The contradictions in production and their fi rst solutions

After the Second World War Kiichiro Toyoda introduced an ambitious three-year plan for catching up with America in the production of cars because, in his view, the Japanese automobile industry would not otherwise survive (Ohno, 1988a, p. 3).

Toyota’s production volumes were very small, however, its output in 1950 be-ing only 2,685 cars. In the same year the world’s most effective Ford factory on the River Rouge in Detroit produced 7,000 cars a day. Toyota’s leaders carefully studied the production method used in Rouge. Given the small size and unprofi t-ability of the domestic market the company had to look elsewhere. Moreover, the competitive situation in the domestic markets intensifi ed because huge foreign vehicle producers were anxious to establish plants in Japan. The Japanese govern-ment issued a prohibition order on direct foreign investgovern-ment in the Japanese

mo-tor industry, however, which was a critical development in gaining a foothold in automobile production. The Japanese Ministry of International Trade and Indus-try put forward a series of plans to merge Japan’s twelve embryonic car companies into a Japanese conglomerate that could battle with the large American factories.

The Ministry’s plan was based on mass production. Kiichiro Toyoda’s purpose, however, was to produce ”inexpensive high-quality automobiles, which were able to compete with those of top world companies” (Ohno, 1988a, p. 96). The catch-up goal seemed to be impossible for two reasons. Surviving in the domestic car market was impossible because of the superiority of foreign mass producers, and because, in the long run, the domestic markets were too tiny. The possibility of producing cars for export also seemed weak because Toyota did not have modern mass-production machines or the money to invest in them. The company had to use the few mass-production tools it had and its craft equipment (Ohno, 1988b;

Womack, Jones, and Roos, 1990).

The ”raw material” was a further problem. Car production involves manufac-turing and assembling thousands of parts. In the post-war situation the suppliers were not able to deliver the parts on time, which meant that the entire assembly plant might be idle for 20 days, waiting for parts to arrive. The assembly work was then done during the remaining 10 days. (History of Toyota, 141–142) Ohno also recalls that, after the Second World War, the increased number of orders because of the Korean War lead to a shortage of everything from raw materials to parts.

Suppliers were also short of equipment and manpower, and assembly work was continuously delayed.

For this reason we could not do the assembly during the half of the month. We were forced to gather the parts that were arriving intermittently and irregularly and do the assembly work at the end of the month. (Ohno 1988a, p. 12) The Toyota Company almost went bankrupt in the post-war years. The founding family proposed laying off a quarter of the workers, which led to a bitter labor dispute that lasted over two months. After protracted negotiations, the family and the union worked out a compromise. Twenty-fi ve percent of the workforce was laid off as the Toyoda family had proposed, but Kiichiro Toyoda resigned as presi-dent in accepting responsibility for the company’s failure, and the remaining em-ployees received two important guarantees: lifetime employment and pay that was steeply graded according to seniority rather than to standardized job functions (Womack, Jones, and Roos, 1990, p. 53–54). In Ohno’s opinion, the crisis taught the company that production increases and cost reductions had to be carried out within the small-lot production concept.

We got a lesson from the crisis that productivity increase and cost reduction had to be accompanied by ”limited volume production”, which meant that we had to produce just enough to sell and just when we could sell. We learned that productivity increase for the sake of itself was no good, and that we should not simply imitate the American style mass production. (Fujimoto and Tidd, 1988, p. 91)

Womack, Jones and Roos (1990, p. 54) maintain that the Toyoda family adopted a novel approach to its workforce because of the agreement. They considered the workforce a fi xed cost – an even more signifi cant one than the company’s machin-ery. The job contract ran from the time the new worker entered the company until he or she reached retirement. It thus made sense to continuously enhance the workers’ skills and to gain the benefi t of their knowledge and experience.

This history shows that behind the crisis were signifi cant developmental con-tradictions that led the company to develop innovations that together formed the Toyota Production System. The new system gradually replaced the late craft-type of production.

The fi rst contradiction was the huge gap between the production volumes that were necessary for the survival of the company and the prevailing volumes.

The need for large volumes of production did not refl ect unrealistic management hopes, but was rather indicative of the economic conditions of survival. The pro-duction of automobiles only for domestic markets was economically unprofi table, but on the other hand, the requirements set by foreign markets were extremely diffi cult to meet. The company would only survive by sharply increasing production to make automobiles available to the masses, but it only had capacity for small-lot production.

The solution was surprising. The company decided to increase its small-lot production, which entailed assembling various car models on the same line in small batches. The batches were made as small as possible, in contrast to traditional mass production. This kind of technique had not been tried before, and its pur-poseful development in Toyota soon began to produce new results.

The Toyota system was a response to the particular need in Japan to produce a small quantity of each number of models; following this, it developed into veri-table system of production. On account of its origin, this system is particularly effi cient in conditions of diversifi cation. (Ohno, 1988b, p. 49)

Moreover, to the extent that consumer tastes become more diverse, more in-dividualized and clients themselves more demanding…it became more and more urgent to develop production methods which allowed the individual

fac-tory production of unique goods (…) accepting that (…) it is clear that mass production programming, i.e. the Ford system, cannot achieve this objective.

(Ohno & Mito, 1988 p. 17)

During the fi rst fi ve years of post-war restoration, Toyota was forced to increase productivity without having suffi cient funds or equipment. No new machines could be bought. The usual method of transforming craft-based industry to mass production was to install mass-production machines, but the company had to experiment with other methods. The second contradiction was between the demand for high productivity and the need to use traditional small-lot production machines and craft methods.

Because it was not feasible to invest in machines, the only possibility was to focus on ”soft” production methods such as standardization, changes in layout, job assignment, and investment in relatively inexpensive jigs (Fujimoto & Tidd, 2002).

The third contradiction was between the need to increase productivity on the assembly line and the irregular and haphazard activity of the suppliers. The main problem was how to increase productivity in a situation in which the suppliers’

and the assembler’s activities did not match. The implementation of the Kanban information system, beginning with the Kanban card, solved the problem.

The Kanban system, which became the most important tool in JIT production, also gradually developed through experimentation. The results of the experiments often surprised the workers as well as the managers. Ohno describes how he solved problems related to the Kanban system.

There was no manual and we could fi nd out only what would happen only by trying. Tension increased daily as we tried and corrected and then tried and corrected again. Repeating this, I expanded the system of pickup by the later process within the company. (Ohno, 1988a, p. 32)

7.5 Building a system of generalizing to support the small-batch