Lean Manufacturing in Crisis?

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Izak Duenyas is the John Psarouthakis Professor of Manufacturing Management and Area Chair of Operations Management at the Ross School of Business, University of Michigan.

In the last several months, there has been several articles in the popular press questioning whether companies  are now ready to move away from “lean manufacturing.” Undoubtedly, this is due to the fact that “lean manufacturing” is based upon the Toyota Production System and Toyota has had an overwhelming influence on the development and popularization of its  principles. The very large number of recalls that Toyota has had in the last year (Toyota has now recalled more cars in the last year than it manufactured) has led some popular analysts to question whether the Toyota Production System and some of the  principles behind the system are at fault. A typical example is a Wall Street Journal article “How Lean Manufacturing Can Backfire”.

Several colleagues and I have been researching and teaching the principles of lean manufacturing at the University of Michigan for the last 15 years.  Our students in the Tauber Institue for Global Operations have also been involved in numerous projects over the same time frame in implementation of these principles in many different manufacturing (and some service) companies.  I believe, based on this experience, that it is not lean manufacturing and its principles that caused some of Toyota’s recent problems. Arguably, it is the fact that in the last 10 years Toyota did not seem to follow many of the principles it contributed to developing previously  that resulted in many of the problems it is facing now.

A colleague of mine, Jeff Liker, developed a list of these main principles in his seminal book. The Toyota Way. It is instructive to review some of these principles. The fourteen principles of lean or the Toyota Way as articulated by Liker were the following:

1.Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals.

2. Create a continuous process flow to bring problems to the surface.

3. Use “pull” systems to avoid overproduction.

4. Level out the workload.

5. Build a culture of stopping to fix problems to get quality right the first time.

6. Standardized tasks and processes are the foundation for continuous improvement and employee empowerment.

7. Use visual control so no problems are hidden.

8. Use only reliable, thoroughly tested technology that serves your people and processes.

9. Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others.

10. Develop exceptional people and teams who follow the company’s philosophy.

11. Respect your extended network of partners and suppliers by challenging them and helping them improve.

12. Go and see for yourself to thoroughly understand the situation.

13. Make decisions slowly by consensus, thoroughly considering all options: implement decisions rapidly.

14. Become a learning organization through relentless reflection and continuous improvement

The first and most  important one is to “base management decisions on a long-term philosophy, even at the expense of short-term financial goals,” It has been widely reported that one of the key decisions that Toyota management made about 10 years ago was to become the largest car manufacturer in the world. This required the company to add many new plants and potentially new suppliers  at a very fast pace. In the past, Toyota was very deliberate in adding new suppliers, developing a close working relationship with them, and ensuring they can meet Toyota’s stringent  quality and on-time delivery requirements. One of the causes of the current quality issues is  that in the haste of meeting the objective of becoming the largest car company, Toyota did not allocate (nor did it have) sufficient internal resources to develop the kind of close working relationships with the new  suppliers that would have maintained the expected  quality performance. In fact, a second principle of lean as articulated by Liker is to “Respect your extended network of partners and suppliers by challenging them and helping them improve.” One of the most admired and copied parts of the Toyota Production System was how Toyota would build long-term relationships with its suppliers and help them improve and not just demand cost cuts. As recently reported in the New York Times, (see Toyota Sees Growing Anger from Suppliers in Japan), Toyota has started to act more like GM and Ford of 10-15 years ago, squeezing suppliers for price cuts without working closely with them to achieve the required cost reductions by joint capability and efficiency building. Finally, a third most important principle is to “Build a culture of stopping to fix problems to get quality right the first time.” Once again, the recent recalls indicate that Toyota was aware of some of these problems but did not even follow the relevant regulations to inform consumers of the problems in  a  timely manner. This is why they have recently received a $16.4 million penalty from the National Highway Traffic Safety Administration, which is the highest penalty the administration can and has ever issued.

All of these examples indicate that this is not an issue with the lean principles but much more of an issue of Toyota having failed to follow the principles that in most cases they  themselves developed.  In fact, at its core, lean manufacturing is about kaizen or continuous improvement. The key advantage of a lean organization is that relentlessly analyzing the current value chain to seek improvements in cost, lead time, and throughput can lead to significant performance improvements that enable profitable growth for the organization. In the last decade, many companies have in fact used this methodology to obtain significant performance improvements. In fact, this is not limited to traditional manufacturing. In the last year, I have been providing lean training at one of the largest oil field service companies in the world and have had a chance to observe how they have been able to use lean principles and continuous improvement  to cut costs and decrease lead-time. Elsewhere,I have documented how organizations as diverse as the Cleveland Clinic are using the traditional lean tools to improve the cost and efficiency of their services (see Lean Process Improvements at Cleveland Clinic).

I therefore believe the overall lean approach is still very relevant and effective for many companies. In fact, in the last 5 years in my work in China, I have been amazed at how many Chinese companies are interested in learning about and implementing lean. Many companies (even in places with labor cost advantages like China) realize that a continuous improvement mindset, and the resulting efficiency gains have become the rules of the game. Manufacturing in many industries has become so competitive that it is very difficult for inefficient companies to survive. The recent announcements by the CEO of Toyota has also reemphasized that what Toyota will do over the next few years will be to “return to the basics”, reengage all their employees that served them well for so many years. It is encouraging to see more organizations in health care, where there is tremendous opportunity to use lean principles to gain efficiencies to maintain cost controls, also use the lean approach. I believe the lean approach is alive and well and will be relevant to organizations in many industries for years to come.

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Izak Duenyas is the John Psarouthakis Professor of Manufacturing Management and Area Chair of Operations Management at the Ross School of Business, University of Michigan. He has published a large number of papers in selected journals in the areas of manufacturing and supply chain management. Prof. Duenyas actively participates in consulting and training with numerous companies. He received his Ph.D. (1991) in Industrial Engineering and Management Sciences at Northwestern University. He is a leading authority in his areas of concentration.

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