Principles of World Class Manufacturing

Process Orientation: Though process orientation is often ascribed to proponents of business process re-engineering (BPR), the true pioneer of process orientation, was probably Shigeo Shingo. In 1946, Shingo realized that all production activity-whether in the factory or the officewas composed of a ‘network of processes and operations’. Perplexed managers will. Probably find Shingo’s distinction between process and operation very useful (Shingo 1989). He noted:

  • A process is the course by which material is transformed into a product. This consists of four phenomena: processing, inspection, transport and storage.
  • An operation is an action performed on the material by machines and workers.

Shingo’s definitions are made from a shop floor perspective, but they can very easily be generalized: a process is the course by which value is added to an entity that a customer is waiting for; an operation is an action performed on this entity by a worker or a piece of equipment.

A customer in a bank waits for her withdrawal slip to be processed so that she can collect cash at the counter. The process here is the completion of the procedures required to enable the customer to collect. The time taken for this is what matters to the customer. If the clerk, who first handles the withdrawal slip, finishes his work in one minute instead of two, but a peon routinely delays the movement of the slip by 10 minutes, the faster operation of the clerk does not matter much to the customer. As Shingo put it, ‘To make fundamental improvement in the production process, we must distinguish product flow (process) from work flow (operation) and analyse them separately.’ As we shall see, the people who developed World-Class manufacturing did a very good job of this.

Avoid False Tradeoffs: The genius of the early achievers of World-Class manufacturing lay in their ability to eschew the conventional ‘optimizing’ approach to problem solving, and substitute it with an approach in which ‘reasonable’ assumptions were questioned to reconcile seemingly conflicting objectives. Shingo was a major force behind this approach, and his explanation is worth repeating here (Shingo 1989):

In dialectics, you start off with an idea called a thesis. Opposed to this is an antithesis. In ordinary thinking, the antagonism between a thesis and an antithesis is usually resolved through a compromise. However, this problem of contradiction and opposition can be viewed from a different perspective. Through sublation, a higher-level synthesis is reached. The opposition vanishes and both sides are satisfied. This method of reasoning is called the dialectic process.

The most famous example of application of the dialectic process is the SMED system developed by Shingo. For decades, students of various disciplines were taught about the theory of the

Economic Order Quantity (EOQ). The reasoning behind this theory is shown in Figure 3.2. A smaller production lot size is desirable because it implies a lower level of investment tied up in inventory. However, small lot sizes imply a larger number of set-ups. Now set-ups in some cases-for example, in press shops would take a lot of time, meaning that costs of lost production would be incurred. Therefore the idea was to choose a lot size that would minimize the total inventory carrying cost and setup cost.

While working on an assignment in 1950, Shingo realized that there were really two kinds of set up operations:

  • Internal set-up-operations (such as mounting or removing dies on a press) that could be performed only after the machine had been stopped.
  • External set-up-operations (such as transporting press dies to and from storage) that could be completed without stopping the machine.


Figure 3.2: The Basic Concept of Economic Order Quality (EOQ) Theory – an example of a false trade-off. The fundamental assumption behind the reasoning is that the cost of setup has to be accepted as a given input.

Shingo completed the conceptual development of the SMED system that helped to reduce the set-up time on a large press at Toyota’s main plant, first from four hours to one-and-a half hours, and subsequently to three minutes. He then realised that any set-up could be performed in less than 10 minutes and generalised the concepts he had applied into the SMED system (the term ‘single minute’ in SMED refers to a single-digit time span in minutes and does not imply a oneminute set-up). Shingo and others (Shingo 1989; Hall 1983; Mondenl983) have discussed techniques for set-up time reduction in detail. The four conceptual stages of SMED are:

  • Stage One: No distinction is made between internal and external set-up.
  • Stage Two: The internal and external set-up operations are identified Delays in internal set-up are targeted for elimination.
  • Stage Three: The possibilities of converting internal set-up operations to external set-up are explored.
  • Stage Four: Additional improvements are made through eliminating adjustments and streamlining clamping methods, leading to one-touch exchange of dies.

Shingo was able to achieve reductions in set-up time of 80 to 95 per cent on an average. The implications of the SMED system were profound. Though the mathematics of EOQ theory remained valid, what Shingo had done was to decimate set-up cost. The natural corollary was that the economic lot size decreased. Manufacturers could produce in quantities that closely matched demand. The move from large-scale, large-lot production to large-scale, small-lot production became possible.

The Cost Reduction Imperative

Cost reduction is a fundamental goal of World-Class manufacturing, as explained earlier. The cost reduction philosophy advocated by Ohno (1988) exhibits the same deceptive simplicity and home-spun wisdom as his other views.

Ohno lists three formulae:

  1. Selling price – cost = profit
  2. Profit = selling price – cost
  3. Selling price = cost + profit

Now these formulae appear to be the same at first sight. Ohno described this illusion as

‘Arithmetic’s blind spot’. As he put it, formula No.1 means that with competition around, the selling price is determined by a third party. The task of reducing the cost to increase profit is within the control of the manufacturer.

Formula No.2, however, implies that once an item has been manufactured at a certain cost, the manufacturer must find a way to make a certain profit that he has targeted. Formula No. 3 implies that a certain cost has been incurred; given a desired profit margin, the selling price can be arrived at. Ohno wrote that ‘for me, costs exist to be lowered-not calculated….Formulas may lead you somewhere depending on how you approach them Those of us involved in industrial engineering tend to see things in terms of Formula No.1.’

The upshot of all this is that we are no longer living in a ‘cost-plus’ world. This has become true in India only recently for a wide spectrum of industry. Ohno had anticipated the concept of target costing by a few decades

Benchmarking’ Breakthrough: Copying the Supermarket System: The breakthrough that fostered the development of World-Class manufacturing came when the functioning of American supermarkets was adopted by Ohno as a model for material flows on the shop floor (Ohno 1992). According to him:

A supermarket is where a customer can get:

(1) what is needed

(2) at the time needed

(3) in the amount needed.

Sometimes, of course, a customer may buy more than what he or she needs. In principle, however, the supermarket is a place where we buy according to our need. Supermarket operators, therefore, must make certain that customers can buy what they need at any time.

Compared to Japan’s traditional, turn-of-the-century merchandising methods, such as peddling medicines door-to-door, going around to customers to take orders, and hawking wares, America’s supermarket system is more rational. From the seller’s viewpoint, labour is not wasted carrying items that may not sell, while the buyer does not have to worry about whether to buy extra items.

From the supermarket, we got the idea of viewing the earlier process in a production line as a kind of store. The later process (customer) goes to the earlier process (supermarket) to acquire the needed parts (commodities) at the time and in the quantity needed. The earlier process immediately produces the quantity just taken (restocking the shelves).

We hoped that this would help us approach our just-in-time goal and, in 1953, we actually applied the system in our machine shop at the main plant. The ‘effects of this line of thinking were profound. Today’s management gurus would call it a paradigm shift. Conventionally, if material flowed from a foundry shop to a machining shop, the foundry would try to produce to the plan. The castings produced would be sent to the machine shop. Under the ‘pull’ system inspired by the supermarket model, this mode of working was abandoned. Instead, the subsequent process (the machine shop) would draw material from the preceding process (the foundry) according to its needs. Thus, the concept of internal customers was operationalised. The mechanism used for pulling material was the kanban system. Figure 3.3 shows Monden’s (1983) explanation of the working of a kanban system. Monden and other authors have also described the various types of kanban that are used in the Toyota Production System. We will not go into these details here, except to state that the two basic kinds of kanban are the production-ordering or in-process) kanban (POK) and the withdrawal kanban (WK).


Products A, B and C are assembled on the assembly line. Parts a and b produced by the machining line go into these products. They are stored as shown with POKs attached. A carrier from the assembly line goes to the machining line with WKs, and picks up as many boxes of part a as he has WKs. He detaches the POKs on the boxes of part a, attaches WKs to them, and brings them to the assembly line. The detached POKs serve as an instruction to the machining line to produce part a in the quantity withdrawn. When a box of part a is used up in assembly; the WK which had been attached to it is taken to the machining line. The cycle is repeated.

The Japan Management Association (1986) has traced the use of kanban to a traditional practice: It came from the practice whereby foremen in separate workplaces would write their group’s work content on slips of paper and post them, along with other foremen’s, to show what was going on. In other words, they were putting up their shingles (kanban), so to speak, and hence this term. When one has his kanban up, it is a declaration that his kanban does not lie. ‘If there is any falsehood in what this shop and its kanban stand for, we do not expect any payment.’ In the old days, merchants declared this to their customers; our kanban lives by that tradition.

Indian managers tend to be enamored of the term ‘kanban’ without understanding the nature and purpose of the kanban system. We were told of a case in which an Indian light commercial vehicle (LCV) manufacturer with a Japanese collaboration took to the use of kanban. None of the purported benefits of a kanban system were realised by the company. This was because-as every authority on World-Class manufacturing has emphasized-the kanban system is simply one tool for implementing the goals of World-Class manufacturing. Ohno (1992) described it as an ‘operational tool that carries out the just-in-time production method.’ A lot of groundwork has to be done before going in for a kanban system, and World Class manufacturing can, in fact, be implemented without actually going in for kanban. A pull system of material flows can also be implemented through electronic signals or by simply circulating standardised containers between preceding and subsequent lines.

Monden (1983) has noted that the kanban system is supported by the following management practices:

  • Smoothing of production
  • Reduction of set-up time
  • Cellular plant layout
  • Standardization of jobs
  • Improvement activities
  • Autonomation

The use of kanban is meaningful only when all or most of these fundamentals have been attended to. If kanban are used in a conventional environment, the only outcome will ‘be that the number of kanban that are in circulation will be large enough to compensate for all the waste that is built into the process. In World-Class manufacturing, however, one of them means of continuous improvement on the shop floor ‘is reduction in the number of kanban being circulated—This reduce WIP and keeps manufacturing personnel on their toes to continually seek ways of eliminating waste.

The functions and rules governing the kanban system have been clearly explained by Ohno

(Ohno 1992) through Table 3.1. Shingo (1989) later noted that of the six rules presented by Ohno, only the third and fourth are kanban system rules, while the others are essentially rules which follow from the basics of the Toyota Production. System. He emphasized the importance of the third kanban system rule.


Root Cause Analysis: The essential thrust of improvement activities in World-Class manufacturing is on identifying the root cause of an undesirable occurrence, and taking steps to ensure that the cause is eliminated. Womack et al. (1990) made an interesting observation during their visit to a Toyota assembly plant. They saw that every assembly worker could stop the assembly line if a problem was found by simply pulling a cord above his workstation. As opposed to this, only senior managers could stop the line at a General Motors plant (GM) that they visited.

Ironically, the Toyota line stopped very rarely but the GM line used to stop frequently.

This was made possible by the effort made at Toyota to ensure that the same problem never occurred twice. The problem solving tool that was used for this was very simple: ask ‘Why?’ five times. Ohno (1988) has provided the following example of this procedure:

  1. Why did the machine stop? There was an overload and the fuse blew.
  2. Why was there an overload? The bearing was not sufficiently lubricated
  3. Why was it not lubricated sufficiently? The lubrication pump was not pumping sufficiently.
  4. Why was it not pumping sufficiently? The shaft of the pump was worn and rattling,
  5. Why was the shaft ‘worn out? There was no strainer attached and the metal scrap got in.

Shingo (1989) has explained the underlying concept:

There are some managers who believe that a variety of production problems can be overcome by implementing Toyota’s visual control system, which is also called random. It is a visual control that communicates important information and signals the need for immediate action by supervisors. At Toyota, however, the most important issue is not how ‘quickly personnel are alerted to a problem,’ but what: solutions are’ implemented. Makeshift or temporary measures, although they may restore the operation to normal most quickly, are not appropriate. Nor is the best response, when defects occur, to work overtime to produce the scheduled number of good units. These solutions are like using an ice pack to cure appendicitis-it may relieve the pain for a while, but only an appendectomy will prevent a recurrence. This is Toyota’s approach –to discover and implement solutions that permanently prevent a problem from recurring.

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