Mutagenization of Toyota Production System:
The Story of Hyundai Motor Company
Byoung-Hoon Lee†, Hyung-Je Jo‡
1. Introduction
During the past decade and now on, Toyota Production System (hereafter TPS) has
demonstrated its overwhelming strength in the restructuring process of the global auto
industry. This is evinced by the on-going diffusion of TPS as the world-class
manufacturing model (Oliver et al. 1994) or “the machine that changed the world”
(Womack et al. 1990), along with the unceasing advance of Toyota in global auto
market competition. Indeed, TPS has been spread from Toyota to other automakers and
different industries across the globe, in various forms, such as transplants, joint-venture,
imitative learning, and consultancies (Ebrahimpour & Schonberger 1984).
Korean automakers are no exception in attempting to adopt TPS for enhancing their
operational efficiency and business competitiveness. TPS has been the prime target of
benchmarking for Korean automakers, since they have viewed Toyota as an exemplary
role model having made successful inroads into global markets. At Korean auto plants,
however, TPS has not been adopted as it is in Japan, but rather implemented in a deviant
†
Department of Sociology, Chung-Ang University, 221 Heuksuk-dong, Dongjak-gu,
Seoul, 156-751, South Korea.
‡
Department of Sociology, Ulsan University
1
form for socio-contextual and organizational reasons.
Our study aims to examine the diffusion of TPS in Korea, by focusing on the
experience of Hyundai Motor Company (hereafter Hyundai). Hyundai can be an
interesting case on several grounds: First, Hyundai is a “Cinderella” case showing a
remarkable transformation from a mere low-cost domestic manufacturer of a developing
country in the early 1970s to a major player in the contemporary global auto
competition. At present, it is ranked as one of global top-ten automakers by production
volume and by product quality (Jo 2005). Second, Hyundai offers an exemplary case to
shed light on how TPS has been implemented by Korean manufacturing firms, since it
represents a typical or influential business model in terms of corporate governance,
management style, market strategy, and labor relations in Korea. Third, given the fact
that there exists little research literature on the transferability of TPS to developing
countries, the Hyundai case may contribute in broadening our cognitive horizon of TPS
diffusion to non-Western developing economies. Finally, Hyundai presents a good case
to figure out key factors constraining and shaping the adoption of TPS at a recipient site,
thereby helping further develop a theoretical framework to analyze the processes and
outcomes of TPS diffusion.
Drawing upon data gained from field research, this case study attempts to interpret
2
the diffusion of TPS from the evolutionary perspective. Our argument is that the
emulation of TPS is not to adopt TPS as Toyota developed in its context, but to develop
its own production model having competitive edge in the global competition. In this
vein, this case offers a new lens to view the diffusion of TPS across border.
In the field work which was conducted between April, 2005 and March, 2006, we
interviewed a number of senior managers and supervisors at production and production
technology departments, with having additional talks with union officials and collecting
primary company data. The next section delineates literature review of the
transferability of TPS, followed by the historical overview of TPS emulation at Hyundai.
The section four tries to explain why the deviant adoption of TPS has taken place at
Hyundai, and the Section five benchmarks Hyundai’s manufacturing performance
against Toyota.
addressed.
In conclusion, some implications of this case study will be
.
2. Literature Review
In examining the transferability of TPS, we need to start by clarifying the substance
of TPS to be diffused across border. Since Sugimori et al.(1977) shed light on the basic
concepts of TPS in their seminal article, a number of academics have tried to capture the
essence of this extraordinary manufacturing innovation by labeling and configuring it in
3
various ways. Over time, the conception of TPS has evolved from a combination of
waste-eliminating manufacturing techniques and full labor utilization (Sugimori et al.
1977) to the post-Fordist or ‘lean’ production paradigm encompassing supply chain
management, R&D function, customer relations as well as lean production
organizations (Womack et al. 1990). As a consequence, TPS has been described as a
variety of analytical notions, such as method, process or program, strategy, goal, belief
or state of mind, and philosophy (Vokurka & Davis 1996). This multi-facet conception
of TPS creates some confusion over its generic entity to diffuse into different
organizational or social contexts (Bartezzaghi 1999). Moreover, in light that Toyota has
evolved its manufacturing operations to deal with labor shortage and changing market
demand in the 1990s (Benders & Morita 2004; Shimizu 1998; Katayama & Bennett
1996), TPS can be viewed as an evolutionary entity, rather than the fixed one, thereby
causing difficulties in benchmarking against it.
Given its confusing conception, the transferability of TPS has entailed heated debate
among three theoretical approaches: the paradigmatic convergence perspective, the
structuralist perspective, and the contingency perspective. The convergence perspective,
which mainly draws upon the IMVP research, highlights the superb performance of TPS
achieved by Japanese manufacturers, including Toyota, and Western emulators.
4
According to this perspective, TPS, which was invented under the originator(Toyota)’s
idiosyncratic context, is recognized as the dominant production paradigm of the 21st
century, verified by its performance superiority in the global competition (Womack et al.
1990; Krafcik 1988; Cusumano 1988). This school treats TPS or lean production as a
universal set of management norms to be transferred to anywhere (Womack & Jones
1994; Adler & Cole 1993). Despite some variation in the form of its diffusion reflecting
the recipient’s strategy and context, they insist, TPS becomes the “one-best way”
manufacturing paradigm into which every business player tends to converge in the
survival game of the contemporary global competition (Forza 1996).
The structuralist perspective denies the universal transferability of TPS, emphasizing
the unique socio-economic context of Toyota (Williams et al. 1994). Nakamura et
al.(1996) note that the transfer of TPS across national boundaries is considerably more
difficult than the diffusion of specific TPS components, against a background of
different social contexts, including cultures and social relations, economic conditions,
and business practices. Thus, this school insists that TPS has historically evolved under
the idiosyncratic condition of Toyota and its substance can hardly be transferred to
differing structural contexts (Williams and Haslam 1992).
Between these two polar positions, the contingency perspective posits a
5
compromising view, by considering the paradigmatic superiority of TPS and
preconditions or constraints of its transferability. This academic group stresses that the
successful implementation of TPS as a new manufacturing paradigm is dependent upon
such organizational contingencies at recipient sites as long-term management strategy,
labor-management cooperation, employee and union involvement, open communication,
and substantial training investment (White et al. 1999; Harber et al. 1990). They also
point out that the processes and outcomes of TPS emulation are conditioned by external
contexts (i.e.: market situation, international division of labor, local institutional
environment, social culture) as well as organizational contingencies (Mehta & Shah
2004; Liker et al. 1999) In a similar vein, Doeringer et al. (2003) reveal national
differences in actual adoption of TPS, by comparing Japanese multinationals across
U.S., U.K. and France.
Among the three different theoretical views of the existing literature, the contingency
and structuralist perspectives both presents a one-side rationale in assessing TPS
diffusion – the first disregards the impact of national and organizational contexts over
the transfer of TPS, whereas the latter underestimates the universal advantage that TPS
has enjoyed in the post-Fordist era. By contrast, the contingency perspective has a merit
of combing those two approaches from a balanced view, thereby helping capture the
6
variation of processes and outcomes in the transfer of TPS across firms and countries.
However, the contingency perspective also has a limitation in clarifying how and why
recipient firms adopting TPS develop their own workable production models, deviated
from its ideal model. The contingency approach provides a static picture of variations in
the adopted form of TPS, but does not explore the dynamic evolution of TPS
implementation, that is how the components or principles of TPS have been transmuted
under the given contingencies of the recipient sites. The problem with this perspective is
that it focuses only on contingencies of TPS diffusion, yet ignores the recipient’s active
role - management’s strategic capabilities - to deal with their contingencies.
In this vein, the ‘emergent process’ perspective, posited by Liker et al.(1999), is
useful for making up for the weakness of the contingency theory. This perspective views
the diffusion of TPS as evolving transformation and indeterminate processes, which can
be open for various outcomes in terms of the form and performance of adopted TPS.
Bartezzaghi(1999) helps understand the process perspective by distinguishing between
contingent models and paradigms. According to him, the production model is a set of
‘optimal’ manufacturing techniques and practices for a given company context, while
the production paradigm is a coherent body of ‘general’ principles to design and manage
manufacturing systems. The production paradigm underlying considerable competitive
7
advantage tends to prevail as the universal standards to be emulated by most industrial
players, until the advent of a new paradigm to replace it under the fundamental changes
of business environment.
TPS was devised as a specific production model suitable for the unique contingencies
of Toyota in the 1960s (i.e.: lack of natural resources, Japanese work attitude, life-time
employment practices, enterprise union, little discrimination and good chance for job
promotion to blue-collar workers), as admitted by Sugimori et al.(1977). Under the
drastic change of market conditions – intensifying competition and diversifying
customer demands, TPS, equipped with a set of new manufacturing principles, such as
JIT and Kaizen, is recognized a production paradigm to replace the existing Fordist
mass production paradigm, as verified by the outstanding manufacturing performance
that Toyota and its clone plants have achieved since 1980s.
In emulating the production paradigm, TPS, originated from Toyota, many
manufacturers develop their own production models, conditioned or constrained by
contextual factors (i.e.: market situation, institutions, institutions, culture, work norms,
supply chain structure) as well as organizational contingencies (i.e.: business strategy,
corporate history, labor-management relations, pre-existing interpretative mechanism of
production technology, and the level of worker skills) (Lewis 2000; Liker et al. 1999).
8
Those production models have two inherent characteristics; (1) the models are specific
and peculiar to individual manufacturers, even though they attempt to make reference to
the same paradigmatic principles of TPS; (2) the models have evolved over time by
involving a continuous process of selecting, interpreting, assimilating, and transmuting
the principles and operational elements of TPS in the appropriate way to deal with the
changing business conditions (Bartezzaghi 1999). As indicated by Lewis(2000) drawing
upon the resource-based theory, therefore, each manufacturer cannot make an exact
replica of the idiosyncratic Toyota manufacturing arrangements having the inimitable
socio-organizational origin, but follows the trajectory of its own production model
development emulating the paradigmatic principles of TPS, thereby trying to gain
greater competitive advantage within the given business contingencies.
[Figure 1] presents a diagram of hypothetical research model, summarizing the
above literature review over the diffusion of TPS. Here, TPS is defined as a systemic
bundling of paradigmatic principles (including manufacturing method and technique,
work organization, human resource management, and supply chain management), which
originated from Toyota’s unique business context, but is now recognized as the worldclass manufacturing standards. Those TPS principles may be emulated through various
manners, such as prototyping (initial replica of manufacturing arrangements), technical
9
transfer (imitation or import of manufacturing facility and technical knowledge through
Toyota-related consultancies), and benchmarking (the catch-up goals and comparative
standards). In the emulating process, the recipient ‘mutigenizes’ the TPS principles; in
other words, it develop its own production model by selecting, interpreting, and
transmuting those TPS principles in light of its idiosyncratic business context
comprising external conditions and internal (or organizational) contingencies. Note that
this research model is applicable to ordinary manufacturers that have taken their own
course to emulate TPS, without having any direct linkage to Toyota like transplants and
joint-venture, so that it could offer a more generalizable insight about the diffusion of
TPS across borders. The next section applies this research model for examining
Hyundai’s case of TPS emulation.
Insert [Figure 1]
3. Historical Trajectory of TPS emulation at Hyundai
Hyundai, established in 1967, buckled down to emulate TPS, when it started the
production of its own subcompact car model, Pony, in 1975. At the time, the company
invited Mr. Seiyu Arai, the former Mitsubishi senior engineer, as a technical advisor in
10
building the first assembly plant. Mr. Arai, who was a student of Mr. Ohno Taiichi, the
inventor of TPS, played a crucial role in devising the technical layout and operational
processes of the Hyundai plant. In particular, he encouraged Hyundai to adopt some
TPS principles for molding the prototype of its manufacturing arrangements. For
instance, Mr. Arai taught Hyundai management how to carry out Toyota’s “ThreeProblems Ban Policy”, which set up a basic workplace management principle to
eliminate (1) irrationality, (2) imbalance, and (3) superfluity (in sequence of priority) in
manufacturing operations (Kang 1986). Interestingly, however, he reversed the original
order of the policy priority to cope with Hyundai’s resource shortage in its start-up stage,
by stressing the elimination of superfluity as the first priority, followed by imbalance
and irrationality. In addition, the Japanese advisory group, led by Mr. Arai, adopted TPS
manufacturing methods to improve the tooling of stamping dies, shorten the set-up time
of press lines, and make the body-welding line more efficient at the Hyundai plant.
They also shaped work organization of manufacturing processes (including the leading
role of shopfloor foremen), following the prototype of Toyota and other Japanese
automakers. In our interview, Hyundai senior managers admit that Mr. Arai and his
advisory group helped Hyundai management enjoy the advantage of ‘late-development’
by emulating TPS in a selective manner.
11
In the mid 1980s, Hyundai made significant inroads into the world auto market along
with the successful entry of its Excel (a subcompact car model) into the North American
market, and has since shown the rapid growth owing to domestic motorization and
overseas demand increases. Its domestic production volume soared by over ten times
between 1980 (64,070 units) and 1990 (650,388 units), and by almost 30 times between
1980 and 2000. Against a backdrop of its drastic business growth, Hyundai aggressively
expanded its manufacturing capacity in the 1980s and 1990s. In this period, it adopted
elements of TPS in a piecemeal and discontinuous way, whenever it renovated
production lines along with the introduction of new car models, or opened new
assembly plants.
In early 1980s, when they renovated the first assembly plants to establish the mass
production lines of Excel, Hyundai management made a large investment in automating
production equipment and implemented the concept of JIT in a rudimentary form by
changing the method of material handling from the existing bulk parts delivery to the
sequential parts delivery.
In the late 1980s, when the 2nd assembly plant was built, Hyundai management
introduced the production scheme of flexible automation by installing the ‘Flexible
Body Line (FBL)’ to enable them to facilitate the production flow of various cars (24
12
models) and smoothly adjust production volume through the reduction of set-up time. In
building the FBL, Hyundai resorted to a technical consulting from Yamashita Machinery,
who designed and supplied the main buck system of body-building line for Toyota, and
devised the Toyota-imitated One Buck System along with its own invention of
‘Windmill Jig System’ (Jo 1998). In addition, the Hyundai plants also computerized the
sequential parts inventory management for upgrading the level of JIT parts delivery and
reducing WIP. At the same time, the company launched various shopfloor campaigns
(i.e.: Kaizen and suggestion program, “Three-Right Campaign - Do Right things at the
Right time in the Right place”, “Five Work Attitudes Campaign - Plain, Orderly, Clean,
Neat, and Disciplined Work”, and shopfloor dialogue forum) patterning after Toyota’s
workplace innovation activities. According to Hyundai managers in our interview, the
“compressed building” of mass production system contributed in enabling the company
to reach the productivity level of Toyota during this period.
In the 3rd assembly plant which started its operation in 1991, Hyundai moved toward
the flexible mass production model (Lee 1997). It upgraded the FBL and ALC with the
computerized operations to synchronize production orders, thereby expanding its
capability to manufacture more diverse car models in a production line and with less
WIP and parts inventory. This advanced production process management was aided by
13
the implementation of an MRP-based system and a VAN network to directly control and
connect parts order of assembly lines to outside vendors in a JIT manner. From the early
1990s, Hyundai management also introduced the principles of TPM (Total Preventive
Maintenance) and TQC (Total Quality Control) encouraging production workers to
cover maintenance and quality assurance jobs in their work areas, like Japanese workers
at Toyota plants.
In the late 1990s, Hyundai management built a green-field plant (in Asan) emulating
Toyota’s Kyushu Miyata plant. In fact, when working out this new plant, they utilized a
group of retired Toyota engineers to reproduce the manufacturing layout and facility of
the Miyata plant. The Asan plant, which started its operation in 1996, was quite
identical to the Miyata plant in the layout of production processes. Like the Toyota
green-field plant, for instance, the Asan plant consisted of a set of segmented assembly
lines with inter-line buffers (about three vehicle units) and improved working
environments by automating production facility in the ergonomic design. It is
noteworthy that the new plant attempted to adopt the ‘pull’ production system,
controlled by the MRP-based scheduling rather than by the Kanban system, thereby
remarkably improving the ratio of completed sequential production up to 95%
(compared to 75% at the brown-field plants) and reducing parts inventory down to 0.8
14
days (compared to 1.7 days at the old plants) in its start-up stage (Chung 1997).
However, this attempt was halted by the economic crisis in 1997 and the company’s
unprecedented massive downsizing in 1998, and this plant went back to the traditional
‘push’ production model (Jo 2001). Furthermore, this green-field plant implemented
such new programs as direct supplier delivery (of auto parts to production lines), 100
PPM quality assurance campaign and work teams’ quality guarantee plan, and various
fool-proofing tools, for emulating and catching up Toyota.
After recovering from the economic slump of 1997-1998, Hyundai officially began
making efforts to develop its own unique production model, the so-called ‘Hyundai
Production System (HPS)’ in pursuit of a global manufacturing network. In devising
HPS, Hyundai management continues to benchmark itself against Toyota’s
manufacturing performance. At the same time, they makes clear that HPS is deviated
from the core principles of TPS – ‘pull’ production and ‘worker involvement’ -, which
were tried at the Asan plant, but to little effect.
The core part of HPS is demonstrated by its ambitious multi-year plan of production
management innovation, as illustrated in [Table 1]. In accordance with this strategic
plan, the company implemented APS in 2002 and E-BOM in early 2006, while planning
to install ERP by the end of 2006 and establish a comprehensive production
15
management system combining SCM and OTD in 2007. Hyundai management expects
that once the OTD system that can complete a business process of order-to-delivery
within a week is active, HPS can become as lean and responsive to market demands as
TPS. Despite its effort to emulate the JIT operation of TPS, HPS, equipped with the
ERP and OTD, is primarily governed by the traditional principle of the ‘push’
production.
Insert [Table 1]
HPS is also a technology-oriented and engineer-driven approach toward the
minimization of worker involvement, which is in sharp contrast to TPS. Hyundai
management has made massive investments in automation over the past two decades.
As a result, the automation of the press and body-welding shops reaches almost 100%
and that of the assembly lines increases up to the comparable level of 15% to Toyota.
Hyundai management has chiefly pursued the automation to save labor, compared to
Toyota where automation is treated as a supplementary means to make worker’s job
efficient and easy. Similarly, according to Hyundai management, HPS approach to foolproofing machinery is somehow different from Toyota: the first puts stress on the
16
elimination of job tasks on which workers may make a mistake, whereas the latter
underlines the prevention of workers’ faulty operation. Another example of Hyundai’s
engineer-oriented approach is identified in its emphasis on modular production.
Hyundai management set out a long-term plan to develop the modular production
system for establishing the “Just-in-Sequencing (JIS)” operation, as illustrated in [Table
2]. According to the plan, the overall level of modularization soared from 30% in 2005
to 40% by 2006. The modularization has entailed the outsourcing of parts sequencing
jobs, automation of modular parts assembly, and simplification of main production lines
(Lee 2003). As displayed in [Figure 2]. HPS also includes a Toyota-style workplace
innovation program, comprised of ‘basic management’ strengthening the shopfloor ethic
of hard work and ‘substance management’ stressing Kaizen activities and manufacturing
performance (i.e.: quality, operational costs, productivity). However, the workplace
innovation program (and the previous shopfloor campaigns) at Hyundai is contrary to
the TPS principle of worker involvement, in that it is solely driven by shopfloor
management, without production workers’ commitment. Instead, college-graduated
engineers are the main force of production process innovation, since they are very
motivated to apply for numerous patents (i.e. four patents per engineer in 2005) by
merit pay system and other performance incentives.
17
Insert [Table 2]
Insert [Figure 2]
To sum up, Hyundai has developed its production model deviant from TPS, ironically
although it has tried to emulate TPS through replica of manufacturing prototype,
technical consultancies, and benchmarking over time. Hyundai’s emulation of TPS is
characterized as being (1) a selective and graduated adoption linked to the expansion of
manufacturing capacity, (2) technology-driven radical innovation (Liker et al. 1999;
Fujimoto 1999), and (3) engineer-led and worker-exclusive approach.
4. Factors Deviating Hyundai Production Model from TPS
As exemplified in [Table 3], HPS is quite distinct from TPS in the core aspects of
production management. While TPS is primarily governed by the ‘pull’ production
based on JIT process control and flexible labor utilization, HPS is a ‘push’ production
model utilizing the centralized IT-driven process control. Then, what makes Hyundai
production model deviate from TPS in the 40-year trajectory of its emulation? The
deviant TPS emulation of Hyundai can be explained by several inter-related factors.
18
First, unlike Toyota, Hyundai management has emphasized high utilization of
production capacity under the supplier-dominated market condition, rather than
stressing flexible responses to customer demands. This business orientation which has
led Hyundai management to stick to the push production model is associated with its
dominant position in the domestic market and the sustained growth of overseas demand.
Second, the poor technical capability of auto parts suppliers has been a key source of
uncertainty to Hyundai production processes Most auto parts suppliers are smallmedium sized firms, which lack resources (i.e. capital and highly-educated labor)
enough to develop and maintain flexible and defect-free production processes to meet
automakers’ work orders (Lee & Lee 2005). Thus, Hyundai management as well as
suppliers cannot but maintain a buffer to provide against the defection or untimely
delivery of supplied parts, thereby disabling HPS to adopt the pull-mode JIT principle.
Third and most importantly, confrontational labor-management relations at Hyundai
have been a crucial constraint to its emulation of TPS (Jo 2005; Cho & Lee 1989).
Labor-management cooperation and worker collaboration is the key precondition of the
operation of JIT production principle at Toyota (Forza 1996). The problematic labor
relations climate at Hyundai has been derived from workers’ mistrust against laborexclusive management style. In the pre-democratization period (until 1987), Hyundai
19
management, aided by the authoritarian government’s labor control policy, forced low
wages and harsh working conditions on workers, who organized a militant labor union
in late 1987. In 1998, the massive downsizing which Hyundai management undertook
under the unprecedented economic slump cost workers attachment to the company and
made the labor union more recalcitrant than ever. Given its deep distrust of management,
the labor union has restrained management from adopting the performance-based
human resource management (HRM) practices and flexibly utilizing labor. In the mid
1990s, for instance, Hyundai management failed to implement the performance-based
HRM plans, modeled on the job career and compensation system of Toyota, due to the
opposition of the labor union, which preferred the egalitarian system of wage
determination and job promotion (Lee 1997). The labor union has also interfered with
management’s policy to promote workplace innovation and flexible job rotation,
thereby resulting in the rigid and Kaizen-free working practices on the shopfloor. In fact,
the labor union forced management to reduce the items of TQC from 30 to 10 and use
the increasing number of irregular contracted workforce in the early 2000s. In this
organizational condition of the militant labor union and workers’ mistrust, Hyundai
management has been unable to promote the systemic flexibility of labor utilization and
workplace innovation, aided by the performance-based HRM schemes, which are a key
20
part of and a prerequisite for TPS, and, therefore, further moved toward the engineer-led
production model.
In summary, the external conditions (i.e. supplier-dominated market, the authoritarian
government’s labor control policy, parts suppliers’ poor technical capability, and
economic crisis) and internal contingencies (top management’s emphasis on high
utilization, the militant labor union, and workers’ distrust) are combined to contribute in
forging the technology-driven and push-mode Hyundai production model, which has
over time been more deviant from TPS, albeit the company’s unceasing efforts to
emulate it.
5. Benchmarking of Hyundai Production Model to TPS
Hyundai management’s efforts to emulate TPS, which have been resolved into its
unique production model, have made a remarkable achievement in boosting its
manufacturing competitiveness to the level of Toyota. Drawing upon the recent
manufacturing performance of Hyundai, HPS can be benchmarked to TPS. As shown in
Figure 3], HPS has enhanced the utilization ratio up to 95.6%, close to TPS (97%)
during the past five years. It has also improved the product quality (measured by the
sign-off ratio) up to 92.3%, drawing near the level of Toyota (94-95%), in the same
21
period. In particular, Hyundai’s quality improvement is evidenced by the recent
favorable recognition of overseas markets: for instance, its passenger cars rank as one of
highest quality products in the J.D. Power’s IQS. Moreover, despite its push-mode
production system, Hyundai reduces its inventory of parts delivery to two hours,
comparable to Toyota, through tight control of parts suppliers. These notable
accomplishments of HPS manufacturing performance are mainly attributable to the
company’s great efforts for engineer- or technology-driven production management
innovation.
Insert [Figure 3]
At the same time, HPS has a crucial problem in its labor productivity. As illustrated in
[Figure 3], the level of allocation ratio at Hyundai assembly plants has declined from
75.8% in 2000 down to 67.4% in 2005. The rough comparison of labor productivity by
production unit per worker reveals that Hyundai (31.9) was below half of Toyota (65.6)
in 2003. This problem could be explained by rigid work practices and little worker
involvement in shopfloor innovation against a backdrop of confrontational labormanagement relations climate and low employee trust in corporate management.
22
Nonetheless, as shown in [Table 4], since the labor cost of Hyundai is around 40% of
Toyota (as of 2003), the former has been able to maintain its price competitiveness,
despite the poor labor productivity.
Insert [Table 4]
In short, Hyundai has achieved fairly good manufacturing performances (in terms of
utilization, product quality, and parts inventory) with its own production model, HPS,
deviant from TPS, while it has also experienced the declining labor productivity, caused
by the deviation, that is, worker-exclusive production management.
6. Conclusion:
Over the past 40 years, Hyundai has developed its own production system, HPS, by
emulating, re-interpreting, and benchmarking TPS in a manner of radical innovation. In
other words, HPS, into which the company’.s social and organizational contingencies
are embedded, is a mutagenized form of TPS adoption. Although it is deviant from the
ideal model of TPS (JIT pull production, equipped with flexible human buffer and
incremental innovation capacity), HPS, based on the technology-driven push
production) has gained a remarkable competitive advantage in manufacturing utilization,
23
product quality, and inventory management, thereby jumping over the limitation of the
pre-existing low wage business model, indicated by Womack et al.(1990). Of course, it
should also be noted that HPS is dampened by its worker-exclusive manufacturing
approach, derived from authoritarian management style and unstable labor relations and
contrary to TPS.
Our case study addresses several implications for the future research to decode the
diffusion mechanism of TPS. First, The Hyundai case reveals that the adoption of TPS
entails a complex evolutionary process of organizational learning and interpretation by
recipients, as indicated by Bartezzaghi(1999) and Liker et al.(1999). In contrast to the
convergence perspective stressing the universal transferability of TPS in a simplistic
manner, the emulating process of TPS involves the complicate interaction with
recipients’ contingencies and tends to be materialized into various unique production
models, deviated from the original form of TPS. In this light, the future study of TPS
diffusion needs to further explore the recipient’s active role or strategic capability in
transmuting or ‘mutagenizing’ the TPS principles under its idiosyncratic context, which
have been overlooked by the existing literature.
Second, the Hyundai case sheds light on the possibility of various paths toward
lean production. Of course, TPS represents the exemplar lean manufacturing paradigm
24
in the post-Fordist era. However, as Lewis(2000) points out, a variety of lean production
models, capturing virtues of TPS, can be developed as diverse workable configurations
of the manufacturing system. Indeed, HPS has embodied lean manufacturing in its own
way of radical innovation, evidenced by its notable operational performances. Therefore,
it is another future task to examine commonalities and differences of various ‘lean
production’ models among recipient firms of TPS emulation, going beyond our single
case study.
Fourth, the Hyundai case shows that external conditions and internal contingencies
are combined to form a complicate causal chains influencing the ‘mutagenized’
emulation of TPS and generating a certain pattern of path-dependence in the
evolutionary trajectory of a particular production model. The possible combination of
external and internal factors can be sorted out into an analytical typology, which would
be useful for predicting the evolving direction and path of TPS emulation.
Lastly, although Hyundai is a “Cinderella” case, it is not a best practice of lean
enterprise, nor a humanized “Uddevalla” model. If HPS becomes a paradigm, it requires
a philosophical or principal turnover. In this light, we need a thorough investigation on
how and under what context Fordism and Toyotism make new history with what
strategic choice. Those system starts as a mutant, but they become a new paradigm to
25
change the world. As such, it is an interesting topic to appreciate the dialectic logic of
evolutionary production paradigm.
26
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[Table 1] Roadmap of Production System Innovation at Hyundai
Stage & Component
Description
To enhance the accuracy of production planning and
(1) APS (advanced planning
maintain the optimal level of auto parts inventory by
& scheduling)
visually controlling the due date of customer delivery
To develop the corporate-wide BOM data base
necessary for implementing ERP
To build a IT system to manage the entire work flow
from product development, manufacturing, sales and
customer service
To establish a systemic network to interconnect
manufacturing processes to suppliers, sales dealers,
and customers
To build the total management system to maximize the
efficiency of business processes, comprising customer
order, parts supply, manufacturing, and distribution
(2) E-BOM (enterprise bill of
material)
(3) ERP (enterprise resource
planning)
(4) SCM (supply chain
management)
(5) OTD (order to delivery)
Source: HMC internal document.
[Table 2] Modularization Plan at Hyundai
2001
2002
2003
2004
2005
2006
Cockpit Module
Module design & parts development
Integrated modules development
Chassis Module
Simple
Module design &
Integrated modules development
assembly
parts development
Front-end Module
Module design &
Integrated modules
parts development
development
(Source) Cho et al.(2004)
. [Table 3] Comparison of Production Management between Hyundai and Toyota
Hyundai
Toyota
Production mode
PUSH
PULL
Production control tool
MRP system
JIT (Kanban)
Operational goal
Planning-led production
Minimization of inventory
Hourly plan-based process Flexible control of production
Production management management controlled by
process at the level of
production engineer division
production departments
Production condition
High uncertainty and
fluctuation
Source: HMC internal document.
30
Low uncertainty and stable
repetitiveness
[Table 4] Comparison of Operational Performance between Hyundai and Toyota
(Unit: US dollar; billion Korean Won; Billion Japanese Yen, %)
Hyundai
2000
Labor cost per worker ¹
Production unit per worker
2001
Toyota
2002
2003
2000
2001
2002
2003
34,888 32,401 40,245 40,128 96,059 88,824 91,507 104,046
25.2
30.3
37.0
31.9
62.1
60.3
62.5
Source: HMC internal document.
(Note): (1) US Dollar, (2) Korean Won for Hyundai, and Japanese Yen for Toyota;
Exchange rate as of 2003: 1 US Dollar = 1191.9 K won = 115.9 J Yen
31
65.6
[Figure 1] Hypothetical Diagram of a TPS Diffusion Model
Recipient’s
TPS
Mutigenization
-Manufacturing method
& techniques
-Work organization
-HRM
-Supplier management
of TPS
Emulation channel
-Prototyping
Internal
-Technical transfer
contingencies
-Benchmarking
External
constraints
[Japanese context]
[Figure 2] Conceptual Map of HPS Workplace Management Innovation
Workplace Management
Basic Management
Substance Management
•
Work Environment
•
Common Management
•
Worker Morale
•
Objective Management
•
Safety & Energy-saving
•
Organizational Management
•
Work Attitude
(Source) HMC internal document.
32
[Figure 3] Manufacturing Performance of Hyundai (unit: %)
100
90
80
92.5
92.2
79.9 79.7
75.8 79.9
70
92.8
87.3
72.7
93.6
87.7
95.3
90.4
95.6
92.3
69.1
68.7
67.4
60
50
2000
2001
Utilization ratio
2002
2003
sign off ratio
2004
2005
allocation ratio
Source: HMC internal document.
(Note) Sign off ratio is the aggregate index calculated by multiplying O.K. rates at
the four inspection spots – assembly line, final test, water-proof test, and oreshipping test; allocation ratio is the relative ratio of net assembly working hours out
of total assembly working hours by production workers at the assembly plants.
33