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This article: Production concepts, by Eli Goldratt
Source: Business-improvement.eu
TOC: The unlimited organization
Deel voorpagina 'Philosophiae Naturalis Principia Mathematica' (Newton) Production concepts versus production applications
Standing on the Shoulders of Giants
By Eliyahu M. Goldratt, © Eliyahu M. Goldratt, 2008. Published on this site with permission

It is easy to trace the popularity of Lean production to Toyota’s success. Toyota’s success is undeniable. Toyota now manufactures as many cars as the traditional leader – GM – and does it while making profits. Over the last five years, Toyota’s average net profit over sales was 70% higher than the industry average, while GM is losing money.1

The success of Toyota is fully attributed to the Toyota Production System (TPS).2 

At least this is the conviction of Toyota’s management – the stated number one challenge of Toyota is to pass TPS on as the company’s DNA to the next generation.

Given that Toyota is the flagship of Japan’s industry, one should expect that Lean would be widely implemented in Japan. Surprisingly, this is not the case. It is commonly known in Japan that less than 20% of the manufacturers have implemented Lean. How come?

It is not because they did not try to implement it. Many companies in Japan put serious efforts into trying to implement Lean but failed. One such company is Hitachi Tool Engineering. Their inability to implement Lean cannot be explained by a lack of serious efforts. This company repeatedly tried to implement Lean but the deterioration in production performance forced them to go back to the more traditional ways of managing production.

Likewise, the fact that most of Japanese industry did not implement Lean cannot be attributed to a lack of sufficient knowledge. Toyota was more than generous in sharing their knowledge. This company put all the TPS knowledge in the public domain and even went as far as inviting their direct competitors to visit their plants. Hitachi, like so many other companies, was using the available knowledge and was not shy about hiring the help of the best experts available.

There is an explanation to these companies’ failure to implement Lean; an explanation that is apparent to any objective observer of a company like Hitachi Tool Engineering. The failure is due to the fundamental difference in the production environments. When Taiichi Ohno developed TPS, he didn’t do it in the abstract; he developed it for his company. It is no wonder that the powerful application that Ohno developed might not work in fundamentally different production environments. But, that doesn’t mean that Ohno’s work cannot be extremely valuable for other environments. The genius of Ohno is fully revealed when we realize that he faced the exact same situation. At that time, the production system that revolutionized production was the flow line method that Henry Ford developed. Ford’s method was already used not only for almost all vehicle assembly, but also in very different industries like beverages and ammunition. Also, at that time, it was already accepted that flow lines can and must be implemented only in environments where the required quantities justify dedication of equipment to a single product. Whenever production quantities were not big enough, no one contemplated the possibility of using lines – no one except for Ohno.

Ohno realized that the concepts that underlie Ford’s system are generic; that his application is restricted to certain types of environments, but the concepts are universal. Ohno had the clear vision to start from the concepts, the genius to design an application that is suitable for Toyota’s environment, where it is not feasible to dedicate equipment to the production of a component, and the tenacity to overcome the huge obstacles standing in the way of implementing such an application. The result is TPS.

Rather than refraining from using the right concepts or, even worse, trying to force the application in environments that are apparently too different, we should follow in Ohno’s footsteps.

In this paper, we will present:

  • The fundamental concepts of supply chains – the concepts that Lean is based upon,
  • A generic application of these concepts that can be used in a much wider spectrum of environments, and
  • The impressive results Hitachi Tool Engineering achieved with this broader application.

Historical perspective
The manufacturing industry has been shaped by two great thinkers, Henry Ford and Taiichi Ohno. Ford revolutionized mass production by introducing the flow lines. Ohno took Ford’s ideas to the next level in his TPS, a system that forced the entire industry to change its grasp of inventory from an asset to a liability.

Ford’s starting point was that the key for effective production is to concentrate on improving the overall flow of products through the operations. His efforts to improve flow were so successful that, by 1926, the lead time from mining the iron ore to having a completed car, composed of more than 5,000 parts on the train ready for delivery, was 81 hours!3
Eighty years later, no car manufacturer in the world has been able to achieve, or even come close, to such a short lead time.

Flow means that inventories in the operation are moving. When inventory is not moving, inventory accumulates. Accumulation of inventory takes up space. Therefore, an intuitive way to achieve better flow is to limit the space allowed for inventory to accumulate. To achieve better flow, Ford limited the space allotted for work-in-process between each two work centers. That is the essence of the flow lines, as can be verified by the fact that the first flow lines didn’t have any mechanical means, like conveyers, to move inventory from one work center to another.

The daring nature of Ford’s method is revealed when one realizes that a direct consequence of limiting the space is that when the allotted space is full, the workers feeding it must stop producing. Therefore, in order to achieve flow, Ford had to abolish local efficiencies. In other words, flow lines are flying in the face of conventional wisdom; the convention that, to be effective, every worker and every work center have to be busy 100% of the time.

One might think that preventing resources from working continuously will decrease throughput (output) of the operation. That undesirable effect might have been the result if Ford would have been satisfied with just limiting the space. But, there is another effect that stems from restricting the accumulation of inventory. It makes it very visible to spot the real problems that jeopardize the flow – when one work center in a line stops producing for more than a short while, soon the whole line stops. Ford took advantage of the resulting clear visibility to better balance the flow by addressing and eliminating the apparent stoppages.4 
The end result of abolishing local efficiencies and balancing the flow is a substantial increase in throughput. Henry Ford achieved the highest throughput per worker of any car manufacturing company of his time.

In summary, Ford’s flow lines are based on the following four concepts:

  1. Improving flow (or equivalently lead time) is a primary objective of operations.
  2. This primary objective should be translated into a practical mechanism that guides the operation when not to produce (prevents overproduction).
  3. Local efficiencies must be abolished.
  4. A focusing process to balance flow must be in place.

Like Ford, Ohno’s primary objective was improving flow – decreasing lead time – as indicated in his response to the question about what Toyota is doing:

All we are doing is looking at the time line from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line…5

Ohno faced an almost insurmountable obstacle when he came to apply the second concept. When the demand for a single product is high, dedicating a line to producing each component, as Ford did, is justified. However, at that time in Japan, the market demand was for small quantities of a variety of cars. Therefore, Ohno could not dedicate lines at Toyota. As we already said, all other industries that faced this situation simply did not contemplate using lines. Ohno, however, was toying with the idea of using lines when the equipment is not dedicated, when each work center is producing a variety of components. The problem was that in this case using the mechanism of limited space would lead to gridlocks – not all components are available for assembly (assembly cannot work) while the allotted space is already full (feeding lines are prevented from working).

Ohno writes that he realized the solution when he heard about supermarkets (much before he actually saw a supermarket during his visit to the US in 1956). He realized that both supermarkets and the feeding lines at Toyota needed to manage a large variety...

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See also: Discussion of Goldratt's "Standing on the shoulders of Giants"  

1) see money.msn.com

2)  The Toyota Production System became known worldwide first under the name Just-In-Time (JIT) and later as Lean production. Toyota itself claims that Lean production does not fully capture its TPS spirit due to distortions in communications and implementations.

3)  Ford, Henry, Today and Tomorrow, Productivity Press, 1988 (originally published in 1926).

4)  Balancing the flow is not equal to balancing the capacity – having the capacity of each work center match its load – a common mistake made when balancing flow lines.

5)  Ohno, Taiichi, Toyota Production System, Productivity, Inc. 1988, page ix (in Publisher’s forward). It is also worth noting that in this and his other books Ohno gives full credit to Ford for the underlying concepts.

6)  To reduce the number of places containers must be held, Ohno extensively used U-cells rather than using work centers that are composed of a single type of machines.

7)  Nevertheless in the Lean literature there is no explicit stress on the fact that TPS mandates the abolishing of local efficiencies.

8)  Ohno, Taiichi and Setsuo Mito, Just-In-Time For Today and Tomorrow, Productivity Press, 1988.

9)  The first article was published by Ford W. Harris in Factory, The Magazine of Management, Volume 10, Number 2, February 1913, pp. 135-136, 152. Since then more articles on that subject are published almost every month.

10)  For example, Toyota's die changes went from two to three hours in the 1940's to less than one hour and as low as 15 minutes in the 1950’s to 3 minutes in the 1960's (Ohno wrote this in his book, Toyota Production System).

11)  Liker, Jeffrey K., The Toyota Way, McGraw-Hill, 2004.

12)  Mabin, Victoria J. and Balderstone, Steven J., The World of the Theory of Constraints, CRC Press LLC, 2000. A review of the international literature on TOC analyzed the average results achieved: 70% reduction in lead time, 44% improvement in due-date performance and a 76% increase in revenue/throughput/profit.

13)  Orlicky, Joseph, Material Requirements Planning, McGraw-Hill Book Company, 1975.

14)  Goldratt, Eliyahu M. and Cox, Jeff, The Goal: A Process of Ongoing Improvement, North River Press, 1984.

15) Umble, M., Umble E., and Murakami, S., “Implementing theory of constraints in a traditional Japanese manufacturing environment: the case of Hitachi Tool Engineering,” International Journal of Production Research, Vol. 44, No. 10, 15, May 2006, pp. 1863 – 1880.

16)  Ibid.

17)  A GUIDE TO MAKING EVER FLOURISHING COMPANY - PRODUCTION, DISTRIBUTION, MARKETING AND SALES. Chukei Publishing, 2008. Satoru Murakami, Jun Takahashi, Shotarou Kobayashi p196~p207

18)  Goldratt, Eliyahu M., Critical Chain, North River Press, 1996.

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