Toyota Production System.doc

Mutagenization of Toyota Production System: The Story of Hyundai Motor Company Byoung-Hoon Lee Department of Sociology, Chung-Ang University, 221 Heuksuk-dong, Dongjak-gu, Seoul, 156-751, South Korea. , Hyung-Je Jo Department of Sociology, Ulsan University 1. IntroductionDuring the past decade and now on, Toyota Production System (hereafter TPS) has demonstrated its overwhelming strength in the restructuring process of the global auto industry. This is evinced by the on-going diffusion of TPS as the world-class manufacturing model (Oliver et al. 1994) or “the machine that changed the world” (Womack et al. 1990), along with the unceasing advance of Toyota in global auto market competition. Indeed, TPS has been spread from Toyota to other automakers and different industries across the globe, in various forms, such as transplants, joint-venture, imitative learning, and consultancies (Ebrahimpour & Schonberger 1984). Korean automakers are no exception in attempting to adopt TPS for enhancing their operational efficiency and business competitiveness. TPS has been the prime target of benchmarking for Korean automakers, since they have viewed Toyota as an exemplary role model having made successful inroads into global markets. At Korean auto plants, however, TPS has not been adopted as it is in Japan, but rather implemented in a deviant form for socio-contextual and organizational reasons. Our study aims to examine the diffusion of TPS in Korea, by focusing on the experience of Hyundai Motor Company (hereafter Hyundai). Hyundai can be an interesting case on several grounds: First, Hyundai is a “Cinderella” case showing a remarkable transformation from a mere low-cost domestic manufacturer of a developing country in the early 1970s to a major player in the contemporary global auto competition. At present, it is ranked as one of global top-ten automakers by production volume and by product quality (Jo 2005). Second, Hyundai offers an exemplary case to shed light on how TPS has been implemented by Korean manufacturing firms, since it represents a typical or influential business model in terms of corporate governance, management style, market strategy, and labor relations in Korea. Third, given the fact that there exists little research literature on the transferability of TPS to developing countries, the Hyundai case may contribute in broadening our cognitive horizon of TPS diffusion to non-Western developing economies. Finally, Hyundai presents a good case to figure out key factors constraining and shaping the adoption of TPS at a recipient site, thereby helping further develop a theoretical framework to analyze the processes and outcomes of TPS diffusion. Drawing upon data gained from field research, this case study attempts to interpret the diffusion of TPS from the evolutionary perspective. Our argument is that the emulation of TPS is not to adopt TPS as Toyota developed in its context, but to develop its own production model having competitive edge in the global competition. In this vein, this case offers a new lens to view the diffusion of TPS across border. In the field work which was conducted between April, 2005 and March, 2006, we interviewed a number of senior managers and supervisors at production and production technology departments, with having additional talks with union officials and collecting primary company data. The next section delineates literature review of the transferability of TPS, followed by the historical overview of TPS emulation at Hyundai. The section four tries to explain why the deviant adoption of TPS has taken place at Hyundai, and the Section five benchmarks Hyundais manufacturing performance against Toyota. In conclusion, some implications of this case study will be addressed. . 2. Literature ReviewIn examining the transferability of TPS, we need to start by clarifying the substance of TPS to be diffused across border. Since Sugimori et al.(1977) shed light on the basic concepts of TPS in their seminal article, a number of academics have tried to capture the essence of this extraordinary manufacturing innovation by labeling and configuring it in various ways. Over time, the conception of TPS has evolved from a combination of waste-eliminating manufacturing techniques and full labor utilization (Sugimori et al. 1977) to the post-Fordist or lean production paradigm encompassing supply chain management, R&D function, customer relations as well as lean production organizations (Womack et al. 1990). As a consequence, TPS has been described as a variety of analytical notions, such as method, process or program, strategy, goal, belief or state of mind, and philosophy (Vokurka & Davis 1996). This multi-facet conception of TPS creates some confusion over its generic entity to diffuse into different organizational or social contexts (Bartezzaghi 1999). Moreover, in light that Toyota has evolved its manufacturing operations to deal with labor shortage and changing market demand in the 1990s (Benders & Morita 2004; Shimizu 1998; Katayama & Bennett 1996), TPS can be viewed as an evolutionary entity, rather than the fixed one, thereby causing difficulties in benchmarking against it. Given its confusing conception, the transferability of TPS has entailed heated debate among three theoretical approaches: the paradigmatic convergence perspective, the structuralist perspective, and the contingency perspective. The convergence perspective, which mainly draws upon the IMVP research, highlights the superb performance of TPS achieved by Japanese manufacturers, including Toyota, and Western emulators. According to this perspective, TPS, which was invented under the originator(Toyota)s idiosyncratic context, is recognized as the dominant production paradigm of the 21st century, verified by its performance superiority in the global competition (Womack et al. 1990; Krafcik 1988; Cusumano 1988). This school treats TPS or lean production as a universal set of management norms to be transferred to anywhere (Womack & Jones 1994; Adler & Cole 1993). Despite some variation in the form of its diffusion reflecting the recipients strategy and context, they insist, TPS becomes the “one-best way” manufacturing paradigm into which every business player tends to converge in the survival game of the contemporary global competition (Forza 1996). The structuralist perspective denies the universal transferability of TPS, emphasizing the unique socio-economic context of Toyota (Williams et al. 1994). Nakamura et al.(1996) note that the transfer of TPS across national boundaries is considerably more difficult than the diffusion of specific TPS components, against a background of different social contexts, including cultures and social relations, economic conditions, and business practices. Thus, this school insists that TPS has historically evolved under the idiosyncratic condition of Toyota and its substance can hardly be transferred to differing structural contexts (Williams and Haslam 1992).Between these two polar positions, the contingency perspective posits a compromising view, by considering the paradigmatic superiority of TPS and preconditions or constraints of its transferability. This academic group stresses that the successful implementation of TPS as a new manufacturing paradigm is dependent upon such organizational contingencies at recipient sites as long-term management strategy, labor-management cooperation, employee and union involvement, open communication, and substantial training investment (White et al. 1999; Harber et al. 1990). They also point out that the processes and outcomes of TPS emulation are conditioned by external contexts (i.e.: market situation, international division of labor, local institutional environment, social culture) as well as organizational contingencies (Mehta & Shah 2004; Liker et al. 1999) In a similar vein, Doeringer et al. (2003) reveal national differences in actual adoption of TPS, by comparing Japanese multinationals across U.S., U.K. and France.Among the three different theoretical views of the existing literature, the contingency and structuralist perspectives both presents a one-side rationale in assessing TPS diffusion the first disregards the impact of national and organizational contexts over the transfer of TPS, whereas the latter underestimates the universal advantage that TPS has enjoyed in the post-Fordist era. By contrast, the contingency perspective has a merit of combing those two approaches from a balanced view, thereby helping capture the variation of processes and outcomes in the transfer of TPS across firms and countries. However, the contingency perspective also has a limitation in clarifying how and why recipient firms adopting TPS develop their own workable production models, deviated from its ideal model. The contingency approach provides a static picture of variations in the adopted form of TPS, but does not explore the dynamic evolution of TPS implementation, that is how the components or principles of TPS have been transmuted under the given contingencies of the recipient sites. The problem with this perspective is that it focuses only on contingencies of TPS diffusion, yet ignores the recipients active role - managements strategic capabilities - to deal with their contingencies.In this vein, the emergent process perspective, posited by Liker et al.(1999), is useful for making up for the weakness of the contingency theory. This perspective views the diffusion of TPS as evolving transformation and indeterminate processes, which can be open for various outcomes in terms of the form and performance of adopted TPS. Bartezzaghi(1999) helps understand the process perspective by distinguishing between contingent models and paradigms. According to him, the production model is a set of optimal manufacturing techniques and practices for a given company context, while the production paradigm is a coherent body of general principles to design and manage manufacturing systems. The production paradigm underlying considerable competitive advantage tends to prevail as the universal standards to be emulated by most industrial players, until the advent of a new paradigm to replace it under the fundamental changes of business environment. TPS was devised as a specific production model suitable for the unique contingencies of Toyota in the 1960s (i.e.: lack of natural resources, Japanese work attitude, life-time employment practices, enterprise union, little discrimination and good chance for job promotion to blue-collar workers), as admitted by Sugimori et al.(1977). Under the drastic change of market conditions intensifying competition and diversifying customer demands, TPS, equipped with a set of new manufacturing principles, such as JIT and Kaizen, is recognized a production paradigm to replace the existing Fordist mass production paradigm, as verified by the outstanding manufacturing performance that Toyota and its clone plants have achieved since 1980s. In emulating the production paradigm, TPS, originated from Toyota, many manufacturers develop their own production models, conditioned or constrained by contextual factors (i.e.: market situation, institutions, institutions, culture, work norms, supply chain structure) as well as organizational contingencies (i.e.: business strategy, corporate history, labor-management relations, pre-existing interpretative mechanism of production technology, and the level of worker skills) (Lewis 2000; Liker et al. 1999). Those production models have two inherent characteristics; (1) the models are specific and peculiar to individual manufacturers, even though they attempt to make reference to the same paradigmatic principles of TPS; (2) the models have evolved over time by involving a continuous process of selecting, interpreting, assimilating, and transmuting the principles and operational elements of TPS in the appropriate way to deal with the changing business conditions (Bartezzaghi 1999). As indicated by Lewis(2000) drawing upon the resource-based theory, therefore, each manufacturer cannot make an exact replica of the idiosyncratic Toyota manufacturing arrangements having the inimitable socio-organizational origin, but follows the trajectory of its own production model development emulating the paradigmatic principles of TPS, thereby trying to gain greater competitive advantage within the given business contingencies. Figure 1 presents a diagram of hypothetical research model, summarizing the above literature review over the diffusion of TPS. Here, TPS is defined as a systemic bundling of paradigmatic principles (including manufacturing method and technique, work organization, human resource management, and supply chain management), which originated from Toyotas unique business context, but is now recognized as the world-class manufacturing standards. Those TPS principles may be emulated through various manners, such as prototyping (initial replica of manufacturing arrangements), technical transfer (imitation or import of manufacturing facility and technical knowledge through Toyota-related consultancies), and benchmarking (the catch-up goals and comparative standards). In the emulating process, the recipient mutigenizes the TPS principles; in other words, it develop its own production model by selecting, interpreting, and transmuting those TPS principles in light of its idiosyncratic business context comprising external conditions and internal (or organizational) contingencies. Note that this research model is applicable to ordinary manufacturers that have taken their own course to emulate TPS, without having any direct linkage to Toyota like transplants and joint-venture, so that it could offer a more generalizable insight about the diffusion of TPS across borders. The next section applies this research model for examining Hyundais case of TPS emulation. Insert Figure 13. Historical Trajectory of TPS emulation at Hyundai Hyundai, established in 1967, buckled down to emulate TPS, when it started the production of its own subcompact car model, Pony, in 1975. At the time, the company invited Mr. Seiyu Arai, the former Mitsubishi senior engineer, as a technical advisor in building the first assembly plant. Mr. Arai, who was a student of Mr. Ohno Taiichi, the inventor of TPS, played a crucial role in devising the technical layout and operational processes of the Hyundai plant. In particular, he encouraged Hyundai to adopt some TPS principles for molding the prototype of its manufacturing arrangements. For instance, Mr. Arai taught Hyundai management how to carry out Toyotas “Three- Problems Ban Policy”, which set up a basic workplace management principle to eliminate (1) irrationality, (2) imbalance, and (3) superfluity (in sequence of priority) in manufacturing operations (Kang 1986). Interestingly, however, he reversed the original order of the policy priority to cope with Hyundais resource shortage in its start-up stage, by stressing the elimination of superfluity as the first priority, followed by imbalance and irrationality. In addition, the Japanese advisory group, led by Mr. Arai, adopted TPS manufacturing methods to improve the tooling of stamping dies, shorten the set-up time of press lines, and make the body-welding line more efficient at the Hyundai plant. They also shaped work organization of manufacturing processes (including the leading role of shopfloor foremen), following the prototype of Toyota and other Japanese automakers. In our interview, Hyundai senior managers admit that Mr. Arai and his advisory group helped Hyundai management enjoy the advantage of late-development by emulating TPS in a selective manner. In the mid 1980s, Hyundai made significant inroads into the world auto market along with the successful entry of its Excel (a subcompact car model) into the North American market, and has since shown the rapid growth owing to domestic motorization and overseas demand increases. Its domestic production volume soared by over ten times between 1980 (64,070 units) and 1990 (650,388 units), and by almost 30 times between 1980 and 2000. Against a backdrop of its drastic business growth, Hyundai aggressively expanded its manufacturing capacity in the 1980s and 1990s. In this period, it adopted elements of TPS in a piecemeal and discontinuous way, whenever it renovated production lines along with the introduction of new car models, or opened new assembly plants. In early 1980s, when they renovated the first assembly plants to establish the mass production lines of Excel, Hyundai management made a large investment in automating production equipment and implemented the concept of JIT in a rudimentary form by changing the method of material handling from the existing bulk parts delivery to the sequential parts delivery. In the late 1980s, when the 2nd assembly plant was built, Hyundai management introduced the production scheme of flexible automation by installing the Flexible Body Line (FBL) to enable them to facilitate the production flow of various cars (24 models) and smoothly adjust production volume through the reduction of set-up time. In building the FBL, Hyundai resorted to a technical consulting from Yamashita Machinery, who designed and supplied the main buck system of body-building line for Toyota, and devised the Toyota-imitated One Buck System along with its own invention of Windmill Jig System (Jo 1998). In addition, the Hyundai plants also computerized the sequential parts inventory management for upgrading the level of JIT parts delivery and reducing WIP. At the same time, the company launched various shopfloor campaigns (i.e.: Kaizen and suggestion program, “Three-Right Campaign - Do Right things at the Right time in the Right place”, “Five Work Attitudes Campaign - Plain, Orderly, Clean, Neat, and Disciplined Work”, a