We love growth, progress, sophistication, intricacy, complexity. Sometimes we love them so much we can lose sight of the essentials. The evolution of manufacturing in the U.S. is a case in point. Each improvement in technology brought pressure to bear: go faster, make more. In response, manufacturing grew more complex and sophisticated and management more intricate. Yet somewhere along the way the essence of the relationship (producer pleases customer) got lost. At the same time we ended up with the latest technology but a manufacturing mindset almost 100 years old and way out of date.

Prior to 1840, most enterprises -- be they farming, lumbering, mining, construction or manufacturing -- were relatively small, privately-held operations. The owners (usually a family) had no difficulty administering all aspects of their operation themselves. Relationships with customers were personal and face-to-face.

Then came the railroad system developed in the mid 1800s. This new technology revolutionized distribution, placing real pressure on enterprises to become more productive in order to keep up. At the same time, the railroads made unprecedented levels of production possible by enabling a large and steady flow of raw materials into these production units. But traditional enterprises simply did not have the organization, energy and machinery necessary to keep pace with the new possibilities.

After 1850, home workshops and traditional crafts were left behind and factories took over much of the production. First coal, then oil, and finally electricity provided the energy to drive these new mass production units. Along with cheap, reliable transportation and cheap energy came the telegraph, speeding communication and putting more pressure on manufacturers to speed up as well.

To manage these new high-tech operations, new forms of organization and oversight were developed. Managers began to pay close attention to something called cost accounting. To make it easy to account for labor and raw materials, they began organizing similar operations in departments.

Steel baron Andrew Carnegie was a firm advocate of such methods of cost control. "Watch costs and the profits will take care of themselves," he insisted.

To get that kind of control, Carnegie hired William P. Shinn, a former railroader, to implement the voucher system of accounting long used in railroads but never tried in manufacturing. Under the voucher system, each department listed the cost of labor and materials per order.

In this way, Shinn was able to satisfy Carnegie’s obsession with costs by providing him with daily breakdowns.

The technical organization of plant facilities was the next big hurdle. Carnegie hired a brilliant engineer named Alexander Lyman Holley who maintained that the design of the works and the quality of management were as important as the machinery itself in increasing velocity of throughput. Holley was especially interested in avoiding the wastes in re-handling or any other kind of interference between one operator and another.

At the turn of the century, accounting methods were developed to determine indirect costs, or what was called the "factory burden," and in allocating both direct and indirect costs to products. Others invented ways to obtain standard costs based on standard volumes. In this way, increased unit cost incurred by running below standard volume was seen as the "unabsorbed burden." (Notice that these approaches took for granted that there was no such thing as over-production.)

While factory managers were locking in place these organizational structures and accounting practices, more pressure came along in the form of more technological innovation. In this period, the focus was on three areas: sustained development of multipurpose machine tools, improvements of metals in cutting tools to increase speeds, and increased use of power to move materials from one stage of production to the next. Each improvement increased energy use and capital investment. The family-owned enterprise had come a long way toward complexity.

These new technologies were used most cleverly in automobile manufacturing. Henry Ford was the first to fully utilize them in creating his own innovation, the moving assembly line. Labor hours required to make the Model T dropped from 12 hours and 8 minutes to 2 hours and 35 minutes! (Chandler, 1977) This innovation made mass production king of the hill in American and indeed in world manufacturing.

Since 1913, many innovations have been introduced in manufacturing technology. Yet none of these have altered the underlying structure and orientation of the system, which remains in many ways a product of the 19th century: obsessed with costs, pressurized into going faster and making more. It was not until 1973 that Toyota Motor Manufacturing really changed the orientation of the system. Beginning about 1948, Toyota began to focus on a new paradigm in manufacturing technology, "just-in-time" production. This deep change required Toyota to rethink every single element of manufacturing technology, with the driving force being quality to the customer.

Just-in-time means the product will be delivered to the customer exactly when the customer expects it to be delivered. It is from this point that the system works backward. Every single part, machine, team member, manager, etc. works with just-in-time patterns. This is where the orientation of mass production changes. We need standard inventory control devices, we need "u"-shaped machining cells, we need visual management -- concepts that work in a systemwide pattern.