What Made Toyota So Different?
In my last post, I explained how ‘Lean’ started way before Toyota came into view but they are recognised as the world leaders in Lean because they looked at things from a whole new viewpoint….
Lean – A new paradigm
The lean production system pioneered at Toyota created a new paradigm for excellence in manufacturing. This paradigm is founded on the belief that cost reduction is sometimes the only viable mechanism for a corporation to increase profit; price is not always an effective lever. Today, some organisations are fortunate enough to determine their selling price by first taking the product cost and adding on a sufficient profit margin:
Profit + Cost = Price
A company can therefore increase profit by raising the price of its product. However, in a diverse marketplace, most companies do not have this advantage as consumers and market conditions largely determine price. In these markets, companies face the following equation:
Profit = Price – Cost
This is often referred to as the ‘cost-minus’ principle because the company can only increase profit through cost reduction. Cost reduction in a manufacturing environment occurs through the elimination of waste. Waste can be defined as something for which the customer is not willing to pay; it is a non-value adding activity. The elimination of such activities shortens the lead time, so value is delivered to the customer faster and with less effort.