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Page 1 Copyright Jeffrey Liker
Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
The Toyota Way and
Supply Chain Management
Jeffrey K. Liker
Professor, Industrial and Operations Engineering
The University of Michiganand Principal, Optiprise, Inc.
Presentation for OESA Lean to Survive Program
2005
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Page 2 Copyright Jeffrey Liker
Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Supplier Gap: Toyota vs Big-3
Supplier Improvement, 1990-96 U.S. OEM(Chrysler, Ford, GM) Toyota
Defects (parts per million) -47% -84%
Sales/Direct Employee +1% +36%
Inventories/Sales -6% -35%
Toyota Supplier Advantage, 1996
PPM 35%
Inventories -25%
Output/worker 10%
Source: Jeff Dyer, based on 39 supplier plants serving Toyota + U.S. OEM
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Page 3 Copyright Jeffrey Liker
Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Philosophy(Long-term Thinking)
People and Partners
(Respect, Challenge and Grow Them)
Process(Eliminate Waste)
Problem
Solving(Continuous
Improvement and Learning)
Base management decisions on
a long-term philosophy, even
at the expense of short-term
financial goals
Grow leaders who live the philosophy
Respect, develop and challenge your people
and teams
Respect, challenge, and help your suppliers
Create process flow to surface problems
Level out the workload (Heijunka)
Stop when there is a quality problem (Jidoka)
Use pull systems to avoid overproduction
Standardize tasks for continuous
improvement
Use visual control so no problems are hidden Use only reliable, thoroughly tested
technology
Continual organizational learning throughKaizen
Go see for yourself to thoroughly understand the situation.
(Genchi Genbutsu)
Make decisions slowly by consensus, thoroughlyconsidering all options; implement rapidly (Nemawashi)
Gen
chi G
enbu
tsu
Kaizen
Respec
t+T
eamwork
Cha
llen
ge
Toyotas
Terms
4 P Model of the Toyota Way
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Page 4 Copyright Jeffrey Liker
Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Philosophy: Company Foundation
Ford Motor Company
MISSION
Ford is a worldwide leader in automotive
and automotive-related products and
services as well as in newer industries such
as aerospace, communications, and
financial services.
Our mission is to improve continually our
products and services to meet our
customers needs, allowing us to prosper as
a business and to provide a reasonablereturn to our stockholders, the owners of
our business.
Toyota Motor Manufacturing
MISSION
1. Add value to customers and society
2. As an American company contribute
to the economic growth of the
community and the United States
3. As an independent company,
contribute to the stability and well-
being of team members and partners.
4. As a Toyota group company,
contribute to the overall growth of
Toyota
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Page 5 Copyright Jeffrey Liker
Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Philosophy(Long-term Thinking)
People and Partners
(Respect, Challenge and Grow Them)
Process(Eliminate Waste)
Problem
Solving(Continuous
Improvement and Learning)
Base management decisions on
a long-term philosophy, even
at the expense of short-term
financial goals
Grow leaders who live the philosophy
Respect, develop and challenge your people
and teams
Respect, challenge, and help your suppliers
Create process flow to surface problems
Level out the workload (Heijunka)
Stop when there is a quality problem (Jidoka)
Use pull systems to avoid overproduction
Standardize tasks for continuous
improvement
Use visual control so no problems are hidden Use only reliable, thoroughly tested
technology
Continual organizational learning throughKaizen
Go see for yourself to thoroughly understand the situation.
(Genchi Genbutsu)
Make decisions slowly by consensus, thoroughlyconsidering all options; implement rapidly (Nemawashi)
Gen
chi G
enbu
tsu
Kaizen
Respec
t+T
eamwork
Cha
llen
ge
Toyotas
Terms
4 P Model of the Toyota Way
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Page 6 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Definition of Waste
Anything other than the minimum amount of
equipment, space and workers time, which are
absolutely essential to add value to the product.
Fujio Cho
President, Toyota
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Page 7 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
is a manufacturing philosophy which shortens the time
between the customer order and the product build /shipment by eliminating sources of waste.
Lean Manufacturing
Business as Usual
PRODUCTPRODUCT
BUILT & SHIPPEDBUILT & SHIPPED
CUSTOMERCUSTOMER
ORDERORDER
Time
Waste
PRODUCTPRODUCT
BUILT & SHIPPEDBUILT & SHIPPED
CUSTOMERCUSTOMER
ORDERORDER
Time (Shorter)
Waste
Lean Manufacturing
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INVENTORY HIDES WASTE
RAW MATERIAL FINISHED PRODUCT
TO CONSUMER
SEA OF INVENTORY
POOR
SCHEDULING
MACHINEBREAKDOWN
QUALITY
PROBLEMS
LINE
IMBALANCE
ABSENTEEISM
LACK OF
HOUSE KEEPINGLONGSET-UP
TIME
VENDOR
DELIVERY
COMMUNICATION
PROBLEMS
LONGTRANSPORTATION
11
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FINISHED PRODUCT
TO CONSUMERRAW MATERIAL
POORSCHEDULING
MACHINE
BREAKDOWN
QUALITY
PROBLEMS
LINE
IMBALANCE
ABSENTEEISM
LACK OF
HOUSE KEEPING
COMMUNICATION
PROBLEMSLONGTRANSPORTATION
LONG
SET-UPTIME
VENDOR
DELIVERY
Exposed WasteMake Problems Visible
12
SEA OF INVENTORY
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Page 10 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
The Toyota Production System
Just-In-TimeRight part, right amount,right time
Jidoka(In-station quality)Make Problems Visible
Leveled Production (heijunka)
Stable and Standardized Processes
Takt time
planning
Continuous flow
Pull system
Quick changeover
Integrated
logistics
Automatic stops
Andon
Person-machineseparation
Error proofing
In-station quality
control
Solve root cause of
problems (5 Why?)
Waste Reduction Genchi Genbutsu
5 Whys
Eyes for Waste
Problem Solving
People & Teamwork Selection Common Goals
Ringi decision making
Cross-trained
Continuous Improvement
Visual ManagementToyota Way Philosophy
Best Quality - Lowest Cost - Shortest Lead Time - Best Safety - High Morale
through shortening the production flow by eliminating waste
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Page 11 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
The Toyota Production System
Just-In-TimeRight part, right amount,right time
Jidoka(In-station quality)Make Problems Visible
Leveled Production (heijunka)
Stable and Standardized Processes
Takt time
planning
Continuous flow
Pull system
Quick changeover
Integrated
logistics
Automatic stops
Andon
Person-machineseparation
Error proofing
In-station quality
control
Solve root cause of
problems (5 Why?)
Waste Reduction Genchi Genbutsu
5 Whys
Eyes for Waste
Problem Solving
People & Teamwork Selection Common Goals
Ringi decision making
Cross-trained
Continuous Improvement
Visual ManagementToyota Way Philosophy
Best Quality - Lowest Cost - Shortest Lead Time - Best Safety - High Morale
through shortening the production flow by eliminating waste
The focus ofMost lean
programs
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Page 12 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
JIT Logistics Systems
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Page 13 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
The more inventory a
company has
...the less likely they willhave what they need.
Taiichi Ohno
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Page 14 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Keys to Logistics Performance
Uminger.36
6. Strategically placed crossdocks performing as
true flow through facilities.
5. Order fluctuation allowance built into
route capacity plans.
4. Good timing at all connection points.
(Crossdock, yard, dock, flowrack.)
3. Consistent daily routes; periodic route revisions.
2. Dedicated transportation service.
1. Packaging: Mixed box sizes, same pallet.
Stackability of mixed pallets same truck.
Source: Toyota
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Page 15 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Logistics Performance Objective
Optimize:
TotalProduction
System
Perspective
Service
Lead Time
Small LotsHigh Frequency
Level Flow
Cost
Efficiency
Price
Uminger.30
Source: Toyota
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Page 16 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Supplier Partnering Hierarchy
Mutual Understanding & Trust
Interlocking Structures
Information Sharing
Kaizen &
Learning
Compatible Capabilities
Control Systems
Joint
Improvement Activities
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Page 17 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Supplier Partnering Hierarchy
Mutual Understanding & Trust
Interlocking Structures
Information Sharing
Kaizen &
Learning
Compatible Capabilities
Control Systems
Joint
Improvement Activities
z Trust
z Commitment to Co-prosperity
z Respect for each others capability
z Genchi Genbutsu (actual part, actual place)
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Page 18 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Supplier Partnering Hierarchy
Mutual Understanding & Trust
Interlocking Structures
Information Sharing
Kaizen &
Learning
Compatible Capabilities
Control Systems
Joint
Improvement Activities
z Alliance Structure
z Interdependent Processesz Parallel Sourcing (2-4)
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Page 19 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Supplier Partnering Hierarchy
Mutual Understanding & Trust
Interlocking Structures
Information Sharing
Kaizen &
Learning
Compatible Capabilities
Control Systems
Joint
Improvement Activities
z Measurement Systems
z Feedback
z Target Pricing
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Page 20 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Supplier Partnering Hierarchy
Mutual Understanding & Trust
Interlocking Structures
Information Sharing
Kaizen &
Learning
Compatible Capabilities
Control Systems
Joint
Improvement Activities
z Engineering Excellence
z Operational Excellence
z Problem Solving Skills
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Page 21 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Supplier Partnering Hierarchy
Mutual Understanding & Trust
Interlocking Structures
Information Sharing
Kaizen &
Learning
Compatible Capabilities
Control Systems
Joint
Improvement Activities
z Accurate data collectionand dissemination
z Common language
z Timely communications
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Page 22 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Supplier Partnering Hierarchy
Mutual Understanding & Trust
Interlocking Structures
Information Sharing
Kaizen &
Learning
Compatible Capabilities
Control Systems
Joint
Improvement Activities
z VA/VE
z Supplier Development
z Study Groups
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Page 23 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Toyota, North America Supplier Development
Plant Development Activity (voluntary study groups) 1997: 55 suppliers tiered by TPS skill level
4-6 suppliers per group work on projects moving from plant toplant
About 5 TPS experts in purchasing assigned to PDA
Blue Grass Manufacturers Association--BAMA (supplierassociation, 97 suppliers in 1997)
Quality Assurance Division (separate from purchasing,includes supplier quality--TPS knowledgeable)
Toyota Supplier Support Center (separate subsidiaryoutside of business relationship)
Toyota Motor Sales (TPS supplier support group for partssuppliers for options installed after factory)
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Page 24 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Toyota Supplier Support Center (TSSC)
Toyota subsidiary in 1992 (by design separate from purchasing)
Dual Purpose:Create lean suppliers to ToyotaSpread TPS in U.S. (philanthropic? politics?)
Model=Operations Management Consulting Division inside Toyota inJapan
Goal: Transform plant/manufacturing philosophy Create model TPS line in supplier plants: Just do it! 4-6 month commitment of resources (approx.) + followup of 1-2 years Consultants=Associates from Toyota U.S. plants (20) Supported 53 supplier projects, 1992 - 1997 No cost reduction sharing for TSSC
Average Results(31complete projects by 1997)
Productivity improvement 124%Inventory reductions 75%
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Page 25 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Managing Suppliers
Suppliers are extensions of Toyota (more thanbuying parts)
Select with same care as own associates
Develop like own associates Long-term partnership
Tier structure: Levels of responsibility
Strict cost targets and timing
Integrated systems (JIT, product development
systems)
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Page 26 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Toyota CC21 Purchasing Challenge
Normal expectation: 3-4% price reduction per year aftermodel year launch
Challenge by Toyota N.A., V.P. of Purchasing (TsugioKadawaki)
Challenge: Meet best prices in world with Toyota quality
TrimMaster Goal: 30% price reduction for new vehiclelaunch
TrimMaster Approach:Work with Toyota engineers through value engineering
Hoshin Planning so every function involved in cost reduction
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Page 27 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
TrimMaster Hoshin Planning
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Page 28 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Fundamentals of Toyota Way
Philosophy: Long-term philosophy of adding value toassociates, partners, customers, and society
Process: The right process will produce the right results +
passion for eliminating waste
People: Add value to the organization by challenging your
people and partners to grow
Problem solving: Continuously solving root problemsdrives organizational learning throughout the enterprise.
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2/14/2005 Copyright Jeffrey Liker Building Lean Enterprise ExcellenceBuilding Lean Enterprise Excellence
Jeffrey K. Liker
Professor, Industrial and Operations Engineering
The University of Michiganand Principal, Optiprise, Inc.