 Copyright, Ansari, Bell, Klammer and Lawrence, Management Accounting: A Strategic Focus, Irwin-McGraw-Hill, Lean Production Based On The Book “The Machine That Changed The World” By Womack, Jones & Roos MIT’s 5 Year $5 Million Research Project On The Automobile Industry

 Copyright, Ansari, Bell, Klammer and Lawrence, Management Accounting: A Strategic Focus, Irwin-McGraw-Hill,  Toyota Manufacturing Differences  Ford Model T  Standardized “interchangeable” parts produced by gauges  Parts “simpler” to attach  Skilled interchangeable labor force  Low variety and high volume products  After the fact quality control  Customized parts produced by computer-aided flexible machining cells  Higher skill level for assembly needed  Life-time guarantees to trained labor force  High variety and low volume products  Quality “first time”; the 5 Why’s

 Copyright, Ansari, Bell, Klammer and Lawrence, Management Accounting: A Strategic Focus, Irwin-McGraw-Hill,  Toyota Manufacturing Differences (Cont.)  Ford Model T  Division /specialization of labor  Vertical integration of most parts  Dedicated machines; long set- up time  Management stock price focused and short-run oriented  Work teams with flexible job descriptions and multiple skills  Suppliers as partners in development  Set-up time from 8 hrs to 3 mins  Management customer focused and long-run oriented

 Copyright, Ansari, Bell, Klammer and Lawrence, Management Accounting: A Strategic Focus, Irwin-McGraw-Hill, GM v. NUMMI v.Toyota Single Site Statistics Statistic GM Farmingham NUMMI FremontToyota Takaoka  Assembly Hours per Car  Assembly Defects per 100 Cars  Assembly Space Sq. Ft per Car per Yr.  Inventories of Parts (average) weeks 2 days 2 hours

 Copyright, Ansari, Bell, Klammer and Lawrence, Management Accounting: A Strategic Focus, Irwin-McGraw-Hill,  Lean Production Relations with Suppliers  Mass Production  Adversaries  Not part of design process  Contracts awarded on competitive bidding  Future price increases after “foot in the door”  Same product over time  Secretive to other suppliers  Short term relationship  Team members  Part of design process  Contracts on ability to meet target costs  Future cost savings shared  Better product over time  Active supplier associations  Long term relationship

 Copyright, Ansari, Bell, Klammer and Lawrence, Management Accounting: A Strategic Focus, Irwin-McGraw-Hill,  Lean Production People Differences  Mass Production  Variable cost  Limited Skill Set  Follow Procedures  Drones  Individual  People Are Expenses  Short Term Relationship  Functional Leader  Fixed Cost  Flexible  Innovate  Problem Solvers  Team Member  People Are Assets  Long Term Relationship  Project Leader

 Copyright, Ansari, Bell, Klammer and Lawrence, Management Accounting: A Strategic Focus, Irwin-McGraw-Hill,  Lean Production Career Path Differences Example - Engineer  Mass Production  Entry Level: Functional Focus Only  Path: Drive Train Jr. Engineer Drive Train Dept. Manager Drive Train Sr. Engineer Drive Train Dept. Manager  Short Term Relationship  Entry Level: Assby, Mktg., Engineering  Path: Drive Train Body Project Team Special Development  Long Term Relationship

 Copyright, Ansari, Bell, Klammer and Lawrence, Management Accounting: A Strategic Focus, Irwin-McGraw-Hill,  Lean Production Other Differences  Mass Production  Retain Shareholders with Cosmetic Quarterlies  During Downsizing Each Stakeholder is on their own  Quality Circles Are an Assigned Extra Duty  JIT - Push Inventory to Others in the Chain  Process Improvements by Specialists Brought In  Interlock Ownership, e.g. Pension Fund Owners  During Downsizing help Find “Safe Haven”  Quality Circles Are for Team Problem Solving  JIT - Reduce Inventory Throughout the Chain  Process Improvements by the Team Members

 Copyright, Ansari, Bell, Klammer and Lawrence, Management Accounting: A Strategic Focus, Irwin-McGraw-Hill,  Lean Production Marketing / Distribution Automotive Industry  Mass Production  Independent dealer  Not involved in product development  No link to factory  Sold from inventory  “Herb Tarlick” salespeople  No formal training  One time sale  Infrequent mktg. survey  Short term relationship  Company owned  Full involvement in product development  Direct link to factory  Made to custom order  Knowledgeable salespeople  Full product training  Life time loyalty  Constant feedback  Long term relationship

 Copyright, Ansari, Bell, Klammer and Lawrence, Management Accounting: A Strategic Focus, Irwin-McGraw-Hill, Key Message Lean Production requires all organizational elements and relationships to be in harmony with the production process. Success requires forging long term “win-win” relationships with all stakeholders. Employees Suppliers Customers Shareholders Dealers Recyclers