The 14 Principles of the Toyota Way

This information is from a book that my teacher of Business management & enterprise development gave to me this year. I hope that you will find this useful to understand the TPS and the toyota way.

Section I: Long-Term Philosophy

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. Understand your
place in the history of the company and work to bring the company to
the next level. Your philosophical mission is the foundation for all the
other principles.
■ Generate value for the customer, society, and the economy—it is your
starting point. Evaluate every function in the company in terms of its
ability to achieve this.
■ Be responsible. Strive to decide your own fate. Act with self-reliance and
trust in your own abilities. Accept responsibility for your conduct and
maintain and improve the skills that enable you to produce added value.

Section II: The Right Process Will Produce the Right Results

Principle 2. Create a continuous process flow to bring problems to the surface.

■ Redesign work processes to achieve high value-added, continuous flow.
Strive to cut back to zero the amount of time that any work project is sitting
idle or waiting for someone to work on it.
■ Create flow to move material and information fast as well as to link
processes and people together so that problems surface right away.
■ Make flow evident throughout your organizational culture. It is the key
to a true continuous improvement process and to developing people.

Principle 3. Use “pull” systems to avoid overproduction.

■ Provide your downline customers in the production process with what
they want, when they want it, and in the amount they want. Material
replenishment initiated by consumption is the basic principle of just-intime.
■ Minimize your work in process and warehousing of inventory 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 rather than
relying on computer schedules and systems to track wasteful inventory.

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 to people and equipment and eliminating
unevenness in the production schedule are just as important—yet
generally not understood at companies attempting to implement lean
principles.
■ 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.

Principle 5. Build a culture of stopping to fix problems, to get quality right
the first time.

■ Quality for the customer drives your value proposition.
■ Use all the modern quality assurance methods available.
■ Build into your equipment the capability of detecting problems and
stopping itself. Develop a visual system to alert team or project leaders
that a machine or process needs assistance. Jidoka (machines with human
intelligence) is the foundation for “building in” quality.
■ Build into your organization support systems to quickly solve problems
and put in place countermeasures.
■ Build into your culture the philosophy of stopping or slowing down to
get quality right the first time to enhance productivity in the long run.

Principle 6. Standardized tasks and processes are the foundation for continuous
improvement and employee empowerment.

■ Use stable, repeatable methods everywhere to maintain the predictability,
regular timing, and regular output of your processes. It is the foundation
for flow and pull.
■ Capture the accumulated learning about a process up to a point in time
by standardizing today’s best practices. Allow creative and individual
expression to improve upon the standard; then incorporate it into the
new standard so that when a person moves on you can hand off the
learning to the next person.

Principle 7. Use visual control so no problems are hidden.

■ Use simple visual indicators to help people determine immediately
whether they are in a standard condition or deviating from it.
■ Avoid using a computer screen when it moves the worker’s focus away
from the workplace.
■ Design simple visual systems at the place where the work is done, to support
flow and pull.
■ Reduce your reports to one piece of paper whenever possible, even for
your most important financial decisions.

Principle 8. Use only reliable, thoroughly tested technology that serves your
people and processes.

■ Use technology to support people, not to replace people. Often it is best
to work out a process manually before adding technology to support the
process.
■ New technology is often unreliable and difficult to standardize and
therefore endangers “flow.” A proven process that works generally takes
precedence over new and untested technology.
■ Conduct actual tests before adopting new technology in business
processes, manufacturing systems, or products.
■ Reject or modify technologies that conflict with your culture or that
might disrupt stability, reliability, and predictability.
■ Nevertheless, encourage your people to consider new technologies when
looking into new approaches to work. Quickly implement a thoroughly
considered technology if it has been proven in trials and it can improve
flow in your processes.

Section III: Add Value to the Organization by Developing
Your People

Principle 9. Grow leaders who thoroughly understand the work, live the
philosophy, and teach it to others.

■ Grow leaders from within, rather than buying them from outside the
organization.
■ Do not view the leader’s job as simply accomplishing tasks and having
good people skills. Leaders must be role models of the company’s philosophy
and way of doing business.
■ A good leader must understand the daily work in great detail so he or she
can be the best teacher of your company’s philosophy.

Principle 10. Develop exceptional people and teams who follow your company’s
philosophy.

■ Create a strong, stable culture in which company values and beliefs are
widely shared and lived out over a period of many years.
■ Train exceptional individuals and teams to work within the corporate
philosophy to achieve exceptional results. Work very hard to reinforce
the culture continually.
■ Use cross-functional teams to improve quality and productivity and
enhance flow by solving difficult technical problems. Empowerment
occurs when people use the company’s tools to improve the company.
■ Make an ongoing effort to teach individuals how to work together as
teams toward common goals. Teamwork is something that has to be
learned.

Principle 11. Respect your extended network of partners and suppliers by
challenging them and helping them improve.

■ Have respect for your partners and suppliers and treat them as an extension
of your business.
■ Challenge your outside business partners to grow and develop. It shows
that you value them. Set challenging targets and assist your partners in
achieving them.

Section IV: Continuously Solving Root Problems Drives
Organizational Learning

Principle 12. Go and see for yourself to thoroughly understand the situation
(genchi genbutsu).

■ Solve problems and improve processes by going to the source and personally
observing and verifying data rather than theorizing on the basis
of what other people or the computer screen tell you.
■ Think and speak based on personally verified data.
■ Even high-level managers and executives should go and see things for
themselves, so they will have more than a superficial understanding of
the situation.

Principle 13. Make decisions slowly by consensus, thoroughly considering
all options; implement decisions rapidly (nemawashi).

■ Do not pick a single direction and go down that one path until you have
thoroughly considered alternatives. When you have picked, move
quickly and continuosly down the path.
■ Nemawashi is the process of discussing problems and potential solutions
with all of those affected, to collect their ideas and get agreement on a
path forward. This consensus process, though time-consuming, helps
broaden the search for solutions, and once a decision is made, the stage
is set for rapid implementation.

Principle 14. Become a learning organization through relentless reflection
(hansei) and continuous improvement (kaizen).

■ Once you have established a stable process, use continuous improvement
tools to determine the root cause of inefficiencies and apply effective
countermeasures.
■ Design processes that require almost no inventory. This will make
wasted time and resources visible for all to see. Once waste is exposed,
have employees use a continuous improvement process (kaizen) to
eliminate it.
■ Protect the organizational knowledge base by developing stable personnel,
slow promotion, and very careful succession systems.

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The Toyota way JUST IN TIME

I have studied the Toyota way this year in my subject Business Management and enterprise development, I want to give thanks to my teacher Marc Cashin from the AIT. I found so usefull and interesting that I want to explain the Toyota Way and give you a summary of the culture behind TPS (Toyota production system).

"The more I have studied TPS and the Toyota Way, the more I understand that it is a system designed to provide the tools for people to continually improve their work. The Toyota Way means more dependence on people, not less. It is a culture, even more than a set of efficiency and improvement techniques. You depend upon the workers to reduce inventory, identify hidden problems, and fix them. The workers have a sense of urgency, purpose, and teamwork because if they don’t fix it there will be an inventory outage. On a daily basis, engineers, skilled workers, quality specialist, vendors, team leaders, and operators are all involved in continuous problem solving and improvement, which over time trains everyone to become better problem solvers. One lean tool that facilitates this teamwork is called 5S (sort, stabilize, shine, standardize, sustain), which is a series of activities for eliminating wastes that contribute to errors, defects, and injuries. In this improvement method, the fifth S, sustain, is arguably the hardest. It’s the one that keeps the first four S’s going by emphasizing the necessary education, training, and rewards needed to encourage workers to properly maintain and continuously improve operating procedures and the workplace environment. This effort requires a combination of committed management, proper training, and a culture that makes sustaining improvement a habitual behavior from the shop floor to management"

The 14 Principles of
the Toyota Way:
An Executive Summary of the
Culture Behind TPS

The principles are organized in four broad categories:

1) Long-term philosophy

2) The right process will produce the right results (this utilizes many of the TPS tools)

3) Add value to the organization by developing your people

4) Continuously solving root problems drives organizational learning.

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What is a Bad Bank? / Qué es un Banco Malo?

Today I want to explain to you what we understand as a Bad Bank.

Bad bank is an institution created by the state in order to keep or hold the toxics assets of the banks of the country. This banks are created when the flow of the money is broken, companies and people can't access to the credit, and that is because the banks have liquidity problems. This institution helps banks to clear from their balance sheets their toxics assets. Normally Bad banks can negociate the prices of those assets, the price established is normally ranged between the market price and the price at the balance sheets of the banks.

There are some variants of a Bad Bank:

1. The good bad bank forces banks to write off those assets and clean up their balance sheets. Those that are insolvent are recapitalized, nationalized or liquidated 
2. Bad bad bank buys toxic assets at inflated prices and thus the financial system can start lending money again.

David Roche writes in the WSJ


"Desperate to preserve the value of asset prices inflated by this huge liquidity bubble, policy makers have avoided the painful solution. The liquidity injections, the bailout programs, and the fiscal-stimulus packages try to sustain asset prices, when these prices need to fall to market levels so they can be cleared. The policy makers have just prolonged the crisis.

As we saw in Japan in the 1990s, if the market is not allowed to clear, the financial crisis will be prolonged. Although debt deflation may be avoided, the economic recession will be longer and the recovery weaker.

By not adopting the good bad-bank solution, the system remains as corrupted as before. The bad assets will continue to suck resources out of the economic system in the form of zombie borrowers, misallocation and mispricing of capital, public sector debt, and budget deficits."


Here you will find the whole article: David Roche at The Wall Street Journal

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Business activity & objetives

In this entry I'm going to explain the diferent aims of businesses in the private and public sector.

There're four sectors of business activity, those are:

• Primary Sector- Consist in changing natural resources into primary products. Most products from this sector are considered raw materials for other industries. Major businesses in this sector include agriculture, agribusiness, fishing, forestry and all mining and quarrying industries.

• Secondary Sector- This sector generally takes the output of the primary sector and manufactures finished goods, semi-finished goods, or where they are suitable for use by other businesses or sale to domestic consumers.

•  Tertiary Sector- The tertiary sector, also know as public sector, in this sector people offer their knowledge and time for the others, in other words, this sector doesn't product finale goods or tangible goods. The production of the tertiary sector include attention, advice, experience..."intangible goods".

• Quarternary Sector- The quaternary sector is an economic sector that includes highly intellectual services such as research, development, innovation (R & D, I + D + I). Traditionally it is considered part of the tertiary sector but growing increasingly important and distinct has led some authors advocate considering it as a separate sector.

  
Private Sector:

 In our days we have companies that are involved in most of economics sectors, for example:


REPSOL

• Oil exploration and drilling (Primary)
• Refining oil (Secondary)
• Distribution of petrol from refineries to petrol stations (Tertiary)
• Research and development (Quaternary) 

Now its time to explain the main objectives of private sector business, everybody knows that all private business are created in order to obtain a benefit, so the main objective is the PROFIT. But that objective is not the only, there're other like:



-Image and reputation
-Share price
-Social Issues
-Market power
-Environment

Every company should know their objectives, for example there're companies that do everything for the main objective (Make a Profit), for example, the famous and loved Nike, Adidas, Reebok and many more. (I've named that companies because they use child labor, and for me that's unforgivable). There're others that take care of enviroment and research in order to throw less polution to our atmosphere, others only do that because is better for their image and reputation, but at least they do something.

Public Sector: The public sector differs a lot of the private, the main objectives are:

• Access & equity available to everybody regarless of their background, location, status, income, class, race or religion
• Affordability, this is very important because the services are offered at prices that are cheaper than private sector or free, like the social security, you can use private hospitals or public ones.

The public sector range of business
-Trading standards
-Museums and arts
-Cemeteries
-Social Services
-Schools
-University
-Street lighting

and many more.

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Inglés II: Business Ownership, the private sector

I'm going to explain diferent forms of business ownership and his advantages and disadvantages.

In the private sector (business activity owned financed (not always) and controlled by private individuals).
We have diferent forms of business such as:
-Sole Traders
-partnerships
-Private Limited Companies
-Public Limited Companies
-Co-operatives
-Franchises
-Charities

Now, I will try to explain simply one by one that diferent forms of business.

The Sole Trader is owned, financed and controlled by one person but can employ other people, that kind of business are very common for, bakers, shoemakers etc.

They have some advantages and some disadvantages, the advantages are:

1) Easy to set up, because the laws make easier to set up a sole trader rather than a big company.
2) Personal incentive like, keep all the profits (sometimes this could be a disadvantages), make key decisions you are the owner so you have to make the important decisions about your business, high degree of control, you are the chief, so, You control all departments.

And in my opinion this are the more important disadvantages of a Sole Trader:

1) Unlimited Liability, that means that you can't separate your personal propierties in front of your business obligations, for that reason you can lose everything, like your car or your house.
2) Limited access to capital, normally the banks aren't going to trust in your capacity to return the loans.

The Partnerships are owned, financed and contolled by upwards of two partners, with a contract, the common business are, lawyers, accountants, architecs etc.

Some advantages are:

1) Greater access to capital
2) Shared responsibility
3) Since 2001, Partnerships can apply to be Limited Partnerships

The disadvantages are:

1) Unlimited Liability (look point 3 of Advantages).
2) All partners liable for the debts of the others, in partnerships you are member of a team so you have to support the others.
3) Potential for conflict, sometimes is difficult to make a decision together, a solution normaly is, one person one vote.
4) Decisions of one partner binding on the rest (look point 3 of disadvantages, one person one vote).

Diferences between Private Limited Company (from now Ltd) and Public Limited Company (from now PLC)

With Ltd the number of shareholders is set between 2 and 50, but in PLC you haven't got a maximum number of shareholders.
PLCs shares traded on Stock exchange.
LTDs shares only bought and sold with agreement of existign shareholders.

Common characteristics:

That companies are more complex to set up.
Minimum share capital of 50000€.
Must have a memorandum of association that details the nature, purpose and structure of the company.
Divorce between ownership and control, you can be the owner but maybe you think that other person can manage your company better than you, so in that case you are the owner but not the manager.
Must publish accounts.

Franchises: Is a type of business ownership backed by established a brand name, like Mc'Donalds, Vodafone, Orange, MRW, Zara etc

Normally the owner gets to run a business with less risk, because the business is normally well known.
You don't have to make advertisings because the company makes that for you
The owner buys the right to use the company name, and in order to pay you have to give the 20%,30%,35% even 40% of your profits.

Co-operatives:

This companies exists for the benefit of the members.

There are three diferent types of co.operatives.

1) Consumer co-ops: The members buy the goods in bulk in order to archieve a better price
2) Worker co-operatives: Workers buy the business and take care of the co-operative, the decisions and the profits or losses are shared by the members.
3) Producer co-operatives: Producers organise distribution and sale of products themselves.

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