The Goal of TPS

Now, let's understand TPS in more detail. The philosophy of TPS is simple. It considers only the below three factors.

i) Lowest Cost

ii) Highest Quality

iii) Least Time

to manufacture and deliver a part or service to customer.

Any activity carried out should be directed at achieving any of the above 3 without compromising on the other. This is the golden rule of TPS.

What is the goal of any organization?

Of course making profit is the primary goal of any organization.

Others include:

* Carrying out a social mission

* Providing job opportunities and improve employee's living conditions etc

I would like to share the same example I often use in my training.

Consider a pen manufacturing industry. The company has no competitors. The cost to manufacture a pen is 10 Rs. He WANTS a profit of 10 Rs, so he sells the pen at 20 Rs.

After a few years, a new manufacturer started selling the pens at 18 Rs maintaining the same quality (People don’t mind spending very little more for higher quality but not every time).

 The price war started and finally both the manufacturers were selling the pens at 15 Rs but only one of them was making profit. How?

He reduced the manufacturing cost of the pen.

Manufacturer A:

Input cost: 10 Rs

Selling price: 15 Rs

Profit: 5 Rs

Manufacturer B:

Input cost: 8 Rs

Selling price: 15 Rs

Profit: 7 Rs

 This is the secret of TPS. TPS is a profit making IE (Industrial Engineering).

When Toyota had to make profit without increasing the selling price of the cars, they had no other option but to reduce the manufacturing cost by utilizing optimum resources (Man, machine, material etc), reducing rejections and many other activities which we will learn in the subsequent posts.

Increasing the sales also increases the profit of an organization. If you reduce the input cost and then increase sales, it will give more benefits.

“With good sales technique and skillful advertising, one might be able to deceive the buyer for a while but it would not last long”

-          Kiichiro Toyoda

I would like to quote one more example to give a better perspective of TPS.

Curious case of a vegetable seller:

In a small town, there lived a vegetable seller. He used to go to the nearby village everyday and buy vegetables from the farmers. He sold these vegetables in the town. He was making good profit.

After a few months the demand for the vegetables was more. He started buying more and more vegetables from the farmers and was selling them. The shelf life of the vegetables was two days. He used to bring two days stock of vegetables and went to buy on the alternate days.

On a particular day, only a few vegetables were sold. The next day was no better. Same problem arose and by third day the remaining vegetables got rotten. The money invested was a waste. Now, he decided to buy a refrigerator so that he can keep vegetables fresh for a long time. He invested in a refrigerator and had to pay for the power and other overheads. He started buying vegetables required for one week and kept them in the refrigerator.

He had to spend more money now to buy a week’s stock but had to wait for another week or longer to get back the invested money. The profit was coming down because of the other overheads involved.

After a while, he recruited one person to bring the vegetables from the refrigerator to his shop. This again ate away a portion of his profit. Within a few days, the demand fell again. This time he had to cut down on the price and incurred losses.

This is a typical case in most industries.

If you can observe, the problem started only when he started keeping more stock. History tells us that demand is always fluctuating and not increasing or decreasing. More stock or over production is the biggest waste in any company and includes other hidden wastes (Read 7 types of wastes (Muda) online). Now, let’s see the same case in TPS way.

1)      When the demand increases, we should not buy/keep excess inventory. Always smaller the lot, the better it is. Instead of buying excess vegetables, he could have gone more number times to fetch the vegetables rather than buy more. Cost of a commodity will most of the times be more than transportation cost by a huge factor. So, we should follow small lot- high frequency principle.

2)      By following small lot-high frequency, he could have saved the investment on the refrigerator and additional charges incurred because of it. He can avoid the number of times (reduce transportation cost) going to village if the demand is less and increase the frequency when the demand is more. Irrespective of the demand, cost incurred by refrigerator (fixed assets/ auto machines in a firm) is constant.

3)      If the cost of vegetables per day was 1000 Rs, he was selling the vegetables the next day and getting back the invested money within a day.  

After buying the refrigerator, to buy 7 days stock he had to spend 7000 Rs and had to wait for 7 days to completely recover it, if the market situation changes during that time, then he will lose part of the investment or most of it. The goal of the organization should be to reduce the lead time as much as possible to avoid the factors not in our control.

People feel this is just common sense and not TPS. The funny part is TPS is just common sense. Do anything but follow the golden rule of TPS to achieve profit.

COST REDUCTION should be the goal of any organization to make profit.

(Actually Productivity Improvement should be the goal of a company but I link all the factors of productivity to cost and so I have mentioned COST REDUCTION. Many people confuse Productivity improvement to be increasing the production numbers which is not so. I will talk about this later when I clear the air between productivity improvement Vs efficiency improvement in one of the future posts)

Let's discuss about the house of TOYOTA WAY  in my next post.

The Beginning

I hold my undergraduate degree in Industrial Engineering and Management. It is not a sought after branch in Engineering. Not many people know that a branch with this name exists. Frankly, I didn't know myself. I chose this branch only because this was the only available branch in the college which many considered to be one of the best in the state. I wanted computer science, I promised my dad that I will study hard in my first year, get good marks and change my branch to computer science.

Well, I did get good marks, but decided against changing the branch. Most of my seniors were engaged in many extra curricular activities. I didn't find any other branch students interested in these activities. I liked this and this was my strongest reason to hold back.

During the placements, it was heartbreaking to see so many software firms taking away everyone on whom ever they could lay their hands upon irrespective of the branch. I waited and waited but had to succumb to family pleasure and choose one of the software companies. After one week of joining the firm, I got an interview call from an Automobile manufacturer and the rest is history.

 I was shown the following houses again and again during training. I had learned it by heart in my undergrad years but had no practical experience of the same. I was for the first time happy about my branch of Engineering and proud. After 4 years of ignorance, I entered a world where people without this knowledge are ignored. The future was mine.

It was very boring then but today I understand that this should be the core of any organization in the world. Any TPS/ Lean activity revolves around only these two houses. These two are the heart and brain of any company. Oh, of course bread and butter also!! Lean is the term given by western countries. I am very much used to the term ‘TPS’, so I hence forth will use TPS during the course of future discussions.

Sherlock Holmes

                                           

     

I think most of us know him. He is my childhood hero. I always relate my work to his. Probably most Lean gurus agree with me. He is a problem solver, goes to the crime scene to understand facts (Genchi Genbutsu), solves the problem and prevents the culprit (problem) from committing the crime again (Recurrence prevention). I admire him a lot and this rejuvenates me to solve problems. I love solving problems.

Let’s go back to history now.

Mr. Ford started the mass production of automobiles and is widely regarded as the ‘father of mass production’. Also, he was the first to introduce the conveyor based production which is still prevalent today.

As an Industrial Engineer, I don’t like glorifying facts. I rather love talking about problems J.

The American industrialists were very good managers and managed the mass production by managing people. Importance was not given to the other resources- material, machine and other assets.

“I served our country with the weaving machines. I want you to serve the country with automobiles”. Sakichi Toyoda San to his son Kiichiro Toyoda San.

(I request readers to read about Toyoda family to understand few historical important issues)

World war and Oil crisis hit the Japanese hard; they didn't have the resources to do anything. This can be considered as the reason for the origination of TPS. On the other hand, Americans had resources, ample resources; after all automobile manufacturing began there. The profit making philosophy of America went like this.

“Cost of automobile decreases drastically in proportion to the increase in the quantities produced”

Yes, mass production does help in cost reduction and most of us think this is the only way to reduce cost. When Ford started car manufacturing, they had no competitors. They decided the profit margin and sold cars.

Japanese couldn't do the same because of economic crisis. The people couldn't buy expensive cars and the manufacturer was not able to afford the high cost resources.

They had to solve this problem.

Readers should also note that it was impossible for Japanese to follow American manufacturing/ Industrial Engineering blindly. They had their constraints. They had to introduce the American system but to the Japanese conditions.

The then president of the Toyota Motor Corporation, Kiichiro Toyoda San challenged the employees to beat Americans within 3 years.

This was an impossible challenge. Very few people believed this to be possible; one of them was Taiichi Ohno San (My real life superhero).

On a scale of 1 to 10, Toyota stood at 1 and Ford at 10. It was a big challenge.

Birth of TPS:

“9 Japanese were doing a job 1 American was doing. It could not be that one American was putting out 10 times more physical work; it must be that Japanese were wasting something. If we could eliminate the waste, productivity should rise by a factor of 10. Basic idea of TPS IS ABSOLUTE ELIMINATION OF WASTE”

-          Taiichi Ohno

In the next studies, I want to focus on the goal and purpose of TPS.