Gemba Panta Rei

The title for this chapter is awkward in English. It comes from the problem of trying to translate the nuances of Japanese words that have the same sounds but different meaning due to an intentional replacement of one of the kanji (Chinese characters) to create a new word.

Taiichi Ohno uses the term "genryou production" in the title of this chapter, meaning "limiting the production volume to just what the customer needs" as in the opposite of overproduction, one of the 7 wastes.

This is in unlike the "genryou" which simply means "reduced volume" or "lower volume" contrasting traditional high volume production to decreased production volumes. You could say that Ohno's meaning is to limit intentionally, as opposed to production being reduced involuntarily by market conditions.

There's a lot of this type of word play in Japanese and you will find quite a bit of it in Japanese Lean lingo also. For example, "jidoka" means "automation" but there's also jidoka (replace the 'do' with a slightly different kanji) which means "autonomation" or "autonomous working" and indicates the ability of machines or people to work intelligently and stop the process when errors are detected. This jidoka was coined by Sakichi Toyoda when he invented his automatic loom and jidoka today is a pillar of TPS.

Taiichi Ohno uses the meaning for the new "genryou (limited) production" in order to make his point in this chapter. While it is easier to reduce costs when you have high volume production and can benefit from economies of scale, when you are faced with "limiting volumes" or making just what the customers want, cost reduction is a lot harder. If the customers will buy 10,000 units, you have to reduce cost at that volume even though the cost per unit would be cheaper if you produced 15,000 units.

It may be true that the cost per unit is less to produce 15,000 but the company is less profitable if you make 5,000 pieces that do not sell right away because you create the wastes of transportation, inventory, motion, defects, etc. to manage the extra units. Even if your customer demand is growing to 11,000 units for instance, Taiichi Ohno says it is important to limit production to 11,000 and to do kaizen to reduce cost at this limited volume.

The first "genryou" is also used when boxers try to eat less in order to "make weight" so they can fight in the lower weight class. Ohno uses this as a metaphor for how companies must be careful when they are doing this traditional "genryou" by "dieting" in order to become Lean and more competitive. If done well, you cut out the fat and you are more fit. If done poorly, this can result in less muscle and energy, losing the fight for both the boxer and for the company doing "genryou" (weight loss or Lean).

The lesson for today is to use Lean and kaizen not as a downsizing tool (reduced volume through outsourcing or reductions in staff) but as a way to make the organization more fit (enabling limited volume or JIT production).

Posted by Jon Miller at 5:46 AM | Permalink | Comments (0)

Kent Bradley
VP, North America

"A journey of a thousand miles begins with a single step." -- Confucius

"Sometimes you don't know what you've seen 'til you get back home." --Luke

Friday, our group's’ last day. After a very, very early morning (5:00 AM) departure, a small hard-core team of intrepid tourists Brett and Dale of Western Idaho Cabinet, Stefano from Cassappa, Jorge from Pentaire, and Marty representing Entek led by Naoko, Brad and Kent visited the world famous Tokyo fish market.

Although the visit to the fish market was not designed to showcase Lean principles, it was hard not to see the role of the water spider in the intricate and high speed supply network to the stalls, Jidoka in the blend of machines (primarily transportation) modified or designed to complement human skills, or a kind of natural Standard Work in the dance-like choreography within the shops to rapidly convert that morning's catch into customer orders or the day’'s inventory. Standard Work whose steps have been refined generation after generation for hundreds of years.

We regrouped at the hotel at 8:00 (some people smelling somewhat like fish for some reason) for the final two hour work session of the tour—, a fun but mind testing, hands-on simulation led by Brad and Kent where the group (split into two competing teams) gets to apply the Lean principles studied during the week. It was time to walk the talk together and, after some normal rough spots, it was evident the concepts were really kicking in.

The remainder of Friday was turned over to being tourists, with Naoko leading us on a sightseeing tour to a Shinto shrine and a Buddhist temple in Tokyo—, both stunning in architecture, history and sense of spirituality. We also said farewell to Christine, the first of our group to head home.

Ever the human dynamo, Naoko then spent the afternoon assisting wayward group members in the arduous task of shopping for loved ones in the fabulous Ginza district of Tokyo. Disneyland meets Rodeo Drive on steroids.

Befitting the end of a long, hard, fascinating, and professionally stimulating week spent in the company of interesting and knowledgeable people, --and did I mention fun?--our farewell dinner was good food, good conversations, lots of laughter and an all around pleasure.

Enough to still put a smile on my face on the long flight home the next morning.

Posted by Jon Miller at 8:23 PM | Permalink | Comments (0)

There's good news today from the Ford Motor Company. The September 29, 2005 WSJ article "Ford Seeks Big Savings By Overhauling Supply System: No. 2 Auto Maker Will Offer Larger and Longer Contracts But Use Fewer Companies" details Ford's plans to implement a more Toyota-like supplier relationship model in order to reduce costs.

The essence is that Ford plans to offer fewer key suppliers long-term contracts and to work with these suppliers co-operatively on design and cost reductions rather than continuing to beat up on them. The leopard changes its spots.

The shrinking of Ford's supplier base from 2,500 to less than 1,000 worldwide will certainly be painful to those companies that don't make the cut. Those that do will be building a stronger, healthier supply chain with Ford. The are seven major companies named in the article as key Ford suppliers who have made the cut. They are:

1) Autoliv
2) Delphi Corp.
3) Johnson Controls
4) Magna International
5) Visteon
6) Lear
7) Yazaki

With the exception of one company (which I won't name) these firms all have active and legitimate Lean manufacturing or Lean office programs modeled on TPS. Delphi for instance has won Shingo prizes for severl of its factories, the recent threat of Chapter 11 notwithstanding. The Autoliv factory in Ogden, Utah is quite impressive. Hopefully Ford can be humble enough to benefit from the Lean expertise of these firms when involving these suppliers earlier in the design process for Ford parts.

The article astutely points out that one of the hurdles in achieving a Lean supply chain transformation will be cultural. The measurement and reward system at Ford currently supports the "beat the cost out" model of supplier management, rather than "supplier support" of Toyota. This will be a challenge indeed, and hopefully the smart folks at Ford are working on the human side of this new system as well.

Tony Brown, Ford Senior Vice President of Global Purchasing says in the article "It is clear we have a business model that doesn't effectively work for them [suppliers] or for us... We need to change the way we do business with our suppliers right now."

On one of our Lean benchmarking trips to Japan everyone in our group was particularly impressed by the story told by a small Toyota supplier of elbow joints we visited. This company gave up and told Toyota "we can't meet your requirements" on cost only to have a Toyota engineer come and live at their company until together they were able to redesign both their product and process to meet cost targets. Toyota refused to let even a small supplier fail.

The survival and success of Ford is certainly important for its suppliers. Ford is realizing that a healthy business model is required for their suppliers to succeed with them. Refuse to let your suppliers fail, and they won't let you fail either.

Posted by Jon Miller at 9:58 AM | Permalink | Comments (0)

Kent Bradley
VP, North America

As someone who only recently joined the consulting world after 25 years directing manufacturing, assembly, and distribution operations, I can say with absolute conviction that I have never seen a lean assembly implementation the equal of Ricoh's much written about program.

The effectiveness of materials administration and flow at Ricoh has resulted in near zero waste of transportation and motion for line assemblers. What remaining transportation required has been carefully mitigated using a small fleet of inexpensive home-made AGVs.

Effective examples of Jidoka are pervasive. Visual control for self management is well thought out and executed. Safety is impeccable. The plant has just received ISO 140001 environmental certification.

Line documentation is simple, graphical, and current--and is therefore used. Mistake proofing is widespread, and quality is untouchable. Assembly is on takt. Product flows. There are 3.5 kaizen improvement suggestions per month per employee. Most are implemented, all are recognized. Morale is high.

And profit dollars are greater on $200 million in current sales than they were in 1995 at $400 million prior to offloading segments to Ricoh's Shanghai plant.

Perhaps more impressive to me than all those facts and figures, is the knowledge that the current -- Lean-- version of Ricoh only came into being about 10 years ago, as the realities of a required shift of production orientation from high volume, low mix to one of low volume, high mix became evident along with the inability of the current (at that time) horrifically expensive mass production automation, robots and conveyor system to adapt.

Face it. Most businesses in that situation would have tried desperately (and fustily) to adapt the existing equipment to the new requirements and eventually destroy themselves trying to pound a square equipment peg into a proverbial round hole of need.

Faced with drastically reduced revenue and a plant full of expensive but extremely valuable equipment assets, Ricoh chose to demonstrate faith in the principles of Lean and the ability of its people, scrapping virtually all of the previous equipment, retraining its people, and changing virtually overnight (and at considerable cost) to a lean system relying on one of 6 different production assembly processes each designed to fit with the high variation of models at low volumes.

Our group debriefed together for 3 hours on the week's learning after leaving Ricoh, and we did it in style - a 17th floor conference room in the Imperial Hotel in downtown Tokyo overlooking the Imperial Palace, drinking superb tea and sampling excellent Japanese desserts. This was the summary planning session for each of the four companies represented on this particular JKE, and each team will do a report out to the group on their specific action plans tomorrow morning. I look forward to them all.

- Kent Bradley

Posted by Jon Miller at 10:16 PM | Permalink | Comments (0)

Kent Bradley
VP, North America

It is Wednesday night in Tokyo, after another long day on the Gemba Research JKE tour. Today we visited Hokuetsu Industries, which owns about 10% of the global market for industrial air compressors and has been hammering hard and long --over twenty years--at being a lean enterprise. The companies we've seen so far have each been different and each exemplary in living lean.

There is a growing awareness in my mind of a subtle difference between the everyday working lean world according to companies like Denso and Omron; and that same world as it is lived at companies like Toyota and even more so at Hokuetsu. Each is successful, and each clearly successful in world-beating ways. Those are good things.

I am struggling to express in any more meaningful way the details of that subtle difference except by analogy.

Where the Denso's and Omron's are represented by a spotless, starched, crisp, and impeccably tailored dress shirt, the Toyota's and Hokuetsu's are tough, well made, loose-fitting, somewhat worn but clean denim work shirts. Comfort is an individual thing, but for me, if I was out the door on my way to the gemba to "get down and dirty" in a kaizen event, I know which shirt I would be most comfortable in.

Each day of the JKE so far has presented to the members of our group new and successively deeper and more relevant examples of companies applying lean principles -- wait, strike that. "Applying" lean is incorrect. The word "applying" implies that lean is just a thin overlay on the surface of the operation. For companies like Hokuetsu Industries, Lean is at the core of who they are and adherence to the key principles of waste reduction, and takt, flow, pull -- even in the absence of data or thorough problem analysis at times, is an unquestioned act of faith on their part.

And each day of the tour, the operational and financial results demonstrated by each of these very different lean companies clearly show that faith on their part is not misplaced.

- Kent Bradley

Posted by Jon Miller at 9:09 PM | Permalink | Comments (0)

I recently spent 3 days standing on the shop floor while leading a training event for future kaizen facilitators. I spent probably 8.5 hours per day standing, 60 minutes sitting (lunch, breaks), and 30 minutes walking around the 100 square meters occupied by the pilot cell.

If I hadn't been doing this sort of thing for the last 12 years I imagine my feet would have been tired. It's something you get used to. It takes about two weeks. But converting a workplace from sitting work to standing work is one of the bigger challenges with Lean Enterprise transformation.

As more companies go to 10 and 12 hour shifts, factory managers worry that the workers will be tired of standing by the end of the day. They will for the first two weeks or so until their muscles adjust. They may complain for longer than two weeks if the principles of Lean manufacturing (competitiveness by cutting out waste through one-piece flow) are not explained to them.

Standing work enables flow. In addition:

1. Standing work is more ergonomic. When you lift from a sitting position you are using your lower back and very little of your abdominal muscles. When you are standing you use leg and abdominal muscles as well as your arms for lifting.

2. Standing gives you greater range of motion and allows you to use vertical space more effectively for material presentation and tool location.

3. Standing enables multi process handling. When you stand, you can walk. When you walk you can move the product form process to process. Sliding along in a chair just isn't the same.

4. Standing reduces space required. No chairs mean you need about half of the footprint per person, resulting in more compact work cells.

We do have to do something about the sore feet during those first two weeks. Look at the shoes people are wearing. Do they have thick, cushioned soles? Issue them good new shoes if not. Are they standing on concrete? Probably so. Place floor mats under the working positions to further cushion their feet.

Although few companies outside of Toyota do this effectively (if at all), rotating work positions every 2 hours to a different type of process (from standing to walking work, for instance) helps use different muscles, enhance cross training and cut down on the boredom.

I recognize that not everyone can stand all day or work at a certain pace for physical reasons. Processes should be designed around people, not the other way around. But ultimately the market determines what kind of processes will succeed in winning business from customers.

Going from sitting work to standing work is a leap for some, and it's not something you want to attempt on your first kaizen. There are other battles you can win first. In the end a Lean process will require standing work in many places, even the office.

Posted by Jon Miller at 11:07 AM | Permalink | Comments (11)

Kent Bradley
VP, North America

Day three on the Gemba road was long, hot, and fascinating. We were on our way to catch the bullet train for Denso before 7:00. On the way, we took the usual opportunity to go over what we would be seeing and Brad provided some great insights into leadership styles of several key emperors from Japanese history, tying those various styles to the modern day need to have varied methods of getting the lean message through to our people successfully.

I followed up with a discussion of the 7 wastes -- introducing the group to the twisted but effective memory tool "Open The Meat Wagon, Pal, I'm Dead" recalling the wastes of Overproduction, Transportation, Motion, Processing, Inventory, and Defects. I challenged the group to really look to find examples of each at the plants we would be visiting today--not an easy task at Denso and Toyota!

The lean development at Denso's sensor division is remarkable, to say the least. Denso has been at this for a long time, and it shows. Here are just a few of the comments from group members at the debrief following the tour, as we loaded up and headed to our next stop, Toyota:

Christine, from Entek cited Denso's commitment to setting aside large blocks of training time and dedicated training rooms specifically for improvement.

Marty, from Entek was impressed by Denso's freeing time on the lines each week dedicated to improvement activities.

Ken, from Itec (and several others as well) were amazed that Denso even developed a standard time and pace for walking, both if carrying something and if empty.

Fillipo, of Cassapa, was impressed by the cleanliness and the flexibility and mobility of the layout and fixturing.

Larry, from Entek, was impressed --as were we all-- by the depth of Denso's commitment to training and mentoring each new employee during a 30 day period.

Toyota was a whirlwind--first the Kamigo engine plant, then the Motomachi assembly plant, and finally a stop at the media center showroom. One of the strongest and most common themes pointed out by group members both during and after our visits to both Toyota plants was amazement at the seemingly effortless and uninterrupted flow of materials to the lines, and the rapidly completing cars through those lines. Impressive for a single model of car--astounding given the 27 different vehicle variants built there in a mixed model process!

A few of the group member's comments regarding what we observed and learned at Toyota:

Richie, of Entek UK was impressed by the almost casual demonstration of high levels of actual assembly skills throughout the plant. However--Richie was extremely disappointed to discover that touring the plant did not qualify him for 50% off of the Lexus convertible in the media center showroom. We were all disappointed by this sad reality.

Fenwick, Richie's compatriot, had finished reading "The Toyota Way" prior to the trip, and confessed to having been a bit down while reading it because some of what was describe seemed to him nearly unobtainable. Seeing it in action, in real life, and with such remarkable effectiveness was reaffirming and energizing.

Jorge from Pentaire Pools cited the real sense of urgency demonstrated by a team during a part quality issue. Clearly, getting the flow back on track was and is taken seriously at every level.

Dale of Western Idaho Cabinets pointed out the powerful benefits associated with posting implemented improvement ideas publicly, and including what the employee earned as a result of that initiative.

We'll revisit our learning on these key sites over the next several entries as we tie what we are seeing together and begin to really set out action plans to take home and implement.

- Kent Bradley

Posted by Jon Miller at 7:55 PM | Permalink | Comments (0)

Kent Bradley
VP, North America

Day 2, the first real day of our Gemba Research Japan Kaikaku Experience tour.

"Going to the gemba" is the whole point of this tour - to be the best requires going to see the best. Today that would be the Omron plant an hour north of Kyoto. Omron is the world market leader in the manufacture of sophisticated electronic sensors.

Prior to setting out, our group met and reviewed background information with Brad and Kent regarding Omron's lean journey as well as insights on particularly successful aspects of their lean progress to date. Since this was our first formal meeting together as a group, we also took the opportunity to make individual introductions and for each person to discuss his or her key learning objectives.

We reviewed the week's schedule, followed by Brad's excellent (and humorous) tutorial on how to avoid violating harmony as an insensitive foreigner--including the ins and outs of card exchange and bowing. Then it was on to Omron!

Both exhilarating and daunting to see continuous improvement played at Omron's level. Exhilarating for those who are in the trenches implementing every day - one comes away with a kind of "re-affirmation of faith" when you see the core lean principles executed consistently, broadly and thoroughly and the powerful competitive and operational advantages that result.

Daunting because even the best and most successful lean companies don't escape from the struggle to practice dynamic improvement. Even a powerhouse like Omron admitted to inconsistent support at the very top of the company.

Consensus from the group? "Wow." Everyone had good insights to share and among the specifics mentioned were Dale and Brett, owners and founders of Western Idaho Cabinet, pointing out the Digital Kitchen concept to standardize and make repeatable those one-off and rarely repeated products that frequently seem to rely on folklore in a non-lean system.

Omron builds a wide variety of electronic sensors, some small, some downright microscopic. The Digital Kitchen, a semi-circular work station whose parts shelves remind one of a Wurlitzer organ keyboard, is the place where seldom ordered products are created. And like the mighty Wurlitzer, once it's fired up the Digital Kitchen is a site to behold.

Like all electronic assembly stations, the worker stands on a standard Electo Static Dissipation (ESD) floor mat. In front is a flat panel computer display, on the bench another ESD mat for assembly. Tools are laid out with surgical precision.

The computer display begins by touching the screen. The worker is directed to get the first part in the assembly, a 78135 mounting plate. The worker looks around and sees a small light glowing beneath a parts bin, high to the left. As the worker reaches in to the 78135 parts bin, a sensor beam is broken and the light goes out.

The display, confident that the worker has the first part, moves on - a 79165 oscillator is required. Another parts bin light goes on.

And so on, until the product is completely assembled.

The Digital Kitchen was just one feature of an incredibly lean enterprise. Back on the bus, Christine, from Entek in Oregon, highlighted Omron's strong use of visual management tools--a topic Kirk and Larry, also from Entek, had discussed as it related to a penchant many companies have for seeming to post data for the sake of posting data instead of as a call to specific action.

A nearly universal comment revolved around amazement that Omron has achieved this high level of operational excellence while employing approximately 35-40% temporary labor, of which there is nearly a 50% annual turnover!

- Kent Bradley

Posted by Jon Miller at 5:23 PM | Permalink | Comments (0)

A key aspect of our work here at Gemba is the Japan Kaikaku Experience. We take business leaders to Japan to see the world's best practitioners of lean.

This week, Kent Bradley, on his second tour of Japan, will share his experiences as JKE September 2005 gets under way. Join us for his daily reports.

- Luke

---------------------------
Kent Bradley
VP, North America

For Jorge Rodriguez, it was a dark and stormy night. His flight to Tokyo was diverted to a different airport due to lightning.

Jorge was on his way to join 15 other business professionals representing four different companies for the September 2005 Japan Kaikaku Experience, Gemba Research's week long intensive tour and study of various world class Lean facilities throughout Japan.

Thanks to some quick phone work by Naoko, Gemba's travel coordinator for this trip, Jorge made it in time.

Just getting to Japan can be the toughest part. Day one was roughly 16 hours of travel on average depending on trip origin,. but the champs were probably Stefano Miriello and Filippo Casappa coming in from Italy.

Tomorrow starts off the "business end" of the week with a bang, with an overview and orientation, followed by a day long inspection of Omron, meeting with their key people and sharing thoughts and issues regarding Omron's experience utilizing Lean. Then back to Kyoto for debriefing and a Lean principles refresher and simulation for our group, facilitated by Brad Schmidt and me, Kent Bradley.

Posted by at 8:24 PM | Permalink | Comments (0)

It would be easy to point out how non-Lean the U.S. government has been at city, state and federal levels these last few weeks. We've seen examples of lack of decision making, poor logistics, lack of alignment of goals, poor communication between functional areas and poor planning to name just a few, resulting in terrible consequences.

Instead let's keep it positive and look at the practical problem of Lean government and how to get started. One of the ways to change culture through kaizen is to start where there are easy wins to be had. There are many customer-oriented, repetitive, simple production type processes in government that can benefit immediately from the application of kaizen principles. A good example of this is the postal service.

Rather than tackling the biggest, most complicated problems (such as healthcare, social security, etc.) and being bogged down in politics, real change will come through Lean government if we fix one small thing at a time. As people learn that this is successful, this will change attitudes. As citizens and taxpayers see that cutting out government waste is possible, hopefully we will vote for more of that type of government.

Speaking of the postal service there are several notable successes through Lean implementation. For instance at the postal service in Denmark they began in the year 2000, focusing on standardization in order to improve productivity, reduce lead times, and improve delivery service quality. The use of Value Stream Mapping, cross functional kaizen teams, employee suggestions, key performance indicator (KPI) boards, and improvement meetings while "being in Gemba (shop floor)" resulted in reduction of costs by 20% and stable service performance at 95% was achieved.

The article notes that changing the way they work was not easy, and changing behavior was even more difficult. Successful Lean implementation is almost always about creating a kaizen culture and the public sector is no exception. A revealing comment in the article is that the results were almost too good and too easy, meaning there are probably further gains to be had.

Closer to home, Canada Post has received some publicity for their thorough application of Lean principles. Andre Ouellet, the President and CEO of Canada Post, said the following during as speech in April 2003 in Montr饌l:

The concept of value streams has been introduced at Canada Post, with leaders focused on improving the end-to-end processes. Employees work in small workgroups, and rotate through different jobs within the value stream. This makes for more interesting work, teamwork and relationship building, and better ergonomics.

The Canada Post achieved a national on-time delivery of 96.7% for letter mail in 2002. Canada Post has been profitable eight years running. Employee satisfaction continues to improve. Through reductions in operating cost over the past five years Canada Post has repaid $274 million dividends and capital to the Canadian government. Full details of Lean implementation at Post Canada can be had in the case study at Lean Enterprise Institute website.

In Japan there is an upcoming election which has large implications for government waste in Japan, as well as the Japanese postal service. Prime Minister Koizumi called this election when his bill to privatize the postal service was defeated. He would like to cut off the large amount of public works infrastructure to rural areas in Japan. He is trying to structurally eliminate some large portions of "pork barrel spending" in American terms.

Growing up in rural Japan I was always frustrated as a kid when they would pave the rivers with concrete blocks, ruining the fishing for quite some time. It made no sense to me when the adults explained that the river was "safer" for us with paved blocks running along the bottoms of these shallow rivers, instead of the natural river stones. Doubtless some local politicians must have run out of legitimate things for his "construction vote" buddies to pave after years of funneling public works tax dollars to them.

Even if the spending on rural development is legitimate, Japan can not continue down this path. Japan's national debt is 163% of GDP (Gross Domestic Product) and this is higher than any major industrialized nation. Compare this with 66% of GDP for the United States according to the OECD (Organization for Economic Cooperation and Development). A combination of declining and aging population, an increasingly urbanized population, and low economic growth make this spending unsustainable.

It made news in Japan a few years ago when the postal service received help from Toyota managers with their Kaikaku effort. By implementing the Toyota Production System the postal service was able improve productivity and reduce costs by 30 billion Yen (approximately $250 million) according to the minutes of the April 7, 2004 meeting of the Japanese government's Economic & Public Finance Inquiry Committee.

Productivity improved by 20% and this extra capacity was used to make further improvements and cost reductions, as well as gain more business, resulting in greater revenue than projected by about $120 million. The losses in 2002 were about $200 million, and this turned around to profits of $100 million in 2003.

With results like these, and Japan's debt-to-GDP number, it's a shame the Japanese postal service didn't implement TPS sooner. Let that be a warning to the rest of us. Lean government now.

Posted by Jon Miller at 9:18 AM | Permalink | Comments (0)

While the point of this chapter is clear (see the title) it is not as well illustrated by examples as some of the previous chapters. The message here supports the message of the following chapter on limited volume production.

Taiichi Ohno starts by talking about the difficulty of doing production preparation when sales volumes are not known. Forecasts are always wrong. If we had the skills to forecast sales accurately we might as well try our luck at the tracks instead, he says. Even with small run production and market testing it is hard to know what will strike the fancy of consumers.

Taiichi Ohno explains the two types of losses using the example of how the pre and post oil shock Japan perceived them. Prior to the 1973 oil shock, Japan was on a steep growth curve and manufacturers could sell whatever they could produce. If you didn't have the people or the equipment, you lost the sale and this was "opportunity loss". Ohno calls this a misconception that should not be confused with "actual losses".

Taiichi Ohno uses the expression "The fish that got away looks bigger" to explain how people can confuse actual losses with opportunity losses. People fear the missed opportunity of not being able to sell more products because the sales forecasts were wrong and the production preparation was not done to enable higher production volume.

Flexibility and scalability are two very important characteristics of the Lean manufacturing approach to designing equipment and ramping up through the Production Preparation Process (3P). While traditional manufacturers will buy equipment from a catalog or work with integrators to set up production lines that are capable of the highest volumes forecast, this comes at a higher cost and is driven in part by the fear of "opportunity loss".

The Lean manufacturing approach is to build a small, low-cost, scalable model that can be rapidly expanded or shrunk depending on actual sales. This is one of the reasons why smaller one piece flow cells for machining, assembly, etc. are preferred to large high speed lines. The opportunity loss is different from the actual losses incurred when designing, purchasing, and running equipment that is less effective than needed or has excess capacity. Equipment that avoids opportunity loss often creates the actual losses of overproduction in an effort to absorb investment costs.

Taiichi Ohno writes as though this was not the way things were done in the days when he was trying to convince people not to fear opportunity losses. Although it is not stated in the chapter, Toyota's scalable and flexible approach to production preparation is a relatively new development in TPS, possibly even after Ohno's time.

The last paragraph of the chapter is one long awkward sentence. There's no evidence of an editor's touch here. It took several readings for it to make sense, and in fact it only makes sense in the context of the following chapter which talks more about limited volume production. Ohno's concluding thought (edited and abridged) is that "We (Toyota) are persistently thinking about cost reduction but this single mindedness about cost reduction can lead to misconceptions when the market growth is slow or stopped." He is saying that the thinking of how to kaizen the cost in low and limited volume production must be different from the mass production approach.

Today Toyota spends a lot of money on market intelligence and even then they admit that their forecasts are always wrong, practically speaking. Do you know anyone on a waiting list for a Prius? The forecasts were wrong. Or perhaps Toyota is not afraid of opportunity losses, preferring to under-produce and catch up later rather than fill dealer lots with vehicles that don;t sell and then having to sell using large incentives and 'employee pricing'.

Posted by Jon Miller at 7:29 AM | Permalink | Comments (0)