In the previous episode, I described how many companies’ embrace of local optima leads to overwork and burnout for employees, and reduced output and profitability for the bottom line.

Before we look at what TOC proposes as a solution, we have to take a brief look at the history of flow, beginning with Henry Ford.

Ford is remembered today mostly for Model Ts and pithy quotes, but his real contribution was the discovery of the Four Fundamental Principles of Flow:

  1. Optimizing flow: The primary objective of operations is to improve flow (also known as throughput, which refers to the number of units that can be produced by a production process within a certain period of time)
  2. Non-production: The key to improving flow is establishing a practical mechanism to determine when not to produce
  3. Abolishing local optima: Local efficiencies (better known today as “local optima”) must be abolished
  4. Focusing process: Improvement must be guided using a focusing process, directed to where it will make the biggest difference at any given time

As Ford’s production and assembly lines swept the world, consuming industry after industry with its unprecedented performance, it was assumed that only very large quantities of identical products could justify the dedication of an entire line.

Assumed by everyone, that is, except a Japanese engineer named Taichii Ohno.


What Ohno realized was that the principles of flow were generic – they could be applied in many different situations.

The genius of Ford’s system was not just its speed and uniformity, but the novel way it was able to limit work-in-process inventory. Known simply as WIP, work-in-process inventory refers to parts that have been partially processed, but not completely, meaning they can’t be removed from the production line.

That might not seem like a big deal, but one of the great discoveries of modern manufacturing is that WIP is one of the greatest enemies of flow. Left unchecked, WIP tends to accumulate all over the factory floor, cluttering up the space, causing accidents and errors, and generally interfering with all the activities that lead to high quality products.

By connecting each work center with a conveyor belt and strictly limiting the amount of space between them, Ford’s system ensured that work-in-process was simply not allowed to pile up. Upstream work centers literally could not produce faster than downstream work centers, since they were literally coupled together by a single conveyor belt.

Ohno saw Ford’s brilliance, but also faced a very different situation: the Japanese auto market demanded small quantities of a variety of cars, not limitless identical Model T’s like the American market. He couldn’t afford to dedicate all his equipment to a big run of a single model. He needed his limited number of machines to be able to quickly pivot to different kinds of vehicles made up of different parts.

And that was where most auto manufacturers in Japan stopped their investigations  –  “It can’t be done!”

But Ohno realized he could achieve the same goal – limiting work-in-process – by a different means. He saw that he could simply make a rule that limited how much WIP was allowed to accumulate between any two work centers.

Based on this realization he designed the Kanban system. Little did he know that his simple invention would become part of a wider system of production that would eventually transform the world even more than Ford’s – Just-in-Time Manufacturing.

But we’re getting ahead of ourselves. How did Ohno’s Kanban system work?

Each container full of parts moving down the assembly line would be accompanied by a small card (kanban in Japanese) that specified how many parts belonged in the container. As the container was moved forward to the next station, its card would be sent backward, signaling the previous station to produce exactly as many parts as were currently being used…and no more.

The power of Kanban was in telling each worker when not to produce. Ohno had successfully translated Ford’s Principle #2 of Non-Production to his own context by changing the constraining mechanism from belts to cards.

Ohno had another challenge to overcome: how to focus the process of continuous improvement (Principle #4).

Ohno’s difficulty was that not being able to dedicate his equipment completely to one model of car made it almost impossible to find the problems that jeopardize flow. There were too many moving parts, too many changes to identify defects in production just by looking.

His brilliant solution was the “rocks and water” system.

He would gradually reduce the “batch size” (the number of parts being worked on at any given time), which was like slowly lowering the water level in a body of water. As long as flow was not interrupted, the operating parameters continued to be slowly tightened: the tolerances between parts were made smaller, the specifications made more exacting, and the required levels of quality more demanding.

Eventually, the “falling water level” would reveal “rocks” (obstacles to flow) lurking below. When one was revealed, special techniques were used to systematically pinpoint, diagnose, and permanently fix the root cause of the disturbance. The collection of techniques Ohno developed eventually came to be known as the Toyota Production System (or TPS), and was later broadened into a holistic philosophy called Just-In-Time manufacturing (or even more broadly, Lean manufacturing).

Another term for “tight operating parameters” is “high quality,” and the resulting improvement in the quality of the finished products this system produced soon astonished everyone who witnessed it. Ohno’s inventions, simply put, ushered in the modern world, making possible everything from cars to soap to TVs to pharmaceuticals to the precisely manufactured device you’re probably using at this very moment.

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