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

by Jeffrey K. Liker

TPS is not a toolkit. It is not just a set of lean tools like just-in-time, cells, 5S (sort, stabilize, shine, standardize, sustain, discussed in Chapter 13), kanban, etc. It is a sophisticated system of production in which all of the parts contribute to a whole. The whole at its roots focuses on supporting and encouraging people to continually improve the processes they work on. Unfortunately, many books about lean manufacturing reinforce the misunderstanding that TPS is a collection of tools that lead to more efficient operations. The purpose of these tools is lost and the centrality of people is missed. When looked at more broadly, TPS is about applying the principles of the Toyota Way. The initial focus was on the shop floor, but the principles are broad and, in fact, apply just as well to engineering and business service operations.

Since Toyota's founding we have adhered to the core principle of contributing to society through the practice of manufacturing high-quality products and services. Our business practices and activities based on this core principle created values, beliefs and business methods that over the years have become a source of competitive advantage. These are the managerial values and business methods that are known collectively as the Toyota Way. —Fujio Cho, President Toyota (from the Toyota Way document, 2001)

(Kanban is the Japanese word for "card," "ticket," or "sign" and is a tool for managing the flow and production of materials in a Toyota-style "pull" production system.)

You plug in the andon, which is a visual control device in a production area that alerts workers to defects, equipment abnormalities, or other problems using signals such as lights, audible alarms, etc.

In the Toyota Way, it's the people who bring the system to life: working, communicating, resolving issues, and growing together.

From the first look at excellent companies in Japan practicing lean manufacturing, it was clear that the workers were active in making improvement suggestions. But the Toyota Way goes well beyond this; it encourages, supports, and in fact demands employee involvement.

The Toyota Way means more dependence on people, not less. It is a culture, even more than a set of efficiency and improvement techniques. You depend upon the workers to reduce inventory, identify hidden problems, and fix them. The workers have a sense of urgency, purpose, and teamwork because if they don't fix it there will be an inventory outage. On a daily basis, engineers, skilled workers, quality specialists, vendors, team leaders, and—most importantly—operators are all involved in continuous problem solving and improvement, which over time trains everyone to become better problem solvers.

One lean tool that facilitates this teamwork is called 5S (sort, stabilize, shine, standardize, sustain, discussed in Chapter 13), which is a series of activities for eliminating wastes that contribute to errors, defects, and injuries. In this improvement method, the fifth S, sustain, is arguably the hardest. It's the one that keeps the first four S's going by emphasizing the necessary education, training, and rewards needed to encourage workers to properly maintain and continuously improve operating procedures and the workplace environment. This effort requires a combination of committed management, proper training, and a culture that makes sustaining improvement a habitual behavior from the shop floor to management.

Principle 1. Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals. Have a philosophical sense of purpose that supersedes any short-term decision making. Work, grow, and align the whole organization toward a common purpose that is bigger than making money. Understand your place in the history of the company and work to bring the company to the next level. Your philosophical mission is the foundation for all the other principles. Generate value for the customer, society, and the economy—it is your starting point. Evaluate every function in the company in terms of its ability to achieve this. Be responsible. Strive to decide your own fate. Act with self-reliance and trust in your own abilities. Accept responsibility for your conduct and maintain and improve the skills that enable you to produce added value.

Section II: The Right Process Will Produce the Right Results Principle 2. Create continuous process flow to bring problems to the surface. Redesign work processes to achieve high value-added, continuous flow. Strive to cut back to zero the amount of time that any work project is sitting idle or waiting for someone to work on it. Create flow to move material and information fast as well as to link processes and people together so that problems surface right away. Make flow evident throughout your organizational culture. It is the key to a true continuous improvement process and to developing people.

Principle 3. Use "pull" systems to avoid overproduction. Provide your downline customers in the production process with what they want, when they want it, and in the amount they want. Material replenishment initiated by consumption is the basic principle of just-in-time. Minimize your work in process and warehousing of inventory by stocking small amounts of each product and frequently restocking based on what the customer actually takes away. Be responsive to...

Principle 4. Level out the workload (heijunka). (Work like the tortoise, not the hare.) Eliminating waste is just one-third of the equation for making lean successful. Eliminating overburden to people and equipment and eliminating unevenness in the production schedule are just as important—yet generally not understood at companies attempting to implement lean principles. Work to level out the workload of all manufacturing and service proce...

Principle 5. Build a culture of stopping to fix problems, to get quality right the first time. Quality for the customer drives your value proposition. Use all the modern quality assurance methods available. Build into your equipment the capability of detecting problems and stopping itself. Develop a visual system to alert team or project leaders that a machine or process needs assistance. Jidoka (machines with human intelligence) is the foundation for "building in" quality. Build into your organization support systems to quickly solve problems and put in place countermeas...

Principle 6. Standardized tasks are the foundation for continuous improvement and employee empowerment. Use stable, repeatable methods everywhere to maintain the predictability, regular timing, and regular output of your processes. It is the foundation for flow and pull. Capture the accumulated learning about a process up to a point in time by standardizing today's best practices. Allow creative and individual expression to improve upon the standard; t...

Principle 7. Use visual control so no problems are hidden. Use simple visual indicators to help people determine immediately whether they are in a standard condition or deviating from it. Avoid using a computer screen when it moves the worker's focus away from the workplace. Design simple visual systems at the place where the work is done, to support flow and pull. Reduce...

Principle 8. Use only reliable, thoroughly tested technology that serves your people and processes. Use technology to support people, not to replace people. Often it is best to work out a process manually before adding technology to support the process. New technology is often unreliable and difficult to standardize and therefore endangers "flow." A proven process that works generally takes precedence over new and untested technology. Conduct actual tests before adopting new technology in business processes, manufacturing systems, or products. Reject or modify technologies that conflict with your culture or that might disrupt stability, reliability, and predictability. Nevertheless, encourage your people to con...

Principle 9. Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others. Grow leaders from within, rather than buying them from outside the organization. Do not view the leader's job as simply accomplishing tasks and having good people skills. Leaders must be role models of the company's philosophy and way of doing business. A good leader must understand the daily work in great detail so he or she can be the best teacher of your company's philosophy.

Principle 10. Develop exceptional people and teams who follow your company's philosophy. Create a strong, stable culture in which company values and beliefs are widely shared and lived out over a period of many years. Train exceptional individuals and teams to work within the corporate philosophy to achieve exceptional results. Work very hard to reinforce the culture continually. Use cross-functional teams to improve quality and productivity and enhance flow by solving difficult technical problems. Empowerment occurs when people use the company's tools to improve the company. Make an ongoing effort to teach individuals how to work together as teams toward common goals. Teamwork is something that has to be learned.

Principle 11. Respect your extended network of partners and suppliers by challenging them and helping them improve. Have respect for your partners and suppliers and treat them as an extension of your business. Challenge your outside business partners to grow and develop. It shows that you...

Principle 12. Go and see for yourself to thoroughly understand the situation (genchi genbutsu). Solve problems and improve processes by going to the source and personally observing and verifying data rather than theorizing on the basis of what other people or the computer screen tell you. Think and speak based on personally verified data. Even high-level managers and executives should go and see things for themselves, so they will have more than a superficial understanding of the situation.

Principle 13. Make decisions slowly by consensus, thoroughly considering all options; implement decisions rapidly. Do not pick a single direction and go down that one path until you have thoroughly considered alternatives. When you have picked, move quickly but cautiously down the path. Nemawashi is the process of discussing problems and potential solutions with all of those affected, to collect their ideas and get agreement on a path forward. This consensus process, though time-consuming, helps broaden the search for solutions, and once a decision is made, the stage is set for rapid implementation.

Principle 14. Become a learning organization through relentless reflection (hansei) and continuous improvement (kaizen). Once you have established a stable process, use continuous improvement tools to determine the root cause of inefficiencies and apply effective countermeasures. Design processes that require almost no inventory. This will make wasted time and resources visible for all to see. Once waste is exposed, have employees use a continuous improvement process (kaizen) to eliminate it. Protect the organizational knowledge base by developing stable personnel, slow promotion, and very careful succession systems. Use hansei (reflection) at key milestones and after you finish a project to openly identify all the shortcomings of t...

Even if the target seems so high as to be unachievable at first glance, if you explain the necessity to all the people involved and insist upon it, everyone will become enthusiastic in the spirit of challenge, will work together, and achieve it. —Ichiro Suzuki, chief engineer of the first Lexus

There are many levels of innovation—from the small workplace changes made by plant workers on the shop floor to fundamental breakthroughs in production technology and vehicle engineering. It's also true that most of what goes on in Toyota's vehicle centers is routine product development making incremental change from one model to the next. But the beauty of the Toyota Way is that it allows Toyota to periodically break from this "conservative" mold and innovatively develop a new vehicle with a new developmental approach. These are defining moments for Toyota.

matter. Efficiency does not equal effectiveness when it comes to developing a new product. Effectiveness starts with what is popularly being called the "fuzzy front end," when judgment and qualitative data often play a greater role than precise scientific and engineering analysis.

Creativity, Challenge and Courage: the Three C's —Shoichiro Toyoda, former President, 1980s

Go slow, build on the past, and thoroughly consider all implications of decisions, yet move aggressively to beat the competition to market with exceptional products that break the mold. This is the Toyota Way.

The most important factors for success are patience, a focus on long-term rather than short-term results, reinvestment in people, product, and plant, and an unforgiving commitment to quality. —Robert B. McCurry, former Executive V.P., Toyota Motor Sales

Do the right thing for the company, its employees, the customer, and society as a whole. Toyota's strong sense of mission and commitment to its customers, employees, and society is the foundation for all the other principles and the missing ingredient in most companies trying to emulate Toyota.

The perception that everybody had at that time was that the Toyota Production System just worked people to death. It was just basically "Speed up!" In fact, I remember the first meeting we had in the union hall with union leadership and there was this gentleman by the name of Gus Billy. He was sitting at the end of the table and we were talking about the Toyota Production System and kaizen, etc. He said, "It sounds like a production speed-up to me. It's the whole concept of making all these suggestions, trying to suggest your way out of a job."

So you can't just say human resources are our most important asset; you have to walk the talk every day. And people really watch what you do, rather than listen to what you say.

Toyota Motor Company founder, Kiichiro Toyoda, said: My father was not educated. The only strength he had was to believe in one thing all the way: that the Japanese have latent capabilities. The automatic loom was the product of this conviction.

In Toyota Way 2001 it states: "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."

Toyota does not mention stockholders, even though at this time it was listed on the New York Stock Exchange. It does not even mention the quality of its products even though we know that is a passion within Toyota. The purpose of Toyota is not to make a quality product that will sell well and make money for owners. That is a requirement in order to achieve the mission. The true mission, according to this statement, has three parts: Figure 7-1. Toyota's mission versus Ford's 1. Contribute to the economic growth of the country in which it is located (external stakeholders). 2. Contribute to the stability and well being of team members (internal stakeholders). 3. Contribute to the overall growth of Toyota.

quality guru W. Edwards Deming's famous edict: "Constancy of purpose." Constancy of purpose explains why, in any given year, if you bet Toyota will make a profit, you will probably win. If you bet that its sales will grow over the year before, you will probably win. You will not see huge growth spurts from one year to the next or major shifts in strategy. You will not see boardroom coups where a new regime takes over and remakes the company. Rather, you will see a slow and steady movement forward year in and year out. This is "constancy of purpose," as I believe Deming envisioned it, that goes beyond short-term profits and enriching a few executives. The Toyota Way is about adding value to customers, employees, and society. It provides a framework for Toyota to make short-term and long-term decisions, and it rallies employees around a shared purpose that is bigger than any of them.

If some problem occurs in one-piece flow manufacturing then the whole production line stops. In this sense it is a very bad system of manufacturing. But when production stops everyone is forced to solve the problem immediately. So team members have to think, and through thinking team members grow and become better team members and people. —Teruyuki Minoura, former President, Toyota Motor Manufacturing, North America

A good place for any company to begin the journey to lean is to create continuous flow wherever applicable in its core manufacturing and service processes. Flow is at the heart of the lean message that shortening the elapsed time from raw materials to finished goods (or services) will lead to the best quality, lowest cost, and shortest delivery time. Flow also tends to force the implementation of a lot of the other lean tools and philosophies such as preventative maintenance and built-in quality (jidoka). A lean expression is that lowering the "water level" of inventory exposes problems (like rocks in the water) and you have to deal with the problems or sink. Creating flow, whether of materials or of information, lowers the water level and exposes inefficiencies that demand immediate solutions. Everyone concerned is motivated to fix the problems and inefficiencies because the process will shut down if they don't. Traditional business processes, in contrast, have the capacity to hide vast inefficiencies without anyone noticing—people just assume that a typical process takes days or weeks to complete. They don't realize that a lean process might accomplish the same thing in a matter of hours or even minutes.

To illustrate the fact that most business processes are full of waste, let's say you have been promoted and you place an order for new office furniture with a genuine wood desk and ergonomic chair and drawers and compartments galore. You can't wait to get rid of that old scuffed and stained furniture you currently have. But don't turn in the old stuff just yet. For one thing, the promised delivery date is eight weeks out and, if you investigate further, the furniture is likely to be late by another month or so. Why does it take so long? Are skilled craftsmen slaving away at each piece of wood so it looks perfect? A nice thought, but quality has little to do with the delays. Your inconvenience is a result of a clumsy manufacturing process called batch and queue. Your desk and office chair are mass-produced in stages. Large batches of standardized material sit in a queue at each stage of the production process and wait for long periods of (wasted) time until they are moved to the next stage of production. Consider the custom-made office chair that is delivered two months after you order it. The value-added work (i.e., the work actually performed) in the assembly process consists of putting together the upholstery and cover with the standard foam cushions and then bolting together the chair. This takes a few hours at most. Actually making the fabric and foam and frame and parts, which are done in parallel, takes another day at most. Everything else during the two months you a...

How do you distinguish the value-added work from waste? Consider an office where engineers are all very busy designing products, sitting in front of the computer, looking up technical specifications, and having meetings with co-workers or suppliers. Are they doing value-added work? The answer is you cannot measure an engineer's value-added productivity by looking at what he or she is doing. You have to follow the progress of the actual product the engineer is working on as it is being transformed into a final product (or service). Engineers transform information into a design, so you look at such things as 1) at what points do the engineers make decisions that directly affect the product? and 2) when do the engineers actually conduct important tests or do an analysis that impacts those decisions? When you start asking these kinds of questions, you're likely to find that typical engineers (or any white-collar professionals) are working like maniacs churning out all sorts of information. The problem is that very little of their work is truly "value added," i.e., work that ends up actually shaping the final product. Consider the example of an engineering analysis group. They generate and accumulate various complex analyses for a project. Then what happens? The reports sit and wait in an information warehouse (inventory) until someone from another department accesses the reports. If we continue to follow the path of the information, you'll most likely find that any decisions b...

What is the ideal way to organize your equipment and processes? In traditional mass production thinking (the way most companies are organized), the answer seems obvious: group similar machines and similarly skilled people together. So mass production thinking sets up departments of mechanical engineering, electrical engineering, accounting, purchasing, and manufacturing as well as departments for stamping, welding, wire soldering, assembly, and the like. The following were the perceived benefits of grouping similarly skilled people and equipment together: 1. Economies of scale. First and foremost, mass production thinking was about squeezing the most production possible at the lowest cost per unit out of every piece of equipment or every worker in a manual operation. Having one huge stamping press to meet the needs of all the factory's products would lead to the smallest capital cost per piece. And then you wanted to run that press flat-out 100% of the time to get the greatest asset utilization. Similarly, by organizing people into departments, you can focus on best practices in each professional specialty and squeeze the highest productivity (or innovation) possible out of each person. 2. Apparent flexibility in scheduling. When you put all the welders together in one department, it's easier for the welding department manager to schedule available machines and welders to any job that comes up. If you create one-piece flow cells, you take those welding machines and...

In mass production thinking, once you have decided to group all the similar types of people and processes together by department, the next question is how often should you move material or information between departments? Since you have organized your people and equipment by specialty, you must create another specialty, the material handling department or the planning department, to move material. That department is also measured by efficiency. The most efficient way to utilize a person moving material is to get that person to move the most material possible each trip. From the viewpoint of the material handling department, the optimal time to move material from one department to the next is when there is a large batch. The goal is to move the material once a day or, even better yet, once a week.

Lean thinking looks at this way of organizing production and sees a company producing a lot of work-in-process (WIP) inventory. The fastest equipment, such as stamping, will build up the most WIP. Material sitting in inventory is caused by the most fundamental waste, overproduction. The mass production system guarantees overproduction in large batches, which in turn guarantees inventory sitting idle and taking up valuable plant space and, more importantly, hiding problems.

Another problem with organizing similar professional specialties and similar manufacturing equipment together into departments is that a product being made for a customer does not live in just one department. It must move across departments to become what the customer wants. Engineering, purchasing, and accounting are all located in different departments. Yet many value streams cross through these departments, causing a delay each time a process enters a new department. In a one-piece flow, you physically line up the processes in the sequence that will produce the customer's order in the shortest time.

In lean thinking, the ideal batch size is always the same—one. That is because Ohno was not trying to optimize the utilization of people and equipment in each department. When the Toyota factory was first organized, it was operating this way—like Ford's factories. But this didn't work, because Toyota could not compete with Ford's volume and economies of scale. So Ohno decided to optimize the flow of material so it would move more quickly through the factory. This meant reducing batch size. And the fastest way to achieve this was to blow up departments and "process islands" and create work cells that were grouped by product, rather than by process.

If Ohno were to manage this process, he would take the equipment needed to make one base from the base department, the equipment for making a monitor from the monitor department, and a test stand from the test department and then put these three processes next to each other. That is, he would have created a cell to achieve one-piece flow. Then he would have made clear that operators were not allowed to build up inventory between the three operations.

Often we think that increasing the speed of a process means compromising quality, that faster is sloppier. But flow achieves just the opposite—it generally improves quality. In

The reality is that in a large batch operation there are probably weeks of work in process between operations and it can take weeks or even months from the time a defect was caused until it is discovered. By then the trail of cause and effect is cold, making it nearly impossible to track down and identify why the defect occurred.

The same logic applies to a business or engineering process. Let individual departments do the work in batches and pass the batches to other departments and you guarantee major delays in getting work done. Lots of excessive bureaucracy will creep up, governing the standards for each department, and lots of non-value-adding positions will be created to monitor the flow. Most of the time will be spent with projects waiting for decisions or action. The result will be chaos and poor quality. Take the right people who do the value-added work, line them up, and flow the project through those people with appropriate meetings to work on integration and you will get speed, productivity, and better quality results.

In competitive rowing, a key position is the coxswain—the little person in the back of the boat who is calling "row, row, row." He or she is coordinating the activities of all the rowers so they are rowing at the same speed. Get a maverick rower who outperforms everyone else and guess what!—the boat gets out of kilter and slows down. Extra power and speed can actually slow the boat down.

A similar thing occurs in any manufacturing or service operation. Make one particular department extra efficient and it can actually bury other departments in excess inventory and paperwork and slow them down, making a mess of things. So there is a need to coordinate activities. When you set up one-piece flow in a cell, how do you know how fast the cell should be designed to go? What should the capacity of the equipment be? How many people do you need? The answer is the takt time.