To prepare for a recent talk on work-in-process (WIP) limits, I looked into the history of Henry Ford. Ford was one of the most influential pioneers of what we today call “Lean” or “Kanban.” He was the pioneer of almost all of our current industry thinking and was an original thought leader in how modern practitioners put to use Agile software development. What struck me most about Ford was how he exemplified the thinking processes behind the Theory of Constraints (TOC) in most of his actions.
Theory of Constraints in Action
Ford and his team (many claim that others created some of these ideas, but that’s for another story) developed a production line and improved upon it, first by making it a moving production line to keep the focus on flow. Initially, he used a winch and a rope to move the conveyor belts to pull the vehicle and to deliver parts to workers. This simple change alone saved hours, as workers no longer had to drag their tools along the line of static vehicles as they were assembled.
Ford reduced the average time to produce a car from over 12.5 hours to just 93 minutes. At one stage, the production line for the Model T took 12.5 hours, but over a five-year span, Ford reviewed every procedure and cut the production time down to an astonishing 93 minutes. This resulted in the elimination of 11 hours of waste from what already was considered an efficient and profitable system.
Ford cut nearly 90% waste out of an already efficient and profitable system. Was it really that big of a deal? Yes! In 1914, Ford produced more cars than everyone else; not just more cars than his competitors but more cars than all of his competitors in the world combined.
He also produced more with far less. Ford employed 13,000 employees, while his nearly 300 competitors combined totaled around 66,000 employees. The productivity of Ford’s employees was five times greater than the rest of the industry average.
Continual Improvement
It seemed like no improvement was ever good enough for Ford, as he was continually pushing for the next improvement and did so over a five-year span of asking “What’s next?” Ford identified every bottleneck and then the next bottleneck became an obsession with him in pursuit of improving flow.
Fighting Against Local Optimization
But Ford was not understood by his peers, whose focus was on local optimization. Even Ford’s own sales team couldn’t understand his desire to simplify the design or reduce the price, as they wanted options and variety.
Ford's goal was a car that was affordable to everyone. Over the years, Ford reduced the price of the Model T from $850 (approximately $22,000 in current terms) to just $265, which was less than three months’ wages for his workers. His vision was to have a car available to everyone, but especially farmers, and the Model T was designed to be an effective farm tool that could easily convert to farm equipment.
I will build a car for the great multitude. It will be large enough for the family, but small enough for the individual to run and care for. It will be constructed of the best materials, by the best men to be hired, after the simplest designs that modern engineering can devise. But it will be so low in price that no man making a good salary will be unable to own one — and enjoy with his family the blessing of hours of pleasure in God’s great open spaces.
— Henry Ford
People Problems
One of the biggest issues that Ford faced was with his workforce, as his factory workers were unreliable and his new method of simple, repetitive tasks with a desire for rapid growth meant he had high turnover and lower-quality workers.
The manual processes Ford devised for assembling the Model T were not complicated, and those processes benefited from training and consistency; however, the lack of reliability and consistency of workers was an issue for him. His solution was to double the average pay of factory workers. Ford offered $5.00 per day, he reduced the working day to eight hours and the working week to five days, and he offered a form of tenure (on his terms) to all employees.
Ford quipped that it was the best cost-savings decision he ever made. This led to a massive reduction in turnover and the cost of training plummeted and productivity soared. Even more, a real marketing bonanza because his workers could afford his cars.
Blunder or Crime?
Ford's employment decisions were national news. Much of the press criticized his decision, seeing it as a social policy rather than a sound business decision. The press seemingly had no comprehension of the TOC or system-level thinking. They believed he was hurting business, with one major paper calling him a “traitor to his class,” and commenting that he shouldn’t bring “biblical or spiritual principles into a field where they do not belong.” The paper went further, suggesting that paying factory workers that much “was a blunder, if not a crime … against organized society.”
The criticism seems harsh for a man who just wanted to pay people a little more so he could build cars. Ford had the last laugh though: employee turnover declined radically, and profits doubled from $30 million to $60 million in 1916, just two years after the policy was introduced in 1914.
Back to Black?
Any customer can have a car painted any color that he wants, so long as it is black.
— Henry Ford
I find this the most interesting story of all. Some say it is simply a myth, as the Model T was actually available in many colors over the years, but others say it was a metaphor for Ford's policy of being Lean. Still others proclaimed that it was a metaphor for his dominance in the field and how he could dictate what customers wanted.
Ford claimed he made the statement in 1909, and yet he didn’t limit production to black until 1914 and, oddly enough, in 1909 you couldn’t get the vehicle in black, as it was not one of the six color options available. However, in 1914, Ford did restrict the option only to black, and it remained that way for 14 years before expanding to 14 color options just before the Model T was replaced with the Model A.
Some have written that the decision to limit to black was a cost-savings exercise, with a suggestion that the unit cost of black paint was less than the color options, but I have been unable to validate that claim and frankly find that hard to accept. Unit cost considerations have not played a part in any of Ford's other major decisions, and the wage decision was a clear example of how flow was far more important to him than unit cost. Cost savings were a consideration at a system level only and certainly not a factor if it impacted flow.
It’s All About Flow
Applying Lean thinking to the situation, I believe Ford would have switched to black even if the unit cost had been significantly higher. The Japan black paint Ford used was completely different than the other paint methods available at the time and had two distinct qualities that would have appealed to Ford. First, it dried to the touch very quickly, and second, it baked hard in 48 hours compared to 14 days for other colors. Because the paint dried more quickly, it would improve flow, enabling a production line to complete a car every three minutes (with three minutes effectively being the slowest process on the line).
Reduce Inventory and Reduce Lead Time
By switching to Japan black, Ford was able to ship more and at a faster rate. Being able to ship cars from the factory 12 days sooner than previously possible was massive. This allowed Ford to reduce WIP and, more significantly, it enabled him to reduce his inventory of finished goods by 85%. In 1914, at any given time, he would be sitting on more than $5 million (retail value) of stock. That decision would have been an instant injection of over $4 million (more than $100 million in 2017 terms). By 1923, if he had still been offering colors other than black, that inventory cost to would have been more than $30 million ($750 million in 2017 values). This doesn’t include the space needed to store 80,000+ vehicles while the paint dried.
In essence, the decision to only offer the Model T in black was a decision in excess of $750 million in today’s terms, and yet very few people understood the ramifications of the decision, and many opposed or ridiculed it.
What is Productivity?
Business is based on a lot of numbers, figures, and ratios and it was no different with Ford. The improvements that Ford made to flow, cycle time, and lead time all went straight to the bottom line. This was accomplished by focusing on flow rather than local optimization, and by focusing on the throughput of the whole system rather than on keeping one worker busy. Ford was able to get his workers to be five times more productive than the competition by doing less work.
Thinking is the hardest work there is, which is probably the reason why so few engage in it.
— Henry Ford
Ford showed that the correlation between effort and productivity is a myth, and it is about working smarter not harder. He passed his efficiencies and windfall on to the customer; as his productivity went up, the price of the Model T came down. Eventually, the priced dropped down to just $260 in 1925, a mere $3,600 in 2017 terms. He had accomplished one of his major cornerstones, developing a car truly affordable to the masses.
System Thinker
Ford seemed to understand systems thinking and the TOC long before either were recognized, and he did so at a level that few of us will ever be able to comprehend. Even more, he did so in the face of public criticism and private pressure that argued against and vocally opposed his way of thinking.
Ford’s actions changed not only his own organization but the entire industry and overall US economy. He balanced profitability with altruism, even though some of his values and politics were questionable, and some of the rules he imposed on his workers would be unthinkable today. But he can be considered the pioneer of Lean, Kanban, and the TOC, and everything since then has been built on the foundation he laid.