Toyota Has Seen the Future, and It Isn’t Robots

Until now, most ideas about factories of the future pictured lots of robots and a few people turning out endless products in an eerie semi-darkness presumably more friendly to machines than to humans.

But now Toyota Motor Corp., the world’s most efficient manufacturer of automobiles, has turned that vision upside down by scrapping a heavy emphasis on automation in favor of the flexibility of human workers.

In the process, it has shown not only that people can be more efficient than machines but also that a determined company can wring so many costs out of its operations that it can be competitive, even profitable, despite extreme currency movements such as the recent rise in the yen.

And Toyota has also shown that a smart company can make mistakes, correct them and come back.

In an old plant south of Tokyo, Toyota has recently done something humble, yet revolutionary. It has broken the assembly line into five subsections to produce a new four-wheel drive vehicle called the RAV4. The new assembly line, with buffer zones between the sections, allows workers to better control the pace of production.

The payoff--along with less stress--say company executives, was lower costs and a rise in productivity.

It was a reversal of Toyota’s earlier expectations and policies. In the early ‘90s, in an attempt to cope with a rising yen and a feared shortage of workers in Japan, Toyota bet big on robots--investing $10 billion over two years in outfitting plants at Tahara in central Japan and elsewhere with the very latest in automation. It also stressed automation for its worldwide operations, including a parts distribution center in Chicago.

But it didn’t find the savings it expected, either in Tahara or Chicago.

“In Chicago, we found that machines were not flexible, that the company couldn’t get running improvements as it could with workers identifying ways to do things better,” says Michael Whitman, U.S. national manager for parts distribution.

“So we took out some conveyor belts and allowed workers more judgment,” Whitman says. The result was rising productivity.

Now Toyota intends to apply its new production techniques to other plants, including a forthcoming parts distribution center in Ontario and its production complex at Georgetown, Ky.

The Georgetown plant is now being run by Mikio Kitano, the manager who oversaw the RAV4 experiment in Tokyo and was promoted for its success.

Asked how highly paid Japanese employees could match a machine’s low-cost output, Kitano explains: “Workers can earn high wages because they are capable of improving the job they are doing; machines have not progressed to that point.”

He adds that a sectioned assembly line is “not necessarily” slower because buffers help employees to pace their own jobs. Kitano, a 30-year-Toyota veteran, says “it is workers, proud of themselves, who make the real economies.”

The assembly line was not the only innovation for Toyota. The company showed intelligent flexibility itself in borrowing ideas from Ford, Chrysler and General Motors on using common parts and fewer parts to save money. The RAV4, a Jeep-like sport utility vehicle, is built with 70% of its parts common to older Toyota vehicles.

“The company really had to try new approaches to get costs out, especially given the pressure of the rising yen,” says Tom Dukes, an analyst with auto consulting firm J.D. Power & Associates in Agoura Hills.

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It’s not the first time Toyota has responded to serious challenge by tinkering with its production process. In fact, the company invented the modern lean production system, its improvement on Henry Ford’s assembly line, under threat of extinction in a depression in Japan’s economy in 1949-50.

As recounted in “Collision,” analyst Maryann Keller’s book about the modern automobile industry, Kiichiro Toyoda, the auto company’s founder, told employees that he would have to lay off 1,600 workers, one quarter of the work force. But the workers rebelled and won negotiations at which it was decided that Toyoda himself had to resign, to take responsibility for the disgrace of having to lay off 1,600 workers.

It was further decided that the remaining workers would have lifetime employment and pay rising over time according to seniority.

It was then that Taiichi Ohno, the brilliant engineer who developed Toyota’s lean production system--hailed in the landmark book “The Machine That Changed the World”--saw not only that his work force was a permanent cost, but also an increasingly expensive one.

So Ohno devised a system in which workers had to be capable of performing multiple tasks and of taking responsibility for improving the production process. He eliminated supervisors and inspectors and also cut out repair centers to catch defects at the end of the assembly line--thus instituting what we now know as total quality management.

The result was the company that has become the world’s third-largest car manufacturer, with output of 4.1 million vehicles and $94 billion in sales last year.

It should be noted that Toyota, in a decentralized system that limits the costs of lifetime employment, has relatively few workers itself--a third of Ford’s work force, a half of Chrysler’s and a sixth of General Motors’. It relies instead on supplier companies, in which it has ownership stakes, to employ production workers at different wage levels.

Otherwise, Toyota’s new production system should leave us with several thoughts, some of them comforting. In emphasizing robots at Tahara, Toyota--like GM before it--learned that machines have their limitations and that the “machine” with a brain and two hands is industry’s most productive resource.

But U.S. business should also keep in mind that Toyota has achieved globally competitive, profitable operations by devising the most productive ways to employ highly paid workers, not by seeking cheap labor. “Low-wage workers in poor countries become highly paid as they improve their productivity anyway,” notes Kitano.

And a further discomforting thought for Toyota’s competitors and for the Clinton Administration--which sees a cheap dollar as helping U.S. competitiveness--is that currency pressures forced Toyota to get more efficient, not less. Now that it’s competitive at 88 yen to $1, what will Toyota be when currency pressures ease?

Maybe the United States should rethink cheap dollars and cheap labor just as Toyota rethought automation.