Lean management and the Toyota Production System 

Athens, December 2015

Content writer: Chris Ragkavas, BA, MA, ACCA

Management consultant, senior finance and accounting tutor.

(No distribution or reproduction permitted without prior written consent of the content writer. All rights reserved).

“We are what we repeatedly do. Excellence is not an act, but a habit”, Aristotle. 

Management practitioners and students, the public I mostly have the honor of dealing with, are very keen on understanding the mechanics of any seemingly complicated concept which happens to be the subject of a teaching session. Rightly so, I may add, as who is really in for another jargon that sounds “interesting”, unless it also has a tangible value?

Lean and the Toyota Production System have been practiced since the 1960’s, their value and applicability has anything but diminished, though. They also form part of U.K. chartered accountants’ exams. Both facts were the motive for kicking off the discussion on Kaizen and Total Quality Management (TQM) by means of a short series of articles (http://www.studysmart.gr/#!articles/prjig). I advise you to go through these articles before going any further, unless you are familiar with the basic TQM terms.  

Let me remind you very briefly what TQM stands for. “Total” indicates that what we will describe is not an isolated procedure occurring at the “quality department”, but a process permeating the whole organization. “Quality” reflects the focus on addressing customer’s needs, and an inherent expectation of higher level of performance (not a simple “value for money” relationship). “Management” reflects the existence of the necessary support from top management, and the ongoing need for coordinating any related activity. 

The current article aims at answering the main questions related to the matters around the basic principles of the TPS and lean in the workplace.

A case for improvement

Anyone that has not always worked for Perfect and Co. has probably encountered one or more issues of the following nature: inefficiencies, conflicting priorities, substandard addressing of customer issues, firefighting, feeling too much supervised or too little led, etc. We’ve all been there and had hoped that the problems would at some stage be solved, God, we even came up with some brilliant ideas which we shared with our colleagues during lunch breaks, even during the company Christmas dinner (nothing beats talking about work during such an occasion, he?). However, we either never addressed these issues at a higher level within the organization, or little attention was paid to our ideas that one time we dared to. We could nevertheless see the harm done in terms of productivity, sales opportunities lost, obsolescence of inventory, demotivation of staff, and the likes. 

Thinking about it, I can come up with 4 reasons why companies stifle productivity this way. 

• Management inertia & complacency. Decision makers are unwilling to seriously undertake root problem solving, due to lack of interest. “Things seem to be working fine for us, we’ve been in business forever and there is really no reason for stirring the waters of politics and the status quo”. 

• Tunnel vision.  Short-termism prevails; “hitting next quarter figures” seems to be the name of the game and anything else, must simply wait. 

• Individual efficiencies at the expense of company economies. Each division working for its own good, overseeing the big picture and the effect of its actions to the company. Inventory is piling up in front of machine “A” that cannot be processed further by machine “B”. Division A operates at full capacity making full usage of economic benefits derived from its equipment, but the company invests in idle WIP, as no further processing is possible in real time. 

• Not understanding the physics of the processes. There is a genuine lack of understanding of the connection between inbound logistics, various processing activities and delivery of a product/rendering of a service to the end user. There is no cause and effect analysis. Our operations are either unnecessarily too complicated or we do not understand them. 

The Japanese way forward 

As in most solutions developed by the Japanese as part of the TQM philosophy, so also in lean and the TPS, we identify the following core elements:

• These methods are more than a project that must be completed on time. That is why Project Management techniques are hardly ever used when lean is implemented, certainly not in the sense of “key deliverables by that date, or else..”. These are techniques whose aim is to transform organizations into a learning, continuous self-improving vehicle on the journey towards excellence and competitiveness. 

• The methods are employee centered, in the sense that employees at all levels are expected to both contribute and benefit from the continuous application of the principles underlying these methods.

• Entities should display the necessary commitment from the top down to the operational level if they are serious about reaping the benefits of applying the TPS and lean. 

So what is TPS? 

The TPS sows the seeds of a philosophy that will result into an environment that is continuously improving, i.e. into a lean environment.  TPS is (in our context) applied by the Plan Do Check Adjust methodology and results into lean. 

The building block for getting lean is the TPS, the main principles of which are:

• All work must be specified, i.e. content, sequence, timing and outcome. 

The problem addressed is that job descriptions are often unclear, their content is outdated, or employees are left at their own devices to fulfill their role, the best possible way.

• Every customer-supplier connection must be direct and prerequisites for passing on something to the next stage must be clear. 

Some of the most common problems in the workplace, stem from the fact that:

• Reporting lines are unclear or also not in line with current business needs (i.e., again, outdated). 

• Work is duplicated. 

• No clear sense of ‘zero defects’ is in place, so a substandard product (e.g. a mobile phone in progress) or service (e.g. a management consulting report) is passed on to the next stage of production/engagement. This results into rework, which translates into time and money spent in non-value adding activities.    

• The pathway for every product or service must be both simple and direct and the flow of sequence must be clear. 

Once walkthroughs are performed and flowcharts are sketched, inefficiencies will be made visible. It is very likely that there is room for optimizing procedures, cutting out unnecessary steps, frontload controls and streamline standards.  

• Any improvement must be made according to the scientific method, under the guidance of the sensei, at the lowest possible level.  

Sensei is a highly respected teacher with sufficient experience and feel for lean, capable of continuously leading and inspiring practitioners. 

Improvements must be the result of fact finding exercises and approved by a qualified individual. The TPS encourages improvements at the operational level. They are not devised behind closed doors by the top experts at the board. In fact, top management’s duty is to provide the necessary tools across the entire organization so that improvements are stimulated continuously by the people performing the actual work, at the gemba (the workplace). 

So what is lean?

The continuous application of the TPS results into lean, lean being a system of production or service rendering, that promotes continuous improvement by ensuring problems (gaps between standard and actual) are brought to the surface, has a clear way of prioritizing the problems based on business objectives and ensures people are in place that can take ownership of problem solving. The latter is achieved by means of the method devised by W.E. Deming -the most influential practitioner and academic in the field of lean- routinely described as Plan Do Check Adjust (see later). 

Allow me to repeat, that lean is not an one off improvement in an existing system, but a continuous transformation of the organization (i.e. of its processes through its people), in the pursuit of excellence. 

What is PDCA?

The point of reference of any TQM method is addressing the customer’s needs, meeting and surpassing customer’s expectations. By so doing, entities achieve quality, and create value for their customers. Customers will pay a premium for that, which is the amount above the incremental costs necessary to render the service or manufacture the product. Premium is the monetary reflection of value creation for the shareholder, which is the ultimate purpose of all profit seeking companies. Performing procedures all the more better and at an ever-reducing cost, results into a continuum of value creation for the customer & the shareholders, which is the quintessence of TQM. 

Customer chain starts from the end user (the actual external customer) whose expectations are clearly identified at the outset of the design phase of a product/service. A backward chain is then constructed including all internal production/service steps necessary. The work cells performing each stage of production/service are called the “internal customers”. A value stream mapping is then created. Stream is the visualization of the necessary processes in order to deliver the product/service. As explained, the existence of value is reflected in the premium paid by the customer above the cost of any activity, which is part of the processes. 

TQM includes more than one methods in its pursuit of excellence, e.g. the PDCA (see further on) methodology, the DMAIC methodology (Define the problem, Measure current performance, Analyze the current process, Improve the process and Control the improved process & start the cycle again). Regardless of jargon used, the focus of all TQM methods is the continuous improvement of the internal processes resulting into value creation for the customer and the shareholders.     

PDCA as developed by W.E. Deming is a way of thinking that recognizes that businesses are dynamic, so its aim is to drive people to develop a disciplined method of identifying, defining, and solving problems as they occur. 

PDCA short case study

Let’s say, we are dealing with a 450 room, 5 star hotel, in the city center of a European city. The hotel is known for its ability to deliver a bundle of ‘custom made services’, a source of competitive advantage for the last 6 years. Hotel vows to offer any sort of 12 hour combined services in 10 languages at their customer’s will e.g. custom made sightseeing, combined with lunch, sporting opportunities and real estate visits. A considerable part of their customer portfolio consists of affluent tourists that explore real estate investment opportunities during their short holidays in the city. The hotel has a wide range of long term partnerships with local companies as real estate agents, tour guides, sport centers, Michelin star restaurants, etc. 

Target time between receiving a request for a bundle of ‘custom made services’ and planning and confirming it to customers, is 1.5 hours. Average current performance of the last 4 months is 7.5, an unacceptable deviation of 6 hours. This results into bad publicity on social media, deteriorating customer reviews and a reduction in bookings. Note that there is no increase in the volume of requests; backlog is created due to substandard handling.

This looks like a first class opportunity for a PDCA exercise, doesn’t it? Let’s have a go. 

• Planning stands for identifying the gap between targeted and actual current performance, i.e. 6 hours. These are opportunities for improvement identified at the gemba by practitioners, under the guidance of a qualified sensei, subject to scientific fact finding. The aim is to identify the root cause of the gap. TPS philosophy encourages people to “ask why 5 times” i.e. not to rush but seek for the actual cause of the problem. 

We may think the root of the problem is absenteeism or lack of interest in the department dealing with the “custom made services”. Further investigation reveals that the employee turnover in the department is unusually high during the last 4 months, resulting into loss of intellectual capital. The main reason for this, is employee demotivation due to lack of supervision. The newly appointed supervisor, Janet, partially fulfills also her previous role of operations assistant manager, as no full time replacement for that role has been found. She has not managed to update her new employees on the “custom made services” handling techniques, new partnerships with 3rd parties, new business opportunities, etc. 

The root cause of the problem is the human resource practices (or lack thereof). No proper personnel succession, insufficient training and inappropriate supervision. 

• Do.  Once the root cause has been identified, we need to develop countermeasures to tackle it. 

• Speed up the process of filling in the position of operations assistant manager. Set a target of, say, 15 days. 

• Update the “custom made services” manuals, and explain their content to the department personnel.  Target: within 48 hours. Incur overtime, if necessary. 

• Ask Janet to do 2 hours overtime for the next 15 days. These will be spent on analyzing the root cause of complaints to ensure timely resolution and ensure proposals are in place to gradually eliminate their root cause. 

• Janet to report daily her findings and recommendations to her sensei. Sensei to provide Janet with all means necessary so she can act both as a supervisor and an instrument of continuous improvement.   

• Janet to organize by the end of day 2, a series of cohesive presentations, explaining to her employees, their role in: handling, proposing and improving services and preventing complaints. Practitioners to understand their role in the value stream, why it is essential they act swiftly and professionally, how their role fits into the equation of the “hotel experience” and how the organization and themselves will benefit from this. Practitioners must also receive training on how to report problems to Janet in a timely and succinct way to prevent repetition, and improve the services offered. These are the people primarily dealing with the 3rd parties while arranging a “custom made services” package. They should be supported to develop the professional acumen to sense any deterioration in the level of service offered by these parties, before this hits the value stream.      

• Check. Janet and the sensei will check daily the process improvement by means of fact finding and comparison to targets. 

• Adjust.  When the new process is proved to work fine, this is in itself an adjustment of the old practice.  

I would also suggest a similar improvement cycle in the human resources department, but I will not elaborate on this. My intention is to provide you with the gist of the process.     

Recapitulating, I’d highlight: 

• PDCA improves the system that generates defects by identifying their root cause; it does not firefight the defects. 

• Its main tool to do so is training and retraining people so that they know why they are performing their job and how they may add value to it. Management and the sensei must lead and inspire, not command.

• PDCA allows mistakes in the process of improvement, however it does not tolerate substandard work.  

• The solution to any business opportunity (closing the gap between target and actual) is not context-free, i.e. there is no ‘one size fits all’ solution to all problems. We are not mass-producing solutions. We develop people that take ownership of quality for their work. We depend on their input to gain competitive advantage; we therefore provide them with all means necessary for that purpose. 

• This is a dynamic process. As none of the variables of any process stay constant, the PDCA cycle is redone at regular intervals to ensure excellence. In our example above, all inputs are dynamic, i.e. the customer profiling, the services offered, eventually also the practitioners. 

Empowerment is a term we come across very often in the context of TQM. Are employees in a TPS, lean, PDCA environment, empowered? It depends on how we approach empowerment. 

A false perspective is that empowerment stands for absolute freedom to go your own way, cost what may, as long as financial Key Performance Indicators are achieved. That’s definitely not the case; in fact such a pattern has been the source of many problems associated with empire building, corporate failure, and moral hazard.  

If we define empowerment as the provision of the necessary freedom to come up with innovative ideas, that are fact checked and closely monitored by the sensei, and shared across the board so that the whole company benefits from it (a process known as yokoten) then yes, employees in our environment are empowered and openly recognized for their contribution.  

I finish by emphasizing that the lean environment is only sustainable, when the TPS practices as PDCA are applied continuously. Irrespective of the success enjoyed in the past, unless top management are committed to persist in promoting these principles, entropy will creep in. Entropy is defined as the amount of energy in a system that is not available to do any productive work. Most business environment’s parameters are dynamic, e.g. the market, available technology, personnel, infrastructure, tastes and expectations of the consumer, competition. An organization will outperform competition and surpass customer expectations, even produce every now and then a new Toyota Prius, an iPhone, a smart TV set, to name but a few, only when it continuously demonstrates its commitment to develop people that are its spearhead on its way to excellence. 

References:

“The Toyota Way to Continuous Improvement”, J. Liker, J. Franz, McGraw-Hill, 2011

“The Goal”, E.M. Goldratt, J. Cox, Ashgate Publishing Ltd., 2004