Supply chain disruptions triggered by the Covid-19 pandemic have caused major headaches for manufacturers around the world. Nowhere was this felt more acutely than in the automotive industry, which faced severe shortages of semiconductor chips and other components. This has led many to argue that just-in-time and lean production methods are dead and replaced by “just in case” stockpiling more inventory.
Yet Toyota, the originator of the lightweight concepts, fared better than most of its competitors and overtook General Motors to become North America’s top seller in 2021. People have watched the company continue to produce vehicles and concluded that it must have turned its back on its principles of minimum inventories and a pull production system. But the truth is that its performance during the pandemic has highlighted how less understood aspects of its system have actually led to greater resilience and better ability to deal with disruption.
“In reality, TPS [the Toyota Production System] is really what allowed us to do as well as we did,” Chris Nielsen, executive vice president of Toyota North America, told me. Nielsen has overseen quality and supply and demand management and managed numerous disruptions over the past two years. In this article, Nielsen and Jamie Bonini, President of the Toyota Production System Support Center (TSSC), share their thoughts on how the TPS has evolved and continues to adapt in a changing world.
Lean does not mean zero inventory.
Toyota takes a strategic approach to inventory planning. Operationally, this is based on three pillars: strategically sized stocks in the right places to act as a buffer to meet changing demand, a safety stock that takes into account the risk of disruption and a nuanced view of lead times. It was pointed out that the company learned a lot from the 2011 Tōhoku earthquake and tsunami, after which it identified parts that were vulnerable to disturbance and therefore were susceptible to storage. How Toyota factors in lead times in its inventory planning is key.
The delivery time is the time between the order of a part and its reception. Traditionally, this can include the time it takes to source the raw materials, produce the part, and then deliver it. After the earthquake, the company became deeply involved in restoring production at the Renesas semiconductor plant in Naka, Japan, the critical supplier of automotive microcontrollers that went offline. While helping to rebuild the facility, the company learned a great deal about the fragility of the chip manufacturing process and the location of much of the world’s critical chip production facilities in disaster-prone areas. natural disasters.
“With the increasing number of semiconductors used in our vehicles and the fragility of the system, we realized that we had to redefine our notion of delay, first in semiconductors,” Nielsen explained. So, a decade earlier than other automakers, it realized it had to have a lot more inventory of semiconductor chips.
Appropriate timelines and inventory plans are influenced by usage rates and patterns. One of the most famous examples of just-in-time manufacturing is the seat installation process at the company’s assembly plant in Georgetown, Kentucky. As the bodies come out of the paint shop, an order is sent to the seat supplier who is less than an hour away. The supplier builds the seats in the right color and model and delivers them in the right order to the assembly line several hours later. Because the seats are installed near the end of the line, the lead time can be several hours, and the company maintains approximately two hours of inventory next to the assembly line. At the San Antonio factory, the seats were initially installed much earlier in the line, so the seat supplier was located 10 meters from the final assembly line, as the lead time was reduced to around 20 minutes. With a short lead time, the same amount of inventory maintained at the Kentucky plant was neither necessary nor appropriate. As the line design evolved, the delivery time requirement changed with it.
The range of stocks transported can vary considerably. The company maintains 13 weeks of steel coil inventory in Georgetown as it uses custom alloy made in batches. “A lot of people have the mistaken impression that TPS is against inventory; it’s not fair,” Nielsen said. During the winter months, the company increases the quantity of parts in stock by a shift to account for the inevitability of ice storms or winter weather conditions that will affect logistics networks. Once the winter is over, he adjusts the quantities downwards.
Multiple providers are a source of resilient capacity.
Many companies view dual sourcing primarily as a way to cut costs by pitting suppliers against each other in bidding wars. But Toyota takes a very different view: having two suppliers means it can benefit from resilient capabilities.
He may obtain a steering wheel for one model family exclusively from one supplier and a steering wheel for another exclusively from a second supplier. The two vendors would then be in constant competition for the next design as new models entered production, but they would compete more on innovation and capabilities than on price. The cost should be reasonable and suppliers know that Toyota will have a good idea of what the cost should be.
“For us, it’s not a bidding war,” Nielsen explained. “It’s a competition to make you better.” The company wants its suppliers to be profitable so they can invest in new technologies and better designs; he knows he will benefit from it.
“For vendors to really invest in their people, in their facilities, in their technology development, they need to know they’ll have the business tomorrow,” Nielsen said. “So one of the things we really focus on is stability in the supply base. The competitive advantage is long term. A lot of it is technology and design.
Relationships with suppliers are based on trust.
Supplier trust and support are the core principles of TPS. This means that relationships should be built around long-term partnerships and should not be transactional in nature.
When a supplier encounters problems, Toyota offers to help them solve them, and they are ready to accept it. “Our supplier partners open the door to us and say, ‘Listen, we know you’re not going to penalize us for a mistake we made, and you’re here to help, you’re part of the team'” , Bonini said. , the president of the Toyota Production System Support Center told me.
When Bonini worked in a supplier development division, he was one of many Toyota employees who traveled to these suppliers to help them when they faced production problems, especially in high-power situations. risk involving the introduction of new technologies. He often spent weeks onsite helping vendors resolve issues, building trust in the process.
“If you’re going to run a very tight just-in-time system, you need to have the expertise as well as the trusting relationship to go to a vendor and help them out if there’s a problem,” Bonini said. “If a supplier is having real problems, we have people who can step in, with the technical skills to really help solve the problem. We’re not stepping in to ask for an audit of their recovery plans; we roll up our sleeves and help solve problems in a collaborative effort.
So when a supplier problem threatens to disrupt Toyota’s production, Toyota pays attention to the problem. It partners with the supplier to solve the problem quickly.
TPS is a learning system.
The biggest thing most people forget about TPS is that it’s a system designed for learning. This emphasis on learning and continuous improvement occurs at many levels. At the workshop level, the focus is on front-line problem-solving skills. This is supported by a hierarchy of team and group leaders with greater expertise and the ability to teach. Many people who see a Toyota vehicle assembly line consider the number of layers to be inefficient, but the reality is quite the opposite. Fast problem solving leads to improvements and keeps tight just-in-time systems running efficiently. So staffing more than pays off.
Learning also extends to supplier support. When Toyota works to help suppliers solve problems, it also learns about their production processes. Then the next time a problem arises, he will be better able to help. And because she often works with vendors two to three years before new product launches, she’s in a good position to help resolve startup issues.
Bonini explained, “We can help them with the design, and we can get them to tweak or optimize the design to make it more manufacturable. Then, if there is a problem at launch, if we have a quality problem or if we have a technical change, we have both confidence with the supplier and we know the process. Collaboration is the key.
Not only will supplier processes be more robust from the start, but what Toyota has learned along the way will deepen its understanding of future issues should they arise. This will lead to faster resolution and faster development of alternatives if needed.
TPS is an organizational culture.
The Toyota production system is an organizational culture as much as a factory operating system. Its core philosophy – to motivate and develop people so they can surface and solve problems quickly and build a culture of continuous improvement – obviously extends beyond the walls of the company to include its suppliers.
And suppliers report that their relationship with Toyota is different from that with other customers, a relationship clearly valued when issues arise. This helps explain why the company has weathered the supply chain disruptions of recent years better than most, even as it continues to learn and evolve.
Like any culture, Toyota’s culture is deeply rooted in values. This means that if you really want to reap the benefits of the enterprise operating system, it’s not enough to just copy tools like lean and just-in-time. Start with values and beliefs. This makes breeding much more difficult, although the benefits are obvious.