese Manufacturing Companies," Civil Communications
Section,
Industry Division, 24 February 1949 13 June 1949,
Modern Military Records Group, Box 3190B, Washington National
Records Center,
Suitland, Md.
For a discussion of these
engineers and their observations as well as contributions to
—
27
improving Japanese management see Kenneth Hopper, "Creating
The American's as Teachers,"
Japan's New Industrial Management:
Human Resource Management ,
Summer 1982;
and Ghary Gappelberg,
"'CCS' and Modern Japanese Management:
The Influence of American
Management Concepts on the Japanese Communications Industry,
1946-1950," Harvard College B.A. Thesis, Department of History,
March 1986.
4. Based on data in Amagai Shogo, Nihon jidosha
kogyo no shiteki
tenkai
(The
historical development of the Japanese automobile
industry), Tokyo, Aki Shobo,
and the Japan
136,
1982,
p.
Automobile Manufacturers Association, Nihon no jidosha kogyo (The
Japanese automobile industry), annual. Please note that Japanese
names in the text of this paper are in the English order, with
surnames following given names.
however, Japanese
In the notes,
authors are listed in the traditional Japanese order, with
surnames first.
decision not to link up
5. Examples of evidence that the Toyota
with foreign producers was indeed deliberate can be found in the
following:
Toyoda Kiichiro, "Toyota Jidosha ga konnichi ni itaru
made" (Toyota Motor up to the present, September 1936) , reprinted
in Ozaki
Masahisa, Toyoda Kiichiro shi , Tokyo, Jikensha, 1955,
172-173;
Shotaro Kamiya, My Life with Toyota , Nagoya, Toyota
pp.
Motor Sales, pp. 61-70;
Toyota Jidosha sanju-nen shi , pp. 346348.
6. My
thanks to Kim
helping me interpret
standpoint.
Clark of the Harvard Business School for
these
numbers
an economist's
from
A good discussion of this need to produce in small lots and
the response at Toyota can be found in Ohno Taiichi, Toyota
seisan hoshiki (The Toyota production system) , Tokyo, Daiyamondo,
1978.
On 18 March 1983, I also interviewed Mr. Ohno, the founder
of Toyota's
kanban system.
He
retired from Toyota as a senior
vice-president Mn 1978.
7.
8. On Japanese
government policy toward the auto industry, see
Hiroya Ueno and Hiromichi Muto,
"The Automobile Industry of
Japan," in Kazuo Sato, ed.. Industry and Business in Japan , New
York, Croom-Helm,
1980, pp. 148-155; Masaru Udagawa, "Historical
Development of the Japanese Automobile Industry, 1917-1971:
Business and Government," Keiei shirin 19.4:31-46 (January 1983);
Source of
Ira C.
Magaziner,
"Japanese Industrial Policy:
Strength for the Automobile Industry," in Robert E. Cole, ed..
The Japanese Automobile Industry:
Model and Challenge for the
Future? Ann Arbor, Michigan Papers in Japanese Studies, No. 3,
1981, pp. 79-83.
28
.
be found
in Jidosha
9. Regulations on imports can
Kogyo Shinko
Kai
(Automobile Promotion Association) , Jidosha hakubutsukan
chosa hokokusho (Automobile museum survey report), Tokyo, Vol. I,
and Nissan Jidosha Kabushiki Kaisha Chosa-bu (Nissan
May 1978;
Motor Business Research Department) , Jidosha kogyo handobukku
(Automobile industry handbook), Tokyo, 1983, p. 373.
10. Sources
for these comments on Nissan include the company
history as well as Jidosha Kogyo Shinko Kai (Automobile Promotion
Association),
ed.,
Nihon
jidosha shi kojutsu kiroku shu
(Recordings of oral interviews on the history of the Japanese
automobile industry), Tokyo, Vol.
II, 1975; Nihon Jidosha Kogyo
Kai
(Japan Automobile Manufacturers Association),
ed., Nihon
jidosha kogyo shiko
(A
history of the Japanese automobile
industry). Vol. II, 1967, and Vol. Ill, 1969; and interviews with
former Nissan managers Kawazoe Soichi
June 1982) , Sasaki
(2
Sadamichi (18 May 1982), Katayama Yutaka
May 1982), and
(31
Okumura Shoji (10 June 1982).
11. See Toyota Jidosha sanju-nen shi
,
pp. 160-163, 193, 249-252.
12. For a
listing of all current models see Toyota's Japaneseversion of the 10-K annual report (yuka shoken hokokusho)
13. The historical movement of prices for
particular models can
be followed in Jidosha hakubutsukan chosa hokokusho .
14. For international
price comparisons, see the book by former
Nissan President Iwakoshi Tadahiro,
ron
Jidosha kogyo
(A
discussion of the automobile industry) , Tokyo, University of
Tokyo Press, 1968.
Kamiya, pp.
74-82;
sanju-nen shi ,
Toyota Jidosha
especially pp. 456-457; and John B. Rae, Nissan-Datsun;
A
History of Nissan Motor Corporation in U.S.A., 1960-1980 , New
York: McGraw Hill, 1982, especially pp. 15-18.
15. See
16. Thia comment
based on interviews with former Nissan
is
managers Okumura, Sasaki, Kawazoe, Katayama, Maeda Riichi (21 May
1982), and Matsuzaki Shiro (14 July 1982).
Toyota Jidosha
of Production
Research , 15.6:553-564
(1977);
sanju-nen shi , pp. 265-271, 334-336, 421-430; Toyota Jidosha
(The path of Toyota Motor),
Kabushiki Kaisha, Toyota no ayumi
Toyota City, 1978, pp. 342, 345-346; Shingo Shigeo, Toyota seisan
hoshiki no lE-teki kosatsu (An industrial-engineering analysis of
the Toyota production system) , Tokyo, Nikkan Kogyo Shimbunsha,
29
,
Zero Inventories , Homewood, Illinois, Dow1980; Robert W. Hall,
Jones Irwin, 1983; and several publications by Yasuhiro Monden;
"What Makes the Toyota
Productiion
System
Really Tick?"
Industrial Engineering
January 1981; "Adaptable Kanban System
Helps Toyota Maintain
Just-in-Time
Production," Industrial
Engineering ,
May
1981;
"How Toyota Shortened Supply Lot
Production Time, Waiting Time, and Conveyance Time," Industrial
Engineering ,
September
and Toyota Production System ,
1981;
Atlanta,
Institute of
Industrial
Engineers,
For
1983.
developments at Nissan I relied on interviews with two managers
responsible for production control, Kanao Kaiichi (11 April 1983)
and Matsuzaki
(14 July 1982 and 19 January 1983); Nissan Jidosha
saniu-nen shi , pp. 73,
244-246,
330-339;
Nissan Jidosha
Kabushiki Kaisha, Nissan Jidosha shashi (Nissan Motor company
history), Tokyo, 1975, pp. 44-47, 375-376.
.
18. On the impact
of
just-in-time on quality see Richard J.
Schonberger, Japanese Manufacturing Techniques , New York, The
Free Press, 1982, pp. 15-82.
19. Product development at
Nissan and Toyota can be followed
through the company histories,
including data series on car and
truck specifications.
For Nissan, see also Ikari Yoshiro, DaiIchi Sharyo Sekkei-bu;
(The No. 1
Bluebird no otoko-tachi
Chassis Design Section:
Tokyo, Bungei
Men of the Bluebird) ,
Shunshu, 1981. On limitations on options and complexity in
assembly, see Harbour and Associates,
Inc.,
"Comparison of
Japanese Car Assembly Plant Located in Japan and U.S. Car
Assembly Plant Located in the U.S.," Berkley, Michigan, ca. 1980,
12-13;
and James Cook,
"Where's the Niche?" Forbes, 24
pp.
September 1984, pp. 54-55.
20. On the development of subsidiaries and supplier networks, see
Toyota Jidosha saniu-nen shi . pp. 180-181, 196-202, 207-210, 226205-206, 239,
229, 272-273; Nissan Jidosha san-ju nen shi , pp.
320-321, 339-342; Nissan Jidosha shashi , pp. 31-33, 55-56, 60-61,
76-79, 178-179,^222,
281-284. On the vertical de229,
262,
integration strategy, I relied on an article by former Nissan
manager Okumura Shoji, "Jidosha kogyo no hatten dankai to kozo"
(The developmental
stages and structure of the automobile
industry), in Arisawa Hiromi,
Gendai Nihon sangyo koza
ed.,
(Series on
contemporary Japanese industry), Tokyo, Iwanami
Shoten, Vol. V, 1960, pp. 327-330; and interviews with Matsuzaki
and a former Nissan manager
responsible for procurement and
recent chairman of Nihon Radiator, Ota Hisakichi (20 May 1982).
as their main
21. Value-added data on Nissan and Toyota, as well
subsidiaries, can be found in Nihon Seisansei Honbu (Japan
Productivity Center) , Fuka kachi
Tokyo, annual since 1960.
30
bunseki (Value-added analysis)
22. The discussion of Toyota is based primarily on Toyota Jidosha
sanju-nen shi ; Ozaki and Toyoda Kiichiro in Ozaki; Okumura;
"Toyoda
Kiichiro,"
Morikawa
Hidemasa,
Morikawa
Kamiya;
in
(Japanese entrepreneurs),
Hidemasa et al., Nihon no kigyoka
Yuhikaku Shinsho, Vol. Illf 1978; Kamiya interview in
Tokyo,
Morikawa Hidemasa, ed., Sengo sangyo shi e no shogen (Accounts of
the history of postwar
industry), Tokyo, Asahi Shimbunsha, Vol.
II, 1977; Ohno; and interviews with Ohno and Okumura.
23. The following discussion
based primarily on
of Nissan
is
Nihon jidosha kogyo shi kojutsu kiroku shu ; Aikawa Yoshisuke,
Watakushi no rirekisho
(My
career) ,
Tokyo,
Nihon Keizai
Shimbunsha, Vol. XXIV, 1965; Ozawa Chikamitsu, Aikawa Yoshisuke
(Biography
den
of Aikawa
Yoshisuke) , Yamaguchi, Yamaguchi
Shimbunsha,
Nihon jidosha kogyo shiko . Vol. II; Nissan
1974;
Jidosha sanju-nen shi ; Ikari;
and interviews with Aikawa Yaichi
(7 September 1982), Katayama (31 May 1982), Sasaki, Maeda (21 May
May 1982), Okumura, Matsuzaki, and
1982), Asahara Hideo
(19
Kawamata Katsuji (8 June 1982).
24. This chronology
based primarily on Ohno, especially pp.
228-229; my interview with Ohno;
and Toyota Jidosha sanju-nen
is
shi .
comments are based on interviews with Matsuzaki and
25. These
Kanao, as well as Nissan Jidosha sanju-nen shi ,
especially pp.
72-73, 244-246,
330-339, 375-388; and Nissan Jidosha shashi , pp.
44-47, 375-376.
26. For a discussion of
Mazda (formerly named Toyo Kogyo), see
Harvard Business School (Kim Clark), "Toyo Kogyo Co. LTD (A),"
and Richard
Boston,
9-682-092,
HBS Case Services No.
1982;
Pascale and Thomas Rohlen,
"The Mazda Turnaround," Journal of
Japanese Studies 9.2:219-264 (Summer 1983).
27. A discussio^ of labor relations is
beyond the scope of this
paper, although I refer the reader to Cusumano, Chapter 3, as
well as sources such as Aoki Satoshi, Nissan kyoeiken no kiki;
roshi niju kenryoku shihai no kozo (The crisis of the Nissan
group:
The structure supporting the dual authority of management
and labor), Tokyo, Chobunsha, 1980; and Yamamoto Kiyoshi, Jidosha
the
in
sangyo no roshi kankei
(Management-labor relations
automobile industry), Tokyo, University of Tokyo Press, 1981.
31
Exhibit
1:
Vehicle Productivity Adjusted for Vertical
'
-
Integration, Capacity Utilization, and Labor-Hour
Differences, 1965-1983
FY
GM,
Nissan
Ford, Chrysler'
Relative Scale (U.S.
1965
=
'
Toyota
1.0)
0.9
1.0
1970
1975.
1979
1933
Sourcz: Derived
fiOrr.
annual reports.
Notes: 'This column indicates avezcge figures for
CM.
Ford,
and Chrysler,
based on worldwide data.
*
The
assumed ^he
2983 figures for
CM
and
Ford, but not for Chrysler,
vertical integration levels of 1979.
Exhibit
FY
1965
2:
PRODUCTION SCALES ADJUSTED FOR VERTICAL INTEGRATION,
1965-1983
,
Exhibit
3:
Fixed Assets
(at
Cost) per Estimated Labor
Hour, 1965-1983
FY
GxVI, Ford,
Relative Scale (U.S.
1965
^
Chrysler
=
Nissan
Toyota
1.0)
1.0
0.7
1970
1975
1980
1983
Source: Derived from
annual reports.
Notes: Exchange rates are based on puichasing-power parity data for capital
formation (Sl.OO = 299 yen in 1975)
Rates for other years and constant values found by using the Japanese and
U.S. price deflators for domestic non-residential fixed investment. For
purchasing-power parity rates see Irving Kravis et al.. World
Product and Income
International Comparisons of Real Gross
Product Baltimore, Johns Hopkins University Press/World Bank,
;
,
1982, pp.
178-179.
Exhibit
4:
Fixed Asscts per Vehicle Produced, 1965-
1983
Adjusted for Integration and Capacity Utilization
GM,
FY
Ford, Chrysler
Relative Scale (U.S.
'
1965
=
100
Nissan
n
Toyota'
ICO)
76
1970
1975
1979
1983
Souices:
Annual
reports (English versions for Nissan
and Toyota).
Notes: "Figures for Toyota prior to 1983 are adjusted upward by 9% to
account for the fixed assets of Toyota Motor Sales; this was the level of
Toyota Motor Sales' fixed assets in the 2 years prior to the merger.
an estimate of 50% for accumulated depreciation not listed in
Nissan's 1975 report. This estimate is based on data from other years.
''Includes
Exhibit
5:
JAPANESE AND U.S. AUTO PRODUCTION BY
VEHICLE TYPE, SELECTED YEARS
Exhibit
6:
Nissan and Toyota Production by Vehicle Type, 1941-8
Exhibit
7:
1965-1983
Company and Group
(%)
Integration, U.S.-Japan,
Exhibit
8: ATeiage Monthly Wage* per Employe*
(Excluding Bonuses)—Nissan and Toyota Groups, 1983
(yen, number of employees)
Company
Exhibit
9
:
Net Value-Added Productivity (VAP)
1960-1983 (number
of firms
and employees) 1000 yen
at
Nissan and Toyota Subsidiaries,
in constant 1983 values)
Exhibit 10:
UNADJUSTED VEHICLES PER WORKER AT TOYOTA, NISSAN,
GM & FORD, 1955-1964 & SELECTED YEARS
Exhibit 11: Inventory
Period
Turnover Comparison, 1955-1983
Exhibit 12: Inventory
FY
Turnover Comparison, 1955-1983
Exhibit 13:
*
Inventory Turnover in the Nissan and Toyota Groups, 1965-1983
*
.
991
I
033
Date Due
"^^^^
OC^3'90
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