I’m David Veech and this is Elevate Your Performance

I’ve been focusing these past couple of months on the historical activities that got manufacturing and business to where we are today.

I’ve been focused on Toyota lately because of the impact they have had on bringing improved methods to our attention. After all, they are the Poster Child for Lean Organizations.

When I first started teaching TPS and lean, I read everything I could get my hands on about Toyota and lean manufacturing. I learned a ton, but I wasn’t always diligent about keeping track of what source said what thing.

The delays I’m experiencing this month are all related to research. I’ve been re-reading those older works primarily in an effort to validate the truth of what I’ve been teaching. Sadly, I’ve also validated that some points I make in courses I teach are wrong, historically.

These would be details like lifetime employment contracts in Japan. I was taught (again, I was remiss in keeping track of the source) that Japanese companies were ordered to provide lifetime employment contracts to their employees as a result of labor disputes and protests in 1950.

This week, after re-reading Eiji Toyoda’s Fifty Years in Motion, Taiichi Ohno’s Toyota Production System, and a scholarly research article on Japan’s Lifetime Employment, here’s what seems to have really happened.

In December 1948, the occupation government, known as SCAP for Supreme Command, Allied Powers in Japan, imposed austerity measures to bring inflation under control in Japan. The biggest piece was known as the Dodge Line, named after Joseph Dodge, chairman of the Detroit bank and special ambassador and financial advisor to SCAP.

These measures fixed prices on certain products like trucks and passenger cars, but not on others, like raw materials. Many Japanese customers suffered as they lost jobs, or their profits vaporized.

Their inability to collect installment payments for vehicles they sold drove Toyota Motor Company and many others to the brink of bankruptcy, requiring them to secure significant loans that came with strict conditions on the operations of the company.

As the economy grew more volatile, the union movement in Japan flourished. Initially, this was encouraged by SCAP until they learned that the largest union was backed by the Communist Party.

To meet the regulatory requirements and to survive, Toyota was ordered to reduce its labor force, already relatively small compared to their pre-war staffing, by 1,600 staff. Toyota offered early retirement buyouts, but also were forced to reduce wages across the board by 10%. As a result, Toyota President Kiichiro Toyota resigned from the company, accepting responsibility for the turmoil.

The same was happening to other companies as well and the labor unions exploded with strikes, protests, and often violence.

The most violent labor disputes in Japanese history took place between 1949 and 1954, involving major companies, such as Toshiba, Hitachi, Toyota, and Nissan. The working days lost in 1952 alone reached unprecedented 15 million days involving 1.6 million workers.

Lifetime employment was never mandated by the state, but as a long-time philosophy of Japanese employers, this was a goal that most large companies held very dear. Japanese workers, accustomed to this, were particularly devastated when the staff cuts were required by the economics of the Japanese Market, pushing them into the streets in protest.

According to Ohno, a key goal Kiichiro shared with Toyota leadership was that Toyota needed to catch up with the productive capability (if not the volume) of US passenger car manufacturers within 3 years of the end of the war.

In 1950, Eiji went to the US to study the automobile industry. When he returned, he said he was asked “how long until we catch up with Ford?”

He answered that Ford was not doing anything that Toyota didn’t already know about,

but it is very difficult to say how long when you consider that Toyota’s passenger car output at the time was a mere 40 vehicles per month, while Ford was making over 8,000.

Next up we’ll touch on the birth of the quality movement and how Toyota was able to respond to the 1973 oil crisis, which is the event that actually made people start studying how Toyota was doing things.

Have a great day and I’ll see you soon. Don’t forget to subscribe!