Toyota: a case study

BackgroundToyota Motor Company was founded in 1937 by the Toyoda family.Business was relatively unsuccessful until Eiji Toyoda introduced the method of lean production after studying Fords Rouge plant in Detroit in 1950.This lean production method became known as the Toyota Production System.The production executive, Taiichi Ohno, successfully helped Toyoda improve his company using this new production method and mode of thinking.

EnvironmentCulturalCompany as a community: lifetime employment, access to company facilities, seniority-based wages (in return for 1/3 work force layoff in 1946) ; as a return, employees must be more flexible and actively promote interests of company >> Implications: labor = Fixed cost

EconomicPostwar conditions put Japan into a country lacking significant capital, so that Japan had to rely mostly on producing its own technology.

PoliticalThe Ministry of Intl Trade and Industry (MITI) encouraged Japanese firms to enter the automobile industry despite established competitors from the West by imposing high tariffs discouraging imports and prohibiting foreign ownership.Japans work force, under Western influence after WWII, grew more powerful and more demanding, thus limiting producers efforts to reduce labor costs.

Environment (cont.)DemographicalThe domestic market was very small and un-uniform. Thus, goods had to be very tailored to specific consumer taste. E.g. luxury cars for officials, small cars for city residents, etc.

TechnologicalCommitment to innovation and improvementLarge skilled-labor pool to draw from

SocialCommitment by employees to work

Country Differences?Western careers vs. Japanese community

Focus on long-term growth as opposed to short-term profits

More interpersonal relationships with employees, suppliers, and customers

Organizational StructureMulti-regional lean enterprise

Primarily network structureNetwork of suppliersNetwork of dealers/distributors

Frequent interaction between all levels of the organization

Strategy Lean ProductionFinal assembly plantMoved from move the metal mentality to kaizenIntroduced idea of stopping assembly lines in order to correct problems before continuingAs a result, quality improved and yields are close to 100%

Product development and engineeringFocused on leaders that knew all steps of a process rather than those with highly specialized knowledge; also, skill-buildingMore emphasis on proactive thinking by employeesThus, increased productivity, product quality, and responsiveness to changing consumer demandquality circles

Lean Production in more detail2 organizational features:Transfer max number of task and responsibilities to those workers actually adding value to the car on the linehas in place a system for detecting defects that quickly traces every problem, once discovered, to its ultimate cause

Thus, need tight teamwork and open communication among workers (comprehensive info display system on electronic displays visible from all work areas)

4 areas of importance:Leadership: Toyotas large-project leader w/power vs. Western coordinatorTeamwork: from many functions, ties with department, and general interest in promoting team, not departmentCommunication: conflicts resolved in beginning, more people => less peopleSimultaneous Development

Competitive AdvantagesReliability

Product varietyProduction plants in North America build 2-3 products at a time, as opposed to one by Western firms.Firms keep models for an average of four years, as opposed to an average of close to ten years by Western companies.Western companies sell almost twice as many cars of the same model as Japanese firms do.

Suppliers Lean Production Supply ChainOrganized suppliers into functional tiersFirst-tier suppliers: worked together in a product-development team Second-tier: made individual parts

Encouraged cooperation and communication among first-tier suppliers

In house supply operations turned into a network of quasi-independent first-tier supplier companies

Substantial cross-holdings between Toyota and suppliers, as well as among suppliers themselves even though each supplier is an independent company

Cross- sharing of personnel through Toyota sending personnel to suppliers to compensate for greater workloadToyota transferring senior managers to suppliers for top positions

Developed the just-in-time (JIT) system, or kanban

Suppliers Lean Production Supply Chain (cont.)market price minus system, not supplier cost plus systemValue analysis reduces costsDeclining prices over life of model due to learning curve

Production smoothing enables suppliers to maintain a constant volume of business

Focus is on long-term relationships that underscores cooperation, teamwork, and gradual mutual improvement, rather than price through bidding as a way to choose a supplier

ConsumersThe market began to fragment in the 1960s as cars increased in popularity and became essential household goods.

Marketing executive Shotaro Kamiya focused on building a sales network modeled after Toyotas supplier network.Distributors with a shared destiny: wholly owned companies or ones in which Toyota held equityaggressive selling: promoted long-term relationship between assembler, dealer, and buyersDealer => production system => build-to-order systemBuyers => product development processDirect calls to households with large database of households and buying preferencesFocus on repeat buyersAlso focus on brand loyalty => Toyota family

5 distribution channels in Japan: Toyota, Toyopet, Auto, Vista, and Corolla

Closer and more familiar relationship between buyer and salesperson

Focus on customer-specified order

MarketingDoor-to-door selling/very customized

Emphasis on pull marketing: giving consumers what they want

Tight relationship with previous buyers to keep clients

Sales personnel received intensive training before starting their jobs

Up-to-date and detailed database of consumers helps keep track of trends, interests, and tastes

CompetitorsAmerican companies upon which Toyota originally developed many of its own production processes fromGMFordEtc.

Korean companies with planned production

Other Japanese companies, especially Nissan and Honda

ProblemObstacle: inward focus of Japanese lean producers

Lack the ability to think and act globally rather than from a narrow national perspective

Backlash to Japanese direct investment in North American and Europe, a prominent reason of which is that it creates friction as a result of Japanese corporation biases, mainly two classes of citizenship in their organizationsE.g. keiretsu

Possible SolutionsAppoint native managers to head their manufacturing operations in North America and Europe

Designate native supplier companies as source for certain categories of components

Governments: restrictions on visas for Japanese employees at new facilities and in Europe, strong pressures to attain high levels of domestic content asap

Author suggests: build a truly global personnel system in which new workers from North America, Europe, etc. where a company has design, engineering, and production facilities, are hired in at an early age and given the skills, including language and exposure to management in different regions, needed to become full citizens of the companySame for suppliersNeed increased transparency

Conclusion Watch for qualityfear of repetition of Fords experience in Britain after 1915

Wholesale substitution of domestic managers and suppliers, to deal with investment friction, will degrade performance of production system toward the existing level

Evidence that plants that perform best are those with very strong Japanese mgmt presence in early years of operations and those that have moved slowly and methodically to build up their domestic supply base

Need managers and suppliers that understand lean production and are committed to it, mostly Japanese

Financial figuresIn fiscal 2003, ended March 31, 2003, Toyotas consolidated net revenues increased 9.2%, to 15.50 trillion, operating income rose 16.3%, to 1.27 trillion, and net income was up 34.9%, to 750.9

ROE reached 10.4%, surpassing the short-term target of 10%.

As of March 31, 2003, treasury stock repurchased by the Company totaled 1.38 trillion, or 416 million shares, and total shares issued and outstandingexcluding treasury stockhad decreased to 3.45 billion shares.

In fiscal 2003, the Company paid its highest-ever annual dividend36.00 per share, up 8.00 from the previous fiscal year.