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Presented by: Ashish Saluja (1011302) Binit Bhura (1011303) Savinder Singh Sachdev (1011309) Snehal Goyal (1011310) Varun Loyalka (1011311)

About the Case

O The rise of Toyota
O Revolutionary production system O The challenges and opportunities

The Origins of Toyota

O Founding idea by Toyoda Sakichi
O In 1926, Sakichi set up Toyoda Automatic O O O O

Loom Kiichiro, got permission and set up an automobile department Kiichiro produced his first vehicle in 1935 Passage of automobile manufacturing law in 1936 Set-up of automobile department as a separate department in order to attract outside customers

The Evolution of Toyota

O Reestablishment after World War II
O Faced many problems
O Small market O Starved of capital O New labor laws O Foreign players

Limitations of Mass Production

O Massive inventories
O Production of large number of defects O No quality control O Higher position employees without any

work O Consumer preferences not taken care of O Lack of capital for investing in mass production

Reducing Setup Times

O Using rollers
O Changes done by the workers themselves O Reduced need of specialists O Eliminated ideal time O Made small production runs economical O Reducing of warehousing cost O Reduced freezing up of scarce capital

Organization of the Workplace

O Formation of teams
O Quality circles O Flexible work force O Labor strike due to layoff of 25% of work

force O Layoff later done but with two guarantees to the existing workforce to give them life time employment and to pay according to seniority and bonus payments

Improving Quality
O Current system useless due to
O No incentive for workers to correct errors O Enormous amount of rework for repairs O Large production of defective cars

O Reduce the amount of rework O Two new elements introduced:

O A cord

O Tracing of defects

Developing the Kanban System

O On-time inventory
O Delivery of inventory to the production line

in containers which were emptied and sent back as a signal to make more parts O Decentralizing responsibilities O Introduction of independent suppliers into the system

Organizing Suppliers
O Initial coordination problems due to vertical

integration O Following of the vertical integration process in the initial stages O Later contracted out most components due to
O Avoid capital expenditures O Reduction of risk O Take advantage of lower wage scales

O Getting more benefits

Organizing Suppliers (Contd.)

O Long term relationships with suppliers
O First-tier suppliers O Second-tier suppliers O Contract of four to five years O Sharing of additional profits, if any,

between the two O Lead to long-term improvements

O More labor productivity
O Less defects in cars O More product variety O At lower costs

Distribution and Customer Relations

O Formation of Toyota Motor Sales
O Philosophy of treating dealers as equal O O O

partners Toyota Motor Sales provided information to Toyota Motor Company Establishment of a separate department for planning and market research later Importance of marketing information Initial stimulus for exporting

Expanding Internationally
O Initial overseas expansion not feasible
O Setup of U.S. subsidiary in California O But closed down the subsidiary later due

to slow sales O Learnt from failures and redesigned itself O Increase in oil prices gave a boost to Toyota O Setting-up of more overseas plants

Transplant Operations
O Set-up of New United Motor


Manufacturing Inc., a 50/50 joint venture with General Motors in California Set-up of another plant in Georgetown Set-up of second plant in Georgetown By 2001, Toyota had four plants in North America Also many other components producing plants were set-up

Transplant Operations (Contd.)

O Toyota moved to Europe in 1992
O A new plant in England O Second plant in France O But due to low quality and expensiveness

of the components, Toyota had to import parts from Japan O Set-up of Toyota Supplier Support Center

Product Strategy
O Initial aim at small cars
O But later also aimed at the middle income

groups which reflected two factors:

O Rising level of income O Holding U.S. customers

O Introduction of new luxury brand Lexus O Introduction of minivan

Toyota in 2004
O A truly international company
O The company is very much profitable O Is still a quality leader O Market leader in Japan O Still maintaining a high level of productivity O Has three most efficient plants in Japan

Financial Strategies of Toyota Before 2004

O Incorporation of new automobile

department in 1937 to attract outside investors O Abolition of mass production in order to attract capital from investors O Improvement of production lines made them economical O Introduction of the concept of team by making teams flexible

Financial Strategies of Toyota Before 2004 (Contd.)

O Contracting out of most components to


avoid capital expenditures Taking advantage of lower wage scales in smaller firms Low cost but high quality components from external sources Contract with the suppliers regarding price in advance Introduction of CCC21 (Saved $9 billion)

Financial Strategies of Toyota After 2004

O Reduction of procurement costs
O Reduction of startup costs O 50% cut in the cost to add or switch

models O 50% reduction in the investment to set up a line of new models


O We are open for questions now, if any.