Toyota way (Part 2)

Let’s discuss about the second pillar now.

Continuous improvement involves three principles: Challenge, Kaizen, Genchi genbutsu.

I think this is what keeps Toyota move ahead of its competitors globally. If these practices are followed religiously, it will make wonders in any company. I call this as a culture to be created and followed.

 Many of them complain that although these are the best practices, why there was a mass recall of cars and labor unrest at Toyota’s manufacturing plants.

 The answer to this question lies in the question itself. These are best practices only if followed. It is as simple as that when a company as big as Toyota and the originator of these practices doesn't SUSTAIN them, it is bound to fail and to be noted that not only Toyota but any other company too fails if it doesn't respect its principles.

Challenge:

Everyone take up challenges. Sometimes we achieve them, sometimes we can't and other times we will change the challenge for better or reduce its priority as it is difficult to achieve. It is the same in running a company but with necessary backing and more stringent plan to achieve the target.

Let’s take up an example to understand this well.

I run 5 km every weekend.

I started running a year ago. When I ran the first time, I took around an hour to complete the task. I didn't have a challenge then. My aim was to complete 5 km and was not time bound. After which I decided to have a target and that was to run in 15 min which was close to impossible. Is it even a realistic target?

This is the same mistake we do at our work too. The targets should always be SMART and not superfluous.

Specific

Measurable                                       

Achievable

Realistic

Time bound

Without knowing our target, it is difficult to understand where we stand and what is necessary to achieve the target. In production terms, we call the target as Standard and where we stand now as Actual. The difference between the two is called as Gap/Abnormality. Unless we understand this, we will never be able to identify problems. After all Toyota way is all about problem solving.

(Note: I have found that many companies don't know what their actual is, it is very important to grasp the actual data, I’ll talk about this in KPI- Key Performance Indicators monitoring in the later posts)

In my example, my actual is 1 hr to complete a 5 km run and my standard is to complete in 15 min. Let me analyze this target setting in a SMART way.

1. Is my target Specific?

Yes, a run to keep myself fit.

2. Is my target Measurable?

Yes. 5 km run.

3. Is my target Achievable?

It’s very difficult.

4. Is it Realistic?

Not very much.

5. Is it Time bound?

I don’t know by when I want to achieve my target.

So after making an analysis on this, I got to know that 15 min is very ideal. I had to set a realistic target now. I practiced for a few days and took sample data over time and fixed the target as 25 min (A minimum of 6 months data is desirable in production/services).

 This was more realistic and achievable and I set 6 months as the time to achieve this feat which makes it time bound. I made a week by week target plan to achieve my standard. Now, I was more determined to achieve weekly targets in order to win the challenge (Small continuous improvements over time).

After 6 months, I ran in 24 min 32 sec. 

I was happy about this and then I stopped running for the next six months (I was lazy J). Now, I want to change the standard to 20 min.

I want to do PDCA in this activity before going for the new standard. PDCA is important at every stage of an activity. (Thanks to Shewart and Deming for teaching us this beautiful concept)

Plan to run 5 km within 25 min.

Do the running; I took 31 min 16 sec (This is what happens when you don't sustain, things can get really      

      worse).

Check against the target. A GAP of 6 min 16 sec found.

Act upon this.

My first target is to achieve my best. This is called Occurrence type of gap analysis (Every day there will be one or the other abnormality in the production line, this leads to the occurrence type of gap. We must eliminate this before going for a new standard. For ex: If efficiency target is 95%, and we are able to achieve 90~92% over a period of time. We must first achieve 95% consistently and then go for a higher target).

Once I achieve my best i.e. 25 min, only then will I be able to go for the new standard of 20 min. This is called Setting type of gap analysis (Once we eliminate or minimize the occurrence type, then we can go for setting type of gap analysis in production and achieve result. In the previous example, after achieving 95% consistently, we should aim for higher target).

Solving the occurrence type and maintaining it is called Sustenance. Solving the setting type and meeting the new standard is called Improvement.

The activity done to achieve both is called Kaizen, which we will discuss in the next topic. Before going to the kaizen section, I want to touch upon another topic called hoshin kanri which is very much linked to challenge.

Hoshin Kanri

Ho- Direction

Shin- Needle

Kan- Control or channeling

Ri- Reason or Logic

For a company to know its goals and work towards it, we need a direction and should control our movement through a strong logic to achieve the desired result. Just like how we need a compass to guide a ship in an ocean to reach our destination (Hoshin) and a good captain to take us there (Kanri).

Hoshin:

To set and prioritize mid to Long-term Management Plans and Annual targets, while engaging all levels of the organization to clarify their own targets and strategies.

Kanri:

Drawing up Problem solving strategies, constantly implementing them, checking for results, if not achieved adopting countermeasures

This is a detailed vision plan to achieve the results. The example I quoted about running previously was related to just one person. This is the main tool we use to break up the vision and set targets (Challenges) to each department and then to each group and then to every member in the group. In this way, every member contributes to achieve the company Hoshin.

A collective plan for the whole company can be done by following Hoshin Kanri, more information can be obtained online and in need of any clarifications, you can contact me.

In the final part, we will discuss about Kaizen and Genchi Genbutsu. 

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.