Manufacturing Innovation Forum ("MIF-Ken") is a small study group of consultants in Tokyo. Most of members, including myself, are Registered Management Consultant for Small and Medium Enterprizes who are interested in production systems. We usually conduct plant visit tours twice every year.
Several years ago, our MIF-Ken had a three day journey to Kyushu, a western part of Japan, to see car manufacturing plants of Toyota and Nissan. I was not able to join it, unfortunately, but reports by visiting members were very interesting. The two rival companies have many similarities in facilities and work ways of their plants, although terminologies are quite different from each other. Such similarities are not surprising, because the they manufacture the same category of complex, yet voluminous, machinery product: cars. They both implement "Pull type" production systems. Toyota calles it "Just in Time (JIT)", and Nissan calls it "Synchronization (Douki)". However, we learned there was a fundamental difference between the pull type manufacturing of the two car giants.
"Pull type" manufacturing is usually understood as the way of production that replenishes goods or products which are just consumed. In other words, only needed items of needed quantities shall be supplied at needed timings. "Push type" manufacturing is a conventional way of production of "Make-to-Stock (MTS)". It requires the demand forecast, production planning and pushing out products to the market. To the contrary, "Pull type" is a way of production of "Make-to-Order (MTO)" that is triggered by consumption (pulling out) of parts or products by downstream consumers. Famous "Kanban" system of Toyota is a typical tool to implement this idea to the entire production processes which starts from the product shipping to the raw material supply, and even to suppliers. Other Japanese carmakers do have somehow similar work processes, yet under different names.
Therefore, in order to implement the Pull type manufacturing, you have to allocate minimum quantities of product inventories and work-in-process (WIP) in every stock points and let every work center replenish items in quantities just as much as consumed. No production planning thus is required. In fact, many consultants of "JIT Production" advise such stories to part manufacutrers in Japan.
However, you will later face one difficult problem when you try its plant-wide full implmentation. Stances of Toyota and Nissan to resolve this problem are - according to my colleagues report - very opposit. What is the problem?
It is regarding "Naiji" (advance notice of purchase, or the blanket order). If you wish to make perfect Pull type production system, you have to let suppliers deliver their parts of needed quantities at needed timings. However, suppliers are not like "Doraemon", a cartoon hero who can pull out any items he wants from his magic pocket. In order to cope with daily Kanban orders in a short time, they need preparation in advance. Naiji, an advanced information of parts purchase for coming months, is an inevitable element of Pull type production system. Car makers usually issue Naijis of every items they plan to buy in 3, 2, and 1 month prior to the actual orders.
This Naiji is nothing but the forecast of parts demand. Lead time of the car delivery from factory to dealer is minimum 10 days in Japan. Delivery to the end user will take nearly one month from the final order confirmation because paperwork with authorities takes time. Anyway, it is far shorter than 3 months. Therefore, demand forecast is necessary to provide Naijis to suppliers.
Such demand forecasts are, of course, associated with errors. Car makers revise forecasts every month until the actual month comes. Still, final order confirmation by the end user is just several days before "line-off" (shipment). Gaps between the forecast and actual demands cannot be avoided. In other words, risks of stock surplus or shortage will arise. The main difference between Toyota and Nissan lies in the policy to deal with this issue - directions to hedge such risks seem opposite.
Nissan tries to adjust the gap on the production side. Since stock inventory is always kept minimum, it is difficult to absorb demand fluctuations by part or sub-assy stocks. So, they make every effort to conduct Pull type replenishment and request suppliers to follow them. Lead time to suppliers are forced to be shorter, because longer lead time means larger errors in forecast. In fact, we heard from one supplier that Nissan allowed only 72 hours to them although they needed 96 hours to manufacture. In spite of these efforts, considerable gaps between Naiji forecasts and actuals are still headache for them.
Toyota way is very different from Nissan. Toyota allocates some buffer stocks intentionally. Basic process of automotive plant is (1) body shop -> (2) paint shop -> (3) final assembly line. They seem to have the buffer between the paint shop and the final assembly line, though they never disclose it to visitors. They have some other buffer stock points beside this. When firm orders are given, buffer stocks of part/sub-assy are dispatched in accordance with the sequence schedule. It is like BTO (Buid to Order) production system by Dell Computer.
"Nissan Production Way is Kanban system, and Toyota Production System is BTO" - this was the conclusion by my colleagues. Nissan Way is based on the concept of synchronized production to the firm demand. Nissan's Master Production Schedule (MPS) is just a monthly forecast or a rough indication. It is not a target that leads people. To the contrary, once stepping in Toyota plant, you will see "Production Plan of This Month" shown on the announcement board, with each car model and target quantity.
Then, how and where can Toyota fit the demand gap? They match demand and supply roughly on monthly plans, and precise gap closure is done through controls using Kanban system. Therefore, Production Plan is very important for Toyota.
Professor M. Kuroiwa of Kyushu Institute of Technology, a Toyota Fellow who long served as manager of the carmaker, has once summarized this policy as "Pushing with Naiji and Pulling with Kanban". Very brief but perfect explanation. We see that Toyota never hopes to do "100% make-to-order" like Nissan desires. Push type production comprises one part of their system. They even request selling side to off-take products when necessary. It is aiming at ensure "Heijunka" (production leveling) which is a core of Toyota Production System. I learned this from a Toyota CTO in face to face a few years ago.
In Nissan Production Way, risks of demand gap will be borne by production side. In Toyota Production System, sell side takes the risk. We can regard Nissan as a perfect Pull type producer, whereas Toyota is combining Push + Pull type production. Pushing along with the plan, and pulling for the adjustment/control - this is the way of Toyota.
There would be some arguments, discussing which is the better way. But I think the sales sections knows demand variations and trends better than production sections, as they are closer to the market needs. Therefore, isn't it reasonable that more responsibilities should be on the side who is more sensitive to market needs?
P.S. If you would like to read academic research on this subject, please refer to Takahiro Tomino: "Nissan Production Way and Make-to-Stock: A Comaprison with Toyota", Tokyo University Manufacturing Management Research Center (2010, in Japanese) . Professor Tomino concludes in the paper that Nissan shows strong tendency toward "market-in", while Toyota has attitude of "product-out" that enables sales side to cope with stable production plans.