No shortage of interesting lessons and observations from this morning’s article in the Wall Street Journal titled “Toyota Unveils Revamped Manufacturing Process”. Let’s stick to just two of the biggies:
“Toyota engineers said the company’s new production process is built on much more expansive component sharing than its existing platform-sharing strategies. Toyota said it plans to increase the use of same or similar components, regardless of vehicle size and styles, allowing it to order parts in bulk and save costs through greater economies of scale.”
I don’t think saving “costs through greater economies of scale” is really a big part of the equation, but it is the sort of thing a Wall Street Journal writer would assume. If that’s true just about everything Toyota has preached about SMED and one piece flow must be nonsense. Where the savings will come from is smaller inventories, greater utilization of fixed capacity and greater productivity and higher quality stemming from less variation in production steps.
It seems Toyota had to be reminded of something that everyone in manufacturing knows but very, very few do anything about – that product cost and supply chains scope and cost are probably 80% driven by product design and only minimally determined by process execution. Put another way, you can beat on direct labor all day long but if the engineers designed a lot of labor into the product you are going to have high labor cost and no level of beating will change that. If the engineers don’t consider process capability in designing products you are going to struggle with quality and there is not much you can do about it. And if the engineers don’t focus on parts commonality and design within the capabilities of the existing supplier base you are going to carry a lot of inventory and spend a lot of money in the supply chain management.
Good to see that Toyota has kicked out the cost accountants who don’t understand or appreciate the primacy of design in cost, and is acting on that bit of common manufacturing wisdom.
The second point is that Volkswagen should have read Hayes, Wheelwright and Clark’s “Dynamic Manufacturing” way back in 1988. A lot of it was typical academic claptrap but they made a huge point that everyone should understand: That competitive advantage never comes from anything physical – anything that can be seen, touched or bought – stuff like robots, factories, or computers. The problem with that stuff is that if you can buy it or build it, so can everyone else. You’ll never get ahead with anything that everyone can do.
No, competitive advantage comes from the mojo – the culture and way you run the business, which is a product of the collective values, knowledge, experience and wisdom of the organization. Those things are like fingerprints – no two companies the same, and the company with the superior management mojo wins.
So here we see Volkswagen improving themselves with their product structure and common platforms; and Toyota being smart enough and observant enough to recognize the value; and here we see Toyota imitating it. And when all is said and done Volkswagen’s advantage from that particular strategy will be canceled out.
But Toyota’s long track record of domination has never comes from such physical stuff as parts and factory layout. It has come from their culture and their management processes – the invisible stuff that Hayes, et al called the “infrastructure” of the business (as opposed to the physical part they termed the “structure”). That cannot be bought or cloned. It can’t even be imitated. In the long haul, while changes in the physical products and processes may come and go the winner is always the company with the best cultural and managerial mojo, and for the last 40 years or more, in the auto industry that has been Toyota. Nothing in this article indicates that is about to change.