45-765

Production and Operations Management

Toyota Motor Manufacturing, U.S.A.

Inc.

February 21, 2002

Sean Belt
Marc Brands
Devon Cheshire
Peter Johnson
Jeff Maglin
45-765 Case Analysis: Toyota Motors Manufacturing, U.S.A., Inc
Production and Operations Management February 21, 2002

Table of Contents

I. Executive Summary

2. Analysis

III. Recommendation & Implementation

IV. Risks & Contingencies

45-765 Case Analysis: Toyota Motors Manufacturing, U.S.A., Inc
Production and Operations Management February 21, 2002

I. EXECUTIVE SUMMARY

Toyota Motors Manufacturing (TMM) faces increasing problems with its seat supply. TMM’s
single seat supplier, Kentucky Framed Seat (KFS), is responsible for most of the problems.
Material flaws and missing parts are the major defects that TMM encounters. These problems
increasingly occurred when the varieties of and demand for the seats increased.

We are recommending the following major measures to overcome these problems:

Immediate

• Send TMM Quality Control (QC) to KFS to identify and correct the source of the problem.

• Place QC person at arrival dock for seats to check for defects before sending seats to the
line.

• Keep fixing seat defect off line. Too expensive to stop the line.

• Assign employee to be responsible that correct replacement seats are fitted in the car the
following shift.

Long Term

• Improve internal communication in Toyota, specifically between Japanese design engineers

and US manufacturing.

• Decreased seat variety.

• Toyota to implement TPS system at KFS factory. Fujio Cho pronounced this to be the next
step for TMM. KFS is a logical first supplier.

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45-765 Case Analysis: Toyota Motors Manufacturing, U.S.A., Inc
Production and Operations Management February 21, 2002

II. ANALYSIS

When a defective seat has been found, it is Toyota’s strategy to solve the problem online. However,
currently the vehicles with seat problems are mostly dealt with after the assembly is completed,
since stopping the line to repair or replace the seat takes too long. This strategy contradicts
Toyota’s jidoka policy, the problem is not solved at the line but rather a seat is ordered, which only
extends the problem. Although KFS delivers seat replacements twice a day, sometimes KFS sends
the wrong seat assemblies and this problem seems not to be dealt with effectively as shown by the
occurrence of four day old vehicles in the overflow parking area.

On April 27th the run ratio was down from 95% to a meager 85%. The calculation below shows that
the decrease in production per shift is close to 50 cars. Most of this can be blamed to the seat
problem. To produce these missing cars with overtime capacity will cost TMM over $16,000 per
shift. This translates to around $8.4 Million per year considering two shifts and 5-day workweek. It
is quite evident that something needs to be done.

Stations 353
Employees 769
Wage/Hour $
17.00
Overtime $
25.50
Cycle Time 1.05 Cars/Min
Shift Length 525 Minutes
'Productive' Minutes 450
Run Ratio
100% 473
95% 449
85% 402
'Lost' Cars Per Shift (95% to 85%) 47
Cost per Hour of Production Overtime $
19,610
Time Required to Produce Add'l Cars 50 Minutes
Cost to Produce Additional Cars $
16,215

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45-765 Case Analysis: Toyota Motors Manufacturing, U.S.A., Inc
Production and Operations Management February 21, 2002

The problems are being shifted down from the assembly line to the clinic, Toyota’s philosophy is to
deal with the problem where it was found, using their Five Why’s. Most of the problems are
material flaws, or missing parts, which cannot be corrected online if no replacement is available at
the time. One possible option would be to have a larger amount of safety stock, but this is not an
efficient solution to the problem because is defeats the idea of JIT. Another solution to this issue
would be to have a smaller number of seat varieties. This step would increase the chances a good
seat is in the pipeline. Of course these two options do not address the real problem, it only gives
possibilities to increase the ratio of vehicles that could be fixed online. We do not recommend these
options.

One significant problem with the seats that can be blamed on TMM is that a worker occasionally
shot a bolt at an angle, but this problem could be fixed within 30 seconds. It only accounted for
about 11% of all the problems according to the Group Leader’s Seat Defect Data from April 14 to
April 30 1992. KFS is responsible for the remaining 89% of problems. The two biggest problems
are material flaws and missing parts, which account for almost 60% of all defect occurrences. It is
clear that the problem should be first analyzed on the supplier side.

KFS has been a very reliable supplier in the past, so it can be assumed that the problems we are
facing are not due to blatant incompetence. From the case it is evident that the problem started
early in 1992 when Toyota started to increase their numbers of seat varieties from 12 to about 23.
The problems intensified in March when more seat varieties were introduced and expansion is
planned to more than 50 seat varieties. We are predicting that this trend will further increase the
problems that TMM is experiencing especially since KFS is their only supplier for seats and has
shown a vulnerability to style proliferation.

It seems that the 10 day change over and the 10 weeks to ramp up production that TMM was
allowing KFS was sufficient for KFS to efficiently change over to the production of the new seats.
But we believe that the KFS employees are not sufficiently trained in the idea of JIT since they do
not tackle the problem right away and figure out the cause.

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45-765 Case Analysis: Toyota Motors Manufacturing, U.S.A., Inc
Production and Operations Management February 21, 2002

Although a decline in seat problems has been observed from fall 1991 to spring 1992, we believe
that the increase in demand and variety of seats will offset the learning curve.

Investing the $50,000 can solve TMM’s problem with the Plastic hook relatively easily and might
very well be worth it. Currently, the hook breaks about once per shift if we assume two shifts per
day and a 5-day workweek, the breakage would be approximately 500 per year. If we consider an
internal rate of return of 15%, each seat replacement or repair should not cost more then $15 to
justify not investing the $50,000. According to these numbers it is very reasonable to invest in
modifying this relevant tool to make metal hooks. However the statistics show that the occurrence
has significantly declined, which points to the learning curve of the TMM employees. Furthermore,
in Japan, where they have used the same design, no problems have been reported. We would not
recommend investing the $50,000 yet. Further analysis and effect of planned changes at KFS
would give us a better picture.

TMM could also change the seat supplier of get an additional supplier. Toyota generally favors to
work out problems with its suppliers rather than just get rid of them. It is also very difficult to find
a supplier that is so close to the TMM plant.

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45-765 Case Analysis: Toyota Motors Manufacturing, U.S.A., Inc
Production and Operations Management February 21, 2002

III. RECOMMENDATION & IMPLEMENTATION

In the immediate future, which is within the next day, TMM needs to implement the following
measures. Designate an employee to be responsible to make sure that the correct replacement seat is
ordered and that the correct seat arrives within the next shift. In the same manner have an employee
check the seats at the arrival dock so those problems can be identified early. Also to better monitor
the trends a designated area for vehicles with seat problems should be available in the overflow
parking area to visualize the fluctuation of defective. Positively reinforce time limits on
replacement seats and time limits on how long a vehicle can stay in the overflow parking area. If
the limit is exceeded a problem solving session should be called. The supplier should be notified of
defective seats as soon as they are noticed. Employee on the assembly line and in quality control
for incoming seats should immediately take actions to inform the supplier. These short-term
measures are to deal with the current situation and should become obsolete whenever the underlying
problems are solved.

To eliminate the root of the problems we recommend the following actions. Primarily it is crucial
that a close relationship is being facilitated between KFS and TMM and TMC. A closer
collaboration with the Japanese designer and the American seat manufacturer to overcome the
geographical and cultural distance should be encouraged. Especially work out problems like the
angled bolting, which might be dealt with by training or redesign of the bolting area.

The TPS system should be brought to KFS and Toyota’s other supplier. It makes sense that
supplier are being introduced to TPS especially KFS since the problem is quite obvious and since
they produce a relatively expensive and important item. KFS’s proximity is also a good reason why
KFS and TMM can benefit from an integration of TPS. As part of the TPS principle, the KFS
employee should be trained to identify problems in the line so that a solution can be found.
Extensive education is needed for this to work. KFS inspectors should visit the TMM and should
get trained by our QC Personnel and be taught the Five Why’s.

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45-765 Case Analysis: Toyota Motors Manufacturing, U.S.A., Inc
Production and Operations Management February 21, 2002

The next actions should be introduced to revise current procedures to deal with the problems. QC
personal should be placed with KFS to analyze why so many defective seats are getting to TMM.
In addition a closer IT infrastructure between TMM and KFS should be implemented to help
information flow to predict problems, cut cost etc. IT should also be used to reorder seats that are
defective or incorrect. Shutting down the line if a seat needs to be replaced is generally not
recommended but the employees should be reeducated to follow the TPS philosophy and maintain
high quality and volume.

For quality control seat parts from Japan should be sent and compared scientifically with the parts
that KFS produces and buys. Last but not least, it is of importance that the variety of seats that
Toyota is requiring is minimized to avoid additional problems and to ease problem when they
occur. So TMM should recommend to TMC to reduce the variety of seats.

These measures should take care of the problems that TMM is currently experiencing with KFS.
These actions are also recommended for other suppliers, but the focus should primarily on KFS
since they are the suppliers that are causing the current problems.

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 45-765 Case Analysis: Toyota Motors Manufacturing, U.S.A., Inc
Production and Operations Management February 21, 2002

IV. RISKS AND CONTINGENCIES

TMC might not feel that the variety of seats could be reduced. Even if TMC keeps increasing the
variety we believe it could be manageable in the long-term. In that case TMM has to focus on
teaching KFS the principles of TPS and help KFS to deal with the increased capacity demands.
Another option might be to get a second seat supplier or assemble the seats in-house like they do in
Japan.

KFS might not be able to deal with the increased demand in which TMM’s alternatives are similar
to the once mentioned above, by which TMM can get a second suppler or start assembling some
seats at the TMM facilities. This risk could be relatively high in the short-run but additional
capacity can be purchased which makes this risk small in the long run.

KFS could refuse to work with TMM. This could be a severe problem if KFS would not cooperate
with TMM. But we don’t believe that this could actually happen since TMM and KFS are very
much dependent on each other. We assume that Toyota is by far KFS’s largest customer. KFS is
the only supplier of seats for KFS so Toyota is obviously dependent on KFS. The same
contingencies as above would also be recommended here in case problems would arise.

Other contingencies include

• Invest the $50,000 and get the metal hook instead of the plastic one.

• Add a robot that would automatically install the seats. This would decrease the labor
cost, the problems with the angled bolt and likely the problem with the plastic hook.
Whether this capital expenditure is worthwhile must still be analyzed in more details with
more data.

• Enforcing the idea that problems should be solved online could be a good idea even
if it would cost more.

• Continue to investigate ways to solve problems online.

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