Operations Management - Toyota

Introduction

Toyota is the leading manufacturer of automobiles in the World today. Looking back at the history of Toyota, the company was on the brink of bankruptcy by the end of 1949, however Toyota has successfully gained the status of number one car manufacturer in the World and has held onto that status even though Toyota has faced massive hurdles over the past 5 years.

A major factor to the success of Toyota is due to effective Quality Management in the form of company practices that have been replicated all over the World by major organisation’s to date.

Toyota engages a stringent management system based on founding principles of operations management and excellence, such as the Toyota Production System (TPS). By spearheading such programmes, Toyota has enjoyed substantial growth and worldwide success.

Throughout this assignment I shall explore the importance of Toyota’s operations management schemes and measure the relative success of the overall strategic managements objectives.

1.1 The Importance of effective operations management in achieving organizational objectives of Toyota as a leading manufacturer and supplier of automobiles?

Operations Management can be simply defined as the function of effectively and efficiently managing the process of production and business operations both internally and externally.

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A simple definition however does not do justice for the broad scope that encompasses operations management and the vital role it plays in making an organisation successful and competitive in today’s market. Companies that employ a successful operations management programme have strategic planning, tactical input and operational success.
Companies that do not utilise this operations function face difficulties in market trend short sightedness and lack of competitive edge that can ultimately result in a decline of customers, loss of market share and eventual closure of the company.

Operations management as a key strategy can be implemented through all facets of a company, from the front end of the company dealing with the customers, to the process side of the company dealing with developing a product or offering a service. To effectively engage operations management, is to maintain operations excellence, which in turn is the function of remaining consistent and never dropping below that set platform of quality.

Toyota was a relatively unknown entity when it opened its first car dealership in the US in 1957, some 5 decades later it is the Worlds No. 1 automobile manufacturer. Toyota has achieved this greatly in part due to the successful operations management practices pioneered in the organisation. These practices can be seen as a benchmark for excellence and success. Such practices, as the world renowned Toyota Production System or TPS have become a way of life in the organisation. The TPS philosophy is to provide the best quality, lowest cost and shortest lead-time through the elimination of waste. The TPS incorporates an urge for effectiveness within the organisation, this has in turn driven Toyota’s success, by making Toyota effective in understanding it’s customers needs and efficiently and effectively catering for those needs. Corporate goals have trickled down throughout the company being driven by a revolutionary Toyota Production System that has secured an efficient flow of productivity from Toyota’s supply chain, to manufacturing and subsequently catering for the customers needs on both quality and value. This has given Toyota a competitive edge over other car manufacturers and has been a driving force behind its success.

Once an effective quality management system is in place, it is important to maintain and improve on it, Toyota successfully does this through a process called “Kaizen.” Kaizen which literally means “Change” and “Good” is the process of breaking apart the current situation, analysing it and quickly putting it back together, in a better way, i.e. a change for good. With the Kaizen philosophy working hand in hand with the TPS, Toyota has been able to further reduce “Waste” and improve on company processes making the organisation more efficient, more effective and more competitive. Kaizen also encourages employees to be free thinkers, which is part of a decentralised management process that encourages innovation. Kaizen constantly determines new ways to improve on processes, be it in the manufacturing facility, supply chain, identifying market trends or administration processes, kaizen as an operations management function has helped Toyota become a leading manufacturer.

Another technique that can be attributed to successful strategic operations management and is a major contributor to the company’s success is the offensive strategy applied by Toyota. Toyota is a long-term planner, not necessarily responding to quarterly numbers, but rather pioneering the technological advances. A good example of this is with the Toyota Prius Hybrid, which when it was launched in 2000, the price of fuel was still reasonable comparably to todays terms. This far sightedness has guaranteed Toyota success and earned them an image of being a pioneer of Green initiatives and helped them stay one step ahead of the competition.

It is fair to say that Toyota’s massive success over the past few decades is due to a constant belief in strong management principles and the continuous advancement of these principles, innovation and strategic alignment. These principles all fall under effective operations management and if it wasn’t for Toyota’s continuous strive for strategic alignment, then the company would not be as successful as it is today.

1.2 Critically evaluate the success of existing operations management processes in meeting Toyota’s overall strategic management objectives

To date, we can see that the overall effect of the operations management processes in place at Toyota is a very positive one. Toyota has become the Worlds number 1 automobile manufacturer greatly due to the processes and company principles implemented through operations management. The decentralised management philosophy has paved the way for free thinkers, innovation and has kept Toyota ahead of the game. The “Just in time” principle, one of the pillars of TPS has helped Toyota maintain a healthy production load and not overburdened itself with excess stock, therefore helping Toyota focus revenue on other streams. The principle of Kaizen has pushed Toyota to always seek to better itself and be more effective. These principles implemented by operations management can be seen in the “Global Vision Statement” of Toyota.

Global Vision
"Toyota will lead the way to the future of mobility, enriching lives around the world with the safest and most responsible ways of moving people.

Through our commitment to quality, constant innovation and respect for the planet, we aim to exceed expectations and be rewarded with a smile.

We will meet our challenging goals by engaging the talent and passion of people, who believe there is always a better way."

Toyota’s goals are clearly defined in the Global Vision statement above (www.toyota.com). Toyota has in most respects met that global visions statement and maintained it through the operations management processes in place. That is the rosy side to the knock on effects of Toyota’s operation management programmes, however, there is a downside too.

Toyota, being famous for cost cutting initiatives but not at the expense of quality may have taken their own philosophy too far. In 2006 and 2007 Toyota faced a problem that they believed they would never face, a problem with quality. Toyota had to recall millions of cars due to faulty components. This came in the wake of massive earnings from profitable years before the problem occurred. These profits however were earned at the expense of cost cutting techniques and expanding too fast to manage the demand meeting the stringent Toyota quality standards. The recall did tarnish Toyota’s name somewhat in the market place, but they met this problem with the initiative we have come to expect from the World’s leading and innovative car manufacturer. Toyota quickly identified the problem and addressed it. It seemed to have occurred due to rapid expansion, having to open new manufacturing facilities and not being able to train staff the “Toyota way” due to lack of time to meet demand. This, I’m sure has served as a valuable lesson to Toyota, and has probably resulted in inward reviewing of the current operations management model; To what extent do we reduce “waste,” how many corners can we cut before we trade off or effect the quality of our product and inevitably the image of our brand?

Another hurdle Toyota faced was the devastating natural disaster in the form of an earthquake and tsunami in 2011. This catastrophe shook the whole of Japan and the World. Toyota spearheaded the “Just in time” philosophy, an integral pillar of the Toyota Production system, that simply speaking means build what you need, when you need it. The principle behind this philosophy is sound, resulting in ease of production, less storage and less overheads, however in the wake of an unforeseen natural disaster it has huge negative consequences. Japan equates to 50-60% of Toyota’s total global manufacturing capabilities and also necessitates one of its largest supply chains. Due to the “Just in time” philosophy of only manufacturing products when required, Toyota faced a shortage of automobiles and supply chain products in the wake of the natural disasters that hit Japan. Other car manufacturers that have their global operations evenly spread throughout the World and within largest target markets and that also stock up on products would have been in a better position than Toyota to deal with the natural disaster that struck them.

But as an overall evaluation of the operations management processes, you would be hard fetched to not be able to stand back and admire Toyota’s global success. Toyota has grown from a relatively unknown entity, into the World’s Number 1 automobile manufacturer. Toyota lost its crown as number 1 in 2011 after the devastating tsunami, but quickly bounced back to reclaim it in 2012, mainly due to its operations management processes and continuous strategic alignment.

2.1 List out top three quality initiatives and explain the importance of effective quality management and the role in achieving Toyota’s objectives

Quality Management is vitally important if a company wishes to excel and compete effectively with its competition. Effective quality management can be introduced in many forms. I am going to discuss 3 of Toyota’s quality management processes that I have identified as having the most impact on overall operational excellence.

Toyota Production System

Kiichiro Toyoda the founder of the Toyota Automobile business firstly created the concept of “Just in time.” TPS was then further developed using this concept by Taichi Ohno the Toyota Chief of Production in the post World War 2 period. Toyota’s success as a leading automobile manufacturer is due to its unique production system. The concept of the TPS is to build the best quality, through the lowest cost, in the shortest lead-time through the elimination of waste. A simple definition can be found on the Toyota website; “The Toyota Production System (TPS) was established based on two concepts: The first is called "Jidoka" (which can be loosely translated as "automation with a human touch") which means that when a problem occurs, the equipment stops immediately, preventing defective products from being produced; The second is the concept of "Just-in-Time," in which each process produces only what is needed by the next process in a continuous flow.” (Toyota website www.toyota-global.com). The Just-in-Time philosophy involves 3 main aspects, TAKT Time, flow production and the pull system, which work together to form the main attributes of “Just-in-Time.”

As is illustrated from the Toyota Production System “House,” the TPS as an operational management function aims to create a working harmony, that eliminates waste, develops efficiency through more automation and ultimately creates a better working environment that will benefit the customer. The use of “Jidoka” promotes fewer defects and when they do occur the problem can be rooted out immediately. TPS works as a solid foundation for the other operational management processes that are in place within Toyota and is an integral part of the company’s success. (This coupled with the ease of efficiently producing the highest quality product for the customer through the “Just-in-Time” philosophy has helped Toyota in achieving its objectives of being a leading manufacturer of the highest quality products.

Kaizen

Kaizen is a major factor when considering lean production techniques. The definition of Kaizen, which means “Change” and “Good” which equates to the meaning “A change for good,” literally is the process of making something better. Kaizen means breaking apart the current situation, analysing it and then putting it back together. A kaizen activity can last up to 5 days, in which a team is put to work to identify and significantly improve a process, through planning and then implementing it. A kaizen activity can result from a problem being identified or a need to improve on an aspect of the company manufacturing or process.

The philosophy of Kaizen entails a process called “Gemba,” which is used for when a problem occurs, Toyota promotes going to the source of the problem, or going to the “Gemba”. Due to the automation or Jidoka in place, when a problem arises it is almost immediately identified and therefore less manufacturing defects arise. Gemba also encourages rooting out any problems straight away, it also entails developing a quick on the spot solution for an occurrence, until an effective one can be devised through the process of Kaizen.

The technique of kaizen has been utilised by Toyota in developing a way of life within the organisation. Kaizen is promoted in every level and facet of the organisation. Employees are encouraged to be free thinkers and to constantly improve on processes, manufacturing techniques, time saving techniques and waste management. This has been fundamental in developing Toyota as a high quality and reliable brand name. The process of Kaizen is one of the top quality management initiatives that have been instrumental in Toyota reaching the top spot it enjoys today and of course maintaining that effectiveness.

Supply Chain Management

Supply Chain Management (SCM) plays a major contribution to the success of a company, or be it the failure if the SCM function is not effective. Toyota has a unique philosophy when it comes to managing their supply chain. Toyota considers suppliers as partners and therefore invests in them. Toyota carefully manages its supply chain, making sure that the complete process works on a pull system, pulling products from the supply chain and into the manufacturing cycle only when it is required. Toyota can even loan out workers and higher management to overlook the supply chain operations when demand is high. Toyota works on joint understanding and trust and encourages relationship-building exercises that add to the sleekness functioning of the whole process of working with and dealing with Toyota. By developing long-term partnerships, the suppliers become a part of the Toyota team and fit into the “Toyota way,” which in turn makes them a more effective partner for Toyota. In order to stay competitive Toyota encourages the lean manufacturing principle throughout its supply chain, giving the highest quality product, at the lowest cost in the shortest lead-time.

Through this investment and relationship building, Toyota has created a SCM system that can be relied on for both quality and efficiency. Toyota has developed a strategy for every aspect of the supply chain from logistics, to quality management, just in time and lean production. Toyota, knowing it is solely responsible for its supply chain in its customer’s eyes, has effectively developed the supply chain to become a part of Toyota itself. Because of such attention to detail and effective operations management techniques Toyota has realised its goals of becoming a leading manufacturer of automobiles and has maintained that position greatly in part by maintaining a consistency of quality by ensuring their supply chain is always efficient and effective.

2.2 Discuss the level of success of existing quality management processes in meeting Toyota’s overall strategic management objectives

Toyota has grown to see enormous worldwide success, due to its constant quest for excellence. The most visible part of this drive for excellence is Toyota’s manufacturing philosophy the Toyota Production System (TPS).

The foundation for Toyota’s strategic management objectives can be seen in this Quote.

Waste (“muda” in Japanese) is ‘anything other than the minimum amount of equipment, materials, parts, space, and worker’s time, which are absolutely essential to add value to the product.’
— Shoichiro Toyoda
Founder, Toyota

It has and always will be the underlying principle of Toyota to cut down on waste and deliver the best quality product in the most efficient way, which means developing a smooth obstacle free manufacturing process, with little waste and inventory. Toyota achieved its strategic management objectives through revolutionary cutting edge operations management techniques that have been replicated all over the World.

These principles of lean manufacturing drastically reduce “Costs” that are associated with holding inventory, equipment, material, people resources and save time, which in itself has a value. This has successfully helped Toyota to become more competitive and increase its net profit making it a strong and durable leading automobile manufacturer.

Conclusion

After World War 2, Toyota was faced with the reality that change was necessary if it wanted to succeed and grow into an automobile manufacturer that could compete with the World’s giants such as Ford. If it weren’t for the Operations Management processes implemented and fine-tuned over the years then Toyota would never have got off the ground. It is evident that the constant strategic goal of operating more efficiently has been the crucial factor in Toyota’s success, coupled with the decentralised management philosophy, allowing the company to freely think and improve
itself from an operational standing.

Today, Toyota stands as an educational example of strategic excellence and a success story for people and companies to admire throughout the World.