Process Strategy and Analysis: Toyota Motors Case study

Toyota Motor Corporation, Japan’s largest and the world’s #4 carmaker by 2003 sales (after General Motors, Ford, and Daimler Chrysler), had a wide range of products and strong brand names with high quality image. Toyota’s growing reputation for quality and very small numbers of technical problems in its vehicles generated interesting customer loyalty and a growing demand for its products. Toyota management was managing the company’s inventory, costs and capacity very successfully and was applying cost reduction programs very well.

Toyota had riving ambition to become greener. The company made a hybrid-powered (gas and electric) sedan- the prius- that had already being snapped up in U.S. and European markets.

Toyota also made huge investments in developing fuel-cell technology for its vehicles. Its gas-powered cars, pick-ups, minivans, and SUVs included such models as the Camry, Celica, Corolla, 4Runner, Echo, Land Cruiser, Sienna, the luxury Lexus line, and a full-sized pick-up truck, the v-8 Tundra. Toyota also was making forklifts and manufactured housing, and was offering consumer financial services.

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With its wide distribution channels, strong channel efficiency and effectiveness, Toyota was both successfully competing with the world’s upper three auto makers and poised to replace GM in the top spot this decade.

Toyota was known world-wide for its up-to-date vehicles, strong vehicle design, comfortableness, safety, strong resistance to wind and rollover, low fuel consumption, presence of electronic and other devices in the vehicles, and strong reputation for luxury. Surveys, however, rated the attractiveness and comfort of its passenger cars as mediocre.

Also rated mediocre was the off-road excellence of its SUVs. Toyota was a leader in technological improvements, such as drive, production and vehicle construction technology and had a solid ability to design and innovates new products, to differentiate its products, to innovate new vehicle lines, or to extend existing vehicle lines.

Global sales of Toyota vehicles were increasing every year beginning in 2001. Toyota showed a growth of 20% in its sales from March 2002 to March 2003 and growth of 49.6% in its net income for the same period. This increase reflected not only the quality of its vehicles, but also Toyota’s strong efficiency in sale operations, applying one-to-one marketing, entering into partnership and joint ventures with other companies world-wide, being price competitive, strongly applying sales incentives such as warranty extensions, and applying advertisement tools such as TV commercials, ads in magazines and newspapers and exhibition presentations. Toyota needed little use of financing packages and radio commercials in its sale incentive programs. Also, Toyota was known for strong after-sale services that helped the company to strengthen relationships with its customers and quality of service provided to them.

Toyota had a strong, unique corporate culture that helped the company remain very well organised and highly competitive. Toyota also had strong co-operation with its partners and among its divisions that allowed Toyota to further co-ordinate interdivisional operations.

In comparison to its big three competitors, Toyota had strong manufacturing operations with the ability to produce highly innovative products, taking advantage of low cost structures, ability to open new manufacturing plants, benefiting from economies of scale. Transplant assembling. Availability of technology for its production, and availability and standards of sources, the ability to enter new markets, and the like, Also, Toyota had strongly balanced its activities both domestically and internationally.

There are five basis ways in approve: (1) reduce resources, (2) reduce errors, (3) meet or exceed expectations of downstream customers, (4) make the process safer, and (5) make the process more satisfying to the person doing it.

First, a process that uses more resources than necessary is wasteful. Reports that are distributed to more people than necessary wastes copying and distribution time, material, user read time, and, eventually, life space.

Second, for the most part, errors are a sign of poor workmanship and require rework. Typing errors that are detected after the computer printout require opening the file, making the correction, and printing the revised document.

Third, meeting or exceeding expectations of downstream customers improves the process. For example, the better the weld, the less grinding required, making the appearance of a finish paint more

The fourth way a process can be improved is by making it safer. A safer workplace is a more productive one with fewer lost-time accidents and less workers compensation claims.

The fifth way to improve process is to increase the satisfaction of the individual performing the process. Sometimes a little change, such as an ergonomically

Make a substantial change in a person’s attitude toward their work.

Manufacturing cycle

The manufacturing cycle typically occurs at the distributor/manufacturer for retailer/ manufacturer) interface and includes all processes involved in replenishing distributor (or retailer) inventory. The manufacturing cycle is triggered by customer orders or by the forecast of customer demand and current product availability in the manufacturer’s finished-goods warehouse.

One extreme in a manufacturing cycle is an integrated steel mill that collects orders that is similar enough to enable the manufacturer to produce in large quantities. In this case, the manufacturing cycle is reacting to customer demand (referred to as a pull process). Another extreme is a consumer products firm that must produce in anticipation of demand. In this case the manufacturing cycle is anticipating customer demand (referred to as a push process). The processes involved in the manufacturing cycle

• Order arrival from the finished-goods warehouse, distributor, retailer, or customer
• Production scheduling
• Manufacturing and shipping
• Receiving at the distributor, retailer, or customer

Order arrival

During this process a finished- goods warehouse or distributor sets a replenishment order trigger based on the forecast of future demand and current product inventories. The resulting orders are then conveyed to the manufacturer. In some cases the customer or retailer may be ordering directly from the manufacturer. In other cases a manufacturer may be producing to stock a finished products warehouse. In the latter situation, the order is triggered based on product availability and a forecast of future demand. This process is similar to the retail order trigger process in the replenishment cycle.

Production scheduling

This process is similar to the order entry process in the replenishment cycle where inventory is allocated to an order. During the production scheduling process, orders (or forecasted orders) are allocated to a production plan. Given the desired production quantities for each product, the manufacturer must decide on the precise production sequence. If there are multiple lines, the manufacturer must also decide which products to allocate to each line. The objective of the production scheduling process is to maximise the proportion of orders filled on time while keeping costs down.

Manufacturing and Shipping

This process is equivalent to the order fulfilment process described in the replenishment cycle. During the manufacturing phase of the process, the manufacturer produces to the production schedule. During the shipping phase of this process, the product is shipped to the customer, retailer, distributor, or finished-product warehouse. The objective of the manufacturing and shipping process is to create and ship the product by the promised due date while meeting quality requirements and keeping costs down.

Distribution

Toyota used the traditional distribution channels; vehicles from the production places were distributed to national or regional distribution, which then distributed the vehicles to the local dealers. The three units of Toyota that produced passenger cars, SUVs, light trucks, and mini vans. Toyota was also entering into partnerships with other carmakers world-wide, such as South Korean Hyundai and Chinese carmakers, and used their distribution channels to enter the markets where these partners were predominant. With these activities, Toyota was trying to balance its distribution channels world-wide and to increase the efficiency and effectiveness of their distribution channels.

Manufacturing

Toyota had manufacturing facilities in 37 countries and sold its products in 200 countries around the world. As the situation deteriorated in 2003, manufacturers were increasingly experiencing inventory problems as they were unable to shift their growing stockpile of cars into the saturated fleet market. With the increasing costs of product storage and reduced retail revenues, coupled with relaxed consumer demand, production cuts was likely to occur in the company. Also, Toyota was looking for ways to open production places in regions like China and Mexico, in order to benefit from cheap labour force and gain competitive advantage.

In this process the product is received at the distributor, finished-goods warehouse, retailer, or customer and inventory records are updated. Other processes related to storage and fund transfers also take place.

Few companies in the world excel at continuous improvement on a corporate-wide basis like Toyota Motor

Corporation. Toyota is perhaps best known for its highly effective production system, dubbed “lean manufacturing” by an MIT study in the 1980’s (Womack et. Al, 1990). But interestingly, history’s most efficient method of production was not born from a sudden brainstorm by an ingenious individual (although Toyota has had plenty of those over the years). Rather, it evolved into its present state over decades of sustained, high level of continuous improvement activity (Cusumano, 1985).

Toyota’s efficiency extends not only to the production floor, but also to product development, prototyping, testing, and all other business operations. Manufacturers the world over have been emulating Toyota’s practices, and have done so with much success (Liker, 1998). However, unlike Toyota, much of the success has been confined to the production floor and little success elsewhere.

Toyota’s product development system, the first author found this tool to be used pervasively and with incredible power and effectiveness (Sobek, 1997). Toyota uses it to systematically guide problem-solvers through a rigorous process, document the key outcomes of that process, and propose improvements. The tool is used so pervasively that it forms a keystone in Toyota’s world-famous continuous improvement program. Toyota calls this tool the A3 report.

The A3 Problem-Solving Report

The A3 report is so named because it is written on an A3 sized paper (metric equivalent of 11” x 17”). Toyota has developed several kinds of A3 reports for different applications.

Every report starts with a “theme” or title. The theme indicates the problem being addressed, and is fairly descriptive. The theme should focus on the problem, and not advocate a particular solution

Theme:

Every report starts with a “theme” or title. The theme indicates the problem being addressed, and is fairly descriptive. The theme should focus on the problem, and not advocate a particular solution

As Spear and Bowen (1999) elucidate, Toyota indoctrinates its people with its own version of the scientific method—every improvement is designed as an experiment. The A3 problem-solving process is a structure to implement the scientific method. The current condition and root cause constitutes the necessary background research, the target condition and implementation plan outline the experimental design and the follow-up plan states the hypothesis.

TQM is based on a number of ideas. It means thinking about quality in terms of all functions of the enterprise and is a start is a start-to-finish process that integrates interrelated functions at all levels. It is a systems approach that considers every interaction between the various elements of the organisation. Thus, the overall effectiveness of the system is higher than the sum of the individual outputs from the subsystems. The subsystems include all the organisational functions in the life cycle of a product, such as (!) design, (2) planning, (3) production, (4) distribution, and (5) field service.

The management subsystems also require integration, including (1) strategy with a customer focus, (2) the tools of quality and (3) employee involvement (the linking process that integrates the whole). A corollary is that any product, process, or service can be improved, and a successful organisation is one that consciously seeks and exploits opportunities for improvement at all levels. The load-bearing structure is customer satisfaction. The watchword is continuous improvement. (Ross, 2)

Hence TQM requires six basic concepts:

1. A committed and involved management to provide long-term top-to bottom organisational support.
2. An unwavering focus on the customer, both internally and externally.
3. Effective involvement and utilisation of the entire work force.
4. Continuous improvement of the business and production process.
5. Treating suppliers as partners.
6. Establish performance measures for the processes. (Besterfield, Michna, Besterfied & Sacre, p.2)

(Crosby, 1979) presented the following steps in order to undertake TQM effectively.

1. Management Commitment: Top management must become convinced of the need for quality and must clearly communicate this to the entire company be written policy, starting that each person is expected to perform according to the requirement or cause the requirement to be officially changed to what the company and the customers really need.
2. Quality improvement team: From a team composed of department heads to oversee improvements in their departments and in the company as a whole.
3. Quality measurement: Establish measurements appropriate to every activity in order to identify areas in need of improvement.
4. Cost of quality: Estimate the costs of quality in order to identify areas where improvements would be profitable.
5. Quality awareness: Raise quality awareness among employees. They non-conformance.
6. Corrective action: Take corrective action as a result of steps 3 and 4.
7. Zero defects planning: From a committee to plan a program appropriate to the company and its culture.
8. Supervisor training: All levels of management must be trained in how to implement their part of the quality improvement program.
9. Zero defects day: Schedule a day to signal to employees that the company has a new standard.
10. Goal setting: Individuals must establish improvement goals for themselves and their groups.
11. Error causes removal: Employees should be encouraged to inform management of any problems that prevent them from performing error free work.
12. Recognition: Give public, non-financial appreciation to those who meet their quality goals or perform outstandingly.
13. Quality councils: Composed of quality professionals and team chairpersons, quality councils should meet regularly to share experiences, problems, and ideas.
14. Does it all over again: Repeat steps 1 to 13 in order to emphasise the never-ending process of quality improvement. (Ross, p. 6-7)

Management must participate in the quality program. A quality council must be established to develop a clear vision, set long-term goals, and direct the program. Quality goals are included in the business plan. An annual quality improvement program is established and involves input from the entire work force. Managers participate on quality improvement teams and also act as coaches to other teams. TQM is a continual activity that must be entrenched in the culture- it is not just a one-shot program. TQM must be communicated to all people. The key to an effective TQM program is its focus on the customer. An excellent place to start is by satisfying internal customers. We must listen to the voice of the customer and emphasise design quality and defect prevention.

Do it right the first time and every time, for customer satisfaction is the most important consideration. TQM is an organisation-wide challenge that is everyone’s responsibility. All personnel must be trained in TQM, statistical process control (SPC), and other appropriate quality improvement skills so they can effectively participate on project teams. Including internal customers and, for that matter, internal suppliers on project teams are an excellent approach. They understand the process better than anyone else does. Changing behaviour is the goal. People must come to work not only to do their jobs, but also to think about how to improve their jobs. People must be empowered at the lowest possible level to perform processes in an optimum manner.

There must be a continued effort to improve all business and production processes. Quality improvement projects, such as on-time delivery, order entry efficiency, billing error rate, customer satisfaction, cycle time, scrap reduction, and supplier management, are good places to begin technical techniques such as SPC, benchmarking, quality function deployment, and designed experiments are excellent for problem solving. On the average 40% of pounds is purchased product or service; therefore, the supplier quality must-be outstanding.

A partnering relationship rather than an adversarial one must be developed. Both parties have as much to gain or lose based on the success or failure of the product or service. The focus should be on quality and life-cycle costs rather than price. Suppliers should be few in numbers so that true partnering can occur. Performance measures such as uptime, percent non-conforming, absenteeism, and customer satisfaction should be determined for each functional area. These measures should be posted for everyone to see. Quantitative data are necessary to measure the continuous quality improvement activity. (Besterfield, Michna, Besterfied & Sacre, p.3)

The purpose of TQM is to provide a quality product and/or service to customers, which will, in turn, increase productivity and lower cost. With a higher quality product and lower price, competitive position in the marketplace will be enhanced. This series of events will allow the organisation to achieve the objectives of profit and growth with greater case. In addition, the work force will have job security, which will create a satisfying place to work. As previously stated. TQM requires a cultural change. The change is substantial and will not be accomplished in a short period of time. Small organisations will be able to make the transformation much faster than large organisations. (Besterfield, Michna, Besterfied & Sacre, p.3)

Hence summarising the key points discussed above, productivity is a major concern of managers. It implies measurement, an essential step in the control process. The productivity measurement of skill workers is generally easier than that of knowledge workers such as managers. Yet managerial productivity is very important, especially for organisations operating in a competitive environment.

Production management refers to those activities necessary to manufacture products; it may also include purchasing, warehousing, transportation, and other operations. Operations management has a similar meaning, referring to activities necessary to produce and deliver a service as well as a physical product.

The operations management systems model show inputs, the transformation process, outputs, and the feedback system. A variety of tools and techniques make operations more productive. Seven steps are often involved in planning and designing a product and its production. Companies can choose from six different kinds of production layouts. In order to operate the system, the managerial functions of organising, staffing, and leading must be carried out effectively. Controlling requires an information system often supported by computers. (Koontz and Weihrich, 1994; p.653)

Among the various tools for planning and controlling operations is operations research, which is the application of scientific methods to the study of alternatives in a problem situation to obtain a quantitative basis for arriving at the best solution. The operation research procedure consists of six steps. Examples of tools are linear programming, inventory planning and control, the just-in time inventory system, and distribution logistics. Other tools and techniques are time-event inventory system, engineering, work simplification, quality circles, total quality management, and a variety of computer-aided approaches. (Koontz and Weihrich, 1994; p.653)

References

Besterfield, D. H., Michna, C. B., Besterfied, G., H.,  & Sacre, B.  S., (no date available). Total Quality Management, Third Edition, pp. 1-3.

Crosby, P., (1979). Quality is Free, New York: McGraw-Hill, 1979.

Cusumano, M.A., 1985, The Japanese Automobile Industry: Technology and Management at Nissan and

Toyota, Harvard University Press, Cambridge, MA.

Koontz, H., and Weihrich, H., (1994). Management: A Global Perspective, Tenth Edition, McGraw-Hill, International Editions, pp.633-653

Ross, J. E., (no date available). Total Quality Management: Text, Cases and Readings, Second Edition, Florida Atlantic University, Boca Raton, Florida, pp. 1-3

 Liker, J.K. (ed.), 1998, Becoming Lean: Inside Stories of U.S. Manufacturers, Productivity Press, Portland, OR.

Sobek, II, D.K., 1997, Principles that Shape Product Development Systems: A Toyota-Chrysler Comparison, Ph.D. dissertation, The University of Michigan, Ann Arbor.

Spear, S. and H.K. Bowen, 1999, “Decoding the DNA of the Toyota Production System,” Harvard Business Review, Sept.-Oct., 77(5), 97-106.

Womack, J., D.T. Jones, and D. Roos, 1990, The Machine that Changed the World: The Story of Lean

Production, HarperPerennial, New York.