The Toyota Way: 14 Management Principles From the World's Greatest Manufacturer

by Jeffrey K. Liker

Such an environment can only be created where there is respect for people—hence the second pillar of the Toyota Way. Toyota demonstrates this respect by providing employment security and seeking to engage team members through active participation in improving their jobs. As managers, we must take the responsibility for developing and nurturing mutual trust and understanding among all team members. I believe management has no more critical role than to motivate and engage large numbers of people to work together toward a common goal. Defining and explaining what the goal is, sharing a path to achieving it, motivating people to take the journey with you, and assisting them by removing obstacles—those are management's reasons for being. We must engage the minds of people to support and contribute their ideas to the organization. In my experience, the Toyota Way is the best method for fulfilling this role.

They "designed in quality" and built in quality at every step of the process, and they did it with remarkably few labor hours. Not only were Japan's automakers good, their top suppliers were also world class in engineering and manufacturing, and they worked together as a team.

The key to the Toyota Way and what makes Toyota stand out is not any of the individual elements…. But what is important is having all the elements together as a system. It must be practiced every day in a very consistent manner—not in spurts.

Long-Term Philosophy. Toyota is serious about long-term thinking. The focus from the very top of the company is to add value to customers and society. This drives a long-term approach to building a learning organization, one that can adapt to changes in the environment and survive as a productive organization. Without this foundation, none of the investments Toyota makes in continuous improvement and learning would be possible.

The Right Process Will Produce the Right Results. Toyota is a process-oriented company. They have learned through experience what processes work, beginning with the ideal of one-piece flow, (see Chapter 8 for details). Flow is the key to achieving best quality at the lowest cost with high safety and morale. At Toyota this process focus is built into the company's DNA, and managers believe in their hearts that using the right process will lead to the results they desire.

Add Value to the Organization by Developing Your People and Partners. The Toyota Way includes a set of tools that are designed to support people continuously improving and continuously developing. For example, one-piece flow is a very demanding process that quickly surfaces problems that demand fast solutions—or production will stop. This suits Toyota's employee development goals perfectly because it gives people the sense of urgency needed to confront business problems. The view of management at Toyota is that they build people, not just cars.

Continuously Solving Root Problems Drives Organizational Learning. The highest level of the Toyota Way is organizational learning. Identifying root causes of problems and preventing them from occurring is the focus of Toyota's continuous learning system. Tough analysis, reflection, and communication of lessons learned are central to improvement as is the discipline to standardize the best-known practices.

I believe all manufacturing and service companies that want to be successful in the long term must become learning enterprises.

We place the highest value on actual implementation and taking action. There are many things one doesn't understand and therefore, we ask them why don't you just go ahead and take action; try to do something? You realize how little you know and you face your own failures and you simply can correct those failures and redo it again and at the second trial you realize another mistake or another thing you didn't like so you can redo it once again. So by constant improvement, or, should I say, the improvement based upon action, one can rise to the higher level of practice and knowledge. —Fujio Cho, President, Toyota Motor Corporation, 2002

Its net profit margin is 8.3 times higher than the industry average.

Toyota invented "lean production" (also known as "the Toyota Production System" or "TPS"), which has triggered a global transformation in virtually every industry to Toyota's manufacturing and supply chain philosophy and methods over the last decade. The Toyota Production System is the foundation of dozens of books on "lean" including two bestsellers: The Machine That Changed the World: The Story of Lean Production (Womack, Jones, Roos, 1991) and Lean Thinking (Womack, Jones, 1996). Toyota employees are sought out by companies in almost every industry throughout the world for their expertise. Toyota has the fastest product development process in the world. New cars and trucks take 12 months or less to design, while competitors typically require two to three years. Toyota is benchmarked as the best in class by all of its peers and competitors throughout the world for high quality, high productivity, manufacturing speed, and flexibility. Toyota automobiles have consistently been at the top of quality rankings by J.D. Powers and Associates, Consumer Reports, and others for many years. Much of Toyota's success comes from its astounding quality reputation. Consumers know that they can count on their Toyota vehicle to work right the first time and keep on working, while most U.S. and European automotive companies produce vehicles that may work when new but almost certainly will spend time in the shop in a year or so. In 2003 Toyota recalled 79% fewer vehicles in the ...

What is the secret of Toyota's success? The incredible consistency of Toyota's performance is a direct result of operational excellence. Toyota has turned operational excellence into a strategic weapon. This operational excellence is based in part on tools and quality improvement methods made famous by Toyota in the manufacturing world, such as just-in-time, kaizen, one-piece flow, jidoka, and heijunka. These techniques helped spawn the "lean manufacturing" revolution. But tools and techniques are no secret weapon for transforming a business. Toyota's continued success at implementing these tools stems from a deeper business philosophy based on its understanding of people and human motivation. Its success is ultimately based on its ability to cultivate leadership, teams, and culture, to devise strategy, to build supplier relationships, and to maintain a learning organization.

The Toyota Production System is Toyota's unique approach to manufacturing. It is the basis for much of the "lean production" movement that has dominated manufacturing trends (along with Six Sigma) for the last 10 years or so. Despite the huge influence of the lean movement, I hope to show in this book that most attempts to implement lean have been fairly superficial. The reason is that most companies have focused too heavily on tools such as 5S and just-in-time, without understanding lean as an entire system that must permeate an organization's culture. In most companies where lean is implemented, senior management is not involved in the day-to-day operations and continuous improvement that are part of lean. Toyota's approach is very different. What exactly is a lean enterprise? You could say it's the end result of applying the Toyota Production System to all areas of your business.

define lean manufacturing as a five-step process: defining customer value, defining the value stream, making it "flow," "pulling" from the customer back, and striving for excellence. To be a lean manufacturer requires a way of thinking that focuses on making the product flow through value-adding processes without interruption (one-piece flow), a "pull" system that cascades back from customer demand by replenishing only what the next operation takes away at short intervals, and a culture in which everyone is striving continuously to improve. Taiichi Ohno, founder of TPS, said it even more succinctly: All we are doing is looking at the time line from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-value-added wastes. (Ohno, 1988)

Toyota's focus in the 1940s and '50s on eliminating wasted time and material from every step of the production process—from raw material to finished goods—was designed to address the same conditions most companies face today: the need for fast, flexible processes that give customers what they want, when they want it, at the highest quality and affordable cost.

A focus on "flow" has continued to be a foundation for Toyota's success globally in the 21st century.

Unfortunately, most companies are still using the mass production techniques that worked so well for Henry Ford in the 1920s, when flexibility and customer choice were not important. The mass production focus on efficiency of individual processes goes back to Frederick Taylor and his "scientific management" at the beginning of the 20th century. Like the creators of the Toyota Production System, Taylor tried to eliminate waste from production processes. He observed workers and tried to eliminate every second of inefficient motion. Mass production thinkers have long understood that machine downtime is another obvious non-value-added waste—a machine shut down for repair is not making parts that could make money. But consider the following counter-intuitive truths about non-value-added waste within the philosophy of TPS. Often the best thing you can do is to idle a machine and stop producing parts. You do this to avoid over production, the fundamental waste in TPS. Often it is best to build up an inventory of finished goods in order to level out the production schedule, rather than produce according to the actual fluctuating demand of customer orders. Leveling out the schedule (heijunka) is a foundation for flow and pull systems and for minimizing inventory in the supply chain. (Leveling production means smoothing out the volume and mix of items produced so there is little variation in production from day to day.) Often it is best to selectively add and sub...

In other words, Toyota's solutions to particular problems often seem to add waste rather than eliminate it. The reason for these seemingly paradoxical solutions is that Ohno had learned from his experiences walking the shop floor a very particular meaning of non-valued-added waste: it had little to do with running labor and equipment as hard as possible, and everything to do with the manner in which raw material is transformed into a saleable commodity. For Ohno, the purpose of his journey through the shop floor was to identify activities that added value to raw material, and get rid of everything else. He learned to map the value stream of the raw material moving to a finished product that the customer was willing to pay for. This was a radically different approach from the mass production thinking of merely identifying, enumerating, and eliminating the wasted time and effort in the existing production processes.

As you make Ohno's journey for yourself, and look at your own organization's processes, you will see materials, invoicing, service calls, and prototype parts in R&D (you fill in the blank for your business process) being transformed into something the customer wants. But on closer inspection, they are often being diverted into a pile, someplace where they sit and wait for long periods of time, until they can be moved to the next process or transformation. Certainly, people do not like to be diverted from their journeys and to wait on long lines. Ohno viewed material as having the same degree of impatience. Why? If any large batches of material are produced and then sit and wait to be processed, if service calls are backed up, if R&D is receiving prototype parts they don't have time to test, then this sitting and waiting to move to the next operation becomes waste. This results in both your internal and external customers becoming impatient. This is why TPS starts with the customer, by asking, "What value are we adding from the ...

way, experienced leaders within Toyota kept telling me that these tools and techniques were not the key to TPS. Rather the power behind TPS is a company's management commitment to continuously invest in its people and promote a culture of continuous improvement.

Let's say you bought a book on creating one-piece flow cells or perhaps went to a training class or maybe even hired a lean consultant. You pick a process and do a lean improvement project. A review of the process reveals lots of "muda" or "waste," Toyota's term for anything that takes time but does not add value for your customer. Your process is disorganized and the place is a mess. So you clean it up and straighten out the flow in the process. Everything starts to flow faster. You get better control over the process. Quality even goes up. This is exciting stuff so you keep doing it on other parts of the operation. What's so hard about this? I have visited hundreds of organizations that claim to be advanced practitioners of lean methods. They proudly show off their pet lean project. And they have done good work, no doubt. But having studied Toyota for twenty years it is clear to me that in comparison they are rank amateurs. It took Toyota decades of creating a lean culture to get to where they are and they still believe they are just learning to understand "the Toyota Way." What percent of companies outside of Toyota and their close knit group of suppliers get an A or even a B+ on lean? I cannot say precisely but it is far less than 1%.

The problem, I believe, is that U.S. companies have embraced lean tools but do not understand what makes them work together in a system. Typically management adopts a few of these technical tools and even struggles to go beyond the amateurish application of them to create a technical system. But they do not understand the power behind true TPS: the continuous improvement culture needed to sustain the principles of the Toyota Way. Within the 4P model I mentioned earlier, most companies are dabbling at one level—the "Process" level (see Figure 1-2). Without adopting the other 3Ps, they will do little more than dabble because the improvements they make will not have the heart and intelligence behind them to make them sustainable throughout the company. Their performance will continue to lag behind those companies that adopt a true culture of continuous improvement.

Toyota challenges people to use their initiative and creativity to experiment and learn. It is interesting that labor advocates and humanists for years have criticized assembly line work as being oppressive and menial labor, robbing workers of their mental faculties. Yet when Toyota sets up assembly lines, it selects only the best and brightest workers, and challenges them to grow in their jobs by constantly solving problems. Similarly, Toyota staffs sales, engineering, service parts, accounting, human resources, and every aspect of the business with carefully selected individuals and gives them the directive to improve their processes and find innovative ways to satisfy their customers. Toyota is a true learning organization that has been evolving and learning for most of a century.

I plan to cut down on the slack time within work processes and in the shipping of parts and materials as much as possible. As the basic principle in realizing this plan, I will uphold the "just in time" approach. The guiding rule is not to have goods shipped too early or too late."1 —Kiichiro Toyoda, founder of Toyota Motor Company, 1938

TPS is the next major evolution in efficient business processes after the mass production system invented by Henry Ford, and it has been documented, analyzed, and exported to companies across industries throughout the world. Outside of Toyota, TPS is often known as "lean" or "lean production," since these were the terms made popular in two best-selling books, The Machine That Changed the World (Womack, Jones, Roos, 1991) and Lean Thinking (Womack, Jones, 1996). The authors make it clear, however, that the foundation of their research on lean is TPS and Toyota's development of it.

Among his inventions was a special mechanism to automatically stop a loom whenever a thread broke—an invention that evolved into a broader system that became one of the two pillars of the Toyota Production System, called jidoka (automation with a human touch). Essentially, jidoka means building in quality as you produce the material or "mistake proofing." It also refers to designing operations and equipment so your workers are not tied to machines and are free to perform value-added work.

his broader contribution to the development of Toyota was his philosophy and approach to his work, based on a zeal for continuous improvement. Interestingly, this philosophy, and ultimately the Toyota Way, was significantly influenced by his reading of a book first published in England in 1859 by Samuel Smiles entitled Self-Help (Smiles, 2002). It preaches the virtues of industry, thrift, and self-improvement, illustrated with stories of great inventors like James Watt, who helped develop the steam engine. The book so inspired Sakichi Toyoda that a copy of it is on display under glass in a museum set up at his birth site.

Everyone should tackle some great project at least once in their life. I devoted most of my life to inventing new kinds of looms. Now it is your turn. You should make an effort to complete something that will benefit society. (Reingold, 1999)

Shoichiro Toyoda, his son, described Kiichiro Toyoda as a "genuine engineer" who: … gave genuine thought to an issue rather than rely on intuition. He always liked to accumulate facts. Before he made the decision to make an automobile engine he made a small engine. The cylinder block was the most difficult thing to cast, so he gained a lot of experience in that area and, based on the confidence he then had, he went ahead. (Reingold, 1999)

Kiichiro Toyoda took a different approach. He accepted responsibility for the failing of the automobile company and resigned as president, even though in reality the problems were well beyond his or anyone else's control. His personal sacrifice helped to quell worker dissatisfaction. More workers voluntarily left the company and labor peace was restored. However, his tremendous personal sacrifice had a more profound impact on the history of Toyota. Everyone in Toyota knew what he did and why. The philosophy of Toyota to this day is to think beyond individual concerns to the long-term good of the company, as well as to take responsibility for problems. Kiichiro Toyoda was leading by example in a way that is unfathomable to most of us.

A key enabler of mass production's success was the development of precision machine tools and interchangeable parts (Womack, Jones, Roos, 1991). Using principles from the scientific management movement pioneered by Frederick Taylor, Ford also relied heavily on time studies, very specialized tasks for workers, and a separation between the planning done by engineers and the work performed by workers.

Toyota did not have the luxury of creating waste, it lacked warehouse and factory space and money, and it didn't produce large volumes of just one type of vehicle. But it determined it could use Ford's original idea of continuous material flow (as illustrated by the assembly line) to develop a system of one-piece flow that flexibly changed according to customer demand and was efficient at the same time. Flexibility required marshaling the ingenuity of the workers to continually improve processes.

In the 1950s, Ohno returned to the place he understood best, the shop floor, and went to work to change the rules of the game. He did not have a big consulting firm, Post-it® notes, or PowerPoint to reinvent his business processes. He could not install an ERP system or use the Internet to make information move at the speed of light. But he was armed with his shop-floor knowledge, dedicated engineers, managers, and workers who would give their all to help the company succeed. With this he began his many "hands-on" journeys through Toyota's few factories, applying the principles of jidoka and one-piece flow. Over years and then decades of practice, he had come up with the new Toyota Production System.3 Of course, Ohno and his team did not do this alone. Along with the lessons of Henry Ford, TPS borrowed many of its ideas from the U.S. One very important idea was the concept of the "pull system," which was inspired by American supermarkets. In any well-run supermarket, individual items are replenished as each item begins to run low on the shelf. That is, material replenishment is initiated by consumption. Applied to a shop floor, it means that Step 1 in a process shouldn't make (replenish) its parts until the next process after it (Step 2) uses up its original supply of parts from Step 1 (that is down to a small amount of "safety stock"). In TPS, when Step 2 is down to a small amount of safety stock, this triggers a signal to Step 1 asking it for more parts. This is similar t...

shortening lead time by eliminating waste in each step of a process leads to best quality and lowest cost, while improving safety and morale.

They were innovators, they were pragmatic idealists, they learned by doing, and they always believed in the mission of contributing to society. They were relentless in achieving their goals. Most importantly, they were leaders who led by example.

Way. Toyota's own internal Toyota Way document talks about the "spirit of challenge" and the acceptance of responsibility to meet that challenge. The document states: We accept challenges with a creative spirit and the courage to realize our own dreams without losing drive or energy. We approach our work vigorously, with optimism and a sincere belief in the value of our contribution. And further: We strive to decide our own fate. We act with self-reliance, trusting in our own abilities. We accept responsibility for our conduct and for maintaining and improving the skills that enable us to produce added value.

Actually kaizen means "change for the better" and can refer to very large changes or small, incremental changes. Because Western firms tend to focus on breakthrough innovation and are weak at continuously improving in small amounts, this has been the focus of teaching kaizen to Western firms. Sometimes kaikaiku is used to refer to major, revolutionary changes.

Many good American companies have respect for individuals, and practice kaizen and other TPS tools. But what is important is having all the elements together as a system. It must be practiced every day in a very consistent manner—not in spurts—in a concrete way on the shop floor. —Fujio Cho, President, Toyota Motor Corporation

When applying TPS, you start with examining the manufacturing process from the customer's perspective. The first question in TPS is always "What does the customer want from this process?" (Both the internal customer at the next steps in the production line and the final, external customer.) This defines value. Through the customer's eyes, you can observe a process and separate the value-added steps from the non-value-added steps. You can apply this to any process—manufacturing, information, or service.

Toyota has identified seven major types of non-value-adding waste in business or manufacturing processes, which are described below. You can apply these to product development, order taking, and the office, not just a production line. There is an eighth waste, which I have included. 1. Overproduction. Producing items for which there are no orders, which generates such wastes as overstaffing and storage and transportation costs because of excess inventory. 2. Waiting (time on hand). Workers merely serving to watch an automated machine or having to stand around waiting for the next processing step, tool, supply, part, etc., or just plain having no work because of stockouts, lot processing delays, equipment downtime, and capacity bottlenecks. 3. Unnecessary transport or conveyance. Carrying work in process (WIP) long distances, creating inefficient transport, or moving materials, parts, or finished goods into or out of storage or between processes. 4. Overprocessing or incorrect processing. Taking unneeded steps to process the parts. Inefficiently processing due to poor tool and product design, causing unnecessary motion and producing defects. Waste is generated when providing higher-quality products than is necessary. 5. Excess inventory. Excess raw material, WIP, or finished goods causing longer lead times, obsolescence, damaged goods, transportation and storage costs, and delay. Also, extra inventory hides problems such as production imbalances, late deliv...

Ohno considered the fundamental waste to be overproduction, since it causes most of the other wastes. Producing more than the customer wants by any operation in the manufacturing process necessarily leads to a build-up of inventory somewhere downstream: the material is just sitting around waiting to be processed in the next operation. Mass or larger-batch manufacturers might ask, "What's the problem with this, as long as people and equipment are producing parts?" The problem is that big buffers (inventory between processes) lead to other suboptimal behavior, like reducing your motivation to continuously improve your operations. Why worry about preventive maintenance on equipment when shutdowns do not immediately affect final assembly anyway? Why get overly concerned about a few quality errors when you can just toss out defective parts? Because by the time a defective piece works its way to the later operation where an operator tries to assemble that piece, there may be weeks of bad parts in process and sitting in buffers.1

the first thing you should do in approaching any process is to map the value stream following the circuitous path of material (or paper or information) through your process. It is best to walk the actual path to get the full experience. You can draw this path on a layout and calculate the time and distance traveled and then give it the highly technical name of "spaghetti diagram." Even people who have worked inside a factory for most of their adult lives will be amazed at the results of this exercise.

The traditional approach to process improvement focuses on identifying local efficiencies—"Go to the equipment, the value-added processes, and improve uptime, or make it cycle faster, or replace the person with automated equipment." The result might be a significant percent improvement for that individual process, but have little impact on the overall value stream. This is especially true because in most processes there are relatively few value-added steps, so improving those value-added steps will not amount to much. Without lean thinking, most people can't see the huge opportunities for reducing waste by getting rid of or shrinking non-value-added steps.

In a lean improvement initiative, most of the progress comes because a large number of non-value-added steps are squeezed out. In the process, the value-added time is also reduced.

In lean manufacturing, a cell consists of a close arrangement of the people, machines, or workstations in a processing sequence. You create cells to facilitate one-piece flow of a product or service, through various operations, for example, welding, assembly, packing, one unit at a time, at a rate determined by the needs of the customer and with the least amount of delay and waiting.

Take the case of the nut. If you line up the processes needed to create it in a cell and then pass the nut or very small lots of nuts from one operation to another in a one-piece flow, what once took weeks to complete can now be done in hours. And this case is not unusual. The magic of making huge gains in productivity and quality and big reductions in inventory, space, and lead time through one-piece flow has been demonstrated over and over in companies throughout the world. It always seems miraculous and the results are always the same. This is why the one-piece-flow cell is the ultimate in lean production. It has eliminated most of Toyota's eight kinds of waste.

In fact, the ultimate goal of lean manufacturing is to apply the ideal of one-piece flow to all business operations, from product design to launc...

JIT means removing, as much as possible, the inventory used to buffer operations against problems that may arise in production. The ideal of one-piece flow is to make one unit at a time at the rate of customer demand or takt (German word for meter). Using smaller buffers (removing the "safety net") means that problems like quality defects become immediately visible. This reinforces jidoka, which halts the production process. This means workers must resolve the problems immediately and urgently to resume production.

At the foundation of the house is stability. Ironically, the requirement for working with little inventory and stopping production when there is a problem causes instability and a sense of urgency among workers. In mass production, when a machine goes down, there is no sense of urgency: the maintenance department is scheduled to fix it while inventory keeps the operations running. By contrast, in lean production, when an operator shuts down equipment to fix a problem, other operations will soon stop producing, creating a crisis. So there is always a sense of urgency for everyone in production to fix problems together to get the equipment up and running. If the same problem happens repeatedly, management will quickly conclude that this is a critical situation and it may be time to invest in Total Productive Maintenance (TPM), where everyone learns how to clean, inspect, and maintain equipment. A high degree of stability is needed so that the system is not constantly stopped. People are at the center of the house because only through continuous improvement can the operation ever attain this needed stability. People must be trained to see waste and solve problems at the root cause by repeatedly asking why the problem really occurs. Problem solving is at the actual place to see what is really going on (genchi genbutsu).

eliminating waste does not imply creating stressful, unsafe work practices. As Ohno wrote:2 Every method available for man-hour reduction to reduce cost must, of course, be pursued vigorously; but we must never forget that safety is the foundation of all our activities. There are times when improvement activities do not proceed in the name of safety. In such instances, return to the starting point and take another look at the purpose of that operation. Never be satisfied with inaction. Question and redefine your purpose to attain progress.