By James B. Kelleher - Analysis
CHICAGO (Reuters) - The cascading crisis at Toyota Motor Corp stemming from the massive recall of some of its vehicles is prompting other manufacturers that adopted its production system to ask whether the incident reveals a fundamental flaw in the “Toyota Way.”
The early consensus emerging from that re-examination is that the automaker’s manufacturing philosophy remains the industry’s gold standard, one that rivals reject at their peril.
Far from invalidating Toyota’s approach, the Japanese company’s current woes -- the thinking goes -- only show that it lost sight of its own core principle of “kaizen,” or continuous improvement, when it responded to snowballing quality and safety concerns in Europe and North America.
“There’s been a breakdown in a few processes but I just don’t think overall that the model will be repudiated as a result,” said Tom Murphy, head of the manufacturing consulting practice at RSM McGladrey.
Jeff Liker, a professor of industrial and operations engineering at the University of Michigan and the author of several books about Toyota, agrees.
He says that problems with a single supplier -- like CTS, the Indiana-based company that made the gas pedals in question -- or with the Japanese software writers who may be behind the problems with the Prius’s anti-lock braking system do not invalidate the company’s production philosophy.
“Personally, I don’t think it’s a failure of the Toyota Way,” said Liker, who also works as a consultant, helping other companies adopt Toyota’s production and product development systems.
“I wouldn’t damn the whole company because of something they didn’t do any more than if a bomb fell on your house I’d blame you for it.”
But that sanguine conclusion may come back to haunt Toyota’s admirers in manufacturing.
That is because the automaker’s woes -- like recent production issues at Boeing Co and Caterpillar Inc -- highlight an often overlooked problem with its obsessive focus on hyper efficient supply chains.
Sure, fewer parts and fewer suppliers can drive down material costs and radically simplify operations. But when a strategic supplier of a critical part encounters a hiccup, it can have crippling and costly implications for the enterprise.
For decades now, top U.S. companies like jet-maker Boeing and machinery-maker Caterpillar have repeatedly rebuilt their plants -- and re-engineered their processes -- to make them more like those of Toyota, which was regarded as the paragon of efficient production and quality control.
The reason was simple: By adopting Toyota’s approach to manufacturing -- especially its emphasis on eliminating waste and increasing productivity -- manufacturers made themselves more dramatically more profitable and nimble.
Indeed, in the most recent global downturn, Caterpillar was able to ratchet back worldwide production almost instantaneously -- and retain its profitability despite the worst drop in demand for its equipment since the Great Depression -- because of its adoption of Toyota’s lean approach to manufacturing.
Still, the crisis at Toyota highlights a risk associated with that approach.
By slashing suppliers and cutting other fat from their operations, manufacturers have left themselves terribly exposed to supply chain surprises -- as Boeing learned when supplier issues delayed the maiden flight of its 787 Dreamliner by two years and as Caterpillar saw when parts shortages made it impossible to meet demand for its giant mining vehicles during the height of the recent commodities boom.
Alex Blanton, an analyst at Ingalls and Snyder who has covered the U.S. industrial space for four decades, says that in this respect, companies that adopt Toyota’s lean principles are ignoring the lessons of evolution.
”One of the ways Toyota has reduced costs in their lean program was commonality of parts,“ he said. ”Well, if that part has a problem, then it effects many more models. If they’d been using a lot of different gas pedals for these models, and they had problems with one, they wouldn’t have to shut down the company.
“That’s why humans aren’t lean.” Blanton said. “It’s a Darwinian thing. The purpose of fat is to carry you over periods when you don’t have food.”
Still, most U.S. companies seem to believe the rewards of lean production outweigh the risks. Caterpillar, which has cut the number of companies that supply it by 40 percent since 2006 and wants to reduce that by another 25 percent over the next few years, has been working with Liker for five years to bring Toyota’s product development system in-house.
“Caterpillar still views Toyota as the company to learn from,” Liker said.
Reporting by James B. kelleher; Editing by Bernard Orr