Midori Hokuyo, Yamagata, Japan
The Midori Hokuyo tannery in Yamagata, is the only remaining automotive tannery in the home of automotive supply chain excellence. It aims to prove that many of the quality and continuous improvement initiatives to have come out of automotive manufacturing can work well in the production of leather.
Industrial group Midori Anzen is best known in Japan and overseas as a leading safety goods company, making helmets, workwear and safety footwear. It still makes some of its high-end shoes on home soil and, at first glance, it may look as though this is the reason why it continues to run its own tannery in Yamagata, a city 400 kilometres north-west of Tokyo. But it’s not the case. The leather division, Midori Hokuyo, is a big operator in its own right (it accounts for around one-third of total group sales), with tanneries, cutting plants or sales offices in Brazil, China, Mexico and the US as well as Japan, and its specialism, at least for the last 35 years, has been automotive leather.
Midori Anzen bought the facility, already a functioning tannery, in 1968 but waited ten years before switching its production to automotive leather. Its customers are mainly Japanese automotive brands, including Toyota, Nissan, Honda, Mitsubishi, Subaru, Mazda, Suzuki, Daihatsu, Acura, Infiniti and Lexus. Of course, these are companies that run automotive plants in many parts of the world now, which is why Midori Hokuyo has the geographical spread it does. It has more than 2,200 employees in Guangzhou in China, for example, compared to the 420 in Japan (divided between the tannery in Yamagata and a design team and commercial office in Tokyo). The Brazilian and Mexican operations have, respectively, 865 and 950 employees. But the facility in Yamagata is at the core of all this, with the tannery operating as the “mother” plant and the research and development team there carrying out investigations and examining new ideas on behalf of all.
The Midori Hokuyo tannery processes 7,500 hides per week, from which it produces 375,000 square-feet of finished leather. It works only with bovine hides, and only from wet blue or crust, having ceased operating its own beamhouse ten years ago. Currently, it brings in material from South?America, the US, Australia, Europe, South Africa, Japan and other parts of Asia.
Japanese material comes as wet blue or wet white from a tannery in the west of the country. Its grade A material is very good, executive director and general manager, Toshikazu Suzuki, says, but he points out that, in general, Japanese cattle is better for meat than it is for leather. “It has a very thin grain and too much fat,” he says. “Japanese consumers like their beef to be tender, so it has a lot of fat. Unfortunately, that means the hides are fatty too.” Plus, the numbers are relatively small, with an annual slaughter rate of 1.2 million head of cattle (fish is the most important component of the national diet).
Managing director, Sho Sasaki, views the cost of raw materials as something over which Midori Hokuyo can have no control. “I can read the market,” he says, “and if I can, I like to buy ahead of time when the price is going up, without accumulating too much inventory. But we are part of a supply chain and we cannot interrupt the flow. We cannot allow a situation to develop in which we are preventing our customers from making their products and that’s more important than price. We would have to bring in wet blue by air rather than interrupt the supply chain. Too much inventory would be the second-worst thing that could happen because if the market goes down you lose money.”
Almost all the leather the Yamagata tannery produces, around 90%, goes into automotive seating and for steering wheels, with the other 10% being consumed by niche products in furniture and leathergoods. One of these specialist products is a range of attractive, old-fashioned school satchels, a traditional gift that parents or grandparents give to children starting elementary school at the age of six or seven. They are expensive, costing up to $600, but they mark something of a rite of passage for many Japanese families and, because they are well made, will typically last until the child goes to junior high school.
Japanese automotive mentality
The supply chain efficiency and effectiveness philosophy to have come out of the Japanese automotive industry, particularly Toyota, in the second half of the twentieth century has filtered into most manufacturing sectors. Supply chain and quality professionals in every part of the world drop into everyday conversation Japanese terms such as Kanban (signalling that more components are needed for the production line to keep flowing), Kaizen (continuous improvement) or Muda (waste). It’s no surprise that this mentality and the just-in-time principles it underpins are also part of Midori Hokuyo; Toshikazu Suzuki worked for a major automotive company for many years before turning his hand to leather. Another philosophical term he brought from the automotive industry is Mieruka. Perhaps less widely used, this one means using visual signals to communicate information along the production line.
The tannery has its own quality control circles (QCCs) and everyone has the right to make Kaizen proposals. Chief standards officer, Goro Yamada, who chairs QCC activity, is currently fielding 200 Kaizen suggestions from the shop floor every month. There is a monetary reward for any idea that goes into practice as, on average, 10% of these ideas do. One recent example was a suggested solution to the problem of a loss of yield resulting from having to print some of the embossing that cannot be sprayed on Midori Hokuyo leather. “If you don’t mind, I would rather not say what the answer is,” says managing director, Sho Sasaki. There are group-wide activities involving QCC experts in the 16 other Midori companies and a circle of 10 or so people from the different divisions of the leather division to encourage colleagues in all its plants to adopt good ideas from any individual factory.
He explains that one of the consequences of applying automotive supply chain principles to a tannery is safety. “If we can’t supply leather, we interrupt the whole supply chain,” he says, “and, today, the biggest risk to that is safety in the workplace: fire or other damage to people or equipment, and so on. So we have to pick up any sign of risk that could compromise safety. So, every month, every worker on the factory floor without exception, and there are 300 of them in Yamagata, has to come up with at least one proposal, no matter how small, on how to avoid risk.”
Another initiative to have come out of this is 5S. You achieve safety (in truth, the sixth S, and the objective of the exercise), if you have on the shop floor Seiketsu (good hygiene), Seiri (orderliness), Seiton (tidiness), Seiso (keeping work areas clean) and Shitsuke (good manners and good discipline).
As all other suppliers to automotive companies know, another consequence of specialising in this market is that the customer expects additional efficiency and lower costs every year. And, meanwhile, the suppliers themselves have to find a way to keep paying the bills and, if possible, keep growing. “We could have taken everything outside Japan,” Mr Sasaki muses, “for cost reasons. But we don’t want to give up production in our homeland. The knowledge and continuity are very precious, and once they are gone, you can’t get them back.”
State of the Japanese car industry
As mentioned above, Japanese car brands have plants all over the world now, to save logistical costs and have finished vehicles ready at the various points of consumption that they believe can deliver good growth. They also have concerns about what fluctuating and unpredictable currency values can do to their results. But Japan is still a big market too and Toyota has committed publicly to keeping the production of a minimum of three million vehicles a year in its home country. Nissan has made a similar commitment on one million vehicles.
Across all brands, Japan is producing around ten million cars a year on home soil at the moment. These companies still carry out much of their research and development at home, so it’s often the case that they carry out initial production of new models in their domestic plants. And for all these reasons, Midori Hokuyo, as the last automotive tanner Japan has left, feels it will have a role to play for years to come.
“Having the tannery here means our customers can have a quick response and a quick delivery and this gives us a small advantage,” Mr Sasaki explains. “Our design team in Tokyo focuses on colour, on perforations and on stitching and aims to show the brands what a seat can look like. We give each company a presentation once every year to make these design ideas available to them and to offer value-add that it’s not so easy for our competitors to imitate. But our labour costs are high (and we know because we have real data from our plants in China, Brazil and Mexico) so we need always to be competitive. We have to keep improving or we will lose business. They’re not going to keep doing business with us just because we’re Japanese.”
He says that anywhere you have mass production you have room for continuous improvement. Investment in the right technology can help reduce labour costs and save time. If you save time you save inventory and if you save inventory you save money. One recent example at Midori Hokuyo is a new drying system initiated in May 2011. It’s not as easy as it sounds, though. Apart from the cost of investing in new technology, automotive customers insist on giving their approval. Uniformity is important to them and they want to know for certain that articles they have assessed and commissioned will continue to come out looking, feeling, smelling and measuring the same as before.
Chemical and machinery suppliers
Most of the big leather chemicals manufacturers do business with Midori Hokuyo and the company intends to keep the supplier list long. Toshikazu Suzuki says some chemical suppliers have worked closely with automotive manufacturers to work out exactly what is required to make the leather the car companies want for the upholstery for each model. Then the chemical manufacturers seek to sell to tanners an entire “system” for particular models. Midori Hokuyo says it prefers to work out for itself the best way to meet customer requirements. “We view having our own recipes as a key to our competitiveness,” says Mr Suzuki. “We don’t want the chemicals companies to tell us how to make our leather.”
For machinery, too, he wants to keep “buying from everybody”. And he wants to continue to invest if the technology will genuinely give the tannery better results, better quality leather, soft, but with no loose grain, and as big a yield as possible. So performance-against-cost is the discussion he will always try to have with the machinery manufacturers. If they can help him achieve what he wants to achieve, he says he will buy. When it replaces machines, the company seeks to sell the old ones. If it can’t find a buyer, it separates out the components for recycling.
Environmental concerns on the doorstep
Midori Hokuyo’s location is interesting. The tannery is on the outskirts of Yamagata City and is surrounded by farmland where, mostly, vegetables and rice grow. But the surrounding high mountains are easily visible with the naked eye from the building. These include Mount Zao, the most active volcano in the region, but a popular area with visitors from all over Japan and from overseas for winter sports. It’s more than 1,800 metres high. Mount Gassan, on the other side of the tannery is even higher (by a few metres) and also attracts skiers and snowboarders in spring (it usually has too much snow in winter to be accessible) and hikers in the summer. Knowledge of these mountains and of the national park areas around them is high inside the company: chief standards officer, Goro Yamada, is an official mountain guide, taking tourists up Mount Gassan in his spare time. In 2012, he organised a trip up the mountain for workers in the tannery and 20 people joined the party. The fauna and flora, as well as the views, are worth the effort he feels. Antelope are a common sight and he has found himself no more than 20 metres from bears on occasion.
The Sakasa River runs right beside the tannery, with a small dam used for irrigation of the agricultural fields that surround the site. There is a mix of trees planted along the perimeter of the tannery with a seemingly random, but entirely deliberate, distribution of species so that no two trees of the same type are beside one another. The company’s policy is that this is nature’s own defence because problems of disease or infestations of insects are far less likely to spread from one species to another. It’s proud of having chosen this way to mark its boundaries, rather than use a fence or a wall.
Once a year, local farmers and other representatives of the community attend a meeting at Midori Hokuyo. They watch a presentation of what the company has been doing, with results of effluent analysis and so on, and have the chance to raise any concerns they have. “Rice fields are very sensitive,” Toshikazu Suzuki says. “No pollution would be tolerated.” Managing director, Sho Sasaki, points once again at the mountains that form the backdrop to this area, and says: “We simply cannot mess up this environment.”
Yamagata is in the same region, Tohoku, as Fukushima, where cooling systems at nuclear power plants failed after the earthquake and tsunami of 2011, which had a confirmed death toll of almost 16,000 people and caused damage to an estimated 130,000 buildings.
Saving energy, a continuous activity at the tannery and at most companies in Japan, has become even more important since the 2011 earthquake. Power-generation from most of the country’s nuclear power stations has still to get back under way, so the country is having to import more oil and gas (it has none of its own) than before the disaster. Inevitably, this is having an impact at Midori Hokuyo. One simple example is in the drying department. A few years ago, it ran five infrared drying compartments all the time. Now it tries to use only what it really needs and has found that three of the five compartments are enough in summer and four in winter.
Local people are keenly aware of the vulnerability of the earth. Like many local businesses, Midori Hokuyo was a donor to survivors affected by the devastation. And it acts locally too. Once a year, the workforce goes out into the surrounding countryside to pick up litter and clear clogged up ditches. It sponsors a local semi-professional soccer team.
In terms of sports participation, being part of a bigger group means there are tournaments in which different Midori companies compete against one another. Volleyball is popular, so are snowball competitions in winter. Once a year, in summer, all employees and their families are invited to attend a company picnic.
More competitive
Sho Sasaki’s opinion, formed by hearing group president, Fujio Matsumura, repeat the message frequently and forcefully, is that what makes Midori Hokuyo stand out is that its closeness to the Kaizen culture of the big Japanese automotive firms has enabled it to make their commitment to quality and constant improvement part of his company’s way of working. “We are trying, through small individual Kaizen activities and our QCC initiatives, to be the best cost-performing tanner in the automotive sector,” he says. “Having the workers think about this so deeply, and the ideas they come up with as a result, is helping to make us a better company. We know that if we are not as competitive as we can be, we will not have a future. Quality is very important, but we have to be thinking all of the time of ways to become more competitive. This is the culture of the automotive industry and is, therefore, our culture, and as long as the Japanese automotive companies continue to make cars in Japan, we will keep this going.”
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