AUTOMOTIVE INDUSTRY

An Introduction to Lean Production

Ideas

No new idea springs full-blown from a void

New ideas emerge from a set of conditions in which old ideas no longer seem to work

Automotive Industry

Origins 1880 and Craft Production Transition to Mass Production 1915 Ideas of Lean Production 1950s Lean Production Systems 1960s and

70s

Car Manufacturing History 1894 England – Buying a car (Henry Ellis:

member of Parliament) No car dealership Can’t contact an Automobile Manufacturer Need to visit Paris and find a machine tool

company Panhard et Levassor (P&L) at the time

was the world’s leading car company Commission an Automobile

P & L (1890’s)

Could build several hundred automobiles per year (one of the leading manufacturers)

Was primarily a manufacturer of metal-cutting saws (rather than automobiles)

It was a classic craft production system

P&L Workforce Skilled craftspeople who carefully hand-built

cars in small numbers Understood mechanical design principles Understood thoroughly the materials which they

used They were their own bosses Often worked as independent contractors within

P&L Sometimes worked as independent machine

shop owners with whom the company contracted for specific parts

Panhard and Levassor’s responsibilities Talking to customers to determine the

vehicles exact specifications Ordering necessary parts Assembling the final product

Craft Production

In mass production, cost per unit falls as production volume increases

In craft production, if the company tries to make 200,000 identical cars each year, the cost per car will not decrease below the cost per car of making ten

Machine tools could not cut hardened steel in 1890s and they did not use a standard gauging system (can’t create identical cars)

Craft Production

Different contractors used slightly different gauges to make parts

They put the parts in the oven to harden them for heavy use

Result? Parts warped and had to be reworked

Craft Production

Parts arrived at P&L were approximations

Workers at P&L had to file them until they fit together perfectly

Part after part was filed and assembled and filed and assembled until the automobile was complete

This is called “dimensional creep” Therefore, no two cars were the same

1890 Customer focus They could not mass produce so they did

not try They tailored each product to precise

desires of individual buyers Primary Focus: Speed and customization

(special body) Why not ease of maintenance, driving

ease, or cost? Wealthy customers who employed

chauffeurs and mechanics

P&L Customer Wanted a custom body and wanted the

transmission control on the left side (more comfortable, all steering wheels in the middle)

Ellis test drove it on the streets of Paris (every car was a prototype)

After the test drive, if everything worked to satisfaction, the customer would take the car

Would take the car many times from London to Paris for adjustments at P&L

Ellis in England

Was the first person to drive a car in England

Could travel 56 miles in only 5 hours and 32 minutes (average speed of 9.84 mph)

Speed limit was 4 mph for non-horse drawn carriages

Ellis changed the law to 12 mph

Craft Production Highly skilled workforce in design, machine

operations and fitting Most workers progressed through an

apprenticeship in hope of running their own shops Organizations were extremely decentralized

(although centralized within a single city) The owner coordinated everyone involved Used general purpose machine tools Very low production volume 1000 or fewer per

year Custom made vehicles (50 or fewer were made to

the same design

By 1905

Hundreds of similar companies were producing companies in a similar way

Difficult to create a monopoly in this situation (large market and difficult to produce more than 1000 per year)

Craft Production Today

Craft Production got replaced by mass production after World War I

What is the status of Craft Production today? Aston Martin: produces 1 car per working day Remains small and exclusive, with high prices In its body shop, skilled panel beaters make

the aluminum body panels by pounding sheets of aluminum with wooden mallets

Although they have to ally themselves with technological giants (Aston Martin – Ford)

Mass Production

Henry Ford found a way to reduce costs while increasing product quality with mass production

Craft Production offered no systematic testing, low durability and low reliability

1905 Customer

Primary Focus: maintenance, driving ease, and cost

Everyone wanted a car but could not afford a chauffeur or a mechanic

Customer wanted a car that they could drive themselves and fix themselves and that they could afford

Model T (1908)

Was his twentieth design over a five-year period

Was designed for manufacture AND user friendly

No need for a chauffeur No need for a mechanic Lower costs Result? Even more demand

Key to Mass Production

What was it? It was not a moving continuous

assembly line It was the complete and consistent

interchangeability of parts and the simplicity of attaching them to each other

The latter reasons were the manufacturing innovations that made the assembly line possible

How did Ford achieve interchangeability By using the exact gauging system for

every part all the way through the manufacturing process

Result: huge payoff in the form of savings and assembly costs

No one had figured out this cause-and-effect

Ford benefited by advanced to cut pre-hardened metals, which also solved the warping problems

Ford Innovations

Innovative designs that reduced the number of parts needed

Innovating designs that made the parts easy to attach

Simplicity, Interchangeability, and ease of attachment gave Ford a tremendous competitive advantage

Ford saves money

With such innovations, how can Ford save money?

He eliminated skilled fitters (a huge number in the labor force who were paid high salaries)

Beginning of Assembly Line 1903 – Assembly stands on which a

whole car was built by one fitter 1908 – Stationary Stands: with the

introduction of the Model T, a Ford assembler’s average cycle task was 514 minutes (8.56 hours). Each worker would assemble a large part of the car before working on the next. They had to retrieve the necessary parts, bolt them in place and move to the next car.

Beginning of Assembly Line Ford made the process more efficient by

delivering parts to each worker’s station (assemblers could remain at the same spot all day)

Summer 1908 – Ford finally achieved perfect part interchangeability and decided a worker would perform a single task and move from vehicle to vehicle around the assembly hall.

The cycle time for the average Ford assembler was cut from 514 minutes to 2.3 minutes

Beginning of Assembly Line Result: increase in productivity Why? Complete familiarity with a single task All filing and adjusting of parts had been

eliminated (all parts fitted every time).

Beginning of Assembly Line NEXT STEP: 1913 Detroit Highland Park Plant:

Continuous Flow Assembly Line Cost $3,500 Reduced cycle time from 2.3 minutes to

1.19 minutes (no one walking around, less jams of faster workers overtaking slower workers)

Model T Introduced 1908 already cheaper than

competitors 1920 Production: 2 million per year Cost, 2/3 of the cost in 1908 Designed for ease of operation and

maintenance (Had toolkit and 64-page owner’s manual to solve the 140 most common problems)

Competitors were amazed as much by the design to repair-ability as by the assembly line

Highland Park

Workers = 7000 Previously were farmers or new to the

USA (spoke more than 50 languages) Many of them could barely speak

English Took division of Labor to ultimate

extreme

Laborer’s duties before/after Before: skilled fitter in 1908 Craft Production gathered all necessary parts obtained tools from the tool room repaired them if necessary performed fitting and assembly job for the

entire vehicle checked over his work sent the completed vehicle to the shipping

department

Laborer’s duties before/after After: 1920 Mass Production One task – put two nuts on two bolts Or perhaps attach one wheel to each

car Didn’t order parts Didn’t understand what the workers next

to him were doing (all male until WWII) Didn’t even speak the same language

New Positions Industrial Engineer In charge of what everyone was doing and how

it all came together Production Engineer In charge of arranging the delivery of parts to the

line Housecleaning Workers In charge cleaning work areas Skilled Repairman In charge of refurbishing the assembler’s tools Rework Men Retained the fitter’s skills

Separation of Labor

Implications? Assemblers required only a few minutes of

training Assemblers were relentlessly disciplined

(working too slow) Assemblers were just as replaceable as the

parts on the car Foreman (formerly in charge of a large area

of the plant) became a semi-skilled checker

How did they correct errors? Assemblers didn’t volunteer any

information on operating conditions This was the job of the Industrial

Engineer or the Foreman who reported suggestions that went up the chain of command for approval on corrections

Jobs born: repairman, quality inspector, housekeeper, rework specialist, industrial engineer, and foereman.

Automation

How does Automation influence this situation?

Reduced the need for assemblers Made these other jobs more prominent

Further Specialization Industrial Engineers: specialized in assembly

operations or in operations of the dedicated machines making individual parts

Manufacturing Engineers: specialized in design of assembly hardware or in designing specific machines for each special part

These workers manipulated ideas and information but rarely even entered the factory. They replaced the work of the skilled-machine-shop owners and old-fashioned factory foreman who did it all.

The mission was to design tasks, parts, tools that could be handled by unskilled workers

Career Paths before/after Before: skilled craftsman career path led to

ownership of the business After: assemblers career path didn’t lead

anywhere (maybe foreman if lucky) After: Industrial engineers and Manufacturing

engineers could climb the ladder RESULT for Assembly workers? No company loyalty RESULT for Engineers? No company loyalty (company hopping trying to

advance within their careers)

Cars become more complicated

What happens to the Engineer’s job? There are more and more subspecialties The head of engineering has less and

less to say to engineers with subspecialties

Result? Massive disfunctions

Vertical Integration Bought engines and chassis from the Dodge

brothers Took all functions in-house by 1931 Why? Ford had perfected mass production before

his suppliers had, so he thought he could save money

He could build parts with lower tolerances and tighter delivery schedules

He did not trust anyone but himself

Influence of Gasoline on World Market Model T was considered small by American

standards and oil discoveries in East Texas pushed the gasoline prices down

European countries had narrow streets, crowded cities. Model T was considered big. Also, they could not find any oil in Europe, so European countries began to heavily tax gasoline in the 1920’s to reduce Ford’s imports

Ford did not want to supply a smaller car

Model T

Ford built 2.1 million Model T chassis, a record that stood until the VW Beetle matched it

Enter Sloan and GM

Got GM in bad shape Inherited GM with 12 car companies

with lots of overlap Goal: to improve mass production and

oust Ford as industry leader and provide a system to run all companies effectively

Sloan Strategy He created decentralized divisions managed “by

the numbers” from a small corporate headquarters

Manufacturing operations in Germany, Britain and other countries became self reliable.

Sloan and senior executives oversaw each of the company’s separate profit centers

Five car divisions, and divisions making components (Delco – generators, Saginaw – steering gears, Rochester – carburetors)

They demanded detailed reports at frequent intervals on sales, market share inventories and profit and loss and reviewed capital budgets.

Sloan Strategy If the number showed that performance was

poor, he would change general manager He developed a five model product from

cheap to expensive from Chevrolet to Cadillac to accommodate potential buyers from every income level throughout their lives

Balanced conflict between need for standardization to cut manufacturing costs and model diversity for huge range of customer demand

Sloan Strategy

Standardization: many mechanical items such as pumps and generators across company’s entire range

Model diversity: altered the outside of each car every year while keeping some “hang-on” features like air conditioning, radios, automatic transmission, which all could be installed in existing body designs

Sloan ideas

His ideas were great and innovative in marketing and management

However, they did nothing to change the feeling of the workers that they were just replaceable parts on the shop floor

So in the shop floor, things went from bad to worse

Ford shop floor

Ford didn’t care that he had a huge turnover

He found himself with such high efficiency that he was able to double wages ($5 per day) and dramatically slash prices

Drove his craft-based competitors out of business

Result of Higher Wages THE GOOD:

Turnover slowed down Workers stopped daydreaming about some

day going back to the farm Avoided union problems THE BAD Slowly, the workers came to realize that this

was going to be their life’s work Employment conditions became less and

less bearable

Car Market

Turned out to be extremely cyclical Workers were considered a variable

cost Therefore, workers were turned away at

the first sign of a downturn in sales Then came the Great Depression and

Union movement was fully in place

United Auto Workers Issues of UAW: seniority and job rights Together with cyclical nature resulted in? Seniority and not competence became the

determinant on who will stay and who will go home All jobs paid roughly the same and some were

more interesting than others Seniority and not competence decided who got the

interesting jobs Result of these and other work rules: Inefficiency (as workers fought for equity and

fairness)

State of Mass Production in the 1950’s Ford factory practice Sloan marketing and management

techniques Organized labor Mass Production in its final mature form USA dominated the world market The system marched from victory to

victory Every other industry copied this model

1955

7 million cars were sold in the US Sloan retired after 34 years at GM Big Three: Ford, GM and Chrysler Big Three accounted for 95% of all sales Six models accounted for 80% of all sales Craft production was dead in the USA Downhill slide began (Glory is Fleeting) Mass production became commonplace in

other countries

Didn’t the Europeans have the same information?

Before WWI: Andre Citroen (Citroen), Louis Renault (Renault), Giovanni Agnelli (Fiat), Herbert Austin (Austin Motor Company), William Morris (MG) visited Highland Park

Henry Ford was very open in discussing his techniques with them

Information was available in his mass production facilities in Europe as well

Why didn’t the world catch up earlier? Strong attachment to craft production

traditions VW and Fiat attempted mass production

before WWII, but had to be put on hold So it was not until the 1950’s that the

world could catch up (30 years after Ford made it commonplace in the USA)

1950’s Europe

VW, Renault, and Fiat were producing numbers comparable to Detroit

Other famous craft production firms led by Daimler-Benz (Mercedes) also went with mass production

Americans were specializing in standard size cars and pickups

Europeans were specializing in compact, economy cars (VW Beetle) and the sporty fun to drive (MG).

1970’s Luxury Car America: 5,000 pound carbureted, straight-

axle, body on chassis Cadillac Europe: 3,500 pound fuel-injected,

independent suspension, unibody Mercedes America: air conditioning, power steering,

stereos, automatic transmissions, massive and smooth engines

Europe: front-wheel drive, 5-speed transmissions, high power to weight ratio engines

European conditions

Lower wages Different cars Europe racked up victory after victory

from mid 1950’s to mid 1970’s

America vs. Europe

American manufacturers could have won if the price of gas would have stayed low (as they did until 1973)

Energy prices soared making poor Americans want economical cars

Rich Americans wanted something fun to drive

Detroit’s “hang on” features (Air Conditioning and Stereos) were easily added to European cars

Problem with European manufacturers European auto plants were exact copies of the

American plants They were even less efficient and less accurate They even copied the immigration employment

of America, getting cheap labor from Turkey, Yugoslavia, Sicily, Morocco and Algeria.

Once these workers realized that this was their life’s work and not financial independence to go back home, similar problems began to arise.

How did Europe cope with the problem? Increasing wages Decreasing weekly hours of work It got so bad that European workers

found mass production to be so unrewarding that the first priority of negotiations continued to be to reduce hours spent on the plant

This would have gone one forever in the USA and Europe if it were not for JAPAN

1970’s Customer

Primary Focus: fuel efficient, maintenance free, reliable, great quality

With more complicated cars and technology, it was difficult for the owners to repair their own car

Enter Japan

Japanese were starting a new way of doing things called Lean Production

The Rise of Lean Production In 1950 there was a young engineer by

the name of Eiji Toyoda who visited Ford’s Rouge plant in Detroit for three months

His uncle Kiichiro Toyoda had visited Ford in 1929

Toyota Motor Company had been founded in 1937 (not Toyoda because it means “abundant rice fields”)

1936 contest, 2700 suggestions and Toyota won (which has no meaning)

Start of Toyota

Attempted to build passenger cars in the 1930’s

Build trucks instead with pressure from the government

Used craft methods 1949 – collapse in sales forced to

terminate a large part of the workforce Led to a huge strike and Kiichiro

resigned

Early Toyota Numbers

By 1950, the Rouge Ford facility was producing 7,000 cars per day

From 1937 to 1950 Toyota Motor Company had produced…….

2,685 cars total

Eiji Toyoda

Not an average engineer (in skill or ambition)

Studied every inch of the Rouge plant (at the time the largest and most efficient manufacturing facility in the entire world)

He wrote back “I think there are some possibilities to improve the production system”

Eiji’s Ace: Taiichi Ohno

They did not just want to copy and improve the Rouge facility they wanted to drastically change the production process. This involved some risk.

Why would they want to reengineer the production process?

Ohno concluded that mass production could never work in Japan

Born: The Toyota Production System

Toyota in Nagoya, Japan

Composed mostly of former farmers Today it is the most efficient and highest

quality producer of motor vehicles in the world

After the WWII, Toyota went into full-scale car and commercial truck manufacturing

Problems Toyota faced

Domestic market was small Domestic market demanded a wide range

of vehicles (luxury for government officials, large trucks to carry goods to the market, small trucks for farmers, small cars for Japan’s crowded cities and high energy prices)

Toyota workers did not want to be treated like variable cost or interchangeable parts

Problems Toyota faced American occupation introduced new labor laws

which strengthen the position of the workers and conditions of employment

Management could not lay off employees easily Unions positions gained strength No guest workers (temporary immigrants) Economy was struggling, so purchasing

technology from the West was impossible Outside world wanted to establish operations in

Japan and were ready to defend their markets against Japanese exports

Government Response

Prohibition on direct foreign investment in the Japanese motor industry (critical for Toyota and others in Japan)

High tariffs barriers In global competition: Low wages would

have been only a temporary advantage (since the Japanese cars would not offer anything new in production techniques and limited competition at home)

Ohno

Knew that Mass production was not the answer

Knew that Craft-production would not be correct to use in producing a mass-market product

Ohno Example Nearly all motor vehicles are produced by

welding together 300 metal parts stamped from sheet steel (same as Ford’s Model A)

Some craft-producers (Aston Martin) cut sheets of metal (usually aluminum) to a gross shape and then beat these blanks by hand on a die to their final shape

Any producer GM, Ford, Porsche that plans to produce more than a few hundred cars a year starts with a large roll of steel

Ohno Example They run this sheet through an automated

“blanking” press to produce a stack of flat blanks slightly larger than the final part they want

They then insert the blanks in massive stamping presses containing matched upper and lower dies.

When these dies are pushed together under thousands of pounds of pressure, the two-dimensional blank takes a 3-D shape of a car fender or a truck door as it moves through a series of presses

Ohno Example

The massive expensive Western press lines were designed to operate at about twelve strokes per minute, three shifts a day, to make a million or more of a given part per year.

However at this time, Toyota only produced a few thousand vehicles per year.

Dies could be changed so that the same press line could make many parts

Ohno Example Problem: slight misalignment produced wrinkled parts.

Major misalignment and the sheet metal could melt into the die (extremely expensive and time consuming)

Detroit – die changes were assigned to specialists who took a full day to do the change. A better way was to just dedicate presses to a specific part

Ohno did not have this luxury Ohno (and Shigeo Shingo) developed a die-changing

technique using rollers to move dies in and out of position and simple adjustment mechanisms

Result: can change dies every two or three hours instead two or three months

Ohno Example

Because new techniques were easy to master and production workers were idle during the die changes, Ohno hit upon the idea of letting the production workers perform the die changes as well

By 1950’s Ohno reduced the time to change dies from one day to three minutes and eliminated the need for die-change specialists

Ohno Example Result: small batches instead of enormous lots Result: reduce inventory that mass production

requires Result: huge inventory savings by reducing

carrying costs Result: making small batches caused stamping

mistakes to show up early and instantly Result: those in stamping became much more

concerned with quality Result: eliminated waste in large number of

defective parts

Ohno Example

With American manufacturers defects were discovered long after manufacture

Result: great expense in fixing Also, they needed large number of

inventories Result: high carrying costs

Ohno Example

Ohno needed both extremely skilled and highly motivated work force

If workers failed to anticipate problems before they occurred and didn’t take the initiative to devise solutions, the work of the whole factory could easily come to halt

Holding back information, knowledge and effort (typical in mass production) would lead to disaster

Toyota employees

When Kiichiro Toyoda resigned, ¼ of the workforce was dismissed, but the remaining employees received three guarantees

1.- lifetime employment 2.- pay steeply graded by seniority rather

than by specific job function 3.- pay tied to company profitability through

bonus payments This compromise still remains a formula for

labor relations in the Japanese auto industry

Toyota employees Result: Workers would suffer a large loss of earnings if

they started over at the bottom of the seniority ladder with another company

A 40 year old worker would get much more salary than a 25 year old worker doing the same job. If he left, he would start at zero seniority at another company

Result: this made the workers a fixed cost (instead of a variable cost like in American manufacturers)

Toyota employees

Agree to be flexible in work assignments Agree to promote the company interests

by initiating improvements (rather than responding to problems)

Now that the workers are a fixed cost and are in the company for a very long time it makes sense to enhance their skills and their potential to the maximum

Back at Ford Assembly line workers performed one or two tasks,

hopefully without complaints Forman made sure that line workers followed orders These orders were devised by the Industrial Engineer IE was also responsible for process improvement Special repairmen repaired tools Housekeepers cleaned the work area Special inspectors checked for quality Rework specialists fixed quality problems at the end of

the line Utility workers filled the spot of the workers who did not

show up each morning

Manager Culture at Ford Managers were graded on two criteria: Yield: the number of cars produced in

relation to the scheduled number Quality: out-the-door quality after vehicles

had defective parts repaired Managers knew that problems could be

fixed at the end of the line in the rework area

Result: DO NOT STOP THE LINE!

Move the Metal Mentality Letting cars go down with misaligned

parts was OK since it could be fixed at rework

However minutes and cars lost only could be made up with expensive overtime

Ohno’s opinion of Detroit Muda: wasted effort, materials, and time None of the specialists beyond the assembly

worker was adding value to the car The workers could do most of the functions of the

specialists, but much better because of their direct acquaintance with the conditions of the line

He could not believe that the assembly worker had the lowest status of the factory

He could not believe that the assembly worker was told that they were only needed because “automation could not yet replace them”

Ohno’s Team Experiment

Forming teams with a team leader instead of a foreman

Teams were given a piece of the line (assembly steps) and told to work together on how best to perform the necessary operations

Team leader would do assembly tasks and coordinate the team

Team leader would fill for an absent team member

Ohno’s Team Experiment

Gave the team the job of:HousekeepingMinor repairQuality checking

He asked the team to suggest ways collectively to improve the process

This continuous improvement process is called Kaizen in Japanese

Rework at Ford Mass production was passing errors to keep the line

running which caused errors to multiply endlessly Every mass producing worker could think that errors would

be caught at the end of the line and that he would be disciplined for any action that caused the line to stop

The error could be a bad part, or a good part improperly installed. This error would be compounded by assembly workers further down the line

Once the error became embedded in a complex vehicle, an enormous amount of rectification was needed to fix it

And because the problem would not be discovered until the very end of the line, a large number of similarly defective vehicles would have been built before the problem was found

Rework at Toyota Ohno place a cord above ever work station

and instructed workers to stop the whole assembly line immediately if a problem emerged that they could not fix. JIDOKA

The whole team would come over and work on the problem

Ohno instituted a problem-solving system called “the five why’s” to trace the error to its ultimate cause. Then devise a fix so that it would never occur again

Rework at Toyota

Result: The production line was stopped all the

time and workers became discouraged Result: Experience identifying and tracing

problems and fixing them so they never occur again

Result: Errors dropped dramatically

Comparison Toyota vs. Ford Today, where every worker can stop the

line, yields approach 100% (line practically never stops)

In mass producing companies where no one but the manager can stop the line the line stops all the time. 90% yield is considered good management.

Comparison at the end of the Line Toyota: the number of reworked cars

steadily dropped to almost none. Today, there is almost no rework

Mass Production: a large number of reworked cars. Today

Percent of plant devoted to rework: 20% Percent of total hours of effort devoted to

fixing mistakes: 25%

Supply Chain Management at Toyota Coordinating efforts outside Toyota Movie: Toyota Outreach Program

Finally – Changing Market Toyota was more flexible in changing

models. Toyota keeps models in production for an average of 4 years

Big Three keep models in production for an average of 10 years