Can Tesla Really Out-‘Lean’ Toyota?

On February 6th Elon Musk did it again. His SpaceX company launched what is now world’s most powerful rocket – the Falcon Heavy – carrying an unusual payload. In what became YouTube’s second most viewed live stream ever, millions of viewers watched as the cargo’s protective covering slowly drifted away revealing a red Tesla Roadster hurling into space on it’s trajectory towards Mars.

From his company’s commercial spaceflight, to practical electric vehicles, it is hard not to marvel at what Musk has accomplished. So when he announced after his historic Falcon Heavy launch that his company would once again achieve what no other had done before – this time, he would take Toyota’s “lean manufacturing” methods to a new level in producing his Tesla automobiles – who would question him?

Plenty of people, it seems.

While many would agree that Musk’s company produces truly spectacular vehicles – its products stand out not only for their performance, but also their striking appearance and high quality – it’s operations are hardly “lean.” Case in point: the company’s production problems are currently delaying its launch of the Model 3, the company’s first mass production car, by at least six months. So it’s not hard to see why some would be skeptical that it is poised to eclipse Toyota’s tightly synchronized, ultra-predictable operations.

What makes Musk’s announcement even less believable is how difficult emulating Toyota’s production “leanness” has proved to be for so many others for more than a generation – evading the best efforts of many of America’s greatest corporations (including some of the greatest innovators across aerospace – read more in Breaking the Cost Barrier). Still, Musk’s confidence was clear when he declared, “The competitive strength of Tesla long-term is not going to be the car; it’s going to be the factory.” (Ref: Forbes)

It’s difficult to say exactly how Tesla intends to out-lean Toyota. However, from what he’s revealed so far, his approach reads more like a page from Henry Ford’s playbook. This isn’t surprising, since Ford’s Model-T factory, with it’s focus on flow production and minimizing waste, is often misidentified as an early example of lean thinking. However, despite the gains that Tesla could make from such improvements like building underground conveyors and tightly synchronizing end-to-end production, mimicking Henry Ford’s methods would, in the end, cause Tesla to fall far short of its goal of out-doing Toyota.

The Misunderstood Origins of ‘Lean’

Like Musk, Henry Ford was an innovator who saw an opportunity to bring a generally inaccessible technology to the marketplace. And like Musk, Ford succeeded because he was able to make that technology practical and affordable to the masses. He did this largely through the innovations he made in his factory, which overcame many of the same challenges that Tesla needs to address today:

1. Lower costs through economies of scale

Ford’s Model T was immensely successful because he was able to produce it at low enough costs to make it affordable to the masses. The more vehicles his factory produced, the more affordable they became. Tesla similarly seeks to leverage massive economies of scale to meet the pent-up demand for it’s Model S and thus drive down prices so that people can afford them. By making his car easier to manufacture using a simpler design, using more automation, and tightly sequencing the assembly line, Musk expects to produce four times as many vehicles as a typical factory. (Ref: Forbes)  Musk’s direct play on Fordism should make the Model S affordable while also highly profitable.

2. Rapid ramp-up to high volumes

Musk is most certainly aware that Tesla will have to rapidly ramp-up from its low rate of production to the high volumes needed to meet the mass market demands anticipated for the Model S vehicle. This was one of the most powerful innovations of Ford’s mass production, which quickly spread from industry to industry.

Probably best illustration of what it can achieve came with America’s industrial response during World War II. In 1939, the United States Army ranked thirty-ninth in the world, and was low-tech to say the least – it still used horses to move its artillery. That changed almost overnight once America redirected its factories to wartime efforts:
Consolidated TB-32 on the assembly line. USAF photo.

Shipyards turned out tonnage so fast that by the autumn of 1943 all Allied shipping sunk since 1939 had been replaced. In 1944 alone, the United States built more planes than the Japanese did from 1939 to 1945. By the end of the war, more than half of all industrial production in the world would take place in the United States. (REF: PBS.org)

Tesla’s focus on simpler, tightly controlled configurations will certainly support the division of labor that made this rapid ramp-up possible. He is banking on his changes to address current problems with ramping up to meet demand:

Musk acknowledged that Tesla had been “a little overconfident, a little complacent” in its ability to crank up production volume for battery packs – its specialty – at its massive battery gigafactory near Reno, Nevada. New automation equipment arriving in March should fix that (Ref: Forbes)

3. “Flow” production as a means for eliminating waste

River Rouge represented the pinnacle of Henry Ford’s vision for perfectly synchronizing large-scale production. Henry Ford sequenced production as a continuous stream of work, where one task in the sequence led directly to the next. There was no waiting for transportation; no shortages or disruption caused by late suppliers. With all steps tied together for a balanced flow, waste had naturally been minimized, since no one produced more than was needed by the next step. The resulting ability to consistently produce very high quality products and promote the ability for minimizing waste would clearly address a key challenge for Tesla to live up to expectations. For an electric vehicle, quality is especially critical to securing and sustaining the public’s trust in the safety, reliability, and durability of this new technology.

These same features – Ford’s “flow” production that fosters key lean actions, like continuous improvement and waste reduction – is behind the narrative that Ford’s factory was the first lean production operation. But, despite the advantages (and even the fact that Toyota took key lessons from the Rouge when it crafted its own lean approach), it falls short of Toyota’s lean production approach in one key area that makes the two approaches entirely different:  Toyota’s approach was created to be highly responsive to change.

What Makes Going ‘Lean’ Different?

Toyota began its foray into lean manufacturing soon after the end of World War II as a means for overcoming what must have seemed to be overwhelming constraints. Struggling to gain a foothold despite low, volatile demand for its products (the worst possible mix for a manufacturer), Toyota had to compete with the likes of Detroit, which was thriving amid predictable, expanding mass markets. Moreover, Toyota had to deal with a labor revolt that forced it to make unprecedented agreements to get the workforce back into its factories–including a guarantee of lifelong employment. (Ref: The Going Lean Fieldbook)

What could Toyota do? Ford’s approach depends on stability and massive customer demand to support his factory’s immense scale — neither of which existed for Toyota. With its guarantee of lifelong employment, hiring and firing people to accommodate spikes in demand was not an option. To solve this crisis, Toyota came up with an entirely different approach.

Toyota needed to conquer the challenges of operating in an uncertain, constantly changing environment — the same challenges that are increasingly confronting companies across America today. Toyota’s solution was to structure its operations in a way that applies flow production, but with a critical difference. It’s lean production builds variation right into the operations, allowing it to quickly and smoothly respond to change as it occurs:

1. Mixed-model production

Toyota adapted Ford’s system of flow-based production, but instead of dedicating production lines to one type of vehicle, it produced a family of products – different vehicle types on a single line. This product family construct permits it to seamlessly shift back and forth between different products sharing similar attributes that are deliberately managed together as if they were a single product. Doing this builds in a responsiveness to change.

2. Cross-functional workforce

One of Toyota’s powerful innovations is the manufacturing cell, a U-shaped production line in which a team of individuals work as a team to produce components from beginning to end. This not only supports an inherent responsiveness to change, it gives workers insight into what works well so they can contribute to improvements. This is an essential part of Toyota’s approach, supporting the continuous improvement focus that so many recognize as a central element of lean.

3. Responsiveness to constantly changing customer demands

Think about today’s marketplace. People want variety.  And not just minor variants of the same old products – they expect exciting new offerings that provide innovative new solutions to their wants and needs. This kind of change was not easy for the Model T production line. When Ford finally shifted to produce the Model A, he had to close the River Rouge plant completely for nearly a year to retool – and in doing so, he opened the doors for competitors to take over the market.

Of course, today’s companies have learned to minimize the disruptive effects of changing demands and of shifting to produce new products. But traditionally managed operations are still hit hard by these kinds of changes. And this is where a lean approach stands apart. Toyota and other lean benchmarks seem to recognize that business is dynamic, and that operations must be built to optimize their creation of customer and corporate value across the wide range of changing conditions that companies today increasingly face.

So, Is Elon Musk Wrong?

Simply stated, yes… and no.

Let’s address these one at a time. Yes, it seems that Musk is wrong because Tesla’s statement that it will out-do Toyota is not entirely accurate, at least based on the information provided. His proposed approach seems to be founded solely on design simplicity, large scale production, and tightly synchronized operations — all key elements of Ford’s methodology. There isn’t much evidence that responsiveness to change is a key focus.  Without that, Tesla’s factory cannot gain the most powerful advantage of lean manufacturing: the ability to create and sustain customer and corporate value across the wide range of changing conditions that companies today increasingly face. (See Dynamic Value discussion)

But it is possible that Musk is not wrong. Why? Because it’s not entirely clear that Tesla is not addressing these issues. It is possible to apply his stated objectives — ramp up quickly, apply automation, and simplify designs — while concurrently creating this central lean capability. In other words, implementing Ford’s innovations is not exclusive of creating Toyota-like responsiveness to dynamic conditions. It is possible that Tesla is doing this, and that we will see more evidence of which way the company is moving as it continues to put its new capabilities in place.

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