Chapter 1: A Little History, part 3 - Toyota Motor Company

Birth-order and tradition played an important part in the existence of Toyota Motor Company. An unusual chain of events began in 1915 when Sakichi Toyoda[1] adopted Kodama Risaburò, the husband of Toyoda’s eldest daughter, and younger brother of the head of Mitsui Trading’s branch in Nagoya. This strengthened Toyoda’s ties with the Mitsui Group, one of the most powerful business groups in Japan, who had also financed earlier expansions of Toyoda Spinning.[i] Since Risaburò was 11 years older than Kiichiro Toyoda, he technically became the eldest Toyoda son and Sakichi made him president of Toyoda Automatic Loom, with Kiichiro (Sakichi’s direct heir) serving as Risaburo’s subordinate. The Toyoda expansion into the auto industry may have been a way to provide his son Kiichiro with an inheritance.

In the very early stages, before what was to become Toyota Motor Company separated from its parent group (Toyoda Spinning and Weaving), Kiichiro’s early projects were primarily targeted towards technology absorption, including motorcycles, cars and aircraft. Long before any serious vehicle production took place, Toyota had a massive research and development effort. This was not a unique approach to the auto business, for Sakichi had hired an American engineer, Charles A. Francis, in 1907 for similar reasons. Francis had previously been employed at Pratt and Whitney and he proceeded to train the Toyoda employees in “The American System of Manufacture.”

By 1937 the Toyota research department was studying aircraft design; by 1942 their aircraft department was copying a Beechcraft. This department was later separated into a subsidiary, Tokai Aircraft, with Kawasaki Aircraft contributing 5 million yen, most of the engineers and designs. It is a bit of a stretch to say that the designs were contributed by Kawasaki, because the original engine was to be a Benz V12; however, this product never materialized. They did end up producing a 9 cylinder version in what is now the Motomachi Plant.[ii] To complicate matters, in 1944 Mitsubishi (Zero) moved in with Toyota because their facility had been destroyed.[iii] Tokai Aircraft was later renamed Aisin Seiki and changed from making aircraft engines to automobile transmissions, brakes and other components after World War II.

The culture of technology adoption by Toyota was being developed; they were not satisfied with the technology being used by their peers, but were investigating technologies from leading industries. In the 1930’s no manufacturing industry was more advanced than the aircraft industry, and the concept of system integration was already being used -- a radical departure from the current automotive methods used by Ford or GM. The technology focus went far beyond the designs of aircraft or automobile components, into production methods of the materials and the tools (equipment) used in making their automobile.

Because of Toyota’s connection with the aircraft industry and the prohibition on war material related industries in Japan after the US occupation, Toyota had a unique advantage. They could hire many highly qualified engineers, which resulted in a generally unrecognized massive technology transfer. Tatsuo Hasegawa, who was the first generation Corolla project manager, was once the chief designer of Tachikawa Aircraft. Technologies attributed to the aircraft industry by Hasegawa and adopted by Toyota include aerodynamics, monocoque structure (which developed into what we know as the unibody), weight reduction technology, standards for structural strength, chief designer systems, and product planning methods.[iv] Between 1923 and 1933, Kawasaki Aircraft Engineering Company's head designer was a German, Dr. Richard Vogt, who returned to Germany in 1933. He designed the KDA-5 multi-purpose military biplane, adopted for service in 1930 in one- and two-place variants. This German connection can be considered as one of many possible sources for Takt[2] in the TPS lexicon.

Toyota was not alone in drawing upon aircraft engineering talent[v]. A number of American engineers under the direction of William Gorham (another former aircraft engineer) were critical to Nissan’s attempts in assembly line production in the early 1930’s.[vi] The Mitsubishi group entered aviation during World War I, building French aircraft engines under license, and soon producing trainer aircraft that were also French. A design group headed by Britain's Herbert Smith, who had been a chief engineer at Sopwith Aviation Company, crafted new warplanes that became standard equipment of the Japanese Navy. Mitsubishi also learned lessons from Germany, first by working with the aircraft designer Alexander Baumann, and then through collaboration with the German firm of Junkers. During 1939, Mitsubishi also launched Japan's most famous and deadliest wartime fighter: the Zero.

While tracing the early years of Toyota Motor Company, we should not forget the early years of Taiichi Ohno, considered by some to be the architect of TPS. “Ohno started his career at Toyoda Spinning and Weaving in 1932. When Ohno was working as supervisor at the spinning factory of this textile company, he realized that its rival, Nichibo (Japan Spinning) was outperforming Toyoda in productivity through a benchmarking study. Further studies revealed that the production system of Nichibo was very different from that of Toyoda Spinning and Weaving. Toyoda had separate buildings by process steps; Nichibo had adopted the line layout along the process flow. Toyoda moved yarns in large lots; Nichibo conveyed them in small lots. Toyoda had emphasized skills of rework (yarn tying) at the downstream step; Nichibo had emphasized making good yarns at the upstream and eliminating rework at the downstream. In this way, Taiichi Ohno obtained some of the ideas of Toyota Production System, including product-focused layout, small-lot production, and 'doing things right the first time', through the benchmarking study in the textile industry. When Ohno moved to Toyota Motor Manufacturing in 1943, his first impression was that: ‘It would be easy to raise productivity of the automobile business by three to five times by simply introducing the production system adopted by Toyoda Spinning and Weaving.’”[vii]

There has been a rumor of a mysterious 4” binder[viii] which some attribute to the origin of TPS and associate authorship to Kiichiro Toyoda[3] about 1938 or 1939, but it has more humble origins. An engineer named Kan Takatoshi joined Toyota in 1933 and under Kiichiro’s direction began to draw up plans for a pilot plant (Kariya). In addition to his experience in Japan, Kan was sent to the US to visit numerous auto and machine tool companies over five months. “Kan observed their operations carefully, analyzing the manufacturing process and the flow of production. When he visited machine-tool companies to purchase machines, he requested detailed explanations regarding materials and the ways of processing them. He made revisions to his outline of an operation sheet, as well as to the tool layout sheet he had drawn up. In March of 1936 Kiichiro Toyoda directed Kan to design a new plant (Koromo), which began operations in November 1938 with the capacity to produce 2,000 vehicles per month.”[ix] These plans were significantly different from current practice. It is easy to see how the application of current practice from the aircraft industry and other foreign companies could be misinterpreted as a new and creative effort by those with no industrial background.

There were several interesting adaptations applied by Kan and Kiichiro in the new plant. The start-up, rife with changes, needed flexibility; install many of the machines on floorboards in order to make it easier to change the layout as needed. Another was the partial use of conveyors; this was more from a financial point than logistics. The partial conveyors led to the development of moving small batches of parts in conjunction with the ‘”Just-in-Time” idea (in lots of 10 vehicles[x]). This led to development of a method prior to computers to track the materials, commonly known as kanban. This Japanese word for signal is exactly what the paper or metal tag did in the production environment.

Toyota wasted no time getting their business in order to deal with conditions after the war. “Two or three days after the war had ended, Director Shotaro Kamiya, who was in charge of sales, appeared at the automobile distribution company in Nagoya. ‘The war’s over. Let’s get down to business,’ he said. He immediately set to work rebuilding the dealer network of TMC, which had been consolidated with those of other automakers into a single distribution company during the war.”[xi] He had held the distribution post for the consolidated automotive industry during the war, so he had an insider’s advantage in converting desirable dealers to Toyota after the war ended, even plundering other car dealer networks. In a meeting with the distributors about a month before the government disbanded their distribution network in June 1946, he was able to enlist a number of the stronger dealers who had formerly worked with other producers, mostly Nissan.

In November 1945, Chairman Risaburò Toyoda resigned and the company deleted the manufacture and sale of aircraft from its “Articles of Incorporation.” The official history by Toyota mentions that this was done to rid themselves of the stigma of forced wartime activities[xii]. This may be a bit disingenuous considering the long history of activities that started before the war. This was to be an effective strategic move since Toyota had been designated as a military supply company during the war. As such, they were targets for having their assets seized for war reparations. They also avoided having their upper management removed; a fate not avoided by many other large companies. The war had ended in August 1945, but the situation was quite bleak. There was a statement by management that they were not sure they could feed everyone, and anyone who wanted to leave was free to do so. By the end October, only 3,700 of the 9,600 employees of the Koromo Plant remained. Even though they resumed limited production in late September on an order from GHQ (General Headquarters) their production was only 82 trucks.

The GHQ issued strict orders to dissolve the zaibatsu[4] and in April 1946, Toyota was included because it was designated as a Mitsui-affiliated restricted company. Mitsui held 40,000 of the company’s outstanding shares and Toyo Menka Kaisha, Ltd. held 210,000, which meant that 13.7% of Toyota Motor Company’s stock was owned by Mitsui affiliates. Toyota somehow managed to survive without any management purges by GHQ. The same cannot be said for their primary competitor, Nissan. Some estimates are as high as 200,000 for the number of people blacklisted or purged from high level positions. However, while the number is quite significant, in industry the number of people removed from 154 leading companies by 1947 was 1,937 company executives at managing director level or above.[xiii] One unexpected effect created by this artificial management vacuum was the acceptance of alternate forms of management structure and value systems. The “Civil Communications Management Seminar[5]”, introduced in 1949, embodies a core of principles that we generally consider to be “Japanese Management”.

It was not all gloom and doom after the war. “With high expectations for future growth, the company also hired 200 new employees (April 1946). Many of these people had been aircraft engineers. Kiichiro stated, “Japan is being allowed to develop an auto industry. Future competition will be fierce. Now that aircraft production has been discontinued, it is important to put the technical skills our engineers developed in making aircraft to good use in making cars. I don’t want to waste Japanese technology.””[xiv]

Somewhere between 1945 and 1947 (depending upon reference) Ohno had the opportunity to begin to make some changes in the Koromo plant, working to convert it from a process layout to a product layout (the same as Flanders did to Ford’s plant in 1907). “To catch up with America, I thought of having one operator to care for many machines and also different types of machines rather than one person per machine. Therefore, the first step was to establish a flow system.”[xv] To help the struggling Japanese auto industry, “MITI (Ministry of Trade and Industry) imposed a VAT (import tax) on automobiles of 40% right after World War II. This continued into the 1970’s, effectively shutting out nearly all imports into the Japanese market”.[xvi] At this time, Toyota had a single model car in production, the SA. It was introduced in 1947 and continued until 1952. A total of 215 were produced, the equivalent to a rate of about 1 car per week.

Toyota’s monthly vehicle production nearly reached 1000 per month during the summer of 1952 (mostly trucks). By the fall a credit crunch caused by severe inflation caused them to abandon the production plan. Other automakers were not immune to the troubles and began to lay off workers. In October, Isuzu dismissed 1,271 workers and Nissan did the same for 2,000. “The unions at both companies immediately called strikes.”[xvii] Toyota made wage cuts of 10%, but even this was not sufficient to solve the crisis. The crisis at Toyota was a crisis for the entire community of Nagoya. In December, a group of 24 banks met to provide aid to Toyota. The terms called for a radical reorganization and had strict conditions. One of these called for the separation of the sales group from the production company, and did not allow any of the Toyoda family to participate in the new sales company. Part of the new requirements from the banks to the production company – no vehicle could be produced that was not sold, and the sales group had the control over the order book. Further personnel cuts[xviii] were required. The electrical production was spun off as NipponDenso Co., Ltd., removing 1,445 employees from their rolls.”[xix] The Toyota Motor Sales (TMS) group, founded April 1950, took 353 employees. At the same time the TMC labor union began collective bargaining. The company asked for 1,600 voluntary retirements.[xx] After extended negotiations, labor and management found a common ground in June. Kiichiro Toyoda resigned as President (two other top officials also resigned). Employees began voluntary retirement; the total was larger than originally requested by the company (2,146), leaving 5,994 employees remaining.

The mood was rather dismal after more than 25% of the company was dismissed, the top management resigned, and several business units were spun off. Just one month after the layoffs (July 1950), the US military requested Japanese automakers to submit bids for an order of 1,320 trucks for use in the Korean War. Although this was the first job for the Export Department of TMS (Toyota Motor Sales), which had just begun operations, it won an order for 1,000 trucks. After this, a series of orders came from the armed forces of the US.[xxi] (Toyota continued truck production until 1962 when US legislation required the purchase of US made equipment). This provided the cash flow necessary to float the company.[xxii]

“Manufacturing special procurement vehicles enabled TMC to learn effective quality control methods. Given the production technology of the time, tremendous efforts were needed to guarantee the quality and meet the delivery dates demanded by the United States military. The strict inspections carried out by the military gave TMC a chance to develop its highly advanced and standardized inspection technology.”[xxiii] (Other sources indicate that Toyota strongly resisted this involvement in their production, but it was a forced condition of the government contract. The real learning of quality came only after Nissan won the coveted Deming prize in 1960, Toyota won in 1962.)

1950 was a busy year, with several important people in the Toyota organization going to America; in June, Shotaro Kamiya (president of the sales group) left to complete an agreement with Ford. This was stopped with the outbreak of the Korean War. His time in the US was not wasted, for he realized that the US did not have the excess production capacity for significant exports. He also spent his time studying the American consumer finance system. In July, Eiji Toyoda (managing director) visited the Ford River Rouge Plant. In October, Shoichi Saito (managing director) also visited Ford’s plants. Both men closely studied Ford’s production methods and management. Even though there was a significant gap between Ford and Toyota in both production volume[xxiv] and technology, this visit solidified Eiji’s resolve to catch up, and the realization that it was possible.

This visit may have been a critical turning point in Eiji’s decision to support Ohno’s methods, without which we would never have heard of TPS, or the possibility of Toyota becoming the global competitor that it is today. It may seem obvious that the system works, but it would be pure fantasy to believe that the Toyota organization readily embraced the new methods. The resistance came from all quarters, from the accounting department to the other departments which supplied the machine shop that Ohno ran. Over time Ohno was promoted and had an opportunity to place supervisors who followed his methods but this resistance lasted into the late 1950’s.

Another key part of Ohno’s training was the training programs introduced by the Americans during the occupation. It is ironic that the very programs used to train new employees and boost productivity would become the enablers for Kiichiro’s vision of a synchronized factory. The TWI (Training Within Industry) programs are becoming better known as the core of TPS – standard work, “Train the Trainer”, 5S, kaizen, etc… were derived from this program. Ohno was one of many certified as a trainer under these programs. Other lesser known programs had similar far-reaching impact. The MTP (Management Training Program) consisted of 22 classes which covered the TWI programs and general management knowledge; this program was developed to educate the middle management. Less well known is the “Civil Communications Management Seminar[xxv]” produced by CCS (Civil Communications Section). While this program was originally targeted towards the communications sector, it spread to other industries. The early graduates of this program read like a “Who’s Who” of Japanese industry. They were the leaders in the first Japanese industries which became globally competitive.

The Japanese economy was growing and Toyota’s production volumes began to grow rapidly; 14,000 in ’52, 23,000 in ’54, and 71,000 by ’57. Yet, their production was still 70% trucks – the small car was just around the corner. It is difficult for the outside observer to comprehend the pressures on a manufacturing operation that must expand rapidly. Most companies collapse under prolonged expansions exceeding 30% per year, finding it impossible to train people rapidly enough to maintain the skills necessary for properly function and maintain the company culture. Between 1955 and 1964, Toyota’s annual growth rate was 37.3%! There is a positive side to expansion rates such as this, given the extreme pressure to produce; people are more receptive to discovering methods to meet the current demands.

The new Motomachi assembly plant gave Ohno the opportunity to implement JIT (in 1958 with his kanban process). This was not without difficulties and he faced much resistance with those wanting to run the facility in the ways they knew. Solving the shop floor issues was not simple or done in a short period of time. It was only after intense work using Ohno’s shop floor quality control methods that the system was sufficiently debugged. Then upper management considered applying the system outside of this plant. In 1962, kanban was adopted on a company-wide basis and by 1965 Toyota began formally to use the system with their suppliers. Ohno had been working on implementing these methods for 20 years inside the auto company, not to mention the dozen years working in the loom company, but his journey was not yet complete.
A side note about SMED (Single Minute Exchange of Dies), there has been much controversy over where the idea developed and who was responsible. Nearly a decade before Shingo’s famous breakthrough of defining tasks into “inside or outside” in 1969[6], Toyota had been pursuing methods to reduce changeover times. In 1959 Danly shipped a six-press tandem dual moving bolster stamping line to Toyota. This line was equipped with Danly trademarked QDC (for quick die change). By 1962 Toyota had revolutionized its body-stamping facilities, but did not stop there, improving many other facets of the body production process.

While the companies began to pursue auto production in the early 1960’s, truck productions still exceed the auto production until 1968. By the mid-1960’s the Japanese auto companies had a product that could be exported to a limited number of nations. Toyota and Nissan both tried some early exports to the US in the late 1950’s and early 1960’s. On the surface, these ventures could be characterized as disasters, yet the companies used the dismal showing in the US as learning experiences for their next attempt. And the rest is history… “In 1980, the first year Japan led the world in automobile output, Toyota made 3,200,000 vehicles and Nissan 2,600,000, eclipsing Ford of America (1,900,000) to become the world’s second and third biggest automakers, excluding overseas subsidiaries, behind General Motors of the United States (4,700,000).” [xxvi]

Please address any questions or comments to: Mark.Tesla2@gmail.com
Copyright 2008 - Mark Warren

[1] In this book we will use the European format of placing the family name last. The Oriental convention would place the family name first.
[2] Takt is German for tempo in a musical sense – in manufacturing it is the pace of production.
[3] "Kiichiro never told me where he got the idea for Toyota's production system, but what this comes down to in the last analysis is a system free of waste." (Toyota: Fifty Years in Motion, Eiji Toyoda – pg 166)
[4] Japanese term for ‘money clique’ or conglomerate. These were powerful groups of businessmen that effectively ran the country.
[5] http://deming.ces.clemson.edu/pub/den/ccs_manual_complete.pdf - revised version of original textbook available here.
[6] There are numerous counterfactual references that attempt to pre-date this understanding on SMED.
[i] The Japanese Automobile Industry, 1985, Michael Cusumano, pg.58-9.
[ii] Toyota: Fifty Years in Motion, Eiji Toyoda, pg 66
[iii] Ibid., pg 67
[iv] The Evolution of a Manufacturing System at Toyota, Takahiro Fujimoto, pg. 74
[v] Flow Production had already been introduced into the aircraft factories in 1943 by Ichiro Sakuma at Nakajima Aircraft Company. Small lot production and cells were keys to the concept. This factory also produced engines for the Zero – the connection to Toyota, as Mitsubishi moved here late in the war. “Fordism Transformed” , pg 16, Kazuo Wada
(Sakuma named his concept ‘semi-flow production’. The description of his idea is mainly based on the article by I. Sakuma, ‘Han nagare sagyo seisan hoshiki ni kansuru kenkyu’ [on the semi-flow production method], Nippon Noritsu, 2/7 (1943).)
[vi] Between Imitation and Innovation; pg 72
[vii] The UK & Japanese Automobile Industries: Adoption & Adaptation of Fordism, Takahiro Fujimoto & Joe Tidd
As Ohno later emphasized in his autobiography, many of his key ideas about the themes of product-focused layout, small-lot production, right-first-time, and autonomation, developed from his benchmarking studies of Nichibo. The experience of the textile industry also provided a model for the pursuit of a “Japanese path” of technical development and confidence in Japanese originality and creativity. - Interview with Taiichi Ohno by Koichi Shimokawa and Takahiro Fujimoto, 16 July 1984
[viii] Toyota: Fifty Years in Motion, Eiji Toyoda – pg 57
[ix] The Emergence of the ‘Flow Production’ Method in Japan, Kazuo Wada
[x] Toyota: A History of the First 50 Years, pg 72 – this is important to note that they did NOT implement one-piece-flow, but batch processing.
[xi] Ibid. pg 94 (World War II ended on August 15, 1945)
[xii] Ibid, pg 96
[xiii] The Puritan Gift, William Hopper, pg 112
[xiv] Toyota: A History of the First 50 Years, Toyota Motor Corp. pg 98
[xv] Toyota Production System: Beyond Large Scale Production, Taiichi Ohno, pg 10 - Multiple machine operation has been around more than a century, especially in the textile industry. There are photos of multiple machine operation by a single operator in the automotive magazines as early as 1905.
[xvi] The Japanese Automobile Industry, Michael Cusumano – pg 7
[xvii] Toyota: A History of the First 50 Years, Toyota Motor Corp. pg 105
[xviii] Ibid., pg 106
[xix] Ibid., pg 104 - In March 1950, soon after becoming independent, NipponDenso announced personnel cuts, which immediately precipitated a strike.
[xx] Ibid., pg 107
[xxi] Ibid., pg 110
[xxii] Toyota: Fifty Years in Motion, Eiji Toyoda – pg 112
[xxiii] Toyota: A History of the First 50 Years, Toyota Motor Corp. pg 112
[xxiv] At the time of the visit, Ford’s production volume was about 8,000 per day compared to Toyota’s 40 per day.
[xxv] http://deming.ces.clemson.edu/pub/den/ccs_manual_complete.pdf This link is a slightly edited version of the original CCS program.
[xxvi] The Japanese Automobile Industry, Michael Cusumano – pg 1

Chapter 1: A Little History, part 2 - Ford Motor Company

The Ford Motor Company we know today, and the one connected to the famous assembly line for the Model T, was the third attempt[i] by Henry Ford to manufacture automobiles. His previous automobile company was reorganized by Henry Leland into Cadillac. Much less has been written about Leland, who had as interesting career as Ford.

(table in book of early production quantities for several auto makers.)

Leland’s industrial career started in the Springfield Armory, moving later to Colt’s, then he went to Brown and Sharpe who made the Wilcox & Gibbs sewing machines (they were eventually to become machine tool makers). Leland finally set up his own machine works which eventually made Dodge engines under contract for Olds. This set the stage for Leland to enter the automobile business. Prior to 1900, the cumulative leader in automobile production was the bicycle maker, Columbia. Ford’s early production figures ranked him third or fourth. Oldsmobile had the leading automobile, which was light and inexpensive; this was five years before Ford’s fabled Model T. In the early years while the shop was smaller, Henry Ford was reputed to know every workman by name. One would expect this to have been the time of the greatest improvements, but the facts tell a different story.

Enter Walter E. Flanders in 1906 and production figures jumped. This is an untold story of equal to the assembly line in 1913. The first thing Walter Flanders did after his arrival at Ford was to totally reorganize the shop floor. Henry's financial man, James Couzens, complained loudly of the costs being incurred. This reorganization improved production from 20 cars a day to 150 cars a day, while reducing workers headcount from 700 to 575. Imagine shutting down production, moving all of the machines and restarting in within three months. According to accounts, in this time period Flanders also made 1000 cars - the same number which would have been produced if not shut down. By the end of the year he exceeded the 10,000 car mark -- this was before the Model T (sales were primarily Model N and some Model Ks). In spite of his exceptional performance, Flanders left in early 1908. There are several theories as to why he left, and conjecture on what might have happened had he stayed. He did stay long enough to transfer enough knowledge and the possibilities to an eager group of young men, who in a few short years revolutionized the manufacturing and assembly processes.

According to Charles Sorenson[ii], Flanders was brought in by the other shareholders, not by Henry Ford, even though several Ford books attribute the hiring to Henry. Remember that just a few years earlier Henry had a run-in with the shareholders and lost his earlier company which Leland made a success[iii]. After Flanders arrived he did a cost study of the Model N and found that the company was loosing about $25 on each car. Some minor redesign (added running boards and fenders), and the car was re-priced to make a profit. Rumor has it that Henry had promised Flanders a $10,000 bonus (some put the figure at $25,000) if he could build 10,000 cars in one year. That bonus was never paid, just a raise. So the year after Flanders had made the Ford Model N a massive success, Henry replaced the Model N with the Model T. Flanders was upset, for he had put all of his effort into building up production. With this new system of dealers and suppliers, he was able to level production to have fairly even demand on a monthly basis. Henry Ford had also made sure that Sorensen excluded Flanders from the room where he was developing the Model T.
The story of the room where the development of the Model T was done is interesting in its own right. There are similarities to the development process used by Ford and his men in 1906-1906 to those used at the “Skunk Works[iv]” by Lockheed in their early days and to the current “new” idea being proposed as an innovative Japanese method for product development – Oobeya, which means “big room” in Japanese.

We came close to not getting the assembly line developed. Ford almost sold the Ford Motor Company in 1909 to William Durant (Buick - GM) for somewhere between $8 and $10 million. One of the lucky breaks for Ford was that Durant was short $2 million and couldn’t convince the bankers to lend the money. Ford got cold feet, demanded cash, and would not accept payment in stock and cash as other companies assembled by Durant had done.

Walter Flanders was not one to waste time. Flanders left Ford in the spring of 1908, by the summer he had a new company formed, EMF, with the first autos delivered in September! The first year’s production was 7,960 in 1909, jumping to 15,020 in 1910. It looked as if Ford had met his match. But one critical piece of Flanders strategy backfired. In his hurry to compete he brought Studebaker in for their extensive dealer network. As one of the largest wagon manufacturers, Studebaker brought their dealers into the new car company, thus reducing the time and cost required to build a distribution network. With success, a power struggle emerged. Flanders’ two partners sold their shares to Studebaker in 1909, and by 1910, with the help of JP Morgan, Studebaker bought Flanders out. The power struggle that stalled the commercial development of EMF, along with Durant’s financial difficulties which hobbled Buick, partially contributed to Ford’s ascendancy. There were no experienced competitors, only automobile companies run by financiers.

There is a little controversy surrounding the first assembly line. Walter Flanders recounted an experiment done one weekend several years prior to the 1913 official date and gave the explanation of having more pressing demands to pursue. Most discount this explanation, yet if you have worked in a factory during a model change or start-up situation, the story is plausible (they were introducing the Model T). The massive level of detail available on the experiments surrounding Ford’s production departments is too much to recount here. Fortunately Ford allowed access to his plant during these formative years; journalists detailed many of the experiments done during this transition period. Best known is a series of articles written for the American Machinist magazine. These were collected into book form about 1917, and reprinted - Ford Methods and the Ford Shops, by Horace Lucien Arnold and Fay Leone Faurote. Though much as has been written about the assembly line, Ford’s celebrated advantage of an assembly line was a short one, for GM adopted the assembly line only 10 months after Ford.[v]

A flurry of interest recently surrounded two books attributed to Ford, resulting in several people republishing them. A word of caution: consider the source and events surrounding Ford, when and how they were written. Samuel Crowther collaborated with Henry Ford to write My Life and Work, which was published in 1922. Today and Tomorrow was a follow- up book published in 1926. Sorenson remarked that Crowther had the access to nearly any part of the factory, yet only limited access to interview Ford. In today’s terms, these were primarily publicity items to spin the Ford mystique. If you want to read history and something a little less biased, there were a series of articles published in the American Machinist weekly magazine during the critical development time of Ford’s assembly line.

Ford’s Model T production peaked in 1923. The market had already begun to shift a few years earlier. Ford’s product had saturated the “non-consumption[1]” market. His car had been a “good-enough” product for someone who previously had walked or used a horse and wagon. But the Model T shifted into the “not-good-enough” product sector for those who had already owned a car. Ford totally missed this transition. The “Value Proposition” for a first-time buyer is different from the second-time buyer. Because of these factors and others, Ford’s creative streak peaked about 1918 when he shifted from enabling his employees’ creativity toward a cult of personality.

Ford’s first significant entry into Japan came in 1923 following a major earthquake that destroyed most of Tokyo. The City of Tokyo imported 800 Ford Model T trucks to serve as busses. By 1925, Ford had established a wholly owned subsidiary to assemble knock down kits of Model T cars in Yokohama. GM followed in 1927 with a plant in Osaka. The production in these plants were later capped by legislation past by the Diet. This paved the way for local companies to enter the market. Both Ford and GM abandoned the Japanese market just prior to WW2.

Please address any questions or comments to: Mark.Tesla2@gmail.com
Copyright 2008 - Mark Warren

[1] The term “non-consumption” used here has been used by economist and author, Clayton Christensen, in several books on innovation to describe a group of customers that are non-consumers that are excluded from the market primarily because of cost. This group of customers is often accessed with a product that may be marginally functional, yet “good-enough”. One characteristic of this customer is, over time, their expectations on what satisfies “good-enough” shifts. Thus making the original product “not-good-enough” for their next purchase.
[i] Detroit Automobile Company (1899-1900), The Henry Ford Company – renamed Cadillac (1901-1902)
[ii] My Forty Years with Ford, 1956. Charles E. Sorensen
[iii] In February 1908, three Model Ks from the 1907 Cadillac production were released from the stock of Frederick Stanley Bennett (UK agent for Cadillac automobiles) at the Heddon Street showroom in London (these were engines Nos. 23391, 24111 and 24118). The three cars, all registered in London under the numbers A2EO, A3EO and A4EO, were driven 25 miles to the Brooklands race track at Weybridge. There, the cars completed another 25 miles before being put under lock and key until Monday March 2, 1908 when they were released and disassembled completely. Their 721 component parts were scrambled in one heap. Eighty-nine parts requiring extreme accuracy were withdrawn from the heap, locked away at the Brooklands club house and replaced with new parts from the Mr. Bennett's showroom stock. A mechanic - Mr. E.O. Young - reassembled the cars with the help of his assistant - Mr. M.M. Gardner. Sometimes they had to work ankle-deep in water, using only wrenches and screwdrivers. The third car was re-assembled by Tuesday evening, March 10. By 2 p.m. on Friday March 13 the three cars had completed the mandatory 500-mile run with singular regularity. Only one point was lost owing to a broken cotter pin in the ignition lever (promptly replaced from stock). During the event, it was reported that one of the sheds where the parts were stored became partly flooded during a heavy storm and some parts became rusted. Only oily rags could be used to remove all traces of the immersion. On completion of the test, one of the cars was placed under lock and key where it remained until the start of the 2000-miles Reliability Trials, several months later. It came out the winner of the R.A.C. Trophy! Parts interchangeability could not have been demonstrated in any more convincing way. (Wikipedia)
[iv] For those involved with product development, the book Skunk Works: A Personal Memoir of My Years of Lockheed by Ben R. Rich and Leo Janos, should be required reading as well as Product Development for the Lean Enterprise: Why Toyota's System Is Four Times More Productive and How You Can Implement It by Michael N. Kennedy. Oobeya has limited information available, except on the web.
[v]The Deal Maker: How William C. Durant Made General Motors, Chapter 14

Chapter 1: A Little History - part 1

“History is more or less bunk.” - Henry Ford[i]

From the very beginning of modern technology two hundred years ago, there had always been a symbiosis among members of given industries in given regions. They learned from each other, and most of all, there was constant feedback from users and competitors to basic research. This feedback then led to more basic discoveries and caused a leapfrog effect that circumvented attempts at outside control. - The Anatomy of Industrial Decline

One cannot overlook the cross-fertilization of ideas and technology across industries. Factory visits are not a new invention. The Springfield Armory, attributed by historians as the birthplace of “The American System of Manufacture” (early mass production of interchangeable parts), entertained visitors in the early 1800’s. The US Government even suspended patent rights on armory methods for a time to improve adoption of these new methods.

By default much of the history about “Lean” manufacturing has surrounded the auto industry, with Ford and Toyota listed as the major players in the development of Lean. Learning the historical context should help you understand the principles discussed in later chapters. The object of including a chapter on history is to portray them as real people who faced real problems. Their results were not the results of some secret formula or eureka moment in which they received divine inspiration. They both had significant competition in their early growth years, and had no obvious or outstanding advantage over their peers. One hesitates to use the term “Urban Myth,” because many of the legends surrounding Lean are “Industrial Strength.” While dispelling myths, the original reason for the research was to clarify the “Whys” behind the evolutionary nature of TPS (Toyota Production System); it was not created in a vacuum. If we don't recognize the history and understand the application, we may be doomed to repeat this learning curve indefinitely.

Both Toyota and Ford -- primarily for his success of the Model T -- could be classed as depending upon both luck and skill. “Toyota’s manufacturing system looks as if it were deliberately designed as a competitive weapon; it was created gradually through a complex historical process that can never be reduced to a managers’ rational foresight alone.”[ii] Most readers are more familiar with the most recent Toyota and its fame as the developer of Lean; Toyota points to Ford as their primary inspiration. This history is a reflection of their journey from obscurity to prominence.
Ohno observed in 1950, that Toyota took about 9 men to produce as much as a single man in the US auto industry. “…By 1965, Nissan and Toyota had already matched or surpassed the productivity levels of American automakers. After the mid-1960’s, productivity in Japan doubled in real terms as sales expanded. By 1980, Japan had replaced the United States as the largest automobile producing nation in the world, in technology as well as production volume…”[iii] The history of the Japanese auto industry overtaking the American auto industry mimics Nature, where the victim has been overtaken before sensing the danger.

Coincidence plays a much larger part in history than most people realize. Nassim Taleb, a professional trader and mathematics professor, has written two books on this subject.[iv] In Fooled by Randomness, he examines what randomness means in business and in life, and why human beings are so prone to mistake dumb luck for consummate skill. And The Black Swan; a black swan is a highly improbable event with three principal characteristics: it is unpredictable; it carries a massive impact; and, after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was. Similar to a Perfect Storm.

If you are completely candid with yourself, you will soon discover how much your discoveries hinge on contingencies. Every now and then, when you happen to combine both boldness and skill, you may be able to exploit a few of the lucky situations that arise. But skill alone will not be enough, for much of the novelty in creativity is decided only when you are bold enough to thrust at chance.[v]
One view that has been popularized represents Toyota as working against all odds. This is interpretation does not hold up when doing comparative analysis against their peers in Japan, or any of the other businesses in war-torn areas following World War II. On a local level, they were as connected to the power structure as any industry in their region could be, and had a number of lucky breaks which others did not.

Ford had attracted to his factory a core of perhaps a dozen or a dozen and half young, gifted mechanics, none of whom had developed set ways of doing things. Encouraged by Ford, this group carried out production experiments and worked out fresh ideas in gauging, fixture design, machine tool design and placement, factory layout, quality control, and materials handling. In a sense, the Ford production engineers took what was best from each approach to manufacture and overcame limitations to these methods by adding their own brand of production techniques.[vi]
This is not unlike Toyota’s collective absorption of technology from any source available. How much of this strategy was deliberate on the part of either company is debatable; however, the results are proof of concept. In their most formative stages there was an active effort to ADOPT any best practice from any industry and actively keep looking, not accepting single results. The next stage was to ADAPT the best practice to their specific environment, even multiple versions which would match each process. ABSORB -- they actually applied the information that they had learned. The last stage was to ANALYZE. Using the “Lessons Learned” format they evaluated the performance and modified where possible to improve. Their next step was to adapt again, and again. This cycle works best when there is continual input from external sources. An analogy would be the merry-go-round on the children’s playground. It stops if not continually pushed.

Ideas often come suddenly to individuals, but they usually have a long history.

Lancelot Whyte

ADOPT - ADAPT - ABSORB - ANALYZE cycle (illustration in book) [vii]

This continuous cycle requires constant maintenance, or you will eventually be eclipsed by your rivals. This cycle is similar to the PDCA (Plan-Do-Check-Act) loop made popular by Deming[viii].
Our industrial history needs a preface before beginning the in-depth discussion of the two automotive giants. Each example which comes to mind has precedents, even back to early China or Egypt. For our purposes, the transition began in earnest when people started to transfer principles from single applications across multiple disciplines and industries. For some industrial historians this point can be traced to interchangeable parts. While the US led in multiple industries applying this concept[ix], it is not an American invention, nor was it a simple idea to implement. We have a proverbial situation of “the Chicken or the Egg,” where multiple disciplines required development to support the concept. In the background were the talented mechanics (the equivalent of today’s engineers) that spent years developing processes and machines to produce the various products are studied.

Eli Whitney is often credited with developing interchangeable parts, this is not accurate. There are several reference books detailing the development of the armory system which show that his efforts were the poorest performing group among the whole federal effort to produce interchangeable parts for small arms. The US government supported the development nearly fifty years before the reality of interchangeable parts came close to the promise. It took another fifty years before the concept was economically viable, and began to push out the craft industrial methods. While much has been researched and written about early arms industry, little credit has been given to the wooden clock industry which pioneered so many of the production methods transferred into the early federal armories.

The armory methods evolved into what has become known as “The American System of Manufacture.”[x] In the latter half of the 1800’s European industry began to complain about unfair competition, and gave excuses about the caliber of workers or special circumstances which could not be replicated in Europe. With the development of machine tools to support the processes necessary to produce the wave of inventions, several industries blossomed – sewing machines, farm equipment, steam locomotives, woodworking equipment, and bicycles. All of this accumulated knowledge was used in the development of the automobile industry. The steel and railroad industries led the way to industry on a massive scale, previously limited to nations and their militaries.

Lest we give the impression that all things relating to the Lean movement originated in the West, here is some background on the first recorded industry in Europe to be displaced by Chinese imports. The ceramic industry was nearly destroyed when the importers of tea and spices began to bring in “china.”

In the eighth year of Qianlong, Emperor of Qing Dynasty (1743), Porcelain-Making Supervisor Tang Ying was appointed by the Emperor to compile An Illustrated Book on Porcelain Making. In this book, the process of porcelain making was vividly explained and described. The book summarized technological achievements of the Jingdezhen ceramic industry, as a sequel to Jiang Qi's Record of Porcelain-Making and Song Yingxing's Tian Gong Kai Wu which had respectively recorded Jingdezhen’s porcelain-making techniques of the Song, Yuan, and Ming Dynasties.[xi]

Main reasons for Jingdezhen's outstanding achievements in traditional porcelain- making were:
1. A careful division of labor. The process from clay to a finished product involved the participation of 72 people. Because of the careful division of labor, workers became very skillful through long time practice.
2. Traditional respect for teachers and deep concern for artists’ morality. In Jingdezhen, "Master" was the most common form of address.
3. An environment of orderly competitions between official kilns and folk kilns brought improved technology.
4. A tradition of improvement. The porcelain-makers of Jingdezhen were so good at learning from others that they absorbed advanced porcelain-making techniques from other parts of the country, and from abroad, and made their own innovations and advancements.

In the real world, the right thing never happens in the right place and the right time. It is the job of journalists and historians to make it appear that it has.

Mark Twain

Please address any questions or comments to: Mark.Tesla2@gmail.com

Copyright 2008 - Mark Warren

[i] From an interview with Charles N. Wheeler, Chicago Tribune - May 25, 1916
[ii] The Evolution of a Manufacturing System at Toyota, Takahiro Fujimoto, pg 4
[iii] The Japanese Automobile Industry, Michael Cusumano, pg. xvii.
[iv] The Black Swan: The Impact of the Highly Improbable and Fooled by Randomness
[v] Chase, Chance, & Creativity: The lucky art of novelty, James H. Austin. Columbia Press, New York, 1977
[vi] From the American System to Mass Production, David Hounshell, pg 220
[vii] “Information is Not Knowledge” - Much of the knowledge relevant to economic activity may be defined as an integrated and articulated ability to utilize information in ways that are generative and adaptive. A person who has knowledge is capable of generating both new information and new knowledge from their pre-existing knowledge. (This is a key to Toyota’s development – the absorption cycle actually generated new knowledge.) It is also a characteristic of having knowledge that a person’s knowledge generating capabilities adapt both to the receipt of new information and to the feedback provided by the generative process of using that knowledge. A serious definition of knowledge, and the one offered here is only one example of such a definition, must encompass the fact that knowledge cannot, itself, be directly exchanged. If such an exchange were possible, the problems of learning and education, as well as many other processes designed to reproduce knowledge, would be enormously simplified.” “It would seem quite reasonable to conclude from these observations that knowledge is derived from information exchange. When we ask individuals to demonstrate their knowledge through examination or the solving of problems, however, we find markedly different results among individuals.” “Knowledge and Learning in the Information Age”; W. Edward Steinmueller, 2000
[viii] Walter Shewhart is the originator of the PDCA concept. (Some think that PDCA means “Please Don’t Change Anything”)
[ix] Networked Machinists: High-Technology Industries in Antebellum America, 2006. David R. Meyer – interesting reference book covering the migration of talent between numerous industries in early America.
Ingenious Yankees: The Rise of the American System of Manufactures in the Private Sector, 1990. Donald Robert Hoke – another history of early American industrial development.
[x] From the American System of Manufacture to Mass Production, 1800-1932, 1984. David Hounshell – this is the definitive work cataloguing a number of early American industries.
[xi] http://www.jingdezhen.gov.cn/en/museum/wenhua2.asp - The China Dream: The Quest for the Last Great Untapped Market on Earth, Joe Studwell, 2002 – pg 12, Economic thinker Adam Smith’s description of the division of labour in the Wealth of Nations was influenced by what he had read of the division of labour in Chinese porcelain production.” This account of the porcelain manufacturing predates Adam Smith’s publication by more than 20 years.