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Toyota

Foreword

Toyota has since 1930 evolved in to being one of the largest car manufactures
in the world. Their strategy towards reaching that goal has always been about
continues improving their production system. Many other companies have
copied Toyotas way of doing thinks, but many have failed when trying. This
assignment focus on how Toyota developed their strategy and evolved their
production system into one of the most admired in the world. But this
assignment also recognizes the latest problems with vehicles recalls that are
threatening the good reputation that Toyota always have appreciated. I will
focus on the causes of these mechanical problems and how Toyota can
overcome these problems. But I will begin the assignment by drawing up the
history of the Toyoda Family, whose impact throughout the Toyota history has
been vital. In understanding the Toyota Way it’s important to know where the
Toyota philosophies come from.

The history of the Toyota Motor Company1

The story of Toyota begins in 1926, when the inventor, Sakichi Toyoda started
Toyoda Automatic Loom Works. Sakichi had excellent engineering skills and
the heart of a real inventor. He soon created some of the most advanced
automatic looms in the world. Between one of his many inventions was a
mechanical devise which could automatically turn of a loom whenever a thread
broke. This special invention would later evolve into a broader system there
would play a major role in the Toyota production system. The Japanese word
for this system was called jidoka (automation with a human touch). The most
important contribution from Sakichi to the Toyota motor company we know
today was his philosophy and approach about continuous improving every
aspect of the business and of course his Jidoka system2.

1
Liker, K. Jeffery p. 15 ff.
2
The toyota wat p. 17
The son of Sakichi, Kiichiro Toyota travelled in 1930 to England to sell the
patent of the Automatic Looms. Kiichiro received 100.000 English pounds for
the patent, which he used for starting capital to the Toyota Motor Company.

One could ask the question why Sakichi encored his son to go into the car
manufacturing business, instead of just carry on the family loom business
which would provide plenty of resources. But Sakichi was aware of the
changing world. He knew automatic looms soon would be old technology while
vehicles would be the technology of the future. But more important for Sakichi
was it that Kiichiro contributed to the world through his own work, just like he
himself had put his mark on the industrial world with his loom making. He said
to kiichiro, “Everyone should tackle some great projects at least once in their
life. I devoted most of my life to inventing new kinds of looms. Now it is your
turn. You should make an effort to complete something that will benefit
society”. This quotation beautifully demonstrates the entrepreneurship and
desire to benefit the society which lies within the Toyoda family spirit.

Kiichiro was just like his father a great mechanical engineer, who mostly was
focusing on engine technology. Kiichiro went on a study trip to U.S.A to study
Fords plant in Michigan and the U.S. Supermarket system. A study trip which
influenced his ideas about the productions system, and he would later come
up with the Just-In-Time system. After world war II Kiirchiro was concerned that
the post war situation would close the company, but the situation was quite
the opposite. The demand for trucks in Japan was high, hence the need for
rebuilding the country. Toyota received many orders for new trucks. But there
was a problem; the post-war situation had increased the inflation to a point
where money was worthless. Payment for customers was almost impossible or
at least very difficult. Creating liable cash flows was dreadful and in 1948 the
debt was many times larger than the total capital value. To survive Toyota
implemented stringent cost policies. Hugh pay cuts and voluntarily retirements
of 1.600 workers was just some of the ways to avoid going bankrupt. Many
companies in Japan at that time faced bankruptcy and every time the CEO
would blame it on someone else. But not Kiichiro Toyota, he took all the
responsibility and resigned as President for the Toyota Motor Company. This
approach from Kiichiro satisfied many of the employees and many voluntarily
left the company. Peace was restored and the act of Kiichiro is still today a
proof on how things are done within the Toyota organisation. It furthermore
shows the philosophy of thinking beyond individual concerns and instead does
what is best in the long run for the company.

Eiji Toyota, the nephew of Sakichi and much younger cousin of Kiichiro would
turn out to be the next important character in the development of Toyota. Eiji
was originally giving the assignment from Kiichiro to build a car hotel. This had
the purpose to contain people’s cars and perform service on the Toyota
models. Eiji had the same approach regarding work as Sakichi and Kiichiro. He
believed in doing things yourself and to get your hands dirty while doing it.
This approach is very important in understanding the foundation of the Toyota
Organisation. Every generation of the Toyota family is raised with values like
hard work and learning by doing. Eiji became eventually President and
chairman for Toyota Motor Manufacturing. He was the leader in some of the
most important high growth years. He kept developing the Toyota Production
System and chose the leaders who were key players in the success for Toyota.
At the current moment is the grandson of Kiichiro, Aiko Toyoda, the president
for Toyota Motor Corporation. He is just like all the previous generation of the
Toyoda family a hard working man who is very much devoted to keep Toyoda
in the front of the automobile manufacturing business.

To understand how Toyota has become the best car manufacture in the world,
it’s important to understand the heritage of the Toyoda family. Each
generation in the family has contributed to the Toyota we know today. Sackiro
with the philosophy about continuous improving or as they call it in Japan,
keizen. He moreover implemented the system jidoka. The next generation with
kiichiro in the leeding role contributed with the Just-In-Time system and he
furthermore was an example within the Toyota Organisation for how things are
done in a crises situation, hence he himself took the responsibility and retired.
Eiji who represented a younger generation than Kiichiro was the person who
evolved the Toyota Production system that function today by trial and error.

The strategic planning for Toyota Motor Company3

Even before the World War II Toyota knew the Japanese market was too small
for producing large batches of cars. They could not benefit much on the
economics of scale as Ford in U.S. Toyota was facing a challenge where they

3
Liker, K. Jeffery p. 20 ff.
had to alter mass production approach to match the Japanese market. They
were building large batches of the same car at the assembly lines at the Ford
plant in America. In contrast was the demand for vehicles in Japan to small to
produce large number of quantities of only one type of car. They had to
produce different types of cars on the same assembly lines, which required a
more flexible production system. The Toyota Plant manager, Taiich Ohno, was
in 1950 facing a great challenge. Ohno was from Eiji Toyoda giving the
assignment to match Ford, regarding low costs, quality, short lead tmes and
flexibility. The only way for Toyota to survive was to find a way to generate
fast cash flows, which means the time from receiving orders to getting paid
should be short.

But there was also optimism to track. Eiji Toyoda and his manager went on a
study trip to Fords Manufacturing plant in 1950. He discovered that not much
in the mass production had improved since the 1930s. They observed people
keeping busy by keeping the machines busy. The generated large batches of
products and was rewarded after how many pieces they produced. All of which
resulted in overproduction and multiple flaws. Moreover they witnesses
enormous piles of material lying around in the production hall and forklifts
move it from place to place. They glimpsed an opportunity to be better than
Ford in producing cars or at least catch up.

So nevertheless Ohno had a change for fulfilling his assignment. After visiting
the Fords plant in U.S. Ohne returned to production floor. With the help from
engineers, managers and devoted workers he improved and renewed the
whole production system. In his construction of this new system he mainly
used the theory behind the jidoka and the one-piece-flow that correspond to a
flexible flow which is quickly transformed according to the demand from the
costumer. But Ohne could only have done this with the help from U.S. He
borrowed the “pull system” from the supermarkets in America and he carefully
studied Fords book, Today and Tomorrow. The Pull system is used in the
Toyota production floor to avoid large amounts of inventory under production
to be piled up in the production facility. The core principles are that you pull
the material through the productions steps when they are needed in the
different steps. Additionally to the already described principles behind the new
production system, was also The Just-In-Time system significant in order to
develop a superior production system. Just-In-Time system enables companies
to manufacture and deliver small quantities of products in a small lead time
and which always meet costumer’s specific demand. The power of the JIT lies
in ability to alter the production size in order to match the specific day-by-day
demand. Instead of produce the same quantity size month after month as they
do it in the Ford manufacturing plant in Michigan in U.S.

The development of the Toyota Production System or Lean as some call it, has
been a vital process in the strategy towards becoming the number one car
manufacture in the world measured by profit. When other car manufacture has
improved their production skills a bit, Toyota has improved a whole lot. When
Ford and GM only concern was keeping the cost low and economies of scale,
Toyota also concerned about the quality. Which in the long run are key factors
in lowering the costs.

What went wrong?

Toyota has always been a reliable brand that people safely have put their trust
in. Quality and reliability has always been key factors when people chose to
purchase a Toyota instead of many other car brands. Their image has always
been flawless and superior compared to other strong brands like IKEA, Johnson
& Johnson and Google4. But something went wrong somewhere, already in
2005 and 2007 was small quantities of cars recalled and by November 2009
more than 9 million cars worldwide has been recalled5. Toyota is not facing one
mechanical problem but multiple issues regarding several models. The
problems began with floor mats pressuring down the accelerator, continued by
mechanical flaws concerning the accelerator and now brakes troubles in the
Prius hybrid Model are following6. Toyota has in a long time refused to take the
responsibility and denied that the problems have been mechanical problems.
Instead they have blamed the costumers for inappropriately installing the floor
mat. But after further recall on 2,3 million vehicles in January and 400.000
Prius hybrid models in February 2010 there was no one else to blame but
themselves7. In February this year announced the president for Toyota, Akio
Toyoda, that he was sorry for all the manufacturing mistakes and admitted

4
Cowan 2010: 14.
5
Saporito, Schuman, Szczesny & Altman 2010: 26-30
6
Woodyard 2010: 02b
7
Saporito, Schuman, Szczesny & Altman 2010: 26-30
that he himself or Toyota corp. was not perfect. But they will strive to improve
previous mistakes8.

International Motor Vehicle Program (IMVP) at the University of Pennsylvania’s


Wharton School, argues that the blame lies in the exceptional high growth that
Toyota have experienced the last decade. Toyota produced 5,2 million vehicles
in 2000 and in 2007 they produced 10 million cars. They argue that capacity
increment in that range puts high pressure on the company’s ability to pass on
the know-how, culture and technology to new manufacturing facilities
worldwide. They further stresses that when Georgetown, Ky., plant in 1988
opened, there was wide range of specialists and experts to implement the
Toyota Way within the new facility and if vital parts when implementing the
Toyota Way is lost, failures can occur like the ones we recently have seen9.
Director of Asian studies at Temple University in Japan, Jeffrey Kingston states
that Toyota don’t recognize how responsive the consumers are in America
when it concerns auto-safety issues and that Toyota’s focus on their costumers
have been absent. He goes on by saying that Toyota has a reputation for being
arrogant and only are used to successes and when facing a problem they don’t
know how to act in response. He also indicates fundamental issues in Japanese
organisations, like Toyota, as vital aspects of the problem. He says that people
far down in the hierarchy in many modern Japanese organisations find it hard
to bring bad news to the leaders10. In the article from USA today the 25 of
February states the president from Toyota, Aikio Toyoda, that. “We purchased
growth over the speed at which we were able to develop our people and our
organization, and we should sincerely be mindful of that”.11 Bill Fischer, who is
a professor of technology management at the IMD Business School in
Lausanne, argues that Toyota in it’s pursuing for constant growth and
expansion has been diverted from the Toyota way of doing thinks. Meaning
that they have many times decided to built a new manufacturing facility with a
new workforce where the original Toyota culture doesn’t exists, which causes
less know-how and important procedures less implemented on their new
fabrication facilities.12 The pursue for growth has in many ways weakened

8
USA Today 2010: 02b
9
Saporito, Schuman, Szczesny & Altman 2010: 26-30
10
Saporito, Schuman, Szczesny & Altman 2010: 26-30
11
USA Today 2010: 02b
12
Fisher 2010: 1
Toyota, there was weak signals for large problems already back in 2002 but
the top management was on focusing on the growth. Furthermore was the
manufacturing process beginning to be inflexible and not able to adapt to the
global economy. Some analysts portray Toyota management team to be
narcissists and to narrow-minded to suitably handle the present crisis.13 A long
a rapid growth strategy are an intensive strategy towards reducing cost
following. Toyota is always in the lookout for places to cut down production
costs, which cause the quality to decrease. An example of this is the
production of the Camry midsize sedan. Toyota was putting pressure on the
suppliers to deliver design part that were 10% lighter and 10% cheaper. This
pressure to cut costs made the lead supplier to choose a carbon fiber material
that hadn’t been approved by Toyota engineers. The new selected material led
into embarrassing flaws in the cars headliner, which sometimes cut catch on
fire. In the end it demonstrate some of the strategies within the Toyota
organisation that can cause decreased quality and possible embarrassing
media storm14. An economics professor at Washington and Lee University,
Michael Smitka, mention management problems as vital causes for Toyota.
Meaning that Toyota are manufacturing vehicles more than 50 locations
worldwide, but are still making all major decisions at Toyotas headquarter in
Japan, which causes the organisation to be too centralized. Moreover he
claims that the organisation structure in some ways are causing problem,
mostly regarding engineers who are too far from the market and instead of
specialize the engineers they are working in different projects and are often
rotated.15

When one overview the reasons for the decrease in their quality it’s inevitable
not to blame much of the guilt on the extreme high growth they have
experienced for many years. Furthermore the arrogant culture within the
Toyota Organisation when facing problems a reason for their continuous
stream of vehicles that are recalled.

The bill for all the vehicles and lost sales can turn out to be the highest in the
history. David Silver, who is an equities analyst at Wall Street, claims that the

13
Saporito, Schuman, Szczesny & Altman 2010: 26-30
14
Ohnsman, Green, Inoue, Welch, Fisk, Levin, Rowley, Kitamure & Hagiwara 2010: 32-
36
15
Industrial Engineer 2010: 17
cost of rebuilding the brand and all the repairs can exceed 4 billion dollars
which is more than twice the amount Toyota has estimated16.

What strategy will Toyota use in order to make profit again?

Toyota is facing a complex task in restoring their reputation and upholding


their brand as a high quality brand. Toyota has already apologized through
multiple media channels throughout the crisis. But is this enough and will it
help Toyota back on the right track.

Larry Smith, president of the Institute for Cri-sis Mangement in Luisville, Ky,
argues that. “The secret and trick is to give an honest, heartfelt apology”. And
he furthermore says that. “You have to take responsibility for what went wrong
and then say how you’re going to fix it”.17 But that’s only the first step. Larry
Smith states that the second step is to connect a clear communication stream
to the costumers in order for explaining what there are doing to fix the
problem. The article in Brandweek, written by Gregg S. Lippman, claims that
it’s important for Toyota to develop a character or personality by enhance the
communication and the general relation with their customers. They should
moreover classify a core affecting differentiator and send out the message
through heritage, song and humour18. Maybe Toyota also needs to alter its
organisations structure in order to maintain its position as number one. A
centralisation could be profitable as long the Toyota Way is still reaching out to
all of its fabrication facilities in the world.

Conclusion

Since the beginning of the story about Toyota has the philosophy behind the
company played a vital part in its ambition about being the most effective car
manufacture in the world. The strategies concerning developing the most
effective production system has been the way to succeed in the competitive
automobile business. This successfully production system is the main reasons

16
Cameron, Watson 2010: 28-31
17
Cowan 2010: 14
18
Lippman 2010: 34
for Toyota’s high profits they have gained for many years and made it possible
to exceed General Motors in sold vehicles. Just since the 21 century has
Toyota doubled its production capacity from 5 million to 10 million vehicles per
year. Not only in the automobile business but almost any business in the world
has Toyota been the company everyone has admired the most and they have
for many years being having a unimpeachable image. But rapid growth they
have achieved the last decade has been with a price. The many recalls have
most certain direct links to their pursue for high growth. The Toyota Way and
the general approach are being put on a trial when they constant are building
new facilities with new workforces around the world. Especially when they on
the same time are pressuring the cost which can cause decreased quality and
increased flaws in cars. An old fashion organisation structure and top
management are perhaps also causing further troubles in a globalist world.
Especially the culture within many Japanese organisations where people in the
layers of the hierarchy are afraid of deliver bad news to the top management,
can also been a reason for some of the unlucky incidence in the last period of
time.

To wind back its brand, reputation and overall image as before the recalls, has
Toyota used several strategies. Their first strategy with denying the problems
to be mechanical related and instead blaming the costumers have not been an
appropriate strategy. It has caused many unsatisfied costumers and
embarrassing focus from the media. Since have they changed their strategy
and are now taking full responsibility for the problems and they are trying to
communicate through multiple channels to their costumers that they are fixing
the problem.

But whatever strategy Toyota is choosing both present and in the future, we
can hardly talk about Toyota being finished. They have been producing cars
since 1930 and its corolla remains the best-selling car in the history of the
world. The company has because of the many recalls lost some of its market
share, however the size and magnitude of Toyota is hardly to be destroyed in a
couple of months.
Bibliography

Liker, Jeffery K. (2004), The Toyota Way, USA: McGrew-Hill.

Cowan, James (2010). “Toyota has hard time with ‘Sorry’”. Canadian Business,
Vol. 8, issue 2, p14.

Laura, Cameron & Watson, Thomas (2010). “The truth about Toyota”.
Canadian Business, Vol. 83, issue 6, pp. 28-31

Saporito, Bill, Schuman, Michael, Szczesny, Joseph R. & Altman, Alex (2010).
“Toyota Tangled”. Time, Vol. 175, issue 7, pp. 26-30

Woodyard, Chris (2010). “Toyota PR blitz plays catch-up”. USA Today, February
2, p. 02b

Lippman, Gregg S. (2010), “Toyota Has Issues Beyond Those High-Profile


Recalls”. Brandweek, vol. 51, issue 10, p 34

USA Today (2010). “‘I am deeply sorry’”, February 25, p. 10a

Fisher, Bill (2010), “That was Kaizen; this is now”. Financial management,
April, p1.

Ohnsman, Alan, Green, Jeff, Inoue, Kae, Welch, David, Fisk, Margarot Cronin,
Levn, Doron, Rowley, Ian, Kitamura, Makiko & Hagiwara, Yuki (2010).” THE
HUMBLING OF TOYOTA”. BusinessWeek, issue 4172, pp.32-36

Industrial Engineer (2010). “Toyota’s main problem? Mangement.”, April, p. 17.