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The Wrong Lessons From Toyota's Recalls — And the Truth


11:52 AM Thursday March 4, 2010
by Jeffrey Liker | Comments (6)

Now that Toyota is on the ropes, people are lining up to get


Email
their punches in. Analysis and advice are coming from people
who've probably never visited the company, let alone have Tw eet This

deep expertise in the Toyota Production System. The result is Post to Facebook
a growing mythology about what went wrong at Toyota and
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what other companies can learn from its travails.
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In other blog posts I wrote for Harvard Business Review and


Business Week , I have questioned whether there is a need to
explain the failure of the Toyota Production System based on RECENTLY FROM THE CONVERSATION
RELATED PRODUCTS
the current recalls. A pedal sticks because of a certain Use Twitter to Collect Micro-Feedback MAR 4
composite material specified by an engineer five years ago — 10 Must-Read
Articles from How John Chambers Learned to Collaborate at
and that shows Toyota's supplier strategy is broken? A HBR Cisco MAR 4
customer uses the wrong all-weather carpet and fails to clip it by Clayton M.
Eight Things Your Employees Want From You MAR
Christensen,
down properly — and that means Toyota has lost its way? 4
Michael
When you look at what the problems actually are and when Overdorf, The Wrong Lessons From Toyota's Recalls — And
they occurred, much of the faulty generalizations being made Thomas H. the Truth MAR 4

about Toyota problems are laughable. Davenport, Financial Communication, Warren Buffett Style MAR
Peter F. Drucker, Daniel Goleman, 4
A recent article in The Economist is one of many examples of Robert S. Kaplan, David P. Norton,
Rosabeth Moss Kanter, John P.
this trend of bad root-cause analysis and a misreading of the
Kotter, Theodore Levitt, Michael E.
facts. The thesis of the article is that Toyota's recall problems Porter, C.K. Prahalad,Gary Hamel
indicate a general quality malaise that is a result of decisions
Buy it now »
to grow the company too fast, which led to poor supply-chain
management. This argument has been made elsewhere in the 1. Having Ideas Versus Having a Vision
How to Get the
media and is in danger of becoming the accepted version of Right Work
2. Should You Be An Entrepreneur? Take This
Done
the Toyota recall story. Using The Economist article as a by Gina Test
specific example, here are the questionable assertions in that Trapani, Steven
3. Giving a High Performer Productive Feedback
argument (each "assertion" is a direct quote from the article): DeMaio, Tony
Schwartz, 4. How to Keep Good Employees in a Bad
Assertion 1: "James Womack, one of the authors of The Catherine Economy
McCarthy, William Oncken Jr.,
Machine that Changed the World, a book about Toyota's
Donald L. Wass, Stephen R. Covey 5. To Improve Performance, Audit Your
innovations in manufacturing, dates the origin of its present Employees' Emails
Buy it now »
woes to 2002, when it set itself the goal of raising its global
6. How to Kill Innovation: Keep Asking
market share from 11% to 15%. The target was 'totally Questions
HBR's Must-
irrelevant to any customer' and was 'just driven by ego', he Reads on
Managing 7. One Café Chain’s Facebook Experiment
says. The rapid expansion, he believes, 'meant working with a
Yourself
lot of unfamiliar suppliers who didn't have a deep by Peter F. 8. Learn to Ask Better Questions
understanding of Toyota culture.'" Drucker,
William Oncken 9. When You Think the Strategy is Wrong
Jr., Donald L.
Truth 1: The importance of the target of 15% market share in Wass, Stephen 10. Finance's Next Opportunity: Social Investing
Toyota's Global Vision 2010 has been overblown. The global R. Covey, Robert E. Quinn, Robert S.
vision was to follow the Toyota guiding principles to become Kaplan, Tony Schwartz, Catherine
McCarthy, Rosamund Stone Zander,
the most admired company in the world through customer
Benjamin Zander
satisfaction and value. When Toyota's North American
operation turned Global Vision 2010 into operating goals, it Buy it now »

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3/4/2010 The Wrong Lessons From Toyota's Recal…
who wrote the Toyota article to learn that one of the outcomes of Global Vision 2010 was a 60%
reduction in warranty costs. Akio Toyoda, Toyota's president, himself now says that the company
grew too fast and outstripped its ability to develop the necessary human resources. So clearly there
is work to do. But to blame growth for the inadequate development of suppliers and the recalls is an
oversimplification.

Assertion 2: "By the middle of the decade recalls of Toyota vehicles were increasing at a sufficiently
KEEP UP WITH HBR
alarming rate for Mr. Toyoda's predecessor, Katsuaki Watanabe, to demand a renewed emphasis on
quality control. But nothing was allowed to get in the way of another (albeit undeclared) goal: Follow us on Twitter »
overtaking General Motors to become the world's biggest carmaker. Even as Toyota swept past GM
in 2008, the quality problems and recalls were mounting." Become a Fan on Facebook »

Truth 2: Recalls are a terrible measure of quality when you are trying to make inferences about HBR on YouTube »

operations strategy. A single problem evident in 10 vehicles can become 2 million vehicles recalled.
It is not 2 million problems, but one problem. A better analysis would consider the full range of data,
including information from sources such as J.D. Power and Associates or Consumer Reports. Based
on those measures Toyota had one of its best years of the decade in 2009, surpassing other auto Harvard Business Review Daily Alert
makers. Or look at the number of reported safety incidents in vehicles: By that measure, Toyota was Management Tip of the Day

among the very best throughout the decade. Where is the real data that indicates a trend toward The Daily Stat

greater quality and safety problems? Weekly Hotlist


See all newsletters »
Assertion 3: "The majority of those problems almost certainly originated not in Toyota's own
factories, but in those of its suppliers. The automotive industry operates as a complex web. The
carmakers (known as original equipment manufacturers, or OEMs) sit at its centre. Next come the
tier-one suppliers, such as Bosch, Delphi, Denso, Continental, Valeo and Tenneco, who deliver big
integrated systems directly to the OEMs. Fanning out from them are the tier-two suppliers who
provide individual parts or assembled components either directly to the OEM or to tier-one suppliers.
(CTS Corp, the maker of the throttle-pedal assemblies that Toyota has identified as one of the
causes of 'unintended acceleration' in some of its vehicles, is a tier-two supplier whose automotive
business accounts for about a third of its sales.)"

Truth 3: The pedal in question was a sticky pedal and, according to Toyota, was confirmed in less
than 15 vehicles out of over 2 million recalled. The problem was the interaction between a composite
material on one part of the pedal and moisture which led to degradation over time. It is not clear from
the publications whether Toyota or CTS specified the material. In any case, it is not a general issue
of "throttle-pedal assemblies." It was a sticky pedal, and it was one very specialized, isolated design
issue, as most recalls are.

Assertion 4: "Toyota revolutionized automotive supply-chain management by anointing certain


suppliers as the sole source of particular components, leading to intimate collaboration with long-
term partners and a sense of mutual benefit."

Truth 4: As Rajan Kamath and I wrote in a Harvard Business Review article years ago, Toyota
always prefers parallel sourcing to sole sourcing. Its preferred model is three suppliers. In the case
of this particular pedal, Denso and CTS supplied the part for some subset of Toyota vehicles, but
they were not the only suppliers.

Assertion 5: "A consequence of Toyota's breakneck expansion was that it became increasingly
dependent on suppliers outside Japan with whom it did not have decades of working experience. Nor
did Toyota have enough of the senior engineers, known as sensei, to keep an eye on how new
suppliers were shaping up. Yet Toyota not only continued to trust in its sole-sourcing approach, it
went even further, gaining unprecedented economies of scale by using single suppliers for entire
ranges of its cars across multiple markets."

Truth 5: There may be some truth that adding suppliers overstretched its senior engineers. But there
were considerations that factored in the decision: Toyota had to add local suppliers to support its
just-in-time manufacturing and placate politicians. Given how difficult and time consuming it is to
develop suppliers to be as good as Japanese suppliers, these additions undoubtedly increased
variability. I believe the company has done a remarkable job given these circumstances. It certainly
has done a better job than other companies I have worked with. As mentioned above, Toyota does
not sole source. But by using only a small number of suppliers and growing the business of those
suppliers, Toyota had fewer different companies to develop — and greater influence over them.

Assertion 6: "A senior executive at a big tier-one supplier argues that although Toyota's single-
supplier philosophy served it well in the past, it took it to potentially risky extremes, especially when
combined with highly centralized decision-making in Japan. 'There's a trade-off,' he says. 'If you don't
want duplication of supply you have to have very close monitoring, you have to listen to your supply
base and you have to have transparency. That means delegating to local managers. With Toyota, it
works well at the shop-floor level, but things break down higher up.'"

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3/4/2010 The Wrong Lessons From Toyota's Recal…
respecting suppliers.

Assertion 7: "In the aftermath of Toyota's crisis, the industry is now asking itself whether sole-
sourcing has gone too far. 'It may be safer not to have all your eggs in one basket, but to have
maybe three suppliers for major components who can benchmark each other,' says another
purchasing manager. Until very recently, Toyota was the peerless exemplar. For now, at least, it is
seen as an awful warning."

Truth 7: As I mentioned, Toyota does not sole source and, in fact, does have "maybe three
suppliers."

I am not suggesting that Toyota is perfect. Mr. Toyoda admitted that the company has much work to
do and, in particular, has to improve how it reacts to customer complaints. Arguably, Toyota did not
help its case by keeping some internal product changes secret even if it legitimately determined
they were not "real" safety issues — such as the slight hesitation in the ABS braking system of the
Prius. But that is not a supply-chain problem caused by overly rapid expansion. Companies seeking
lessons in Toyota's recalls must take care not to learn the wrong ones.

Jeffrey K. Lik er is a professor of industrial and operations engineering at the University of Michigan
and is the author of The Toyota Way.

More on: Auto industry, Crisis management, Operations

Comments (6) | Join the Discussion | More by This Author | Email/Share

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COMMENTS

6 Add a Comment

March 4, 2010 at 1:29 PM

Jeffrey, thanks for this post - it's refreshing to see an analysis of the Toyota recalls that doesn't seek
to assign blame and perpetuate the fear factor. It's all too easy for Monday morning quarterbacks to
have all the answers. I'd argue that it's this kind of mass lynching that makes companies more
reticent about recalling products - ultimately to the detriment of affected consumers.

— GRANT SMITH

March 4, 2010 at 3:53 PM

All the discussions about supply chain, design problems, recall strategy or business principles etc
etc, are moot academic points.
What Toyota should have done but did not do was to install the brake-override-throttle systems in
their electronic controlled cars. That system is like a parachute to a fighter jet pilot. At the end of the
day, the driver has to be able to stop the car, much like the pilot has to land safely...... regardless of
what happens to their vehicles.
If Chrysler (rated the worst automaker by Consumer Reports) can install that brake-override system
in all their cars, why cant Toyota???

— ANDY

March 4, 2010 at 4:10 PM

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3/4/2010 The Wrong Lessons From Toyota's Recal…
Truth 9: Toyota ignored customers for years about frames that rust away and fall apart.
Truth 10: Toyota had to be sued to address the engine sludge issues that plauged many of their
popular models for years.
Truth 11: Regardless of them draping themselves in the American flags, all corporate decisions
are made in Japan where the culture believes our laws don't apply to them.
Truth 11: This is less about the problems as it is about their flippant responses and uncaring ways
in which they dealt with the deaths that their largley hidden issues caused.

— NICK GERACE

March 4, 2010 at 6:04 PM

What I have read on your site seems in a hurry to exonerate Toyota from any fault, but I'd bet a
month's income that Toyota has a computer problem that it has not yet identified. If it doesn't identify
the problem soon, I have serious doubts that they will be able to survive.
I do not have detailed information about anything at Toyota, but I am a programmer and recognize
the symptoms of programming errors.
I have no doubt that Toyota has combined functions in their computer that have caused their recall
problems. I believe they have created what ammounts to a fly by wire system for their vehicles. It is
an attractive approach financially, but it can create major exposures to faults in the systems
involved, if the programming is not perfect.
If they have combined: Antilock braking; Traction control; Engine management; And Cruise control
functions in the computer, software problems with that computer are almost certainly causing the
recall issues.

— W. R. STEDDOM

March 4, 2010 at 6:29 PM

I believe your point of view is incirrect.


I am a programmer and recognize that the Toyota recalls are all , almost certainly, related to the
function of the vehicle's computer.
Your attitude does not invalidate my opinion that Toyota will fail as a company if they do not
acknowledge and resolve their programming problem. The vehicle computers are the only thing
common to all of their recalls, and it is extraordinary to think any of them has occured on their own.

— W. R. STEDDOM

March 4, 2010 at 6:40 PM

Very interesting and fair piece. I know that the popular "theory" is that Toyota has some type of
electronic problem. I stumbled across this article this morning that sheds a lot of light on how
electronic control systems work:
http://www.popularmechanics.com/automotive/how_to/4347704.html?
nav=RSS20&src=syn&dom=yah_buzz&mag=pop

The more I read on this subject, I believe that Toyota DOES NOT have an electronic problem. If you
look closely at the NHTSA data, you will note that Toyota has 52 reports of unintended acceleration
that are not related to the current recalls...and 36 of them have come in since January when the
recall was announced. 52 in 6 years and 36 of those within the last 2 months? Hmmm...sounds
like a lot of people with their hands out to me.

One last point. Regarding Mrs. Smith from Texas who appeared before Congress. She made for a
very compelling witness with the tears and all but her story just doesn't add up. She claims that not
only did the "electronic" elements (throttle) of her car fail, but that the "mechanical" elements
(brakes and emergency brake) failed at the same time. Brakes and emergency brakes are
mechanical connections, not electronic ones. When inspectors examined that vehicle, the pads
would have been smoked off of the brakes and the emergency brake would have been completely
worn off. This was not the case. To believe her story in its entirety requires a total suspension of
long held beliefs in engineering.

— A. FISHER

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