Toyota – Success and Downfall
Toyota – Success and Downfall
There were several advantages of Toyota’s manufacturing system when compared with conventional manufacturing system. Ohno Taiichi was the person responsible in helping Toyota shift from the established method of manufacturing automobiles set by Ford. The basic philosophy was to produce everything in mass quantity to gain maximum economies of scale. The logic was to spread the fixed cost over the production line and benefit from lower cost. Another characteristic of this philosophy was to make each worker perform a single task only.
This premise was supported by the fact that if one worker performs the same task over and over again then eventually he or she would get faster in doing so. Ohno Taiichi was able to identify several flaws in this philosophy. Firstly, mass production of same item meant that what was not used had to be stored in warehouses. This resulted in high storage cost. At the same time it tied up inventory in unproductive uses. Secondly, if anything goes wrong in initial machine setting, that would mean massive production of defective parts.
Thirdly, if each worker is assigned to do only one task then that resulted in quality mismanagement. Fourthly, this philosophy created the problem of employing specialist at extreme ends of division of labor. There were many tasks that could have been performed by one person. Lastly, mass production system created hindrances in making customizable products. Ohno, came up with a new approach for Toyota’s manufacturing system. This approach had several advantages. First of all, the emphasis was to create everything in small batches.
This was done by reducing the time needed to set up the machine for stamping out body parts. Engineers were involved in experiments that helped to speed up the time it took to change the dies in stamping equipment. The company moved away from traditional approach of making each person do one task. Instead they made people work in teams. This not only encouraged innovation but at the same time helped in solving a problem faster and with efficiency. Another advantage of this approach was to decentralize responsibility for coordinating the manufacturing process to lower level employees.
This helped in getting rid of extensive centralized management to coordinate parts between various stages of production . Hence, in a nutshell, the Toyota’s manufacturing system made small production runs economical, minimized work in progress by increasing inventory turnover, speeded up the process of identifying defects items before too many defective parts were made. In contrast to U. S. , Toyota decided to contract out most components it needed while minimizing in house capacity for essential subassemblies and bodies.
The reason for shifting from traditional American way of supplier relations had a lot to do with finding ways to expand at lower costs. The consequence of such action was the fact that it helped Toyota avoid large capital expenditures needed to expand capacity for manufacturing a wide variety of components. At the same time, contracting out its certain operations helped company further lower costs by taking advantage of lower wages in smaller firms.
Instead of focusing on competitive bidding followed by U. S. to get a lower price, Toyota decided focusing on having long term relationships with major suppliers. This helped them achieve quality and at the same time lower inventory holding cost. Moreover, Toyota focused on bringing suppliers in to design making process because Ohno strongly believed that this would encourage idea sharing to improve manufacturing experience. Toyota also provided its suppliers management expertise, engineering expertise, and at times capital to finance new investments.
Toyota also gave incentives to its suppliers in order to encourage them to continuously improve their processes. One of the things that Toyota did was to put together a plan of profit sharing with its suppliers. This was to encourage cost reduction of manufacturing process. If Toyota and its suppliers joint efforts helped in reducing manufacturing cost, the company decided to share its additional profit with its supplier. This strategy encouraged suppliers to work effectively and efficiently in providing good quality products at a lower cost.
This shows how differently Toyota managed supplier relations in comparison to the U. S. In a nutshell, for Toyota it was more about long term healthy relationship with suppliers rather than focusing on creating an environment where suppliers are fighting with one another over prices to get the contract which led to compromise on quality. The basis of Toyota’s competitive advantage is that it is an organization that produces quality cars at low price coupled with a brand and marketing skills to use a premium pricing policy.
Toyota and other foreign car makers have successfully penetrated the US market and established a world wide presence by virtue of its productivity. Toyota’s philosophy of empowering its workers is the center piece of a human resources management system that fosters creativity and innovation by encouraging employee participation, and that likewise encourages high levels of employee loyalty. Toyota will be able to maintain its competitive advantage if it maintains a workplace with high morale and job satisfaction which is more likely to produce reliable, high-quality products at affordable prices.
Toyota has institutionalized many successful workforce practices. Toyota in particular has done so not only in its own plants but also in supplier plants that were experiencing problems. The Toyota production system overcomes physical and cultural barriers; it can be effective in other countries and cultures, if there is a will to implement it and if necessary conditions are fulfilled. The true judges of a product and the system that produced it are its consumers. If Toyota can achieve that then it can help the company achieve long term growth.
Two the most important factors influencing consumer choices are quality and affordability. Toyota has been able to accomplish this by being the low-cost leader in product and the differentiator in quality, styling and customer service. If Toyota continues to think long term, to have a process for solving problems, to add value to the organization by developing its people, and to recognize that continuously solving root problems drives organizational learning then it won’t be that hard for the company to maintain its competitive advantage.
Also, if the company helps create a detailed understanding of key customer requirements, product features, price features, competitive dynamics, and the demand for innovation this will give Toyota a huge competitive advantage. Moreover, customer driven innovation will help evaluate the success and profitability of research and development projects years before market introduction. Toyota should concentrate on market that caters people over the age of 40. In the majority of markets, the average new car buyer is 40 years old. According to a survey by 2015, that age is expected to increase by four years.
Developing cars for this target group does not mean building old age cars. However, it means equipping cars with design and handling features that the target group will find useful, exciting and desirable without sacrificing the model’s overall shape. A car designed for an older target group might include loading and seating solutions, Visual aids for better night and rain vision, easy to use functions even for complicated devices, timeless design features, speed and special attention recommendation displays, side and rear view cameras, and customized mobility services According to a recent market survey, in 015 forty percent of the world population will live in cities with more than one million residents, 17 percent will live in megacities with more than five million residents. The cruising speed in these cities will average not more than six miles per hour while the typical driver will use his or her car three hours a day (OC survey 2011). In future, Toyota can design cars for this environment.
The company can focus on things like easy switching between relaxation and driving positions, emphasis on passenger entertainment and information systems ,automation of stop and go traffic situations, hide passengers from outside viewers, protection of passengers from attacks, effective smog protection and air conditioning, and nearly zero emissions. Toyota should highly concentrate on cars that run on natural gas instead of petrol. In countries like India and Pakistan, almost all cars run on natural gas.
However, Toyota is still not well established in this market yet. Apart from helping the environment, this would help cater many people who now see MPG feature as the primary selling point then many other features. Based on these assumptions, the company can develop a vision of the future driver interface, defined the types of electronics it wants to produce , and devise a strategy to gradually evolve its current product range to cater markets that are going to be most in demand in future. The company may face many challenges in the above mentioned markets.
Some of these challenges may or may not be directly related to the product itself. For example in industrialized countries, the price of the average new car has risen by a lot more over the past 20 years while average income has increased only by a small percentage and the gap between new car prices and incomes has continued to grow from year to year. The reason for this development is the increasing technological complexity that drives development and manufacturing costs, and the growing number of functions needed to differentiate the brands.
This trend cannot continue much longer. Otherwise, customers could go back to smaller cars. This can be overcome by cost innovation. The use of new and more cost efficient materials needs to be explored in order to cut material and processing costs. Flexible manufacturing concepts will enable utilization of assembly plants to be improved. Other challenges would include high level of competition from other companies in auto industry. Unless or until, Toyota maintains its uniqueness in its operations, it is not going to easy for the company to aintain competitive advantage. Toyota is famous for its cooperative relationships with suppliers that not only take into account cost, but also encourage both sides to work together to innovate and create better vehicles. In the conclusion, these days the global auto market is in a continuous state of abrupt changes. For Toyota to respond to market challenges, it is essential that the company as a whole is aware of problems and works to improve operations at every possible opportunity.
Whenever a problem arises whether it is in the factory or on the sales floor, the management should go directly to the source and figure out ways to solve the issue by implementing policy that would result in effective and efficient solution. Toyota should always try to innovate and adapt with changing market situations because once a company becomes complacent in what it does then that is the beginning of the end.
University/College: University of California
Type of paper: Thesis/Dissertation Chapter
Date: 6 January 2017
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