When Toyota first started as a car company, they didn’t have advanced technology, sophisticated facilities, or anything else a new company might want for a competitive advantage. But they realized that if you can eliminate waste and become more efficient you can create your own advantage. And when you eliminate waste, you get environmental and financial benefits together. This idea that grew out of survival has become a tenet of faith at Toyota, where continuous improvement and many modern manufacturing practices were popularized into what is now known as the Toyota Production System or Lean Manufacturing.
Of course, in order to know if you’ve actually eliminated waste, you need good metrics and strategic indicators to give you clear direction when evaluating new efforts against your goals. In this context, a strategic indicator is a measurement or combination of measurements that give you an indication of direction (is the action favorable for your goal or working against it?). While seemingly simple on paper, many strategic indicators begin to break down in the face of operational realities or evolving situations.
When I first started at Toyota, I was tasked with advancing our recycling efforts, which were already well-established (recycling about 30 percent of their waste). At this point we used a facility’s recycling rate (pounds recycled ¸ total pounds generated) to measure how well they were doing. As we reduced landfilled waste and recycled more materials we saw the recycling rate steadily climb with each new improvement. This went on for years and our recycling rate passed milestone after milestone, moving into the 80-90 percent range.
But then we noticed something strange. While implementing returnable packaging (replacing recycled cardboard and wood containers with reusable steel containers), we were reducing a waste that was formerly recycled, and our recycling rate got worse. So our strategic indicator was telling us to not implement more returnable packaging programs, even though every school child knows you Reduce, then Reuse, then Recycle. This indicator that had served us well when we were recycling 30-80 percent of our waste began to break down in the 80-90 percent range, telling us to go the wrong way (“Don’t take that cardboard out of the recycling bin, we need the weight!”). What were we to do?
The fundamental lesson I learned is that every indicator is imperfect. No one number can capture the full complexity and nuance of a real, evolving operation. It’s not that we had picked the wrong indicator to start, it’s that our situation had outgrown our indicator. We were able to correct this quandary because we had three key things:
- Multiple Measurements. While we had chosen recycling rate as our strategic indicator for our goals, we were still measuring our waste management performance in several other ways, too. And just like getting several views of a three dimensional object can help you understand it better, several measurements of the same performance can help you understand the full picture of your operation.
- An Understanding of the Issue. My colleagues and I knew enough about waste management and the 3 Rs to know that regardless of what our indicator told us, reducing waste is always better than recycling waste.
- A Horizon Goal. In our Global Toyota Earth Charter, we are tasked with “pursuing production activities that do not generate waste”. So the end goal is not to recycle everything, but to not generate anything that needs to be recycled (reduce everything). This gave us a strong orientation to what the ultimate goal was, regardless of what our indicator was telling us.
Because we had multiple measurements, we knew the full picture of how the returnable containers were affecting our waste management. Because we had an understanding of the issue and a strong horizon goal, we were confident that we could change our indicator in a principled way (and not just change it because it looked bad). So we continued to replace recycled packaging with durable, returnable containers. And we asked ourselves, “Now, what indicator do we need to be a role model for waste management over the next eight years?”
To find out and for more information on strategic and leading indicators, I hope you’ll join me at NAEM’s 2013 EHS Management Forum on Oct. 23-25. We can continue the conversation in Session 6 at 1:30pm on Wednesday.