Lean manufacturing, just-in-time or toyota Production System (TPS) are hallmark management philosophies that have dominated production practices since the 1950s. If TPS transformed Toyota from a small company into the world’s largest automaker and made Taiichi Ohno—one of its key architects— the superstar of process management in the ’60s and ’70s, then in the following decades the person making a profound impact in the field is Israeli physicist Eliyahu M. Goldratt and his Theory of Constraints (TOC).
Enunciated in his 1984 book The Goal, the TOC process of ongoing improvement seeks to identify the constraint and restructure the rest of the organisation around it. Recently in Delhi for the launch of his book, The Choice, Goldratt took some time off to speak with BT’s Shamni Pande about his theory and how he’s driving a change in thinking at Toyota today, among other things.
Six Sigma and Lean management philosophies are the global buzz words... where does your Theory of Constraints find itself?
In fact, in TOC we force companies to use Six Sigma, but it depends where. And we force companies to use Lean techniques, again it depends where. As a matter of fact, where has Six Sigma come from? It’s come from physics. I don’t see a clash; it’s not either/ or. They are all part of the puzzle, the question is how do you put it together.
Has Toyota Production System, or Lean as it’s known elsewhere, been a runaway success outside of Toyota?
If you ask, then Toyota (which has pioneered Lean, or TPS concept) will probably claim that what is advocated under Lean (in most places) is a distortion. Even 20 years after companies have copied the concept, there is a huge gap in performance between Toyota and others. Reason is the difference in understanding a concept. To Toyota, elimination of waste means waste of time and, somehow, when it is translated elsewhere it means waste of cost. This small difference is a killer! In Toyota, the base for all the improvements is to straighten up the flow and their focus is to eliminate all disruptions to flow. Often, others seek improvements without first putting the flow, so most of it appears to give just an impression of improvements. So, when Toyota sees people ascribing its name to this, it is not very happy.
Evolution of production practices
Have they been very vocal in articulating the difference between the Toyota way, and what others are doing?
The amazing thing is that though they sensed it very deeply and expressed it, they did not know how to articulate it. As a matter of fact, one of the reasons that (I don’t know how to say it... okay, I will say it bluntly) I am very popular at Toyota is because I gave them the verbalization (laughs). They regard me as the heir of Ohno (Taiichi).
They see no conflict or competition with you, as you have your own theory?
They do not view TOC as competition, but as a natural evolution. They do not argue with my arguments, but are in agreement. And are contemplating the adoption of TOC... due to my work, they want to expand it to all other areas.
How do they view TOC an improvement on Lean?
When my book The Goal was published in Japan (six years ago), the president of Toyota made it mandatory reading for all management…
Toyota is famous for the five whys. Most people do not know what these are. The concept of five whys involves search for the real answer: If you are addressing what you see, you are addressing only the symptom; hence, you have to go five times down to the stage where things do not diverge anymore, but converge and go to the core. Now, the problem is it’s easy to ask the first and the second why, but when you come to the third why, you come to the real problem. This is part of the thinking process of TOC, which Toyota realises that this process (of reaching the core) becomes a lot easier with TOC, which is why they view TOC as a natural continuation, an evolution of their Lean process.
So you are, in principle, a great admirer of the Toyota System?
I am. Not of Toyota, but of the people who generated it. I am not an admirer of the fact that for 20 years they did not take it to the next step. I am admirer of Taiichi Ohno; what a guy!
Is the cause-and-effect, which you talk about in your book, a progression of TOC?
From my first book (The Goal), everything is based on cause and effect—it is the basis of TOC. And all of physics is based on cause-andeffect, which is actually common sense. However, most people do not use cause-and-effect, they use extrapolation.
Let me tell you a story: Early this January, I had five top managers from a sizeable Japanese company that produces electronic components visit me. After five minutes into the room and talk of strategy, I realised that their real question was to know how many people should they be laying off? That was a shock for me! I can understand that very well from an American company, but for a Japanese company to talk of lay-offs? They do it only when there is no other way. They explained what was happening and that after seven years of consistent growth their sales had dropped 50 per cent in November-December 2008.
Now, let us see how they went about it: Being a components player, they checked with companies producing electronic systems, and found sales had come down… But they did not check with the retailer who was selling directly to consumers, who were still buying.
Which is why they went into total panic. By following cause-and-effect, we made them check on actual demand and to their surprise they discovered that it had gone up— even in the US.
So you don’t think there is a problem of poor demand?
In my view, there is no recession— even in the US. There is a financial problem in certain segments. However, unfortunately, everyone is reading the same headlines and extrapolating facts and reducing inventory, which is having a devastating effect.
So, in effect, this company has now gone back and is supporting its weakest supplier so that it is able to match demand—unlike its competitor who has already laid off 25,000 people in Japan. Sometime back when oil prices went up, everyone wrote articles on the bad impact it will have on economy. What happened? Price dropped, giving enormous boost to the economy. What happened to all the metal prices? They halved, giving a huge boost to the economy... look closely at what’s happening in China and in India. How much the wages are going up… China and India are actually turning out to be big consumers. As a matter of fact, recently China surpassed Germany in consumption. We are entering into the biggest ever economic boom in the history of mankind. And people are talking about recession.