Technical Lean or Economic Lean?

It’s always interesting for me to revisit some of the older Japanese literature on the philosophy behind the Toyota Production System (TPS). Two books, in particular, stand out to me – The Toyota Management System: Linking the Seven Key Functional Areas, by Yashiro Monden, and Toyota Production System: Beyond Large Scale Production, by Taiichi Ohno.

The significance of these two books is that they stress the economic, as opposed to the technical, rationale for the principles of TPS.

Western firms have long been seduced by the technical aspects of TPS – one-piece flow cells, pull systems and kanban cards, 5S and visual workplaces, and the like. Yet, the economic rationale of why these things make sense is often overlooked. There may be vague statements about reducing waste and its associated costs, but the clear linkage of TPS techniques to the microeconomics of a firm is generally not well understood.

In my Quality Digest paper, The Economics of Lean Production (available at http://www.qualitydigest.com/inside/twitter-ed/economics-lean-production.html), I highlighted the microeconomic linkages that rationalize Lean as a viable production paradigm for many firms. These are the same ideas that both Ohno and Monden tried to convey in their wiritings.

The title of Ohno’s book indicates that TPS is a production paradigm that allows a firm to exploit the same economic benefits that only large volume producers could enjoy through economies of scale. With Lean, it is possible for a firm to produce at volumes lower than Minimum Efficient Scale (MES), although certain caveats have to be observed.

This idea was the driving force behind TPS: Toyota, confronted with the need to compete effectively with mass producers, developed TPS as an effective response to keeping costs in line with the scale economies enjoyed by those larger producers.

So, let’s not forget the economic underpinnings of TPS. The technical aspects are important, but at the end of the day its firm economics that count.

Stewart Anderson

stewart@andersonlyall.com

http://www.andersonlyall.com

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