Toyota Production System

(focus on Supply Chain Strategy that makes Toyota successful in

different markets including the US market)

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 Table of Contents
1. INTRODUCTION....................................................................................................................
1.1 TOYOTA MOTOR CORPORATION (TMC).....................................................................
1.2 SUPPLY CHAIN STRATEGY..............................................................................................
2. WHAT MAKES TOYOTA SUPPLY CHAIN MANAGEMENT SUCCESSFUL?...........
2.1 ZERO INVENTORY AND ZERO DEMAND FORECASTING.......................................
2.2 TOYOTA PRODUCTION SYSTEM: ..................................................................................
a) JIT.........................................................................................................................................
b) SMED....................................................................................................................................
c) Heijunka...............................................................................................................................
d) Jidoka....................................................................................................................................
e) Kaizen...................................................................................................................................
2.3 SUPPLIERS RELATIONS....................................................................................................
2.4 CUSTOMER-CENTRIC......................................................................................................
3. CONCLUSION:......................................................................................................................
4. GAME:....................................................................................................................................

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1. INTRODUCTION

1.1 TOYOTA MOTOR CORPORATION (TMC)

 Was founded in 1937 by Kiichiro Toyoda

 Head-quarter is located in Aichi, Japan.

 Market capitalization: 635 billion Yen (as of March 31, 2022), 25th of the world

1.2 SUPPLY CHAIN STRATEGY

 Toyota entered the US market, but initial offerings (Crown) weren't successful.

 Learning from initial failures, they adapted their cars to US preferences and prioritized fuel
efficiency.

 This shift, along with the 1970s oil crisis, propelled them to become a major player in the US
due to their focus on quality, reliability, and fuel economy.

 The company have changed to reduce overproduction and unnecessary capital investment

o The root cause of the problem was forecasting of demand led to excessive inventory.
Therefore, Toyota had built a supply chain where they eliminated two of the most fundamental
elements: inventory and forecast demand.

=> The world's Just-in-time system was born. Supply chain of Toyota has played an important
role in making TPS successful, so what factors contribute to the success of supply chain strategy of
Toyota

2. WHAT MAKES TOYOTA SUPPLY CHAIN MANAGEMENT SUCCESSFUL?

2.1 ZERO INVENTORY AND ZERO DEMAND FORECASTING

 The change started when Toyota realized their overproduction from a lean manufacturing
system. This leads to 4 major inefficiencies: land, labor, maintenance, transportation. These
wastes resulted in unnecessary capital investment.

 The most essential problem was that forecasting of demand led to excessive inventory, which
in turn led to a chain effect resulting in 4 wastes. Then, they made the most important decision to
eliminate 2 fundamental parts: zero inventory and no demand forecasting. Just-in-time supply
chain system was born.

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2.2 TOYOTA PRODUCTION SYSTEM:

a) JIT

What: Just-in-time, or JIT, is an inventory management method in which goods are received from
suppliers only as they are needed. The main objective of this method is to reduce inventory
holding costs and increase inventory turnover. It is a ‘pull’ system of providing the different
processes in the assembly sequence with only the kinds and quantities of items that they need and
only when it needs them. Production and transport take place simultaneously throughout the
production sequence – inside and between all the processes.

How does it work: Customer places an order → Manufacturer orders materials/products from
suppliers → Suppliers delivers materials to manufacturer → Manufacturer assembles products →
Fulfill the orders → Customer receives products

In Toyota: Use of JIT within the Toyota Production System means that individual cars can be
built to order and that every component has to fit perfectly first time because there are no
alternatives available. It is therefore impossible to hide pre-existing manufacturing issues; they
have to be addressed immediately.

 When a vehicle order is received, production instructions must be issued to the beginning of
the vehicle production line as soon as possible.

 The assembly line must be stocked with the required number of all necessary parts so that
any kind of ordered vehicle can be assembled.

 The assembly line must replace the parts used by retrieving the same number of parts from
the parts-producing process (the preceding process).

 The preceding process must be stocked with small numbers of all types of parts and produce
only the numbers of parts that were retrieved by an operator from the next process.

Drawbacks:

 The model is dependent on suppliers’ performance and timeliness, which are hard to ensure.
Additionally, the manufacturer needs to be able to cover any sudden increases in the price of raw
materials, since they cannot wait to order during better pricing.

 In case of disruptions, a JIT model can have a major impact on the business. Since there is no
excess stock to fall back on, sales may come to a halt.

 A just-in-time system needs to be carefully tracked and organized, which will be hard if you
are doing it manually. Softwares should be adopted as it makes the whole process more
manageable. Even though a good software help you it can be a bit tricky and/or expensive to
adopt a new software system and train your personnel accordingly to use the same.

b) SMED

What: SMED stands for Single-Minute Exchange of Die. It is a lean manufacturing technique
used to reduce the setup or changeover time of a manufacturing process to as close to zero as
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possible. The reduction in setup time achieved through SMED helps in improving productivity,
flexibility, and overall efficiency of the manufacturing process.

How does it work:

In Toyota:

 Switching off the running machine after completing previous order

 Open the machine and remove the previous die & punch (considering a press machine)
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 Take the die and punch to the die rack (waste)

 Bring the die and punch required for next order near the machine (waste)

 Fix the die and punch into the machine

 Checking and taking back the die and punch of the previous order to the storage (waste)

 Run sample pieces and adjust the setting

 Start production

Benefits: The activity of bringing the die and punch for the next order could be done before
switching the machine off and taking back the die and punch of the previous order after starting
the machine. The time consumed for opening the machine, assembling and disassembling the die
and punches, adjustments and fine-tuning could be reduced to bring down the change over time
further.

Results: Ohno had reduced the time required to change dies from a day to an amazing three
minutes, and eliminated the need for die change specialists

Drawbacks:

 Resistance to Change: Introducing changes to established setup procedures may face

resistance from employees who are accustomed to existing methods.

 Risk of Error: Rapid setup changes and modifications may increase the risk of errors or
mistakes if proper procedures are not followed meticulously.

 Skill Requirements: Successfully implementing SMED requires employees with the necessary
skills and knowledge to analyze, plan, and execute setup improvements. In some cases,
organizations may need to invest in training or hire specialized expertise to support SMED
initiatives.

c) Heijunka

Imagine when customer demand is unstable (Monday requires 200 products, Tuesday 500 products,...),
if so, it means your business is producing according to customer needs. This leads to too much free time
and overproduction => waste in production, inventory imbalance, so how to solve this problem? =>
Heijunka will help you to find solutions.

What: Heijunka is a term for make flat and smooth the waves of production, expressed through
the relationship between predictability - demand balance, flexibility - reducing production
changeover time for different products, stability - average the quantity and type of products in a
certain period of time

How: Heijunka allows you to level your production by the average volume of orders you receive.

Benefits: make the standardization process easier, reduce costs, reduce lead-time, maximize
resource utilization, reduced inventory

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Drawbacks:

● extremely efficient and frequent machine changeovers (knowledge of SMED is essential here).

● increased responsibility of suppliers (delivery delays are not allowed, JIT applies).

Heijunka in TPS: demand leveling breaks down the total volume of orders for a given planning
period (1-2 months) into scheduling intervals (weekly, daily). A Heijunka calculation then defines
a repetitive production sequence for the scheduling interval, which dictates the model mix
scheduled on a given line. The schedule is then passed into operation through the production and
distribution of Kanban cards.

*** Kanban cards: cards to control the materials flow through their production system

d) Jidoka

What: Jidoka refers to autonomation with a human touch and refers to stopping a manual line or
process when something goes wrong. This allows for early detection and correction of problems,
which leads to improved quality, efficiency, and safety.

How to work: Jidoka works based on four main principles:

1. Detect something wrong;

2. Automatic stop;

3. Solving the problem and root cause analysis;

4. Continuous improvement.

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Benefits of using Jidoka:

● Prevent defective Items being delivered to next process

● Prevents equipment breakdown

● Produces higher quality of products

● Minimize poor quality Improves Productivity (Saves Cost, Time)

● Ensures & Maintains safety

● Empowers people

Results: Errors have reduced since Toyota first used the Jidoka in its production system.

Drawbacks:

● Costly: Implementing Jidoka requires upfront investment in sensors, automation, and

training.

● Challenging to integrate: Adapting Jidoka to existing processes takes time and expertise.

● Over Reliance on automation: Neglecting human expertise for problem-solving can hinder
continuous improvement.

● False positives: Overly sensitive systems can trigger unnecessary stoppages, reducing
efficiency.

● Cultural resistance: Shifting towards continuous improvement can be challenging in some

organizations.

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e) Kaizen

What: The English translation is, broadly speaking, “continuous improvement”. ‘Kai’ means
‘change’ and ‘zen’ means ‘for better’. It is a philosophy that helps to ensure maximum quality,
the elimination of waste, and improvements in efficiency, both in terms of equipment and work
procedures.

How: Through Kaizen key members of the production process collectively come up with ways to
improve quality, efficiency, and the work environment. By indoctrinating employees into the
improvement frame of mind, employees are able to identify opportunities for improving their
jobs.

=> Continuous improvements through acting on suggestions.

Benefits: Kaizen improvements in standardized work help maximize productivity at every

worksite. Standardized work involves following procedures consistently and therefore employees
can identify the problems promptly.

Drawbacks:

One major kaizen disadvantage is that it distorts the entire management system. Kaizen could be
difficult for businesses to go back to previous systems. Also, employees might be unwilling to
change the system that they have been used to. Furthermore, training staff to adapt to new
changes could be expensive and very demanding. If employees do not play their part in adopting
these changes, the amount of time and resources spent will go to waste. In the end, the purpose of
implementing kaizen is defeated.

Kaizen in TPS: TPS relies on employees to keep an eye out for areas where waste can be removed,
thus increasing efficiency. Each employee takes ownership of their work, which they look to make
work easier on themselves, as well as on the company.

Toyota continues to deliver top-of-the-line products because each employee in the production
system is encouraged to offer suggestions to improve processes and streamline production to
consistently improve the quality of our forklifts.

Results: In 2001, Toyota received over 100,000 improvement suggestions from employees, 98% of
which were used resulting in a savings of $18,000,000, and returned $3,000,000 for individual
awards of $25 to $25,000.

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2.3 SUPPLIERS RELATIONS

Traditionally, the 1st and 2nd tier suppliers have to bid in order to produce a certain part. The
suppliers with the lowest offered price will win the bid and receive the production order.

=> They would not share information on advances in manufacturing techniques.

=> Moreover, they wil try to lower the cost (even that is not thanks to their advanced producing
technique) of production inorder to win the bid => the quality will not be secured.

The same thing was applied for the supply of 1st tier suppliers.

=> Toyota’s supply chain is organized into functional tiers.

1st Tier Suppliers

Toyota collaborates closely with first-tier suppliers on new products. Suppliers develop prototypes
based on Toyota's specs and cost targets. Toyota trusts suppliers' expertise for design and focuses
on overall system integration. Information sharing among suppliers fosters process improvements
and reduces waste.

2nd Tier Suppliers

Each first tier supplier forms a second tier of suppliers under itself. Companies in the second tier
were assigned the job of fabricating individual parts. These suppliers were manufacturing
specialists, usually without much expertise in product engineering but with strong backgrounds in
process engineering and plant operations. First-tier suppliers group their second-tier suppliers
into supplier associations so that they too could exchange information on advances in
manufacturing techniques.

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Supplier Relations

 Toyota extends its relationship with its suppliers in many ways

 Toyota owns equity in the majority of its suppliers.

 Toyota’s suppliers have substantial cross-holdings in each other creating a win-win

relationships throughout the supply chain.

 Toyota “often acts as a banker for its supplier groups, providing loans to finance the process
machinery required for a new product.

 Toyota shares personnel with its supplier firms. Toyota lends suppliers personnel to deal with
workload surges, and it transfers senior managers not in line for top positions at Toyota to senior
positions in supplier firms.

Adoption of TPS throughout the Supply Chain

 Toyota extends its practice of just-in-time manufacturing principles to its suppliers.=>

decreases overproduction, stock on hand, and work in process => reduce cost in process.

 Production schedules are (when to produce and how much to produce, when to order and
how much to order) pulled through the entire supply chain eliminating coordination issues.

 Toyota pressures suppliers to share information (vertically and horizontally) so that muda is
reduced throughout the supply chain in order to lower cost => suppliers are able to improve their
manufacturing techniques by learning from each other.

 Toyota is able to add value to every member of its supply chain.

2.4 CUSTOMER-CENTRIC

Customer-centric: Putting the customer first and letting everything else follow.

President Akio Toyoda emphasised the importance of putting the customer first, leading to a shift
in focus within the service parts logistics area from a cost-based supply chain to a customer-
centric one. This transition involved engaging extensively with dealers, including meetings,
surveys, and firsthand learning to understand their needs.

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Key customer needs: Dealers emphasized the importance of timely delivery and accurate parts,
leading to initiatives such as extended cutoff times, expanded facility hours, and same-day service
in select markets.

*** Cut-off time (closing time) is the latest time a container may be delivered to a terminal for
loading to a scheduled barge, vessel, train, or truck.

*** Explanation: Initially, Toyota would not accept deliveries after 4:00 P.M., but then Toyota
decided to extend the cutoff time and accept orders after 4:00 P.M. (because after 4:00 P.M. the
demand for orders is still high). Therefore, Toyota's cutoff time is long, so customers can expand
order time but still have parts/ components delivered at 7 am the next morning.

Action: The organization introduced a visual decision-making tool called the "Priority Wheel,"
emphasizing customer needs as the central focus for all decisions. Behavioral tenets such as
humanizing interactions, encouraging innovation, promoting visual workplace practices, and
fostering quick decision-making were also emphasized to align with the customer-first approach.

Same-day service (SDS):

SDS Dealer Pick Up refers to a service offered by certain businesses or dealerships where they will
pick up an item or vehicle from your location on the same day that you request the service.

SDS Remote Drop refers to a service where you can drop off an item or vehicle at a specified
location, often a designated drop-off point or service center, and have the service completed on the
same day without having to physically wait at the location.

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Looking ahead, the organization is exploring advancements in technology, such as e-commerce
integration, automation, 3D printing, and real-time diagnostics, to further enhance customer
experience.

3. CONCLUSION:

Outgrown Ford and GM and successful in the US market

The top four automotive manufacturers posted close sales numbers in 2004 with Toyota trailing
only General Motors, Ford, and DaimlerChrysler in sales. However, Toyota experienced
substantial one year sales growth in comparison with its main competitors. In regards to
efficiency, Toyota was able to produce similar sales numbers with a significantly less amount of
employees.

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In respect to profit margins, Toyota is outpacing almost everyone in the automotive industry. This
makes Toyota the exception in the automotive industry when it comes to making a real return on
its capital. Since 2000, the output of the global industry has risen by about 3 million vehicles to
some 60 million. Of that increase, half came from Toyota alone.

Toyota's profit margin compared with other competitors

Toyota operates in more than 60 manufacturing facilities in 26 countries throughout the world. Toyota’s
operations are sectioned into 4 channels: the Japanese region, the North American region, the European
region, and Other regions. The most profitable region is its domestic market of Japan followed by
the North American region.

4. GAME:
Toyota Crisis - Solution

Crisis

Aisin Seiki Co., Ltd. is a Japanese corporation in the automotive industry which deals in the
development and production the automobile systems and components. It was established on
August 31, 1965. Its Head Office is located in Aichi, Japan.

During 1990’s, Toyota was largely depended upon AISIN Seiki for its proportioning valves; also
known as P-valves, used in Toyota vehicles for the break-related part.

On February 1, 1997, a fire erupted at one of the AISIN Kariya plant number 1. This leads to a
halt in Toyota Group operations for a couple of weeks. Both Toyota and AISIN Seiki were
dedicated towards the principles of just-in-time production, which allowed both of them to have a
stock of two or a maximum of three days available. A Toyota plant at that time was in full
capacity which had a lot of temporary workers. Every day lost was potentially a huge in financial
losses in sales and profits for Toyota.

P-valves control the pressure on rear brakes which helps in preventing skidding. It was no bigger
than a pack of cigarettes. It was produced in mass quantity using the dedicated transfer lines,
which helps in lowering down the costs and resulting in higher productivity and reliability. AISIN
Seiki was the only sole supplier at that time in Japan of such a part.

Toyota on February 3, 1997, suddenly found itself in deep trouble. It forced, Toyota shut-down its
20 lines out of 30 lines. February 4 and February 5, both days the Toyota plants and its related
firms were shut down.

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By February 6, all Toyota plants were back to normal. But the number of P-valves produced by
AISIN Seiki was less than 10% as compared to actual demand. Although it gradually increased,
but it took more than a month to reach 60% by March 14 and 100% by the end of March.

BRIEF: Aisin Seiki, a Japanese automotive supplier, relied heavily on just-in-time production in
the 1990s. This system, where parts arrive just before they are needed, left little to no buffer when
a fire struck their P-valve (brake component) factory in 1997. As the sole supplier, this forced
Toyota, their main customer, to shut down production lines for several days, causing significant
financial losses.

While Aisin Seiki quickly ramped up production, it took over a month to fully recover from the
fire, demonstrating the vulnerability of just-in-time systems when faced with disruptions.

Solution

1. Just-in-Time (JIT) Inventory Management:

 Minimize inventory holding by ordering components only when needed for production.

 Requires close collaboration with suppliers to ensure on-time deliveries.

2. Kanban System:

 Visual system used to signal production and material needs based on actual demand.

 Prevents overproduction and ensures smooth flow of materials.

3. Supplier Partnerships:

 More than 200 companies participated in the collaboration for impromptu supplies of
machined castings, and approximately 62 of these firms directly produced P-valves. Collaborative
problem-solving and continuous improvement efforts.

 Long-term relationships established with key suppliers.

 Supplier development programs to enhance capabilities.

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4. Lean Manufacturing

 Eliminates waste in all aspects of the production process, including transportation, waiting,
overproduction, defects, and overprocessing.

 Focuses on maximizing value for the customer.

5. Poka-Yoke (Mistake-Proofing):

 Implement systems and procedures to prevent errors and defects.

 Promotes quality control and reduces waste.

Results:

 Reduced lead times: Toyota boasts one of the fastest production cycles in the industry.

 Improved inventory management: Lower inventory holding costs and increased space
efficiency.

 Enhanced quality: High product quality consistently maintained.

 Strong supplier relationships: Collaboration fosters innovation and cost reduction.

 Increased efficiency: Waste minimized throughout the supply chain.

The Aisin fire case illustrates how people and partners are the key elements of the TPS. The TPS
is not just a set of tools and techniques, but a culture and philosophy that fosters teamwork, trust,
and continuous improvement. The people involved in the TPS are empowered to make decisions,
solve problems, and learn from mistakes. The partners involved in the TPS are treated as long-
term collaborators, not short-term contractors. They share information, risks, and rewards.
Together, they form a network of mutual support and cooperation that can overcome any
challenge.

THE END.

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