Studying Toyota’s ability to achieve high variety, high quality and low cost at the same time caused Tom Johnson to propose that the concept of economies of scale had outlived its usefulness and should be abandoned.
Johnson referred back to Deming’s work to contrast ‘Management by Means’ (‘those who manage by means consider that a desirable end will emerge naturally as a consequence or nurturing the activities of all employees and suppliers in a humane manner’) with ‘Management by Results’ (‘Those who manage by results focus on the bottom-line target and consider that achieving financial goals justifies inherently destructive practices’). In relation to economies of scale, Johnson said:
‘Contradicting what is said in virtually all operations management textbooks used in American universities, Toyota has demonstrated that it is possible to produce small quantities of product in high varieties at mass production costs. There is no longer any reason to rule out localization of economic activity on the grounds of scale economies. Scale economy, beyond very small volumes, is a concept that should be discarded.’
Johnson, H.T. 2008 ‘Lean Management and True Sustainability’ in the Lean Manufacturing Yearbook 2008, Society of Manufacturing Engineers: Michigan.
Toyota showed that greater economy can be achieved through flow rather than scale. Many people believe that copying Toyota’s tools will lead to similar success in service organisations.
It is a mistake. Not only is that precisely what Toyota didn’t do but, moreover, service differs from manufacturing; in service organisations you have different problems to solve.