The following is an excerpt from the book The Toyota Product Development System, by James M. Morgan and Jeffrey K. Liker, published by Productivity Press. It is the first of a series of three articles on lean manufacturing.

“There is nothing wrong with a company that great product cannot solve.” Carlos Ghosn, CEO, Nissan Motor Co.

In 1990, the book The Machine that Changed the World, by James Womack, Daniel Jones and Daniel Roos, took the automobile industry by storm, providing irrefutable proof that Japanese automakers were simply better than their European or U.S. counterparts. In fact, they were not a little better, but a lot better-two to 10 times across a range of performance metrics. Along with subsequent works on the Toyota Production System (TPS), The Machine sparked a revolution in manufacturing that crossed both national and industry boundaries, spawning a multimillion dollar consulting phenomenon that has made lean manufacturing the most important development in manufacturing of the past two decades.

However, as the authors of The Machine are quick to point out, only one chapter of their path-breaking book focused on manufacturing. The book is really about the lean enterprise, which includes marketing, distribution, accounting and product development. Yet, most company transformation efforts have focused almost exclusively on the manufacturing shop floor, a logical first step that more than a decade of experience implementing lean supports. But, we also have learned from this experience that the shop floor is only the starting point. The transformation into a lean enterprise requires a second step: moving upstream to the development of products and processes. As many companies have discovered, there is only so much waste that you can squeeze out of production before the engineering of the products and processes becomes a critical constraint. Indeed, product and process development can have an even bigger impact on lean enterprise than lean manufacturing.

The reason for this is simple: There is much more opportunity for competitive advantage in product development than anywhere else. Two underlying factors support this premise. First, whereas the performance gap in manufacturing is closing, the gap between best in class and the rest of the automobile industry in product development is increasing. Furthermore, although most companies have made significant improvements in manufacturing since the late 1980s through the introduction of lean manufacturing methodologies, current levels of manufacturing efficiency portend that a focus on manufacturing will have diminishing returns in the future.

Secondly, manufacturing’s ability to impact vehicle sales performance is inherently limited. While a strong manufacturing system can affect quality and productivity, the ability to impact customer-defined value as well as vehicle investment and variable cost is clearly much greater early in the product’s development process and decreases as the development program proceeds toward launch. And manufacturing can do little to reduce development costs or the timing of vehicle introduction relative to competitors, features, technology, or styling. Furthermore, manufacturing has little role in the initial selection of component suppliers. Given that most vehicles have greater than 60 percent supplier content (a common trend in other industries as well), supplier contribution to engineering and manufacturing, and, consequently, supplier selection, has a huge impact on overall vehicle cost and quality.

Ultimately, as Toyota and others have clearly demonstrated, though manufacturing capability is paramount, it is only one functional discipline. Success requires that a variety of complementary disciplines be equally effective, including manufacturing, purchasing, engineering, finance, human resources and design. Given the dramatic changes in the automotive product development environment, it is obvious that a strong product development system is a crucial core competence and fundamental to the success of any consumer-driven company. The growing complexity of the modern automobile, along with the changes discussed above, make new product development extremely challenging. In today’s hyper-competitive market, excellence in product development is rapidly becoming more of a strategic differentiator than manufacturing capability. In fact, it can be argued that product development will become the dominant industry competence within the next decade.

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