‘Lean is Toyota’s growth story’

‘Lean is Toyota’s growth story’
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First Published: Mon, Aug 25 2008. 12 02 AM IST

James P. Womack. (Photograph: Ramesh Pathania/Mint)
James P. Womack. (Photograph: Ramesh Pathania/Mint)
Updated: Mon, Aug 25 2008. 12 02 AM IST
Lean management guru James P. Womack believes that Indian companies are as capable of implementing the Lean principles of business management as Japanese and US firms. A trifle disappointed that Lean’s principle proponents,Toyota Motor Corp. and Honda Motor Co. Ltd, have been slow in replicating their business model in India, Womack is, however, happy to point out the success of braking systems maker WABCO-TVS (India) Ltd and other TVS Group companies in applying Lean methods. The senior management’s ability to stick to a management approach that seeks to create value and cut waste in all business processes is essential for its success, says Womack.
The 60-year-old American’s tryst with Lean principles happened in the 1970s, when he was analysing the competitiveness of the US auto industry with respect to Japanese automakers, as a researcher at Massachusetts Institute of Technology (MIT). Womack, who is a graduate in political science from the University of Chicago and holds a master’s degree in transportation systems from Harvard, earned his PhD in political science from MIT for a dissertation on comparative industrial policy in the US, Germany and Japan. Today, as the chairman and founder of the Boston-based Lean Enterprise Institute, a non-profit education organization from MIT that conducts research, courses and conferences on Lean principles, Womack helps companies and industry bodies adopt the technique.
He is also the co-chairman of the Lean Global Network—a collaboration between 16 organizations around the world, which India joined recently. At the same time, he is quick to add that he is not a consultant and is not busy getting rich. “We are trying to change the world for the better,” says Womack.
Womack has also co-authored a number of books with Daniel Jones, founder and chairman, Lean Enterprise Academy, UK, over the past 20 years, including the best-seller, The Machine That Changed the World, and Lean Thinking, and a number of articles such as From Lean Production to the Lean Enterprise (Harvard Business Review, March-April 1994), Beyond Toyota: How to Root Out Waste and Pursue Perfection (Harvard Business Review, September-October 1996), Lean Consumption (Harvard Business Review, March-April 2005).
In an interview after the conclusion of the first summit of the Lean Management Institute of India in New Delhi earlier this month, Womack got down to talking about Lean management practices, their relevance beyond the manufacturing sector and their effectiveness in times of an economic slowdown.
Edited excerpts:
What is Lean management all about and how have the principles of Lean evolved over time?
(It was) the Toyota guys who thought: “Why can’t we have a high velocity, responsive, low inventory company which is also able to deal with high variety and offer products at low costs”. The hidden genius here was Eiji Toyoda (former managing director of automaker Toyota Motor Corp.). Eiji’s exposure to the large volume production of US automakers in 1950 made him focus on making many cars in small batches, unlike American automakers. The small inventory system where stocks were replenished when required, not only helped the company cut wastage but also gave the company flexibility to bring in changeovers. And the rest is history.
Around 20 years ago, we at MIT were looking at a simple descriptive name for a new business system that took less time, less capital, less inventory, less cost for a great product. Our young team decided to call it Lean. By the way, when you say Lean, managers think it’s about cost cutting and to employees, it sounds mean, which is far from what Lean is.
James P. Womack. (Photograph: Ramesh Pathania/Mint)
Over time, the business system has gone beyond manufacturing and has been adopted by health care companies, retailers and software firms. I hear from retailers who want to know how they can be the Toyota of retailing. I tell them the only way to do this is by moving beyond the business system and adopting it (Lean) as a management approach. Surprisingly, what many fail to see in the Toyota production system is the management style and how they train Lean managers.
Eiji gave Toyota employees a lot of power and they could stop the production line if a defect was found. Suppliers, too, were encouraged to amend defects when discovered rather than correcting them later. It’s really simple: You have to produce good managers before you can produce good products. Businesses can start with problems that customers want solved (like the Toyota guys are doing with people’s mobility issues) and then find the best way of solving them. That’s the business philosophy I can offer.
On the issue of evolution of Lean principles, I can say that like many things in life, such as the speed of light, some things are constant. People don’t actually like that in the modern world. They are always looking for something new. Toyota will tell you that they have not done anything new from the conceptual point of view in the last 50 years—the whole deal is to go there and actually do it every day, and that’s the most difficult part.
If you are in a business where you have to design products for customers, fulfil orders for those products, sustain those products and get a whole bunch of people to manage customers’ needs, I don’t think that is ever going to change because there can’t be a business that does not have to design products or manage customers.
Which companies have implemented Lean successfully? Who are your clients in India?
Surprisingly, Japanese companies have not been the leaders in adopting Lean methods or management. Honda has always been a Toyota emulator, although never as good on straight-line efficiency. Things fall off from there.
Elsewhere, it is hard to find a major manufacturing organization in the US and Europe that doesn’t currently have some type of Lean or Six Sigma (a business management concept that focuses on eliminating defects) or some process re-engineering initiative run by a staff group. And it will soon be hard to find service organizations, including health care organizations, that don’t have something similar. Many of these have applied a considerable number of the Lean tools available and with good short-term results in isolated areas. What has not happened in most cases is an effort to rethink what I call modern management—to recast it in a form so that line managers can deploy Lean tools as part of their daily activities. Sustainable results are only possible when this happens.
Surprisingly, General Motors Corp. and Ford Motor Co., which have suffered the most at the hands of Toyota, are among those firms doing the most successful copying, particularly in product development and production. However, this will be invisible to the public until the catastrophe in North America (legacy pricing plus legacy personnel costs plus wrong product portfolio for an era of high-cost energy) is addressed, presumably in the next year or so. If they get through this bottleneck, prepare to be surprised.
(I’m) sorry not to be able to list any (Indian) clients. But there aren’t any. My Lean Enterprise and the other organizations in our Lean Global Network, including Lean Management Institute of India, are education and research organizations, not consulting firms. However, I do visit many organizations as part of my research and, in fact, my visit to automobile brakes maker WABCO-TVS is to check on the organization that had done the most to embrace Lean thinking—and with amazing success—as of my last visit in 2002.
What do you think of the Indian manufacturing sector? Which Indian companies do you admire the most?
I don’t have any data to support either admiration or contempt for the Indian manufacturing sector. All I know is that the success of WABCO-TVS and a number of the other TVS Group companies in applying Lean methods to production and to process development removes any excuses Indian managers might want to offer that these methods can’t be applied successfully in India.
By contrast, a bit of bad luck for Indian manufacturing is the fact that Toyota and Honda, the two best Lean practitioners in the world, have been slow to invest in India compared with their investments in China and elsewhere. This has limited the demonstration effect they have on local manufacturing wherever they go.
Lean principles have been adopted mainly in the manufacturing sector. Do the principles apply to other sectors, for instance the services or software industry in India?
Lean principles apply in equal measure to any organization that designs products (goods or services or both in combination) for customers, fulfils orders for these products and supports customers in their use. This would seem to cover every activity from financial services to outsourced business processes to construction to health care.
What are the challenges of implementing Lean?
The primary challenge is constancy of purpose by the senior management team. Periodically, business fads, such as wonder diets that can produce their miraculous benefits almost instantly, emerge. Lean is not one of them. On 7 August, I visited a manufacturing company in Chennai that has been working steadily on a Lean system for production, supplier management, product development and overall management. The company, started in 2001, has made steady progress to the point that their factory is as good as any in Toyota city. However, work on bringing suppliers to the same level and teaching customers to take full advantage of this firm’s capabilities will be continuing for some years.
So, if the senior management doesn’t want to stick with this new approach to management permanently, it’s probably best to try a wonder (business) fad.
In today’s business environment, especially in the wake of a global slowdown, companies are looking at cutting costs and optimizing efficiencies. Can Lean principles help companies achieve that?
Anyone who approaches Lean as a short-term cost-cutting strategy will be disappointed. While much waste can be removed quickly, the major cost-saving available to any firm in a crisis is eliminating personnel to quickly reduce compensation costs. But all of the Lean methods depend on the cooperation of personnel and contribution of their best ideas. Our advice to firms in a financial crisis is to deal with any necessary headcount reductions first and only then try Lean methods.
What role has Lean played in Toyota’s growth story?
Lean is Toyota’s growth story.
Would American companies have benefited more if they had used Lean? Most improvement processes seem to work best in an ideal environment. Do the principles of lean work in a unionized environment?
Most of America’s success stories with Lean—the General Motors/Toyota joint venture in California, Pratt and Whitney, the aerospace business unit at United Technologies Corp., wire and cable management solutions provider The Wiremold Co. (mentioned in my and Dan Jones’ book Lean Thinking ) have been in unionized firms. The issue is not the presence of the union, but the behaviour of the management.
Lean believes in keeping inventory small and replenishing it frequently, but with rising freight costs, companies will be stocking more since carrying costs are going to be higher. How can Lean address this problem?
The inventory question is a bit hard to understand but here’s the Lean approach to inventory: At some points in an end-to-end process, from raw material to customer, it will probably be necessary to have some inventory—raw materials, work in process, finished goods— because it will not be possible for the product to continuously and quickly flow from start to finish. Historically, manufacturers focused on minimizing shipping costs by shipping large amounts infrequently between points in the process. In addition, upstream generally shipped to downstream points as they accumulated a sufficient quantity to fill a large container or vehicle. The Lean approach is for the downstream step in the process to pick up from the upstream step exactly what it needs when it needs it. The mechanism is called a “milk run” in that a vehicle from the downstream step visits several upstream suppliers on one trip, picking up a small amount from each. The result is that logistics are no higher than under the conventional system but the delivery of goods to downstream points is more predictable and the total amount of inventory in the end-to-end process is much lower.
At the Chennai firm I just visited, the customers did not have the wit to arrange a milk-run system—so the firm developed one for its customers. Despite Indian road conditions, which do require keeping one day of safety stock at the customer, the system works as it should.
What are you currently working on?
I’m currently working on the concept of Lean management (pioneered by Toyota) as a replacement for modern management (pioneered in the 1920s by General Motors and still the typical management system in large organizations across the world).
GROUND RULES
• Deploy Lean tools as part of daily activities. The whole deal is to go there and actually do it every day, and that’s the most difficult part.
• For successful implementation, move beyond the business system and adopt Lean as a management approach.
• Senior management’s commitment to Lean is crucial for success. The issue is not the presence of a labour union but the behaviour of management.
• Lean principles can be applied to any organization. That would cover every activity from financial services to outsourced business processes, construction and health care.
• During a financial crisis, the best approach is to deal with any necessary headcount reductions first and then try Lean methods.
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First Published: Mon, Aug 25 2008. 12 02 AM IST
More Topics: Lean | Six Sigma | Management | Cost-cutting | Toyota |