(FORTUNE Magazine) – For three-quarters of a century, little girls have been unwrapping Madame Alexander dolls at Christmas. The collectible dolls, which cost from $40 to $600 apiece, are modeled on figures both fictional (Cinderella) and real (Elizabeth Taylor); with their hand-painted faces and elaborate costumes, they're charming artifacts of an age before Nintendos and Furbies. But the company that makes them has had to struggle to stay alive for its 75th Christmas. That the dolls are still around is due to an unusual group of manufacturing experts, who have adapted their experience in streamlining the assembly of fenders and crankshafts to the task of turning out wigs, shoes, and all the other tiny bits that go into a doll.

Alexander Doll Co. was founded in 1923 by "Madame" Beatrice Alexander, a daughter of Russian immigrants who was raised over her father's doll hospital in New York City. Her business prospered, and in the 1950s she moved it to a six-story building in Harlem. But after it was sold to two local investors for $20 million, the company faltered. It was headed into bankruptcy in 1995 when it was bought for $17.5 million by an investment group formed by TBM Consulting.

The partners of TBM, a North Carolina-based firm of manufacturing specialists, had studied Toyota's lean production system in Japan and had taught it to dozens of American manufacturers. TBM had assembled a buyout fund and was looking for underperforming companies where they could put their know-how to work. "We have a contrarian strategy," says TBM vice president Bill Schwartz. "Instead of moving production somewhere else, we want to make it lean and efficient at its current location."

Making dolls is easier than making, say, Lexus LS400s, but not as easy as you'd think. The costumes alone contain 20 or more separate items, which have to go through as many as 30 production steps. Accurate planning is essential because doll fabric is bought in tiny quantities that can't be reordered, and 75% of the styles change every year. As if that weren't difficult enough, before TBM arrived the factory was using archaic methods: It was organized according to old-fashioned principles of batch manufacturing, so boxes of costume material and vinyl doll parts were stacked to the ceiling. Since nothing was built to order, more than 90,000 dolls were stored in partly finished condition, and customers waited up to 16 weeks for delivery.

That began to change in August 1996 when TBM installed a new CEO: Herbert Brown, an earnest, fast-talking manufacturing expert who had run operations for Black & Decker and Johnson & Johnson. When Brown tried to fill a customer order for 300 dolls, only 117 could be completed because so many pieces were missing. So he went to work reorganizing the factory and, in true Toyota fashion, enlisted the aid of the 470 workers, mostly Dominican immigrants who speak limited English.

Instead of individually producing parts, the workers were organized in seven- or eight-person teams, each of which is responsible for completing about 300 doll or wardrobe assemblies a day. The amount of work in progress has been cut by 96%, and orders can now be filled in one or two weeks instead of two months. TBM also hired Bain & Co., a consulting firm, to help expand sales to collector doll shops and to create new marketing programs for home-shopping channels on cable television.

Gradually, Alexander Doll is returning to health. Sales have risen from $23.8 million in 1995 to an estimated $32 million for 1998, though the company isn't expected to turn a profit until next year. But the workers of Alexander Doll have a vivid incentive to apply Toyota's techniques, because the building itself is a constant reminder of what happens to companies that don't adapt to changing times. The doll factory's first occupant? Studebaker.

--Alex Taylor III