The Toyota Way

On August 14, 1945, President Harry Truman took to the radio waves to make the announcement that all Americans had been long waiting for. Japan had surrendered unconditionally. The war, which had concluded in Europe several months prior as finally over. Millions of young men would be coming home to their wives, mothers, families, and friends.

6,000 miles away in Aichi, Japan, Kiichiro Toyoda walked through his factory. Up until this day, his production lines had churned out trucks for the Japanese Army. The trucks were adapted to the severe shortages of supplies available. As such, they featured a single headlight, wooden bench seats, and canvas walls wherever possible. With the war over there would be no more orders from the Army and Kiichiro was faced with the challenge of keeping his new business afloat. Unbeknownst to Kiichiro, the agreement the ended the war and put his livelihood in jeopardy, also may have saved it.

Had the war gone on, his factories were scheduled to be the target of a US bombing raid just a week later. Had the war gone on, his factories would have been utterly destroyed, and the World’s largest carmaker would have never gotten started.

Two years after the war ended Toyota began production of the model SA. By 1950 the company was on the brink of bankruptcy. To avoid complete collapse the company instituted layoffs and wage reductions. Those changes were met with a strike by workers which was only ended by the resignation of Kiichiro Toyoda.

The outbreak of the Korean War breathed life into the failing company. An order of 5,000 trucks came in from the US Army, and Toyota never looked back.

The Model SA was replaced by the massively successful. In just three years the Crown became the best-selling car in Japan. ?After reaching the top of the Japanese market Toyota set its sights on entering the US market and the first Crowns were sold in 1958. Toyotas first attempt to break into the USA was short lived. By 1961 Toyota had retreated to Japan.

Toyota became the largest carmaker in the world because it sells some of the longest lasting, highest quality cars available. In the 1950 Toyota became the best-selling car in Japan because they were cheap. When it came to quality, Toyota Crowns were abysmal. To Japanese buyers, with little choice, and little to spend, the Crown was the only option. To American buyers, the underpowered, undersized, and prone to problem Crown was no match for the competition in Detroit.

Ji kotei kanketsu is roughly translated into “not passing defects along to the next process”. It was a process change made in 1966 in Toyota factories, and it changed everything. Vehicle assembly lines up until that point had been all about speed. The more cars that came off the line, the more money made. As a result, small defects were often overlooked. No employee wanted to be the one to stop the entire production line because they had made a mistake, so the mistakes were simply passed on to the next worker who may make some of their own.

In 1966 Toyota quality control executives flipped the model on its head. Hanging above every workstation on the assembly lies a red cord was installed. One pull of that cord would stop the entire production line. Employees were trained to use the cord any time a defect was found. Details as small as an incorrect torque spec on a single bolt were reason enough to stop the entire line. When the problem was fixed, a supervisor would approve the work, pull the cord again and the line would move on.

Using their new quality control process Toyota relaunched in the United States in with the all-new Corona model. It sold 20,000 in its first year. American drivers noticed immediately that the Corona was different. It broke down far less than Detroit made cars they were used to. It burned far less gas. And it even cost less. By 1967 Toyota was the third best-selling import brand in the US.

In 1968 they debuted the Corolla which was a runaway success. By 1975 thanks to the Corolla Toyota surpassed Volkswagon as the best-selling import car in the US.

In 1984 Toyota bought their first factory in the US. The beleaguered New United Motor Manufacturing plant in Freemont California. For 20 years GM had operated the plant. The workers in the Freemont plant were considered “the worst workforce in the automotive industry”. ?Toyota installed their konketsu system and within a year, the factory was producing vehicles on par in quality, and at the same pace as the factories in Japan.

In 2008, just 40 years after breaking into the US market Toyota, thanks largely to their quality form the konketsu system topped Chevrolet to become the single best-selling band in the United States.

While there was certainly some good fortune in the early days of Toyota, its success ultimately came down to strict adherence to quality, and not allowing even the smallest errors to go unfixed.

Overpaying for life insurance. Accumulating high interest debt. Not checking for better car insurance rates. Neglecting to rebalance your 401k. Not maximizing your employer benefits. Signing up for the wrong health plan… The list of small details that comprise your financial health could fill another five paragraphs. Individually, you would never notice if one or two of them were defective. But if too many of them are wrong, the end result will be a poorly made, low quality financial plan. Take the time to review them. Or hire someone else to do it for you.