Toyota Retools Japan The only thing hotter than the automaker's coupes and sedans is its senior management talent.
By Paul Migliorato

(Business 2.0) – Toshihiro Takahashi had a long and distinguished career at Toyota Motor. Joining the automaker's sales affiliate in 1964, he churned through senior positions in production, human resources, and product development, and was elected to the company's board of directors in 1998. He later became president of Toyota's flagship dealer subsidiary.

Now, at 64, Takahashi works at the post office. But don't worry: This isn't the tale of a scandalous fall from grace or a sob story about a pensioner unable to make ends meet. Rather, Takahashi's new gig illustrates a management trend that's been taking Japan by storm and is even starting to pick up steam in the United States. Takahashi is at the post office to spread the gospel of the Toyota way.

When the Japanese government privatized its mail service in April 2003, the new corporation, Japan Post, suddenly came under pressure to cut a $191 million previous-year loss on postal operations. So it hired Takahashi to apply Toyota's world-famous manufacturing and distribution expertise to mail delivery. In little more than a year, he has introduced changes to the way Japan Post collects, sorts, and delivers mail that are expected to cut costs by roughly $350 million annually. Takahashi believes that Toyota thinking applies to any business. "It's all about reducing waste," he says.

Hot When the Economy's Not

Like their American counterparts, Japanese execs remember all too well their failed attempts in the 1980s to implement buzzwordy Toyota concepts like just-in-time manufacturing. But the automaker's remarkable performance in the face of Japan's long economic downturn--the company recorded an all-time-high net profit of $10.2 billion in the fiscal year that ended in March--is sparking renewed interest in the famous Toyota Production System, known even in Japan by its English acronym, TPS.

Lately, companies in industries ranging from electronics to banking to food processing have been scooping up Toyota veterans steeped in TPS experience. TPS books are back on best-seller lists, with the Japanese magazine Nikkei Business declaring a new "TPS boom." Ailing Fujitsu is making TPS an integral part of its turnaround plan, and a former Toyota exec is credited with using TPS to slash $1.1 billion from the construction cost of Nagoya's new Chubu International Airport. OJT Solutions, a TPS consulting firm partly owned by Toyota and formed just two years ago, says its biggest problem is finding enough qualified consultants to serve a client list that's already more than 50 companies long.

As for what, exactly, TPS is, 10 TPS gurus will give you 10 different answers. Most, however, agree on its origins. In 1956 the late Taiichi Ohno, then a Toyota director, flew to Detroit to study American car manufacturing. Ohno was less intrigued by U.S. automakers than by U.S. supermarkets. In those days American car companies were making fewer and fewer models in an effort to boost productivity. Supermarkets, on the other hand, offered ever greater selection, a strategy Ohno saw as necessary in an age of growing consumer power. His genius was applying that insight to manufacturing: Starting with customer needs, he worked backward, letting workers at each car-building step write on an order form what they needed from those upstream on the assembly line. In his 1978 book Toyota Production System: Beyond Large-Scale Production, he explained that rather than making more stuff faster, Toyota was engaged in the "ruthless pursuit of the elimination of waste."

Few paid attention to Ohno's ideas until skyrocketing oil prices in the mid-1970s hurt Japanese corporate profits--with the notable exception of Toyota's. TPS got hot again a decade later when the soaring yen squeezed margins on Japan's exports. Given the tendency of Japanese companies to get excited about TPS during downturns, it's no surprise that the approach is once again riding a wave of popularity, as Japanese companies try to extricate themselves from a 13-year slump. "The more profitable Toyota becomes," says OJT business development manager Rieko Ohsaki, "the more attention TPS gets."

Once Again, From the Top

This time, however, the companies mimicking Toyota are going about things in a new way. In the past, TPS projects were typically led by middle managers whose resumes did not include stints with Japan's largest automaker. Commitment from senior management tended to be lukewarm at best. Now that consulting and job switching are more common in Japan, however, Toyota veterans are available to lead the change. Japan Post's Takahashi, for example, is a vice chairman and No. 2 in the company's chain of command. That authority let him put seven Toyota distribution specialists--on loan from the automaker--to work at a Koshigaya post office in Saitama Prefecture, north of Tokyo.

The Toyota folks brought to Koshigaya the tools of the TPS trade: cameras and stopwatches. By videotaping and timing workers processing the 130,000 letters that arrive on a typical day, Takahashi's team found that mail sorters sitting at desks had to stand up to put mail on high shelves and then sit back down again, over and over. So they gave the sorters new carts that let them do the entire task while standing. They also introduced the 15-minute work block as a basic unit of scheduling and redesigned mailbags to hold 15 minutes' worth of unprocessed mail; by counting mailbags, it's easy to know how much work remains to be done. Finally, they hung charts on the walls describing process changes and began updating a central whiteboard with overall sorting progress, allowing employees to learn about problems quickly and pitch in where necessary. In all, Takahashi's team came up with 370 improvements, reducing the Koshigaya post office's required man-hours by 20 percent. In April, Japan Post began rolling out the changes to 1,000 post offices nationwide.

Charts and bulletin boards also line the walls at Ryobi Techno, a PVC-pipe maker with annual sales of about $50 million and offices nestled among rice fields near central Japan's Lake Biwa. In 1999 the Mitsubishi Plastics subsidiary posted an operating loss of nearly $1 million; error rates on its production lines were as high as 10 percent. So in 2000, Ryobi hired Tadashi Tsubamoto, a consultant whose Toyota career began in 1960. For the past four years, Tsubamoto, 62, has led Ryobi through a TPS analysis of everything it does, from making pipes to getting rid of scrap. Its disposal yard, for instance, was a disorganized mess with no one responsible for managing it. Tsubamoto got Ryobi to set up shelves and bags for sorting waste by type. In all, TPS-based changes have added $1 million to Ryobi's annual bottom line. In addition to returning Ryobi to operating profitability, Tsubamoto's clearly defined process lets the company take advantage of Japan's influx of foreign workers: Brazilian-born employees work comfortably next to native colleagues despite speaking little Japanese.

Toyota Wasn't Built in a Day

Perhaps the biggest challenge of TPS--and the reason many companies abandon it--is that things often get worse before they improve. In 1997, for instance, Canon hired a TPS consultant named Hiroshi Yamada, a onetime journalist who under Ohno's guidance founded a TPS training company. Yamada advised Canon to rip the conveyor belts out of its manufacturing plants and replace them with production "cells," in which groups of people build entire products. For the first two years, productivity waned as workers learned to take responsibility for a finished good rather than a single function. "When there were problems in the line, the production manager responsible would get an earful from our account reps," Canon CEO Fujio Mitarai says. But believing that cell production would pay off, Mitarai stuck with it, telling subordinates he would take responsibility for problems. "As a leader, you have to remove fear," he says. His persistence paid off: Converting 13 domestic plants and 54 overseas facilities to cells, Canon reclaimed 7.5 million square feet of space and the labor equivalent of 35,000 workers, which it redeployed to boost production of key competitive components like CMOS sensors, used in digital cameras. Over the past five years, that project--along with research and development advances--has resulted in $2 billion in savings.

With many U.S. industries in slow-growth phases, American companies are also rediscovering TPS. General Mills has a TPS consultant, as does Gorton's, which used TPS to reduce inventory at its Gloucester, Mass., fish-processing plant. Jay Reardon, president of Hickory Chair, a North Carolina subsidiary of industry giant Furniture Brands International, has kept prices steady for three years, thanks to a TPS initiative in his factory. Reardon's competitors are moving overseas to cut costs, but TPS lets him stay put. "I figured if Toyota can make cars in Kentucky," he says, "we can make furniture in North Carolina." If he's ruthlessly eliminating waste, Toyota management would surely agree.

Paul Migliorato is a Honolulu-based writer.