Toyota: a case study

Background

Toyota 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.

Environment

Cultural

Economic

Company 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

Postwar conditions put Japan into a country lacking significant capital, so

that Japan had to rely mostly on producing its own technology.

Political

The 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.)

Demographical

Technological

The 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.

Commitment to innovation and improvement

Large skilled-labor pool to draw from

Social

Commitment 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 Structure

Multi-regional lean enterprise

Primarily network structure

Network of suppliers
Network of dealers/distributors

Frequent interaction between all levels of the organization

Strategy Lean Production

Final assembly plant

Moved from move the metal mentality to kaizen

Introduced idea of stopping assembly lines in order to correct problems
before continuing
As a result, quality improved and yields are close to 100%

Product development and engineering

Focused on leaders that knew all steps of a process rather than those
with highly specialized knowledge; also, skill-building
More emphasis on proactive thinking by employees
Thus, increased productivity, product quality, and responsiveness to
changing consumer demand
quality circles

Lean Production in more detail

2 organizational features:

Transfer max number of task and responsibilities to those workers actually

adding value to the car on the line
has 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 coordinator

Teamwork: from many functions, ties with department, and general
interest in promoting team, not department
Communication: conflicts resolved in beginning, more people => less
people
Simultaneous Development

Competitive Advantages

Reliability

Product variety

Production 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

Chain

Organized suppliers into functional tiers

First-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 quasiindependent 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 workload

Toyota 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 system

Value analysis reduces costs

Declining 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

Consumers

The 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 equity
aggressive selling: promoted long-term relationship between
assembler, dealer, and buyers

Dealer => production system => build-to-order system

Buyers => product development process
Direct calls to households with large database of households and buying
preferences
Focus on repeat buyers
Also 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

Marketing

Door-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

Competitors

American companies upon which Toyota originally developed

many of its own production processes from

GM
Ford
Etc.

Korean companies with planned production

Other Japanese companies, especially Nissan and Honda

Problem

Obstacle: 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 organizations

E.g. keiretsu

Possible Solutions

Appoint 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 company

Same for suppliers

Need increased transparency

Conclusion Watch for quality

fear 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 figures

In 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 dividend

36.00 per share, up 8.00 from the previous fiscal year.