Dr. Eliyahu M.

Goldratt Foundation

Comparing the Toyota Way

and the
Theory of Constraints

Kevin Kohls
www.leanontoc.com

© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved. 1

Overview
Dr. Eliyahu M. Goldratt Foundation

• Historical Perspective
• The 14 Key Management Principles of the Toyota Way
− Compare a select few to compare to the Theory of Constraints

• Key Points from Standing on the Shoulders

• What can we learn from The Toyota Way to help improve
TOC?
• Leveraging Benefits
• Avoiding Pitfalls

2
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
 TPS & Lean Historical Perspective
Dr. Eliyahu M. Goldratt Foundation

Increase flow through the elimination of waste at Toyota

Taiichi Ohno Shigeo Shingo
James Womack Eliminate waste
Toyota Pre-work
Production Lean
System
Volunteers
Jeffery Liker “A” Production
Lean
System
Toyota Pick Tool
Management (i.e., 5S)
Principles “Z” Production Failure!
Lean Tool
System Based Pilot • Acceptance
• Implementation
Ford • Long Term
sustainment
Spread
Deming
Mastery Reduce Costs!
Wrong Assumptions
Loss of Sales,
• Pick a tool (or a small set) and implement everywhere Profits
• Measure progress on tool implementation (i.e., number of events held)
• Selection of tools is based on objectives of management Bankruptcy
3
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 The Toyota Way
Dr. Eliyahu M. Goldratt Foundation

1. Long-Term Philosophy
2. Create Continuous Flow
3. Use Pull Systems
Right Process
Right Results

4. Level the Workload

5. Quality In Station
6. Standard Work
7. Visual Control
8. Use Only Reliable Technology
9. Grow Your Own Leaders
Development
People

10. Develop Exceptional People

11. Respect your Suppliers and Partners
12. Go See for Yourself
Organization

13. Take time to Get Buy in

Learning

14. Reflect and Improve

6
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
The Toyota Way Point of View
Dr. Eliyahu M. Goldratt Foundation

• The U.S. has been exposed to TPS for at least two decades.
The basic concepts and tools are not new.
• U.S. companies have embraced lean tools but do not
understand what makes them work together in a system.
• But they do not understand the power behind true TPS: the
continuous improvement culture needed to sustain the
principles of the Toyota Way.
• The improvements they make will not have the heart and
intelligence behind them to make them sustainable
throughout the company.

8
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Toyota Success
Dr. Eliyahu M. Goldratt Foundation

• “The continued success at implementing these tools stems

from a deeper business philosophy based on its
understanding of people and human motivation. Its success
is ultimately based on its ability to cultivate leadership,
teams, and culture, to devise strategy, to build supplier
relationships, and to maintain a learning organization.”
- The Toyota Way, Jeffery Liker

9
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Standing on the Shoulders of Giants (SSG)
Dr. Eliyahu M. Goldratt Foundation

• In the 2008 paper Standing on the Shoulders of Giants, Eli

Goldratt concluded that the Failure of Lean Implementation is
due to the fundamental difference in the production
environments.
− Lack of Stability
− Product life, demand over time per product, resource loading.
• Goldratt examined:
− The fundamental concepts of supply chains.
− A generic application of these concepts that can be used in a much
wider spectrum of environments.
− The impressive results Hitachi Tool Engineering achieved with this
broader application.
Standing on the Shoulders of Giants
Production concepts versus production applications
The Hitachi Tool Engineering example
© Eliyahu M. Goldratt, 2008
10
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
The Toyota Way
Dr. Eliyahu M. Goldratt Foundation

• In the 2003 book, The Toyota Way, Jeffery Liker concluded

that the the Failure of Lean Implementation is due to a tool
focus rather than a deeper business philosophy based on
its understanding of people and human motivation.
• Liker examined:
− The principles behind the Four P’s:
− Long Term Philosophy.
− The Right Process will produce the Right Results.
− Add Value to the Organization by Developing Your People and
Partners.
− Continuously Solving Root Problems Drives Organizational
Learning.
The Toyota Way : 14 Management Principles from the World's Greatest
11 Manufacturer - 2003 – Jeffery Liker
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Environment & Concepts
Dr. Eliyahu M. Goldratt Foundation

• Environment
− Short Product Life
− Demand over time per product
− Overloading – model mix

• The concepts of supply chain:

− Improving flow (or equivalently lead time) is a primary objective of
operations.
− This primary objective should be translated into a practical
mechanism that guides the operation when not to produce
(prevents overproduction).
− Local efficiencies must be abolished.
− A focusing process to balance flow must be in place.
13
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Four Concepts
Dr. Eliyahu M. Goldratt Foundation

• Environment
− Short Product Life (Principle 3)
− Demand over time per product (Principle 2)
− Overloading – model mix (Principle 4)

• The concepts of supply chain:

− Improving flow (or equivalently lead time) is a primary objective of
operations. (Principle 2)
− This primary objective should be translated into a practical
mechanism that guides the operation when not to produce
(prevents overproduction). (Principle 3)
− Local efficiencies must be abolished. (Principle 2)
− A focusing process to balance flow must be in place. (Principle 4)
14
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Who is Right?
Dr. Eliyahu M. Goldratt Foundation

• Both Goldratt & Liker agree, for different reasons, that Lean
and TPS will not work well in different environments.
• Both TOC & The Toyota Way have a track record of
success.*
• Goldratt made it clear how DBR is a superior application
that was implemented at Hitachi Tool Engineering.
• But did it suffer the same fate as foretold in The Toyota
Way?
− “The Failure of DBR Implementation is due to a tool focus rather
than a deeper business philosophy based on its understanding of
people and human motivation.”

* - The Toyota Way to Continuous Improvement – Jeffery Liker & James Franz
15
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Hitachi Tool Engineering Success?
Dr. Eliyahu M. Goldratt Foundation

Ordinary income / Net Income (million yen)

• Hitachi Tool Engineering Ltd 7000 30.0%
increased from 1.1 billion yen in the 24.5% Ordinary Income
6000
fiscal year ending March 2002 to 5.3 5889
Net Income 25.0%
billion yen in the year ending March 5000
Opera ng Income ra o
2007 20.0%
16.2%
• A fivefold increase in net profit in 4000 3556
15.7%

five years. 15.0%

• The profit ratio of Hitachi Tool 3000 11.0%

Engineering Ltd increased from 7.2% 2404 1612

2634 10.0%
2000 6.3%
in 2002 to 21.9% in 2007, the 1986
1520

highest ratio ever reported in this 1000 615

5.0%
type of industry. 538
232

- Standing on the Shoulders of Giants 0 0.0%

– Eli Goldratt 2007 2008 2009 2010 2011

16 From Hitachi Tool Engineering Ltd website

© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Long-Term Philosophy
Dr. Eliyahu M. Goldratt Foundation

• Principle 1. Base your management decisions on a long-

term philosophy, even at the expense of short-term financial
goals.
− Have a philosophical sense of purpose that supersedes any short-
term decision-making. Work, grow, and align the whole
organization toward a common purpose that is bigger than making
money.
− Generate value for the customer, society, and the economy—it is
your starting point.
− Be responsible. Strive to decide your own fate.

18
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Long-Term Philosophy
Dr. Eliyahu M. Goldratt Foundation

Reliable Rapid Response S&T

1
Viable Vision

Base Growth Enhanced Growth

2:1 2:2
Reliability Rapid
Comp. edge Comp. edge

Build Capitalize Sustain Build Sustain Capitalize

3:1 3:2 3:3 3:4 3:5 3:6 3:7 3:8 3:9

99% Reliability Expand Load Capacity LT RR Load RR Expand
DDP Selling Client Control Elevation 1/4 Control Selling RR client
Base base

20
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Long-Term Philosophy
Dr. Eliyahu M. Goldratt Foundation

Reliable Rapid Response S&T

1
Viable Vision

Base Growth

2:1
Reliability Comp. edge

Build Capitalize Sustain

3:1 3:2 3:3 3:4 3:5

99% Reliability Expand Load Capacity
DDP Selling Client Control Elevation
Base

4:11 4:12 4:13

Choking Managing Dealing
the release priorities with
CCR’s

21
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
High Level TOC Overview
Dr. Eliyahu M. Goldratt Foundation

• Creates a “long” term plan.

TOC Viable Vision

• Used for quick wins and to expose bottleneck.

Rest of Viable Choke the • Drum Buffer Rope, Buffer Management.
Vision Release

Viable Vision: • Use Throughput Accounting (TA) for priority

Overall Success Manage setting.
has been strong Priorities
for those • Address Harmful Management Policies &
companies who Measures.
have accepted it as
a long term vision
(not just a short • Implement a “Throughput Improvement
term tool
Address Process.”
implementation). “Bottlenecks”
• Use TPS tools to address the bottleneck.

22
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Create Continuous Flow
Dr. Eliyahu M. Goldratt Foundation

• Principle 2. Create a continuous process

flow to bring problems to the surface.
−Redesign work processes to achieve high
value-added, continuous flow.
−Create flow to move material and information
fast.
−Make flow evident throughout your
organizational culture. It is the key to a true
continuous improvement process.
23
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
TOC & Throughput
Dr. Eliyahu M. Goldratt Foundation

• Improve the Throughput of the system by identifying and

improving the constraint.
− CCR’s (Capacity Constrained Resource)
− Prioritization that provides focus, ability to say “No.”
− Buffers are installed in the right place and right size.
− Choose the right measures – Throughput (dollars),
Operating Expense, Inventory.
− Keep track of improvements.
− “Over Manage” the Constraint.

24
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Use Pull Systems
Dr. Eliyahu M. Goldratt Foundation

• Principle 3. Use “pull” systems to avoid

overproduction.
− Provide your down stream customers in the production
process with what they want “just-in-time.”
− Minimize your work in process by stocking small
amounts of each product and frequently restocking
based on what the customer actually takes away.
− Be responsive to the day-by-day shifts in customer
demand.

26
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Use Drum Buffer Rope
Dr. Eliyahu M. Goldratt Foundation

• Use Drum-Buffer-Rope as an effective and fast

system-wide mechanism for Pull.
− Simple Drum-Buffer-Rope.
− Demand Driven MRP.
− Tie demand to production.
− Viable Vision link -- “Choking the Release.”
• Buffer Management ensures demand is met, and
production can react quickly with high Due Date
Performance.
27
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Level the Workload
Dr. Eliyahu M. Goldratt Foundation

• Principle 4. Level out the workload (heijunka).

(Work like the tortoise, not the hare.)
− Eliminating waste is just one-third of the equation for
making lean successful. Eliminating overburden and
eliminating unevenness in the production schedule are
just as important.
− Work to level out the workload of all manufacturing and
service processes as an alternative to the stop/start
approach of working on projects in batches that is
typical at most companies.

28
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Where is the Opportunity?
Dr. Eliyahu M. Goldratt Foundation

• TOC can improve its implementation by improving it’s

understanding of people and human motivation.
− Clouds & Overcoming Resistance to Change certainly begin that
journey.

• What is a simple guide for human motivation?

• How does it relate to the Toyota Way?
− The Toyota Management Principles have half their principles
devote to people and human motivation!

• How can this help TOC?

34
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Human Motivation
Dr. Eliyahu M. Goldratt Foundation

• In a non-survival situation, Daniel Pink

presents the scientific evidence that true
motivation comes from three elements:
• Autonomy
− The desire to direct our own lives.

• Mastery
− The desire to continually improve something
that matters.

• Purpose
− The desire to do things in service of something
larger than ourselves.

35
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Drive
Dr. Eliyahu M. Goldratt Foundation

• He warns that traditional carrot-and-stick methods,

in which companies use a particular incentive --
often money -- as a contingent reward for a task,
are not only ineffective for motivating employees,
but potentially harmful.
− Could this be a concern for any reward-based Viable
Vision step?

• “Now That” rewards vs. “If-Then” rewards

− Example of “Broad Focus”
− "I need you to redesign a Web site. Here's what we
need to accomplish, and I'm here to give you
guidance and provide any tools.”

36 See links at the end of the presentation

© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Motivation Elements & Toyota Way
Dr. Eliyahu M. Goldratt Foundation

• The elements of
motivation can be related
to the 14 principles.
• A simple relationship
diagram shows how they
are interconnected (left).
• They should be
considered as possible
elements in trees to help
understand current &
future realities (right).

37
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Principles & Motivators
Dr. Eliyahu M. Goldratt Foundation

9. Grow Your Own Leaders

− Develop masters that learn how to pursue a higher purpose.
− They must be able to communicate and teach the Long Term
Philosophy.

10. Develop Exceptional People

− Purpose and beliefs are shared, create Toyota Way masters.
− Leaders will be drawn from this group.

11. Respect your Suppliers and Partners

− Work together to improve the process (mastery).
− Work together to achieve your purpose.

38
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Principles & Motivators
Dr. Eliyahu M. Goldratt Foundation

12. Go See for Yourself

− Going out to the problem area improves your mastery, shows
your commitment to the purpose, and provides non-contingent
rewards.

13. Take time to Get Buy in

− Those involved with making the decisions have the Respect of
their peers, because of their mastery of their role and their ability
to perform it with little or no direction (Autonomy).
− Have them understand the purpose and their role in achieving it.

14. Reflect and Improve – Learning Organization

− Improve your mastery through reflection (hansei).

39
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Improving TOC
Dr. Eliyahu M. Goldratt Foundation

• Improve TOC by leveraging the science behind human

motivation and how it has been used at Toyota.
− Current: Look at a past failure and a past success, and see if the
elements of motivation played a role in either case.
− Review your conclusions with trusted friends.
− Future: Look at implementation steps in the future that requires a
change in behavior.
− What motivation exists to cause this change?
− Where is “Carrot and the Stick” and “If-Then” being used?
− Can the use of the three elements of motivation help create a
more positive motivation for implementation of TOC?
− Does it become part of the tactics used to ensure success?
40
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Improving TOC
Dr. Eliyahu M. Goldratt Foundation

• Look at your motivation, especially as it relates to TOC.

− What is your Higher Purpose?
− How are you going to improve your Mastery?
− Are you going to be a “Carrot and a Stick” leader?
− How are you going to promote the autonomy of your employees,
partners, and students?
− Is it worth your time to increase your skill at motivation?

41
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
 Dr. Eliyahu M. Goldratt Foundation

COMMON PITFALLS

42
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Common Pitfalls
Dr. Eliyahu M. Goldratt Foundation

• Copying tools is not a great motivator.

− “This will help us cut costs and reduce headcount!”
− “I don’t really care about what you know. It hasn’t helped so far!”
− You ARE going to do this, or else! We’ll be checking on you to
make sure you are doing it right.”

• Avoid Dictating the solution – take time to gain

agreement.
− Those who can help, and those than can hinder.

• Not taking time to “Hansei” or reflect on what you

did right and what you did wrong.
43
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Common Pitfalls
Dr. Eliyahu M. Goldratt Foundation

• Don’t fall on your sword – move on to another

opportunity instead of forcing someone to see you are
right.
• Use Throughput Accounting
− Higher Purposes will still have a necessary condition of “making
money.”
− Poor financial decisions can derail the entire improvement process.
− Not used at the start - Lack of a financial baseline.
− Overcome the inertia of the budget and headcount focus.
− Be ready to train and retrain.

• Not keeping up because YOU are too busy.

− Don’t avoid the process of learning and discovery.

44
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 Dr. Eliyahu M. Goldratt Foundation

LEVERAGE BENEFITS

45
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Leverage Benefits
Dr. Eliyahu M. Goldratt Foundation

• Demonstrate how TOC has the right processes that create

the right results.
• Understand how each key step in an improvement process
will motivate your customers.
− Help them understand how their job supports the higher purpose.
− Show them how they will become masters of each step (VV).
− Give the tools and knowledge for them to “do it without you”.

• Emphasize Continuous Improvement of the Continuous

Improvement Process.

46
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Leverage Benefits
Dr. Eliyahu M. Goldratt Foundation

• Consultants (especially in this room) must respect and

leverage each others knowledge and tools.
• Use The Toyota Way as a “back drop” for key principles.
• Practice “Broad Focus”:
− “ I need you to help the company limit overproduction. It hurts us
financially and causes late orders to our customers. We are going
to provide a tool called DBR to help us accomplish this task. We
need you to help us successfully install this tool in the Pump
Assembly Line. These consultants are here to provide guidance
and teach you DBR tools. I’m here to remove roadblocks.”

47
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Recommendations
Dr. Eliyahu M. Goldratt Foundation

• Read The Toyota Way & Drive

− Understand the three elements of motivation and the 14
management principles
− Understand how your current and future efforts are
aligned with human motivation.
− Look for the motivation factors in everyday life.
− Develop ways to help motivate the use of TOC.

49
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Summary
Dr. Eliyahu M. Goldratt Foundation

• Both TOC and The Toyota way agree that the typical
methods of implementing Lean are not effective, although
for different reasons.
• TOC provides proven processes that generate the right
results in a wide array of environments.
• The Toyota Way concentrates more on people and
understanding motivation than tools.
− Three elements of motivation are Purpose, Autonomy and Mastery.

• It’s important to TOC’s future to learn how to understand

people and human motivation to improvement acceptance,
implementation, and long-term success.

50
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
The Six Step to SSG
Dr. Eliyahu M. Goldratt Foundation

1. Identify a “giant”, not a chupchick

− Continuous improvement methods, such as Lean and TOC:
− Struggle to gain acceptance
− Often fail to be implemented successfully
− Fail to maintain success in the long-term
2. Identify the enormity of the area addressed by the giant
− The failure of CI methods drives management to resort to a “reliable”
method – cost cutting.
− Leads to a reduction of profits and a death spiral
− Toyota’s success vs. GM’s failure
3. Get on the shoulders – historical perspective
− Goldratt, Ohno, Lean Leaders (Womack & Shook), Liker, Pink

51
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
The Six Step to SSG
Dr. Eliyahu M. Goldratt Foundation

4. Identify the conceptual difference between reality that was improved

so dramatically by the giant and the areas untouched.
− Toyota improvement was the result of its Management Principles more than the its
Production system.
− Copying TPS tools without understanding the need for human motivation ultimately
will lead to failure.
5. Identify the wrong assumption
− Implement tools that have been successful at Toyota.
− Use “carrot and stick” as the primary method of motivation
6. Conduct the full analysis to determine the core problem & solution
− Problem: Human motivation and overall management principles are ignored as part
of the solution
− Solution: Understand the science behind human motivation and include elements of
motivation as part of your solution.

52
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 Dr. Eliyahu M. Goldratt Foundation

QUESTIONS? & ANSWERS!

53
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 Dr. Eliyahu M. Goldratt Foundation

BACK UP

54
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Final Thought
Dr. Eliyahu M. Goldratt Foundation

Who here would pursue the challenge presented

below for “free?”
“Possible” TOCICO challenge:
• “We need you to be part of a small team focusing on
improving TOC. This team will examine human
motivation as outlined in The Toyota Way and Drive, and
will generate ideas that hold promise. TOCICO will
provide guidance and provide any tools you need to be
successful.”

55
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
What should we Learn About Next?
Dr. Eliyahu M. Goldratt Foundation

• What companies (outside of Toyota) have been successful

with a management process that has survived management
succession?
− Safety Improvement at Alcoa through management focus.
− Profitability at Southwest Airlines through Servant Leadership.
− Coldstone Creamery -- Good to Great characteristics.
− Leverage Crisis and Opportunity.
− Ability to adapt with rapid (technical) change.
− Understanding and using “The Power of Habit.”

56
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.
Web Links
Dr. Eliyahu M. Goldratt Foundation

Wall Street Journal article on Drive

http://online.wsj.com/article/SB10001424052748704152804574628230428869074.html

YouTube Video on Drive

http://www.youtube.com/watch?v=u6XAPnuFjJc

Toyota Way at Amazon

http://www.amazon.com/s/ref=nb_sb_ss_i_1_4?url=search-alias%3Dstripbooks&field-
keywords=toyota+way&sprefix=toyo%2Cstripbooks%2C289

Drive at Amazon
http://www.amazon.com/Drive-Surprising-Truth-About-
Motivates/dp/1594484805/ref=sr_1_1?ie=UTF8&qid=1335651845&sr=8-1

57
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 1. Why Change?
Current methods are not
Dr. Eliyahu M. Goldratt Foundation
producing results as quickly
and effectively as desired.

5. How to create POOGI?

2. What to Change? Ensure a long term, higher
The motivation to use TOC purpose goal is in place,
methods. create autonomy and
mastery.

4. How to cause the

change?
3. What to Change to?
Learning and Leveraging
A TOC process that
human motivation as
leverages human motivation.
outlined in the Toyota Way
and Drive.
58
© 2012 Dr. Eliyahu M. Goldratt Foundation. All rights reserved.