Time to Rethink Lean?

At the end of World War II, when land was scarce, Toyota redefined manufacturing processes to be Lean. Lean processes, based on value stream mapping, focus on greater value for the customer with fewer resources. What surprised me in the writing of the recent Supply Chain Metrics That Matter Report on Automotive is that Toyota is at the same point in 2014 on operating margin and inventory turns that the company was at in 2006. In addition, Japanese automotive companies that have a higher adoption of Lean processes have lower results on operating margins and Return on Invested Capital (ROIC). What do you think? Why did Lean processes not deliver a competitive advantage for Toyota?  

 

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  • This is a fascinating chart and data table and I have more questions stemming from this data rather than any real insight about the hard question you asked Lora.

     

    Without going too far astray, I’m trying to conjure up the significance of Central Bank QE on inventory turns and operating margins as revealed in this chart.  An overlay of when QE programs started & ended would be an interesting addition to the data set. 

     

    Reported in the press:  the number of car leases written out to 7+ years is at an all-time high.  Lease agreements in dollar terms also at an all-time high.  These facts seem correlated to the impacts of global QE.   Perhaps TM and HMC aren’t concerned about HOW their inventory is sold (either thru leasing or cash sales) but I’d bet that QE effects (still rippling thru the global economy) will provide a solid boost in both operating margin numbers and inventory turns the next time this report and chart are updated.  That’s a guess—but I’d be comfortable making a friendly wager with someone on this topic if anyone is game. (barring corporate accounting scandals, emission test cheating and other forms of ugliness—I think this chart will show improvement for TM in future releases—and this won’t necessarily “exonerate” the supposed contributions of LEAN in this conversation—but these are important elements to consider in the analysis, IMO).

     

    Another interesting overlay:  The 2010 year-end earthquake & tsunami.  (effects are easily seen in the chart, along with the 2007/08 recession) but both of these factors make it extremely difficult to discern how TM and HMC would have fared had these events not happened-- and while the earthquake was certainly a localized event to Japan impacting both sales and margins—the global recession was, of course, not a localized event.

     

    Would be interested in hearing more of everyone’s thoughts here.
     

    Nov 11, 2015
  • The Toyota Way, while excellent insofar as it goes, has limiting factors. The chief limiting factor is that it is focused almost entirely on eliminating supply chain waste. This is internally focused (or internal to the supply chain) and has the restricted view of seeking to best meet market demand--whatever that level is. It is NOT focused on increasing Throughput (as the Theory of Constraints' process of ongoing improvement is).

    This means the Toyota Way will tend to optimize performance of the existing organization, which will allow limited growth and improvement. However, this Way will not be focused on breaking the constraints that are external to the organization or supply chain. This somewhat unfocused activity, under the Toyota Way, is left to somewhat more traditional product development and marketing approaches.

    Hence, companies that adopt the Toyota Way will see improvement that will tend to reach a high threshold and then stagnate at that level. Theory of Constraints-based approaches allow the executive and management team to get a laser-like focus on what is actually keeping the company from achieving market breakthroughs that will lead to ongoing growth and profitability.

    At least, that's my opinion, for whatever it may be worth.

    Kind regards,

    Richard D. Cushing
    Certified Demand Driven Planner (CDDP)

    Dec 11, 2015