The Toyota Story (1980’s)just-in-time inventory, simultaneous design, mutual monitoring, Toyota Production System, “Total Quality Management”.

Aisin Seiki, became Toyota’s sole supplier of a critical brake part – the p-valve.

On February 1, 1997 the plant burned down destroying the production line for the p-valve and a few other engine parts. By February 5 Toyota’s automobile production shut down completely. Over two hundred firms of the TPS worked together to begin to produce more than 100 different types of the p- valves. On February 6 Several Toyota plants reopened and a week later was producing about 14,000 cars per day. One month after the fire Toyota was back to its pre- fire production rate. The loss during that month reduced Japan;’s auto production by 1/12.

How did this happen – After the fire Aisin Seiki engineers began to assess

the problem and by the next day thy published specifications for the p-valve and distributed them to TPS.

The other companies in TPS, using the experience of simultaneous design and engineering, re-engineered the p-valve so they could produce some.the resources of the firms to produce the product.

The TPS 1)redistributed the stress of the fire from one

company to several and 2) they recombined resources and reconfigured

production to begin production in a short time.

Compare with the power grid failure – in both cases failure of a single unit caused a massive failure of the system.

Why was Toyota able to recover so rapidly? “Self-healing systems”

“How is it ... that the performance of firms – meaning their ability to allocate resources, innovate, adapt, and solve problems, both routine and radical – is related to their organizational structure?.

Adam Smith, “Wealth of Nations, observes the efficiency of specialization. “returns to specialization” Smith extends this idea to civilization – relieving people from being self-sufficient in the production of their food, education of their children, etc.

The structure of firms (at least in the US) is hierarchical. This developed out of the need for specialization which drove the development of industry.

Ronald Coase:Transactional costs – the cost to do a piece of work by someone by contract. Firms came into existence because production was so complex that it could not pay individuals for each piece of independent work.Coordination cost -- the cost to coordinate workers (in a firm) to do the work of production.Comparing these two decisions about outsourcing arise.

Piore and Sable – “The Second Industrial Divide”Industrial dividesOrganizational forms arise from the solutions to problems that are economic, social, political and historical. Conflict points, called industrial divides, occur and when a solution appears it gets locked in.

The first Industrial Divide was the Industrial Revolution itself and it resulted in vertical integration This revolution was brought about by the economies of scale provided by industrialization

In the 1970’s national industries reached the limit of their domestic consumer markets and they began to reach out to foreign markets. The fixed currency rate system began to break down. Internal politics saw a rise in unemployment and inflation.

This caused the second Industrial Divide.Flexible specialization is appearance the small industries with specialized product. This provides economies of scope. Compare the Toyota Production System.

Flexible specialization arises because of the need of firms to handle unpredictability and rapid change in their circumstances.

Ambiguity and problem solvingFlexible specialization arises because of the need of firms to handle unpredictability and rapid change in their circumstances. When a firm poses a problem they usually outline the solution from above but actually the “problem solvers” don’t know how they are going to solve the problem. The design process is continually under redesign.Honda solves problems with temporary teams drawn from all over the plant – because even straight forward problems can have surprising complexity and interdependence.“Economists, although eager to build rigorous models, had been unwilling to acknowledge the ambiguity inherent in modern industrial or incorporate it in their theories.”

Honda solves problems with temporary teams drawn from all over the plant – because even straight forward problems can have surprising complexity and interdependence.

“Economists, although eager to build rigorous models, had been unwilling to acknowledge the ambiguity inherent in modern industrial or incorporate it in their theories.”