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Tesla vs. TPS: Seeking the Soul in the New Machine

We are dealing with the same clash in paradigms that has been going on at least since the early 1980s: lean management versus modern computer-integrated manufacturing.

Tesla has been a major disruptive force leading the charge of the future vision of electric, autonomous vehicles. Recently it has captured public attention by having one of its vehicles launched into orbit; and on a less publicized note, CEO Elon Musk challenged the auto industry with a bold vision of accelerating the pace of production through automation.

The auto industry got a wakeup call when Musk introduced the Tesla Model S to the world. Every aspect of the design, from appearance to speed to the digital user interface, was exciting and seemed to surpass the competition. When looking beyond the vehicle however, it became clear that Tesla’s execution was far from auto industry standards — late delivery with poor quality. Yet customers who were passionate about green technology rushed to buy the Model S and signed up in droves to place an order for the Model 3, which had yet to be designed. And so while his success has awakened the industry to the value of great design, especially in electric vehicles, Tesla’s inability to deliver may ultimately be its undoing.

While Tesla is disrupting this industry in many revolutionary ways, it is looking for competitive advantage in what has been to date its Achilles Heel.  The company has struggled to manufacture their stunningly designed (though not designed for manufacturability) vehicles with a high degree of quality. And yet, Tesla CEO Elon Musk believes he can also revolutionize manufacturing and create the disruptive force that leapfrogs old line automakers stuck in the dark ages of manual work. He explained in an earnings call to stockholders on February 7, 2018:

“The competitive strength of Tesla long-term is not going to be the car: It’s going to be the factory. We are going to productize the factory… The Model T wasn’t the product. It was the River Rouge. We will have a great product. But the factory is going to be the product that has the long-term sustained competitive advantage.”

Musk further explained: “The most fundamental difference is thinking about the factory really as a product, as a quite vertically integrated product.” Added Chief Technical Officer J.B. Straubel, “It's treating it as more of an engineering and a technical problem as well." Musk envisions the most automated vehicle plants in the world, where material delivery, manufacture, and assembly will be done without human intervention, and where his production lines will be far faster than the conventional manual assembly lines that he mocks: “Grandma with a walker can exceed the speed of the fastest production line.”

In a recent conversation about this topic, John Shook said that he believes Musk’s revisionist history of the River Rouge misses the mark:

“Henry Ford figured out much of this (the principles of flow) just a little over a century ago. But, that was a simple case, where achieving high speed production (very much as Elon now seeks) was relatively straightforward. The products were all simple and, more importantly, they were all the same. As soon as complexity was added (in the form of types of products and options as well as more complex technology like electronics), Henry's simple system broke down. What worked great as an initial attempt in Highland Park proved a disaster when he tried to scale it even more at the Rouge, adding complexity that the system wasn’t capable of handling. Half a century later, Toyota came along and figured out the next essential part of the equation, how to achieve the speed, but also the built-in quality, with the complexity of mixed model production.”

Tesla’s message is clear.  Manufacturing is seen as a technical engineering problem and the solution is automation, automation, and more automation.  We can imagine any of the great Toyota sensei asking:  But where are the people?  What is ironic is that almost one hundred years of management theory has observed that top-down, command and control organizations work very efficiently in a very stable environment, low on uncertainty.  When things are static and processes are stable, the most efficient form of organization is mechanistic.  On the other hand, when there is a good deal of uncertainty because of rapidly changing technology, lots of unexpected problems, and a turbulent environment, then an organic form of organization is far more effective.  Author Margaret Wheatley writes:

“Once we stop treating organizations and people as machines, and stop trying to re-engineer them, once we move into the paradigm of living systems, organizational change is not a problem. Using this new worldview, it is possible to create organizations filled with people who are capable of adapting as needed, who are alert to changes in their environment, who are able to innovate strategically.”

This conversation undoubtedly feels very familiar to folks in the lean community. We are dealing with the same clash in paradigms that has been going on at least since the early 1980s: lean management, which is thought to be a mere efficiency program, versus modern computer-integrated manufacturing.  In my view the lean paradigm has been winning this competition pretty handily, but the wolf repeatedly returns wearing new clothes.  This time in automotive it is part of a mosaic of a future vision of electric self-driving cars run by artificial intelligence that will be built in the most high-tech factories in history.  Much of the vision is being led by “Silicon Valley” computer companies that see the future of the auto industry, and ultimately all industry, as a natural evolution of the internet to assume digital control of our physical world.  For example, this is the vision of Industry 4.0. In this “new” automation paradigm there is little room for people—clumsy, error-prone people will even be pushed out of driving the products of the factory.

Steven St. Angelo is Managing Officer and CEO of Toyota Latin America and Caribbean region. He recalls his younger days as an engineer at General Motors when CEO Roger Smith made a similar bold statement in the 1980s. Ironically, it was about the same time Smith agreed to a joint venture with Toyota that would become NUMMI — the most productive plant in North America without a lot of automation. While NUMMI prospered, Smith spent billions of dollars on a joint venture with robotics manufacturer Fanuc, purchasing Electronic Data Systems, and investing toward his vision of completely automated factories with lights turned out and no people. As St. Angelo recalls:

“He (Smith) also tried to automate out of GM’s problems. It was a disaster. I have many patents for automation, and I learned that if you can’t do a process manually… you will not be able to do it with a robot. Also, all automation works in a lab environment, however, when you add the ingredient of variation (product for example) it’s a new ball game.”

Tesla’s super-automated production line depends on hiring large numbers of bright young engineers who have not worked together, giving them a top-down vision of the desired product and process characteristics, and demanding they engineer and build it. It also depends on a good deal of purchased product subsystems and turnkey production lines from outside vendors. Speaking about Tesla’s Gigafactory for batteries, Musk called the experience to date “production hell,” but assured investors in an earnings call that help is on the way in the form of German automation companies that will deliver perfect systems that can simply be plugged in and played to perfection:

“We expect the new automated lines to arrive next month in March, and then it's already – it's been – it's working in Germany. So, that's got to be disassembled, brought over to the Gigafactory, and re-assembled and then brought into operation at the Gigafactory. It's not a question of whether it works or not. It's just a question of disassembly, transport, and reassembly.”

It is ironic that Tesla took over the factory formerly occupied by NUMMI, an icon of the Toyota Production System (TPS). In the early stages of Tesla production, Toyota sent top people to help.  Yet so much of Tesla’s vision of manufacturing is completely contrary to TPS: Spend large amounts of capital to automate everything possible. Rely on hiring many engineers to make it work rather than carefully developing talent from within. Repair in quality rather than designing and building in quality. Aim for an ultrafast assembly line instead of building to the rate of customer demand (takt). Note that the idea of people continuously improving does not seem to appear in the Tesla playbook. It seems like a vision born of the machine paradigm, not Wheatley’s living system paradigm. It is also interesting that in the gigafactories “production hell,” Elon Musk developed some appreciation of the value of people in crisis management:  "It has to some degree renewed my faith in humanity that the rapid evolution of progress and the ability of people to adapt rapidly is quite remarkable."

What Elon Musk is missing is exactly the point that has made Toyota so successful.  Toyota’s living system approach is exactly what has been missing from Musk’s mechanisitic view and needs to be at the center of his vision, not as an occasional response to a crisis.  Toyota is a learning organization with a long memory. In 1979, Toyota launched the Lexus LS400 with the most advanced automation in the company at its Tahara, Japan, plant, including robots in assembly doing jobs normally done by people. Sales were below expectations and the plant was underutilized. Toyota’s reflection was that the high capital costs were fixed and could not be adjusted to match demand.

Toyota prides itself on only building to actual demand and when demand is down the company wants the flexibility to reduce costs to remain profitable. This is possible with people. While Toyota provides long-term job security for its regular team members, it uses a variable workforce of agency personnel who can be released in a sales downturn. It also plans overtime, which can be eliminated. In the Great Recession Toyota cut management pay and in some plants limited production team members to 35 paid hours a week. And Toyota can always find useful things to do with team members not needed for production, but robots simply sit idle. Since the Tahara experience, Toyota reduced automation rather than accelerated it.

Toyota’s principles of production equipment are “simple, slim, and flexible” to work in harmony with people.  This is evident in the work of Mitsuru Kawaii , a Toyota Executive Vice President and member of the board.  Kawaii was sort of adopted by Taiichi Ohno as a production team member and rose through the ranks to become a board member and is Toyota’s most prominent voice for TPS.  He has spent most of his career in automated factories.  He was raised on all the TPS principles of flow, built-in quality, standard and stable operations, making problems visible, and people relentlessly doing kaizen.  He began learning these principles in a mostly manual operation and then found he could continue to apply them as the plant became highly automated.   He explained to me that the foundational principles remain the same: “Materials will be flowing while changing shape at the speed we can sell the product. All else is waste. Operators need to learn how to use the machine and the materials and their five senses to create a good part at a reasonable price. [And they need] intelligent automation to reduce as much as possible any transportation or movement that does not change the shape or form.” This means getting inside the equipment and redesigning it to eliminate waste.

Kawaii has been teaching team members the basics of TPS on manual “superskill lines,” which they then apply to automated lines. One of his most impressive lines was developed to solve two problems at once.  He wanted to develop a manual line to teach the essence of TPS, and also wanted to deal with a serious problem Toyota is facing in hiring new workers.  There simply are not enough of them.  Typically as workers age they are taken off the assembly line and then retire.  Kawaii’s challenge was to develop an assembly line that can be safely staffed with senior workers, including retirees.   They created a low volume engine line with no automation and mostly no electricity.  Senior members who had retired from Toyota were rehired to develop the line with the constraint that it had to be all hand work without automation. They worked to create simple mechanisms, without electricity, to move engines in place, check them, and transfer them to other parts of the line.  The super skill line would make any fan of Rube Goldberg gadgets applaud with delight. Parts slide in and out, are raised and lowered, and moved by sliding on roller bearings. Bolts are put into slots — if one is missed a red light comes on — and operators reach up and pull a lever to bring down a tool to tighten the bolts. There is only a minimum of electricity and a minimum of physical exertion required by the operators. Yet they are building by hand a sophisticated Lexus engine out of heavy parts.

Kawaii explained, “If there is a defect at the end or something breaks down (in an automated line), you will be disassembling with your hands and replacing the parts. If you cannot do this, you cannot [be called] a high-skilled person. When you think of a high-skilled person, he has to know everything. If he is going to do a manual operation, he has to know for every part what will be the most appropriate strength to tighten the bolts for this location and that location. He needs to know everything.”  Ideas from the manual super-skill line are then brought to the automated line.  In most cases this results in simple “intelligent automation,” fitting Toyota’s vision of simple, slim, and flexible.

Toyota is also famous for its Just-in-Time system, integrating the extended enterprise in a carefully orchestrated flow of thousands of parts to the right place at the right time.  Partnering with suppliers is also a matter of relationships and developing people.  John Shook shed further light on the importance of people in what can easily become a logistical nightmare:

“The tools required to run a great factory aren't merely math and engineering, but psychology and sociology. Social psychology and neuroscience. Organizational development and system dynamics - with "system" referring not only the technical side, which Elon and team will figure out, but also the much more complex social side. The social side is difficult in its own right - add the technical complexity of orchestrating the operational execution and timing involved in gathering and assembly thousands of parts that arrive at exactly the right place at the right time in perfect (down to the minute) precision for thousands of humans to choreograph themselves to the precise (down to the second) rhythm and you've got a social-technical challenge of epic proportions.”

In my view Elon Musk has adopted an untenable mechanistic philosophy that will need to change if Tesla is to be successful as a mass producer of vehicles, no matter how well designed.  He will need to discover basic values that underlie operational excellence like developing people, building culture, continuous improvement, visual management, and work teams owning their processes.  In short, he will need to learn about, perhaps the hard way, lean management. Sitting back and counting your money while marveling at digital systems humming along sounds like a dream vision, but it is not reality.  Mass production is hard work.

Personally, I do not believe that digital manufacturing is the magic that will revolutionize manufacturing and suddenly make it easy to do.  I do think computerization will continue to evolve and be a central part of the future of manufacturing.  But automated factories will not run themselves. They will require even more maintenance and quick response to problems than manual systems and this will have to be done by people. Highlight problems, solve problems, at lightning speed in this complex computerized world. And even in a world of a lot of technology in the factories those who kaizen the automation, as being taught by Mr. Kawaii, will have a competitive advantage.  People will not be run out of town by smart robots anytime in my lifetime.  Perhaps when we see spectacular failures of blind automation, like the Roger Smith cautionary tale three decades ago, there will be a lean renaissance.

This article is adapted from chapter 10 from the book in progress: Designing the Future: How Ford, Toyota, and Other World Class Organizations Use Lean Product Development to Drive Innovation and Transform their Business by James Morgan and Jeffrey Liker (LEI/McGraw-Hill, expected publication Fall 2018).

This article is reprinted with permission from the Lean Enterprise Institute and the Lean Post

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