Japan’s reputation for flawless manufacturing quality and efficiency transformed the country’s post-war economy, changed business practices world-wide and spawned a library’s worth of management manuals. Now, that model is cracking.
Kobe Steel Ltd., Mitsubishi Materials Corp. and Subaru Corp. have all admitted in recent months to manipulating quality inspections, though all say no safety problems emerged. Takata Corp. declared bankruptcy last year after admitting to supplying more than 50 million defective vehicle air bags in the US Mitsubishi Motors Corp. has admitted covering up vehicle faults and falsifying fuel-economy data.
Nissan Motor Co. the world’s fifth-largest auto maker, disclosed in September that its Japanese factories let unqualified employees perform final quality inspections on some cars, a practice that might date back to the 1990s. During audits, foremen routinely provided trainees with badges from certified inspectors, the company said.
Because results from new-car inspections are recorded on paper and stored in binders, it was nearly impossible to determine how many cars were affected, according to one person familiar with the process. Nissan recalled 1.2 million vehicles in Japan—nearly everyone it produced in the three years through September. It says safety was never compromised.
Corporate wrongdoing occurs the world over, but Japan’s scandals cut to the core of what has kept Japanese brands popular, as well as the country’s perception of itself. Japanese brands, once a byword for quality, score well on many quality surveys, but American car makers have bested them in the past two years in J D Power’s Initial Quality Study, and makers of other products are also catching up.
The scandals threaten to accelerate an erosion of Japan’s global market share for manufactured goods, handing main rival China further momentum in its march toward becoming the world’s largest economy. They also call into question one of the world’s most influential theories of management and manufacturing.
Japan’s model, celebrated in publications such as Harvard Business Review, hinges largely on the concept of kaizen, often translated as “continuous improvement.” In practice, it means eliminating unnecessary activity, reducing excess inventory and using teamwork to fix problems when they arise
It places enormous responsibility on line workers at the factory-floor level, known as the genba, to manage daily operations and generate innovation. Those workers, viewed by many Japanese as craftsmen, have traditionally been guaranteed jobs for life in return for dedication to their company’s goals.
In one oft-cited example, individual workers at Toyota Motor Corp. were given authority to pull a cord to stop the assembly line whenever they spotted a serious problem. Errant screws or tools on the factory floor were seen as major lapses in discipline, and corrected.
The problem today is that many Japanese companies can no longer afford the luxury of guaranteed lifetime employment for craftsmen on factory floors. And delegating so much authority to line workers has left companies exposed to fraud and corner-cutting, while giving executives room to shirk responsibility, according to management consultants and corporate lawyers.
“The genba has been broken,” says Hideaki Kubori, a Tokyo lawyer experienced in handling corporate scandals. The inability of companies to fully control it has resulted in a “kind of crisis” for Japanese industry.
Kobe Steel, based near Osaka, makes high-end steel products for trains, cars and rockets. It recently admitted to faking quality-certification documents for hundreds of thousands of products for more than 500 clients.
An internal company report completed in October found that line workers were overworked as the company tried to maintain profitability, and executives were out of touch with the factory floor.
Problems intensified during busy periods, says Takashi Ueda, a 24-year-old who works for a Kobe Steel subcontractor and makes final quality checks on wire used in car engine springs. When delivery pressure was tight, he says, Kobe Steel employees approved products he told them might fail to meet required standards. 'There are occasions when we are forced to prioritize a quick shipment over quality,' he says.
One Kobe Steel employee who has worked for the company for three decades, as a factory manager and at headquarters, says pressure started to build on the genba after Japan’s bubble economy burst in the early 1990s.
Quality-checking staffers became some of the first targets of layoffs because they didn’t appear as busy as production-line workers, he says. Line workers were told to make quality checks themselves, he says, and some checks were outsourced after the company suspended hiring.
Workers involved in data falsification felt they had no choice because they needed to keep production moving, he says, and customers with urgent orders sometimes accepted products that didn’t meet specifications.
Kobe Steel said in a written statement that pressure from management to achieve profits and meet production deadlines was one of the root causes of misconduct. The company said it has commissioned an independent investigation to provide recommendations for reform.
Kobe Steel acknowledged in a November report that a “closed culture”—one in which factory workers dealt with problems themselves, often without senior executives in the loop—contributed to its scandal.
“It’s beyond my imagination how broad this problem has become,” Chief Executive Officer Hiroya Kawasaki said in an October press conference.
On Dec. 21, Kobe Steel demoted three heads of business segments it said were aware of data falsification as far back as 2009. Kobe says it hasn’t found safety problems in most products it shipped, but is still investigating.
Japan remains a manufacturing powerhouse. It ranks No. 3 in manufacturing output, behind China and the U. S. and just ahead of Germany, according to United Nations data.
Some $700 billion of Japanese goods are exported annually, mostly machinery, cars and parts such as screens and memory chips for iPhones and aircraft fuselages for Boeing Co. Japanese-owned factories are also a force in the U. S., making products for brands such as Nissan and Toyota in Kentucky, Texas and elsewhere.
Powering Japan’s industrial might was a manufacturing model forged after World War II, when its companies sought to rebound by improving products for global buyers.