The Evolution of Production Systems

Abstract: This paper analyzes the formation process of production systems in order to identify the sources of Toyota's competitive strength (i.e., its long-term high-level performance). While previous studies have analyzed either the functions of the Toyota-style manufacturing system or the history of that system, there have been few research efforts that have integrated the two. The present paper explores both the functions and origins of the Toyota-style manufacturing system simultaneously. It also concludes that the source of Toyota's competitive strength can be explained in part by the "product architecture" perspective. The paper also shows that manufacturing contains three layers of organizational capability: manufacturing (monozukuri) capability, improvement (kaizen) capability, and evolutionary capability.Keywords: production system, manufacturing, evolution, Toyota1. IntroductionThe central question underlying the present study is: How has Toyota been able to remain competitive since the middle of the 20th century? While American car manufacturers have demonstrated significant volatility, Toyota has continued to be profitable, even in the face of a variety of crises. Toyota emerged from deficit in 1951 and then had an uninterrupted run of nearly 60 profitable years, until 2009, when the bursting of the US financial bubble and collapse of the US car market resulted in a large financial deficit. A company that has kept a competitive edge for such a long period not only has static capabilities that explain its short-term performance; it also has certain dynamic capabilities that explain its stable long-term performance despite rapid changes in the competitive environment.Although there has been a great deal of research done on the competitive functions of Toyota-style manufacturing systems, including the so-called Toyota Production System (TPS), and on the historical development of those systems, there has been precious little research conducted that persuasively links the two (Fujimoto, 1997, 1999; Heller, 2002). This paper, therefore, will examine the historical origins of those manufacturing routines that comprise Toyota's organizational capability, and try to determine some of the managerial implications that have resulted from that. In other words, this paper aims to define the kind of organizational capability that companies like Toyota possess that enables them to maintain a relatively high competitive performance (i.e., high productivity, high quality, stable profits) over a prolonged period of time in an industry that has relatively stable product architecture (i.e., formal aspects of product designs). "Organizational capability" here refers to an organization's distinctive ability to sustain a competitive advantage over its rivals. Each competitive company-such as Ford, Toyota, Volkswagen, Honda, and Hyundai-has its own organizational capability, a system of distinctive organizational routines (Fujimoto, 1997, 1999).2. Competitive Characteristics of the Automotive IndustryWhat we need for an effective inter-industrial competitive analysis is a generic analytical framework that is applicable to a wide range of different industries. One such analytical framework is the "organizational capability" framework mentioned above. Another is the "product architecture" framework, which refers to the patterns of correspondence between the functional and structural elements of an artifact's design. A product (tradable artifact) with simple one-to-one function-structure correspondence has "modular" architecture, while a product with complex many-to-many correspondence has "integral" architecture (Ulrich 1995).Using the concept of architecture and competitive pressure, we can classify various Japanese industries in the matrix shown in Figure 1.The vertical axis, marked "Competitiveness," uses the concepts of "closed" and "open" to indicate the level of competition within the industry, whether there is international competition, whether the industry is regulated, and whether it is protected by the government. …