THE FACT THAT JAPANESE MANUFACTURERS
made tremendous inroads on the global automobile market during the 1970s
will surprise nobody. What may surprise many is that Toyota’s
productivity rates exceeded U.S. manufacturers’ as long ago as the
1960s. Business historian Michael A. Cusumano details the spectacular
developments in Japanese productivity, quality, and process flexibility
that have occurred over the past thirty years. His findings complement
those of John F. Krafcik, whose companion piece, “Triumph of the Lean
Production System,” appears elsewhere in this issue.
SEVERAL STUDIES published in the 1980s indicated that Japanese firms,
led by Toyota, have achieved the highest levels of manufacturing
efficiency in the world automobile industry. Physical productivity,
which reflects the “throughput” speed for completing products and the
amount of labor required, has been significantly higher than in most
U.S. plants (although differences vary by company and U.S. firms have
made improvements in recent years).1
Japanese auto producers have also demonstrated rates of inventory
turnover (sales divided by work-in-process and finished goods, or the
cost of goods sold divided by work-in-process) several times those of
U.S. firms.2
(Inventory turnover is a useful measure of efficiency, since it
reflects how well firms manufacture to meet market needs rather than
production schedules. It also reflects how effectively they reduce the
number of parts and semifinished goods; these add to operating costs and
often cover up inefficient practices or process errors.)
High productivity and other aspects of process efficiency, such as
rapid inventory turnover, help solve a problem as old as mass production
itself: that the conventional factory tends to produce huge lots of
standardized components, while consumer markets demand a variety of
products at low prices. Looking for the reasons Japanese companies have
managed this problem so well, many authors cite the contributions of
Japanese workers and Japanese culture. However, the performance of
Japanese firms in auto production depends not on the employment of
Japanese workers but on Japanese innovations in technology and
management. Perhaps the most important innovations challenged
fundamental assumptions about mass production. These consisted of
revisions in American and European equipment, production techniques, and
labor and supplier policies introduced primarily in the 1950s and
1960s, when total Japanese manufacturing volumes and volumes per model
were extremely low by U.S. (or European) standards.
While Japanese “good practices” are potentially applicable to any market, U.S. and other non-Japanese managers must first understand
and then consider adapting some of these techniques. This article is
meant to promote that understanding by summarizing some of the major
findings from a five-year study of the Japanese automobile industry
focusing on Nissan and Toyota.3
A major objective of this study was to explain Japanese innovations in
production management by exploring the reasoning behind them as well as
their evolution over time, while simultaneously documenting observable
improvements in productivity and inventory levels. The concluding
section of this article suggests what managers might learn by examining
not only the nature of Japanese competition, but the potential role of
manufacturing as a source of competitive advantage.
Historical Myths and Realities
Automobile mass production began in the U.S., with Ford achieving
volumes of over two million per year for one model during the 1920s.
Some observers of Japan have assumed, as a result, that Japanese firms
copied U.S. manufacturing equipment and techniques and then benefited
from workers with better educations and more cooperative attitudes.
Indeed, various authors have suggested that superior performance in
manufacturing is linked to the unique characteristics of Japanese
employees. However, if the performance of Japanese firms in the
automobile industry depends primarily on the unique characteristics of
Japanese employees in Japan, then one would expect Japanese auto plants
in the U.S. to perform no better than factories run by U.S. companies.
This is not the case. Japanese-run automobile plants located in
Tennessee (Nissan), Ohio (Honda), and California (the Toyota-GM NUMMI
joint venture) have demonstrated higher levels of productivity and
quality, and nearly equivalent process flexibility (the ability to
assemble a number of distinct models on the same lines without reducing
productivity or quality) compared with U.S. factories and Japanese
plants in Japan.4
In addition, not all Japanese automakers copied and imported American
or European equipment and production-management techniques. Those who
preferred in-house experimentation created opportunities for learning,
as well as innovation and improvement. During the 1930s and 1950s
Nissan, Isuzu, Mitsubishi, and Hino assembled European and American
vehicles under license, largely using conventional mass-production
technology developed in the U.S. These models accounted for 30 percent
of Japanese car production from 1953 to 1959.5
But the largest postwar Japanese producer, Toyota, deliberately avoided
copying foreign models or techniques and focused on developing a more
efficient production system uniquely tailored to the needs of the
Japanese market. Toyota adopted innovation in production management as an integral part of its competitive strategy and then spent the 1950s and 1960s making this strategy work.
Thus Toyota, and then other Japanese automakers, did not simply
implement conventional mass-production processes more effectively; they
made critical changes in U.S. procedures and concepts. Their creativity
led to greater flexibility in equipment and labor, lower in-process
inventories and higher overall turnover rates, more attention to process
quality, and, ultimately, higher levels of productivity. Furthermore,
during the 1960s and 1970s, rather than copying U.S. or European
practices, Japanese automakers such as Hino, Daihatsu, Mazda, and Nissan
copied production techniques introduced at Toyota in the 1950s and
1960s.
Others have suggested that superior performance can be linked to
management emphasis on long-term growth in market shares, which leads to
large production volumes and accumulations of experience.6
(This thesis is frequently presented by the Boston Consulting Group to
account for the performance of Japanese firms in a number of
manufacturing industries.) Instead, efficient manufacturing, and
gradually improved designs, might themselves have led to higher
sales and higher market shares. In fact, Toyota and Nissan, the top
producers in the Japanese auto industry, appear to have matched or
surpassed U.S. productivity levels by the late 1960s, though annual
production levels were far below those of their counterparts in the U.S.
at the time (see Table 1).
Finally, some link high Japanese productivity to higher levels of
capital investment per worker. Even avoiding the use of exchange rates
and using purchasing power parity data for capital equipment, in 1983
workers at Nissan and Toyota had two to two and a half times as many
fixed assets (plant, property, and equipment) as their counterparts at
GM, Ford, and Chrysler. This suggests that Japanese workers were twice
as productive because of investment levels that were twice as high.
But a historical perspective leads to a different conclusion. When
Toyota and Nissan matched and then doubled U.S. productivity levels in
the 1960s, capital stocks per employee and per vehicle produced were
comparable to U.S. firms. Furthermore, the amount of fixed assets
required to produce one vehicle by the late 1970s and early 1980s was
roughly equivalent in Japan and in the U.S. Only because “throughput”
per worker per year was twice as high in Japan did workers at Nissan and
Toyota show twice as many fixed assets each. In other words, Japanese
automakers required half as many workers to produce a single car, and
these fewer workers used as much capital to do it as U.S. workers. Since
capital productivity was not higher in Japan than in the U.S., it had
to be other factors, not simply greater investment, that led to higher
productivity.7
The Need to Produce Efficiently at Low Volumes
An examination of Toyota and Nissan in the years after World War II
reveals an overriding concern with “small-lot” production. In order to
become more efficient than U.S. automakers, manufacturers needed to
produce a wider variety of models at extremely low volumes relative to
the U.S. or Europe; they also needed to keep their costs low, since they
faced a rising number of competitors. This contradicted the
mass-production philosophy pioneered by U.S. auto producers, which
attempted to lower costs by minimizing product diversity and maximizing
economies of scale, and which Japanese manufacturers imitated before and
during World War I
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