Pearls of Wisdom: Taiichi Ohno on management

It is rare that one reads something written in 1978 that feels relevant to today's world in so many ways that is hard to explain all of its consequences.

This is what happened today and I wanted to share that. The following is a couple of paragraphs from the "Toyota Product System" (TPS) by Taiichi Ohno. Ohno was one of the key people in the development of what we know now as TPS.

Cost Reduction is the Goal

Frequently we use thew word "efficiency" when talking about production, management, and business. "Efficiency," in modern industry and business in general, means cost reduction.

At Toyota, as in all manufacturing industries, profit can be obtained only by reducing costs. When we apply the cost principle selling price = profit + actual cost, we make the consumer responsible for every cost. This principle has no place in today's competitive automobile industry.

Our products are scrutinized by cool-headed consumers in free, competitive markets where the manufacturing cost of a product is of no consequence. The question is whether or not the product is of value to the buyer. If a high price is set because of the manufacturer's cost, consumers will simply turn away.

Cost reduction must be the goal of consumer products manufacturers trying to survive in today's marketplace. During a period of high economic growth, any manufacturer can achieve lower costs with higher production. But in today's low-growth period, to achieve any form of cost reduction is difficult.
There is no magic method. Rather, a total management system is needed that develops human ability to its fullest capacity to best enhance creativity and fruitfulness, to utilize facilities and machines well, and to eliminate all waste.

The Toyota production system, with its two pillars advocating the absolute elimination of waste, was born in Japan out of necessity. Today, in an era of slow economic growth worldwide, this production system represents a concept in management that will work for any type of business.(1)

It is hard to believe when you read this (emphasis added) that it was written in 1978 (or before). But that is the case. All of this applies almost directly to the software industry today.


(1) Excerpt from Toyota Production System, By Taiichi Ohno, Productivity Press