Learnings in Operations Management from Henry Ford, Sloan and Toyota

The success of Henry Ford till 1925s

Henry Ford did not invent the automobile. He didn’t even invent the assembly line. But more than any other single individual, he was responsible for transforming the automobile from an invention of unknown utility into an innovation that profoundly shaped the 20th century and continues to affect our lives today.

Model T (A car for everyman)

In simple terms, the Model T changed the world. It was a powerful car with a possible speed of 45 mph.

It could run 25 miles on a gallon of gasoline. It carried a 20-horsepower, side-valve four-cylinder engine and two-speed planetary transmission on a 100-inch wheelbase.

It was Henry Ford’s foresight which saw the potential market of automobiles. In his opinion transportation was a basic need of human and if affordable anyone would be willing to buy it. It was with this vision of delivering automobiles to everyman that Ford started to experiment with different production methodologies to lower the cost of production.

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Influence of Frederick Taylor on Henry Ford

Frederick Taylor was a contemporary of Henry Ford. His theory of scientific management had a big impact on Henry Ford.

According to Henry Ford, the assembly line was based on three simple principles: "the planned, orderly, and continuous progression of the commodity through the shop; the delivery of work instead of leaving it to the workman's initiative to find it; an analysis of operations into their constituent parts." A scientific approach to these principles, the next logical step in the organization of work, had already been enunciated by Frederick Taylor in what is now called as scientific management.

Henry Ford used the techniques specified by Frederick Taylor in increasing the efficiency of his process. Taylor's scientific management consisted of four principles:

1. Replace rule-of-thumb work methods with methods based on a scientific study of the tasks.
2. Scientifically select, train, and develop each employee rather than passively leaving them to train themselves.

3. Provide "Detailed instruction and supervision of each worker in the performance of that worker's discrete task".
4. Divide work nearly equally between managers and workers, so that the managers apply scientific management principles to planning the work and the workers actually perform the tasks.

Learnings from Henry Ford and Model T

Assembly Line/Mass production

In 1913 Henry Ford started production of Ford Model T in a sliding assembly line. Though assembly line was used previously used in different industry but it was mostly for products which had small number of parts. Model T on the other hand had many more components.

Sliding assembly line of Henry Ford was inspired by overhead trolleys used to dress up beef. Henry Ford thought that the same technique can be used for automobile too. A breakthrough came in April 1913. A production engineer in the flywheel magneto assembly area tried a new way to put this component's parts together. The operation was divided into 29 separate steps. Workers placed only one part in the assembly before pushing the flywheel down the line to the next employee.

Previously, it had taken one employee about 20 minutes to assemble a flywheel magneto. Divided among 29 men, the job took 13 minutes. It was eventually trimmed to five minutes. This approach was applied gradually to the construction of the engine and other parts.

According to Henry Ford:

The principles of assembly are these:

(1) Place the tools and the men in the sequence of the operation so that each component part shall travel the least possible distance while in the process of finishing.

(2) Use work slides or some other form of carrier so that when a workman completes his operation, he drops the part always in the same place—which place must always be the most convenient place to his hand—and if possible have gravity carry the part to the next workman for his own.

(3) Use sliding assembling lines by which the parts to be assembled are delivered at convenient distances.

Advantages of assembly Line :
In his autobiography Henry Ford (1922) mentions several benefits of the assembly line including:

Workers do no heavy lifting.
No stooping or bending over.
No special training required.
There are jobs that almost anyone can do.
Provided employment to immigrants.

The gains in productivity allowed Ford to increase worker pay from $1.50 per day to $5.00 per day once employees reached three years of service on the assembly line. Ford continued on to reduce the hourly work week while continuously lowering the Model T price.

Interchangeable/Standard Parts

Centre to the concept of assembly line was the concept of interchangeable parts. Interchangeable parts meant that all the cars had same components at same place. This saved time which could have been wasted in sorting and identification of different parts.

Henry Ford made sure that all components were standardised in the production of Model T.

But it was not only parts which were standardised, Henry Ford also standardised all the processes. Following Frederick Taylor’s “One right way to do the task”, Henry Ford devised the best possible way for a process. These were usually devised by detailed study of every task, time measurements and dividing tasks into small, controllable and reproducible steps.

Labour policies

Ford astonished the world in 1914 by offering a $5 per day wage ($120 today), which more than doubled the rate of most of his workers. The move proved extremely profitable; instead of constant turnover of employees, the best mechanics in Detroit flocked to Ford, bringing their human capital and expertise, raising productivity, and lowering training costs. Ford announced his $5-per-day program on January 5, 1914, raising the minimum daily pay from $2.34 to $5 for qualifying workers. It also set a new, reduced workweek.

Ford's policy proved, however, that paying people more would enable Ford workers to afford the cars they were producing and be good for the economy. Ford explained the policy as profit-sharing rather than wages.

Franchising

Ford pioneered the franchise system that would be applied to other industries, such as MacDonald's and many other franchise giants. He put a Ford plant in every country that was on good terms with the U.S. and started the trend toward global corporations. Ford mapped out the whole system, from standardizing the car to franchising dealerships to creating a global network, and he did it all with no precedents to learn from. Just in Time (Henry Ford’s Contribution)

Ernest Kanzler worked with Henry Ford in reducing the inventory costs at Fordson tractor plant. Kanzler noticed that during the Great War, excessive supplies were brought into the Fordson Tractor Plant prior to production. He found that these excess supplies tied up valuable plant space and millions of dollars.

To remedy this, Kanzler reorganized inventory schedules so that raw materials and pans were bought only when needed and that the freight cars used for delivery of these pans were used immediately to transport finished Fordson tractors to dealers.

The success of General Motors post 1927 (Sloan)

Mr. Sloan was elected President of General Motors in 1923, succeeding Pierre S. du Pont, who said of him on that occasion: “The greater part of the successful development of the Corporation’s operations and the building of a strong manufacturing and sales organization is due to Mr. Sloan. His election to the presidency is a natural and well-merited recognition of his untiring and able efforts and successful achievement.” Mr. Sloan had developed by then his system of disciplined, professional management that provided for decentralized operations with coordinated centralized policy control. Applying it to General Motors, he set the corporation on its course of industrial leadership. The next 23 years, with Mr. Sloan as Chief Executive Officer, were years of enormous expansion for General Motors and of a steady increase in its share of the automobile market.

Changing with times

While Henry Ford’s success with Model T was based on providing a mean of transport to everyone, Sloan realized that by 1925s just getting a mean of transport was not important. People were now more conscious about the looks and features of car too.

He changed the organisation and production system at General Motors to keep up with these changes and provide an advantage over Ford who were still producing only one model at a time.

Learnings from Alfred Sloan and General Motors
Annual Model Change/Planned obsolescence

To maintain unit sales, General Motors head Alfred P. Sloan Jr. suggested annual model-year design changes to convince car owners that they needed to buy a new replacement each year, an idea borrowed from the bicycle industry.

In his autobiography, “My Years with General Motors,” he penned this thought “The changes in the new model should be so novel and attractive as to create demand . . . and a certain amount of dissatisfaction with past models as compared with the new one.”

Decentralisation in Organisational structure

Alfred Sloan split General Motors into divisions, and each division was run as a company within a company. Sloan said the company was “coordinated in policy and decentralised in administration”. He supervised the decentralisation of the organisation into divisional operating units, placing in charge of each an executive with total authority for his own activity.

In order to give coherence to the decentralised organisation, Sloan deliberately maintained a degree of central control. Decentralisation he saw as analogous to free enterprise, and centralisation to regimentation. He believed that elements of both were necessary to successful business. At the same time as dividing the company into separate units, he developed a system which enabled the units to support each other, therefore establishing a much stronger organisation as a whole.

Price Segmentation

Sloan realized that he can’t compete with Ford in price wars. Instead what he did was to have a model in every price segment. This way they can take some chunk of Ford’s low price range with Chevrolet cars while giving multiple options to users at higher ends.

His theory was to provide “A car for every purse and purpose”. This proved very successful in the long run and have become a must do thing for big businesses in all kind of industries.

Financing

A company was founded in 1919 by General Motors Corporation as the General Motors Acceptance Corporation (GMAC) to be a provider of financing to automotive customers.
This proved very beneficial in the long run as Ford had no such system and it negated the effect of low prices provided by Ford to some extent.

Inventory control and production control

Sloan devised a system where inputs from retailers and individual organisation was used to decide the production plans for future. He asked every office to give three estimates- pessimistic, realistic and optimistic. These reviews were used to forecast and plan the future production. Also, it was used to decide how much inventory needed to be kept.

Fact Based planning and Decision Planning

Sloan always put an emphasis on fact based decision making. Even when working under his predecessors Durant and du Pont, he always went to them with changes in system based on data. Something which du Pont readily accepted and was important in selection of Sloan as next President of General Motors.

The success of Toyota in the 70s and 80s

The history of Toyota started in 1933 with the company being a division of Toyoda Automatic Loom Works devoted to the production of automobiles under the direction of the founder's son, Kiichiro Toyoda. Kiichiro Toyoda had travelled to Europe and the United States in 1929 to investigate automobile production and had begun researching gasoline-powered engines in 1930. Toyoda Automatic Loom Works was encouraged to develop automobile production by the Japanese government, which needed domestic vehicle production, due to the war with China.

Need for innovation

After WWII, Levels of demand in the Post War economy of Japan were low and the focus of mass production on lowest cost per item via economies of scale therefore had little application. Kiichiro Toyoda again visited many automobile companies in US and Europe. He found that production strategies haven’t changed much in last 20 years. He asked Taiichi Ohno to devise a system as cost efficient as Ford for the Japanese economy. Taiichi Ohno took his own tour of different facilities in US.

Having visited and seen supermarkets in the USA, Taiichi Ohno recognised the scheduling of work should not be driven by sales or production targets but by actual sales. Given the financial situation during this period, over-production had to be avoided and thus the notion of Pull (build to order rather than target driven Push) came to underpin production scheduling.

The working of Toyota production system has been very well documented in Jeffrey Liker’s book “The Toyota Way”.

Some tools from Toyota production System
Jidoka

It may be described as "intelligent automation" or "automation with a human touch." This type of automation implements some supervisory functions rather than production functions. At Toyota this usually means that if an abnormal situation arises the machine stops and the worker will stop the production line. It is a quality control process that applies the following four principles:

1. Detect the abnormality.
2. Stop.

3. Fix or correct the immediate condition.
4. Investigate the root cause and install a countermeasure.

Kanban (Just In Time)

Kanban cards are a key component of kanban and signal the need to move materials within a manufacturing or production facility or move materials from an outside supplier in to the production facility. The kanban card is, in effect, a message that signals that there is a depletion of product, parts, or inventory that, when received, the kanban will trigger the replenishment of that product, part, or inventory. Consumption therefore drives demand for more production, and demand for more product is signaled by the kanban card. Kanban cards therefore help create a demand-driven system.

Kaizen

Kaizen is a daily process, the purpose of which goes beyond simple productivity improvement. It is also a process that, when done correctly, humanizes the workplace, eliminates overly hard work ("muri"), and teaches people how to perform experiments on their work using the scientific method and how to learn to spot and eliminate waste in business processes. In all, the process suggests a humanized approach to workers and to increasing productivity: "The idea is to nurture the company's human resources as much as it is to praise and encourage participation in kaizen activities." Successful implementation requires "the participation of workers in the improvement." People at all levels of an organization participate in kaizen, from the CEO down to janitorial staff, as well as external stakeholders when applicable. The format for kaizen can be individual, suggestion system, small group, or large group.

5 Whys

The 5 Whys is an iterative question-asking technique used to explore the cause-and-effect relationships underlying a particular problem.The primary goal of the technique is to determine the root cause of a defect or problem. (The "5" in the name derives from an empirical observation on the number of iterations typically required to resolve the problem.)

5S

There are five primary 5S phases: They can be translated from the Japanese as Sort, Systematize, Shine, Standardize and Self-Discipline.

Sort: Remove unnecessary items and dispose of them properly
Systematize: Arrange all necessary items in order so they can be easily picked for use

Shine: Prevent machinery and equipment deterioration
Standardize: Maintain everything in order and according to its standard

Self-Discipline: To keep in working order

Ohno Circle

Taiichi Ohno was well known for walking onto the shop floor and drawing a circle on the ground. He would then go and stand in the circle and observe, think and analyse. Learn what was actually going on. From this study he would then have enough knowledge to improve the process.

Three types of waste

Muda: any activity in your process that does not add value. MUDA is not creating value for the customer.

Mura: Any variation leading to unbalanced situations. In
short: UNEVENNESS, inconsistent, irregular.
Muri: Any activity asking unreasonable stress or effort from personnel, material or equipment. In short: OVERBURDEN

Andon
Andon is a manufacturing term referring to a system to notify management, maintenance, and other workers of a quality or process problem. The alert can be activated manually by a worker using a pullcord or button, or may be activated automatically by the production equipment itself. The system may include a means to stop production so the issue can be corrected.

Learning from Toyota Production System
The Toyota Way
A brief summary of points given in Toyota Way:
Section I: Long-Term Philosophy
Principle 1. Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals.
Section II: The Right Process Will Produce the Right Results Principle 2. Create a continuous process flow to bring problems to the surface.
Principle 3. Use “pull” systems to avoid overproduction. Principle 4. Level out the workload (heijunka). (Work like the tortoise, not the hare.)

Principle 5. Build a culture of stopping to fix problems, to get quality right the first time.
Principle 6. Standardized tasks and processes are the foundation for continuous improvement and employee empowerment.
Principle 7. Use visual control so no problems are hidden.
Principle 8. Use only reliable, thoroughly tested technology that serves your people and processes.

Section III: Add Value to the Organization by Developing Your People
Principle 9. Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others.
Principle 10. Develop exceptional people and teams who follow your company’s philosophy.
Principle 11. Respect your extended network of partners and suppliers by challenging them and helping them improve.
Section IV: Continuously Solving Root Problems Drives

Organizational Learning
Principle 12. Go and see for yourself to thoroughly understand the situation (genchi genbutsu).
Principle 13. Make decisions slowly by consensus, thoroughly considering all options; implement decisions rapidly (nemawashi).
Principle 14. Become a learning organization through relentless reflection (hansei) and continuous improvement (kaizen).

References

http://corporate.ford.com/our-company/heritage/heritage-newsdetail/672-model-t http://en.wikipedia.org/wiki/Assembly_line
http://www.sloan.org/about-the-foundation/who-was-alfred-psloan-jr/ http://corporate.ford.com/our-company/heritage/historic-sitesnews-detail/663-highland-park http://www.thehenryford.org/EXHIBITS/HF/

http://www.investopedia.com/articles/financial-theory/08/henryford.asp http://www.vectorstudy.com/management-gurus/frederick-taylor http://www.shmula.com/fords-contribution-to-just-in-time/371/ http://www.willamette.edu/~fthompso/MgmtCon/Scientific_Manage ment.html

http://en.wikipedia.org/wiki/Planned_obsolescence
http://inspiredeconomist.com/2012/09/20/the-greatest-inventionplanned-obsolescence/ http://www.mbsportal.bl.uk/taster/subjareas/busmanhist/mgmtthin kers/sloan.aspx
http://www.economist.com/node/14298890
http://faculty.chicagobooth.edu/anil.kashyap/research/papers/gene ralmotors.pdf
http://en.wikipedia.org/wiki/Henry_Ford
http://en.wikipedia.org/wiki/Alfred_P._Sloan
The Toyota Way – Jeffrey Liker
My Years with General Motors – Alfred Sloan