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  • Writer's picturehidet77

“Misfortunate that turned out to be fortune.”


One critical aspect of the development of the Toyota Production System was that Sales and Manufacturing were two separate business entities. (1950-1982)


In 1949, Toyota was in a severe financial crisis, a situation brought about by many factors.


  • The sales implemented Monthly installment sales from 1949. The ratio of installment sales, the term, and bad accounts kept going up.

  • Over-investment in production equipment

  • Increase of inventory


In response to the demands of financial institutions, Toyota divided itself into two distinct entities: sales and manufacturing. The sales company was established in 1950 under the leadership of Shotaro Kamiya, while the manufacturing sector saw a change in leadership from Kiichiro Toyoda to Taizo Ishida.


The structure of this solution is interesting.


  • The sales & manufacturing are now equal.

  • Both went through the financial crisis and were aware of the cash.

  • Kamiya, head of sales, advocated for the implementation of monthly installments. And he had no plan of withdrawing that idea.

  • Ishida, head of manufacturing, was aggressive about cost reduction. But he was also willing to spend money on production equipment. He hated borrowing money from financial institutions but was willing to spend money on machines.

  • These conditions create an awareness of inventory as the biggest nemesis of cash flow.


Ishida describes this condition in his book, “Protect Your Castle by Yourself (1968).”


"Produce sellable cars." This has been the golden rule since the split of Sales and Manufacturing. Since the golden rules are the same, the rest is like skating on ice.


Manufacturing produces according to the order of sales. The sales company pays immediately in cash. Manufacturing doesn’t worry about working capital and focuses on cost reduction, research and development. As a result, we develop cheap but good cars. (P.141.)”


The power balance between sales and production. They are producing according to the order of sales. The exciting part is the cash transaction between the two entities.


Very often, we see an imbalance of power between sales and production. Multiple numbers are exchanged among the two entities. Those numbers are treated with much less importance than cash. Something less important is that it allows both organizations to misbehave depending on the power balance of the two.


A plant manager visited Toyota and commented, “I don’t understand why they are reacting to output minus one.” Yes, it was typical for minus 100 or 20% below target at his place. Of course, they claimed that they were working on the problem. When I visited the shop floor, we discovered that the “problem” they were working on didn’t exist. It was on report, but not in reality. And, the real problem was fixable in a day. But why didn’t the plant manager check on the “real” problem? Because the organization had this mentality, we sell what we produce.


A different factory was told to double the output without adding any resources. The plant manager led the Kaizen, and they accomplished the goal. After some time, the plant manager was crying. “Can you believe we ran maximum capacity for one week and were told to stop the following week? We have been running like that for months.” The sales requested to double the capacity, but the actual sales didn’t follow. The sales blamed the market for not acting the way they had planned. (Maybe the guy thought he was living in a communist economy or something.) But when we visited the sales Genba, we learned the truth. All the promotional materials were sitting in warehouses or cars. Salespeople didn’t know how to use those promotions. Frontline salespeople weren’t aware of the new product. The communication inside the sales organization was broken. It was apparent why they couldn’t sell.


In the Toyota Production System, we say, “Treat the Kanban as precious as cash.” This isn't easy in an environment where nothing is treated as precious as cash. For example, when a Kanban is lost, the first wrong action they take is to reprint it. When you do that, the Kanban will inflate, increasing inventories. The right thing to do first is to search for the missing Kanban. I heard that banks check the cash balance every day at each branch in Japan. When there is a mismatch of cash between the book and the actual, you need to find the missing money. Such episodes were taught so we don’t treat Kanban like scrap paper. After all, just like currency, when you print too many, it will become inflation. And permission to print currencies does not belong to everyone.


Other things should be treated as precious, like cash. A sales plan or forecast is future cash. The numbers inside shouldn’t be random opinions or irresponsible numbers. There should be a commitment. On the other hand, every missed output is a loss of cash-generating opportunity. We shouldn’t have downtimes. If there is one, we need to investigate and implement countermeasures. We should be acting preventive.


Ishida described this structure as “misfortunate that turned out to be fortune.” A direct translation would be “Merit of injury.” Many of the foundations of the Toyota Production System are built on this fortune. The organizational structure has changed, but the philosophical root is here.


Some questions that we should be asking before implementing the Toyota Production System based on this episode are;

What is the power balance between sales and production?

Are we treating inventory, order & forecast, and output as precious as cash? Do we treat these numbers with commitment or just random figures?


The critical question is how to create such a sense of urgency without the real one.

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Rajendra Mhalgi
Rajendra Mhalgi
21 พ.ค.

Great learnings for the Automotive Industry from Toyota!

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