Toyota Production System
Lean's founding text by Taiichi Ohno shows that the most celebrated efficiency revolution in business history was circular from the start — and hands circularity transformation its strongest precedent.
Taiichi Ohno
My first impression of circularity, when I encountered it, was how much it resembled Lean. I had done Lean engagements as a consultant earlier in my career, and by then the firm I worked for was promoting Lean well beyond its original reputation as a cost-reduction method. Lean had come to be understood as a path to organizational health, and organizational health correlates with enterprise value. Firms seeking higher enterprise value were advised to try Lean if they hadn't already, in the hope of earning a higher multiple.
Sustainability, meanwhile, was a cost center. As I saw the practice in those days, it was oriented toward mitigating bad behavior rather than creating new kinds of beneficial value, and I doubted its long-term prospects inside any profit-oriented organization for exactly that reason.
So when I found that circularity achieved sustainability goals while closely resembling the method that led to organizational health and enterprise value, I sensed an undiscovered concatenation. My training confirmed the prior: I had been taught to begin Lean engagements with value chain analysis, and that is precisely where my circularity training began too. Ever since, I have written about, spoken about, and tested the proposition that circularity is the logical extension of Lean — what I call Lean 2.0.
This week I went to the source and read what is arguably the Old Testament of Lean: Taiichi Ohno's Toyota Production System. The book confirmed the thesis more literally than I expected.
The book in brief
Ohno wrote the book in 1978, and it offers far more historical context than I anticipated. He was conscious of lineage. He spends a good part of the book on Henry Ford and the Ford process, and on Alfred Sloan and the way General Motors bent the automobile business away from Ford's original principles. Ohno placed Toyota in that sequence: Ford, then General Motors, then Toyota.
The cultural context matters just as much. In August 1945, Toyoda Kiichirō, then president of Toyota, declared that the company must catch up with America in three years or Japan's automobile industry would not survive. The productivity gap was said to be nine to one. Ohno asked the obvious question: could an American really exert nine times the physical effort? Surely the Japanese were wasting something — and if the waste could be eliminated, productivity should rise by a factor of ten. That question was the spark of the Toyota Production System (TPS). It was postwar national pride put to productive purpose, and it was born of necessity rather than abundance.
The other thing Ohno was reckoning with was the world of 1978 itself. The book returns again and again to the "low growth" period — the oil crisis had ended the era when any manufacturer could lower unit costs through mere volume. Fordism ran on pure economies of scale: big lots, standardized product, wringing the most out of every die change. Ohno argued that TPS was uniquely suited to a world where that logic was too rigid to adjust to a low-growth environment. A system built for an age of constraint is precisely what an age of constraint calls for.
An effect mistaken for a cause
The famous numbers in the book concern tool changes. In Detroit, switching dies on a press could take the better part of a shift, which placed a premium on standardization and big lots. Toyota drove the same changeover down to as little as three minutes. That opened the line to different models and variants interspersed with one another, and to the load balancing at the core of how TPS works.
But Ohno is clear that quick changeovers were an effect of the system rather than its cause. Toyota's sales process was far more tightly integrated with production than Detroit's, so Toyota could see that every car is sold one at a time, to one buyer, who regards it as an individual product. Production had to respect that. The system followed from the demand, and the demand was for variety, of kind and in volume.
The two pillars
TPS rests on two pillars. The first, "autonomation" — distinct from automation — is a clever blending of human and machine. Ohno's machines stop themselves the moment they detect an abnormality, which means a worker no longer stands watch over one machine but moves among many. Detroit made people behave more like machines; Ohno's arrangement made people more powerful, more flexible, and more multi-skilled. The dexterity of the worker and the intelligence of the machine reinforce each other.
The second pillar is kanban. Ohno's kanban is distinct from the chart the contemporary lexicon has named after it. In Ohno's meaning, it was a slip of paper in a vinyl envelope that traveled with every part — carrying what the part is, where it came from, where it goes, how many are needed. What struck me is that kanban is metadata for things in the real world. It reminded me of YAML frontmatter in a Markdown document: the object carries its own description and intent. And the discipline had inbuilt limits. Nothing moves without its kanban, defective parts must never be passed to the next station, and the autonomous machines stop on any fault. The effect is that the line has its own reflex — that's the "autono-" in autonomation. The legend that any Toyota worker can stop the line understates the fact — the system stops itself, without requiring judgment or courage at the moment of failure.
Looking backwards up the line
It was Ohno's unique perspective that gave me the book's biggest thrill: a foreshadowing of the reverse logistics that power the Circular Century.
Ohno tells us he has "always tried to view things upside down," and the invention of just-in-time is his masterpiece of inversion. In his status quo ante, the flow supplied materials from an earlier process to a later one. Ohno reversed it: the later process goes to the earlier process and withdraws only what it needs, when it needs it, in the quantity it needs — and the earlier process makes only what was withdrawn. The kanban provides the communication channel. The whole system, from finished car back to raw material, is pulled from the end rather than pushed from the beginning.
Ohno used reverse-logistics thinking to solve for efficiency in forward production. The founding gesture of Lean was to make the factory think backwards — to let the downstream state command the upstream flow. Circularity applies the identical logic one step further: the disposed product, moving back against the current, commanding what gets made, remade, and recovered. That loop was always present, if latently so, in Lean's DNA. It was simply cut short at the loading dock, where the value chain stopped, and where responsibility was handed to the customer and the landfill.
This is why I no longer present Lean 2.0 as an analogy. It is a continuation. The most celebrated efficiency revolution in business history was, at its origin, a circular one.
There is a second inversion worth mentioning. Ohno read Ford's legacy as something to embrace and extend, not subvert. He admired Ford's "brilliant inverse conceptions" — Ford asking whether cotton was really the best material for the job when flax was a locally sourced and better-suited material. Readers of Playing to Win will recognize the perspective. Ohno, and Ford, posed a variation of what Roger Martin refers to as the most important question in strategy: what would have to be true? It is also the reasoning posture Horizons asks of every circularity strategist.
A revolution in consciousness
Ohno offers a curious phrase to describe a sine qua non for implementing TPS: "a revolution in consciousness." Holding inventory was once wisdom — a hedge, a granary. He declares the hoarding instinct obsolete: industrial society must develop the courage, or rather the common sense, to procure only what is needed, when it is needed, in the amount needed. Almost half a century later, I cannot improve on that sentence as a statement of circularity principle.
He also saw that waste compounds — excess workers, equipment, and product generate secondary waste, the cost of managing what should never have existed. We would call these externalities. And notably, when Toyota's method reached its suppliers, Ohno's people went and taught them. Contrast that with the current fashion of burdening suppliers with scope 2 and 3 targets and calling it engagement. The transformation Ohno demanded was a change of attitude before it was a change of tooling — which is, as it happens, the position this letter has argued from its first issue.
We've often lamented that the circularity transformation lacks its Toyota — its emblematic proof of concept. In providing this authoritative portrait of Lean's, we can better understand the standard that circularity's exemplar has to reach.
