Manufacturing Innovation: Lessons from the Japanese Auto Industry

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.

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References

1. J.E. Harbour, “Comparison and Analysis of Automotive Manufacturing Productivity in the Japanese and North American Automotive Industry for the Manufacture of Subcompact and Compact Cars” (Berkley, MI: Harbour and Associates, 1981);

National Academy of Engineering, The Competitive Status of the U.S. Auto Industry (Washington, DC: National Research Council, 1982);

WJ. Abernathy et al., Industrial Renaissance (New York: Basic Books, 1983);

M.S. Flynn, “Comparison of U.S.-Japan Production Costs: An Assessment,” in Automobiles and the Future: Competition, Cooperation, and Change, ed. R.E. Cole (Ann Arbor, MI: Center for Japanese Studies, the University of Michigan, 1983);

M.A. Cusumano, The Japanese Automobile Industry: Technology and Management at Nissan and Toyota (Cambridge: Council on East Asian Studies/Harvard University Press, 1985);

A. Aizcorbe et al., “Cost Competitiveness of the U.S. Automobile Industry,” in Blind Intersection: Policy and the Automotive Industry, ed. C. Winston (Washington, DC: Brookings, 1987);

J.F. Krafcik, “Comparative Analysis of Performance Indicators at World Auto Assembly Plants” (Cambridge: master’s thesis, MIT Sloan School of Management, 1988);

M.B. Lieberman, “Learning, Productivity, and U.S-Japan Industrial “Competitiveness,’” in Managing International Manufacturing, ed. K. Ferdows (Amsterdam: North Holland-Elsevier, 1988).

2. Cusumano (1985);

National Academy of Engineering (1982).

3. Cusumano (1985).

4. J.F. Krafcik, “Learning from NUMMI” (Cambridge: unpublished manuscript, MIT International Motor Vehicle Program, 1986);

Krafcik (1988).

5. Based on data in Amagai Shogo, Nihon jidosha kogyo no shiteki tenkai [The Historical Development of the Japanese Automobile Industry] (Tokyo: Aki Shobo, 1982); and

Japan Automobile Manufacturers Association, Nihon no jidosha kogyo [The Japanese Automobile Industry] (Tokyo: Annual Report).

6. See, for example, E.F. Vogel, Japan as Number One (Cambridge: Harvard University Press, 1979);

T. Pepper et al., The Competition: Dealing with Japan (New York: Praeger, 1985);

J.C. Abegglen and G. Stalk, Jr., Kaisha: The Japanese Corporation (New York: Basic Books, 1985); and

C. Johnson, MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925–1975 (Stanford: Stanford University Press, 1982).

7. My thanks to Kim Clark of the Harvard Business School for helping me interpret these numbers from an economist’s point of view.

8. For international price comparisons, see the book by former Nissan president Iwakoshi Tadahiro, Jidosha kogyo ron [A Discussion of the Automobile Industry] (Tokyo: University of Tokyo Press, 1968).

9. This comment is based on interviews with former Nissan managers Okumura Shoji, Sasaki Sadamichi, Kawazoe Soichi, Katayama Yutaka, Maeda Riichi (May 1982), and Matsuzaki Shiro (July 1982).

10. Krafcik’s data confirms that the Japanese assembly plants with the highest levels of productivity also tend to have the highest levels of quality (fewest defects reported by customers) and are highly flexible, measured by the number of distinct underbodies produced per assembly line. See Krafcik (1988).

11. The following discussion of Nissan is based primarily on Nihon jidosha kogyo shi kojutsu kiroku shu [Recordings of Oral Interviews on the History of the Japanese Auto Industry], Vol. II (Tokyo: Jidosha Kogyo Shinko Kai [Automobile Promotion Association], 1975);

Aikawa Yoshisuke, Watakushi no rirekisho [My Career], Vol. XXIV (Tokyo: Nihon Keizai Shimbunsha, 1965);

Nissan jidosha sanjunen shi [A Thirty-Year History of Nissan Motor] (Tokyo: Nissan Motor Company, 1964); and

Interviews with former Nissan managers Katayama, Sasaki, Okumura, and Matsuzaki.

12. The discussion of Toyota is based primarily on Toyota jidosha sanju-nen shi [A Thirty-Year History of Toyota] (Nagoya: Toyota Motor Company, 1967);

Okumura Shoji, “Jidosha kogyo no hatten dankai to kozo” [The Developmental Stages and Structure of the Automobile Industry], in Gendai Nihon sangyo koza [Series on Contemporary Japanese Industry] ed. Arisawa Hiromi (Tokyo: Iwanami Shoten, 1960);

Shotaro Kamiya, My Life with Toyota (Nagoya: Toyota Motor Sales, 1976); and

Morikawa Hidemasa, “Toyoda Kiichiro,” in Nihon no kigyoka [Japanese Entrepreneurs], Vol. III, Morikawa Hidemasa et al. (Tokyo: Yuhikaku Shinsho, 1978).

13. This chronology is based primarily on Ohno Taiichi, Toyota seisan hoshiki [The Toyota Production System] (Tokyo: Daiyamondo, 1978);

My interview with Ohno (18 March 1983); and Toyota jidosha sanju-nen shi (1967).

14. On NUMMI and Honda, see Krafcik (1986); and

Haruo Shimada and J.P MacDuffie, “Industrial Relations and “Humanware’: An Analysis of Japanese Investment in the U.S.” (Cambridge: working paper 1855–88, MIT Sloan School of Management and MIT International Motor Vehicle Program, 1986).