No One Does Lean Like The Japanese

Two years ago, Matsushita Electric Industrial Co.'s factory in Saga, on Japan's southern island of Kyushu, was looking mighty lean. The plant had doubled efficiency over the previous four years, and machinery stretching the length of the spotless facility could churn out cordless phones, fax machines, and security cameras in record time.

But Matsushita officials still saw fat that could be trimmed. So the plant's managers, Hitoshi Hirata and Hirofumi Tsuru, ripped out the conveyer belts and replaced them with clusters of robots. New software synchronizes production so each robot is ready to jump into action as soon as the previous step is completed. And if one robot breaks down, the work flow can be shifted to others that do the same job. "It used to be 2 1/2 days into a production run before we had our first finished product. But now the first is done in 40 minutes," Hirata says. "Next year we'll try to shorten the cycle even more."

Japan, of course, has long been a global leader in lean production. Japanese companies invented just-in-time manufacturing, where parts arrive at the loading dock right when they're needed. But now, as these companies face increasing competition from low-cost rivals in Korea, China, and elsewhere in Asia, they're working double-time to stay ahead. And to ensure that they produce what consumers are actually buying, they're rearranging factories so they can quickly shift gears to make gadgets that are hot, and ease up on those that are selling more slowly. "The real challenge for a company like Matsushita is what I'd call the quick in-and-out: Get a product out there earlier than rivals," says M. Y. Yoshino, a Harvard Business School professor who co-authored a case study on Matsushita last year. "Then when the low-cost manufacturers come in and try to beat them on pricing -- get out."


For Matsushita, Saga is at the forefront of that effort. Kunio Nakamura, who on June 28 stepped down from his position as Matsushita's president to become chairman, has often praised Saga as an example for the rest of the company as it seeks to cut plant inventories in half from 2004 levels by next March. "To get the most from our manufacturing strengths, we must lower inventories," Nakamura told employees last fall. In his speech, Nakamura cited Saga, which now makes a batch of 500 phones per eight-hour shift, vs. 1,500 phones in three days before the most recent changes. While that means Saga can make twice as many phones per week, the company is also trimming inventory costs because components such as chips, keypads, and circuit boards spend one-third as much time in the factory.

Those efficiency gains multiply when you look at the big picture. Saga is a "mother plant," or the hub of an overseas manufacturing network. Weeks after Hirata and Tsuru gave the green light to the new layout, six other Matsushita plants in China, Malaysia, Mexico, and Britain started copying the setup. Most have since been able to cut their inventories and have seen a similar boost in production, today churning out a total of 150,000 phones per shift.

That's just the kind of effort that has helped Matsushita bounce back from a $3.7 billion loss in 2002. The company on Apr. 29 announced its best earnings in more than a decade. And in the year ending next March, Matsushita expects net profit to increase by 23%, to $1.7 billion, on a 1% rise in sales, to $78 billion. Matsushita's recovery "has much that other Japanese electronics firms can learn from," Morgan Stanley (MS) analyst Masahiro Ono wrote in a recent report.

Matsushita itself has learned much from Hirata and Tsuru. They dress in factory-issued bamboo-green zip-up jackets and indoor-only shoes, and twice daily they join most of the 280 employees for calisthenics on the factory floor. But their real focus is on boosting efficiency. Their brainstorming began two years ago, when they discovered that a bottleneck on the assembly line meant that robots sat idle for longer than they were working. So they broke the line into stations, or "cells," that allowed them to double up on slower robots to make things flow more smoothly.

In test runs, the new setup worked, but with so many machines going at once it was tough to choreograph the production process. In the past, a person was assigned to schedule everything from deliveries of supplies to work shifts to maintenance. But that wouldn't fly in a factory that had to be prepared to shift gears for a sudden spike or dip in demand. Instead the managers found software that would do the trick.

The next step was figuring out how to apply the changes globally. With 75 markets to cater to, the seven factories in Saga's group make 35 million phones, faxes, printers, and other products annually. It was a logistical nightmare: There were 1,500 shape and color variations for phones alone, and engineers needed to rearrange as many as 77 circuit-board parts for each new model. Retooling the robots for every type of board was simply too time-consuming, so Matsushita engineers designed a circuit-board that would need only slight changes for each model. Despite the faster pace, Hirata says defects are at an all-time low: under 1% in every factory.

That's not to say there haven't been some speed bumps. For instance, no two factories are the same size, and each makes a different range of models. So when Saga makes changes, it has to experiment with new arrangements at each plant. "It can take up to three months to get it right, and often we ask the local staff for ideas," says Tsuru. That's no problem, as long as the staffers have a good eye for fat.

By Kenji Hall

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