Lean Six Sigma Academy

Guest Post by Jason Stokes

As practitioners of lean, we’re all in favor of using this powerful methodology to ensure we efficiently manufacture to customer demand while increasing throughput at the lowest possible cost.

However, often times it seems we only focus on half the equation – filling the demand that customers have for our products.

Toyota Stagnant

Toyota is often heralded as the champion of lean, through books like The Toyota Way, through Taiichi Ohno’s teachings, and through countless blog posts that reference the stellar way they do business. Why, then, if Toyota is a manufacturer we all need to emulate, are they not gaining business over their competition, especially Honda?

Toyota’s sales were down 8.3% by volume YTD in August. Honda’s sales were up 1.2%. These numbers would probably look worse in dollar amounts, given the product mix.

Honda Delivers

What gives? Simple.  Toyota is a great manufacturer. Honda makes vehicles people want to buy.

Honda manufactures 9 models for sale in the United States:

5 Trucks / SUVs / Vans:

1. Odyssey - Minivan
2. Pilot - Large SUV
3. CR-V - Small SUV
4. Element - Medium SUV
5. Ridgeline - Pickup Truck

4 Cars:

1. Fit - Ultracompact Car
2. Civic - Compact Car
3. Accord - Mid Size Car
4. S2000 - Sport Convertible

Toyota needs to Rationalize?

Toyota, by comparison, manufactures 18 models:

9 Trucks / SUVs / Vans:

1. Sienna - Minivan
2. RAV4 - Small SUV
3. FJ Cruiser - Small SUV
4. 4Runner - Medium SUV
5. Highlander - Medium SUV
6. Land Cruiser - Large SUV
7. Sequioa - Large SUV
8. Tacoma - Pickup Truck
9. Tundra - Pickup Truck

9 Cars:

1. Yaris - Compact Car
2. Corolla - Compact Car
3. Camry - Mid Size Car
4. Avalon - Full Size Car
5. Prius - Hybrid
6. Scion xA - no idea
7. Scion xB - no idea
8. Scion tC - Compact Car
9. Scion xD - no idea

Toyota’s car sales were down 8.3%, while their truck sales were down 16.8%.

Toyota, by virtue of its product mix, has set itself behind its primary competitor. It has added considerable complexity to the mix, by adding the Scion line of cars and a bevy of virtually indistinguishable models, along with a large stable of trucks and SUVs, which, as we are all well aware, have been hammered by high gas prices.

The Prius

Toyota’s one bright spot, the Prius, actually sold less through August 2008 than through August 2007. With customers clamoring for this vehicle, what happened? Toyota wasn’t able to predict demand well enough and was caught without the ability to sell its cars.

Keeping it Simple

Honda, on the other hand, has kept its product offerings simple, and has been able to capitalize on the small car push by selling 10% more Accords and Civics this year than last.

By marketing cars that people want to purchase instead of a stable of SUVS with no demand, Honda has kept sales flowing in the face of a tough market.

Customer is King

We must always remember that while we can be the leanest manufacturer in the world, it matters little if no one wants to buy our product.

Takt time = Net Available Time / Customer Demand

What happens to takt time if customer demand is zero?

If you don’t already read Jon Miller’s excellent blog you’ll want to pay a visit and read his most recent article “Toyota’s Top Engineer on How to Develop Thinking People.”

The original article Jon references is in Japanese making it useless to most readers of this blog (and me)!  Luckily, Jon was raised in Japan and speaks and reads Japanese so he is able to translate it for us.

Here is a small snippet.

Hayashi: I was really afraid of Mr. Ohno when I was young. But I think he was developing thinking people. He never gave us the answer. When he gave us an assignment, he would just stand by and watch us fail, even if he knew the answer.

If you read one blog today (OK two since you are reading this one) make it Jon’s.  Here is the link.

When I launched Google News this morning my eyes were immediately drawn to the headline “Toyota Posts First Profit Drop in Three Years.”

To summarize the article:

Net income fell 28 percent to 316.8 billion yen ($3 billion) in the three months ended March from 440 billion yen a year earlier, Toyota said in Tokyo today. That was lower than the 375.2 billion yen median of six analyst estimates compiled by Bloomberg. Sales rose 3.8 percent to 6.57 trillion yen.

The article went on to say that slowing sales in America and a stronger Japanese currency have largely contributed to Toyota’s challenges.

While this news is not great for Toyota, it could be much worse.

GM reported a first-quarter loss of $3.25 billion last month because of deteriorating performance in North America.

With this said, there was one aspect of the article that did catch my eye with particular interest.

Toyota plans to raise prices for models including the FJ Cruiser sport-utility vehicle, Yaris compact and Prius hybrid by as much as 2.1 percent in North America later this month to help offset rising materials costs.

Much is made of the fact that lean producers should focus their efforts on reducing costs since the market sets the price. As I mentioned in a previous article, some lean practitioners seem to slightly misinterpret Taiichi Ohno’s famous formula: Profit = Price – Cost.

While I’m not sure you can classify these models as “luxury” vehicles as Ohno calls them in his explanation of this formula, one could argue hybrid cars are in such great demand Toyota, in fact, can set the price a little higher and get away with it.

What do you make of all this? Is Toyota in trouble? Or are they in the best position to come through these tough times better than their competition?

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Big, big news today as a top Toyota executive in the US, James Press, has been “poached” by Chrysler. This is at least the second big named Toyota person to jump ship for no doubt huge money.

Chrysler said Press will be charged with overseeing the vehicle maker’s North American sales, international sales, global marketing, product strategy and service and parts operations. The newly minted Chrysler executive also gains a seat on Chrysler’s board of directors and will also be appointed to an executive position at Cerberus Capital Management.

I am not sure what to make of this… but my initial, gut instinct, is this. Toyota is much bigger than one man. They will continue to prosper just fine without Mr. Press.  And I will not sit here and judge Mr. Press for his decision. I hope it works out for him.

My friend Mark over at the Lean Blog posted a respect for people question from a question he saw on the Lean Insider blog. 

For those new to this blog respect for people is an extremely important aspect of lean.  In fact many would say it is the most important aspect.  I would agree.

However, I sometimes wonder if the whole respect for people aspect of lean gets carried away from time to time.  I blogged about this before when we discussed whether laying people off was really anti-lean.  Now, as I explained after posting that article laying people off as a result of “lean activity” is the surest way to kill the initiative.  I don’t think anyone in their right mind would argue that.

But what if Toyota offers to relocate its worker to another American city (e.g. San Antonio, Kentucky, etc.) instead of staying in California?  Would that be respectful enough?  What if they also offer, to those not wanting to relocate, a sweet severance package on top of 90 additional days on the payroll where the employee could search for another job with the help of Toyota Human Resources and career counselors.  Would that work?

For some I am sure the only move Toyota can make in order to be “respectful” is to stay in CA and work to become more competitive.  After all, they will claim, Toyota wrote the book on respecting people so how dare they let that silly “for profit” aspect of their business model get in the way.

Ah hell, I don’t know.  What do you think?

Guy Kawasaki had an interesting post today in reference to the types of stories people like to talk about.  There were nine types discussed… but one immediately caught my eye.

David vs. Goliath. In the story of David and Goliath, the young Hebrew David took on the Philistine giant Goliath and beat him. It is the way Southwest Airlines conquered the big carriers, the way the once unknown Japanese car manufacturers took on Detroit, and the way social media is taking on the media giants. Sharing stories about how a small organization is taking on a big company is great business sport. Rooting for the underdog grabs our emotions, creates meaning, and invokes passion. We like to listen to the little guy talk about how he’s going to win and why the world—or the industry—will be a better place for it.

I am assuming one of the Japanese car manufacturers referenced is Toyota.   I have never thought of Toyota as a type of David.  I mean they are Toyota!  But when I stop to think of their history and how they rose from near death the parallel’s to the young David are strong.

The Irony

The irony of the situation is what happened with David after defeating Goliath.  In his older years David had some, well… let’s call them issues with the beautiful Bathsheba.  These issues included the sins of adultery and even murder.  Bad stuff indeed.

David, for those that don’t know how the story ends, did go on to repent and live his life in a contrite manner but the effects of his sins would never escape him.

Who is Toyota’s Bathsheba?

No one can argue that Toyota has slain the mighty Detroit 3.  Well, some may attempt to make the argument but they are in deep denial and should seek mental assistance in my humble opinion.

In this light, Toyota may be likened to the older David who did some terrible things and paid dearly.  While Toyota’s sins may not be adultery or murder (at least I sure hope not!) there could be other sins creep in like building too many plants, getting complacent with quality, and losing focus on the simple things that has helped them get to where they are today.

The Rest of the Story

Only time will tell how Toyota deals with its success.  I, for one, hope they continue to prosper.  But it’s never easy being on top since everyone is gunning for you and eventually some new up and coming company will become the new David.  And when this happens many will be all too happy to watch the mighty goliath fall.

Click here to watch a free video of Dr. Shankar Basu, president and CEO of Toyota Material Handling, USA.  This is NOT a sales pitch so don’t worry and Dr. Basu even speaks about reducing transportation which he half jokes will hurt his organizations business.  The video starts slow but stick with it as it covers lots of important ground.  Mr. Basu offers details behind Toyota’s success, including:

• Toyota Production System
• Kaizen
• TQM
• Push versus Pull
• Genchi Genbutsu
• Kanban
• Heijunka
• Jidoka
• Respect for People

He also discusses how the Toyota Way as discussed in Jeffrey Liker’s book “The Toyota Way” is actually a bit dated.  He mentions how the Toyota way was modified a bit in 2001.  This comes toward the end of the video.  The video is 54 minutes long but since the video is just of him standing there talking you can easily turn up the volume and work on other things while listening.

Again, click here to watch the video.  If that link doesn’t work try this one (you will have to register with this link which is free).

I bet the title of this post caught some of my Lean friends off guard.  Fear not I am not going to talk about how Lean is about eliminating waste and Six Sigma is about reducing variation.  I have said this before and regret it.  These are stupid statements and when someone says them you should smack them in the mouth.  Someone should have smacked me in the mouth when I said them in the past.  OK, so don’t actually smack them… that would not be too respectful.

With this said, there are times when I feel like a Toyota apologist.  You know acting as if Toyota is infallible.  Toyota is not infallible and after reading Jon Miller’s recent post: Toyota Number One in the World… in Recalls this was even more clear.

I am DEFINITELY not proposing Toyota run off and hire the hottest Six Sigma consulting firm and deploy Black Belts all over the world.  I am not even proposing they use the words “Six Sigma” at all.  Instead, I am just curious what would happen if a team of Toyota employees looked at some of their most recent quality issues with new eyes.

When I say new eyes I am not proposing “Lean” or “TPS” eyes are inferior to “Six Sigma” or “Deming” eyes.  But let’s be honest here… when was the last time you read about Toyota using Response Surface Methodology or Monte Carlo simulation?  Perhaps they do and this is just not written about. 

Six Sigma works when it is used the right way and for the right reason.  In fact, if someone claims otherwise they are just ignorant.  And guess what… TPS works when it is used the right way and for the right reason and if someone claims otherwise they are just ignorant.

But as I have tried to promote with this simple little blog of mine… TPS and Six Sigma are different.  Yes, they both attack problems, waste, variation, defects, etc.  But Six Sigma attempts to look at these problems in a slightly different manner and sometimes, without a doubt, is the best methodology for the job.

The problems with the bastardization of Six Sigma are many.  But at its core Six Sigma is amazing and borders on magic.  It is far more than creating a few process maps and calculating Cp and Cpk as so many sadly think.

I wonder if Toyota is willing to give this magic a shot.  We hear about President Watanabe wanting to focus on quality.  Don’t get me wrong the 5 Why’s and PDCA work.  But I would love to see Toyota add some more artillery to their guns as they press on and  confront these serious issues.

What do you think?

I had to travel Sunday for a Monday meeting. Since daylight savings time had just made us “spring forward” I needed to change the clock in my Toyota Corolla on the way to the airport. All I had to do was press the “H” button one time and the time was correct. Easy.Fast forward a few hours once I was in my rental car – a red Chrysler PT Cruiser. Now let me make one thing crystal clear… a red Chrysler PT Cruiser is not my style. I am more your silver Toyota Corolla type of guy but I digress.

Anyhow, when I got into the PT Cruiser I went to adjust the clock as it was off by an hour. I studied the clock for a few seconds and realized I needed to push this little button down while I waited for the STUPID analog arms of the analog clock move all the way around. The picture above was taken in the car. Well I had started to drive by this time (real safe I know) and was not paying attention so you can probably guess what happened next. I went more than one hour! So I had to press the button again, which had begun to hurt my finger, and wait for the STUPID analog arms of the analog clock go all the way back around.

It is entirely possible that you can make the arms move in reverse instead of just forward but I sure couldn’t figure it out. So I was forced to do it the hard (and painful) way.

It seems this is one more example of how a company like Toyota has taken the time to think of the voice of their customer while a company like Chrysler is more concerned with how some STUPID analog clock makes the dash more stylish. I was sure glad to be back in my nice little Corolla with my nice little analog clock.

Until next time, I wish you all the best on your journey towards continuous improvement.

Business Week recently interviewed Toyota’s chief, Katsuaki Watanabe. They discussed hot topics such as how Toyota is battling the “big company” disease, quality issues, and the potential backlash in America as they close in on GM.Until next time, I wish you all the best on your journey towards continuous improvement.