Waldemiro Francisco Sorte Junior
Reitor
Ricardo Marcelo Fonseca
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Waldemiro Francisco Sorte Junior
Waldemiro Francisco Sorte Junior
© Waldemiro Francisco Sorte Junior
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Série Pesquisa, n. 416
UNIVERSIDADE FEDERAL DO PARANÁ – SISTEMA DE BIBLIOTECAS
BIBLIOTECA CENTRAL – SEÇÃO DA REPRESENTAÇÃO DA INFORMAÇÃO
G393 SorteGestão
doFrancisco
sangue e de medicamentos / Mariluce Karla
S714
Junior,e vigilância
Waldemiro
TheBomfim
de Souza, System
organizado.
– Curitiba, PR ::Ed.
UFPR,an Integrative
Lean Production
and Modularization
Towards
2022.
Approach to Supply Chain Management in the Automobile Industry –
– Curitiba
Ed. UFPR, 2022.
Waldemiro
244 p. : il.Francisco
color. ; 20Sorte
cm. –Junior.
(Série pesquisa,
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205 p. : il. color. ; 20 cm. – (Série pesquisa, n. 416).
Vários autores.
p. 185-205.
Referências:
Inclui referências.
ISBN 978-65-5476-001-0
ISBN 978-65
1. Indústria automobilística - Japão - Administração. 2. Produção
enxuta. 3. Trabalhadores da indústria automobilística. I. Título. II. Série.
CDD: 338.47629222
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Bibliotecário: Arthur Leitis Junior - CRB 9/1548
ISBN 978-65-5476-001-0
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SUMÁRIO
INTRODUCTION | 7
CHAPTER 1
LEAN PRACTICES | 63
Continuous Improvements (Kaizen) | 72
Multi-skilled Workers | 74
Quality Control Circles | 75
The 5-S Approach | 82
The Kanban System | 82
Just-in-time Manufacturing | 83
Automatic Detection of Defects (Jidōka) | 87
Autonomous Maintenance | 89
Detection and Prevention of Errors (Poka-Yoke) | 92
Visual Management | 93
Close Supplier Relationships | 97
Technical Assistance and Diffusion of Practices | 98
Sharing Benefits from Improvements | 99
Suppliers’ Participation in Design | 99
Close and Constant Communication | 101
Production Based on Dealers’ Orders (Genryō Seisan) | 104
Production Leveling (Heijunka) | 106
CHAPTER 2
THE LEAN PRODUCTION SYSTEM: AN INTEGRATIVE
APPROACH TO SUPPLY CHAIN MANAGEMENT | 111
The Automaker | 111
The Relationship between Automaker and Suppliers | 115
The Relationship between Automaker and Dealers | 124
Diffusion of Practices at the Interfirm Level | 134
CHAPTER 3
MODULARIZATION: IMPACTS ON SUPPLY CHAIN
MANAGEMENT | 140
The Relationship between Automakers and Suppliers in the Traditional
Mass Production System | 159
The Interplay between Modularity and the Lean Production System | 167
CONCLUSION | 176
REFERENCES | 187
ABOUT THE AUTHOR | 207
INTRODUCTION
This book presents the main characteristics of the Lean
Production System and discusses the pattern of supply chain
management traditionally used by Japanese automakers, which
is focused on the promotion of integration between automakers,
suppliers and dealers. It also examines the trend towards
the adoption of modularization in the global automobile
industry and its impact on the Lean Production System. In
particular, this study argues that automakers adopting modularization can focus either on coordination, engaging in distant
relationships with suppliers and in a clear-cut division of tasks,
or on integration, promoting close and long-term relationships
with suppliers, based on high levels of knowledge sharing and
technology exchange.
A supply chain can be described as “a series of interconnected activities that involve the coordination, planning and
controlling of products and services between suppliers and customers” (BÜYÜKÖZKAN; GÖÇER, 2018, p. 157). It is thus
a network of connected firms that transform raw materials,
components and other inputs into a final product or service to
be delivered to the customer. In this manner, supply chain management is “the management of activities and flows related to
sending products from suppliers to manufacturers, retailers, and
finally customers” (AMIN; ZHANG; AKHTAR, 2017, p. 82).
Knowledge sharing and management are crucial issues in
supply chain management because they can prevent problems
such as an excessive inventory and the bullwhip effect, assist
the decision-making process and disseminate practices that
can increase productivity and quality at the interfirm level.
7
Waldemiro Francisco Sorte Junior
Advancements in information and communication technology (ICT) have generated several mechanisms and tools to
facilitate knowledge sharing and provide a large amount of
data for managers. Electronic integration can assist firms to
exchange timely and important information, with positive impacts on governance and performance outcomes. In addition,
bilateral specific investments on knowledge sharing tools by
several firms in a supply chain “can create bonding effects and
reduce internal and external coordination costs” (SEYOUM;
LIAN, 2018, p. 857). Nonetheless, ICT systems are not free
of costs and a number of organizations have “failed to gain
the expected improvements in their supply chain performance”
despite significant investments in ICT (VIET; BEHDANI;
BLOEMHOF, 2018, p. 68). Accordingly, not any information
is worth sharing and it is essential to assess the value of information. This value can be defined based on the expected or realized “benefits of using the information in decision making in
a supply chain” (VIET; BEHDANI; BLOEMHOF, 2018, p.
68). An organization should thus create effective mechanisms
to facilitate the flow of high quality information within and
across the firm’s boundaries in a supply chain.
Knowledge management is also relevant for the distinction
between coordination and integration, which are central definitions for this book. In this respect, Takeishi (2002, p. 322, 323)
differentiates “task partitioning” from “knowledge partitioning.”
While the former indicates which organization is responsible for
the tasks of manufacturing a specific component, the latter designates “who has knowledge for the tasks among organizations”.
He advocates that an automaker should “keep the knowledge for
the outsourced task within the organization, rather than outsourcing the knowledge together with the task” (TAKEISHI, 2002, p.
322-323). This discussion is relevant for this current research be8
The Lean Production System and Modularization
cause it illustrates the problem of focusing on coordination rather than integration in supply chain management. By focusing on
coordination, automakers outsource both tasks and knowledge
to their first-tier suppliers, and concentrate only on assembling
the final vehicle. There are no joint-efforts in problem-solving
and knowledge is not shared. Under an integrative approach,
the automaker keeps the knowledge even when outsourcing the
task. Integration, therefore, favors information sharing and creates conditions for enhancing productivity and quality of the entire supply chain. This knowledge sharing and accumulation can
become a competitive advantage for the supply chain network
(DYER, 1996b). Moreover, it is worth considering the risks for a
firm that excessively focuses on its core competence specialization,
since it may lose “both assets and talents as a result of outsourcing
of manufacturing operations and just coordinating product flows
to markets” (KEMPPAINEN; VEPSÄLÄINEN, 2003, p. 706).
Lau, Yam and Tang (2010, p. 20) define supply chain
integration “as organizational processes to integrate suppliers,
customers and internal functional units in order to optimize the
total performance of all partners in the supply chain”. In addition, this book includes knowledge sharing and technology exchange as crucial elements of the concept of integration. Therefore, patterns of supply chain management that do not favor the
dissemination of knowledge and technology regarding product
content are regarded as coordination rather than integration.
This book adopts the United Nations Development
Programme (UNDP) three-level framework for capacity
building and stresses the importance for firms to include the
system level in their capacity building initiatives in order to
achieve higher levels of efficiency. Accordingly, this study selects the Lean Production System as the reference model, as
it offers better outcomes in terms of interfirm collaborative ef9
Waldemiro Francisco Sorte Junior
forts towards the improvement of the entire production process. Lean Practitioners invest in capacity building initiatives
not only at the individual and organizational levels, but also at
the system level. Measures adopted by automakers following
the Lean Production System emphasize technology transfer,
knowledge sharing and the pursuit of continuous improvements
throughout the supply chain, including suppliers and dealers. As
Büyüközkan and Göçer (2018, p. 165) emphasize, “most of the
world’s successful organizations have excellence in their supply
chains, and some even argue that the competition among organizations is competition among their supply chains”.
This book is divided into five sections. This Introduction
presents the main reasons for choosing the automobile industry
for study and explains the conceptual background. Chapter 1
shows the main practices adopted by automakers under the
Lean Production System. Chapter 2 discusses in detail the integrative approach to supply chain management adopted by
Lean Practitioners. Chapter 3 examines the adoption of modularization in the world automobile industry from the mid1990s and analyzes the implications of modularization for the
Lean Production System. The fifth section concludes the book.
The Importance of the Automobile Industry for the World
Economy
The automobile industry was chosen as the central theme
of this book for a number of reasons. First, this particular industry provides a good example of the importance of a close
relationship among firms for the success of an industrial sector. Empirical examples of successful interfirm relations can
be borrowed from the Japanese experience and there is a vast
literature about the Lean Production System, which is focused
10
The Lean Production System and Modularization
on creating conditions to jointly improve the efficiency and
quality of automakers and suppliers.
Another reason is that the automobile industry is considered one of the core sectors to promote industrial change in a
given country because the technologies and techniques developed in this sector can generate spillovers to other industries.
Moreover, many other industrial sectors, such as steel and ICT,
have to improve their quality standards to supply up-to-date
material for automakers. In addition, a large number of both
large firms and small and medium-sized enterprises (SME)
that supply components for vehicles have to enhance their
productivity and efficiency to cope with automakers’ demands
(LALL, 1980, p. 789-790; WOMACK; JONES; ROOS,
1991, p. 11; SHAPIRO, 1994, p. 39; BOTELHO, 2002, p. 58).
In fact, by looking at an automobile, one can see the
result of technology improvement from different industrial
sectors. The navigation system is an example of a technology
adopted in automobiles that originated from the ICT industry. Ubiquitous access to the internet, the widespread use of
smartphones and the internet of things have allowed the emergence of several mobile applications to support urban mobility and minimize the problem of traffic jams, which are said
to cost billions in lost productivity and wasted fuel (TOYOTA…, 2008). Moreover, the growing use of hybrid and electric cars will impose expansions in the electric power industry
and the necessity to increase the availability of electric vehicles charging stations. In fact, due to environmental concerns,
there is constant pressure for more innovation in the renewable
energy industry. Therefore, the automobile industry generates
start-ups in different sectors, constantly pressuring satellite
firms for productivity and quality improvements as well as for
11
Waldemiro Francisco Sorte Junior
remodeling and upgrading their business plans, and pushes
technological improvements across industries.
The automobile industry also generates many direct and
indirect jobs and is one of the sectors with the highest job
multiplier effect (AAPC, 2017, p. 8). In 2006, data compiled
on 39 countries revealed that this industrial sector generated
8,397,451 direct jobs. The estimated number of indirect jobs
was approximately 50 million (OICA, 2007). It is true that the
2008 Global Financial Crisis pressured automakers to decelerate production in several countries, which also resulted in the
reduction of work posts. However, in the case of the United
States, although the negative effects were evident in the years
that followed the crisis, firms in the automobile industry restarted hiring workers from 2012, as shown in Figure 1.
FIGURE 1 – EMPLOYMENT IN THE UNITED STATES AUTOMOBILE
INDUSTRY (THOUSAND EMPLOYEES)
Source: Bureau of Labor Statistics (2018).
In the case of Brazil, the economy was resilient to the
2008 Global Financial Crisis and the total workforce directly
employed in automobile manufacturing, although slightly re12
The Lean Production System and Modularization
duced from 109,848 in 2008 to 109,043 in 2009, increased and
peaked at 135,343 in 2013. The economic and political crisis
faced by the country from 2014 onwards, however, negatively
impacted the labor market, and the number of workers engaged
in automobile production greatly decreased, reaching 109,530
individuals in 2016 (ANFAVEA, 2018, p. 40). Similarly, in the
auto parts sector, employment drop from 207,500 in 2008 to
199,500 in 2009, peaked at 229,700 in 2011, but fell to 162,200
in 2016 (SINDIPEÇAS; ABIPEÇAS, 2017, p. 11).
In Japan, 5.39 million individuals work in auto manufacturing and related industries, which correspond to 8.3% of the
country’s entire workforce, estimated at 65.30 million workers.
Approximately 862,000 people work directly with automobile production, 456,000 with materials and equipment supply
and 1,031,000 with sales and services. There are also 349,000
people engaged with jobs related to automobile fuel, insurance
and recycling, and 2,694,000 working on road transport related jobs, including vehicle rental services and road passenger
and freight transport ( JAMA, 2018, p. 1). In addition, a study
conducted by Prusa (2016, p. 2) reveals that Japanese-brand
automobile firms in operation in the United States contribute
to more than 1.5 million private sector jobs, including production-driven and dealer network-driven employment. This also
shows the level of interdependence of the automobile industry
across national boundaries.
In China, where the automobile industry presented an
outstanding expansion in the last decades, employment in this
sector is also significant. The number of workers engaged in
manufacturing activities in the Chinese automobile industry
increased from 1.5 million in 1990 to 2.2 million in 2010. It is
interesting to note that employment in the Chinese automobile industry was not negatively affected by the 2008 Global
13
Waldemiro Francisco Sorte Junior
Financial Crisis, as the number of workers maintained its trajectory of ascension in 2007 (2.04 million), 2008 (2.09 million)
and 2009 (2.17 million) (ZHANG, 2014, p. 56). Nonetheless,
Zhang (2014, p. 55-56) contends that, regarding labor and employment practices, major Chinese automakers “have generally
reduced job security and sought more flexibility in hiring and
firing” and autoworkers’ hourly compensation costs in China
“are very low by international standards”. In fact, the Chinese automobile industry has experienced a great expansion
due to the process of reducing the influence of state workers
in inefficient state-owned enterprises, increasing joint ventures between Chinese and foreign automakers and enhancing
competitiveness of domestic firms through mergers of small
companies with larger ones (ZHANG, 2014, p. 55-56;
SEYOUM; LIAN, 2018, p. 858). As a result, the automobile
industry in China achieved a boost in labor productivity without a dramatic increase in the number of workers. As Seyoum;
Lian (2018, p. 856) points out, “China has been an ideal market for mature industries that seek out lower cost locations to
both find new customers and gain access to lower cost labor”.
Actually, firms in general commonly focus on increasing
productivity while trying to reduce operational costs. Moreover,
Vasconcelos (2006) argues that automation and the adoption
of new techniques such as multi-skilled labor have reduced the
pace of job creation in the automobile sector. In fact, advancements in artificial intelligence indicate that routine types of
work, including not only routine manual labour, but also routine cognitive tasks, are threatened by automation in the near
future (AUTOMATION…, 2016). Nonetheless, the automation of certain jobs entails rearrangements in the way work has
been previously done. In this manner, automation reallocates
rather than displaces jobs, “requiring workers to learn new
14
The Lean Production System and Modularization
skills” (AUTOMATION…, 2016). Actually, although several
types of activities have become obsolete due to automation, it
could be argued that the overall number of jobs have actually
increased rather than decreased. It seems that, “automating a
particular task, so that it can be done more quickly or cheaply, increases the demand for human workers to do the other
tasks around it that have not been automated” (AUTOMATION…, 2016). In addition, data presented above shows that
the number of workers employed by the automobile industry
is significant and it is a central industrial sector for the promotion of direct and indirect jobs.
The automobile industry also plays a vital role in generating regional growth. For instance, Teixeira and Vasconcelos
(1999, p. 22) highlight that suppliers as well as other satellite
firms came to the state of Bahia, in Brazil, following Ford’s decision to build a new plant in that region. Due to this capacity
of promoting regional development, in the past decades many
states and the central government in Brazil have been providing fiscal incentives to persuade automakers to set up facilities in their regions. The aforementioned Ford’s plant built in
the state of Bahia received incentives of R$ 180 million for 10
years from the central government (BOTELHO, 2002, p. 60).
Another example is a plant for assembling Mitsubishi vehicles, which was set up in the municipality of Catalão, in Goiás
State. Although Catalão is located far from the main economic
and logistical centers of the country, such as São Paulo State,
the factory was constructed in this region mainly due to fiscal incentives provided by the local government (SORTE JUNIOR, 2008). In addition to the jobs directly generated by this
automaker, several satellite firms were attracted to Catalão to
provide services to this new plant.
15
Waldemiro Francisco Sorte Junior
The automobile sector also plays a major role in expanding the economy and generating the growth of other manufacturing sectors. The Japanese Automotive Manufacturers
Association ( JAMA) summarizes the importance of the automobile industry as follows:
An automobile typically is composed of
20,000 to 30,000 parts, all of which even
the largest vehicle manufacturers cannot
produce themselves. Automakers therefore
either outsource production or purchase
finished products (such as tires, batteries,
air conditioners and audio systems). Finished products purchased by the automakers include products manufactured abroad,
and the volume of imported components
increases yearly. Automobile manufacturing is thus an integrated industry because
it relies on many supporting industries
to produce the great diversity of materials and components it uses. Trends in the
automobile industry, which makes huge
investments in equipment and research
activities, are considered a barometer of
the economy. ( JAMA, 2018, p. 2)
In 2015, automotive shipments in Japan “accounted for
18.2% of the total value of Japan’s manufacturing shipments”
and, “in value terms, automotive exports grew 6.6% from 2016
to 16.1 trillion yen, and automotive imports expanded 11.4%
year-on-year to 2.3 trillion yen” ( JAMA, 2018, p. 3, 4). The
evolution of the total Japanese exports and imports are presented in values in Figure 2 and in units in Table 1.
16
The Lean Production System and Modularization
FIGURE 2 — TOTAL JAPANESE EXPORTS AND IMPORTS OF VEHICLES (US$ BILLION)
Source: JAMA (2018, p. 4).
*Exchange rate of US$1 = ¥111.34 (7 August 2018).
TABLE 1 — TOTAL JAPANESE EXPORTS AND IMPORTS OF VEHICLES (UNITS)
Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Imports
219,231
178,527
225,083
275,644
315,993
346,133
335,960
328,622
343,673
351,020
Exports (including trucks and buses)
6,727,091
3,616,168
4,841,460
4,464,413
4,803,591
4,674,633
4,465,624
4,578,078
4,634,033
4,705,848
Source: JAMA (2018, p. 9, 13-14).
China has also shown an intense participation in the
world automobile industry in recent years, reporting exports of
708,000 and imports of 1,041,000 completed cars (USA, 2017).
17
Waldemiro Francisco Sorte Junior
The United States’ exports of new vehicles accounted for
over US$ 57 billion in 2017, while imports exceeded US$ 191
billion (Figure 3). Detroit three manufacturers, Fiat Chrysler
Automobiles (FCA), Ford and GM, together, exported more
than 1 million vehicles produced in the United States (AAPC,
2017, p. 11).
FIGURE 3 — TOTAL US EXPORTS AND IMPORTS OF VEHICLES
AND AUTOMOTIVE PARTS (US$ BILLION)
Source: USA (2018).
TABLE 2 — TOTAL U.S. EXPORTS AND IMPORTS OF VEHICLES
(UNITS)
Year
2010
2011
2012
2013
2014
2015
2016
2017
Imports
5,797,953
5,999,277
6,943,556
7,150,815
7,398,448
8,003,338
8,153,019
8,271,075
Source: USA (2018).
18
Exports
1,482,774
1,697,857
1,928,830
2,062,051
2,217,418
2,093,009
2,054,906
1,981,873
The Lean Production System and Modularization
In Japan, the tax revenue estimated from the automobile
industry-related taxes is ¥8.4 trillion (approximately US$ 72.8
billion1), which accounts for 8.2% of Japan’s projected total tax
revenue for the fiscal year of 2018 ( JAMA, 2018, p. 43).
In Brazil, due to the economic and political crisis in recent years, the automobile industry’s revenue significantly declined from 2011 (Figure 4). Nonetheless, this sector is still
central in the Brazilian economy, reporting a revenue of US$
50.8 billion in 2015, which corresponds to 22% of the manufacturing industry’s share of the Brazilian Gross Domestic
Product (GDP) (ANFAVEA, 2018, p. 7).
FIGURE 4 — BRAZILIAN AUTOMOBILE INDUSTRY’S NET REVENUE (US$ BILLION)
Source: Anfavea (2018, p. 38-39).
1
Exchange rate of US$1 = ¥111.34 (7 Aug. 2018).
19
Waldemiro Francisco Sorte Junior
The automobile industry is also among the top investors
in Research & Development (R&D) in the world. A study
conducted by the European Commission (2017, p. 35), which
involved 2,500 firms investing the largest sums in R&D in the
world in 2016, reported the following R&D investment in automobiles and other transports: €57.1 billion in the European Union, €31.1 billion in Japan, €23.5 billion in the United
States, and €7.7 billion in China. This amount is also significant as a share of the R&D investment of all industrial sectors,
accounting for: 29.7% in the European Union, 30% in Japan,
8.1% in the United States, and 12.5% in China (EUROPEAN
COMMISSION, 2017, p. 31). In fact, the highest investor in
R&D among the top 50 companies in the world is Volkswagen, which invested €13.7 billion. General Motors appeared
in the 11th position, investing €7.7 billion, and Toyota in the
13th position, with €7.5 billion (EUROPEAN COMMISSION, 2017, p. 63).
TABLE 3 — INDUSTRIES NET CONTRIBUTION TO R&D IN SELECTED REGIONS IN 2016 (US$ MILLION)*
USA
EU
Japan
China
Total
Automobiles & other
transports**
Health industries
336.86
223.84
120.58
71.86
27.33
66.40
36.16
8.95
ICT producers
88.95
84.42
51.74
14.42
2.09
81.63
14.07
5.35
ICT services
Others
54.53
29.53
61.86
23.84
24.42
40.81
29.07
7.21
Source: European Commission (2017, p. 35).
* Exchange rate of € 1 = US$ 1.16 (7 August 2018).
** The category “automobiles & other transports” includes “Auto Parts; Automobiles; Commercial Vehicles & Trucks; Tires” (EUROPEAN COMMISSION, 2017, p. 26).
20
The Lean Production System and Modularization
Capital investment undertaken by firms in the automobile industry is also significant. The automobile and auto parts
sectors were among the top capital investors in 2015, and in
the five years from 2012 to 2016, U.S. automakers have announced investments of US$ 50.3 billion “in their U.S. assembly, engine and transmission plants, R&D labs, headquarters,
administrative offices and other facilities” (AAPC, 2017, p. 13).
In fact, the automobile industry is a large-scale industrial sector, since a typical auto plant requires between US$ 1 and US$
2 billion “in start-up capital investment and employs 2,000 to
3,000 workers” (AAPC, 2017, p. 7). In Japan, the investment
in equipment for the automobile sector in 2017 was projected
at ¥ 1.45 trillion (approximately US$ 12 billion2), which corresponds to 21.2% of all major manufacturing sector investments.
Figure 5 reveals a constant growth of the automobile
industry in the world, except in the aftermath of the 2008
Global Financial Crisis, which is yet another evidence of its
central role of this industrial sector for the development of
the global economy.
2
Exchange rate of US$ 1 = ¥ 111.34 (7 August 2018).
21
Waldemiro Francisco Sorte Junior
FIGURE 5 — WORLDWIDE VEHICLE PRODUCTION — 1995-2017
(THOUSAND UNITS)
Source: Anfavea (2006, p. 153); Anfavea (2014, p. 145); Anfavea (2018, p. 139).
Figure 6 and Table 3 display the evolution of vehicle production in selected countries. The significant expansion of the
number of cars produced by China deserves special attention.
The total units of new energy vehicles manufactured by the
country also increased from 74,763 in 2014 to 340,471 in 2015
and 517,000 in 2016 (USA, 2017). This is partially a result of
the Chinese government policy announced in 2015, so-called
“Made in China 2025”, that stimulates the production of “energy saving and new energy vehicles” and offers “incentives for
e-car purchases to fight chronic air pollution and lower its dependence on petroleum imports”. (SEYOUM; LIAN, 2018, p.
858). It is also worth noting that the automobile production in
India doubled from 2008 to 2017.
22
The Lean Production System and Modularization
FIGURE 6 — WORLDWIDE VEHICLE PRODUCTION IN SELECTED
COUNTRIES (THOUSAND UNITS)
Source: Anfavea (2018, p. 139).
TABLE 4. WORLDWIDE VEHICLE PRODUCTION IN SELECTED
COUNTRIES (THOUSAND UNITS)
China
United States
Japan
Germany
India
South Korea
Mexico
Spain
Brazil
2008
2017
9,299
29,015
11,576
9,694
8,694
6,046
2,332
3,827
2,168
2,542
3,051
11,190
5,646
4,783
4,115
4,068
2,848
2,699
Source: Anfavea (2018, p. 139).
The total number of vehicles in operation in selected
countries also shows the strong presence of the automobile industry in the daily life of the world population. The number of
vehicles in use in the world increased from 892,028 in 2005
23
Waldemiro Francisco Sorte Junior
to 1,282,270 in 2015. Nonetheless, it is worth mentioning the
existence of disparities regarding the number of vehicles in operation between countries and even continents. For instance,
in 2015, while the Americas reported 413,725 units, vehicles
in operation in Central and South Americas were only 88,962,
a small fraction of the total. Moreover, the estimated fleet for
the entire African Continent in the same year was only 44,803
units (OICA, 2015).
FIGURE 7 — WORLDWIDE FLEET IN SELECTED COUNTRIES
(THOUSAND UNITS)
Source: Anfavea (2018, p. 138).
The following table presents the comparison of the number of inhabitants per vehicle, or motorization rate, in 2006
and 2015 in selected countries from different regions. The low
level of inhabitants per vehicle in developing countries strongly suggests that there is an opportunity for automobile sales
expansion in such areas. Although the reduction in the number of inhabitants per vehicle is noticeable in countries such
China, India, Brazil and Indonesia, the rate is still low when
compared to developed countries (Table 5).
24
The Lean Production System and Modularization
TABLE 5 — INHABITANTS PER VEHICLE*
India
Indonesia
China
South Africa
Iran
Turkey
Ukraine
Brazil
Thailand
Mexico
Argentina
Russia
South Korea
2006
2015
100.9
45.4
35.5
8.4
21.3
6.5
9.3
7.6
6.8
7.8
7.5
4.6
5.5
4.4
3.0
Malaysia
11.5
Netherlands
5.7
Germany
5.1
Spain
5.6
France
Japan
5.0
United Kingdom
4.4
Canada
4.8
Poland
3.4
Australia
2.8
United States
3.2
Italy
2.4
2006
2015
3.3
2.3
1.7
1.7
2.0
1.7
1.7
1.7
1.7
2.4
1.7
1.5
1.5
1.2
1.8
1.7
1.7
1.7
1.7
1.6
1.5
1.4
1.4
1.2
Source: Anfavea (2018, p. 138).
* Listed in descending order, according to 2015 data.
In addition, the emergence and increasingly greater role
played by renewable energy in the past few years tend to indicate a greater demand for hybrid vehicles, electric cars and
other vehicles using new sources of sustainable energy. On top
of that, global automakers such as General Motors, Ford and
Volkswagen, as well as other firms originally from different industrial sectors, especially Google, are engaged in the development of autonomous cars. Toyota is also investing in Artificial
Intelligence, but its focus is on making “conventional cars safer
and more enjoyable to drive”, thus trying to extend “the age
at which it is safe for older people to drive themselves, by using technology that can catch their mistakes” (TOYOTA…,
2018). These trends show positive prospects for the expansion
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Waldemiro Francisco Sorte Junior
of the automobile industry even in countries with high motorization rates.
Hence, the automobile industry is central for the world
economy due to its significant R&D and capital investment,
direct and indirect job generation capacity, spillover effects to
other industrial sectors, creation and diffusion of new manufacturing processes, potential to induce technology change,
among other reasons.
The following sections of this introduction are dedicated
to presenting the conceptual background for this book. A brief
discussion on the UNDP three-level framework for Capacity
Building is conducted, in order to demonstrate the reasons for
choosing the Lean Production System as the model of reference.
The UNDP Three-level Framework for Capacity Building
The UNDP defines capacity as “the ability of individuals
and organizations or organizational units to perform functions
effectively, efficiently and sustainably”. This definition “implies
that capacity is not a passive state”, but rather “part of a continuing process” of creating and maturing abilities (UNDP,
1998, p. x).
The UNDP framework for capacity building was developed as a guideline to assist managers and officials in charge
of public, private or civil society organizations in developing
capacities for promoting sustainable change and achieving development objectives. Specifically concerning strategic management, the UNDP guidelines emphasize the need for managers to take into account the relationship between their firms
and other “entities or stakeholders within the broader system
within which they function” (UNDP, 1988, p. xx).
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The Lean Production System and Modularization
The UNDP contends that a given policy or strategy will
only be effective to promote capacity building at the individual
or organizational level if it also considers the broader context
(UNDP, 2008, p. 10). The UNDP thus adopted the open system approach to address the issue of capacity building.
The open system approach was developed between 1940
and 1970 by Von Bertalanffy, among other scholars, firstly
in the field of Biology (BERTALANFFY, 1950; BERTALANFFY, 1972). Applied to Organizational Theory, the open
system approach highlights the importance of observing the
interaction between departments of a firm and its relationship
with the external environment. According to Smither (quoted
in ENDLICH, 2001, p. 30):
Modern thinking recognizes organizations as systems composed of interdependent parts. Systems theorists believe that
changes in one area of an organization
bring about changes in the other areas.
Consequently, each part of the organization must be considered in terms of its
impact on the other parts. From a system
point of view, all of these aspects influence
the overall functioning of the organization.
The open system theory emphasizes two main aspects:
(1) focus should be on the interaction between the parts of the
system, rather than on each of them alone; and (2) it is crucial
to monitor, interact and constantly obtain feedback from the
external environment (KATZ; KAHN, 1978, p. 3).
By stressing the importance of observing the interaction and interdependency of the several parts of a system, this
theory acknowledges the central role played by synergy in the
development of open systems. Synergy occurs when the effect
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Waldemiro Francisco Sorte Junior
of two or more elements of a system working in combination
is greater than the expected additive effect of said elements
(ROELL; REIF; MOTSINGER-REIF, 2017, p. 1). Synergistic effects, as opposed to additive effects, can be observed
at the organizational level, if one considers the interaction
between departments of a firm, or at the system level, if one
considers the interplay between firms, suppliers, associations,
the government etc. Taking into account the system level is of
particular significance for countries in which the government
plays an active role in the economy, such as Japan. In the case
of China as well, competitive advantages is said to be “often
based on network relationships and close business-government
ties” and governmental institutions “have implications in influencing transaction costs of production and market exchange”
(SEYOUM; LIAN, 2018, p. 855-856).
In line with the open system theory, the UNDP emphasizes that individuals, as well as organizations, are members of
a broader system. Therefore, effective capacity building efforts
should involve not only individuals and organizations, but also
take into account the situation at the macro level. In addition to
its own objectives, an organizational strategic planning should
also include issues such as the government’s policy framework
and civil society demands. The UNDP proposal emphasizes
the necessity to observe the interplay of key actors at the macro
level and, therefore, adds the system level as a third element to
the framework of capacity building, an element that has often
been overlooked by managers.
The UNDP three-level framework is also in conformity with the “extended resource-based view” of the firm. The
resource-based view claims that “the portfolio of distinctive
resources a firm controls forms the basis for competitive advantage” (SEYOUM; LIAN, 2018, p. 855). However, Seyoum
28
The Lean Production System and Modularization
and Lian (2018, p. 855) maintain that “there is now a growing recognition that some strategic resources may lie outside
the boundaries of the firm” and, according to the extended resource-based view, “a network of interfirm relationships may
also explain competitive advantage”. In this manner, they
conclude that “the unit of analysis of the resource based view
should go beyond the level of the firm to include a network
of interfirm relationships in order to get a complete picture”
(SEYOUM; LIAN, 2018, p. 855).
Thus, in order to be effective, capacity building efforts
should address the individual level (skills, attitudes, qualifications etc.), the organizational level (mission, strategy, organizational culture, management values, human resources, information resources, financial resources, infrastructure etc.), and the
system level (policy dimensions, legal/regulatory dimensions,
process dimensions, interfirm relations etc.).
The Lean Production System acknowledges the importance of the interaction between all firms involved in the production process. There are efforts of capacity building not only
at the individual and organizational levels, but also at the interfirm level. Fujimoto (1999, p. 170) argues that, through longterm collaboration between Toyota and its suppliers, first-tier
suppliers were able to accumulate component-engineering capacity. Through several types of informal and formal linkages,
the automaker and its suppliers’ network can jointly deliver a
product closer to customers’ expectations. As discussed in more
details in Chapters 1 and 2, Lean Practitioners consider their
suppliers as essential collaborators, and have a systemic approach to capacity building.
Therefore, the Lean Production System successfully addresses the key factors highlighted by the UNDP guidelines,
since it adopts an integrative approach to capacity building
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Waldemiro Francisco Sorte Junior
involving all firms in the supply chain, and it also views capacity as a dynamic process that has to be constantly updated
and improved.
The Japanese Economic System: Reliance on Integration
The high level of economic development observed in
post-war Japan generated a vast literature trying to analyse
the elements responsible for this successful growth. Much attention has been given to the practices adopted by Japanese
automakers, which recorded remarkable gains in terms of productivity, efficiency and quality. The main practices used by
Japanese automakers as well as their approach to supply chain
management became known as the Lean Production System.
Womack; Jones and Roos (1991) highlight significantly
positive results in terms of productivity and quality of the Lean
Production System in comparison to the Mass Production System, implemented by Henry Ford in the early 20th Century.
They contend that American automakers had to emulate the
Japanese approach in order to survive competition. Fujimoto
(1999) asserts that Toyota successfully created an evolutionary
system that constantly updates itself through a process of trial
and error, standardization of practices and the continuous improvements of work processes. Cusumano and Nobeoka (1998)
studied a number of new organizational structures adopted by
different automakers and emphasized Toyota’s ability to take
measures proactively in response to changes in the external environment, constantly improving and renewing its own production system. By the end of the fiscal year of 2002, the annual profit of Toyota was higher than the combined earnings of
General Motors, Chrysler and Ford (LIKER, 2004, p. 4), and in
the first quarter of 2007, Toyota was the world’s largest seller of
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The Lean Production System and Modularization
cars (GOW, 2007). In 2016, market analysts considered Toyota
to be more valuable than General Motors, Ford and Honda
combined (TREFIS TEAM, 2016). Such positive outcomes of
Toyota in recent years can be seen as evidence not only of the
Lean Production System’s high level of efficiency, but also of its
capacity to maintain quality standards and constantly adapt to
changes in the world economy and consumers’ demand.
In fact, the Lean Production System can be a source of
competitive advantage through operational effectiveness, even
in today’s global scenario, in which several automakers are increasing their reliance on Modularization. In fact, operational
effectiveness can be considered a competitive advantage when
it is embedded in the organizational culture and operating processes to such an extent that it makes emulation difficult by
other firms (FLEURY; FLEURY, 2003, p. 18). When embedded in the organizational culture, operational effectiveness can
generate a process of continuous improvements, which facilitates incremental innovation. Moreover, the Japanese approach
to manufacturing in the automobile industry involves not only
the automaker but also suppliers and dealers. Therefore, their
efforts to achieve operational effectiveness go far beyond improving quality and lowering cost.
As discussed further in this book, the Lean Production
System tries to integrate automakers, suppliers and dealers in
order to enhance the effectiveness of the entire system. Close
communication between automaker and suppliers generates
several positive outcomes, such as: (i) joint-efforts towards
problem solving; (ii) higher flexibility to adapt the production
process to changes in demand; (iii) lower production costs by
jointly promoting continuous improvements; (iv) inventory costs reduction by minimizing buffer inventory; (v) higher
process stability; and (vi) collaborative efforts to reduce errors
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Waldemiro Francisco Sorte Junior
and defects. In fact, efficient knowledge sharing among supply
chain partners can also increase agility, adaptability and alignment (MARRA; HO; EDWARDS, 2012, p. 6103). Moreover,
because of its close connections with dealers, the automaker can
obtain reliable information about customers’ expectations and
produce a number of cars closer to the demand. Information
gathered by dealers about customers’ preferences will also be
extremely relevant as inputs for product development (WOMACK; JONES; ROOS, 1991, p. 188). This knowledge sharing
and technology exchange between automakers, suppliers and
dealers can become a competitive advantage for the entire supply chain. Therefore, the Lean Production System can generate
a competitive advantage because it induces a process of constant
incremental innovation that involves all firms in a supply chain.
FIGURE 8 — POSITIVE OUTCOMES OF CLOSE COMMUNICATION
BETWEEN AUTOMAKER AND SUPPLIERS
Source: Created by the author.
32
The Lean Production System and Modularization
In fact, some of the practices such as Just-in-time manufacturing and Kaizen (also known as continuous improvements) can
generate a positive impact on productivity and quality if implemented individually by firms. Nonetheless, it is the comprehensive approach to production that tends to be the central reason
for the success of Japanese automakers and is difficult to emulate. The Lean Production System tries to enhance the efficiency
not only of the automaker, but also of its suppliers and dealers.
Therefore, Lean Practitioners are concerned with all stages of
manufacturing, from product development to the delivery of the
final product to the consumer, including after-sales. After-sales
services are important to obtain invaluable feedback, that may
become an input for further product development projects, and
to create a long-term relationship with customers (WOMACK;
JONES; ROOS, 1991, p. 181-188; MARTÍNEZ-JURADO;
MOYANO-FUENTES, 2014, p. 134).
This integrative approach was pivotal for the success of
Japanese firms in the automobile industry. Lean Practitioners
focus on the interaction among firms to collaboratively promote the development of the entire supply chain. The Lean
Production System does not focus on win-or-lose negotiations,
in which the automaker tries to enhance short-term profits by
imposing lower prices on suppliers. The understanding that the
success of the automaker depends on the commitment of all
firms in the supply chain resulted in a long-term relationship
between automakers and suppliers, based on joint efforts to
minimize errors, solve problems, reduce inventory and enhance
efficiency and quality.
Due to this integrative approach, capacity building initiatives are focused on the workforce of automakers, suppliers
and dealers. The Japanese approach to production, therefore, is
based on a continuous effort to improve the automakers’ capac33
Waldemiro Francisco Sorte Junior
ities and disseminate knowledge, technology and Lean Practices at the interfirm level. As a result of this comprehensive
view, which focuses on the interrelationship and interdependence of all firms involved in the production process, the Japanese automobile industry could create conditions for capacity
building at the system level.
As defined by the UNDP, capacity building is the process of developing and constantly updating abilities and skills,
which should be undertaken at three levels: individual, organizational and system levels.
At the individual level, initiatives are implemented to introduce and reinforce skills and to improve workers’ abilities.
Formal and informal education, as well as on-the-job and offthe-job training are examples of such initiatives.
At the organizational level, capacity building initiatives
are focused on enhancing productivity, efficiency, work processes and so forth. Strategic planning, human and financial
resources management and business process management are
some examples.
Companies often adopt practices to promote capacity
building at the two aforementioned levels, but sometimes neglect the system level. The UNDP highlights the importance
of observing the system level because strategies adopted at the
individual or organizational level that do not take into account
the macro level variables may fail in the long term for not being
able to create synergistic outcomes. By overlooking the broader
environment in which it is included, the organization may lose
latent opportunities for information and technology exchange
and become unable to create conditions for sustainable growth.
Capacity building at the system level encompasses the
organization’s interactions with suppliers, dealers, governmental agencies, associative organizations, civil society, labour
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The Lean Production System and Modularization
unions etc. Initiatives at system level are important for the
growth of industries due to the potential positive impacts in
terms of cross-sectoral technology and information exchange.
Hence, it is a central issue for promoting higher levels of economic growth in the economy.
In fact, this integrative approach can be clearly observed
in four central elements in the Japanese economic system: (1)
employee-favouring firms; (2) long-term relations between
firms and suppliers; (3) greater focus on cooperation rather
than competition; and (4) strong intervention of the government in the economy (DORE, 2000).
Regarding the first characteristic, Japanese firms have
traditionally prioritized stakeholders rather than shareholders,
when compared to the Anglo-Saxon model. While in Western firms the decision-making process is heavily influenced by
shareholders, in Japanese firms the interest of employees tends
to be more highly considered. As a result, there is a greater
sense of togetherness among the members of a Japanese firm,
including both blue-collar and white-collar workers, and Japanese shop floor workers have reasons to identify themselves as
members of the community in the same way as managers do
(DORE, 2000, p. 25-33).
As a drawback, however, it is important to mention that
criticism has been directed to the Lean Production System for
the high level of pressure imposed on workers. It has been argued that this system demands great commitment from the
workforce and may result in physical, emotional and psychological stress. Although practices such as kaizen and total quality control result in the reduction of non-value-added tasks, as
well as productivity and quality improvements, they demand
great involvement of employees, forcing them to work under
constant pressure on a daily basis. Adler, Goldoftas e Levine
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Waldemiro Francisco Sorte Junior
(1997, p. 433-434) assert that what is considered as wasted time
from the management perspective, could actually be workers’
rest, and contend that, overall, the Lean Production System
is “physically demanding and has significant ergonomic risk”.
Cusumano (1985, p. 305) also cites studies showing that Toyota’s emphasis on waste reduction and just-in-time manufacturing led to more major accidents and suicides among blue-collar
workers than other automakers.
In fact, participation on Quality Circles is said to be
voluntary at Toyota, and its members would meet after work.
However, the company “promoted and held in high regard
those who participated actively in QC meetings […] and severely disciplined those who failed to do so […]”. It is also
important to emphasize that “Toyota did not have to pay for
the extra hours that its employees put in to participate ‘voluntarily’ in QC activities, at least until 2007” (CHIKUDATE;
ALPASLAN, 2018, p. 73-74).
Therefore, several authors criticize the Lean Production
System due to its huge human cost, which is the adverse impact on the health of employees, mainly due to the frequency of
injury, the long hours, working conditions, and pressure placed
on production workers (MEHRI, 2006, p. 41). According to
James (2021, p. 1275-1276), while some authors highlight that
the Lean Production System stimulates employees’ continuous
skills development and rewards workers’ innovative and proactive initiatives to enhance the manufacturing process, which
would make it a very fair, humanistic system, other authors call
it a sophisticated prison.
According to The Japan Times (2007), Nagoya District
Court ruled that a Toyota Motor Corporation employee died
from overwork on February 9, 2002, at age 30, after working
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The Lean Production System and Modularization
around 106 hours of overtime. Regarding this incident, Chikudate and Alpaslan (2018, p. 73-74) affirm that:
Although QCs increased the quality and
lowered the cost of Toyota cars, they also
harmed Toyota employees. One extreme
example is about a 30-year old quality
control engineer who sacrificed himself
and died around 4 a.m. in a Toyota factory
due to karoshi, death caused by extreme
fatigue […]. According to the court records, he had put in 106 h and 45 min in
overtime before he died. His wife claimed
that because his husband was a discussion
leader in QC meetings, he had to work
50 extra hours, sometimes at home on the
weekends, to prepare his presentations at
his QC meetings.
It is important to note, however, that the problem of overwork in Japan is not restricted to the automobile industry. In
fact, since the late 1970s, the term karōshi (過労死) is used to
refer to “employees committing suicide or suffering from heart
failure and stroke because of long work hours”, and the Japanese
government has recently taken measures to reduce this problem
(WELLER, 2017). Cases have been reported in organizations
from different sectors, such as the Japan Broadcasting Corporation (NHK) and Dentsu Inc. (ADELSTEIN, 2016; WELLER,
2017). The numbers of suicide due to overwork (Karō jisatsu —
過労自殺) in Japan were 1,217 in 1995, 2,590 in 2010, and
2,159 in 2015. According to Watanabe (2018, p. 588), the number has increased due to Japan’s economic stagnation and global
competition, which pushed for labor market deregulation and
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Waldemiro Francisco Sorte Junior
resulted in greater stress levels experienced by regular workers,
especially due to work overload and higher pressure.
This potentially negative effect is evidence that companies should be careful not to expose their workers to such a
high level of stress that could cause physical or psychological
harm. In fact, companies should acknowledge the importance
of leisure time and of the enjoyment of private life with their
family on workers’ wellbeing and even on productivity. From a
legal perspective, employers must obey the limits on working
hours and allowable overtime hours. Despite these potential
negative effects, however, it is important to emphasize that the
Lean Production System attaches great importance and value
to human resources. Liker and Ogden (2011, p. 34) assert that
Toyota adopted a no-layoffs strategy during the 2007-2008
Global Financial Crisis while a 2009 survey indicates that “65
percent of the Fortune 100 announced significant layoffs”. According to them:
For Toyota, letting go of workers who
had received years of training in continuous improvement and problem solving
would be self-defeating. It was these welltrained, experienced employees that the
company needed if it was to find ways to
cut costs and improve efficiency. (LIKER;
OGDEN, 2011, p. 34)
Even when no production process was taking place
during the Global Financial Crisis, Toyota used its quality circles and kaizen activities to make its employees search for ways
to improve the production process, reduce defects and identify
measures to minimize non-value added activities:
Walking through the plant in March 2009,
it was impossible to tell that 40 percent
38
The Lean Production System and Modularization
of the employees were not building cars.
In every direction, engineers, managers,
and hourly team members were focused
and busy. Anyone who was not working
on production was planning for line speed
changes, preparing for the launch of future
models, or working on ways to improve
safety, improve plant operations, cut costs,
and improve quality. (LIKER; OGDEN,
2011, p. 48)
This initiative was also implemented on Toyota suppliers
during this crisis. According to Liker and Ogden (2011, p. 56),
“parts made by outside suppliers account for about 70 percent
of a Toyota vehicle, so restricting kaizen to the Toyota plants
would affect only 30 percent of a car”. Therefore, the Lean Production System fully recognizes the value of its workers, not
only within the automaker’s plant, but throughout the entire
supply chain network. Lean Practitioners invest time and financial resources to develop its human resources and they acknowledge that workers that were trained under the Lean Production System are the most important asset of the company
and play a critical role for the company’s survival and growth.
In this context, Shimokawa (1994, p. 25) highlights the
importance of enterprise-based labour unions to ensure stable labour relations. As a matter of routine, the management
of Japanese firms consults the union not only on employees’
related matters – such as changing the allocation of workers
to match fluctuations in production volumes, training programmes, promotion practices etc. – but also in “general business planning, investment schedules, preliminary production
schedules and even key strategic initiatives” (SHIMOKAWA,
1994, p. 25). He affirms that the Japanese enterprise-based sin39
Waldemiro Francisco Sorte Junior
gle union system was created to avoid further labor disputes after two disruptive experiences of strikes at Toyota and Nissan,
in 1950 and 1953, respectively. This regular consultation avoids
future conflicts and guarantees the continuity of the production process in the factory as well as stable labour relations.
Except for a small fraction of employees that cannot be
accepted as members due to legal restrictions, all workers in
Japanese companies are union members and they belong to
the same union (DORE, 1973, p. 120). In his comparison between British and Japanese firms, Dore (1973, p. 197) highlighted that, contrasted to their British counterparts, Japanese
enterprise unions have “a more formal bureaucratic organization which provides for more contingencies with explicit rules”,
as well as superior financial resources, since it collects money
from all the employees. These greater financial resources allow
Japanese enterprise unions to have a higher ratio of full-time
officials, which facilitates communication between officials and
members. Enterprise unions actually control larger amount of
financial resources than the Japanese Trade Union Confederation (Nihon Rōdōkumiai Sōrengōka — 日本労働組合総連合
会), known simply as Rengō (連合), which is one of the reasons
for its incapacity to oppose the deregulation of Japan’s labor
market promoted by the Japanese government in recent decades. Enterprise unions are often more interested in ensuring
the company’s survival and promoting employment protection
of union members (WATANABE, 2018, p. 595-596). Moreover, Dore (1973, p. 197) also observed that a number of “white
collar technical and lower-ranking supervisory and managerial workers (including young university graduates destined for
higher management)” belonged to the enterprise union. In fact,
Japanese enterprise unions also indirectly represent the interests of the management and, therefore, there is a tendency for
40
The Lean Production System and Modularization
managers to adopt a cooperative rather than confrontational attitude during negotiations (DORE, 1973, p. 165).
The second characteristic of the Japanese economic system is what Dore (2000, p. 36) calls relational trading, or the
pattern of supply chain management in Japan, which generates
mutual obligations for the parties involved. While in the West
it is reasonable for a firm to shift from one supplier to another
if price and quality conditions are better, in the case of Japan,
firms tend to create stronger and longer ties with its suppliers:
The Japanese […] operate with a greater sense of the advantages, particularly
in areas of rapid technical change, of the
cooperativeness and willingness to oblige,
to give and take in a loose exchange of
favours, which a long-term relationship
with a supplier can bring. Along with that
goes a greater sense of obligation, greater
recognition of how difficult you make life
for your supplier if you suddenly refuse
expected orders. (DORE, 2000, p. 36)
The Japanese automobile industry is pyramid-shaped
and involves a vertical division of labour. The assembler is at
the top of the pyramid and at the lower levels are the first,
second and third-tier suppliers. Automakers place great reliance on suppliers for subsystem manufacturing and product
development and the pattern of supply chain management
is based on a close and long-term relationship that involves
technology exchange and knowledge sharing. It is interesting
to note that this type of relationship exists not only between
assembler and first-tier supplier, but also on a supplier/supplier
basis. In fact, “first-tier suppliers also require parts from second
and third-tier suppliers as they often pre-assemble parts for
41
Waldemiro Francisco Sorte Junior
final assembly” (SHIMOKAWA, 1994, p. 25). On top of that,
the horizontal interfirm relations among suppliers in the same
supply chain are also based on stable and long-term collaboration and on the promotion of technological transfer and information exchange (DYER; NOBEOKA, 2000, p. 352). This
long-term commitment is responsible for several advantages,
such as the great flexibility of the Japanese automobile industry
in responding to changes in consumer demand: “The demand
for frequent design change, linked to the dynamics inherent
in new technologies and innovation, as well as new demand,
has been well handled by the assembler/supplier structure”
(SHIMOKAWA, 1994, p. 24).
The third characteristic of the Japanese economic system
is that the Japanese society is said to prefer cooperative rather
than competitive attitudes. Therefore, “Japanese firms are more
disposed to cooperative rather than competitive, adversarial
patterns of relations” (DORE, 2000, p. 38).
It is true that, as discussed in Chapter 2, the Lean Production System encourages competition among suppliers as a
means to promote a constant process of quality enhancement
and cost reduction. First-tier suppliers compete with each other for gaining design capabilities for specific products (WOMACK; JONES; ROOS, 1991, p. 154; FUJIMOTO, 1999, p.
170). Nonetheless, Dore (2000, p. 38) contends that Japanese
firms are more disposed to cooperate rather than compete,
due to the dominant mentality in Japanese supply chain management that the optimization of the outcome can only be
achieved if all firms in the supply chain cooperate. Although
competition is viewed as an important element to maintain
quality and to pressure for a constant reduction of component
prices, cooperation is seen as key for the success of the production process. In Japan, competition tends to occur between dif42
The Lean Production System and Modularization
ferent value-chain and not between individual firms (DYER,
1996a, p. 663). There is thus emphasis on cooperation rather
than competition within a supply chain.
The three above mentioned characteristics of the Japanese economic system are interrelated. For instance, in order to
create a long-term relationship with a supplier, it is necessary
to prioritize cooperation rather than competition, since the
main goal of the relationship is not to guarantee short-term
profits over a singular purchase, but to pursue long-term benefits generated from joint efforts to improve the entire production process. In addition, this long-term relationship between
the automaker and its suppliers is strengthened by the fact that
the employees in all these firms are committed to their jobs.
Since Japanese companies prioritize employees rather than
shareholders, workers have a strong feeling that their future
depends on the prosperity of their firms. As Dore (2000, p.
46) emphasizes, “people who have committed their lives to the
company are prone to take a long-term view”. On the other
hand, managers in firms that prioritize shareholders tend to be
more interested in short-term profits, since they do not expect
to stay in the same firm for their entire lives and are constantly
considering alternative job opportunities.
The fourth characteristic of the Japanese economic system is the pattern of public and private relations in the country,
which is based on intense and constant information exchange
to achieve mutual goals. The main feature of the pattern of Japanese government intervention in the economy is the constant
process of negotiation and cooperation with the business sector.
There are joint efforts from public and private sectors to cooperate towards promoting economic growth in strategic industries. This pattern of state intervention has been vastly studied
and is known in the academic literature as the Developmental
43
Waldemiro Francisco Sorte Junior
State Model. Several authors contend that this model was the
key factor in the economic prosperity not only of Japan, but
also of other East Asian countries, especially Taiwan and South
Korea (AMSDEN, 1989; WADE, 1990; KOHLI, 1999).
FIGURE 9 — THE JAPANESE INTEGRATIVE APPROACH
Source: Created by the author.
Under the Developmental State Model, the government is able to “generate and implement national economic
plans; manipulate private access to scarce resources; coordinate
44
The Lean Production System and Modularization
the efforts of individuals businesses; target specific industrial
projects; resist political pressures from popular forces such as
consumers and organized labor; insulate their domestic economies from extensive foreign capital penetration; and […] carry
out through a sustained project of ever-improving productivity, technological sophistication, and increased world market
shares” (PEMPEL, 1999, p. 139). The Developmental State is,
thus, able to identify strategic industrial sectors with potential
to generate economic growth, positive externalities and significant spillover effects, and to stimulate entrepreneurs and
private firms to invest in these sectors. Wade (1990, p. 342)
contends that the Developmental State plays an important role
directing investment into pivotal areas for maximizing national interest.
Dore (2000, p. 44) states that the Japanese public bureaucracy has traditionally played an important relational
regulation role, through the widespread use of administrative
guidance (gyōsei shidō — 行政指導), which is a type of informal
recommendation given by public officials. Although administrative guidance is devoid of formal means of coercion and enforcement, these recommendations are commonly followed by
private firms, revealing the importance of informal institutions
and negotiation in the interaction between the government
and business sector in Japan.
It is worth mentioning, however, that this pattern of constant negotiation between private and public sectors in Japan
was not created in a short period of time. Rather, it was a result
of a continuous process of trial and error, which sometimes
resulted in conflicts. According to Johnson (1983, p. 317-318),
during the late 1940s in Japan there was a state dominance,
while during the early 1970s, a private-enterprise dominance.
This shows that cooperation in Japan is not simply a cultural
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Waldemiro Francisco Sorte Junior
trait, but emerges from constant negotiation. Public officials
and representatives of the private sector constantly share information to better fulfil the needs of entrepreneurs in order
to create conditions for industrial growth. It is true that the
success of public policies requires an adequate initial policy
plan. Nonetheless, consistency, in order not to deviate from the
original purpose, and flexibility, to adapt to changes in the economic environment, are also crucial elements. The design of effective policies, efforts to ensure consistency and the ability to
create grounds for flexibility and adaptability demand a close
relationship between government and private sector, in order
to allow a constant and robust channel of relevant information
flow for decision-making.
In fact, the government’s capacity to create ideal policies for industrial growth is limited due to the existence of
bounded rationality. Simon (1965) has drawn attention to the
fact that individuals are limited in their ability to fully apprehend reality and rationally understand all variables influencing
a complex event. His concept of bounded rationality refers to
the “limits upon the ability of human beings to adapt optimally, or even satisfactorily, to complex environments” (SIMON,
1991, p. 132). Due to such constraints imposed by bounded
rationality upon both public officials and private firms’ managers, constant negotiation and information exchange can be
instrumental in reducing the gap between policy conception
and real implementation. This close interaction between public
and private sectors can correct deficiencies in public policies
caused by bounded rationality, such as unanticipated changes
in market forces, the advent of new technologies or upheavals
in the international economic environment.
Evans (1995) describes the type of relationship between
public and private sectors in Japan through the concept of em46
The Lean Production System and Modularization
bedded autonomy. The idea of embeddedness implies that the
government has to be in constant interaction with the private
sector to understand its demands and necessities. By doing so,
the government can play an effective role in cooperating with
the private sector and regulating the market. Nonetheless, although the public sector has to be in permanent contact with
companies, it also needs autonomy to be insulated from corrupted private interests and to define policies that can better
address the private sectors’ needs and promote industrial and
economic growth.
FIGURE 10 — THE DEVELOPMENTAL STATE MODEL
Source: Created by the author, based on Wade (1990, p. 342) and Pempel (1999, p. 139).
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Waldemiro Francisco Sorte Junior
Hence, both the pattern of interfirm relations in the
Lean Production System and the interaction between public
and private sectors in the Developmental State Model show
the integrative approach of the Japanese system. In both cases, the mutual interests of the parties involved in the process
play a greater role than their individual interests. The relationship is prioritized, facilitating the promotion of collaborative
efforts towards a common goal. As a result, capacity building
efforts tend to prioritize the system rather than the organizational level. This integrative approach to capacity building
can be identified as one of the main reasons for Japan’s high
level of economic growth, especially in the 1970s and 1980s,
as it stimulates the development of close and long-term partnerships among firms and between public and private sectors,
facilitating technology spillovers and knowledge sharing across
firms and industries.
The Early Years of the Japanese Automobile Industry
The Important Role Played by the Government
State intervention in Japan was paramount for the development of the automobile industry in the country. The Japanese government, under the influence of the military, created
a law to protect the national industry, the “Automobile Manufacturing Law”, in 1936. Instead of stimulating foreign automobile production in the country, the Japanese government
focused on nurturing domestic firms. In fact, Ford already had
a plant in Japan but restrictions imposed by the Japanese government on American automakers, such as heavy taxation on
imported vehicles and components, forced them to shut down
their factories by the end of the 1930s. This law also subsi48
The Lean Production System and Modularization
dized three companies for the production of trucks: Toyota,
Nissan and Isuzu. These firms received “five-year exemption
from income taxes, local and business revenue taxes, and import duties on machinery, equipment, and materials purchased
abroad” (CUSUMANO, 1985, p. 7, 17; FUJIMOTO, 1999, p.
34). The quality of automobiles produced by Toyota and Nissan
was actually not satisfactory in the early years of the Japanese
automobile industry, and the military constantly complained
about their durability and reliability (FUJIMOTO, 1999, p.
35). However, there was a clear incentive from the government
to strengthen domestic firms rather than bringing foreign direct investment into the country.
After World War II, the Ministry of International Trade
and Industry (MITI) also played an important role in the automobile industry. During the U.S. occupation of Japan (19451952), import restrictions were suspended due to low domestic
production. However, the increase in imports of foreign vehicles had a negative impact on the Japanese balance of trade,
and the problem was solved by the imposition of a value-added
tax of 40% on vehicle imports by MITI, which resulted in the
reduction of imports from 44.6% in 1952 to 8.9% in 1955.
Another important intervention of MITI was the policy to promote knowledge transfer from foreign firms to Japanese automakers regarding car production. In fact, in the early
1950s, Japanese automakers only had experience in manufacturing trucks. However, MITI expected the demand for small
cars to increase in the following years and, in 1952, decided
to encourage Japanese firms to “make arrangements with European automakers to assemble cars from imported knockeddown sets for three or four years”. The main objective was to
gradually switch from imported components to domestically
manufactured ones. MITI expected Japanese firms to absorb
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Waldemiro Francisco Sorte Junior
foreign technology and become competitive in the period of
seven years. Nissan completed the assimilation of foreign technology and initiated local parts production within the planned
seven years, although it took several additional years for other
Japanese automakers to shift to local production and to design
their own models (CUSUMANO, 1985, p. 7-8). Nonetheless,
the policy stimulated the acquisition of expertise and foreign
technology and induced competition between domestic firms,
allowing Japanese automakers to “survive despite the existence
of far larger and more efficient competitors in the United
States and Europe that were anxious to export to Japan” (CUSUMANO, 1985, p. 7).
Several Japanese automakers originated in other industrial sectors, such as textile machinery, aircraft and precision
machinery manufacturing. For instance, the predecessors of
Mitsubishi Motors, Fuji Heavy Industries, and Prince Motors (that merged with Nissan in 1966), all produced aircrafts
during the war, and only shifted to automobile manufacturing in 1945. Toyo Kogyo (renamed Mazda in 1984) and Daihatsu were previously precision machinery manufacturers and
joined the automobile industry only in the 1950s (CUSUMANO, 1985, p. 14-15). Toyota was originally Toyoda Automatic
Loom, a firm in the textile machinery sector. MITI’s determination to build an automobile industry in the country during
the 1950s was paramount to facilitate credit grants to these
firms from governmental institutions or private banks and nurture their growth (CUSUMANO, 1985, p. 20). The Japanese
government actively intervened not only to induce domestic
entrepreneurs to start business in the automobile sector, but
intensively collaborated with the private domestic sector to
decrease the gap in terms of quality and productivity between
Japanese and Western firms.
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The Lean Production System and Modularization
In addition, the adoption of export-oriented policies
by the government was paramount for promoting economic
and industrial growth not only in Japan, but also in other East
Asian Countries (WADE, 1990, p. 363-364). For instance,
although the South Korean government attracted multinationals to the country, it forced such companies to adopt export-oriented strategies. As a result, multinationals had to use
up-to-date technology and constantly try to raise productivity
and quality standards to offer competitive products to the international market. Japan, on the other hand, relied solely on
domestic firms, but also pursued an export-oriented strategy.
MITI maintained import restrictions throughout the 1960s
and early 1970s, until domestic automakers proved to be internationally competitive. MITI did not lower tariffs on small
cars until 1970, when it became 20%, and then again in 1972 to
8%, and in 1978, when tariffs were completely eliminated due
to pressure from Western countries (CUSUMANO, 1985, p.
24). Along with such protective measures, the government and
private firms adopted several measures to increase productivity
and technology content of the domestic automobile industry.
The following figure shows that, by the late 1970s, Japanese
exports of vehicles had already reached 45% of the production,
demonstrating that the industry was already competitive in
global standards by the time MITI eliminated the import tax.
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Waldemiro Francisco Sorte Junior
FIGURE 11 — JAPANESE AUTOMOBILE EXPORTS: PERCENTAGE
OF TOTAL PRODUCTION (1957-1984)
Source: Cusumano (1985, p. 394-395).
The Japanese bureaucracy effectively used protection to
restrain the demand of imports and to promote domestic industries. Restrictions imposed on imports of products that can
be obtained from domestic producers (the so-called “law of
similars”) as well as rising import tariffs on specific components or products are incentives to entrepreneurs and effective mechanisms to nurture local firms. If used as part of a
long-term policy to enable companies to gain experience and
expertise in an industrial sector and to achieve economies of
scale, protection can nurture the growth of competitive domestic firms. Additionally, if combined with export promotion
policies, domestic producers will have a channel for technical
assistance from foreign buyers, which is an opportunity to increase their quality level up to global standards (CUSUMANO, 1985, p. 23-24; WADE, 1990, p. 359-363).
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The Lean Production System and Modularization
Relevance of this Book
Several studies on the Lean Production System examine
the advantages of implementing Lean Practices at the organizational level. Nonetheless, it is more difficult to evaluate efforts to promote integration and to implement Lean Practices
at the system level, comprehensively involving several firms in
the supply chain management, which makes such assessments
less common in the literature. In fact, as a way to enhance productivity and efficiency in the U.S. automobile industry, an
attempt to transplant the main features of the Lean Production System can be observed from the 1980s. Several authors,
such as Schonberger (1982); Daniel and Reitsperger (1991);
Martin, Mitchell and Swaminathan (1995); Nakamura, Sakakibara and Schroeder (1996), have assessed these issues trying
to identify the hindrances to a smooth adoption of this system in U.S. automakers’ factories. Liker (2004, p. 12) sustains
that such efforts to adopt the Lean Production System in the
U.S. were often superficial, mainly because American managers embraced the adoption of Lean Practices but disregarded
the philosophy behind them. This partial adoption of the Lean
Production System has been characterized by the use of Lean
techniques devoid of a comprehensive effort to promote integration in the supply chain.
Based on this concern, this book adopts a concept of Lean
Production System that emphasizes the reduction of non-value-added activities and the promotion of integration in the supply chain network. Since a more integrative approach to supply
chain management has the potential to stimulate technology
transfer and information exchange within and across industrial
sectors and to generate higher levels of economic growth for
the country, studies that emphasize capacity building at the
system level deserve close attention. Capacity building at the
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system level is represented by initiatives such as: (i) efforts to
disseminate technology and information throughout the supply chain network; (ii) negotiations between public and private
sectors to promote industrial growth; (iii) technical assistance
and information exchange at the horizontal level by associative
organizations such as suppliers’ association; and so forth.
Moreover, as will be discussed in Chapter 3, there is a
trend in the world automobile industry towards the adoption
of modularization. The use of a modular architecture demands
a greater involvement of first-tier suppliers, which become responsible for the production of preassembled modules rather
than only components. In some cases, suppliers are responsible
to deliver these modules directly to the automaker’s assembly
lines. As a result, the global automobile industry is becoming
less vertically integrated, as automakers are increasingly outsourcing the activities they previously performed in-house.
Modularization “refers to the degree to which the production system is decomposable into modules, which then can
be assembled as one unit” (SEYOUM; LIAN, 2018, p. 852). A
module can be defined as “a self-contained subassembly that
connects to other modules using common interfaces” (ARNHEITER; HARREN, 2006, p. 87). It may contain “a wide
range of value-added content and complexity ranging from
simple, disposable modules such as ballpoint pen refills, to
larger complex modules like automobile chassis” (ARNHEITER; HARREN, 2006, p. 87). Nonetheless, a module interface
needs to be standardized in order to facilitate its connectivity
with other components of the final product.
From the mid-1990s, modularization started to be
more widely used in the automobile industry. In Volkswagen’s Resende truck factory, in Brazil, for instance, “suppliers
were signed up to supply whole sub-assemblies for steering,
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The Lean Production System and Modularization
brakes, suspension, engine and gearboxes, and to fit them on
the assembly line”. Modularity thus demands a redefinition
of roles between automaker and suppliers, as the latter is expected to play a greater role in module design and manufacturing. Some specialists contend that “the car industry will
gradually move to a pattern where most of a car will be made
in modules that are simply snapped together in small assembly lines close to the consumer, where details can be adapted
to local tastes” (INCREDIBLE…, 2002).
In addition, modularization tends to be adequate to the
internationalization strategies of automakers, since first-tier
suppliers are responsible for delivering pre-assembled modules rather than components, facilitating the final assembling
of the vehicle and enabling risk and cost sharing. Seyoum
and Lian (2018, p. 852) argue that modularization “brought a
major reorganization to the automotive parts supplier industry by realizing a firm’s strategic positional advantage through
mass customization”.
Therefore, it is important to observe the impact of modularization on supply chain management. Many Western automakers adopting modularization are increasingly outsourcing manufacturing related activities to first-tier suppliers and
keeping the main role as coordinators. Nonetheless, this focus
on coordination does not indicate an attempt to promote integration in the supply chain. This book argues that modularization can be used in association with the Lean Production System. Nonetheless, modular architecture can also be advanced
as a way to promote a clear-cut definition of tasks and division
of responsibilities, further promoting an adversarial rather than
cooperative approach to supply chain management. An automaker adopting modularization may stimulate a higher degree
of information exchange with suppliers, but this knowledge
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sharing may be restricted to modules’ interfaces and not include modules’ technology content. It is thus of both academic
and practical relevance to examine the interplay between the
Lean Production Process and Modularization, a topic to be
explored in Chapter 3.
Although data shows that the world automobile industry is expanding, the comprehensive adoption of Lean Practices throughout the supply chain can result in a better match
between manufactured and effectively sold cars, as well as in
vehicles that better suit consumers’ needs. In fact, in the early 2000s, the U.S. automobile industry faced overcapacity and
firms were encouraged “to sell extra cars at marginal prices in
order to bring in cash” (INCREDIBLE…, 2002). They had to
shut down a number of factories, lay off workers, and cut back
on automobile production. When Japanese automakers started
producing competitive models in new and efficient factories
in the U.S., the limitations of the Mass Production approach
became more evident (INCREDIBLE…, 2002; DONNELLY; MORRIS, 2003, p. 80, 82). It is true that the 2008 Global
Financial Crisis led to a severe drop in vehicle production in
a number of countries, often demanding state intervention to
provide economic stimulus to support the automobile industry.
Nonetheless, Bailey et al. (2010, p. 315-316) stress that, in the
case of the U.S., the financial crisis simply laid bare “a range
of pre-existing vulnerabilities in the auto industry”, as the Big
Three North American automakers had already reported significant net losses between 2005 and 2008. One way to improve this situation is to promote more integration between
automakers and suppliers. In fact, specialists argue that before any attempt to change engineering and design processes,
American automakers “need to become more co-operative and
less adversarial” (INCREDIBLE…, 2002).
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The Lean Production System and Modularization
In addition, due to pressure from civil society, stakeholders and governments, automakers are increasingly considering environmental responsibility in their strategic planning
(MARTÍNEZ-JURADO; MOYANO-FUENTES, 2014, p.
134). As a way to decrease the adverse effects of vehicles on the
environment, especially the emission of carbon dioxide, automakers are competing in the development of technologies to
create environmentally-friendly cars. Such measures undertaken by automakers are not only a response to tighter regulations
on car emissions in several countries, but also a way to improve
the company’s image. Toyota, for instance, is trying to nurture
its image as a car company with a highly developed sense of social responsibility and environmental concern (CAR FIRMS…,
2007; SHIMIZU, 2007, A WOBBLE…, 2007). This shows
that fostering closer relations with the final customer and civil
society will have growing importance for automakers.
Still regarding environmental issues, several authors
contend that the Lean Production System can contribute to
achieving a more sustainable supply chain. It is argued that
Lean Practices have positive effects on resource efficiency and
the reduction of buffer inventories and energy consumption
can lead to lower environmental pollution (MARTÍNEZ-JURADO; MOYANO-FUENTES, 2014, p. 139). On a survey
conducted on Indian SMEs, Shashi et al. (2019, p. 119) assess
the impact of Lean Practices on process innovation, product
innovation, financial performance and environmental performance. The authors contend that a Lean Production Process
can influence product innovation to the extent that it “directs to effective utilisation of raw materials which results in
lowering materials’ costs and recycling of the waste material
into money-making products that, in turn, decreases the rate
of emissions and therefore the environmental performance”
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(SHASHI et al., 2019 , p. 114). Nonetheless, scholars also argue that it is necessary for Lean Practices “to be adopted with
an environmental focus” to achieve better results in terms of
sustainability (MARTÍNEZ-JURADO; MOYANO-FUENTES, 2014, p. 139).
According to Martínez-Jurado and Moyano-Fuentes
(2014, p. 138), the literature is consensual regarding the convergence between Lean management and environmental sustainability in at least three underlying principles:
i.
ii.
iii.
waste reduction, as both the Lean Production
System and environmental sustainability make
a comprehensive effort to reduce sources of
waste, which in the case of the former is represented by non-value-added activities and in the
latter by pollution;
process-centred focus, as they both stress the
idea that solving a problem is not sufficient and
individuals should aim for prevention, i.e., avoid
defective parts from being produced or environmental degradation from taking place;
people involvement and participation, as they
both emphasize that commitment of everyone
is necessary, in order to actively participate in
continuous improvement and quality control
circles or to implement environmental principles and practices.
There are, therefore, potential synergies between the Lean
Production System and environmental sustainability, since
they “both coincide in eliminating wastage in all its forms” and
“Lean supply chains can facilitate the adoption and spread of
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The Lean Production System and Modularization
environmental practices and innovations among chain members during the product’s entire life cycle”, thus improving “environmental performance across the chain” (MARTÍNEZ-JURADO; MOYANO-FUENTES, 2014, p. 141-144).
Another issue that may have an impact for public policy
makers in both developed and developing countries is the need
to undertake measures to recycle vehicles. The world operating
fleet is in steadier growth and automakers will soon have to start
considering not only their “forward logistics system but also reverse logistics”. Kumar and Yamaoka (2007), in a research conducted in the Japanese automobile industry, contend that 81%
to 83% of cars are recycled (percentage measured by car weight),
which shows the necessity to create initiatives to address the remaining 19%. Car recycling in Japan follows four steps:
(1) The oil, engine, tires, and seats are removed and recycled. (2) The remaining
auto body is compressed and shipped to
appropriate facilities. (3) In the facilities,
the compressed body is shredded and divided into steel, non-steel and other material. (4) The other material, called automobile shredder residue (ASR) is dumped
into the sea to create artificial islands.
(KUMAR; YAMAOKA, 2007, p. 120)
Moreover, it is important to emphasize that used car exports is one of the central measures undertaken by Japanese
automakers regarding reverse supply chain management. As
for the destination of Japanese used cars, in 2003 “55 percent
of the total Japanese used car export was directed to New Zealand (23 percent), United Arab Emirates (13 percent), England
(10 percent), and Russia (9 percent)” (KUMAR; YAMAOKA,
2007, p. 135). However, as developing countries expand their
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domestic automobile industry and improve productivity, Japanese automakers will have to consider alternative ways to address this problem. It is important to add that a Car Recycle
Law passed in Japan in 2005 requires automakers to make arrangements for the recycling and reuse of some categories of
car items, including chlorofluorocarbon propellants. The Lean
Production System, with its emphasis on waste reduction and
on promoting integration in the supply chain network, can be
relevant in addressing the challenges of reverse supply chain
management. Recycling and finding a proper destination to
used auto parts and vehicles tend to be a rising concern for the
current global community, which exercise pressure for environmental protection and sustainable development.
Therefore, problems with overproduction and changing
consumers’ needs demonstrate the necessity to promote flexibility in the production system. Moreover, challenges such as
developing environmentally-friendly vehicles, creating autonomous cars and recycling or providing a safe destination for old
cars will demand greater efforts of the supply chain towards
product and process innovation. In addition, efforts to cope
with pressures from civil society and government will require an
active role of firms in constantly updating its internal processes
to promptly respond to legal changes and social demands, in
order to sustain a positive company image. Supply chain management is a crucial element in responding to the constant and
ever growing challenges in the automobile industry.
It is noteworthy that the topic discussed in this book
is relevant not only for the automobile industry, but also for
several other sectors. A research conducted by Kemppainen;
Vepsäläinen (2003, p. 702, 716) involving supply chains in
electronics, mechanics and paper sectors of Finish industry
shows that even though in the early 1990s supply chains were
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perceived as “linear chains of companies, and management
focused on improving the efficiency of material flows”, lately
the “need for information sharing and collaborative planning
are better understood”. A cross-country comparative study between Japan and Britain in the electronics industry also emphasizes the importance of cooperation in interfirm relations,
as it can reduce transaction costs due to a higher degree of
mutual trust (SAKO, 1992, p. 241).
The study of Lean Practices also represents advantages
that go beyond the automobile industry and the Lean Production System has been extensively applied in different industrial sectors, including a number of non-manufacturing
contexts (SHASHI et al., 2019, p. 112-113). For instance,
Das and Handfield (1997, p. 244-245, 250) emphasize the
relevance of just-in-time manufacturing for several industrial sectors, including computers, pharmaceuticals, chemicals
and steel. They also argue that some firms are able to benefit
from both just-in-time manufacturing and global sourcing by
employing a variety of mechanisms such as “agreeing on precise delivery dates and entering into long-term contracts with
overnight delivery business” (DAS; HANDFIELD, 1997, p.
246). In another survey, involving firms in the U.S. machinery,
electronics and auto parts industries, Nakamura, Sakakibara
and Schroeder (1996, p. 470, 473) argue that the implementation of just-in-time manufacturing led to significant improvements in plants performance. In a statistical study on
the Indian Textile Industry, Bloom et al. (2011) show positive
impacts of the adoption of Lean Practices on productivity, as
well as on inventory and defect reduction. Lermen et al. (2018)
demonstrated the applicability of Lean Principles to sustainably develop innovative solutions for fruit preservation and
waste elimination during the product development process,
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thus showing the relevance of Lean Practices for New Product Development in the Brazilian agroindustry. Finally, Baril
et al. (2016, p. 338) discusses the application of kaizen activities
in healthcare, arguing that it can improve the participation of
all members and “help finding an adequate solution and to
measure its impact before the implementation”.
In this manner, studies on the implications of an integrative approach to supply chain management and on the implementation of Lean Practices are of academic and practical
interest not only for the automobile industry, but also for other
industrial sectors.
62
CHAPTER 1
LEAN PRACTICES
By analyzing the production system of Japanese automakers, particularly Toyota, scholars and practitioners have
defined the main characteristics of what became known as the
Lean Production System. This system tries to treat product
development, manufacture, sales and after-sales as an integrative system. In this manner, efforts to reduce cost and enhance
quality are jointly conducted by the automaker, suppliers and
dealers. Therefore, Lean Practitioners try to achieve a high level of integration among all firms in the supply chain.
For instance, the Lean Production System uses teams of
multi-skilled workers on the shop floors. Workers are supposed
to rotate within and across work teams in order to develop a
comprehensive knowledge of the entire production process. It
is worth mentioning that the rotation of employees is not restricted to the original factory in which they were initially allocated as the automaker’s workers may also be relocated to suppliers’ shop floors. This shows the high level of integration in a
Lean Supply Chain. Another example of the integrative nature
of the Lean Production System is just-in-time manufacturing, which demands a close relationship between automaker,
suppliers and dealers. Auto parts are delivered by suppliers to
the automaker, based on real requirements for manufacturing,
which are dictated by the number of existing vehicle orders
rather than sales forecasts (HINES, 1998, p. 912).
Here, it is relevant to discuss some definitions of the Lean
Production system. According to Creese (2001, p. 1), Lean is
“a manufacturing philosophy to shorten lead times and reduce
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costs by reducing waste and improving employee performance,
skills, and satisfaction”. Such definition is relevant to show the
commitment of Lean Practitioners with the reduction of waste
(or non-value-added activities) and with the improvement of
the capacities and skills of the workforce. The reduction of
non-value-activities or waste, which is known by the Japanese term muda (無駄 or ムダ), is actually a central concern of
the Lean Production System (KUMAZAWA, 2013, p. 134).
Shashi et al. (2019, p. 112) emphasize that Lean implementation involves the “concept of continuous improvement and
removal of all forms of waste […], including processes or activities that do not add value and, therefore, lead organisations to
waste time, resources and money”. Nonetheless, this definition
does not emphasize the integrative approach of the Lean Production System towards supply chain management. In fact, in
the Lean Production System the workforce of the entire supply chain undertakes efforts towards continuous improvements
and waste reduction.
To Hicks (2007, p. 237), Lean is a philosophy that “involves eliminating waste and unnecessary actions and linking
all the steps that create value”. This definition also presents
some of the main features of the Lean Production System, but
it does not clearly state that this production process is customer-oriented and that the values pursued by Lean Practitioners
are defined according to customers’ needs.
Another definition, by Bayou and Korvin (2008, p. 289),
emphasizes the Lean Production System’s efficiency:
Manufacturing leanness is a strategy to
incur less input to better achieve the organization’s goals through producing better
output, where ‘‘input’’ refers to the physical quantity of resources used and their
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The Lean Production System and Modularization
costs, and ‘‘output’’ refers to the quality
and quantity of the products sold and the
corresponding customer services.
This definition, however, does not explicitly mention
the main features of the Lean Production System, namely
the commitment of the entire workforce to the reduction of
non-value-added activities and the effort to collaborate with
suppliers and dealers towards the improvement of the entire
supply chain. Moreover, it is broad and can also be used to define most manufacturing strategies, since most firms organize
their production process to provide a high quality product or
service to the market for a reasonable price.
Instead of presenting a definition, Womack and Jones
(1996) describe the Lean Production System through five key
principles: (1) specify value; (2) identify the value stream; (3)
make the value stream flow; (4) let the customer pull the system; and (5) pursue perfection. According to them:
The critical starting point for lean thinking
is value. Value can only be defined by the
ultimate customer. And it’s only meaningful when expressed in terms of a specific
product (a good or a service, and often
both at once), which meets the customer’s
needs at a specific price at a specific time.
(WOMACK; JONES, 1996, p. 16)
The first principle shows that the Lean Production
System is customer-oriented and the value pursued by Lean
Practitioners is defined according to customer’s preferences.
The second principle highlights that this production system
is focused on identifying activities that add value to the final
product or service. The workforce, therefore, should be committed to the elimination of non-value-added tasks. While the
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entire process should be pulled by customers’ needs, as emphasized by the forth principle, there should be a constant effort
to keep the process flowing through the value stream without
any obstacles, as stressed by the third principle. In this manner,
rather than trying to push products to customers, the entire
production system should be pulled according to the consumer’s necessities. Finally, the fifth principle emphasizes that the
Lean Production System is based on the philosophy of aiming
at perfection. Through the commitment of the workforce to
Lean Practices such as kaizen and quality control circles, Lean
Practitioners are constantly trying to find ways to improve the
production system and striving for excellence.
Liker (2004) also presents a relevant and comprehensive definition of the Lean Production System, based on the
aforementioned key principles defined by Womack and Jones
(1996). According to Liker (2004, p. 7), the Lean Production
System is the end result of applying the Toyota Production
System to a business and it can be considered as:
a way of thinking that focuses on making
the product flow through value-adding
processes without interruption (one-piece
flow), a ‘pull’ system that cascades back
from customer demand by replenishing
only what the next operation takes away at
short intervals, and a culture in which everyone is striving continuously to improve.
Rather than presenting a definition of Lean Production System, this book focuses on two of its key features: (1)
its integrative approach to supply chain management, which
is based on the close collaboration between the automaker,
suppliers and dealers; and (2) its continuous effort to reduce
non-value-added tasks.
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The Lean Production System and Modularization
FIGURE 12 — THE LEAN PRODUCTION SYSTEM: KEY FEATURES
Source: Created by the author.
Taiichi Ohno (大野耐, 1912-1990), Toyota’s chief of
production in the postwar period, distinguished various types
of non-value-added activities and classified losses incurred in
the production process into seven categories: (1) Overproduction; (2) Waste time spent at the machine; (3) Waste involved
in the transportation of units; (4) Waste in processing; (5)
Waste in taking inventory; (6) Waste of motion; (7) Waste in
the form of defective units (IMAI, 1986, p. 89; KUMAZAWA, 2016, p. 148). To these categories, Liker (2004, p. 28-29)
added an eighth one: unused employee creativity.
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FIGURE 13 — NON-VALUE-ADDED ACTIVITIES
Source: Liker (2004, p. 28-29).
Lean Practitioners are known for making use of certain
tools or techniques focused on eliminating such non-value-added activities from the system. These techniques are expected to
bring continuous enhancements to the manufacturing process,
and aim at achieving an ideal situation of perfection. They are
the Lean Practices and, in fact, they should be considered principles that direct the way workers conduct their jobs, rather than
simply techniques (LIKER, 2004, p. 27-41). Moreover, these
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The Lean Production System and Modularization
practices only achieve their optimum level when they are jointly
implemented by all firms in the supply chain. Take the example of genryō-seisan (production plans based on a dealers’ order
volume). This practice tries to reduce the gap between a dealer’s
orders and the production of vehicles to zero. Inasmuch as this
perfect match could be considered ideal, genryō-seisan functions
as a guiding principle that directs the negotiations between automaker and dealers, so that they can make a joint effort to constantly improve the system (FUJIMOTO, 1999, p. 289).
In this manner, Lean Practices can be defined as: guiding
principles focused on reducing non-value-added activities that
are optimized when jointly implemented by an automaker and
its supply chain.
Here it is relevant to highlight that the use of selected
Lean Practices is not the same as the comprehensive adoption
of the Lean Production System. In fact, Liker (2004, p. 7, 12)
contends that in the United States, “most attempts to implement lean have been fairly superficial” because “U.S. companies
have embraced lean tools but do not understand what makes
them work together in a system”. As a result, American managers typically adopt “a few of those technical tools” and even
struggle “to go beyond the amateurish application of them to
create a technical system”.
In fact, due to the success of the Japanese automobile industry, especially during the 1980s, American and European
automakers tried to emulate some of the practices used at Japanese factories, such as quality control circles and kaizen. Initially,
however, the main objective of the adoption of such practices by
Western automakers was to reduce costs and to transfer risks
to suppliers. It was not, therefore, an attempt to comprehensively emulate the Lean Production System. Lean Practitioners
focus on making the entire system leaner, from early stages of
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production development to purchasing and after sales services.
The adoption of Lean Practices by an automaker only on its
own shop floors overlooks the fact that the main feature of the
Lean Production System is precisely the effort to integrate and
enhance productivity and quality of the entire system.
Accordingly, although the study of Lean Practices is important due to their capacity of enhancing the productivity,
quality and effectiveness of an organization, the Lean Production System should not be reduced to the “[imitation of ] tools
used by Toyota in a particular process”. Rather, such a system
is “about developing principles that are right for [an] organization and diligently practicing them to achieve high performance that continue to add value to customers and society”
(LIKER, 2004, p. 41). Hence, the Lean Production System is
better understood as the development of an organizational culture that demands the involvement of all workers of the supply
chain towards the continuous improvement of work processes
and reduction of non-value-added tasks. As Fujimoto (2007, p.
95) points out:
Toyota’s great strength resides not in justin-time production or any other method
or device but in the company’s capacity
for creating and applying effective tools,
useful capabilities. Toyota would remain a
powerful competitor even if it abandoned
all of its famous methods. Its unexcelled
capacity for building capabilities would
soon spawn new and equally potent methods.
The success of Toyota and other Lean Practitioners,
therefore, is connected to the creation of an institutional
framework that provides incentives for all employees to pur70
The Lean Production System and Modularization
sue continuous improvements. As implied in the aforementioned definition, Lean Practices should be studied not strictly
as tools or techniques, but as principles that guide workers in
their everyday activities towards the continuous reduction of
non-value-added tasks.
A non-exhaustive list of the main Lean Practices include: continuous improvements (kaizen), multi-skilled workers, quality control circles, the 5-S approach, kanban system,
just-in-time manufacturing, automatic detection of defects
(jidōka), autonomous maintenance, detection and prevention
of errors (poka-yoke), close supplier relationships, technical assistance and diffusion of practices, sharing benefits from improvements, suppliers’ participation in design, close communication, production based on dealers’ orders (genryō seisan)
and production leveling (heijunka). A brief description of these
practices is presented below.
FIGURE 14 — LEAN PRACTICES
Source: Created by the author.
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Continuous Improvements (Kaizen)
Kaizen (改善) refers to the commitment of the workforce
to promote continuous improvements of the manufacturing
process. Workers on the shop floor constantly try to promote
such improvements by implementing minor changes in their
daily work. The suggestions of workers are tentatively introduced before being officially adopted by the automaker. The
pattern of improvements adopted by Lean Practitioners in
the manufacturing process is said to be based on incremental
rather than radical innovation, pursuing small but significant
modifications instead of disruptive changes. For the success of
kaizen, workers must have a deep knowledge not only of their
own tasks, but also of the production process as a whole.
According to Imai (1986, p. 3), kaizen is connected to the
idea of “ongoing improvement, involving everyone”, including top management, managers and workers. The philosophy
of kaizen, therefore, presupposes that work processes and the
final product can always be improved and the entire workforce
should be constantly committed to finding ways to promote
ameliorations. Furthermore, participation in kaizen activities is
said to develop new knowledge, skills, and abilities that may be
applied to subsequent problem-solving tasks (FARRIS et al.,
2009, p. 49). Accordingly, through an active attempt to promote continuous improvements in their everyday work, the
employees can develop skills to better identify and solve manufacturing problems.
The Lean Production System maximizes the trade-off
between efficiency and flexibility by creating an organization
structure that is, at the same time, bureaucratic — i.e., relying
on norms, standardization and hierarchy —, and organic —
that is, favoring employees’ active participation and innovation
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The Lean Production System and Modularization
(ADLER; GOLDOFTAS; LEVINE, 1999, p. 53-54). In this
context, kaizen plays a pivotal role, since it creates a routine
procedure in which employees are motivated to constantly
work towards refining formalized procedures. Through kaizen
activities, blue-collar workers themselves become partially responsible for job design and redesign.
Through off-the-job and on-the-job training, Lean Practitioners prepare blue-collar workers to continuously search for
and eliminate non-value-added tasks, as a way of promoting
the improvement of work processes. Such small but constant
increments result in large enhancements of the production system in the long term.
The training process for blue-collar workers goes beyond the acquisition of skills to operate machines at the shop
floor and includes subjects that are usually associated with
white-collar worker’s jobs. Consequently, Liker (2004, p. 13)
asserts that the Lean Production System explores blue-collar
workers ideas and creativity and, in this manner, is superior
to the methods adopted by the traditional Mass Production
System, which follows a top-down approach and in which
blue-collar workers are only expected to perform repetitive and
tedious tasks, without providing any real learning opportunities.
It is worth mentioning that during kaizen circles or
activities, workers can provide useful insights into strategic
areas such as product development. In fact, blue-collar workers often have empirical and up-to-date information about
the production process and therefore they are in a suitable
condition to present suggestions for the product and process
improvements. According to Lermen et al. (2018, p. 262), the
suggestion of “solutions and countermeasures based on the
analysis of wastes and losses in the current product devel73
Waldemiro Francisco Sorte Junior
opment process” are one of the central applications of Lean
Manufacturing to product development.
Kaizen activities are also pivotal because they can help
identify sources of waste, ranking these non-value added activities in terms of critical importance, proposing initiatives to
minimize their impact, and creating commitment in the workforce about the need to implement corrective actions.
Multi-skilled Workers
Workers are expected to rotate to different workstations
in order to acquire multi-skills to perform different tasks and
to reach a comprehensive understanding of the entire manufacturing process. Moreover, through on-the-job and off-thejob training, blue-collar workers develop the necessary abilities
to handle different tasks, as well as the so-called “intellectual
skills”, which allow them to deal with unexpected or unusual
situations and to provide a greater contribution in terms of
kaizen. Koike (1990, p. 23) uses the term “intellectual skills” to
refer to “a type of acquired knowledge concerning the structure
of the machine and the way to treat changes and problems”.
The wage system in Lean Practitioners is based on skill
accumulation and tries to reward workers who develop intellectual skills (KOIKE, 1988, p. 162). The promotion system is
a mixture of seniority and assessed merit. Therefore, there is
not a huge gap between expectations and actual promotions.
Everyone expects to be promoted eventually due to the seniority system, but this promotion may come sooner according to
each employee’s merit. Because of this promotion system, the
superiors do not feel threatened by younger bright workers,
and there may actually be a feeling that cooperation with superiors is the best way for a faster promotion. In addition, the
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The Lean Production System and Modularization
promotion system requires employees to make constant efforts
to develop skills, not only to perform regular and maintenance
tasks and machine setup, but also to manage and guide work
groups. According to Komatsu (2006, p. 215), Toyota has a
grade system for skill qualification, and certification is a condition for promotion. This system also favors employees who
have worked at the company for a longer time, as a number
of years of service at Toyota is required to be certified by each
level of skill qualification.
In addition, the human resource management under
the Lean Production System emphasizes stable employment
and avoids forced layoffs of permanent workers. Traditionally, workers in Japanese firms are hired just after graduation,
either from high school or from university, and remain in the
same firm until retirement. Accordingly, the worker’s success
in his career is intertwined with the prosperity of his company.
Hence, Japanese workers tend to be loyal and committed to
the enterprise’s goals, which facilitates the creation of a sense
of common purpose among workers and managers.
Therefore, traditional practices of the Japanese management system, including the wage system and lifetime employment, as well as the training process of blue-collar workers
favor the acquisition of a variety of skills by workers at the
shop floor and the development of a broad view of the entire
production process (FUJIMOTO, 1999, p. 294-296).
Quality Control Circles
Workers are divided into teams and are expected to collectively identify problems and suggest ways to improve the process. These are the quality control circles and they play a fundamental role for kaizen (WOMACK; JONES; ROOS, 1991, p.
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56). As Imai (1986, p. 15) points out, quality control circles may
be better understood if regarded collectively as “a group-oriented suggestion system for making improvements”. In such circles,
activities follow a standardized sequence starting from the recognition of a problem, “moving on to root-cause analysis, generation of an alternative action plan, evaluation of alternatives
in terms of problem-solving capabilities, recommendation of a
new way of doing the task, and prevention of the same problem
again” (FUJIMOTO, 1999, p. 293).
In quality control circles, all members must participate
in regular discussions, exchanging opinions on how to promote improvements in the manufacturing process. The workers
have the obligation to propose something in terms of kaizen at
least once a month. To set forth a proposal, it is necessary for
blue-collar workers to have a comprehensive knowledge of the
production process. Therefore, one of the main requirements for
the quality control circles is that all members share a common
level of understanding of the system, since the meetings are focused on discussing improvements that can be introduced in
practice. These discussions create a sense of togetherness and
belongingness among blue-collar workers. They feel as fundamental players in the company, since they can actively change
and improve the production system. As a result, the group keeps
on discussing improvements even after regular working hours.
Nonetheless, it is noteworthy that quality control circles,
although extremely important, constitute a fraction of Lean
Practitioners initiatives towards quality control (CUSUMANO, 1985, p. 334). Imai (1986, p. 11-12) states that quality
control circles “generally account for only 10 percent to 30
percent of the overall [total quality control] effort in Japanese companies”. In fact, the notion of total quality control,
or company-wide quality control, spread throughout Japanese
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The Lean Production System and Modularization
automakers was strongly influenced by the ideas of U.S. experts such as J. M. Juran and W. E. Deming. These specialists
stressed the need to expand quality control programs “to cover
all manufacturing operations and to transfer the responsibility
to workers on the shop floor” (CUSUMANO, 1985, p. 324).
Quality control circles are, therefore, part of a comprehensive
programme, which is known as total quality control.
Cusumano (1985, p. 324-330) and Imai (1986, p. 10-11)
contend that Japanese managers and consultants were highly
influenced by the broad definition of quality control adopted
by W. E. Deming, J. M. Juran and Feigenbaum. In fact, both
W. E. Deming and J. M. Juran were invited to Japan to conduct a seminar on quality control management at the Union
of Japanese Scientists and Engineers ( JUSE — 日本科学技
術連盟), respectively in July 1950 and July 1954. They advocated the need to adopt quality control efforts at all company
levels and that managers should not rely on random sampling
inspection as a valid test of quality. According to Cusumano
(1985, p. 325), few U.S. managers attempted this type of broad
quality control program “because they had become accustomed
to relying on quality engineers and inspectors”. Conversely,
Japanese companies, at that time,
faced with processing, design, and material defects, and limited in their financial
abilities to cover mistakes or to maintain
large inspection departments, decided to
try implementing some of the ideas that
Japanese professors and QC consultants
had learned from Deming, Feigenbaum,
and Juran. (CUSUMANO, 1985, p. 325)
Such a thorough approach to quality control adopted in
Japan was also influenced by the concepts of Taiichi Ohno,
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who did not believe in the effectiveness of the statistical sampling process adopted by U.S. firms to prevent defective parts.
Rather, he advocated the need to conduct 100% inspection, a
task for which every worker should be held responsible (CUSUMANO, 1985, p. 351). In fact, in the postwar Japanese automobile industry “quality problems were far too severe to be
solved merely through better methods of inspection, or even
through improvements in manufacturing process controls”
(CUSUMANO, 1985, p. 321). Hence, Taiichi Ohno could not
rely only on sampling inspection for addressing the problem
of defective parts. Such severe quality problems influenced the
adoption of a comprehensive approach to quality control in
Japanese firms, involving the entire workforce. Furthermore,
in this period quality also “suffered from inferior materials
and faulty designs at […] the myriad small and medium-size
subcontractors that supplied them” (CUSUMANO, 1985, p.
321). Therefore, Japanese automakers soon realized the need to
spread quality control programs to their suppliers.
Cusumano (1985, p. 320-335) distinguishes two different types of quality control concepts. The first one is a narrow
definition, which is centered on final inspection of products
to prevent defective items from being delivered to consumers.
The other is a thorough concept, which emphasizes the need to
adopt quality control measures at all departments and to transfer the responsibility for maintaining and improving quality to
all workers. According to Cusumano (1985, p. 320):
There are at least two ways to interpret
quality control (QC). A simple approach
focuses on manufacturing and inspection
to insure that products meet predetermined standards for precision, performance, or appearance. Another, broader
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The Lean Production System and Modularization
interpretation sees QC as the identification of consumer preferences, the incorporation of these into product designs, and
the institution of controls ranging from
manufacturing to procurement and customer service. The second interpretation
also assumes the existence of measures to
insure that pre-production testing eliminates as many design or material defects as
possible, and that engineers design a given
level of quality, determined by what consumers desire and are willing to pay for,
into a product. A company then tries to
maintain this level throughout the manufacturing process without relying on large
inspection departments to check for and
adjust product quality after production.
The concept of quality control adopted since the early
years of the automobile industry in Japan is characterized by its
comprehensive approach, which encompasses non-manufacturing departments of the firm, such as product design, marketing, sales and after sales. In this manner, the responsibility
for maintaining quality is transferred from inspection or quality control staff departments to workers on the shop floor. It is
important to emphasize that equivalent quality control measures are also adopted by suppliers and dealers. For instance, in
November 1965, when Toyota received the Deming prize, an
award given to Japanese firms for adopting outstanding quality control measures, the award committee “cited the company
for linking Toyota Motor Sales, in-house departments, subcontractors, customer service, new product development, and
cost-control measures in a comprehensive ‘quality assurance’
system” (CUSUMANO, 1985, p. 366).
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Furthermore, in Japanese firms, quality control efforts
are not restricted to inspection for defective components. The
entire process is consumer-oriented and thereby, is focused on
maintaining quality standards, while constantly working towards the improvement of the final product in order to better
address customers’ needs. This shows that quality control measures are intrinsically connected to kaizen efforts.
Such an approach requires a process-oriented management control system, which is not focused strictly on the
achievement of quantitative results or short-term benefits, but
on motivating and rewarding workers’ efforts and commitment
to the continuous improvement of work processes and quality.
Accordingly, education and training are fundamental to develop a multi-skilled workforce with a comprehensive view of
the production process. Such a workforce will be committed to
constantly trying to identify sources of waste, solve problems,
and reduce defects, as a way of promoting improvements in
their everyday work (IMAI, 1986, p. 16-21, 43-50).
Imai (1986, p. 14) states that the total quality control
movement in Japan is “centered on the improvement of managerial performance at all levels” and provides a non-exhaustive
list of areas that are typically included in quality control programs: “(1) Quality assurance; (2) Cost reduction; (3) Meeting
production quotas; (4) Meeting delivery schedules; (5) Safety;
(6) New product development; (7) Productivity improvement;
and (8) Supplier management”. Quality control can reduce
costs by identifying and eliminating sources of waste, decreasing the need for buffer inventories, as well as by improving
work procedures and minimizing defective parts. In addition,
quality control, along with other Lean Practices, can optimize
new product development in the “identification of value, val-
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The Lean Production System and Modularization
ue flow, elimination of wastes and continuous improvements”
(LERMEN et al., 2018, p. 262).
The four main features of the total quality control approach, as adopted by Japanese automakers, are defined in the
following figure.
FIGURE 15 — THE MAIN FEATURES OF TOTAL QUALITY CONTROL
Source: Created by the author.
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The 5-S Approach
The 5-S approach is a collection of simple activities that
should be followed by workers to maintain order, discipline
and a clean environment on the shop floor. The main objective
is to create a work routine and environment in the shop floor
that can help workers to identify problems. 5-S stands for the
initial of five words in Japanese, which are connected to the
ideas of discipline and cleanliness: Seiri (整理), arrangement;
Seiton (整頓), order; Seiso (清掃), cleanliness; Seiketsu (清潔),
neatness, Shitsuke (躾): discipline. The 5-S tools can be used to
“increase utilization of space by cleaning up and organizing the
workplace” (ABU et al., 2019, p. 677).
Through the 5-S approach, many sources of errors, defects and injuries can be eliminated. It is important to note
that the term shitsuke, or discipline, is connected to the idea
of sustainability. Workers must have discipline to follow the
5-S approach, constantly trying to reduce the sources of waste.
This idea should be ingrained into the organizational culture
and workers should be constantly trying to improve their work
environment (LIKER, 2004, p. 36).
The Kanban System
The kanban system can be defined as “a production and
inventory control system using returnable parts containers
and instruction plates, each of which orders production and
parts delivery to upstream stations according to the progress
of downstream production units” (FUJIMOTO, 1999, p. 40).
Under the kanban system, the downstream station obtains
just enough components as needed and the upstream station
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The Lean Production System and Modularization
produces just enough to replenish what has been used3. The
Japanese term kanban (かんばん) means signboard or plate,
referring to cards attached to transport carts containing updated information about the quantity of parts the downstream
needs at a given moment to continue production. Originated
in Toyota, this system was adopted at the company level in
1962 and started to be formally spread to its suppliers in 1965
(FUJIMOTO, 1999, p. 61).
Kanban is also known as the “supermarket system” because the idea was based on the concept of “pull system” in U.S.
supermarkets, in which products are replenished as they begin
to run low on the shelves. Therefore, “material replenishment is
initiated by consumption” (LIKER, 2004, p. 23).
Just-in-time Manufacturing
Implemented through the kanban system, just-in-time
manufacturing is a synchronized delivery, in which components are supplied at exactly the same time as the body sequence in the assembly line (FUJIMOTO, 1999, p. 288).
Just-in-time manufacturing demands a close relationship with suppliers, since components are delivered in frequent
and small lot sizes. First-tier supplier’s plants are usually located near the automaker’s facilities, to allow close personal
interactions on a regular basis, as well as to enhance supplier’s
3 The term upstream refers to activities closer to the beginning of the
value chain, while downstream to those at the end of the chain and thus
closer to the final consumer. Downstream activities progressively “add
value to the products, through manufacturing or customization, which
outflow is a final commodity” (SINGER; DONOSO, 2008, p. 669).
Upstream partners in the supply chain refers to suppliers, while downstream partners are those closer to customers (SHERER, 2005, p. 77).
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reaction time and flexibility. Dealers are also involved in this
process, to decrease the gap between demand and production
(DAS; HANDFIELD, 1997, p. 244).
It is true that the adoption of just-in-time manufacturing generates complicated logistic demands. It creates the need
for close involvement with suppliers and increasing capacity to
deal with contingencies and solve problems on the spot, due
to the low inventory levels. Nonetheless, by eliminating buffer
inventories, the implementation of just-in-time manufacturing can reveal production problems that were previously hidden (KENT, 2018, p. 190-191). Once effectively implemented,
it can minimize product throughput times, reduce inventory
costs and increase mix flexibility, i.e., the ability “to handle a
range of products or variants with fast setups” (GERWIN,
1993, p. 398), since it enables “the absorption of more product
variety without penalty” (MACDUFFIE; SETHURAMAN;
FISHER, 1996, p. 354).
Just-in-time manufacturing may also have positive impacts on a firm’s financial performance, since it can reduce operating cost and thus improve profit. As Shashi et al. (2019, p.
113) points out, “the lean-based strategies, such as JIT and pull
system, enables firms to manage their inventory levels effectively, minimize the buffer and improve financial performance”.
According to Kumazawa (2013, p. 143), by reducing
inventorying and shortening production time, just-in-time
manufacturing may have several positive effects, such as: improving asset turnover management; improving demand forecasting accuracy and build-to-order implementation; reducing
inventory costs; reducing material handling costs; reducing the
area required for production; reducing losses during design
and model changes; preventing quality deterioration of work-
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The Lean Production System and Modularization
in-process; speeding up feedback; and unveiling or revealing
problems in the production system.
On top of that, just-in-time manufacturing may also
improve environmental performance, as it can lead to lower
inventory levels, reduce waste and optimize the use of resources, with a potential capacity to minimize carbon emissions. In
addition, efficient just-in-time activities may result in resources
conservation and energy savings, which may add to the firm’s
overall environmental performance (SHASHI et al. 2019, p.
113). According to Sajan et al. (2017, p. 777), just-in-time
manufacturing “has a positive linkage with waste reduction,
pollution prevention, and the reduction of emission of Volatile Organic Compounds”, making Lean practices “an effective
method for the conservation of resources, combating global
warming and saving energy”. An improved environmental performance, it should be noted, may also reflect positively on the
firm’s image and, consequently, its market value.
Successful Cases of Lean Practices Implementation
Auto Parts Manufacturer in Malaysia
A case study conducted by Naufal et al. (2012) examines the
adoption of the kanban system on a local manufacturing company
in Malaysia that manufactured cylinder head covers for Proton
Holdings Berhad, a Malaysian automobile corporation.
Previously, the factory carried out its manufacturing
process following a “push system”, which resulted in several
problems, as completed auto parts were “pushed to storage
area without consideration of actual requirement by customer”
(NAUFAL et al., 2012, p. 1723). Due to this lack of synchronization between production output and customer requirement,
the company faced:
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• Stagnation of work-in-process parts on the floor of the assembly line;
• Long lead time;
• Congested and unorganized finished goods at warehouse
demanding large storage spaces;
• Difficulties to respond to changes in consumer’s demand
(NAUFAL et al., 2012, p. 1723).
The kanban system was thus implemented to address this
situation. The factory adopted a “Production Instruction Kanban card”, which provided instructions to the production line
to manufacture certain parts in a given quantity, and a “Production Withdrawal Kanban card”, which authorized the withdrawal of a manufacturing process as a response to changes in
a customer’s demand. The system was designed to ensure that
the manufacturing process would produce the right components in the right quantity to meet the consumer’s needs. The
kanban cards would contain the following information:
• Customer information, such as customer, customer product
name and type of model,
• Product information, such as part name, part picture and
quantity per packing,
• Production process address and storage area. (NAUFAL et
al., 2012, p. 1723)
Moreover, to promote stability in the production process
and prevent an uneven loading of volume in the shop floor, a
heijunka post was created. According to Naufal et al. (2012, p.
1724), heijunka is used as a “planning schedule which evenly
distributes volume and variety of product throughout available
time”.
As a result of the adoption of the kanban system, Naufal
et al. (2012, p. 1725) reports a number of positive impacts on
the manufacturing process, such as the reduction in 40% of the
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lead time and a decrease of in-process and finished good inventory respectively by 23% and 29%. The necessity of storage
area for finished goods was also reduced by 4%.
Automatic Detection of Defects (Jidōka)
The Japanese word jidōka (自動化) means automation.
However, the Lean Practice Jidōka (自働化) uses a different
Japanese character to refer to “autonomous defect control”
(KOBAYASHI, 1995, p. 173). It is a type of machine that automatically shuts down itself when it detects a defective input.
The central idea is that problems should be detected and solved
on the spot. Instead of relying solely on inspection by specialists at the final stage of the assembly process, Lean Practitioners advocate the prevention of defects as a way of building
capabilities for quality improvement in the long term. In fact,
jidōka is a machine that detects an error and shuts down the
system, but does not automatically correct it. In this manner, it
demands the intervention of a human being to actively address
the problem and resume the production process. Hence, the
Lean Practice Jidōka is referred to by the kanji 自動化, instead
of the kanji used for automation (自働化), as a way to emphasize the importance of human intervention for the success of
this particular type of automation. Note that the second character of the Japanese term for the Lean Practice Jidōka, i.e.,
働, has the radical 亻, which refers to hito (人), that translates
as “person”. Jidōka is often translated as “autonomation”, or intelligent automation, because it is not simply automation, but
also demands the active participation of workers. It is a type
of automation that incorporates the wisdom of the workers
who use the equipment in their daily routines (KOBAYASHI,
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1995, p. 176). Jidōka is thus the combination of the speed and
processing power of machines with the flexibility and adjustment abilities of workers to generate an overall increase in production efficiency (MITSUMASA, 2013, p. 144).
Even when machines can automatically correct problems,
supporters of the jidōka concept are usually against the automatic correction of errors, arguing that “automatic correction
hides the problem and thus hampers root cause analysis and
improvements by workers” (FUJIMOTO, 1999, p. 70). One
example of the concept of jidōka is the Assembly Line Stop
Cord adopted by Toyota, through which any worker that detects a problem and cannot solve it can stop the entire assembly line by pulling the cord.
The idea behind jidōka is to make the roots of the problem known, so that it can be avoided in the future and the
production process can be improved. If an error is automatically corrected by the machine, its roots remain unknown
and may generate even worse problems. Moreover, by giving a
chance for employees themselves to solve the problem, a deeper knowledge of the production process can be achieved.
This is the main reason why there is a low reliance of
Lean Practitioners on high scale automation. Although an
increasing use of automation may result in gains in productivity, it would decrease blue-collar workers’ knowledge about
the production system and thus hinder their contribution to
quality control circles and kaizen activities:
Since automation tends to be kept separate from the worker’s control and consequently reduces the worker’s ability to
note inefficiencies or malfunctioning and/
or introduce improvements (kaizen), there
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The Lean Production System and Modularization
is traditionally little automation within the
lean system. (MUFFATTO, 1999, p. 17)
Muffatto (1999, p. 17) distinguishes two objectives for
using automation. The first one is “to lower the cost of production in the market”, while the other is to ameliorate “the
relations with the labour market, i.e., to improve working conditions (human fitting)” and motivate human resources. Lean
Practitioners tend to rely on automation for achieving the latter
objective, but try to avoid implementing automation solely for
increasing productivity because it is costly and reduces workers’
active and direct involvement in the production process. Kent
(2018, p. 190) also argues that, by keeping the reliance on technology on a low level, Lean Practices can be easily understood
and accessible by the workforce, thus serving as “a method for
uniting all employees in the common goal of improved manufacturing performance”.
It should be noted that this practice is not restricted to
the automaker’s shop floors, but it is also used in suppliers’ facilities. Due to the efforts to detect and solve problems on the
spot, defects can be prevented and Japanese suppliers are wellknown for the low level of defective parts. In fact, since the
number of defective components delivered by suppliers is close
to zero, inspection by the automaker is not necessary, which
speeds up the assembling process (CUSUMANO; TAKEISHI, 1991, p. 574-575).
Autonomous Maintenance
To achieve a higher level of productivity and quality,
maintenance of equipment is done periodically. It is important
to highlight, however, that maintenance is conducted not only
by specialists and plant engineers but also by blue-collar work89
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ers. Through this process, blue-collar workers also acquire the
necessary skills for defect prevention and for enabling a more
active participation in quality control circles.
Autonomous maintenance encourages workers to conduct the maintenance of their own equipment regularly, instead of relying on maintenance staff or specialized personnel.
This Lean Practice is part of a broader and comprehensive programme that encompasses the entire workforce and is called
Total Productive Maintenance.
Total Productive Maintenance is also a way to reduce
non-value-added activities and waste. If a problem takes place
and the engineer or specialist has to shut down the equipment
to fix it, the production process will have to stop until the problem is addressed. Therefore, if maintenance is done directly by
workers, who use the equipment on an everyday basis, problems and the necessity to stop the assembly line for repairs can
both be avoided (LIKER, 2004, p. 33).
Successful Cases of Lean Practices Implementation
Indian Manufacturing SMEs
Shashi et al. (2019, p. 115-116) investigated 374 Indian
SMEs in the manufacturing sector to empirically examine the
relation between leanness, process innovation, product innovation, environmental performance, and financial performance.
The majority of firms in the sample were from motor vehicles and transport equipment manufacturing (26%); machinery and equipment (14%); and materials and metal production
(13%). Approximately 35% of them had 10 to 50 employees,
30% had 51 to 100, 23% had 101 to 500, and 12% had less than
10 employees.
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The authors examined leanness as the ability of the
SMEs to implement measures on the following five dimensions of lean practices, which they considered appropriate for
the current Indian context: pull production system, supplier
feedback on JIT and proximity issues, production rate directly linked to customers’ demand, and setup times (SHASHI et
al., 2019, p. 116).
From data analysis of questionnaire answers from these
374 firms, the authors found significant statistical evidence of
both direct and indirect positive impacts of the adoption of
Lean Practices on process and product innovation, as well as
on environmental and financial performance. According to the
authors, “SMEs implementing lean practices appear to have
better financial performance (tested by return on assets, return
on investment, operating costs, sales growth, and levels of profitability) than other SMEs”. They argue that the adoption of
Lean Practices “can enable Indian SMEs to reduce inventory
level and times required for performing activities, and facilitate
economic production of small batch quantities”.
By reducing the sources of waste, implementing total
quality control and total productive maintenance programmes,
and emphasizing the need to promote the workforce’s commitment towards continuous improvement, a firm can generate process innovation, with positive impacts on financial performance. The reduction of buffer inventories, defective parts
and other sources of waste or non-value added activities may
also have advantages in terms of environmental preservation.
The authors also emphasize that “the indirect impact of
leanness on financial performance is higher than direct impact” (SHASHI et al., 2019, p. 119). This also conforms to key
assumptions of the Lean Production System, which is based
on the idea that the accumulation of small but consistent im91
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provements in the manufacturing process can have great positive impacts on the long-term.
Detection and Prevention of Errors (Poka-Yoke)
The focus of poka-yoke (ポカヨケ) is to assist workers in
avoiding errors. It is a collection of tools that draws attention
to human errors in order to facilitate the detection and prevention of product defects.
Saurin, Ribeiro and Vidor (2012, p. 359) define poka-yoke
as “a device that either prevents or detects abnormalities, which
might be detrimental either to product quality or to employees’
[health and safety at work]”. Since human error is a common
occurrence in the workplace, poka-yoke functions as a system that
focuses on identifying mistakes at the time they happen, in order
for them to be promptly corrected. The central idea is to correct
mistakes immediately after they take place, so that they do not
generate product defects and do not reach the final customer.
In fact, poka-yoke is also known as baka-yoke, or “fool
proofing” and it is a “mechanism to help eliminate mistakes,
and assist an engineer in identifying problems as soon as possible” (FITZGERALD; STOL, 2017, p. 180). Watanabe (1993,
p. f3) contends that fool proofing (フールプルーフ化) focuses
on ensuring safety in the event that an operator makes an error or mistake in handling the machinery or equipment. It refers to the entire mechanism used to prevent the occurrence of
work defects such as damaging tools or forgetting to assemble
a component. When a problem occurs, poka-yoke mechanisms
prevent the process to move on to the next step (KUMAZAWA, 2013, p. 144).
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Visual Management
Throughout the factory of a Lean Practitioner, there are
several charts and signboards providing information about the
current stage of the production system not only for managers, but also for blue-collar workers. These displays also provide other useful information, such as indicating how the work
should be done and how common problems should be solved.
Moreover, the so-called Andon Signboards (アンドン), which
are located above production lines, provide real-time feedback of production troubles and are an efficient mechanism
for defect detention and on-the-spot inspection (FUJIMOTO, 1999, p. 291-292). Visual management (目で見る管理)
includes various mechanisms and devices that enable managers
and supervisors to have an immediate feedback on the current
situation of the production process. Therefore, visual management is essential to provide updated information for maintenance staff in case of an equipment malfunction, for suppliers
in case of an unexpected shortage of material, or to supervisors
if the line is stopped. By enabling quick access to critical information, workers can promptly take action to address the identified problem so that the assembly line can move smoothly
(KUMAZAWA, 2013, p. 144)
Since Lean Practitioners place great importance on the
involvement of blue-collar workers in quality control circles,
kaizen activities, autonomous maintenance, prevention of defects, and solution of problems on the spot, visual management
is paramount to keep the workforce well informed about what
is taking place on the assembly line at every moment. A high
level of participation of blue-collar workers demands real-time
information, which is provided through visual management.
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Successful Cases of Lean Practices Implementation
The Case of Textile Industry in India
Bloom et al. (2011) conducted a statistical study involving 28 plants across 17 firms in the Indian textile industry in
order to obtain empirical evidence of the impact of managerial
practices on a company’s output and performance.
The firms were randomly chosen from companies with
between 100 to 1000 employees in Maharashtra state. The selected firms were mostly large-sized ones, although none of
them were multinationals, with a median of two plants per firm
plus a headquarter office in Mumbai and “four reporting levels
from the shop-floor to the managing director”. They were all
family-owned, have typically been in operation for 20 years,
and had an average of 270 employees (BLOOM et al., 2011, p.
5). The plants were divided into two groups for the study. One
group of plants received five months of extensive management
consulting services from a group of six experienced consultants
from a large international management consultancy, which was
hired by the researchers. The consulting services were provided
free of charge for the firms. The second group of plants was the
control group, which did not receive any consulting services
(BLOOM et al., 2011, p. 1-2).
The authors acknowledged the small size of their sample,
which may raise concerns over the accuracy of their statistical
inferences. However, they tried to offset such constraint especially by “collecting weekly data, which provides high-frequency observation over the course of the treatment” (BLOOM et
al., 2011, p. 11).
To introduce a set of standard management practices, the
consultants identified 38 key practices that could be catego-
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rized in the following five areas, which are intrinsically connected to Lean Practices discussed in this Chapter:
• Factory Operations: Regular maintenance of
machines and recording the reasons for breakdowns to learn from failures. Keeping the factory floor tidy to reduce accidents and ease the
movement of materials.
• Quality control: Recording quality defects by
type, analyzing these records daily, and formalizing procedures to address defects to prevent
them recurring.
• Inventory: Recording yarn stocks on a daily basis,
with optimal inventory levels defined and stock
monitored against these. Yarn sorted, labeled
and stored in the warehouse by type and color,
and this information logged onto a computer.
• Human-resource management: Performance-based
incentive system for workers and managers. Job
descriptions defined for all workers and managers.
• Sales and order management: Tracking production
on an order-wise basis to prioritize customer
orders by delivery deadline. Using design-wise
efficiency analysis so pricing can be based on
design (rather than average) production costs.
(BLOOM et al., 2011, p. 7-8)
The treated plants reported significant improvements in
quality, including reduction in both defects and waste fabric,
estimated respectively in US$ 13,000 and US$ 96,000 in annual profits, as well as a decline in inventory carrying costs,
about US$ 8,000 in annual profits, and increase in sales, for
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an estimated US$ 121,000 in annual profits (BLOOM et al.,
2011, p. 43):
The treatment intervention led to significant
improvements in quality, inventory and production output. The result was an increase in
productivity of 11% and an increase in annual profitability of about $230,000. Firms
also spread these management improvements from their treatment plants to other
plants they owned, providing revealed preference evidence on their beneficial impact.
(BLOOM et al., 2011, p. 2)
These authors discuss the reasons behind such an overall
increase in productivity, emphasizing that the gains from the
implementation of Lean Practices are incremental, as the consistent adoption of routines and procedures can generate great
impacts on the general output:
There are several reasons for these increases in output. Undertaking routine maintenance of the looms reduces breakdowns.
Collecting and monitoring the breakdown
data also helps highlight looms, shifts, designs and yarn-types that are associated
with more breakdowns. Visual displays
around the factory floor together with the
incentive schemes motivate workers to improve operating efficiency. Finally, keeping
the factory floor clean and tidy reduces the
number of untoward incidents like tools
falling into machines or factory fires. Again
the experience from lean manufacturing
is that the collective impact of these procedures can lead to extremely large im96
The Lean Production System and Modularization
provements in operating efficiency, raising
output levels. (BLOOM et al., 2011, p. 19)
Close Supplier Relationships
For Lean Practitioners, supply chain management is
based on long-term contractual relations, collaborative problem-solving initiatives and joint efforts to enhance the efficiency and quality of the supply chain. Candidate suppliers are
evaluated not only in terms of price, but also of component development capabilities. After selection, first-tier suppliers are
often also involved in product design, from early stages of the
product development process.
In the Lean Production System, suppliers are not used as
a buffer for production fluctuations and the automaker actually
absorbs their volume risk (FUJIMOTO, 1999, p. 317-319).
Lean Manufacturers tend to provide aid to suppliers facing
difficulties rather than simply shifting orders to other firms
(HELPER; LEVINE, 1992, p. 563; SAKO; LAMMING;
HELPER, 1994, p. 238).
Additionally, the outcomes of Lean Practices are only
optimized when these practices are diffused throughout the
supply chain and jointly used by automakers and suppliers.
Hence, this approach to supply chain management, which involves close interfirm relationships in the long term, is one of
the main features of the Lean Production System.
This long-term relationship between automaker and
suppliers also increases mix flexibility, since it greatly reduces
the “coordination cost of dealing with high product variety”
(MACDUFFIE; SETHURAMAN; FISHER, 1996, p. 354).
This represents a great advantage for the automobile industry
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in the world of today, in which customers’ demands are complex, heterogeneous and in constant change.
On top of that, this close relationship is not restricted
to the vertical interface between automaker and suppliers, but
also at the horizontal level, involving all suppliers in the same
supply chain. For instance, Toyota motivates the creation of
supplier associations in order to promote knowledge sharing and diffusion of practices at the horizontal level (DYER;
NOBEOKA, 2000, p. 352).
Technical Assistance and Diffusion of Practices
Lean automakers also provide technical assistance to
suppliers, in order to diffuse Lean Practices throughout the
supply chain. Toyota started to provide technical assistance
concerning total quality control and just-in-time management
from the late 1960s. Two divisions were created with the main
purpose of disseminating these practices: the Purchasing Administration Division in 1965 and the Operations Management Consulting Office in 1970 (FUJIMOTO, 1999, p. 318).
Since practices such as just-in-time management and
kaizen can only be optimized by the joint effort of the automaker, suppliers and dealers, the diffusion of practices in
the supply chain is of paramount importance. Moreover, because first-tier suppliers are involved in product development and are responsible for designing components, technical
assistance from the automaker is essential for the development of
suppliers’ capacities.
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Sharing Benefits from Improvements
To motivate continuous improvements of its suppliers,
the automaker shares the benefits of component cost reduction activities “by maintaining unit component prices for a
certain period after the cost reduction was achieved” (FUJIMOTO, 1999, p. 319). Therefore, in addition to providing
technical assistance for the dissemination of Lean Practices
to suppliers, the automaker also gives real incentives for continuous improvement and quality enhancing (WOMACK et
al., 1991, p. 149).
In this manner, although long-term relationships may
have a negative effect on short-term profits, it creates an institutional framework that provides incentives for all firms in the
supply chain to pursue continuous improvements in productivity, quality and cost reduction. As a result, the entire supply
chain network will reap benefits from this pattern of relationship in the long term.
Suppliers’ Participation in Design
The origins of the greater role of suppliers in parts design can be traced back to the 1960s, when Japanese automakers started purchasing pre-assembled parts rather than simply
components from first-tier suppliers. In this system, the first-tier suppliers have an increasing participation in product development, conducting detailed engineering of components based
on the automaker’s specifications (FUJIMOTO, 1999, p. 129).
A comparative study conducted by Clark and Fujimoto (1991, p. 164), involving Japanese, European and American
automakers, found out that the greater involvement of suppliers in product design from early stages of product development
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was partially responsible for higher results of Japanese automakers in terms of lower lead time and greater share of new
rather than off-the-shelf components in new models.
Lead time refers to the time needed for a firm to perform all the activities from product development to the delivery of a new product into the market. Hence, “overall lead time
is the calendar time required to define, design, and introduce
the product to the market” (CLARK; FUJIMOTO, 1991, p.
69). Lead time can be divided into planning lead time and engineering lead time. The former refers to “the time between
the beginning of concept generation and the end of product
planning”, while the latter is “the time between the beginning
of product engineering and the start of sales” (CLARK; FUJIMOTO, 1991, p. 77). It is a dimension of performance that
indicates how quickly a company can move from concept to
market. In fact, the number of working hours necessary for a
company to introduce a new and effective car to the market
has a significant impact on the market acceptance of the new
model. The new vehicle must be able to meet customers’ expectations and reach the market before competitors’ new models,
with a high quality and reasonable price. Therefore, lead time
is an essential dimension of performance.
By providing technical assistance to first-tier suppliers to nurture their growth and sharing the responsibility of
components design, Japanese automakers are said to “benefit
from the supplier’s know-how and capture it more effectively
in the design of the product and the conduct of the development process” (CLARK; FUJIMOTO, 1991, p. 164), thus
reducing lead time.
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Close and Constant Communication
The pattern of communication between the automaker and suppliers is intense and constant, involving knowledge
exchange about both the manufacturing process and product
design. Toyota is famous for prioritizing face-to-face communication, visiting suppliers’ plants for joint problem solving activities and providing improvement recommendations. In fact,
this type of close interactions favors the development of trust
between automakers and suppliers (DYER, 1996a, p. 660661). Trust is an important requirement for an efficient process
of knowledge sharing between collaborating parties in a supply chain (VIET; BEHDANI; BLOEMHOF, 2018, p. 68).
As a result, all firms in the supply chain invest in mechanisms
to continuously enhance the information flow (HELPER;
LEVINE, 1992, p. 563).
It is important to keep in mind that the success of practices such as just-in-time manufacturing demands a high level
of information exchange between the automaker and its suppliers and dealers. Moreover, the effectiveness of total quality
control throughout the supply chain requires close interaction
that can only be achieved by an intense and dynamic pattern of
communication. This close communication between the automaker, suppliers and dealers can increase productivity, conformance quality, delivery speed and flexibility of the entire supply chain (CUSUMANO; TAKEISHI, 1991, p. 575; DYER,
1996a, p. 657-658; FUJIMOTO, 1999, p. 318). It is, therefore,
a key issue for the success of the Lean Production System,
which is focused on joint efforts to enhance the efficiency of
the supply chain as a whole.
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The Relationship Between Lean Practices
and Process Innovation
Although the effects of product innovation are visible
both within and outside a firm, the impacts of process innovation are usually only noticeable inside the boundaries of a
firm. Nonetheless, both product innovation and process innovation are fundamental for increasing the efficiency and productivity of a company. In fact, product innovation is able to
draw more attention from the academia, practitioners and the
general public probably “because it is considered more visible
to customers and has a potential for opening of new markets”
(SHASHI et al., 2019, p. 111, 114)
Product innovation refers to “improvements or entirely new developments of products and services” (KLEWITZ;
HANSEN, 2014, p. 58-59). It is associated with the introduction of a product or service that is “new or significantly improved regarding its characteristics or intended uses, including
significant improvements in technical specifications, components and materials, incorporated software, user friendliness
or other functional characteristics”. In this manner, product
innovation can result from the use of new knowledge or technologies, but may also “be based on new uses or combinations
of existing knowledge or technologies” (GÜNDAY et al., 2011,
p. 662).
Process innovation, on the other hand, relates to the
changes in the manufacturing process of goods or in the way
services are delivered, often with the aim of increasing efficiency, adding flexibility or using alternative resources. Polder
et al. (2010, p. 12) defines process innovation as “a significantly improved method of production or logistics, or supporting
activities such as maintenance and operations for purchasing,
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accounting, or computing”. Therefore, process innovation “is
the implementation of a new or significantly improved production or delivery method, which includes significant changes in techniques, equipment and/or software” (GÜNDAY et al.,
2011, p. 662). Process innovation may thus “result in changes
in the equipment, technology, methods, techniques, and software for the production, with the aim to improve enterprises’
competitiveness by reducing production costs and increasing
the flexibility and efficiency of production systems” (SHASHI
et al., 2019, p. 111-112).
Since process innovation occurs inside the firms, it is often “hidden from competitors” and, therefore, may be considered a “strategic intent for the firm to increase the entry barriers
for competitors and gain leadership in the market” (SHASHI
et al., 2019, p. 114). As it is usually not visible to outsiders, it
can be difficult to emulate and may evolve to be a strategic
asset associated with the company’s organization and culture.
Moreover, as process innovation has the potential to increase
efficiency and flexibility of the production system, it can contribute not only to the firm’s financial performance, but also
become “an intangible part of product innovation” (SHASHI
et al. 2019, p. 114). Process innovation can facilitate product
innovation because it can progressively enhance the quality
of components and materials in the manufacturing process. It
can also be pivotal for new product development to the extent that it constantly revises and updates the technical specification and functionalities of existing components, as well as
minimizes the risk of product defects and failure (SHASHI
et al., 2019, p. 114). On top of that, process innovation may
have positive impacts on both product innovation and financial
performance, because it can potentially reduce the production
cost, which can result in a final product with a more attractive
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price to the final consumer. Finally, cost and time savings from
manufacturing improvements due to process innovation can
both be considered “resources that may be spent on product
innovation” and a great assistance to reduce time to market in
new product development (SHASHI et al., 2019, p. 114).
A great dimension of process innovation can be associated with “eliminating non-value added activities in production
and delivery process”, as well as using novel production processes and techniques (SHASHI et al., 2019, p. 114), which
makes process innovation intrinsically connected to several
Lean Practices, such as just-in-time manufacturing, kaizen,
quality control circles, and autonomous maintenance. Due to
its focus on reducing waste, conducting regular maintenance to
avoid defective parts and developing the workforce’s commitment to quality control and continuous improvement, it is possible to argue that the Lean Production Process is constantly
trying to promote process innovation. This tends to be in line
with current literature on the relationship between process innovation and the adoption of Lean Practices.
Production Based on Dealers’ Orders (Genryō Seisan)
Production based on dealer’s orders (genryō seisan —
限量生産)4 is a principle that guides the relationship between
automaker and dealers. The idea is to manufacture automobiles according to the exact demand. In reality, the relationship
between automaker and dealers is complicated and involves a
long process of negotiation to match the automaker’s actual
production plan with the dealer’s demand forecasts and pre4 Literarily, “limited volume production”.
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liminary orders. Although genryō seisan could be considered
an ideal principle, it still provides a guideline for constant improvements in the negotiation between automaker and dealers
(FUJIMOTO, 1999, p. 289).
Genryō seisan refers to the close pattern of relationship
between automaker and dealers based on a constant exchange
of information to continuously decrease the gap between sales
and stock, and its origins go back to the 1950s. According to
Cusumano (1991, p. 127-128), as a way of limiting the size of
Toyota’s inventory after the financial crisis of the 1949-1950,
bankers did not allow the company to store excess inventories on dealers’ lots. In this period, it was a common practice
for other Japanese automakers, such as Nissan, to keep excess
inventories on dealers’ lots because, by doing so, they could
“manufacture in larger lots and cut prices due to savings from
economies of scale” (CUSUMANO, 1991, p. 128). This shows
that some Lean Practices were initially implemented with different purposes and their future implications were not clearly envisioned at the time of their creation. Rather, sometimes
they were simply measures adopted by Toyota to cope with
contingencies throughout its history. Accordingly, Fujimoto
(1999) contends that the main feature of the Toyota Production System is its evolutionary nature, since it is constantly able
to reinvent and renew itself as a result of a process of trial and
error, with the participation of the entire workforce.
Genryō seisan is yet another evidence of the pivotal role
played by the close interaction between the automaker, suppliers and dealers in the Lean Production System. This production system is based on joint efforts to promote efficiency and
quality improvements throughout the supply chain. Chapter
2 will present more details about supply chain management
under the Lean Production System.
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Production Leveling (Heijunka)
Heijunka refers to an effort to maintain production leveling
and thus reduce the risk of overproduction. The term heijunka
(平準化) in Japanese stands for leveling, harmonization or
equalization, and this Lean Practice tries to ensure stability in
the production process in order to “reduce in-process storage and
related forms of waste” (DEIF; ELMARAGHY, 2014, p. 613).
Staats, Brunner and Upton (2011, p. 385) define heijunka as “a
coordination approach simplifying process architecture so production proceeds at a constant rate to meet customer demand”.
Production Leveling is an important practice to facilitate
the implementation of just-in-time in a pull system, in which
the production process tries to match the consumers’ demands.
The so-called heijunka box, which is a visual device that allows
workers to see the types of tasks scheduled for production,
can “facilitate production levelling across the various manufacturing phases and smooth out the variability of the dayto-day consumer demand” by “establishing the work sequence
and comparing the cycle speed against the required takt time”5
(DANESE; ROMANO; BORTOLOTTI, 2012, p. 444).
Production may, therefore, start from a generic schedule and be
cyclically adjusted following heijunka boxes to maintain stability, according to the demand (POOL; WIJNGAARD; ZEE,
2011, p. 199).
Hence, heijunka focuses on maintaining a smooth production process and workflow, by periodically adjusting the
5 Takt time can be defined as “the unit of time in which a product must
be produced (supply rate) in order to match the rate at which that product is needed (demand rate)”. The German term Takt stands for “the
regularity with which something gets done” (BRIOSO; MURGUIA;
URBINA, 2017, p. 667).
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production pace to meet the demand and minimize abrupt
variations. It is thus an important practice to ensure process
stability, which is a key concept in the Lean Production System
and emphasizes the need to implement a production process
that is predictable over time. Process stability is focused on ensuring a predictable manufacturing process that delivers a high
quality product with a minimum amount of waste.
Successful Cases of Lean Practices Implementation
Brazilian Agroindustry
Lermen et al. (2018, p. 265) conducted a case study in
the Brazilian agroindustry to investigate the use of the Lean
Production System for new product development. The authors
created a framework based on Lean Practices to facilitate the
development of a new solution to increase fruit preservation.
The case study was carried out in a fruit process company responsible for processing approximately 220 thousand tons
of food per year (155 thousand tons of fruit and 45 thousand
tons of vegetables), located in the Paraná State. The goal was
to create a sustainable product development process that could
improve the efficiency of the firm’s main activities, which are
fruit and vegetable production and transport (LERMEN et al.,
2018, p. 265).
It is important to note that the agroindustry can be seen
as a suitable sector to assess the influence of Lean Practices due
to the high level of waste. In fact, agriculture and livestock are
usually characterized by the adoption of push strategies of production, which may result in overproduction and large quantities of products not being absorbed by the market (LERMEN
et al., 2018, p. 216). Moreover, the lack of proper transporta107
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tion, incorrect handling and the use of unsuitable preservation
techniques may result in high levels of waste. The situation of
the company before the case study can illustrate this problem:
Currently, fruit preservation in the company follows a sanitization process with
Sodium Hypochlorite (NaClO) and the
application of a natural cassava starch,
both cooked at a 10% solution in water.
Nevertheless, this is an inefficient process since the company has a 31% product waste rate. The demand for a product
that eliminates fruit waste is justified since
Brazil is the third greatest fruit producer
in the world, with an estimated production
of 44 million tons in 2017. In addition, it
is estimated that 40% of the fruit production will deteriorate before consumption.
(LERMEN et al., 2018, p. 265)
In addition, the agroindustrial sector still performs a
number of artisanal processes, is intrinsically connected to issues of sustainability and includes an environmental dimension, as it directly deals with natural resources. The adoption of
Lean Practices to address the problem faced by the company
in the case study was able to encompass most of the aforementioned issues:
This case study brings the Lean perspective of waste elimination and the focus
on value to the development of a solution
that preserves fruit properties for longer
periods of time avoiding fruit waste. The
result from the LPD framework application in a fruit processing company led
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to the development of a modified starch
which is an agroindustrial innovation
with nontoxic and biodegradable characteristics by means of a chemical, physical
modification grafted in the natural cassava
starch. (LERMEN et al., 2018, p. 262)
Among the available options, the strategic planning team
of the company selected the adoption of the Cationic, Anionic, Hydrophobic Modified Starch in Pre-Gel Form (CAHMSPGF) method to tackle the problem of avoiding food waste.
This alternative not only presented financial feasibility but also
shared similarities with the production process already being
used by the firm at the time of the experiment (LERMEN et
al., 2018, p. 265).
The team responsible for the project also examined the
shop floor in order to identify ways to improve the manufacturing process, by using Lean Practices such as just-in-time
manufacturing, “to determine what must be produced, transported and bought in the right time”, kaizen, “to gather employees of several sectors during a week in order to identify and
improve processes”, and poka-yoke, “to implement foolproof
mechanisms to avoid errors and defects in the production process and in the execution of activities” (LERMEN et al., 2018,
p. 266). They also identified the main stakeholders as the fruit
processing companies, shipping firms and final consumers,
and tried to better understand the needs and demands of such
groups regarding “a biofilm that preserves fruit and provides
resistance to weathering” (LERMEN et al., 2018, p. 267).
The use of a Lean approach for product development for
selecting and implementing a new system based on CAHMSPGF biofilm, which presented economic feasibility and was
in line with the production process already used by the com109
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pany, showed great potential for improving the company’s
efficiency regarding fruit preservation and waste elimination.
In fact, although regularly sanitized fruit usually presented a
loss of about 80% of its initial mass, “sanitized fruit with the
CAHMSPGF biofilm reduced only 2.82% of the initial mass
(LERMEN et al., 2018, p. 269). According to the authors:
The proposed framework predicts the possibility of developing optimized products
and to eliminate waste in manufacturing
companies. The application of Lean practices makes processes more experimental
and serves as an example to the transformation of agroindustrial processes toward
more sustainable operations. (LERMEN
et al., 2018, p. 270-271)
This case study is an example of the applicability of the
Lean Production System outside the industrial manufacturing sectors to which the system is usually associated, such as
the automobile industry. It also reveals the possibility of using Lean Practices in sectors traditionally characterized by a
heavy tendency towards push strategies. In addition, the study
demonstrates the relevance of trying to use Lean Practices
to reduce non-value-added activities in sectors that generate
great quantities of waste.
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CHAPTER 2
THE LEAN PRODUCTION SYSTEM: AN
INTEGRATIVE APPROACH TO SUPPLY CHAIN
MANAGEMENT
The previous chapters emphasized the key role played
by the adoption of an integrative approach to supply chain
management for the success of the Lean Production System. The promotion of integration is also a complex feature
to be emulated by competitors. Most Lean Practices are utilized simultaneously by the automaker, suppliers and dealers. A brief description of how such practices are adopted
on the automaker’s shop floor is provided next, followed by
a discussion on how they are diffused throughout the supply
chain, to show the nature of interfirm relations in the Lean
Production System.
The Automaker
When one thinks about most of the well-known practices implemented by Lean Automakers, the importance of the
shop floor becomes clear. For instance, one of the requirements
for a successful process of total quality control is the acquisition by blue-collar workers of a deep understanding of their
own tasks as well as a comprehensive knowledge of the entire
production process. Moreover, workers on the shop floor have
to critically think about their assigned tasks in order to actively
participate in kaizen and quality control circles. Accordingly,
Fujimoto (1999, p. 266) contends that a central principle in
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Toyota is genba shugi (現場主義), i.e., shop floor sovereignty,
since blue-collar workers play a central role in the company.
He emphasizes, for instance, that new equipment created by
engineers at Toyota are only used in the automaker’s plant after
being approved by the shop floor personnel.
Dore (2000, p. 33) argues that managers of European
and American companies place great importance on shareholders’ opinion on the decision making process. Managers of
Japanese firms, on the other hand, tend to emphasize consensus and prioritize their own employees. As a result, Japanese
workers think about themselves as members of a community.
It is important to keep in mind that not only white-collar workers share this sense of belongingness, but also blue-collar ones. Koike (1988, p. 33) advocates that the most striking
feature of Japanese firms is what he calls the “white-collarization of wage structure”. In large Japanese companies, “male
blue-collar age-wage profiles are similar in shape to those for
white-collar males”.
Therefore, Japanese automakers place great emphasis on
developing skills not only of white-collar employees, but also
of those on the shop floor. In fact, blue-collar workers have
to regularly attend in-service off-the-job training and such
courses do not focus strictly on the type of work that they are
supposed to do on the shop floor. Actually, during the off-thejob training, blue-collar workers learn much of what is deemed
white-collar work (KOIKE, 1988, p. 162).
Moreover, workers on the shop floor regularly rotate in their own work team and are transferred to other
workstations, in order to acquire a broad vision of the entire production process and a wide range of skills. Koike
(1988, p. 177) states that the formation of a career on the
shop floor usually involves the execution of different jobs
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on the same work team as well as in two or three different
but closely related workstations. The movement of workers,
therefore, does not occur between random workstations. On
the contrary, workers usually are transferred to work teams
that are somehow connected to their previous activities. In
this manner, they can progressively improve the skills they
already have, acquire a more comprehensive knowledge regarding the production process and provide useful insights
in kaizen circles: “The Japanese worker’s consequent understanding of the production process enables him to find ways
of improving productivity, which suggests that he has already acquired the characteristics of a white-collar technician” (KOIKE, 1988, p. 177).
The development of a multi-skilled workforce and the
practice of rotating personnel within the factory also provide
a greater level of flexibility to the manufacturer. For instance,
according to Shimokawa (1994, p. 39), during the first oil crisis
at the end of 1973, Toyota had to cope with a reduction of up
to 30 per cent in the plant operation rate. The kanban system,
just-in-time manufacturing and the practice of reallocating
workers to different shops within the factory were particularly
useful during this period.
Lean Practitioners rely both on on-the-job and off-thejob training for skill development of the workforce (KOMATSU, 2006, p. 215). On-the-job training is a widely adopted
practice to spread the skills from veterans to newcomers and is
complemented by off-the-job training. As a result, blue-collar
workers in Japan develop a wide range of skills that go from
the repetitive work of operating machines to handling minor
maintenance tasks and dealing with unforeseen operations.
Since most practices used by Lean Practitioners demand
a comprehensive knowledge of the entire production process,
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the development of multi-skilled workers on the shop floor is
regarded as paramount. In fact, Koike (1988, p. 158) emphasizes that “the contribution to efficiency from workers having a
wide range of skills is much broader and deeper than the contribution made by [Quality Control] Circles activities”.
Through a mixture of on-the-job and off-the-job training, blue-collar workers develop intellectual skills, which is a
type of knowledge that goes beyond the operation of machines
and also encompasses dealing with unforeseen situations
(KOIKE, 1990, p. 23). Hence, blue-collar workers can deal
with unusual problems during their daily work without the
assistance of technicians. In addition, by developing intellectual skills, workers on the shop floor are capable of providing a
greater contribution in terms of continuous improvements and
quality control. Lean Practitioners have a tendency to promote
workers on the shop floor according to their capacity to deal
with unusual situations (KOIKE, 1990, p. 28).
The acquisition of intellectual skills is essential for the
success of Lean Practices such as autonomous maintenance
and jidōka. By reaching a comprehensive view of the production process and by learning skills that go beyond the simple
operation of machines, blue-collar workers can undertake
equipment periodical maintenance and deal with problems
on the spot.
In summary, the training process used by Lean Practitioners emphasizes the acquisition of a comprehensive view of
the entire production process and the development of a wide
range of abilities, including intellectual skills. As a result, workers on the shop floor can deal with unusual situations, conduct
regular equipment maintenance, and make a greater contribution in terms of continuous improvements and quality control.
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The Relationship between Automaker and Suppliers
There are several cases in which the adoption of Lean
Practices by a single firm on its own shop floor can effectively
improve quality and reduce inventory costs (see, for instance,
BLOOM et al., 2011 and NAUFAL et al., 2012). However,
the joint and collaborative adoption of such practices by the
automaker, suppliers and dealers can greatly increase their positive impacts and create a competitive advantage for the entire
supply chain network.
Shimokawa (1994, p. 22) argues that only 30 to 40 percent of the entire manufacturing process takes place in the automaker’s plant. This percentage may progressively reduce with
the tendency towards the use of modularization in the global automobile industry. The interface between the automaker and its
suppliers is thus central for the growth of this industrial sector.
Dore (2000, p. 35-36) stresses that one of the main
characteristics of Japanese management is relational trading,
which generates mutual obligations for the parties involved.
While for Western firms it may be reasonable to shift from
one supplier to another if price and quality conditions are better, Japanese firms tend to create stronger and longer ties with
suppliers. Japanese automakers provide technical assistance to
suppliers and there is a constant pattern of information sharing and technology exchange. In fact, the subcontracting system adopted in Japan is a kind of “problem-solving-oriented
collaborative manufacturing” (NISHIGUCHI quoted in FUJIMOTO, 1999, p. 141).
Due to this collaborative manufacturing system, technicians from the automakers may be sent to the suppliers’ plants
to promote joint problem-solution efforts and collaboratively discuss improvements for the entire manufacturing system.
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This high integration between automaker and suppliers is also
evident when one considers that the rotation of employees is
not restricted to the automaker’s plants, as they may also be relocated to sub-contractors facilities (DORE, 1973, p. 40; LINCOLN; GERLACH; TAKAHASHI, 1992, p. 565).
The close ties between automakers and suppliers in the
Lean Production System allow the delegation of component
design tasks to suppliers. In the particular case of Toyota, for
instance, the copyrights of the drawing of components belong
to suppliers, and they take full responsibility for quality assurance, as well as testing and evaluation of the parts (FUJIMOTO, 1999, p. 138).
For such a system to work properly, a high level of technology transfer and information exchange is fundamental.
Long-term cooperation between the automaker and its suppliers is also essential, in order to ensure knowledge accumulation
and constant evolution of suppliers’ capacities.
Automaker-suppliers Relations in the Early Years of the
Japanese Automobile Industry
In the early years of the Japanese automobile industry,
domestic auto parts firms did not have enough capacity to
cope with the demand of the automakers. Toyota initially had
to develop automobile components by itself. Vertical integration, therefore, was necessary due to the primitive condition
of the domestic auto parts sector. In fact, vertical integration
is common in the early stages of industries. Although there
are exceptions, during the emergence of an industrial sector,
firms are vertically integrated because would-be suppliers find
it unprofitable to produce on a limited scale. However, “an expansion of the output of final products” can enable “special116
The Lean Production System and Modularization
ized firms to take over the production of intermediate goods”
(LANGLOIS; ROBERTSON, 1989, p. 361). Additionally, in
the specific case of the automobile industry which produces
highly complex products, suppliers must undertake great investments to achieve the quality and productivity demanded
by automakers. From the automakers’ perspective, it would be
a risk to rely on auto parts producers with inadequate or incipient manufacturing capacity. However, it should be noted
that the vertical integration at Toyota gave birth to Nippon
Denso, which, after being separated from Toyota in 1949, became an autonomous firm and grew to become one of the main
suppliers in Japan. Today, Denso Corporation is a global firm
with reported net revenues of over US$ 46 billion in 2018, 170
thousand employees, and presence in China, Europe, United States and other countries (DENSO CORPORATION,
2018, p. 12, 60, 101).
In other cases, however, firms that originated in other
industrial sectors, especially the aircraft industry, brought their
supply chain with them when they decided to shift to the automobile industry. According to Cusumano (1985, p. 14-15), the
“predecessors of Mitsubishi Motors, Fuji Heavy Industries and
Price Motors” were “original-equipment manufacturers that
had made aircraft during the war”. After 1945, they switched
to automobile manufacturing and “brought their parts suppliers with them”. This tends to show the existence of a partnership between firm and suppliers in Japan even before the establishment of the automobile industry.
One of the consequences of this close relationship is that
key first-tier suppliers often follow the automaker overseas
when the latter decides to build a factory on a foreign country. Japanese automakers that decide to set up factories abroad
do exercise pressure over their partners to accompany them. A
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study conducted by Martin et al. (1995, p. 609), centered on
Japanese automakers that decided to expand their business operations to the U.S., concludes that “buyers and suppliers with
long-standing links in the home country tended to recreate
the links in the new location”. In fact, a high level of integration between firms in the supply chain creates a competitive
advantage for the entire network in the long term. As a result,
automakers tend to emphasize the reproduction of a similar
supply chain overseas, to achieve the same performance as in
their home countries.
A newspaper article shows an example of the expansion of
Toyoda Gosei Co., an auto parts maker affiliated to Toyota, in
response to the automaker’s decision to increase production overseas:
In response to Toyota’s increase of overseas production, [Toyoda Gosei] has developed and expanded plants in its five
production centers around the world and
established a global parts supply system
[…] For the year through March 2007,
the company plans to invest ¥57 billion in
plants and equipment, mainly in the autoparts business, in response to Toyota’s
production increase. It is highly likely that
capital investments for the autoparts business will be recouped, since they are mostly investments in molds and intended to
boost production on the basis of projected
orders from the Toyota group. (KAWADA, 2006, p. 24)
Since the beginning of the 2000s, Toyoda Gosei Co. has
greatly expanded, establishing its presence in different regions
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of the world, including China, India, Mexico and Europe. In
2018, it reported revenues of over US$ 7.5 billion. It is also
worth mentioning that even though the company expanded
the revenue from business with Toyota by 35% from 2012 to
2018, it was able to double the revenue from business with
firms other than Toyota in the same period. Global sales to
firms other than Toyota group accounted for US$ 2.8 billion
in 2018 (TOYODA GOSEI, 2019, p. 13, 22). This goes in
line with Lean Automakers’ traditional practice of encouraging suppliers to sell and engage with partnerships with rival
companies in order for them to grow and constantly improve
their technology and quality by being part of a greater array
of supply chain networks. It is worth mentioning that, even in
the 1990s, first-tier suppliers such as Nippon Denso already
had “substantial independence in their choice of what new capabilities to develop, where to expand, and who to deal with”
(MARTIN; MITCHELL; SWAMINATHAN, 1995, p. 596).
The partnership between Toyota and its suppliers illustrate
such a competitive advantage. Due to this long-term relationship,
even in times of emergency, there is an effort from both Toyota and its suppliers to maintain the line of production working
despite adverse conditions. In 1997, for instance, a fire destroyed
one of the factories of Aisin Seishi, one of Toyota’s main suppliers. Nonetheless, with the aid of other suppliers, the situation was
controlled and the production line was not stopped, even though
Toyota had only a 2 days’ stock (DORE, 2000, p. 140).
In a Lean supply chain, the number of first-tier suppliers is limited and they have a long-term relationship with the
automaker. However, suppliers are constantly under pressure to
increase efficiency and they compete with each other in terms
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of quality improvements and the level of component design
capacity (FUJIMOTO, 1999, p. 170). Lean Automakers usually have more than one supplier for each component and they
divide the orders among suppliers. This system is not meant to
reduce the cost of the parts, but to keep the level of quality and
to be an incentive to improve productivity. If one of the suppliers “falls short on quality, the assembler shifts a fraction of
the business from that supplier to its other source for that part
for a given period of time as a penalty” (WOMACK; JONES;
ROOS, 1991, p. 154). In this manner, long-term relationships
can be maintained without the threat of quality deterioration.
Moreover, Japanese suppliers already know that they are expected to lower prices over time and, due to the high level of
information exchange, the automaker has accurate data concerning suppliers’ costs, which makes it difficult for the latter to
bargain (CUSUMANO; TAKEISHI, 1991, p. 582-583).
Richardson (1993, p. 349) argues that large investments
in single sourcing may be dangerous, as the automaker becomes
increasingly dependent on one supplier and susceptible to opportunism. In this context, Japanese supply chain management
has an advantage, as the automaker creates a long-term relation with a limited number of suppliers, without undermining
competition and maintaining incentives for cost reduction and
quality improvements:
the Japanese auto makers use a hybrid
form of sourcing we call parallel sourcing
which combines specific investments and
a commitment to long-term sole-sourcing relationships with competition among
suppliers for expanded opportunities.
Promises of increased volume, more contracts, and higher profit margins as a re120
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ward for performance provide strong incentives — strong enough to overcome
the hazards of sole sourcing and specific
investments given the structure of this industry. (RICHARDSON, 1993, p. 341)
Therefore, Lean Practitioners such as Toyota are more
“concerned in how the assembler and the suppliers could work
smoothly together to reduce costs and improve quality, whatever formal, legal relationship they might have” (WOMACK;
JONES; ROOS, 1991, p. 58). In fact, they prefer to have a
long-term and highly interdependent type of relationship with
a limited number of suppliers, which begins in a very early
stage of product development and have implications that go
beyond those stated at their formal contract (CUSUMANO;
TAKEISHI, 1991, p. 583).
One of the clearest advantages of such an integrative
approach to supply chain management is the optimization of
just-in-time manufacturing, with a consequent inventory costs
reduction. Moreover, production problems such as “machine
failures, defective production, time-consuming machine setups, long transportation distances, unbalanced lines” (LIEBERMAN; DEMEESTER, 1999, p. 467) may create the need
for buffer inventories. Inventory reductions will make such
problems visible and when they are solved, a rise in productivity and quality can be expected (FLYNN; SAKAKIBARA;
SCHROEDER, 1999, p. 1331). Lieberman and Demeester
(1999, p. 484) present empirical evidence of an increase in productivity due to inventory reductions in a survey conducted in
the Japanese automobile industry.
Moreover, the involvement of suppliers in product development has positive impacts on time lead and project scope, allowing
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the automaker to release new models in the market in a shorter
time and with a higher number of new features than competitors.
Project scope refers to the “extent to which a new product is based on unique parts developed in-house” (CLARK,
1989, p. 1247). When analyzing the scope of a given project,
two elements should be taken into account. The first one is the
choice of unique versus off-the-shelf parts. A higher quantity
of unique features can add value to the final product, but may
also increase the cost, number of activities, and time to complete the project. The second element is the involvement of
suppliers. After choosing the percentage of unique parts, the
automaker may rely on suppliers for engineering work. Integration in the supply chain, therefore, has a direct effect on
project scope. Clark (1989, p. 1256) argues that the involvement of suppliers in parts design may have synergistic results
in product development:
the attempts to decompose development
efficiency into an in-house piece and a
supplier piece may miss the importance of
the total development system linking assemblers and suppliers. If, as is the case in
the Japanese auto industry, suppliers and
assemblers have integrated their engineering activities, efficiency in one group depends on efficiency in the other. Further,
it is the efficiency of the whole, not the
parts, that matters […]. The ability of the
Japanese firms to operate efficiently while
using a larger fraction of unique parts is
due in significant part to the capability of
the supplier network.
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This close relationship between automaker and suppliers
results in higher levels of both efficiency and flexibility, as the
supply chain is capable of enhancing productivity, while managing fluctuations in demand and diversity in product customization (MACDUFFIE; SETHURAMAN; FISHER, 1996,
p. 354; ADLER; GOLDOFTAS; LEVINE, 1999, p. 64).
Dyer and Nobeoka (2000, p. 346) stress that “the cost
and quality of a vehicle are a function of the productivity of
a network of firms working in collaboration” and emphasize
the advantages of Toyota’s integrative approach to supply chain
management in terms of knowledge sharing and collaborative
improvements. In fact, the close contact and face-to-face interaction between automaker and supplier can reduce communication errors, make feedback more effective and facilitate
the transfer of tacit knowledge (DYER, 1996b, p. 274; DYER;
NOBEOKA, 2000, p. 348).
Tacit knowledge is a term coined by Polanyi (1962; 1966)
and refers to the content of knowledge that “can be learned
only through personal experience” (CONNER; PRAHALAD, 1996, p. 477). Polanyi gives the example of recognizing
a person’s physiognomy as a type of knowledge that “cannot be
put into words” (POLANYI, 1966, p. 4-5). Mastering a skill,
such as playing the piano or riding a bicycle, has often a tacit
knowledge component. Although there are instruction manuals and teachers who can provide tuition, students have no option but to practice by themselves and learn through trial and
error (POLANYI, 1962, p. 162). Acknowledging the existence
of this tacit element in knowledge acquisition is significant for
the field of Organizational Theory, since it draws the attention
of scholars to the importance of face-to-face interaction for
the diffusion of practices. As Kogut and Zander (1992, p. 389)
point out:
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The act of solving a problem rests on a
sense of how the phenomena function;
the formal expression of the solution is
unlikely to capture fully this procedural
knowledge, or even the data and information […] leading to the solution […].
The teaching of know-how and information requires frequently interaction within
small groups, often through the development of a unique language or code.
The reliance on on-the-job training and knowledge sharing between veterans and newcomers favors the acquisition of
tacit knowledge. In addition, the emphasis on constant visits
of automaker’s personnel to suppliers’ factories as well as faceto-face interaction demonstrates an intention to stimulate tacit
knowledge transfer at the interfirm level.
On top of that, an integrative approach to supply chain
management favors knowledge accumulation and sharing
throughout the supply chain and the automaker will not be
threatened by the possibility of losing the expertise of activities
outsourced to its suppliers. Revisiting the distinction proposed
by Takeishi (2002, p. 322, 323) between task partitioning and
knowledge partitioning, the integrative approach to supply
chain management adopted by Lean Practitioners tends to prioritize the retention within the firm of the knowledge about
outsourced tasks. This favors the exchange of high quality information and significant joint problem-solving activities at
the interfirm level.
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The Relationship between Automaker and Dealers
Womack et al. (1991, p. 181) highlight that practices such
as kaizen and initiatives to develop multi-skilled workers can be
observed not only in the assembly lines of Toyota, but also in
the factories of suppliers and facilities of dealers. In fact, the
staff of Toyota’s dealers is also divided in teams and trained in
all aspects of sales, such as “product information, order taking,
financing, insurance, and data collection”.
Concerning data collection, it is interesting to note that
dealers of Lean automakers focus not only on the sale of a
single car. Rather, they try to develop a long-term relation with
each customer. Through surveys, dealers get as much information as possible from every household, such as their preferences, number of children etc. Womack, Jones and Roos (1991,
p. 188) present the advantages of this data collection process
conducted by the automaker’s dealers as follows:
The Lean selling system, with its periodic
survey of practically all consumers in the
Japanese market, is the first step in the
product-development system. It avoids the
need for the time consuming, expensive,
and frequently inaccurate market assessment survey of the Western mass producers.
The close interaction between automaker and dealers
under the Lean Production System brings positive outcomes
not only in terms of delivery time for automobiles produced to
customers’ specifications, but also in terms of matching production to sales. Genryō seisan, or production plans based on
dealers’ order volume, is thus more of a guiding principle than a
reality. As many of the practices adopted by Lean Practitioners,
genryō seisan is an ideal goal, and the automaker and dealers
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should negotiate and make a joint effort to constantly improve
the system:
production volume, in reality, may not be
determined as a result of a simple one-way
information flow from the market to the
dealers to the producer, but through a more
subtle mutual adjustment to the extent that
the actual production system is not infinitely flexible. However, the principle of
genryō-seisan is solid as a concept, philosophy, or the ultimate goal at companies like
Toyota. (FUJIMOTO, 1999, p. 289)
In addition, by having a constant pattern of interaction
with dealers, the automaker can avoid fluctuations in demand
and increase process stability. Therefore, the collaboration between automakers and dealers is an important element to optimize the results of heijunka (RESTA et al., 2015, p. 18)
After sales services are another important area in which
dealerships can contribute to create a competitive advantage
for the entire supply chain network. According to Dombrowski and Malorny (2014, p. 618) “lean after sales service improves
the customer’s feedback with regard to used services and therefore helps to strengthen customer loyalty and promote primary
product sales”. In addition, it is interesting to note that this
area is relatively less influenced by economic cycles and economic crises, as customers have to rely on after sales services
periodically, for activities such as maintenance, repair or spare
parts installation. Moreover, offering high quality after sales
services in addition to primary products can generate significant overall profits to the automaker (DOMBROWSKI; MALORNY, 2014, p. 619). It is, thus, an essential area that should
not be overlooked by automotive firms, since after sales can
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increase profits, improve the image of the company, and collect
useful information from consumers, which may be of relevant
assistance to improve the manufacturing process and serve as
input for new product development.
Dombrowski and Malorny (2014, p. 620) also emphasize
that several principles of the Lean Production System, such as
pursuing zero defects, continuous improvement process, quality improvement, customer-oriented material supply, employee orientation, avoidance of waste and visual management, are
applicable to after sales services. Lean Principles can thus be
used by dealers in after sales services to better meet customer’s
demands. In fact, current tendencies point towards a more integrated view of manufacturing that also encompasses services
and after services. Resta et al. (2015, p. 12) assert that “the old
dichotomy between product and service has been replaced by a
product-service continuum”. According to the authors, such a
phenomenon “represents the evolution of companies’ business
models from a ‘pure-product’ orientation towards integrated
product-service systems (PSSs), based on the provision of integrated bundles consisting of both physical goods and services”.
This is in line with the Lean approach, which emphasizes the
need for an active role played by dealerships in the supply
chain network. As already stated, the Lean Production System
promotes integration from the early stages of product development to after sales services. Therefore, dealerships are seen
as fundamental players to the optimization of Lean Practices
and for achieving a competitive advantage for the entire supply
chain network.
The role of dealers, therefore, is essential for the success
of the entire production system, as it provides real feedback on
customers’ preferences for the automaker. Moreover, since justin-time manufacturing aims at progressively reducing the level
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of inventory, both auto parts and vehicles should be produced
according to the demand. An integrated and efficient distribution system, therefore, is essential for the success of just-in-time
manufacturing and must include dealers’ demand forecasts.
As already stated, although the main principle in the relationship between automaker and dealers is to produce the same
amount of automobiles that are sold, the perfect match between
production and sales is more of an ideal or a guiding principle than a reality. Fujimoto (1999, p. 289) argues that, during
the 1990s, the majority of the domestic car sales in Japan were
made from “dealers stocks rather than customers’ specific orders”. Moreover, due to the existence of time-consuming work
related to governmental regulations, it took one to two weeks
to deliver a car to a consumer when picked up from a dealer’s
stock. In the specific case of automobiles bought directly from
dealer’s inventories, it actually could take more time for the car
to be delivered to the consumer in Japan than in Western countries, due to stricter Japanese governmental regulations, which
is an exogenous factor out of the automaker’s control. The situation is different, Fujimoto (1999, p. 306) continues, when it
comes to production to customers’ specifications. In the early 1990s, Toyota already had capacity to deliver specific orders
within two or three weeks, whether in Europe the time ranged
from one to three months. This great difference in delivery time
shows the efficiency of just-in-time manufacturing. The reduction of the delivery time for a vehicle produced according to
customers’ specifications demands a high level of information
exchange between automakers and dealers.
In fact, dealerships play a pivotal role in the supply chain
network because they are closer to the final consumer and they
have direct access to consumers’ demands. They are thus responsible for pursuing a balance between inventory costs of fin128
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ished vehicles at their lots and profitability. Chuang and Zhao
(2019, p. 210) contend that dealers “can actually use higher
stock levels not only to satisfy demand but also to stimulate
it”. On the other hand, Parry and Roehrich (2013) sustain that
the build to stock (BTS) strategy is becoming increasingly less
effective, especially after the 2008 Global Financial Crisis. The
BTS model “calls for inventory to be stocked in the form of
finished goods with the goal of optimizing the time to fulfil a
customer demand” (CHUANG; ZHAO, 2019, p. 210). One
of the drawbacks of the BTS strategy is that consumers, incentivized by manufacturer discount, end up not purchasing
the vehicle they really want, but one which is available at dealer’s lots (PARRY; ROEHRICH, 2013). Moreover, the 2008
Global Financial Crisis, with its impact on credit restriction
to both industries and consumers, resulted in overproduction
and a large accumulation of vehicles at dealers’ lots, leading to
great inventory costs and eroding profits (PARRY; ROEHRICH, 2013). Accordingly, Parry and Roehrich (2013) argue
for a greater use of the Build to Order (BTO) business model,
which refers “to a demand-driven production approach where
a product is scheduled and built in response to a confirmed
order received for it from a final customer”. The BTO model is closer to the Lean approach and demands a great level
of communication between automakers, suppliers and dealerships. Nonetheless, it should be noted that even for a company that decides to use a BTS strategy to stimulate consumer’s
demand, information exchange between firms within a supply
chain network is pivotal as a way of bringing to market products which are closer to consumers’ demands and to avoid the
piling up of finished and unwanted vehicles at dealers’ lots.
The participation of dealerships in the process of understanding and interpreting customers’ behavior will increase with
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the emergence of big data analytics. Big data “is often used to
describe massive, complex, and real-time streaming data that
require sophisticated management, analytical, and processing
techniques to extract insights” (GUPTA; GEORGE, 2016, p.
1050). By using proper methodology and tools to extract and
examine such data, important information can be gathered
from customers’ preferences, which can be used as inputs for
new product development, quality improvements, and for enhancing consumers’ satisfaction on after sales services. For instance, dealerships can transform data on consumers into “specific pricing decisions or advertising campaigns” (TABESH;
MOUSAVIDIN; HASANI, 2019, p. 350). Big data certainly
provides a great quantity of useful data on consumers’ preferences and market tendencies. It can also reveal which components or subsystems are more often repaired or updated. Nonetheless, it is paramount to have well prepared employees that
can understand and adequately evaluate this kind of information, in order to propose changes to better respond to consumers’ needs. It is also fundamental to have proper and constant
channels for information exchange between automakers and
dealers to efficiently use the collected data. According to Gupta and George (2016, p. 1061):
By highlighting the importance of human
skills and intangible resources, this study
has attempted to enlighten big data managers that gaining competitive advantage
from big data is not only about making
investments, collecting hordes of data, and
having access to sophisticated technology but also about having availability of
big data-specific technical and managerial
skills, an intensity of organizational learn-
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The Lean Production System and Modularization
ing, and an organizational culture where
insights extracted from data are valued
and acted upon. It is an aggregate of all
these resources that will create a firm-specific big data capability.
In summary, the close interface between automaker and
dealers has two main positive outcomes: (1) it is of a paramount importance for the effectiveness of the just-in-time
manufacturing, since it can decrease the gap between volume
of production and sales; and (2) it provides accurate information about customers’ needs and preferences, which are essential for product engineering and development. It is, therefore,
essential for the success of the entire production system.
Automaker and Dealer Integration
The Case of Toyota Motor Italia
Toyota Motor Italia is a division of Toyota Motor Europe, which is under Toyota Motor Corporation in Japan. It is
located in Rome, Italy, and serves both as headquarters and as
a hub for Toyota’s Italian operations.
Resta et al. (2015, p. 12) conducted a case study focused
on dealerships of Toyota Motor Italia to assess the operation of
an integrated product-service system (PSSs), under the Lean
Production approach. The PSS is a business model that pursues
integration between manufacturing and services, and views the
total value delivered to the final consumer as a mixture of both
physical products and services.
According to the authors, Toyota Motor Italia has a central warehouse in Rome which dispatches components to dealers’ parts depots. The dealers’ warehouses have the same layout
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as the central one and, “because parts are ordered and replenished individually and on a daily basis”, dealer parts depots of
Toyota Motor Italia “occupy approx. 25% of the space required
by its competitors” (RESTA et al., 2015, p. 18). It is interesting
to note that most of the Lean Practices observed in Toyota’s
assembly lines are also used in these facilities:
Lean tools and techniques are applied in
the warehouse just as they are in the factory, e.g. Andon is used for visual management, Kanban is used to re-order parts
and components, and Heijunka is used to
level the daily activities. (RESTA et al.,
2015, p. 18)
The warehouses are replenished in a just-in-time fashion
and dealers that place an order by noon will receive it in their
parts depots on the following day by 7 a.m. Almost all the parts
(99.8%) that need to be replenished in the central warehouse
are supplied either by Toyota Motor Europe or Toyota Motor
Japan within 5 days (RESTA et al., 2015, p. 18).
Under the Lean Production Process, dealerships are fundamental players in ensuring production levelling and, therefore, they are encouraged to place their parts orders as soon as
possible. This is instrumental in increasing process stability:
The main target at the dealership is to
avoid fluctuations — Heijunka is the goal.
If the dealer can order every day, the central warehouse can follow demand without
problem. An appointment booking system
is used at the dealerships, which acts as a
workshop visual management system. As
such, it is very important to pre-book the
parts for all the scheduled job, in order to
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achieve the target service level. (RESTA et
al., 2015, p. 18)
The dealer’s workforce is composed of multi-skilled
technicians. As in the automaker’s factories, employees at dealerships also rotate to other work teams. Resta et al. (2015, p. 18)
affirms that jobs are shifted weakly in order to “avoid repetitive,
dispiriting work” and thus keeping employees always vigilant
and in high spirits to identify problems.
As for quality control, dealer’s employees follow a standard operation procedure, in order to try to maintain a desired
quality standard for the jobs performed. There are checklists
for the tasks conducted by the employees as well as a quality
checklist to evaluate their performance. For the most critical job
processes, such as “active reception of the customer”, the performance evaluation is done weekly (RESTA et al., 2015, p. 19).
Toyota Motor Italia is responsible for diffusing Lean
Practices such as Kaizen circles and Just-in-time manufacturing
throughout its network of 100 dealers. In this manner, “there is
a great focus on avoiding and eliminating muda (waste) within
the supply network”, and Toyota Motor Italia teaches “dealers
how to order parts on a just-in-time ( JIT) basis (i.e. ‘the right
part in the right quantity at the right moment’)” (RESTA et
al., 2015, p. 19).
As a result of the full implementation of the Lean Production System in its dealer’s network, Tokyo Motor Italia
is said to have been able to “increase stock turns from 24 to
48 per year”, which resulted in savings of approximately € 32
thousand in stock value per dealer. In addition, Toyota Motor
Italia also rated maximum in the dimensions: “customer relations, process and technology, and quality control, in both the
production and service context” (RESTA et al., 2015, p. 19).
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This case study illustrates the crucial importance of dealerships within the Lean Production System, and shows that
they also adopt the Lean Practices and are expected to engage
in constant communication with the automaker.
Diffusion of Practices at the Interfirm Level
The Lean Practices presented in the previous chapter are
capable of increasing productivity and quality of automakers.
They are adopted as principles or ideals rather than tools, creating an environment that favors continuous improvements
and a permanent process of institutional evolution. Kaizen and
quality control circles are examples of such practices that persuade workers to constantly think and implement improvements in their work processes. Such practices result in incremental innovations that enhance overall efficiency of the firm
in the long term. Through constant rotations within and across
work teams as well as participation in quality control and kaizen circles, automakers can develop a multi-skilled workforce.
Multi-skilled workers have a comprehensive knowledge of the
manufacturing system and can actively participate in improving their work activities, perform daily maintenance on equipment, conduct inspections for defects, avoid errors and even
deal with unusual problems without the aid of technicians.
Moreover, because they know how to perform several different
tasks, they can be relocated to different work teams to cope
with periods of recession or abrupt changes in market demand.
These practices not only improve the efficiency of the automaker, but also allow a greater level of flexibility.
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In fact, Abernathy (1978) distinguishes two types of
innovation: radical and incremental. While the former introduces a totally new design approach, resulting in a disruptive
change in the evolution of the previous one, the latter is characterized by minor but significant improvements that shape
the direction of existing design approaches. Radical innovation
is closer to Schumpeter’s idea of creative destruction. Schumpeter (1950, p. 83) stressed the importance of entrepreneurs for
the development of capitalism because they play an important role in what he called creative destruction, or the process
of innovation which “incessantly revolutionizes the economic
structure from within, incessantly destroying the old one, incessantly creating a new one”. Despite the relevance of radical
innovation, however, Abernathy (1978, p. 59) contends that
the importance of incremental innovation should not be neglected, for it may result in significant improvements in the
long term: “The evidence suggests that it is misleading to judge
an innovation by its apparent novelty. Incremental innovation
has been very important because it is cumulative and because
it builds on existing approaches”.
To these two types of innovation, Abernathy and Clark
(1985, p. 7-10) and Henderson and Clark (1990, p. 12) include
a third one: architectural innovation, which will be discussed
in the next chapter.
The Lean Production System tends to focus on incremental innovation, as it encourages the involvement of the entire workforce to promote small but relevant changes that will
have a positive impact in the long term.
In addition, the workforce is stimulated to play an active
role towards the promotion of incremental innovation not only
in the automaker’s factories, but also in the suppliers’ and dealers’ facilities, due to the integrative approach of the Lean Pro135
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duction System. Lean Practices are jointly adopted by all firms
within the supply chain and there are collaborative efforts to
enhance the overall performance of the entire system. Although
Lean Practices can bring positive outcomes if used only at the
organizational level, they will result in better outcomes if jointly
adopted by the automaker, suppliers and dealers.
In fact, just-in-time manufacturing is an example of a
Lean Practice that can only achieve its optimum level when
there is a high degree of integration between firms within the
supply chain. In just-in-time manufacturing, first-tier suppliers
should deliver components and pre-assembled parts according
to the automaker specifications, in a synchronized fashion, to
the assembly line, in order to avoid unnecessary inventory costs.
The involvement of dealers in this process is also relevant to produce vehicles according to the market demand. It is certainly
difficult to perfectly align productivity and demand, but a close
relationship between the automaker and dealers can reduce the
gap between the number of cars produced and effectively sold.
Toyota attaches significant importance to the dissemination of Lean Practices throughout the supply chain network.
For instance, the firm started as early as the 1960s to encourage
suppliers’ participation in product design. For this purpose, it
stimulated information sharing, joint problem-solving efforts
and technology transfer to progressively improve first-tier suppliers’ capacities. Lean Practitioners, therefore, are concerned
not only in promoting capacity building at the organizational
level. There is a clear effort to diffuse practices to suppliers and
dealers. The main objective is to enhance overall efficiency of the
entire supply chain. Thus, through the standardization and commitment to Lean Practices, Toyota could create conditions for
a high level of technology exchange and information sharing,
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allowing capacity building not only at the organization level, but
also at the interfirm level, involving suppliers and dealers.
One of the most remarkable evidences of the positive
impact of such a comprehensive approach to manufacturing is
on product quality and consumer’s satisfaction. By promoting
integration of automakers, suppliers and dealers, from an early stage of product development to after sales services, Lean
Practitioners are able to deliver a final product to consumers
which is a mixture of a high quality physical good with a premium customer service. A study conducted by Kher, Kydd and
O’Brien (2017) collected significant data on Consumer Reports’ rating of automobiles produced by European, Japanese
and US automotive firms. They gathered information on approximately 300 automobile models produced from 1998 to
2007; and approximately 240 models made in the period of
2008 to 2015. For both periods, the authors found that “not
only do automobiles made by Japanese firms have higher initial quality, but, as automobiles get older the difference in the
product quality between Japanese versus European and US
firms increases” (KHER; KYDD; O’BRIEN, 2017, p. 29).
They also revealed that, for European and U.S. automakers, the
wider was “the firm’s product offering in the market, the lower
its overall automobile quality during the 1998-2007 period”
(KHER; KYDD; O’BRIEN, 2017, p. 29). This further illustrates the Japanese automaker’s focus on ensuring quality since,
for the authors, such results are “partially explained by the fact
that Japanese firms have taken a different path to broadening
their product variety – they have ensured a high level of quality of their initial offerings before entering newer market segments” (KHER; KYDD; O’BRIEN, 2017, p. 29). Especially
for the period before the 2008 Global Financial Crisis, they
sustain that U.S. firms sought to constantly release new prod137
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ucts on the market in several different market segments, which
led to the launch of a large number of brands, but with quality
standards lower than those of Japanese competitors (KHER;
KYDD; O’BRIEN, 2017, p. 35).
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CHAPTER 3
MODULARIZATION: IMPACTS ON SUPPLY
CHAIN MANAGEMENT
From the mid-1990s, transnational automakers started
to radically transfer production-related activities to first-tier
suppliers (TEIXEIRA; VASCONCELOS, 1999, p. 22). According to Seyoum and Lian (2018, p. 856):
The last two decades have been characterized by a steady increase of vehicle development outsourcing and a shift
of both product development tasks and
knowledge from carmakers to suppliers.
This trend has led to dramatic de-verticalization processes and the development of
global mega-suppliers.
Brazil was one of the first countries in which transnational automakers implemented organizational changes to better cope with this new trend in the automobile industry. From
the mid-1990s, several new plants were built in Brazil, based
on the attempt to increase the role of first-tier suppliers in production-related activities.
General Motors (GM) implemented one of the above
mentioned new organizational structures in its plant located in
the Brazilian city of Gravataí, in the Rio Grande do Sul State
(HENRIQUES; MIGUEL, 2017). In this system, all but one
of GM’s first-tier suppliers are located in the same plant as
the car assembler. There is a physical separation between the
automaker and its suppliers, but they share the same plant.
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GM keeps several activities under its own responsibility and
thereby it does not decentralize so many roles to its suppliers
(GARCIA, 2005). Two logistic systems are used: just-in-time
delivery by suppliers, and milk run, in which GM collects parts
from small-size suppliers at a scheduled time and predetermined quantity (TEIXEIRA; VASCONCELOS, 1999, p. 21).
Another example of a new structure in Brazil is Ford’s
plant in the city of Camaçari, in Bahia State. This factory was
planned in the United States before being constructed in Brazil. It is a kind of industrial condominium, in which the suppliers are placed around the car assembler. Along with Ford, more
than 30 firms came to the state of Bahia, including first-tier
supplier and satellite firms (TEIXEIRA; VASCONCELOS,
1999, p. 22; RAMIRO, 2002).
In 1996, Volkswagen implemented an organizational
structure with a high level of interface between automakers and
first-tier suppliers in the Brazilian municipality of Resende, in
Rio de Janeiro State. Volkswagen transferred most of its production related activities to a limited number of subcontractors
that share the same plant. The production system is divided
into various stages, each managed by one of the subcontractors.
Volkswagen performs only 15-20% of all the activities, but it
is responsible for coordination and for testing the trucks in the
final stage. Suppliers are responsible not only for manufacturing the subsystems, but also for directly assembling them on
the assembly line (TEIXEIRA; VASCONCELOS, 1999, p.
19; ABREU; BEYNON; RAMALHO, 2000; SWAMINATHAN; NITSCH, 2007, p. 327). Therefore, the entire vehicle
is split into a few number of modules or subsystems, “(e.g. cabin, chassis, engine/transmission, suspension/axles/wheels, etc.),
which are assembled and installed on the finished product” directly by the suppliers (BERNSTEIN; DECROIX, 2004, p.
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The Lean Production System and Modularization
1293). Volkswagen is the owner of the plant, but each supplier
is responsible for managing its own part of the building. Each
of them also has a separate area to receive and dispatch materials and components. Volkswagen has access to all facilities
inside the factory, and has the duty of supervising the entire
process. Moreover, Volkswagen is responsible for testing the
trucks in the final stage, after they are assembled (TEIXEIRA;
VASCONCELOS, 1999, p. 19).
The main difference between Volkswagen’s plant in Resende, GM’s plant in Gravataí and Ford’s plant in Camaçari is
the level of outsourcing of production-related activities. In the
case of Ford and GM, the automakers decided to keep more
activities under their own responsibility. Volkswagen, on the
other hand, outsourced a larger portion of manufacturing-related activities to first-tier suppliers. In fact, in Volkswagen’s
plant, the first-tier suppliers are responsible not only for manufacturing the subsystems, but also for directly assembling them.
In China, global automakers have been investing in setting up facilities next to suppliers, as physical proximity has a
number of advantages for these new organizational structures.
In fact, physical proximity facilitates the delivery of preassembled subsystems directly to the manufacturing line, reduces uncertainties and lowers logistical costs and inventories. Distance
between supplier and buyer may increase transaction costs,
negatively affecting transportation, logistics and difficulties in
meeting delivery schedules. Geographical proximity promotes
a high degree of collaboration between buyer and supplier that
is required for activities that range “from model design to onsite service at the assembly line” (SEYOUM; LIAN, 2018, p.
857). Since these new organizational structures implemented
by Western automakers aim at increasing the role of first-tier
suppliers in product design and require the delivery of preas141
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sembled modules with predefined and standardized interfaces
directly to the manufacturing line, geographical proximity is of
crucial importance:
Since most module suppliers in China deliver pre-assembled modules on a
just-in-time basis, they are often located
close to the auto plant or inside the automobile firm’s facility. Modules are often
bulky, heavy and expensive and such proximity helps avoid shipping cost, damage
and an expensive pipeline of inventory.
(SEYOUM; LIAN, 2018, p. 857)
The aforementioned organizational structures share several similarities. In all of them, the automakers seem to be restricting the number of first-tier suppliers. In addition, first-tier
suppliers are now responsible for manufacturing and delivering
subsystems or modules, rather than only components. These
are actually some of the main features of the production system
called modularization.
China is also among the first countries in which foreign
automakers started experimenting with modularization. Since
the 1980s, the Chinese government has been stimulating joint
venture partnerships between major global automobile manufacturers and domestic firms, creating a situation of mutual
dependence (BAKER; HYVONEN, 2011, p. 24; SEYOUM;
LIAN, 2018, p. 858). While foreign partners reap advantages
from the large domestic market, Chinese firms relied on foreign design and technology. Foreign automakers initiated the
implementation of modularization in China in the early 2000s
“to boost production efficiency and cut costs” (SEYOUM;
LIAN, 2018, p. 858). In the case of existing plants in China, automakers and suppliers benefit from physical proximity
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The Lean Production System and Modularization
and “different modules made by suppliers are either assembled
in subassemblies or provided pre-assembled and then sent
by conveyors to the main assembly line” (SEYOUM; LIAN,
2018, p. 858).
Modularization can be defined as “building a complex
product […] from smaller subsystems that can be designed independently yet function together as a whole” (BALDWIN;
CLARK, 2003, p. 149). A module is “a unit whose structural
elements are powerfully connected among themselves and relatively weakly connected to elements in other units” (BALDWIN; CLARK, 2000, p. 63). Hence, a “modular product design is created by separating a product system into relatively
independent components and by specifying the interfaces of
the product system across interacting components” (LAU;
YAM; TANG, 2010, p. 21).
FIGURE 16 — MODULARIZATION: A GENERAL CONCEPT
Source: Created by the author.
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Waldemiro Francisco Sorte Junior
The literature distinguishes three different types of modularization: (1) modularization in design; (2) modularity in use;
and (3) modularity in production (SAKO; MURRAY, 1999;
BALDWIN; CLARK, 2003; PANDREMENOS et al., 2009).
Modularity in design refers to product architecture. A
product has a modular architecture when it is composed of
physical modules or subsystems with standardized interfaces.
Each module has a specific functionality and is interchangeable without interfering in product integrity. Conversely, in an
integral architecture, the several parts of the product are not
easily interchangeable without compromising product integrity, since their interfaces are coupled. Two components are said
to be coupled “if a change made to one component requires a
change to the other component in order for the overall product
to work correctly” (ULRICH, 1995, p. 423). Hence, while in an
integral architecture the interface of components is coupled, in
a modular architecture it is decoupled.
Modularity in use is related to the possibility of consumers to choose, among several features of a product, the ones
that better fit their individual needs. In this manner, “modularity in use allows consumers to mix and match elements to
come up with a final product that suits their tastes and needs”
(BALDWIN; CLARK, 2003, p. 152) and provides for high
product variety (SEYOUM; LIAN, 2018, p. 853). Therefore,
standardization of interfaces, allied to mass customization, enables customers not only to purchase products closer to their
individual necessities, but also to modify or upgrade selected
features or functions.
Finally, modularity in production is connected to the organization of the production process. Modularization requires
adjustments in supply chain management since suppliers will
deliver pre-assembled modules to the production line for final
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The Lean Production System and Modularization
product assembling. Thus, modularity in production refers to
an organizational arrangement in which a firm and its suppliers develops the ability to “pre-combine a large number of
components into modules and these modules to be assembled
off-line and then brought onto the main assembly line to be
incorporated into a small and simple series of tasks” (PANDREMENOS et al., 2009, p. 148). In order for a supply chain
to adopt modularity in production, therefore, it is necessary to
create a modular architecture for the final product. A modular
architecture will enable the division of tasks among suppliers,
which will be responsible for the production of each module
with standardized interfaces, in order to be combined in the final assembly line. By adopting modularity in production, suppliers have higher freedom to update and innovate their own
modules. Seyoum and Lian (2018, p. 855) stress that “module
outsourcing enables automobile firms to acquire valuable resources from suppliers”, which facilitates the development of
“strategic collaboration that maximizes firm value”.
Other Classifications of Modularization
There are also different classifications of modularization
in the literature, which do not necessarily contradict the one
adopted in this book and can be used to clarify the concept.
According to Bask et al. (2010, p. 357), studies traditionally conducted on modularization can be divided into four
main themes:
1.
modularity of product, including modularity of
product development;
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2.
3.
4.
modularity of production/manufacturing and
processes;
modularity of organization and supply chain;
and
modularity of services, including modularity of
service product; modularity of service development; modularity of service production/process
and service organization/supply chain.
Modularity of product can be seen as a design strategy
to create a final product using standardized and interchangeable components or units. Product modularity thus refers to a
design that decomposes the final product into separate subassemblies with standardized interfaces. This is said to enhance
flexibility, since “different product variations can be achieved
by substituting different modular components into the product
architecture without having to redesign other components”.
Great product variations with distinct features can be attained
as the “loose coupling” nature of product modularity enables
“mixing and matching” of different subsystems that comprise
the end product (BASK et al., 2010, p. 362).
Modularity of production and processes is associated with
the capacity to divide the manufacturing process in a modular
fashion. It is thus centred on breaking down manufacturing
“into standard sub-processes and customization sub-processes,
and to place the standard sub-processes before the customization sub-processes to achieve maximum flexibility” (BASK et
al., 2010, p. 363). In this manner, process modularity has the
advantage of enabling a quick response to changing customer’s
needs and requirements as “postponed manufacturing extends
the final modular assembly to distribution centers and even
customer sites” (BASK et al., 2010, p. 363).
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The Lean Production System and Modularization
Modularity of organization and supply chain refers to the
creation of organizational systems that facilitate an increasing
use of modularization across firm boundaries. This is the theme
in modularity studies that are more directly connected to discussions on outsourcing strategies. In fact, a modular approach
applied to supply chain management may “greatly simplify the
supply network by reducing a product containing thousands of
individual parts to a handful of subassemblies” (ARNHEITER; HARREN, 2005, p. 699). Modularity of supply chain
enables an increasing division of manufacturing activities into
subsystem production, which tends to facilitate outsourcing:
In the literature, the modularity of supply
chains has been related to ‘loosely coupled’
modular product architecture that allows a
division of labor and outsourcing of tasks
across firms and supply chain variations,
even leading to modular structures at the
industry level. (BASK et al., 2010, p. 364)
Finally, modularity of services is a theme that started
drawing attention from the literature recently (AVLONITIS;
HSUAN, 2017, p. 773). In fact, it has been argued that the
application of the modular concept to services had limitations,
mainly because of the heterogeneous nature of services and the
central role of people in service customization. Moreover, “one
of the characteristics of services is that they are produced and
consumed at the same time” (VOSS; HSUAN, 2009, p. 545)
and, therefore, service as a product can often be seen as service
as a process. On top of that, “interfaces in services can include
people, information, and rules governing the flow of information” (VOSS; HSUAN, 2009, p. 545). Still, the concept of
modularity is applicable to the services sector. A “service module can be seen as one or more service elements offering one
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service characteristic”, and the needed space in a warehouse is
an example of a service module in logistics services (BASK et
al., 2010, p. 365).
Avlonitis and Hsuan (2017, p. 775-776) examine the
concept of modularity in services, using two selected case studies in the tourism sector that represent opposite extremes of the
modular vs. integral continuum. The tourism industry can be
seen as a multitude of suppliers, such as airlines, hotels, restaurants, museums, which collectively “influence the experience of
the individual tourist” (AVLONITIS; HSUAN, 2017, p. 776).
Despite being a services industry, it is actually heavily modularized, especially after the emergence of the internet, which
constantly reshapes the sector. Examining the two firms, the
authors highlight that one of them, which “is a tour operator
that focuses on specialized tours with an educational outlook”
(AVLONITIS; HSUAN, 2017, p. 779), employed modular
design rules to a service concept that is integral. Conversely,
the other firm focused on offering a service concept “in a highly modular fashion to any individual tourist”, but had “a less
modular template for the innovation and design of packages”
(AVLONITIS; HSUAN, 2017, p. 782). The study is relevant
not only for illustrating a case of modularity in the services
sector, but also for showing that “integral products can be developed from a modular structure and modular products from
a tightly coupled, integral structure” (AVLONITIS; HSUAN,
2017, p. 785). In this manner, the authors sustain that “modularity or integrality can be a strategic choice regarding how
to approach a market and does not necessarily reflect a design
constraint” (AVLONITIS; HSUAN, 2017, p. 785).
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The Lean Production System and Modularization
Seyoum and Lian (2018, p. 855) contend that the creation
of a modular architecture favors the “design of loosely coupled,
flexible structures that leverages the benefits of involving external sources of innovation in the new product development
process”. In this context, a study conducted by Christensen
(2011, p. 219) shows that the adoption of a modular architecture allows the integration of “alternative drivetrain solutions
such as hybrid, fuel cell and the battery electric drivetrain” into
a conventional Mass Production System. In this manner, modularization can increase the diffusion of environmental friendly
innovations across different products.
Among the main objectives when introducing modularity is to improve economies of scale and scope, as well as operational flexibility (LAMPÓN; CABANELAS; FRIGANT,
2017, p. 2). Economies of scale refer to “situations in which
businesses are able to decrease the average unit cost by increasing total output” (BAUMERS et al., 2016, p. 199). Economies
of scope are seen “as the potential cost savings arising from the
joint production of two or more outputs rather than their separate production” (FERREIRA; MARQUES; NUNES, 2018,
p. 716). Operational flexibility can be understood as the ability
of a firm or supply chain to timely manage variability and uncertainty of demand, either through adjustments in its internal
manufacturing process or by transferring production among
plants (SKIBA, 2016, p. 53; LAMPÓN; CABANELAS;
FRIGANT, 2017, p. 4). According to Skiba (2016, p. 53),
operational flexibility is fundamental for a firm “faced with
uncertainty in environmental demands and has the need to
be able to react quickly, make adjustments, and improvise in
relation to its daily operations”. Since “suppliers have a large
customer base and constantly experiment with new products
and processes often at a faster rate/lower cost than auto firms”,
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modularity can facilitate rapid incorporation of product and
process innovation developed by suppliers (SEYOUM; LIAN,
2018, p. 857).
On top of that, modularization can also increase innovation, as each firm can focus on improving their own modules. In
addition, similar modules can be used across different platforms
in several products. The definition of platform can vary in the
literature, but it generally “comprises a set of assets shared by a
variety of products […] that are physically compatible in manufacturing processes” (LAMPÓN; CABANELAS; FRIGANT,
2017, p. 3). Modularity can thus increase economies in scope,
by facilitating the use of the same module across different platforms, and reduce product cycle time (LAU; YAM; TANG,
2010, p. 21). Moreover, according to Seyoum and Lian (2018,
p. 856), “a decentralized network through modularity (tacit
knowledge isolation at the module level) promotes division of
labor and autonomous innovation (by suppliers) leading to distinct versions of the product”. The availability of broad product
lines is said to have positive effects on suppliers’ market share
and profit (SEYOUM; LIAN, 2018, p. 856).
This present book is primarily concerned with modularity in production, since it has a greater impact on supply chain
management and on the pattern of interfirm relationship in
the automobile industry.
The adoption of modularization in production requires
the division of a single final product into smaller subsystems or
modules. The responsibility for producing and sometimes even
designing each module is transferred to suppliers. The connectivity between modules is standardized. Therefore, suppliers can
focus on improving their own modules and, as long as standardized interfaces remain unchanged, they do not need to be overly
concerned with the interaction between modules. The premise
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The Lean Production System and Modularization
is that, as long as the parts connecting a module to the final
product are standardized, suppliers have freedom to work towards the improvements of their own individual module.
According to Baldwin; Clark (2003, p. 151), in order to
use a modular process to manufacture complex products, information should be partitioned into “visible design rules” and
“hidden design parameters”. The visible design rules fall into
three categories:
1.
2.
3.
an architecture, “which specifies what modules
will be part of the system and what their functions will be”;
interfaces, or the detailed description of how the
modules will interact, “including how they will
fit together, connect, and communicate”; and
standards, which are used to test the conformity
of a module with other design rules, as well as
“for measuring one module’s performance relative to another”.
As long as the visible design rules are observed and
followed, a firm or project team developing a new module
can change and work towards the improvement of the hidden design parameters. Hence, one of the main advantages of
modularization is that, although it greatly restricts changes in
product architecture and in the interface among modules, it
provides great autonomy for firms or project teams to change
the content of each module. By increasing the complexity of
each module and simplifying the parts that connect them, the
quality of individual modules will improve, which may also potentially increase the overall performance of the final product.
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Moreover, modularization favors the utilization of the
same module across different products. The adoption of a module in different types of automobiles can reduce the production
cost and increase the use of technology across projects. Due
to the fast changes in consumers’ demands nowadays, automakers are expected to address customer’s individual needs at
a reasonable price. Modularization can help in coping with this
challenge, as it can produce “customized products at mass-production costs” (KOTABE; PARENTE; MURRAY, 2007, p.
14). In addition, the use of a modular production system enables an automaker to apply a newly developed technology to
as many products as possible, thus creating conditions for positive spillovers across several concurrent projects.
Seyoum and Lian (2018, p. 864) emphasize that the
adoption of modularization can lead to the development of
a competitive advantage, especially when there is a high degree of knowledge sharing and physical proximity between
the automaker and its suppliers. In their study on the Chinese
automobile industry, modularization is viewed as an important strategic management tool to increase the international
competitiveness of automakers and suppliers. They summarize
modularization’s main advantages as follows:
Firm relative positional advantage encompasses the attainment of three distinctive
competencies: lower costs, speed to market and superior customer value (Kotabe
et al., 2007). Cost reduction is achieved
through disaggregation of activities which
allows suppliers to benefit from new technologies and design. Modularization is
positively related to the reduction in the
supplier firm’s overall cost structure. Mod-
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The Lean Production System and Modularization
ularization also allows concurrent and autonomous development of components by
a loosely coupled organizational structure
that responds quickly to customer needs.
Superior product quality is also an effective
differentiation strategy (Lanctot & Swan,
2000). Modularization allows suppliers to
prototype and experiment with various designs over a larger customer base. It also
provides flexibility in mixing and matching components and learning advantages that results in high product quality.
(SEYOUM; LIAN, 2018, p. 864)
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FIGURE 17 — MAIN ADVANTAGES OF MODULARITY
Source: Created by the author.
The changes introduced by modularization in the automobile industry are not related to radical transformations in
the final product, but rather in the way the components are
connected. It is linked to the idea of architectural innovation,
i.e., a type of “innovation that changes only the relationships
between [the core design concepts]”. Architectural innovation
changes the “product’s architecture but leaves the components,
and the core design concepts that they embody, unchanged”.
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The Lean Production System and Modularization
Accordingly, the essence of this kind of innovation “is the reconfiguration of an established system to link together existing
components in a new way” (HENDERSON; CLARK, 1990,
p. 12).
The adoption of modularization poses several challenges
for automakers. Firstly, modularization requires a high level of
technological transfer, since components previously produced
by the automaker are outsourced to first-tier suppliers. First-tier suppliers are now responsible to manufacture and deliver
pre-assembled modules to the automaker’s production line.
Therefore, modularity demands remodelling the architectural
configuration of the product, a process that needs the active
participation of both automaker and suppliers.
Secondly, the use of a modular production system demands rethinking the relationship between automaker and
suppliers. As aforementioned, modularization is based on architectural innovation, which creates a new way of organizing the structure of the final product and, accordingly, imposes
changes in the role of firms in the supply chain. Hence, modularization requires a clear separation of roles and redefinition
of tasks between firms in the supply chain network. In this
context, coordination becomes paramount to the success of a
modular production process. Therefore, the implementation of
such a manufacturing system may initially result in tensions
between the automaker and its suppliers (TEIXEIRA; VASCONCELOS, 1999, p. 20). In the case of Volkswagen’s plant in
the city of Resende, in which automaker and first-tier suppliers share the same facility, the automaker must effectively play
the role of coordinator, clearly defining the responsibilities of
each supplier and trying to minimize tensions emerging from
confronting interests. Actually, one major issue in Volkswagen’s
plant is the detailed definition of each partner’s responsibility,
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because, “in the case of an assembly line stoppage due to a
problem caused by a module supplier, this supplier must pay
for the production losses” (PIRES, 1998, p. 229). Therefore, the
effectiveness of a modular production process tends to be increasingly dependent on how successfully the automaker can
play the role of coordinator.
On a final note, it is important to highlight that not
all types of modularization necessarily entails outsourcing.
The adoption of a modular product architecture can result in
changes within a firm to adapt its internal production process
to manufacture a final product based on internally developed
subsystems. It is also possible to create a modular structure or
to adopt a modular approach to service delivery without necessarily relying on outsourcing. However, several authors, such as
Sako (2005); Fixson, Ro and Liker (2005); and Blair, O’Connor and Kirchhoefer (2011) tend to examine modularization
in direct association with outsourcing, mainly because some of
the features of a modular architecture greatly facilitates transferring manufacturing and other bulk activities to suppliers or
subcontractors. In fact, modularity “decreases the coupling of
the system, giving suppliers that provide modules considerable
independency” (PERROW, 2009, p. 219), which can be considered an important step for a firm intending to increase its
reliance on outsourcing. According to Bask et al. (2010, p. 369):
Manufacturing modularity allows a firm
to differentiate its product to a high degree by combining a limited number of
standard parts (Muffatto, 1999), which
provides scale economies. Similar scale
economies based on a smaller number of
components are seen in the logistics services supporting manufacturing opera156
The Lean Production System and Modularization
tions. These operations can be internal or
externalized. Process modularity makes it
possible to break down the process into
standard sub-processes and customization
sub-processes (Tu et al., 2004). This greatly
simplifies outsourcing of the manufacturing tasks. Consequently, manufacturing
operations are now typically conducted in
a large network of different types of service providers, including contract manufacturers, fabricators, stockists, and transport companies.
In fact, Fixson, Ro and Liker (2005, p. 167) recall that, in
the past, modularization and outsourcing were themes studied
by different research communities. The former was viewed as a
design principle in engineering and the latter as a topic related to the traditional make-or-buy decision, i.e., the option to
manufacture in-house or procure from the market, a question
that defines the boundaries of a firm. Only from the late 1990s
and early 2000s studies started to examine these two topics
together.
On the one hand, it is possible to argue that product
architecture may have an impact on the firm’s decision to outsource. This was the case of “IBM’s decision to introduce the
System/360 with a modular product architecture”, which enabled “independent manufacturers to provide individual components to customers”, thus “driving down prices for individual
components, such as hard drives, which could be mixed and
matched and eventually became commodities” (FIXSON; RO;
LIKER, 2005, p. 169). On the other hand, however, it is equally a valid argument to affirm that external forces, such as multitude of suppliers or heterogeneity in inputs and demands, may
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affect a firm’s make-or-buy decision and consequently impact
on product architecture (FIXSON; RO; LIKER, 2005, p. 170).
After conducting a case study on the US automotive cockpit
industry to examine such issues, the authors conclude that:
Taken together, the sequences of product
architecture changes and firm boundary
shifts that our study reports demonstrate
that there is not a simple unidirectional
effect that modularity has on the organisational structures (intrafirm and interfirm)
of the supply chain, or the organisational structure has on product modularity.
Rather, we find that in most cases there is
a two-way relationship between both aspects, and the relative strength of the forces in the two directions can change over
time, resulting in a zig-zag path towards
higher levels of modularity and more work
content being outsourced. (FIXSON; RO;
LIKER, 2005, p. 178)
The Relationship between Automakers and Suppliers in the
Traditional Mass Production System
In a comparative study of electronics firms in Japan and
Britain, Sako (1992) presents the main features of two different
approaches to supply chain management, Arm’s length Contractual Relation (ACR) and Obligational Contractual Relation (OCR), and discusses their advantages and drawbacks.
In ACR, independence is the guiding principle and there is
no requirement to disclose information to existing and potential buyers and suppliers. This type of contractual relation en158
The Lean Production System and Modularization
ables firms to “engage in a hard commercial bargain to obtain
competitive prices” (SAKO, 1992, p. 2). In OCR, firms prefer
“high trust cooperativeness with a commitment to trade over
the long run” (SAKO, 1992, p. 2). The main disadvantage of
this commitment is that it “may come at the expense of taking
on rather a lot of sometimes onerous obligations and requests”
(SAKO, 1992, p. 2), such as just-in-time delivery, which may
have a negative impact on suppliers’ short-term profits. However, Sako (1992, p. 2) emphasizes that “the benefits of accepting mutual obligations lie in good quality and service, growing
or stable orders, and other non-price aspects of trading born
out of a tacit understanding over time”.
She also classifies trust in three different modalities: contractual trust, or “the mutual expectation that promises made
are kept”; competence trust, i.e. “confidence in a trading partner’s
competence to carry out a specific task”; and goodwill trust, or
“mutual expectations of commitment to the relationship resulting in much give and take” (SAKO, 1992, p. 242). According to her, although the two first types of trust can be found
in both ACR and OCR, goodwill trust can only be found in
OCR. As a result, although OCR may reduce short-term profits, it can contribute to achieving superior performance due to
its high degree of mutual trust, which minimizes transaction
costs. According to Sako (1992, p. 241):
Thus, OCR, as compared to ACR, was
characterized by a greater transactional
dependence on trading partners, a longer projected length of trading, a greater
willingness to accept or offer orders before
prices were negotiated and fixed, less contractualism, a greater degree of uncosted
sharing of technological know-how and
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risks associated with business fluctuations.
The operation of OCR relates closely with
that of networks and other intermediate
modes of coordination which lie between
‘market’ and ‘hierarchy’.
The traditional approach to supply chain management
in the Mass Production System is closer to ACR. Mass production is a manufacturing system introduced by Henry Ford,
initially in the assembly line of Highland Park, near Detroit,
Michigan, based on the theory of scientific management by
Frederick Taylor. It was centered on the division of labor among
workers on the factory floor to enable the manufacturing of
high volumes of products. It was thus able to dramatically increase economies of scale and reached “its peak after the end of
the World War II, when demands for products were very high”
(HU, 2013, p. 4-5). Although the focus of the manufacturing
system developed by Ford was to produce a high volume of
similar vehicles initially available only on the black color, some
authors argue that his T model platform was able to create a
high level of customization, as the same platform was used for
consecutive models focused on different market segments. In
fact, Alizon et al. (2009, p. 589) claims that Ford “engendered
principles for mass customization by developing a core platform with a high level of production while outsourcing tailored
products to specialized companies”. Nonetheless, it was only
in the 1980s that demand for product variety intensified and
the limitations of the Mass Production system started to become evident. During that period, mass customization became
a critical issue and the number of automobile models in the
United States significantly increased from 44 in 1969 to 165 in
2006 (HU, 2013, p. 5). A decline in this manufacturing system
can be observed from the 1970s, when manufacturers started
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searching for more flexible production techniques that could
increase economies of scope and answer to increasing changes
in consumer tastes (IOANNIDES; DEBBAGE, 1997, p. 230).
Supply chain management in the Mass Production System is focused on maximizing short-term profit by engaging
in fierce negotiation to lower prices. Since both the automaker and suppliers try to wield higher bargaining power to get
higher profits from each negotiation, the volume and quality of
information shared about the costs of their products and manufacturing process is minimal. Due to this confrontational approach, there is no focus on building a long-term relationship,
as suppliers may be changed anytime, based on price considerations. The threat of being replaced by other suppliers with
lower prices also reduces the incentives for technology sharing
across firms in the supply chain. There is a real risk that knowledge may be lost to competitors due to opportunistic behavior
of other suppliers.
Such an approach to supply chain management was
used for a considerable time by most U.S. automakers. In fact,
even after they started introducing Lean Practices to improve
productivity, American automakers tended to maintain the
traditional approach to supply chain management. A survey
conducted by Womack, Jones and Roos (1991, p. 160-161) in
the early 1990s shows that American suppliers were skeptical
regarding the changes in supply chain management in the U.S.
automobile industry. American suppliers believed that the introduction of just-in-time manufacturing was only a way to
shift the burden of inventories from automakers to them. Accordingly, the authors assert that the adoption of some lean
practices by American automakers in that period was not an
attempt to comprehensively implement the Lean Production
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System, but only an initiative focused on reducing costs in the
short-term.
As aforementioned, the Lean Production System involves enhancing the efficiency of the entire process, from
product development to after-sales services. Moreover, this
system tends to maximize long-term gains even at the cost of
short-term profits and the focus is to create a long and close relationship with key suppliers. By choosing its suppliers through
a bidding process, Western automakers are able to pressure
suppliers to lower their prices and achieve short-term profits,
but to the detriment of building longer and closer interfirm
relations in the supply chain. In contrast, Lean Practitioners
tend to sacrifice their short-term profits in order to create an
integrated supply chain and obtain an advantageous position
in the long term.
Therefore, although Womack, Jones and Roos (1991, p.
161) observed many changes in the automobile industry in
the U.S. in the 1980s, such as supplier engineering, long-term
contracts, more frequent deliveries and single-sourcing, they
argue that these changes were mainly driven by the pressure to
reduce costs and were implemented under the traditional Mass
Production System mentality.
A study conducted by Arkader (2001, p. 91) in the late
1990s tried to assess the differences in the perspectives of automakers and suppliers regarding supply chain management
in Brazil. The research involved four automakers and nine
first-tier suppliers that had implemented or were in process
of implementing Lean Practices in their internal operations.
According to the study, while suppliers asserted that the attitude of automakers during negotiations was intransigent and
based on a win-lose perspective to pressure for lower prices, the
automakers stated that they were moving towards the creation
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The Lean Production System and Modularization
of a Lean Supply Chain, focusing on nurturing long-term
partnerships with suppliers. Hence, similarly to the aforementioned conclusions of Womack, Jones and Roos (1991, p. 161)
concerning the changes in supply chain management in the
United States in the 1980s, it seems that Western automakers in Brazil during the 1990s were also implementing Lean
Practices as a way to reduce costs and transfer the burden of
inventory and operational risk to suppliers.
Nakamura, Sakakibara and Schroeder (1996, p. 469) corroborate this idea, arguing that American manufacturers were
only partially adopting the Japanese production system, implementing some practices they “deemed essential to improve
their production efficiency”. Ashkenas et al. (2002, p. 189-191)
sustain that this attempt of American automakers to gain
short-term benefits by transferring costs, operational risk and
the burden of inventory to suppliers represents a threat, since
improvements in only one location may conceal fundamental
weaknesses of the entire supply chain.
In fact, even when there is an effort to disseminate the
Lean Production System throughout the supply chain, several authors argue that Lean Practices are often only extended
to first-tier suppliers, excluding second and third-tier suppliers, “which makes it difficult to achieve sustainable results
throughout the chain” (MARTÍNEZ-JURADO; MOYANO-FUENTES, 2014, p. 144).
Furthermore, Mudambi and Helper (1998, p. 776, 779,
786-787) argue that although a trend towards the adoption
of a long-term relationship between automakers and suppliers can be observed in the 1990s regarding formal contracts,
this change was not followed by the creation of informal commitments. The authors contend that the alteration of formal
constraints without mutual trust leads to non-cooperative be163
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havior and to a “close but adversarial” pattern of relationship,
in which the two sides tend to view each other as adversaries,
despite their formal agreements. In this manner, the automaker will try to “take advantage of competitive weakness of the
suppliers to reap short-term gains” and to minimize vulnerability to supplier opportunism.
The adoption of modularization from the mid-1990s by
several Western automakers also seem to have been driven by
the same motivation of reaping short-term gains by transferring costs and operational risks to suppliers. Seyoum and Lian
(2018, p. 856) stress that modularity “allows for rapid response
to market changes as well as for cost reduction since the supplier firms often pay lower wages than those earned by auto
assembly line workers”. Takeishi and Fujimoto (2001, p. 9)
presents three main reasons for the greater reliance on modularization by Western firms: (1) to take advantage of suppliers’
lower labor costs; (2) to cut investment cost and risk by giving
more important responsibilities to suppliers; and (3) to accelerate their policy of reducing the number of first-tier suppliers.
Correa (2001, p. 1, 6-7) tends to corroborate this idea. He
argues that the main reason behind Volkswagen’s decision to
use modularization in its plant in Resende was the unfavorable
situation the automaker faced upon the end of its joint-venture
with Ford, so-called Autolatina. In fact, after Autolatina was
dissolved, in 1995, Volkswagen had to act quickly not to lose
its market share, but it did not have the necessary expertise to
construct trucks and the investment to build a new plant was
too high. The author contends that the choice for modularization was a way to reduce initial investments and share risks
with first-tier suppliers, while using their expertise.
Similarly, Kotabe, Parente and Murray (2007, p. 19) argue that risk reduction is one of the main drivers for the use
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The Lean Production System and Modularization
of modularization by Western automakers in Brazil. According to their research, “GM, VW, and Ford incorporated into
their modular production specific efforts toward shifting investment risk and sharing investment for specific assets with
their suppliers”. In addition, they highlight that, the bigger the
gap between the salaries of automaker’s and first-tier suppliers’
workers, the higher the tendency to adopt modularization.
Donnelly and Morris (2003, p. 84), describing the restructuring process of Ford Europe, states that this American
automaker is increasingly embracing modularization and, as
a result, transferring the investment risk to its main first-tier
suppliers. They emphasize that the creation of a supplier park
with a conveyor bridge directly connected to the assembly line,
in which each supplier has to purchase a space on the park,
“does not cost Ford any initial capital outlay”.
On top of that, the low level of information exchange
and technology transfer among firms in the supply chain in
these cases tends to show a tendency to maintain the Mass
Production System mentality despite the adoption of modularization and partial implementation of selected Lean Practices.
In fact, the information exchange and technical assistance in
the factories mentioned above, in which modularization has
been introduced, tend to be more related to the need to redefine the roles of the automaker and suppliers. For instance,
both in the case of GM’s plant in Gravataí and Ford’s plant in
Camaçari, first-tier suppliers manufacture the engines in factories located in another state – respectively in the cities of
São José dos Campos and Taubaté, both located in São Paulo.
Therefore, although they have factories in the vicinity of the
automakers’ plants, they conduct their main manufacturing activities elsewhere. This seems to suggest that first-tier suppliers
are reluctant to make large investments relying solely on its
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commercial relationship with one automaker (SALERNO et
al., 2002, p. 22-23).
As already mentioned, modularization is often characterized by a process of radical outsourcing of production-related activities to first-tier suppliers (TEIXEIRA; VASCONCELOS, 1999, p. 19). For that, automakers are focusing on
single-sourcing, and demanding the delivery of modules from
their first-tier suppliers. Modularization thus tends to increase
the expertise of first-tier suppliers concerning the modules
they are responsible for producing. Components previously
assembled by the automaker are divided into subsystems and
the responsibility for producing and sometimes designing such
subsystems is transferred to first-tier suppliers. Therefore, in
the initial stages of this process, a close relationship between
the automaker and first-tier suppliers is necessary for effective technology transfer (KOTABE; PARENTE; MURRAY,
2007, p. 18). Nonetheless, this type of information exchange is
not meant to promote integration throughout the supply chain
network, but only to redefine the roles of the parties to accommodate the new division of tasks under modularization.
Hence, the adoption of modularization and the partial
utilization of some Lean Practices should not be viewed as a
shift towards a more integrative approach to the supply chain
management, but rather as actions to reduce costs and increase
short-term profits.
The Interplay between Modularity and the Lean Production
System
According to a survey conducted by Takeishi and Fujimoto (2011, p. 11), Japanese automakers have been reluctant
in adopting modularization for the following reasons:
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The Lean Production System and Modularization
1.
2.
3.
4.
5.
the wage gap between automakers and first-tier
suppliers in Japan is not so wide as in Western
countries;
since modularization requires frequent deliveries of subsystems by first-tier suppliers directly to the automaker’s assembly line, supplier’s
facilities should be located within a very short
distance from the assembling plants, which
would require a huge investment for building
new facilities;
Even when this is possible, Japanese automakers are concerned that heavy reliance on a single
supplier may reduce the automaker’s competitive pressure towards first-tier suppliers;
Japanese automakers have been doubtful about
the capacity of suppliers to handle a larger scope
of tasks since Japanese first-tier suppliers have
long specialized in the development and production of individual functional components;
Japanese automakers dislike losing knowledge
about the technology and costs of any parts involved (TAKEISHI; FUJIMOTO, 2001, p. 14).
One of the main reasons for the hesitation of Japanese
automakers to adopt modularization is the excessive reliance
on a single supplier. As discussed in previous chapters, Lean
Practitioners usually have more than one supplier for each
component, since through multiple sourcing they can pressure suppliers to work continuously to improve productivity
and quality, as well as to reduce costs. Heavy reliance on single
sourcing would undermine competition and decrease the motivation of suppliers to initiate efforts towards continuous im167
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provements. Moreover, suppliers’ networks can be increasingly
relevant for technology exchange and information sharing at
the horizontal level. Toyota’s suppliers association, for instance,
promote a significant level of knowledge exchange across firms
and, in case of problems related to low quality or productivity
occurring in Toyota’s supply chain, suppliers receive technical
assistance not only from the automaker, but also from other
suppliers in the same network (DYER; NOBEOKA, 2000).
For such reasons, Lean Practitioners are reluctant to drastically
decrease the number of suppliers and focus excessively on single sourcing.
Moreover, the aforementioned distinction between task
partitioning and knowledge partitioning (TAKEISHI, 2002,
p. 322,323), demonstrates the reluctance of Lean Practitioners
in losing knowledge about processes and technologies, while
outsourcing tasks to suppliers. Lean Practitioners focus on
maintaining and promoting a collaborative management of the
knowledge even when outsourcing a task. Constant face-to-face
communication between the automaker and its suppliers is prioritized, as a way of facilitating the transfer of tacit knowledge.
Conversely, the pattern of communication on modularization
tends to be centered on knowledge sharing regarding the modules’ interfaces, since the parties can work separately on the development of their own modules. In this manner, since modularization often promotes both task and knowledge partitioning, it
reduces the concern with tacit knowledge management:
Since the automobile is multi-technology
vehicle, it is characterized by many hidden interdependencies at the component
level and must incorporate the dimensions
dealing with the isolation of tacit knowledge. A successful modular production
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The Lean Production System and Modularization
must not only eliminate tacit knowledge
from the interfaces (isolates it at the module level) but also facilitate the integration
of the supplier’s capabilities and improvements into the production process. Modularization eliminates the costs associated
with managing tacit knowledge embedded in the production interfaces between
the supplier and assembler. (SEYOUM;
LIAN, 2018, p. 856)
In fact, modularization does not seem to have an overall negative impact on information exchange and collaboration between the automaker and suppliers. For instance, a
study conducted by Cabigiosu, Zirpoli and Camuffo (2013,
p. 670), which examined projects concerning the co-development of air conditioning system of automobiles, suggests that
“interfaces standardization did not eliminate the need for frequent and intense information sharing due to the existence of
complex functional interdependencies between the [air conditioning] system and other vehicle components”. Moreover,
Seyoum and Lian (2018, p. 857) stress that “network connections and knowledge sharing routines such as frequent visits,
videoconferences etc. play an important part in the success of
the Chinese auto industry”, which has been vastly using modularization in the past decades. Nonetheless, it seems that this
knowledge sharing is centered on the interfaces rather than
on module content. Therefore, modularization tends to generate a knowledge partitioning among firms in a supply chain
regarding module content, although information exchange on
interfaces remains intense.
One of the central advantages of the Lean Production
System is the high level of information and technological ex169
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change between automakers, suppliers and dealers, resulting
in joint-efforts for problem solving and continuous improvements. The Japanese approach, therefore, favours the growth
of the entire supply chain network. Skill development takes
place not only at the individual and organizational levels, but
also at the system level, involving all firms in the supply chain.
On top of that, due to this close relationship and high level
of knowledge sharing, spillover effects can be observed across
firm boundaries, and technological improvements are disseminated from automakers to suppliers and dealers, as well as,
horizontally, among suppliers or dealers.
In fact, studies have emphasized that the adoption of
modularization may pose “risks of value migration and erosion of component specific knowledge which is critical for long
term competitiveness” (SEYOUM; LIAN, 2018, p. 852). Zirpoli and Becker (2011, p. 38) also stress the problem of the
“erosion of component-specific knowledge”, leading to “the
loss of the capability to performance trade-offs regarding performance of the product as a whole”, as a result of the “lack of
learning by doing”.
On the other hand, Seyoum and Lian (2018, p. 853)
view modularization as an important framework to “examine
the strategic vision of automakers in China in their attempt
to create dynamic capabilities, i.e., the integration of resources and competencies in a way that allows suppliers to deliver
value producing products and services that satisfy customer requirements”. They present a number of positive outcomes that
the adoption of modularization has generated in the Chinese
automobile industry and contend that suppliers were able to
increase their competitiveness beyond their own technological
capabilities and know-how through knowledge sharing in the
supply chain:
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The Lean Production System and Modularization
We first highlight that the advantages of
firms are not just limited to firm capabilities (product architecture, technology/know-how) but also relational assets
achieved through supply chain integration.
Second, possession of such advantages
through modularization alone is not sufficient to explain automobile firms’ market performance in China. Instead, such
relationships are moderated by knowledge
sharing tools and awareness of the importance of physical proximity to suppliers.
(SEYOUM; LIAN, 2018, p. 853)
In fact, as modularization involves a progressive outsourcing of manufacturing and even product design and development activities to first-tier suppliers, the level of technical
assistance, information exchange and technology transfer is
expected to increase. Nonetheless, this process of knowledge
transfer may not result in greater integration in the supply
chain. A high level of information exchange is actually a requirement for the redefinition of roles and the new division
of tasks under modularization. Moreover, if there is not an
active effort to promote integration, information sharing between automaker and supplier may end up being restricted to
the knowledge about interfaces of the modules. This can occur
because, under a modular architecture, each party can focus on
the development of their own modules’ contents, as long as the
interfaces are not affected.
Therefore, an excessive reliance merely on coordination
by the automaker, without efforts towards integration, will result in both knowledge and task partitioning during the implementation of a modular architecture. If the automaker overlooks the issue of maintaining the knowledge of outsourced
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tasks, the accumulation and diffusion of knowledge in the
supply chain as well as the promotion of joint efforts towards
problem solving and continuous improvements will be jeopardized. Accordingly, the capacity to generate a competitive advantage for the entire supply chain will be reduced.
Nonetheless, as discussed in this chapter, the adoption
of a modular architecture has a number of advantages, especially in terms of promoting higher operational flexibility and
economies of scope, as well as diffusion of innovation across
products. The incorporation of modularization as an effective
management tool under the Lean Production System is thus
possible and can result in positive results for both manufacturing and product development and innovation. Nonetheless,
the integrative approach towards supply chain management,
which is one of the central elements of the Lean Production
System, should be maintained, in order for the automaker not
to lose the knowledge of the outsourced tasks.
In fact, as mentioned in Chapter 1, suppliers’ participation in product design is a Lean Practice that has been used
since the 1960s in the Japanese automobile industry. Therefore,
suppliers in the Lean Production System have already been responsible for relevant design and manufacturing roles for a long
time. First-tier suppliers in the Lean Production Process are
also expected to deliver pre-assembled parts rather than only
components in a just-in-time fashion to automakers. Contrary
to modularization, however, Lean Practitioners do not proceed
to a radical outsourcing of design and manufacturing activities
and tend to retain the knowledge of outsourced tasks.
Nonetheless, modularization and the Lean Production
System should not be seen as incompatible or opposing manufacturing approaches. In fact, the promotion of a high level of
integration in the supply chain should also be considered cru172
The Lean Production System and Modularization
cial for automakers following a modular architecture. Without
integration, progress can be made in capacity building at the
individual and organizational level, but the system or interfirm
level will be neglected. By introducing a modular architecture
and adopting an integrative approach to supply chain management, the automaker can retain the knowledge of outsourced
tasks and create a competitive advantage for the entire supply.
To achieve such a purpose, however, the automaker should not
try to focus only on the role of coordinator, but should also
promote integration in the supply chain, encouraging technology exchange and information sharing on issues that go far
beyond module interfaces.
173
CONCLUSION
The UNDP three-level framework for capacity building
encourages firms to consider the situation at the system level,
including governmental policies, demands of civil society and
interfirm relations in their strategic planning. It thus emphasizes that capacity building initiatives should be implemented
not only at the individual and organizational level, but also at
the system level. Due to its comprehensive approach towards
capacity building, the UNDP three-level framework was adopted for this book.
Based on this framework, the Lean Production System
was selected as the reference model, as Lean Practitioners are
capable of promoting capacity building initiatives at all three
levels. The automaker undertakes efforts to generate improvements for the entire supply chain, including suppliers and
dealers, from the early stages of product development up to
after sales services. These measures are focused on stimulating knowledge sharing and accumulation within the supply
chain. In addition, Lean Practitioners strongly encourage their
suppliers to share information at the horizontal level, through
supplier associations, and to provide assistance to other firms
facing difficulties in the same supply chain. In this manner,
knowledge is accumulated even when tasks are outsourced.
Under the Lean Production System, the automaker and
its suppliers nurture a long-term relationship centered on cooperation. Suppliers are selected based on capacity and trust,
rather than on short-term benefits such as lower prices. The
automaker and suppliers constantly share information and
implement joint problem-solving efforts. There is thus a focus
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Waldemiro Francisco Sorte Junior
on enhancing productivity and quality standards of the entire
supply chain.
The relationship between the automaker and its dealers
is also based on information sharing. Data collected by dealers
concerning customers’ demands and preferences are used by
automakers as inputs for new product development. Moreover,
negotiations between the automaker and dealerships are based
on an ideal objective of genryō seisan, which tries to progressively reduce the gap between the number of vehicles produced
and those effectively sold.
The practices adopted by Lean Practitioners in cooperation with suppliers and dealers can generate gains in terms
of productivity and efficiency for all firms in the supply chain.
They are known as Lean Practices and can be defined as guiding principles focused on reducing non-value-added activities
that are optimized when jointly implemented by an automaker
and its supply chain. The close relationship between automakers, suppliers and dealers facilitate the diffusion of Lean Practices throughout the supply chain.
For instance, just-in-time manufacturing requires an active role by both the automaker and suppliers to increasingly
minimize buffer inventories. On top of that, since just-in-time
manufacturing demands a low level of defective components
and an effective kanban system, its implementation process
reveals the source of several problems that created the need
for buffer stocks in the first place. When these problems are
properly addressed, productivity and quality are expected to
increase, while inventory costs will tend to decline. In addition,
by integrating dealers in just-in-time manufacturing, it is possible to reduce the gap between production and sales.
176
The Lean Production System and Modularization
This integrative approach to supply chain management
has helped Toyota overcome several major incidents, including
the Recall Crisis in 2009, as discussed in the following box.
Toyota Recall Crisis in 2009
Chikudate and Alpaslan (2018, p. 71-72, 76) and Andrews et al. (2011, p. 1072) argue that Toyota’s ambition to
become the World’s leading carmaker had negative impacts
on its internal management and could have made the company push too aggressively both on the geographic front and
on product development diversification. Managers may have
relied on Toyota’s principles and on the company’s accumulated story of successes to such an extent that they did not take
corrective action when needed (CHIKUDATE; ALPASLAN,
2018, p. 71-72, 76). Shim and Steers (2012, p. 582) contend
that the “‘Toyota Way’ created an atmosphere in which managers and executives apparently assumed that everything would
run smoothly”.
On a comparison between the different responses by Toyota and Hyundai to recall problems, Shim and Steers (2012, p.
583) argue that “Toyota delayed its announcement for several
reasons (including the time it needed to prepare repair kits for
the cars)”, while “Hyundai announced its recall even before it
knew what it was going to do to repair the vehicles”. As a result,
Hyundai could minimize negative publicity, which resulted in
greater public support and reduced the chance of a potential
investigation by The National Highway Traffic Safety Administration (NHTSA), the agency responsible for transportation
safety in the United States.
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Waldemiro Francisco Sorte Junior
Andrews et al. (2011, p. 1073) contend that Toyota even
failed to implement its own well-diffused principles during
the crisis:
For instance, while Toyota promised to
be “customer focused”, they have repeatedly blamed user errors as the main cause
of these accidents. The years of living with
customer complaints about sticky pedals
and floor mats clearly were violations of
their Kaizen principle of continuous improvement. Although “sincere communication” was one of its core values, its decision to withhold information regarding the
safety problems and slow communications
also indicate violation of its own principles.
(ANDREWS et al., 2011, p. 1073)
Liker and Ogden (2011, p. 155-157) comprehensively
examined the two problems faced by Toyota during the 2009
Recall Crisis: the pedal entrapment from stacking floor mats;
and the sticky pedals. They contend that the problem of pedal
entrapment was not a result of poor manufacturing or engineering and it was not caused by Toyota’s negligence. According to them, the real cause of the problem was that mats not
designed for the models were wrongly placed in Toyota’s vehicles involved in the accidents. The problem of sticky pedals,
on the other hand, was an error in design, and it was used in
so many models that resulted in a large number of recalled
vehicles.
Liker and Ogden (2011, p. 157) agree that these issues
escalated into such a huge crisis for Toyota because, at that
time, the company became deaf to customers’ worries and con-
178
The Lean Production System and Modularization
cerns, to input from non-engineers, to the overall political and
media environment and even to internal communication.
Another reason for the intensification of this crisis was
the failure to properly consider the impact of cultural differences between Japan and the West. According to Chikudate
and Alpaslan (2018, p. 76), there is a difference in how companies should respond to the public and to the media in Japan
and in the West in case of negative incidents. Toyota failed to
perceive the importance of corporate social responsibility and
corporate citizenship in the West, and did not respond properly, transparently and timely to the initial problems associated
with its vehicles. This ended up aggravating the problem and
damaging the company’s image in the U.S.
It is important to emphasize, however, that Toyota did
learn from this recall crisis and, according to Liker and Ogden
(2011, p. 127-133), emerged as a stronger company due to a
number of efforts adopted to improve its manufacturing system. To better address the recall crisis, Toyota’s dealer network
played a pivotal role. Toyota is famous for having a culture of
maintaining a limited number of dealers and nurturing them
as partners within the Lean Supply Chain Network. In 2009,
Toyota had 1,400 dealers, which represented less than half the
number of most of its rivals – General Motors, for instance,
had over 6,000 (LIKER; OGDEN, 2011, p. 131-132). Toyota’s
dealers were successful in addressing the great number of customers’ questions and concerns through call centers. Dealer’s
managers and staff were instructed to put customers first and
to accept responsibility, which means not blaming customers,
suppliers or anyone else. Quality control circles were also created within dealers’ facilities to deal with this crisis and it is said
that even executives took turns to respond to customer calls
(LIKER; OGDEN, 2011, p. 134, 136, 138).
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Waldemiro Francisco Sorte Junior
The 2009 Recall Crisis revealed that even Toyota, a company that has comprehensively implemented a robust philosophy of continuous improvement with focus on quality and on
the needs of the final customer, was not immune to problems.
Toyota’s slow and inadequate response to the incident generated a huge crisis in the U.S. One should note that Lean Practitioners put great efforts on associating their image to high
quality. Therefore, incidents with the potential of generating a
negative impact on the market perception regarding their level
of quality or safety are especially harmful and should be dealt
with utmost attention. Nonetheless, this incident also revealed
the pivotal role played by Toyota’s dealerships in helping overcome the crisis. It is the integrative approach to supply chain
management that enabled Toyota to implement Lean Practices not only within its own factory, but also in the facilities of
suppliers and dealers. The diffusion of Lean Practices throughout the supply chain network over the years generated a high
sense of commitment and involvement of Toyota’s dealers, and
they could play an active and important role in addressing the
2009 Recall Crisis.
Due to positive outcomes in terms of quality and productivity achieved by Japanese automakers, Western firms tried to
emulate the Lean Production System, especially from the late
1980s. However, Western automakers have initially adopted
only some features of the Lean Production System, mainly as a
way to reduce cost and raise short-term profit. Studies showed
that U.S. suppliers were skeptical about the adoption of those
practices, arguing that it was not a comprehensive adoption of
the Lean Production System, but only a way to shift costs and
operational risks from automakers to them.
180
The Lean Production System and Modularization
There is a trend towards modularization in the global
automobile industry. Modularization often involves a progressive outsourcing of product design and manufacturing activities to suppliers, which are now responsible to build modules
or subsystems and deliver them directly to the automakers’
assembly lines. Under a modular architecture, suppliers have
freedom to improve and change modules’ contents, as long as
the predefined and standardized interfaces remain unchanged.
Modularization is said to result in several potential positive
outcomes, especially in terms of operational flexibility, economies of scope and cost reduction.
Since modularization is often characterized by this radical
outsourcing of activities to first-tier suppliers, the level of technical assistance, information exchange and technology transfer
is increasing in the global automobile industry. Nonetheless, this
process of knowledge transfer does not necessarily reveal an attempt to promote greater integration among firms in the supply
chain. In fact, this rise in information exchange seems to be a
requirement for the redefinition of roles and the new division
of tasks under modularization. Moreover, information sharing
between the automaker and its suppliers can actually be restricted to knowledge about the modules’ interfaces, since each party
can focus on the development of their own modules’ contents, as
long as the interfaces are not affected.
Here, the distinction between task partitioning and
knowledge partitioning is of particular relevance. Takeishi
(2002, p. 322, 323) argues that automakers should maintain
the knowledge even when outsourcing tasks to suppliers. This
distinction reveals the disadvantages of focusing on coordination rather than integration in supply chain management.
When an automaker focuses on coordination, both tasks and
knowledge are transferred to first-tier suppliers. As a result,
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Waldemiro Francisco Sorte Junior
knowledge is not shared among firms in the supply chain.
Conversely, by emphasizing integration, the automaker can
accumulate knowledge and promote a higher level of information exchange with suppliers in order to improve quality and
productivity. This accumulated knowledge and expertise can
become a competitive advantage for the entire supply chain.
The adoption of modularization can thus result in both
task and knowledge partitioning, if the automaker only focuses
on its role as coordinator and does not promote integration in
the supply chain. In this case, modularization may result in a
greater level of technology transfer and information exchange
between automakers and first-tier suppliers, but this knowledge sharing will be restricted to the redefinition of roles and
on information regarding modules’ interfaces.
On the other hand, modularization has several advantages, which can be maximized by the adoption of an integrative approach to supply chain management. Lean Practitioners
may use it as an important management tool to further promote economies of scope and operational flexibility.
In fact, Sako (2005, p. 230) sustains that modularity,
be it in product or organization architecture, is a bundle of characteristics that define (a) interfaces between elements of the
whole, (b) a function-to-component (or
task-to-organization unit) mapping that
defines what those elements are, and (c)
hierarchies of decomposition of the whole
into functions, components, tasks, etc.
It is thus possible to incorporate the main elements of
modularization in a Lean Supply Chain, as long as an integrative approach to supply chain is maintained, in order to retain
182
The Lean Production System and Modularization
and share knowledge within the supply chain network, despite
task partitioning.
FIGURE 18 — ADVANTAGES OF THE LEAN PRODUCTION SYSTEM
183
Waldemiro Francisco Sorte Junior
Source: Created by the author.
As discussed in this book, the integrative approach to
supply chain management of the Lean Production System has
several benefits and has the potential to create a competitive
advantage for the entire supply chain network. The comprehensive and collaborative implementation of Lean Practice by the
automaker, suppliers and dealers can induce process stability,
reduce inventory costs, increase manufacturing flexibility and
improve the capacity to address consumers’ needs. In addition,
it can have positive impacts on process and product innovation,
financial performance and generate spillovers in terms of environmental protection and sustainability. Therefore, the Lean
Production Process is still capable of responding to the main
challenges imposed by nowadays society, such as the need to
cope with fluctuations of demand, changing consumers’ tastes
and environmental issues. The Lean approach can be used together with modularization to maximize the outcomes of these
two important manufacturing systems.
184
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ABOUT THE AUTHOR
Waldemiro Francisco Sorte Junior holds a Ph.D. from
the Graduate School of International Development (Nagoya
University, Japan). He holds degrees in Law (Uniceub University, Brazil), Business Administration (University of Brasilia,
Brazil), as well as in Japanese Language and Literature (University of Brasilia, Brazil). He is presently working at the Brazilian Ministry of Economy. Previously served as Research Associate at the International Policy Center for Inclusive Growth
(United Nations Development Programme – UNDP), and as
a lawyer and legal consultant at the Brazilian Federal Savings
Bank (Brazil).
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Livro disponibilizado no site da Editora UFPR em dezembro de 2022.