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How Do the Japanese Do It?

While this is being written before Congress has taken action on the requests of the Domestic Three manufacturers, regardless of what has-or hasn't happened-the questions remain: How do the companies avoid getting back in this position? What have the Japanese done to be positioned appropriately?

While this is being written before Congress has taken action on the requests of the Domestic Three manufacturers, regardless of what has-or hasn't happened-the questions remain: How do the companies avoid getting back in this position? What have the Japanese done to be positioned appropriately?

We have been studying Honda's, Nissan's and Toyota's migrations to the U.S. specifically in R&D and engineering. With this study I have realized what the elements of culture difference truly are that make the Japanese companies so world class at quality and efficiency. All three of the companies started out with a very different philosophy when entering this country, but interestingly have now merged its thinking (not admittedly to anyone) to a very similar approach.

Honda was always much more entrepreneurial than the other companies and allowed its engineers and researchers to be creative in order to develop the best product for the customer. However, when it entered this market it immediately began to treat the U.S. as a market that was equally important as the Japanese market. Then as sales in the region grew, so did complexity and product mix. As this growth occurred, it became critical for management to restructure the business in the mid 1990s to focus more on a centralized approach for vehicle architecture and design of platforms with regional support to the portfolio, as well as responsibility for regional derivatives. Honda grew its organization and support system faster than the other companies because it viewed the North American market differently than the others and showed its commitment by growing and localizing suppliers and manufacturing more quickly.

Nissan was very different in its early years in North America because it was much more like a Ford affiliate than even it wanted to realize. It used the Ford joint venture and relationships to develop its supply base and its structure for operating in the U.S. As time went on and the relationship with Ford changed, Nissan had to figure out how to utilize the U.S. effectively and grow the business. It began a similar approach of designing and engineering the vehicles in architectures and portfolios with regional differences as necessary for the market. It struggled a little more than the average company in the ‘90s because of financial health and poor management. When Carlos Ghosn took over, big changes began to occur, starting with the elimination of several senior managers at the top of the company that eventually were replaced with young, aggressive team members.

Toyota was slow and methodical as it always is with execution. It started in this country first with NUMMI and learned from those lessons and gradually expanded its operations to include a R&D and engineering center in Michigan. But unlike the others, Toyota used from the beginning the approach of a centralized portfolio design and engineering.

The key to the process for all of the three Japanese companies is important. Most domestic companies design and engineer a program off a platform and all the costs for capital, plants, material, etc. are allocated to the program. The Japanese companies have a group of engineers in Japan that are responsible for designing the core architectures and majority of the vehicle. Then the regions are responsible for the derivatives off of the architecture. This is why they are able to claim that vehicles are fully designed here in Michigan or Ohio. The core is done and all the local group has to do is modify it appropriately for the region it is planning to produce the vehicle in.

What's more interesting about this approach is that the companies no longer allocate capital spending to the program itself. It invests generically in equipment and plants that fit the global footprint of the company. Then the vehicle design becomes solely about the systems and integration of that vehicle or derivative. Can you imagine that? Not having the plant where the vehicle will be produced as part of the budget of the program. Or, having the tooling so generic to produce any vehicle in the architecture that it isn't allocated to just one program for expense.

This is the kind of cultural differences we are alluding to when we talk about the Domestic Three versus the Japanese. Its lean thinking is simply different from the domestic companies. The other significant method that has gotten all of them to the position it are in today is the concept of obeya. This concept allows senior management of a cross-functional group to set the policies and procedures for the platform or architecture way up front of the process. These become the bible and all areas below must work with the limitations of the bible. As a result engineers are given the freedom and latitude to operate in this box as long as they stick to the policies. Each company has a gate keeper to monitor these activities, but the approach eliminates the need for excess communication and time to solve problems. When people talk about the Japanese companies being the best, please don't misunderstand the thrust of those comments. It is way bigger than quality and efficiency-it's about major cost differences that are yielding them profit in today's environment. 

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