The Toyota story has been intensively researched and documented, yet what really happens inside the company remains a mystery. Here´s new insight into the unspoken rules that give Toyota its competitive edge.
The Toyota story has been intensively researched and documented, yet what really happens inside the company remains a mystery. Here´s new insight into the unspoken rules that give Toyota its competitive edge.
The Toyota story has been intensively researched and documented, yet what really happens inside the company remains a mystery. Here´s new insight into the unspoken rules that give Toyota its competitive edge.
The Toyota story has been intensively researched and documented, yet what really happens inside the company remains a mystery. Here´s new insight into the unspoken rules that give Toyota its competitive edge.
by Steven Spear and H. Kent Bowen Repri nt 99509 96 ar t wo r k by amy n i n g T h e To yo t a Pr o d u c t i o n Sy s t e m h a s l ong been hai l ed as the source of Toyotas outstandi ng performance as a manufacturer. The systems di sti ncti ve practi ces i ts kanban cards and qual i ty ci rcl es, for i nstance have been wi del y i ntroduced el sewhere. Indeed, fol l owi ng thei r own i nternal efforts to benchmark the worl ds best man- ufacturi ng compani es, GM, Ford, and Chrysl er have i ndependentl y created major i ni ti ati ves to devel op Toyota-l i ke producti on systems. Compani es that have tri ed to adopt the system can be found i n el ds as di verse as aerospace, consumer products, metal s processi ng, and i ndustri al products. Whats curi ous i s that few manufacturers have managed to i mi tate Toyota successful l y even though the company has been extraordi nari l y open about i ts practi ces. Hundreds of thousands of exec- uti ves from thousands of busi nesses have toured Toyotas pl ants i n Japan and the Uni ted States. Frustrated by thei r i nabi l i ty to repl i cate Toyotas performance, many vi si tors assume that the secret of Toyotas success must l i e i n i ts cul tural roots. But thats just not the case. Other Japanese compa- ni es, such as Ni ssan and Honda, have fal l en short of Toyotas standards, and Toyota has successful l y i ntroduced i ts producti on system al l around the worl d, i ncl udi ng i n North Ameri ca, where the com- pany i s thi s year bui l di ng over a mi l l i on cars, mi ni - vans, and l i ght trucks. So why has i t been so di ffi cul t to decode the Toy- ota Producti on System? The answer, we bel i eve, i s that observers confuse the tool s and practi ces they see on thei r pl ant vi si ts wi th the system i tsel f. That makes i t i mpossi bl e for them to resol ve an apparent paradox of the system namel y, that acti vi ti es, con- necti ons, and producti on ows i n a Toyota factory are ri gi dl y scri pted, yet at the same ti me Toyotas operati ons are enormousl y exi bl e and adaptabl e. Acti vi ti es and processes are constantl y bei ng chal - l enged and pushed to a hi gher l evel of performance, enabl i ng the company to conti nual l y i nnovate and i mprove. To understand Toyotas success, you have to un- ravel the paradox you have to see that the ri gi d speci cati on i s the very thi ng that makes the exi - bi l i ty and creati vi ty possi bl e. Thats what we came to real i ze after an extensi ve, four-year study of the Toyota Producti on System i n whi ch we exami ned the i nner worki ngs of more than 40 pl ants i n the Uni ted States, Europe, and Japan, some operati ng accordi ng to the system, some not. We studi ed both process and di screte manufacturers whose products ranged from prefabri cated housi ng, auto parts and nal auto assembl y, cel l phones, and computer pri nters to i njecti on-mol ded pl asti cs and al umi num Copyri ght 1999 by the Presi dent and Fel l ows of Harvard Col l ege. Al l ri ghts reserved. 97 by Steven Spear and H.Kent Bowen The Toyot a st or y has been int ensively researched and painst akingly document ed, yet what really happens inside t he company remains a myst er y. Heres new insight int o t he unspoken rules t hat give Toyot a it s compet it ive edge. Decoding the DNA of the Toyota Production System extrusi ons. We studi ed not onl y routi ne producti on work but al so servi ce functi ons l i k e equi pment mai ntenance, workers trai ni ng and supervi si on, l ogi sti cs and materi al s handl i ng, and process desi gn and redesi gn. We found that, for outsi ders, the key i s to under- stand that the Toyota Producti on System creates a communi ty of sci enti sts. Whenever Toyota denes a speci cati on, i t i s establ i shi ng sets of hypotheses that can then be tested. In other words, i t i s fol l ow- i ng the sci enti c method. To make any changes, Toyota uses a ri gorous probl em-sol vi ng process that requi res a detai l ed assessment of the current state of affai rs and a pl an for i mprovement that i s, i n effect, an experi mental test of the proposed changes. Wi th anythi ng l ess than such sci enti c ri gor, change at Toyota woul d amount to l i ttl e more than random tri al and error a bl i ndfol ded wal k through l i fe. The fact that the sci enti fi c method i s so i n- grai ned at Toyota expl ai ns why the hi gh degree of speci cati on and structure at the company does not promote the command and control envi ronment one mi ght expect. Indeed, i n watchi ng peopl e doi ng thei r jobs and i n hel pi ng to desi gn producti on pro- cesses, we l earned that the system actual l y sti mu- l ates workers and managers to engage i n the ki nd of experi mentati on that i s wi del y recogni zed as the cornerstone of a l earni ng organi zati on. That i s what di sti ngui shes Toyota from al l the other com- pani es we studi ed. The Toyota Producti on System and the sci enti c method that underpi ns i t were not i mposed on Toyota they were not even chosen consci ousl y. The system grew natural l y out of the worki ngs of the company over ve decades. As a resul t, i t has never been wri tten down, and Toyotas workers often are not abl e to arti cul ate i t. Thats why i ts so hard for outsi ders to grasp. In thi s arti cl e, we attempt to l ay out how Toyotas system works. We try to make expl i ci t what i s i mpl i ci t. We descri be four pri nci pl es three rul es of desi gn, whi ch show how Toyota sets up al l i ts operati ons as experi ments, and one rul e of i mprovement, whi ch descri bes how Toyota teaches the sci enti c method to workers at every l evel of the organi zati on. It i s these rul es and not the speci c practi ces and tool s that peopl e ob- serve duri ng thei r pl ant vi si ts that i n our opi ni on form the essence of Toyotas system. That i s why we thi nk of the rul es as the DNA of the Toyota Produc- ti on System. Lets take a cl oser l ook at those rul es (for a summary, see the si debar The Four Rul es ). Rule 1:How People Work Toyotas managers recogni ze that the devi l i s i n the detai l s; thats why they ensure that al l work i s hi ghl y speci ed as to content, sequence, ti mi ng, and out- come. When a cars seat i s i nstal l ed, for i nstance, the bol ts are al ways ti ghtened i n the same order, the ti me i t takes to turn each bol t i s speci ed, and so i s the torque to whi ch the bol t shoul d be ti ghtened. Such exactness i s appl i ed not onl y to the repeti ti ve moti ons of producti on workers but al so to the acti v- i ti es of al l peopl e regardl ess of thei r functi onal spe- ci al ty or hi erarchi cal rol e. The requi rement that every acti vi ty be speci ed i s the rst unstated rul e of the system. Put thi s bal dl y, the rul e seems si m- pl e, somethi ng youd expect everyone to under- stand and be abl e to fol l ow easi l y. But i n real i ty, most managers outsi de Toyota and i ts partners dont take thi s approach to work desi gn and execu- ti on even when they thi nk they do. 98 h a r va r d bu si n ess r evi ew SeptemberOctober 1999 d e c o d i n g t h e d n a o f t h e t o yo t a pr o d u c t i o n s y s t e m Steven Spear is an assistant professor of business admin- istration at Harvard Business School in Boston. H. Kent Bowenis the Bruce Rauner Professor of Business Administration, also at Harvard Business School. Pro- fessor Bowen is the coauthor of Regaining the Lead in Manufacturing (HBR SeptemberOctober 1994). The tacit knowledge that underlies the Toyota Production System can be captured in four basic rules.These rules guide the design,operation,and improvement of every activity,connection,and pathway for every product and service.The rules are as follows: Rule 1: All work shall be highly specied as to content,sequence,timing,and outcome. Rule 2: Every customer-supplier connection must be direct,and there must be an unambiguous yes-or-no way to send requests and receive responses. Rule 3: The pathway for every product and service must be simple and direct. Rule 4: Any improvement must be made in accordance with the scientic method,under the guidance of a teacher,at the lowest possible level in the organization. All the rules require that activities,connections,and ow paths have built-in tests to signal problems automatically.It is the continual response to problems that makes this seemingly rigid system so exible and adaptable to changing circumstances. The Fo ur Rules Lets l ook at how operators at a typi cal U.S. auto pl ant i nstal l the front passenger seat i nto a car. They are supposed to take four bol ts from a card- board box, carry them and a torque wrench to the car, ti ghten the four bol ts, and enter a code i nto a computer to i ndi cate that the work has been done wi thout probl ems. Then they wai t for the next car to arri ve. New operators are usual l y trai ned by ex- peri enced workers, who teach by demonstrati ng what to do. A seasoned col l eague mi ght be avai l abl e to hel p a new operator wi th any di ffi cul ti es, such as fai l i ng to ti ghten a bol t enough or forgetti ng to enter the computer code. Thi s sounds strai ghtforward, so whats wrong wi th i t? The probl em i s that those speci cati ons ac- tual l y al l ow and even assume consi derabl e vari a- ti on i n the way empl oyees do thei r work. Wi thout anyone real i zi ng i t, there i s pl enty of scope for a new operator to put the seat i nto the vehi cl e di ffer- entl y than an experi enced empl oyee woul d. Some operators mi ght put the front bol ts i n after the rear bol ts; some mi ght do i t the other way around. Some operators mi ght put each bol t i n and then ti ghten them al l ; others mi ght ti ghten as they go al ong. Al l thi s vari ati on transl ates i nto poorer qual i ty, l ower producti vi ty, and hi gher costs. More i mportant, i t hi nders l earni ng and i mprovement i n the organi za- ti on because the vari ati ons hi de the l i nk between how the work i s done and the resul ts. At Toyotas pl ants, because operators (new and ol d, juni or and supervi sory) fol l ow a wel l -dened sequence of steps for a parti cul ar job, i t i s i nstantl y cl ear when they devi ate from the speci cati ons. Consi der how work ers at Toyotas Georgetown, Kentucky, pl ant i nstal l the ri ght-front seat i nto a Camry. The work i s desi gned as a sequence of seven tasks, al l of whi ch are expected to be compl eted i n 55 seconds as the car moves at a xed speed through a workers zone. If the producti on worker nds hi msel f doi ng task 6 (i nstal l i ng the rear seat- bol ts) before task 4 (i nstal l i ng the front seat-bol ts), then the job i s actual l y bei ng done di fferentl y than i t was desi gned to be done, i ndi cati ng that some- thi ng must be wrong. Si mi l arl y, i f after 40 seconds the worker i s sti l l on task 4, whi ch shoul d have been compl eted after 31 seconds, then somethi ng, too, i s ami ss. To make probl em detecti on even si m- pl er, the l ength of the oor for each work area i s marked i n tenths. So i f the worker i s passi ng the si xth of the ten oor marks (that i s, i f he i s 33 sec- onds i nto the cycl e) and i s sti l l on task 4, then he and hi s team l eader know that he has fal l en behi nd. Si nce the devi ati on i s i mmedi atel y apparent, worker and supervi sor can move to correct the probl em ri ght away and then determi ne how to change the speci cati ons or retrai n the worker to prevent a re- currence. (See the si debar How Toyotas Workers Learn the Rul es for a short descri pti on of the process by whi ch workers l earn how to desi gn work i n thi s way.) Even compl ex and i nfrequent acti vi ti es, such as trai ni ng an i nexperi enced workforce at a new pl ant, l aunchi ng a new model , changi ng over a producti on l i ne, or shi fti ng equi pment from one part of a pl ant to another, are desi gned accordi ng to thi s rul e. At one of Toyotas suppl i ers i n Japan, for exampl e, equi pment from one area of the pl ant was moved to create a new producti on l i ne i n response to changes i n demand for certai n products. Movi ng the machi n- ery was broken i nto 14 separate acti vi ti es. Each ac- ti vi ty was then further subdi vi ded and desi gned as a seri es of tasks. A speci c person was assi gned to do each task i n a speci ed sequence. As each of the ma- chi nes was moved, the way the tasks were actual l y h a r va r d bu si n ess r evi ew SeptemberOctober 1999 99 d e c o d i n g t h e d n a o f t h e t o yo t a pr o d u c t i o n s y s t e m If the rules of the Toyota Production System arent explicit,how are they transmitted? Toyotas managers dont tell workers and supervisors specically how to do their work.Rather,they use a teaching and learning approach that allows their workers to discover the rules as a consequence of solving problems.For example,the supervisor teaching a person the principles of the rst rule will come to the work site and,while the person is doing his or her job,ask a series of questions: " How do you do this work? " How do you know you are doing this work correctly? " How do you know that the outcome is free of defects? " What do you do if you have a problem? This continuing process gives the person increasingly deeper insights into his or her own specic work.From many experiences of this sort,the person gradually learns to generalize how to design all activities according to the principles embodied in rule 1. All the rules are taught in a similar Socratic fashion of iterative questioning and problem solving. Although this method is particularly effective for teaching,it leads to knowledge that is implicit. Consequently,the Toyota Production System has so far been transferred successfully only when managers have been able and willing to engage in a similar process of questioning to facilitate learning by doing. How Toyot as Workers Learn t he Rules done was compared wi th what was expected ac- cordi ng to the ori gi nal desi gn, and di screpanci es were i mmedi atel y si gnal ed. In cal l i ng for peopl e to do thei r work as a hi ghl y speci ed sequence of steps, rul e 1 forces them to test hypotheses through acti on. Performi ng the acti vi ty tests the two hypotheses i mpl i ci t i n i ts de- si gn: rst, that the person doi ng the acti vi ty i s capa- bl e of performi ng i t correctl y and, second, that per- formi ng the acti vi ty actual l y creates the expected outcome. Remember the seat i nstal l er? If he cant i nsert the seat i n the speci ed way wi thi n the spec- i ed amount of ti me, then he i s cl earl y refuti ng at l east one of these two hypotheses, thereby i ndi cat- i ng that the acti vi ty needs to be redesi gned or the worker needs to be trai ned. Rule 2:How People Connect Where the rst rul e expl ai ns how peopl e perform thei r i ndi vi dual work acti vi ti es, the second rul e expl ai ns how they connect wi th one another. We express thi s rul e as fol l ows: every connecti on must be standardi zed and di rect, unambi guousl y speci fy- i ng the peopl e i nvol ved, the form and quanti ty of the goods and servi ces to be provi ded, the way re- quests are made by each customer, and the expected ti me i n whi ch the requests wi l l be met. The rul e creates a suppl i er-customer rel ati onshi p between each person and the i ndi vi dual who i s responsi bl e for provi di ng that person wi th each speci c good or servi ce. As a resul t, there are no gray zones i n deci d- i ng who provi des what to whom and when. When a worker makes a request for parts, there i s no confu- si on about the suppl i er, the number of uni ts re- qui red, or the ti mi ng of the del i very. Si mi l arl y, when a person needs assi stance, there i s no confu- si on over who wi l l provi de i t, how the hel p wi l l be tri ggered, and what servi ces wi l l be del i vered. The real questi on that concerns us here i s whether peopl e i nteract di fferentl y at Toyota than they do at other compani es. Lets return to our seat i nstal l er. When he needs a new contai ner of pl asti c bol t cov- ers, he gi ves a request to a materi al s handl er, who i s 100 h a r va r d bu si n ess r evi ew SeptemberOctober 1999 d e c o d i n g t h e d n a o f t h e t o yo t a pr o d u c t i o n s y s t e m When organizations are managed according to the four rules, individuals are repeatedly conducting experiments,testing in operation the hypotheses built into the designs of individual work activities,customer-supplier connections,pathways,and improvement efforts.The hypotheses,the way they are tested, and the response if they are refuted are summarized below. The Experi ment s o f t he Toyot a Pro duct i on Syst em Rule 1 2 3 4 Hypotheses The person or machine can do the activity as specied. If the activity is done as specied,the good or service will be defect free. Customersrequests will be for goods and services in a specic mix and volume. The supplier can respond to customersrequests. Every supplier that is connected to the ow path is required. Any supplier not connected to the ow path is not needed. A specic change in an activity, connection,or ow path will improve cost,quality,lead time,batch size,or safety by a specic amount. Signs of a problem The activity is not done as specied. The outcome is defective. Responses dont keep pace with requests. The supplier is idle,waiting for requests. A person or machine is not actually needed. A nonspecied supplier provides an intermediate good or service. The actual result is different from the expected result. Responses Determine the true skill level of the person or the true capability of the machine and train or modify as appropriate. Modify the design activity. Determine the true mix and volume of demand and the true capability of the supplier;retrain,modify activities,or reassign customer-supplier pairs as appropriate. Determine why the supplier was unnecessary, and redesign the ow path. Learn why the nonspecied supplier was actually required,and redesign the ow path. Learn how the activity was actually performed or the connection or ow path was actually operated.Determine the true effects of the change.Redesign the change. den and are nei ther shared nor resol ved company- wi de. The si tuati on i s made worse i f workers begi n to sol ve probl ems themsel ves and then arbi trari l y deci de when the probl em i s bi g enough to warrant a cal l for hel p. Probl ems mount up and onl y get sol ved much l ater, by whi ch ti me val uabl e i nfor- mati on about the real causes of the probl em may have been l ost. Rule 3:How the Production Line Is Constructed Al l producti on l i nes at Toyota have to be set up so that every product and servi ce ows al ong a si mpl e, speci ed path. That path shoul d not change unl ess the producti on l i ne i s expressl y redesi gned. In pri n- ci pl e, then, there are no forks or l oops to convol ute the ow i n any of Toyotas suppl y chai ns. Thats the thi rd rul e. To get a concrete i dea of what that means, l ets return to our seat i nstal l er. If he needs more pl asti c bol t covers, he orders them from the speci c mater- i al handl er responsi bl e for provi di ng hi m wi th bol t covers. That desi gnated suppl i er makes requests to hi s own desi gnated suppl i er at the off-l i ne store i n the factory who, i n turn, makes requests di rectl y to hi s desi gnated suppl i er at the bol t cover factorys shi ppi ng dock . I n thi s way, the producti on l i ne l i nks each person who contri butes to the produc- ti on and del i very of the product, from the Toyota factory, through the mol di ng company, to even the pl asti c pel l et manufacturer. The poi nt i s that when producti on l i nes are de- si gned i n accordance wi th rul e 3, goods and servi ces do not ow to the next avai l abl e person or machi ne but to a specic person or machi ne. If for some rea- son that person or machi ne i s not avai l abl e, Toyota wi l l see i t as a probl em that mi ght requi re the l i ne to be redesi gned. The sti pul ati on that every product fol l ow a si m- pl e, prespeci ed path doesnt mean that each path i s dedi cated to onl y one parti cul ar product, how- ever. Qui te the contrary: each producti on l i ne at a Toyota pl ant typi cal l y accommodates many more types of products than i ts counterparts do at other compani es. The thi rd rul e doesnt appl y onl y to products i t appl i es to servi ces, l i ke hel p requests, as wel l . If our seat i nstal l er, for exampl e, needs hel p, that too comes from a si ngl e, speci ed suppl i er. And i f that suppl i er cant provi de the necessary assi stance, she, i n turn, has a desi gnated hel per. In some of Toyotas pl ants, thi s pathway for assi stance i s three, four, or ve l i nks l ong, connecti ng the shop oor worker to the pl ant manager. the desi gnated bol t-cover suppl i er. Commonl y, such a request i s made wi th a kanban, a l ami nated card that speci es the parts i denti cati on number, the quanti ty of parts i n the contai ner, and the l oca- ti ons of the part suppl i er and of the worker (the cus- tomer) who wi l l i nstal l i t. At Toyota, kanban cards and other devi ces l i ke andon cords set up di rect l i nks between the suppl i ers and the customers. The connecti ons are as smooth as the passi ng of the baton i n the best Ol ympi c rel ay teams because they are just as careful l y thought out and executed. For ex- ampl e, the number of parts i n a contai ner and the number of contai ners i n ci rcul ati on for any gi ven part are determi ned by the physi cal real i ti es of the producti on system the di stances, the changeover ti mes, and so on. Li kewi se, the number of workers per team i s determi ned by the types of probl ems ex- pected to occur, the l evel of assi stance the team members need, and the ski l l s and capabi l i ti es of the teams l eader. Other compani es devote substanti al resources to coordi nati ng peopl e, but thei r connecti ons general l y arent so di rect and unambi guous. In most pl ants, re- quests for materi al s or assi stance often take a con- vol uted route from the l i ne worker to the suppl i er vi a an i ntermedi ary. Any supervi sor can answer any cal l for hel p because a speci c person has not been assi gned. The di sadvantage of that approach, as Toy- ota recogni zes, i s that when somethi ng i s everyones probl em i t becomes no ones probl em. The requi rement that peopl e respond to suppl y re- quests wi thi n a speci c ti me frame further reduces the possi bi l i ty of vari ance. That i s especi al l y true i n servi ce requests. A worker encounteri ng a probl em i s expected to ask for assi stance at once. The desi g- nated assi stant i s then expected to respond i mmedi - atel y and resol ve the probl em wi thi n the workers cycl e ti me. If the worker i s i nstal l i ng a front seat every 55 seconds, say, then a request for hel p must be answered and deal t wi th i n l ess than the 55 sec- onds. If the probl em cannot be resol ved i n l ess than 55 seconds, that fai l ure i mmedi atel y chal l enges the hypotheses i n thi s customer-suppl i er connec- ti on for assi stance. Perhaps the request si gnal i s ambi guous. Perhaps the desi gnated assi stant has too many other requests for hel p and i s busy or i s not a capabl e probl em sol ver. Constantl y testi ng the hy- potheses i n thi s way keeps the system exi bl e, mak- i ng i t possi bl e to adjust the system conti nual l y and constructi vel y. The stri ki ng thi ng about the requi rement to ask for hel p at once i s that i t i s often counteri ntui ti ve to managers who are accustomed to encouragi ng workers to try to resol ve probl ems on thei r own be- fore cal l i ng for hel p. But then probl ems remai n hi d- h a r va r d bu si n ess r evi ew SeptemberOctober 1999 101 d e c o d i n g t h e d n a o f t h e t o yo t a pr o d u c t i o n s y s t e m The thi rd rul e runs contrary to conventi onal wi s- dom about producti on l i nes and pool i ng resources even contrary to how most peopl e thi nk the Toyota Producti on System works. Accordi ng to recei ved wi sdom, as a product or servi ce i s passed down the l i ne, i t shoul d go to the next machi ne or person avai l - abl e to process i t further. Si mi l arl y, most peopl e as- sume that hel p shoul d come from the rst avai l abl e person rather than from a speci c person. At one auto parts suppl i er we studi ed, for exampl e, most of the parts coul d be stamped on more than one press machi ne and wel ded at more than one wel di ng sta- ti on. Before the company adopted the Toyota sys- tem, i ts practi ce was to pass each part on to the rst avai l abl e press machi ne and to the rst avai l abl e wel der. When the pl ant swi tched over, under Toy- otas gui dance, each type of part fol l owed onl y one producti on path through the pl ant. By requi ri ng that every pathway be speci ed, the rul e ensures that an experi ment wi l l occur each ti me the path i s used. Here the hypotheses embed- ded i n a pathway desi gned accordi ng to rul e 3 are that every suppl i er connected to the pathway i s nec- essary, and any suppl i er not connected i s not neces- sary. I f workers at the auto parts suppl i er found themsel ves wanti ng to di vert producti on to another machi ne or wel di ng stati on, or i f they began turni ng for hel p to someone other than thei r desi gnated hel pers, theyd concl ude that thei r actual demand or capaci ty di dnt match thei r expectati ons. And there 102 h a r va r d bu si n ess r evi ew SeptemberOctober 1999 d e c o d i n g t h e d n a o f t h e t o yo t a pr o d u c t i o n s y s t e m woul d al so be no ambi gui ty about whi ch press or wel der was i nvol ved. Agai n, the workers woul d revi si t the desi gn of thei r producti on l i ne. Thus rul e 3, l i ke rul es 1 and 2, enabl es Toyota to conduct experi ments and remai n exi bl e and responsi ve. Rule 4:How to Improve Identi fyi ng probl ems i s just the rst step. For peo- pl e to consi stentl y make effecti ve changes, they must know how to change and who i s responsi bl e for maki ng the changes. Toyota expl i ci tl y teaches peopl e how to i mprove, not expecti ng them to l earn stri ctl y from personal experi ence. Thats where the rul e for i mprovement comes i n. Speci cal l y, rul e 4 sti pul ates that any i mprovement to producti on acti vi ti es, to connecti ons between workers or ma- chi nes, or to pathways must be made i n accordance wi th the sci enti c method, under the gui dance of a teacher, and at the l owest possi bl e organi zati onal l evel . Lets l ook rst at how Toyotas peopl e l earn the sci enti c method. How People Learn to Improve.In 1986, Ai si n Sei ki , a Toyota Group company that made compl ex prod- ucts such as power trai ns for the auto i ndustry, cre- ated a l i ne to manufacture mattresses to absorb ex- cess capaci ty i n one of i ts pl ants. Si nce 1986, i ts range has grown from 200 to 850 types of mat- tresses, i ts vol ume has grown from 160 mattresses per day to 550, and i ts producti v i ty has doubl ed. Heres an exampl e of how they di d i t. On one of our vi si ts to thi s pl ant, we studi ed a team of mat- tr ess assembl y wor k er s wh o were bei ng taught to i mprove thei r probl em-sol vi ng ski l l s by r edesi gn i n g th ei r own wor k . Ini ti al l y, the workers had been responsi bl e for doi ng onl y thei r own standardi zed work ; they had not been responsi bl e for s ol v i n g pr obl ems . Th en th e workers were assi gned a l eader who trai ned them to frame prob- l ems better and to for mul ate and test hypotheses i n other words, he taught them how to use the sci enti fi c method to desi gn thei r teams work i n accordance wi th the rst three rul es. The resul ts were i mpressi ve. One of the teams accompl i shments, for i nstance, was to redesi gn the way edgi ng tape was attached to the On- Demand Product i on at t he Ai si n Mat t ress Factory 1986 1988 1992 1996 1997 Styles 200 325 670 750 850 Units per day 160 230 360 530 550 Units per person 8 11 13 20 26 Productivity index 100 138 175 197 208 Finished-goods inventory (days) 30 2.5 1.8 1.5 1.5 Number of assembly lines 2 2 3 3 2 Aisin Seiki produces 850 varieties of mattresses,distinguished by size,rmness, covering fabric,quilting pattern,and edge trim.Customers can order any one of these in a retail store and have it delivered to their homes in three days,yet Aisin maintains an inventory at the plant equal to just 1.5 days of demand.To be able to do so,Aisin has made thousands of changes in individual work activities,in the connections linking customers and suppliers of intermediate goods and services, and to the overall production lines.This table captures how dramatic the results of those changes have been. mattresses, thereby reduci ng the defect rate by 90%. (See the exhi bi t On-Demand Producti on at the Ai si n Mattress Factory. ) To make changes, peopl e are expected to pre- sent the expl i ci t l ogi c of the hypotheses. Lets l ook at what that can i nvol ve. Haji me Ohba, gen- eral manager of the Toyota Suppl i er Support Cen- ter, was vi si ti ng a factory i n whi ch one of TSSCs consul tants was l eadi ng a trai ni ng and i mprove- ment acti vi ty (for a descri pti on of the rol e of the Toyota Producti on System promoti on centers, see the si debar Toyotas Commi tment to Learn- i ng ). The consul tant was hel pi ng factory em- pl oyees and thei r supervi sor reduce the manufac- turi ng l ead ti me of a parti cul ar l i ne, and Ohba was there to eval uate the groups progress. Group members began thei r presentati on by descri bi ng the steps by whi ch thei r product was created del i neati ng al l the probl ems they i denti - ed when they had rst studi ed the process for changi ng over a machi ne from maki ng one part to maki ng another, and expl ai ni ng the speci c changes they had made i n response to each of those probl ems. They concl uded by sayi ng, When we started, the changeover requi red 15 mi nutes. We were hopi ng to reduce that by two-thi rds to achi eve a ve-mi nute changeover so that we coul d reduce batch si zes by two-thi rds. Because of the modi fi cati ons we made, we achi ev ed a changeover ti me of seven and a hal f mi nutes a reducti on of one-hal f. After thei r presentati on, Ohba asked why the group members had not achi eved the ve-mi nute goal they had ori gi nal l y establ i shed. They were a bi t taken aback. After al l , they had reduced the changeover ti me by 50%, yet Ohbas questi on suggested he had seen opportuni ti es for even greater i mprovement that they had mi ssed. They offered expl anati ons havi ng to do wi th machi ne compl exi ty, techni cal di ffi cul ty, and equi pment upgrade costs. Ohba responded to these repl i es wi th yet more questi ons, each one meant to push the consul tant and the factory peopl e to arti cu- l ate and chal l enge thei r most basi c assumpti ons about what coul d and coul d not be changed as- sumpti ons that both gui ded and constrai ned the way they had sol ved thei r probl ems. Were they su r e fou r bol ts w er e n ecessar y ? Mi gh t th e changeover be accompl i shed wi th two? Were they certai n that al l the steps they i ncl uded i n the changeover were needed? Mi ght some be com- bi ned or el i mi nated? In aski ng why they had not achi eved the ve-mi nute goal , Ohba was not sug- gesti ng that the team had fai l ed. Rather, he was tryi ng to get them to real i ze that they had not h a r va r d bu si n ess r evi ew SeptemberOctober 1999 103 d e c o d i n g t h e d n a o f t h e t o yo t a pr o d u c t i o n s y s t e m All the organizations we studied that are managed according to the Toyota Production System share an overarching belief that people are the most signicant corporate asset and that investments in their knowledge and skills are necessary to build competitiveness.Thats why at these organizations all managers are expected to be able to do the jobs of everyone they supervise and also to teach their workers how to solve problems according to the scientic method.The leadership model applies as much to the rst-level team leadersupervisors as it does to those at the top of the organization.In that way, everybody at Toyota shares in the development of human resources.In effect,there is a cascading pathway for teaching,which starts with the plant manager,that delivers training to each employee. To reinforce the learning and improvement process, each plant and major business unit in the Toyota Group employs a number of Toyota Production System consultants whose primary responsibility is to help senior managers move their organizations toward the ideal. These learner-leader-teachersdo so by identifying ever more subtle and difficult problems and by teaching people how to solve problems scientically. Many of these individuals have received intensive training at Toyotas Operations Management Consulting Division.OMCD was established in Japan as an outgrowth of efforts by Taiichi Ohno one of the original architects of the Toyota Production System to develop and diffuse the system throughout Toyota and its suppliers.Many of Toyotas top officers including Toyota Motors new president,Fujio Cho have honed their skills within OMCD. During their OMCD tenure,which can extend for a period of years,Toyotas employees are relieved of all line responsibilities and instead are charged with leading improvement and training activities in the plants of Toyota and its suppliers.By supporting all of Toyotas plant and logistical operations in this way,OMCD serves as a training center,building its consultantsexpertise by giving them opportunities to solve many difficult problems and teach others to do the same. In 1992,Toyota founded the Toyota Supplier Support Center (TSSC) in the United States to provide North American companies with training in the Toyota Production System.Modeled on OMCD,TSSC has given workshops to more than 140 companies and direct assistance to 80.Although most of these companies are auto suppliers,few are exclusively Toyota suppliers; participants come from other industries and from universities,government organizations,and industry associations.Indeed,much of the research for this paper was derived from the experience of one of the authors, who was a member of a TSSC team for ve months, promoting the Toyota Production System at a plant that supplies Toyota and two other auto assembly plants. Toyot as Commi t ment t o Learni ng ful l y expl ored al l thei r i mprovement opportuni ti es because they had not questi oned thei r assumpti ons deepl y enough. There was a second reason for Ohbas persi s- tence. He was tryi ng to show the group members that thei r i mprovement acti vi ty had not been car- ri ed out as a bona de experi ment. They had estab- l i shed a goal of ve mi nutes based on the premi se that faster changeovers and smal l er batches are bet- ter than sl ower changeovers and l arger batches. But here they were confusi ng goal s wi th predi cti ons based on hypotheses. The goal was not a predi cti on of what they bel i eved they woul d achi eve through the speci c i mprovement steps they pl anned to take. As a resul t, they had not desi gned the i m- provement effort as an experi ment wi th an expl i ci t, cl earl y arti cul ated, veri fi abl e hypothesi s of the form, If we make the fol l owi ng speci c changes, we expect to achi eve thi s speci c outcome. Al - though they had reduced the changeover ti me con- si derabl y, they had not tested the hypotheses i m- pl i ci t i n thei r effort. For Ohba, i t was cri ti cal that the workers and thei r supervi sor real i ze that how they made changes was as i mpor tant as what changes they made. Who Does the Improvement. Frontl i ne workers mak e the i mprovements to thei r own jobs, and thei r supervi sors provi de di recti on and assi stance as teachers. If somethi ng i s wrong wi th the way a worker connects wi th a parti cul ar suppl i er wi thi n the i mmedi ate assembl y area, the two of them make i mprovements, wi th the assi stance of thei r common supervi sor. The Ai si n team we descri bed earl i er, for exampl e, consi sted of the assembl y l i ne workers and the supervi sor, who was al so thei r i n- structor. When changes are made on a l arger scal e, Toyota ensures that i mprovement teams are created consi sti ng of the peopl e who are di rectl y affected and the person responsi bl e for supervi si ng the path- ways i nvol ved. Thus the process remai ns the same even at the hi ghest l ev el s. At Ai si ns mattress factory, we found that the pl ant manager took responsi bi l i ty for l eadi ng the change from three producti on l i nes back to two (the number had ri sen to three to cope wi th an i ncrease i n product types). He was i nvol ved not just because i t was a bi g change but al so be- cause he had operati onal responsi bi l i ty for oversee- i ng the way work owed from the feeder l i nes to the nal assembl y l i nes. In thi s way, Toyota en- 104 h a r va r d bu si n ess r evi ew SeptemberOctober 1999 d e c o d i n g t h e d n a o f t h e t o yo t a pr o d u c t i o n s y s t e m Toyota does not consider any of the tools or practices such as kanbans or andon cords,which so many outsiders have observed and copied as fundamental to the Toyota Production System.Toyota uses them merely as temporary responses to specic problems that will serve until a better approach is found or conditions change.Theyre referred to as countermeasures,rather than solutions, because that would imply a permanent resolution to a problem.Over the years,the company has developed a robust set of tools and practices that it uses as countermeasures,but many have changed or even been eliminated as improvements are made. So whether a company does or does not use any particular tool or practice is no indication that it is truly applying Toyotas rules of design and improvement.In particular,contrary to the impression that the concept of zero inventory is at the heart of the Toyota system,weve observed many cases in which Toyota actually built up its inventory of materials as a countermeasure.The ideal system would in fact have no need for inventory.But,in practice,certain circumstances may require it: " Unpredictable downtime or yields. Sometimes a person or a machine is unable to respond on demand when a request is made because of an unexpected mechanical breakdown.For this reason,safety stock is held to protect the customer against random occurrences.The person responsible for ensuring the reliability of a machine or process owns that inventory and strives to reduce the frequency and length of downtimes so that the amount of the safety stock can be reduced. " Time-consuming setups. Difficulties in switching a machine from processing one kind of product to another can prevent a supplier from responding immediately. Therefore,suppliers will produce the product in batch sizes greater than one and hold the excess as inventory so it can respond immediately to the customer.Of course, suppliers will continually try to reduce the changeover time to keep batch sizes and stores of inventory as small as possible.Here,the owners of both the problem and the countermeasure are the machine operator and the team leader,who are responsible for reducing changeover times and batch sizes. " Volatility in the mix and volume of customer demand. In some cases,variations in customersneeds are so large and unpredictable that it is impossible for a plant to adjust its production to them quickly enough.In those instances,buffer stock is kept at or near the shipping point Count ermeasures i n t he Toyot a Product i on Syst em sures that probl em sol vi ng and l earni ng take pl ace at al l l evel s of the company. Of course, as we have al ready seen, Toyota wi l l bri ng i n external experts as necessary to ensure the qual i ty of the l earni ng process. In the l ong term, the organi zati onal structures of compani es that fol l ow the Toyota Producti on Sys- tem wi l l shi ft to adapt to the nature and frequency of the probl ems they encounter. Si nce the organi za- ti onal changes are usual l y bei ng made at a very l ow l evel , however, they can be hard for outsi ders to de- tect. Thats because i t i s the nature of the probl ems that determi nes who shoul d sol ve them and how the organi zati on i s desi gned. One consequence i s that di fferent organi zati onal structures coexi st qui te happi l y even i n the same pl ant. Consi der Toyotas engi ne-machi ni ng pl ant i n Kami go, Japan. The pl ant has two machi ne di vi - si ons, each of whi ch has three i ndependent produc- ti on shops. When we vi si ted i n summer 1998, the producti on peopl e i n the rst machi ne di vi si on an- swered to shop heads, and the process engi neers answered di rectl y to the head of the di vi si on. How- ever, i n the second machi ne di vi si on, the engi neers were di stri buted among the three shops and, l i ke the producti on workers, answered to the vari ous shop heads. Nei ther organi zati onal structure i s i n- herentl y superi or. Rather, the peopl e we i nter- vi ewed expl ai ned, probl ems i n the rst di vi si on happened to create a si tuati on that requi red the engi neers to l earn from one another and to pool en- gi neeri ng resources. By contrast, the probl ems that arose i n the second di vi si on requi red the produc- ti on and engi neeri ng peopl e to cooperate at the l evel of the i ndi vi dual shops. Thus the organi zati onal di fferences reect the fact that the two di vi si ons encountered di fferent probl ems. Toyotas Notion of the Ideal By i ncul cati ng the sci enti c method at al l l evel s of the work force, Toyota ensures that peopl e wi l l cl earl y state the expectati ons they wi l l be testi ng when they i mpl ement the changes they hav e pl anned. But beyond thi s, we found that peopl e i n compani es fol l owi ng the Toyota Producti on Sys- tem share a common goal . They have a common sense of what the i deal producti on system woul d be, and that shared vi si on moti vates them to make i mprovements beyond what woul d be necessary merel y to meet the current needs of thei r customers. Thi s noti on of the i deal i s very pervasi ve, and we bel i eve i t i s essenti al to understandi ng the Toyota Producti on System. When they speak of the i deal , workers at Toyota do not mean somethi ng phi l osophi cal l y abstract. They have a concrete deni ti on i n mi nd, one that i s remarkabl y consi stent throughout the company. Very speci cal l y, for Toyotas workers, the output of an i deal person, group of peopl e, or machi ne: " i s defect free (that i t, i t has the features and perfor- mance the customer expects); " can be del i vered one request at a ti me (a batch si ze of one); " can be suppl i ed on demand i n the versi on requested; " can be del i vered i mmedi atel y; " can be produced wi thout wasti ng any materi al s, l abor, energy, or other resources (such as costs as- soci ated wi th i nventory); and " can be produced i n a work envi ronment that i s safe physi cal l y, emoti onal l y, and professi onal l y for every empl oyee. We consi stentl y found peopl e at pl ants that used the Toyota Producti on System maki ng changes that pushed operati ons toward thi s i deal . At one com- pany that produced el ectromechani cal products, for exampl e, we found that workers had come up wi th a number of i ngeni ous error-detecti ng gauges that h a r va r d bu si n ess r evi ew SeptemberOctober 1999 105 d e c o d i n g t h e d n a o f t h e t o yo t a pr o d u c t i o n s y s t e m as a countermeasure.The buffer stock also serves as a signal to production and sales managers that the person who works most directly with the customer must help that customer eliminate the underlying causes of any preventable swings in demand. In many cases,the same type of product is held in different types of inventory.Toyota does not pool its various kinds of inventory,even though doing so would reduce its inventory needs in the short term.That might sound paradoxical for a management system so popularly known to abhor waste.But the paradox can be resolved when we recognize that Toyotas managers and workers are trying to match each countermeasure to each problem. Theres no link between the reason for keeping safety stock process unreliability and the reason for keeping buffer stock uctuations in customer demand.To pool the two would make it hard to distinguish between the separate activities and customer-supplier connections involved.The inventory would have many owners,and the reasons for its use would become ambiguous. Pooling the inventory thus muddles both the ownership and cause of the problems,making it difficult to introduce improvements. generated a si mpl e, unambi guous yes-or-no si gnal to i ndi cate whether thei r output was free of defects as speci ed i n the i deal . At yet another pl ant, whi ch manufactures i njecti on-mol ded parts, we found that workers had reduced the ti me i t took to change a l arge mol di ng di e from an al ready speedy ve mi n- utes to three mi nutes. Thi s al l owed the company to reduce the batch si zes of each part i t produced by 40%, bri ngi ng i t cl oser to the i deal batch si ze of one. As Toyota moves toward the i deal , i t may temporar- i l y hol d one of i ts di mensi ons to be more i mportant than another. Someti mes thi s can resul t i n practi ces that go agai nst the popul ar vi ew of Toyotas opera- ti ons. We have seen cases where Toyota keeps hi gher l evel s of i nventory or produces i n batch si zes l arger than observers general l y expect of a just-i n-ti me op- erati on, as we descri be i n the si debar Countermea- sures i n the Toyota Producti on System. Toyotas i deal state shares many features of the popul ar noti on of mass customi zati on the abi l i ty to create vi rtual l y i nni te vari ati ons of a product as effi ci entl y as possi bl e and at the l owest possi bl e cost. I n the fi nal anal ysi s, Toyotas i deal pl ant woul d i ndeed be one where a Toyota customer coul d dri ve up to a shi ppi ng dock, ask for a cus- tomi zed product or serv i ce, and get i t at once at the l owest possi bl e pri ce and wi th no defects. To the extent that a Toyota pl ant or a Toyota workers acti vi ty fal l s short of thi s i deal , that shortcomi ng i s a source of creati ve tensi on for further i mprove- ment efforts. The Organizational Impact of the Rules If the rul es make compani es usi ng the Toyota Pro- ducti on System a communi ty of sci enti sts perform- i ng conti nual experi ments, then why arent these organi zati ons i n a state of chaos? Why can one per- son make a change wi thout adversel y affecti ng the work of other peopl e on the producti on l i ne? How can Toyota constantl y i ntroduce changes to i ts op- erati ons whi l e keepi ng them runni ng at ful l ti l t? In other words, how does Toyota i mprove and remai n stabl e at the same ti me? Once agai n, the answer i s i n the rul es. By maki ng peopl e capabl e of and responsi bl e for doi ng and i m- provi ng thei r own work, by standardi zi ng connec- ti ons between i ndi vi dual customers and suppl i ers, and by pushi ng the resol uti on of connecti on and ow probl ems to the l owest possi bl e l evel , the rul es create an organi zati on wi th a nested modul ar struc- ture, rather l i ke tradi ti onal Russi an dol l s that come one i nsi de the other. The great benet of nested, modul ar organi zati ons i s that peopl e can i mpl e- ment desi gn changes i n one part wi thout undul y af- fecti ng other parts. Thats why managers at Toyota can del egate so much responsi bi l i ty wi thout creat- i ng chaos. Other compani es that fol l ow the rul es wi l l al so nd i t possi bl e to change wi thout experi - enci ng undue di srupti on. Of course, the structures of other compani es have features i n common wi th those that fol l ow the Toyota Producti on System, but i n our research we found no company that had them al l that di d not fol l ow the system. It may turn out i n the end that you can bui l d the structure onl y by i nvesti ng the ti me Toyota has. But we bel i eve that i f a company dedi cates i tsel f to masteri ng the rul es, i t has a bet- ter chance of repl i cati ng Toyotas DNA and wi th that, i ts performance. Repri nt 99509 To pl ace an order, cal l 1-800-988-0886. 106 h a r va r d bu si n ess r evi ew SeptemberOctober 1999 d e c o d i n g t h e d n a o f t h e t o yo t a pr o d u c t i o n s y s t e m