The_Toyota_Way_and_Supply_Chain_Manageme.pdf

2/14/2005
Page 1
© Copyright Jeffrey Liker Building Lean Enterprise Excellence
Building Lean Enterprise Excellence
The Toyota Way and
Supply Chain Management
Jeffrey K. Liker
Professor, Industrial and Operations Engineering
The University of Michigan
and Principal, Optiprise, Inc.
Presentation for OESA Lean to Survive Program
2005

2/14/2005
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Supplier Gap: Toyota vs Big-3
Supplier Improvement, 1990-96 U.S. OEM
(Chrysler, Ford, GM) Toyota
Defects (parts per million) -47% -84%
Sales/Direct Employee +1% +36%
Inventories/Sales -6% -35%
Toyota Supplier Advantage, 1996
PPM 35%
Inventories -25%
Output/worker 10%
Source: Jeff Dyer, based on 39 supplier plants serving Toyota + U.S. OEM

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Philosophy
(Long-term Thinking)
People and Partners
(Respect, Challenge and Grow Them)
Process
(Eliminate Waste)
Problem
Solving
(Continuous
Improvement and Learning)
¾ Base management decisions on
a long-term philosophy, even
at the expense of short-term
financial goals
¾ Grow leaders who live the philosophy
¾ Respect, develop and challenge your people
and teams
¾ Respect, challenge, and help your suppliers
¾ Create process “flow” to surface problems
¾ Level out the workload (Heijunka)
¾ Stop when there is a quality problem (Jidoka)
¾ Use pull systems to avoid overproduction
¾ Standardize tasks for continuous
improvement
¾ Use visual control so no problems are hidden
¾ Use only reliable, thoroughly tested
technology
¾ Continual organizational learning through Kaizen
¾ Go see for yourself to thoroughly understand the situation.
(Genchi Genbutsu)
¾ Make decisions slowly by consensus, thoroughly
considering all options; implement rapidly (Nemawashi)
G
e
n
c
h
i
G
e
n
b
u
t
s
u
K
a
i
z
e
n
R
e
s
p
e
c
t
+
T
e
a
m
w
o
r
k
C
h
a
l
l
e
n
g
e
Toyota’s
Terms
“4 P” Model of the Toyota Way

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Philosophy: Company Foundation
Ford Motor Company
MISSION
Ford is a worldwide leader in automotive
and automotive-related products and
services as well as in newer industries such
as aerospace, communications, and
financial services.
Our mission is to improve continually our
products and services to meet our
customer’s needs, allowing us to prosper as
a business and to provide a reasonable
return to our stockholders, the owners of
our business.
Toyota Motor Manufacturing
MISSION
1. Add value to customers and society
2. As an American company contribute
to the economic growth of the
community and the United States
3. As an independent company,
contribute to the stability and well-
being of team members and partners.
4. As a Toyota group company,
contribute to the overall growth of
Toyota

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Philosophy
(Long-term Thinking)
People and Partners
(Respect, Challenge and Grow Them)
Process
(Eliminate Waste)
Problem
Solving
(Continuous
Improvement and Learning)
¾ Base management decisions on
a long-term philosophy, even
at the expense of short-term
financial goals
¾ Grow leaders who live the philosophy
¾ Respect, develop and challenge your people
and teams
¾ Respect, challenge, and help your suppliers
¾ Create process “flow” to surface problems
¾ Level out the workload (Heijunka)
¾ Stop when there is a quality problem (Jidoka)
¾ Use pull systems to avoid overproduction
¾ Standardize tasks for continuous
improvement
¾ Use visual control so no problems are hidden
¾ Use only reliable, thoroughly tested
technology
¾ Continual organizational learning through Kaizen
¾ Go see for yourself to thoroughly understand the situation.
(Genchi Genbutsu)
¾ Make decisions slowly by consensus, thoroughly
considering all options; implement rapidly (Nemawashi)
G
e
n
c
h
i
G
e
n
b
u
t
s
u
K
a
i
z
e
n
R
e
s
p
e
c
t
+
T
e
a
m
w
o
r
k
C
h
a
l
l
e
n
g
e
Toyota’s
Terms
“4 P” Model of the Toyota Way

2/14/2005
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Definition of Waste
“Anything other than the minimum amount of
equipment, space and worker’s time, which are
absolutely essential to add value to the product.”
Fujio Cho
President, Toyota

2/14/2005
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is a manufacturing philosophy which shortens the time
between the customer order and the product build /
shipment by eliminating sources of waste.
Lean Manufacturing
Business as Usual
PRODUCT
PRODUCT
BUILT & SHIPPED
BUILT & SHIPPED
CUSTOMER
CUSTOMER
ORDER
ORDER
Time
Waste
PRODUCT
PRODUCT
BUILT & SHIPPED
BUILT & SHIPPED
CUSTOMER
CUSTOMER
ORDER
ORDER
Time (Shorter)
Waste
Lean Manufacturing

INVENTORY HIDES WASTE
RAW MATERIAL FINISHED PRODUCT
TO CONSUMER
SEA OF INVENTORY
POOR
SCHEDULING
MACHINE
BREAKDOWN
QUALITY
PROBLEMS
LINE
IMBALANCE
ABSENTEEISM
LACK OF
HOUSE KEEPING
LONG
SET-UP
TIME
VENDOR
DELIVERY
COMMUNICATION
PROBLEMS
LONG
TRANSPORTATION
11

FINISHED PRODUCT
TO CONSUMER
RAW MATERIAL
POOR
SCHEDULING
MACHINE
BREAKDOWN
QUALITY
PROBLEMS
LINE
IMBALANCE
ABSENTEEISM
LACK OF
HOUSE KEEPING
COMMUNICATION
PROBLEMS
LONG
TRANSPORTATION
LONG
SET-UP
TIME
VENDOR
DELIVERY
Exposed Waste
“Make Problems Visible”
12
SEA OF INVENTORY

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The Toyota Production System
Just-In-Time
“Right part, right amount,
right time”
Jidoka
(In-station quality)
Leveled Production (heijunka)
Stable and Standardized Processes
• Takt time
planning
• Continuous flow
• Pull system
• Quick changeover
• Integrated
logistics
• Automatic stops
• Andon
• Person-machine
separation
• Error proofing
• In-station quality
control
• Solve root cause of
problems (5 Why?)
Waste Reduction
• Genchi Genbutsu
• 5 Why’s
• Eyes for Waste
• Problem Solving
People & Teamwork
• Selection
• Common Goals
• Ringi decision making
• Cross-trained
Continuous Improvement
Visual Management
Toyota Way Philosophy
Best Quality - Lowest Cost - Shortest Lead Time - Best Safety - High Morale
through shortening the production flow by eliminating waste

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The Toyota Production System
Just-In-Time
“Right part, right amount,
right time”
Jidoka
(In-station quality)
Leveled Production (heijunka)
Stable and Standardized Processes
• Takt time
planning
• Continuous flow
• Pull system
• Quick changeover
• Integrated
logistics
• Automatic stops
• Andon
• Person-machine
separation
• Error proofing
• In-station quality
control
• Solve root cause of
problems (5 Why?)
Waste Reduction
• Genchi Genbutsu
• 5 Why’s
• Eyes for Waste
• Problem Solving
People & Teamwork
• Selection
• Common Goals
• Ringi decision making
• Cross-trained
Continuous Improvement
Visual Management
Toyota Way Philosophy
Best Quality - Lowest Cost - Shortest Lead Time - Best Safety - High Morale
through shortening the production flow by eliminating waste
The focus of
Most lean
programs

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JIT Logistics Systems

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“The more inventory a
company has…
...the less likely they will
have what they need.”
Taiichi Ohno

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Keys to Logistics Performance
Uminger.36
6. Strategically placed crossdocks performing as
true flow through facilities.
5. Order fluctuation allowance built into
route capacity plans.
4. Good timing at all connection points.
(Crossdock, yard, dock, flowrack.)
3. Consistent daily routes; periodic route revisions.
2. Dedicated transportation service.
1. Packaging: Mixed box sizes, same pallet.
Stackability of mixed pallets same truck.
Source: Toyota

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Logistics Performance Objective
Optimize:
Total
Production
System
Perspective
Service
Lead Time
Small Lots
High Frequency
Level Flow
Cost
Efficiency
Price
Uminger.30
Source: Toyota

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Supplier Partnering Hierarchy
Mutual Understanding & Trust
Interlocking Structures
Information Sharing
Kaizen &
Learning
Compatible Capabilities
Control Systems
Joint
Improvement Activities

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Information Sharing
Kaizen &
Learning
Control Systems
Joint
z Trust
z Commitment to Co-prosperity
z Respect for each other’s capability
z Genchi Genbutsu (actual part, actual place)

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Information Sharing
Kaizen &
Learning
Control Systems
Joint
z Alliance Structure
z Interdependent Processes
z Parallel Sourcing (2-4)

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Information Sharing
Kaizen &
Learning
Control Systems
Joint
z Measurement Systems
z Feedback
z Target Pricing

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Information Sharing
Kaizen &
Learning
Control Systems
Joint
z Engineering Excellence
z Operational Excellence
z Problem Solving Skills

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Information Sharing
Kaizen &
Learning
Control Systems
Joint
z Accurate data collection
and dissemination
z Common language
z Timely communications

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Information Sharing
Kaizen &
Learning
Control Systems
Joint
z VA/VE
z Supplier Development
z Study Groups

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Toyota, North America Supplier Development
• Plant Development Activity (voluntary study groups)
– 1997: 55 suppliers tiered by TPS skill level
– 4-6 suppliers per group work on projects moving from plant to
plant
– About 5 TPS experts in purchasing assigned to PDA
• Blue Grass Manufacturers Association--BAMA (supplier
association, 97 suppliers in 1997)
• Quality Assurance Division (separate from purchasing,
includes supplier quality--TPS knowledgeable)
• Toyota Supplier Support Center (separate subsidiary
outside of business relationship)
• Toyota Motor Sales (TPS supplier support group for parts
suppliers for options installed after factory)

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Toyota Supplier Support Center (TSSC)
• Toyota subsidiary in 1992 (by design separate from purchasing)
• Dual Purpose:
–Create lean suppliers to Toyota
–Spread TPS in U.S. (philanthropic? politics?)
• Model=Operations Management Consulting Division inside Toyota in
Japan
• Goal: Transform plant/manufacturing philosophy
• Create model TPS line in supplier plants: “Just do it!”
• 4-6 month commitment of resources (approx.) + followup of 1-2 years
• Consultants=Associates from Toyota U.S. plants (20)
• Supported 53 supplier projects, 1992 - 1997
• No cost reduction sharing for TSSC
Average Results
(31complete projects by 1997)
Productivity improvement 124%
Inventory reductions 75%

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Managing Suppliers
• Suppliers are extensions of Toyota (more than
“buying parts”)
• Select with same care as own associates
• Develop like own associates
• Long-term partnership
• Tier structure: Levels of responsibility
• Strict cost targets and timing
• Integrated systems (JIT, product development
systems)

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Toyota CC21 Purchasing Challenge
• Normal expectation: 3-4% price reduction per year after
model year launch
• Challenge by Toyota N.A., V.P. of Purchasing (Tsugio
Kadawaki)
• Challenge: Meet best prices in world with Toyota quality
• TrimMaster Goal: 30% price reduction for new vehicle
launch
• TrimMaster Approach:
– Work with Toyota engineers through value engineering
– Hoshin Planning so every function involved in cost reduction

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TrimMaster Hoshin Planning

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Fundamentals of Toyota Way
• Philosophy: Long-term philosophy of adding value to
associates, partners, customers, and society
• Process: The right process will produce the right results +
passion for eliminating waste
• People: Add value to the organization by challenging your
people and partners to grow
• Problem solving: Continuously solving root problems
drives organizational learning throughout the enterprise.

2/14/2005
Page 29
Jeffrey K. Liker
Professor, Industrial and Operations Engineering
The University of Michigan
and Principal, Optiprise, Inc.
liker@umich.edu

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