The Accelerator Crisis

Vinay DevakiElfego CruzMehernosh H. Amroli

TOYOTAThe Accelerator Crisis

Intro Toyotas History 3 Priorities The Toyota Way & Toyota Production System Issues Drivers Violation of Principles Recommendations Lessons learned Q&A

Toyotas History1933 Toyota Motor Corporation established as division of Toyoda Automatic Loom Works.

1937 Toyota Motor Corporation became an independent company.

1957 Established first sales, marketing and distribution subsidiary in US called Toyota Motor Sales, (TMS)

1984 NUMMI (Joint Venture with GM) opened doors

1995 Losing market share and posting its first loss since 1950 due to weak Japanese economy and trade friction with the US.

2008 #1 in Global Sales Volume

2009 employed 8,900, supervised 14 regional offices throughout 50 US statesProduced 10 million cars and added 17 production sites. (added the capacity of a Chrysler-sized company)

Toyotas 3 PrioritiesSafetyQualityVolumeThe Toyota Way

Mandates planning for the long termHighlighting problems instead of hiding themEncouraging team work with colleagues and suppliersInstill self-critical culture that fosters continuous and unrelenting improvement

Source : HBR Case TB0243 Toyota: The Accelerator Crisis5Toyota Production System (TPS)Precursor of lean manufacturing principles originally called Just-In-Time(JIT) production.Designed to remove unnecessary waste from the production (muda) and manufacturing process. (ji-doka)Significantly reduce lead time and production costs

Source : HBR Case TB0243 Toyota: The Accelerator Crisis

6Issues1999 Oil Sludge2002- 3,400 warranty claims2007 7.5 million customers to be reimbursed for repairs and incidental expenses going back as far as 1999.

2009 Accelerator Recalled 3.8 million U.S. Vehicles claiming that floor-mat problems could cause the accelerator to be stuck2010 recall continued, 2.3 million moreSuspended sales and production of popular models , another 1.1 million. Total of 8.8 million.Source : HBR Case TB0243 Toyota: The Accelerator CrisisNOTE: Toyota was unable to identify the true cause of the issues and shifted blame to others

7Strategic DriversDeviated focus from Safety and Quality to Volume, Cost Reduction and GrowthNon-family leadership: Concerned on cutting costs and parts to manipulate short term gainsRapid establishment of plants and operations around the world; unable to instill company culturePoor management of public relationsStrategic DriversLoss of focus on Safety & Quality due to numerous changes in leadership between 1996-2008 with reprioritization of goals (Family vs. Non-family)`33-`95 Toyoda Family`96-`98 Hiroshi Okuda Toyota 2005 Vision Harmonious growth through global master plan and global profit management`99-`04 Fujio ChoConstruction of Cost Competitiveness for the 21st Century (CCC21)Cut components in car by 50%In 2002, the 2005 Vision changed to Global Vision 2010 : Take 15% of Global Market Share`05-`08 Katsuabi WatanabeValue Innovation (VI) strategy: Create savings by making the entire process cheaper and faster, further trimming parts, production costs, and time to market.Implemented a high-level of so-called Customer First management committee that had the task to coordinate engineering, production, sales, and service issues related to quality. The initiative was never really pushed and scrapped in early 2009.`09 to current Akio Toyoda (Back to Family)

Root cause of problems was that the company was hijacked, some years ago, by anti-family, financially oriented pirate. Former CEO of TMS, Jim Press (April 2010 in WSJ article)

Source : HBR Case TB0243 Toyota: The Accelerator Crisis

9Strategic DriversRapid Growth Toyota produced 5.2 million cars in 58 production sites in 2000. But by 2009 increased capacity to produce 10 million cars Added 17 production sitesTMM employed more than 8,900 people and supervised 14 regional offices throughout the 50 statesBasically added the capacity of a Chrysler-sized company. Strategic Drivers

Source : www.econed-il.org/icee/docs/2011/zhao.pptxMedia/Press Received unprecedented negative attention from mass media (news, consumer reports and individual blogs)

Structural Drivers Lack of CommunicationLocalized consumer data gathered in US and sent to Japan, not communicated back to US org.US plants concentrated on advertising and service, financial and technical matters controlled in Japanevery Toyota has a president, and one cant tell another what to do. by John Jula (p.8) Denial Blamed suppliers and consumers Unable to discover root cause

Structural DriversCentralized design; putting all decision making in JapanLack of communication between US and Japan; also between the Sales and Dealership organizations and the engineering group

Cultural DriversJapanese culture (p.10)- based on harmony, consensus decision-making, and blame avoidance avoid public conflict negotiationsManagers who disagreed kept silent so not to upset the relationshipAggressive global growth strategy stretched its supply chain erroneously. The company began to depend on suppliers outside Japan and outside the Keiretsu structure, non-Japanese suppliers with which Toyota did not have prior working experienceViolated PrinciplesAnalysis1. Base mgmt. decisions on a LT philosophy, even at the expense of ST financial goalsCurbing productionConstruction of Cost Competitiveness for the 21st Century 1. designers scrutinized grip-handles mounted above doors 2. reduced no. of parts required by 85% from 34 to 5 3. cut procurement cost by 40% and installation time by 75%Value Innovation Strategy-aggressive version of CCC21 1. further trimming parts and production costs11. Respect your extended network of partners and supplier by challenging them and helping them improveToyota told the gov. the pedals were the problemToyotas pedal supplier, CTS Corp., had to defend itselfToyota made no attempt to collaborate with supplier in order to address its suspicion9. Grow leaders who thoroughly understand the work, live the philosophy and teach it to others.Katsuabi Watanabe emphasized CCC21s $2.2b cost reductions, which he ledWatanabe further set out to achieve more cost savings thru Value Innovation strategyHiroshi Okudas Toyota 2005 Vision: global manufacturing network from Argentina to Thailand to U.S. Global Vision 2010 targeted 15% global mrkt share by early 2010Leadership Aim13. Make decisions slowly by consensus, thoroughly considering all options; implement decisions rapidlyNonfamily management was determined to accelerate Toyotas growth with an aggressive globalization strategyViolated PrinciplesAnalysis14. Become a learning organization through relentless reflection and continuous improvement.Denied warranty coverageBlamed pedal supplierBlamed ownersContinued cost cutting strategies 1. Construction of Cost Competitiveness for 21St Cent. 2. Value Innovation StrategyContinued Rapid Expansion 1. Toyota 2005 Vision 2. Global Vision 20102. Create a continuous process flow to bring problems to the surface2005 Watanable promoted a Customer First mgmt. committee but was never implemented5. Build a culture of stopping to fix problems, to get quality right the first timeContinuous Recalls 1. nearly doubled from 03-04 (975,902 1,887, 471) 2. 9/9/09-3.8m claiming floor mat problems 3. 1/21/10-2.3m claiming stuck accelerator pedals7. Use visual control so no problems are hiddenI believe that by examining the problems on site can one make decisions from the customer perspective12. Go and see for yourself to thoroughly understand the situationThe root-quality problem was never really identified, thus could not be addressed6. Standardized tasks and processes are the foundation for continuous improvement and employee empowermentUS plants concentrated on Advertising & ServicesFinancial & Technical matters controlled in JapanWhat should Mr. Akio Toyoda do?Regain Customer ConfidencePartner with Government and Safety regulators i.e. NHSTAMarketing Strategies: Loyalty programs, Extended Warrantee, Customer feedback in DesignsManufacturing Strategy: Obtain Certifications; APICS & ASQ; ISO9000 & TQMRe-instill company culture & Brand Reputation: 3 Priorities, The Toyota Way, and Toyota Production System Focus on quality; sales will followEnable regional offices to make decisions based on shared feedback from other regions using Global Knowledge Center (GKC, Torrance, Ca.)Improve PR practices

Focus on QualityMaking more safety features as standardsObtain Global/Industry recognized certifications for manufacturing and Quality Assurance , i.e. ISO 9001:2010 and TQM.Select Vendors who hold quality and manufacturing certificationsManagement and Employees should hold certifications in process manufacturing, i.e. Six Sigma , APICS and ASQ

Regain Customer ConfidenceMaintain Customer RelationshipsCompensate owners affectedFuture purchase discountDevelop a Loyalty programExtend Warranties on all cars (10y/100 K mile coverage)Re-instate Customer First program from WatanabeCustomer Feedback into design

PREstablish stronger relationships with MediaProvide Full-Disclosure and Honesty Policy

17What can other companies learn?Focus on core competency: Brand Strength Quality; Luxury; Affordability; SportReflect brand implications of Strategies Structural; Strategic; CulturalAcknowledge problems timelyTake accountability and responsibilityBOD & CEO Selection; Family vs Non-familyMeasure Expansion Goals: LT sustainability

Acknowledge : Communicate Quickly and Accurately, Criticized for not responding

18Thank You

Thank YouQ & A