Tuesday, April 10, 2012

Kiichiro Toyoda Revolutionized Carmaking With Toyota

Kiichiro Toyoda faced a challenge.

His dad, Sakichi, was an inventor with 119 patents. Many called him the father of the Japanese industrial revolution.

How did Kiichiro top that? With cars.

During visits to America in 1921 and 1929, he noticed how popular autos were and saw a future of such machines made in Japan.

In 1930, he talked his father into funding what would become Toyota Motor Corp. (TM)

Kiichiro stepped down as president in 1950, but the foundation he laid would help it become the global powerhouse it is today with $221 billion in annual revenue — and a stock that rocked 10,725% from 1971 to 2000.

Kiichiro (1894-1952) was a sickly child growing up in a farming village 100 miles outside of Tokyo and didn't seem likely to become a world-class entrepreneur like his father. Sakichi was most famous for inventing an automatic spinning and weaving loom.

While some saw Kiichiro as too timid to undertake a major task, his father disagreed. He simply told his son that in order to inherit the family business, he had "to tackle a great project at least once in life that would benefit society.""That put Kiichiro under a lot of pressure to contribute something great," Jeffrey Liker, professor of engineering at the University of Michigan and author of "The Toyota Way," told IBD.

College First

Sakichi had little formal education and wanted Kiichiro to jump from high school to one of the factories making looms for spinning. Instead, the boy in 1914 entered what is today Tohoku University.

Beyond class, he toured machine plants and worked part time at some. He concluded that instruments to test for quality control in Japan were inadequate.

His father then sent Kiichiro to the prestigious Tokyo Imperial University, where he majored in mechanical engineering with a focus on engine technology, graduating in 1920. By that time, at 26, "he was capable of running a modern business and was a person who possessed the ambition and confidence to size up with accuracy Japan's industrial future," wrote Kazuo Wada and Tsunehiko Yui in "Courage and Change: The Life of Kiichiro Toyoda."

He started working in a loom factory. The next year his father sent him to America and Europe to visit manufacturing facilities.

Although he noticed the popularity of cars, he observed that English factory floors were not organized to get products finished fast. Nor were workers incentivized to be more productive.

He did see that at Platt Bros., a loom maker, employees were paid properly to work efficiently, and the assembly process was well organized.

Returning to Japan, Kiichiro applied all he had learned to the loom business and in 1925 registered a patent for the Type G Automatic Loom. It was so advanced, Platt Bros. offered to buy world licensing rights. "It was unheard of at the time for Japanese technology to be so much better that the British would buy it," said Liker.

On his way to England to negotiate with Platt in 1929, Kiichiro toured carmakers in America and began to think they might have a better future than looms.

This was reinforced when he arrived at Platt. He signed an agreement for $150,000 — worth $1.9 million today — that let Platt distribute his loom worldwide, except to Japan, China and the U.S.

Meanwhile, he was shocked by how the company had deteriorated because of lack of demand.

According to Wada's "Kiichiro Toyoda and the Birth of the Japanese Automobile Industry," he persuaded his father to set up a room in a loom machine shop in May 1930 that would try to create a car. A few months later, Sakichi died.

What to do about cars? Toyoda's managers at the loom business were uneasy risking so much capital on a new industry. So Kiichiro made all the executives read Henry Ford's autobiography and showed how the venture could work. Soon his team was on board.

"Kiichiro was excited about producing cars because he saw it as a way to revolutionize Japanese society, although he faced many skeptics," said George Cook, professor of marketing at the University of Rochester. "He was ingenious about taking apart American cars and then reverse-engineering them, eventually deciding to use a Japanese engine, Ford and Chevy components, and a Chrysler body. What he introduced was of similar quality, but much less expensive."

He had employees read car trade magazines. He wrote instructions for every job down to the clerks.

One day as he walked through the plant, he saw a worker staring at a grinding machine, wondering why it stopped. Kiichiro rolled up his sleeves, put his hands in an oil pan, came up with two handfuls of sludge and asked: "How can you expect to do your job without getting your hands dirty?"

Get It Right

Kiichiro adopted one of his father's manufacturing practices as a foundation for Toyota operations: "jidoka," relying on workers and intelligent machines to eliminate errors. "This included stopping a production line if there were mistakes, even though it would be costly, an important part of the company's continuous learning," said Cook.

Liker recalled that as the U.S. auto companies became aware of this, "the level of quality consciousness made our heads spin."

Kiichiro created another principle that would sweep the globe: just-in-time assembly. With 3,000 car parts, everything had to be organized for maximum efficiency.

Properly managed, this could reduce the need for costly inventory.

Poorly executed, parts would arrive late, resulting in disaster.

According to "Toyota: Fifty Years in Motion" by his cousin Eiji Toyoda, who would become company president in 1967, Kiichiro's explanation of how this "kanban system" would work was in a thick manual: "To get people to accept it, we had to rid them entirely of their notions of the old way of doing things. It was, in a sense, a brainwashing operation, describing in meticulous detail the flow production system we were to set up."

Cook says this became central to eliminating waste and became the Toyota Lean Production System many industries adopted.

Another distinguishing characteristic was self-reliance. Jim Press, former president of Toyota Motor Sales, USA, explained: "Toyota's orientation from the very beginning was that before they could build a car, they needed to perfect new revolutionary processes to build a mold, to build an engine, to go back to that level. And that's what makes the company different — going back to the essence."

The Car Field

Said Cook: "Kiichiro had a strong vision and pushed the envelope with discipline, focus and teamwork, taking the long view of getting to company goals."

In 1935, an A1 passenger car trial model rolled out.

The following year the automaking division split off and changed its name to Toyota, meaning abundant rice field, a term associated with good luck.

In 1938, the first plant was constructed of what was to be called Toyota City near Tokyo. It would be scheduled for Allied bombs in the summer of 1945, but World War II ended in time to save it.

The war made it tough for Toyota to make cars. In its aftermath, material shortages and economic conditions caused Kiichiro to change the business model.

In addition to making a limited number of cars, Toyota did repair work on American military engines and started manufacturing ceramics and prefabricated housing.

Rampant inflation reduced the spending power of workers, and management proposed laying off 1,600 workers in 1950. The workforce went on strike and demanded raises while the company faced bankruptcy. Kiichiro took responsibility and resigned in April, even though it turned out the company broke even that year.

Two years later, with Japan's economy on the rise, the company asked him to return. Just before he took over, he died of a heart attack.

"He succeeded because he was such an innovative thinker who was tenacious when facing seemingly impossible odds," said Cook.

Said Liker: "The lessons of Kiichiro are visible in the Toyota Way, and he is often referred to today at the company when discussing its foundational management values."

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