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.