By January 29, 2008 4 Comments Read More →

Toyota Gains Lead in Overproduction?

Toyota beats GM in global production; GM No. 1 in global sales

So it turns out that GM *sold* more cars than Toyota in 2007, but it’s basically rounding error and a virtual tie (as pointed out well by the Lean Thinker blog). He’s right, who cares who sold more? It’s profit (and long-term profitability) that matters.

I wasn’t going to comment until I saw the headline that Toyota *produced* more than GM. How odd — Toyota produced 213,000 more vehicles than GM…. so they produced more cars than they sold.

In the latest neck-and-neck numbers race between the world’s top two automakers, Toyota Motor Corp. said Monday it had made a record 9,497,754 vehicles worldwide in 2007, up 5.3 percent from the previous year.

That’s about 213,000 more automobiles than the 9.284 million that GM made last year.

Now, I’m somewhat “tongue in cheek” saying that it’s the “waste of overproduction.” If Toyota’s “heijunka” (or level loading of production) says it was more cost effective to slightly overproduce (to be made up for in a period where sales will be higher than production), then it’s not necessarily the worst thing ever. Keeping production level brings many benefits to the stability of the supply chain and the supplier base. Constantly changing production to meet demand isn’t necessarily the best business decision, nor is it “not Lean” to have a little bit of planned out inventory… am I explaining that well?

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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an eBook titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

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4 Comments on "Toyota Gains Lead in Overproduction?"

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  1. Ron Pereira says:

    Exactly Mark. One of the hardest concepts to explain, and even understand myself as I too grapple with it, is why it is OK to technically over produce a bit in “off seasons” in order to level things off.

    If Toyota didn’t do this chances are when demand spikes they would have to flip their wrists a bit at their suppliers… which would then create the infamous bull whip effect on their second and third tier suppliers.

    Plus, Toyota themself would have to deal with this by working tons of overtime, etc. As it is Toyota uses lots of temp labor… but imagine how much they would use if heijunka wasn’t practiced.

    So it’s a tricky thing heijunka. But so important to practice.

  2. Ralf Lippold says:

    Hello,

    sounds like a classical system dynamics phenomenon (the beer game) and brings me to think, that mostly people see just what is on the surface (such as numbers!) and don’t dig deeper to see other reasons that result in the numbers.

    This also strongly reminds me on the metapher of the iceberg, where only 20% is above the water line and the vast part of it is hidden under water.

    I would greatly appreciate further discussion on why mental models are relevant to the way people think about lean thinking and what it is all about.

    Best

    Ralf

  3. Andy Wagner says:

    Let’s not forget that GM liquidates their excess inventory to rental car companies, this year far less than they used to. In addition to the level-loading aspect, a higher percentage of the vehicles that Toyota sold, they sold to paying customers instead of at cost to pseudo-customers.

  4. Anonymous says:

    Also, don’t forget that you don’t produce and sell a car in the same day. Maybe it’s not overproduction. Maybe Toyota produced more cars because in January they’ll sell more. These are different calendars. So don’t try to reconcile it as planned or unplanned.

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