Toyota: Origins, Evolution and Current Prospects

By Group 2 Abhishek Fedora Prathamesh Ajinkya Manisha

INTRODUCTION
• The growth of Toyota has been one of the great success stories of Japanese industry during the last half century. • 1947: Toyota was a little-known domestic manufacturer producing around 100,000 vehicles a year. • 2004: Toyota stated that the company and its affiliates would produce a record 7.84 million vehicles ,ahead of Ford and 2nd only to General Motors in global industry • 2006: It raised its production targets to 8.5 million vehicles - better-than expected sales in both North America and Asia. • If Toyota meets this goal, it could surpass GM to become the world’s largest automobile-company.

The Evolution of Toyota
• Post World War II, Kiichiro wanted Toyota to reestablish as automobiles manufacturer. • Problems faced by Toyota doing this: – Japanese domestic market was too small to support efficientscale mass-production facilities. – The Japanese economy was starved of capital, thus difficult to raise funds to finance new investments. – New labor laws introduced by the American occupiers increased the bargaining power of labor and made it difficult for companies to layoff workers. – North America and Western Europe were full of large auto manufacturers eager to establish operations in Japan.

• 2ND : Each assembly worker performs a single task. the economies involved in long production runs were reckoned to be considerable. thus increasing labor productivity. • Since setting up much of the equipment could take a full day or more. . Idea behind this: the worker became completely familiar with single task. than a variety of tasks.Conventional Mass Production System The basic philosophy behind mass production was to produce a limited product line in massive quantities to gain maximum economies of scale. and perform it much faster. • 1ST: The economies came from spreading the fixed costs involved in setting up the specialized equipment required to stamp body parts and manufacture components over as large a production run as possible.

Expensive cost of warehousing and inventories tied up capital in unproductive uses. whose jobs logically could be performed by assembly line workers. • The extreme division of labor resulted in the employment of specialists such as foremen. and tooling specialists. . • If the initial machine settings were wrong. quality inspectors.Problems of Mass Production System • Long production runs created massive inventories to be stored in large warehouses. • The sheer monotony of assigning assembly line workers to a single task generated defects. since workers became lax about quality control. long production runs resulted in the production of a large number of defects. • The mass production system was unable to accommodate consumer preferences for product diversity.

• Reduced the time required to change dies on stamping equipment from a full day to 15 minutes by 1962 and 3 minutes by 1971. • In comparison. reduced the time it took to set up the machines for stamping out body parts.Reducing Set Up Time • Manufacture auto body parts in small batches. in early 1980s many American and European plants required between 2 and 6 hours to change dies. . • The production workers were directed to perform the die changes themselves.

. Advantages: • Toyota drastically cut down the time taken to complete certain processes • Reduced the cost of production.Toyota’s System v/s Conventional System • • • Conventional mass producing system produces each required part in bulk and stores the inventory in warehouses. Toyota also reduces the number of excess workers like foremen and supervisors and believes in multi specialization of its work force. • The benefits of this reduced cost are passed on to the customers of Toyota and its investors. Toyota on the other hand produces each part in small quantities as compared to a conventional mass producing system.

Organization of the Workplace • Group the work forces into teams • Reduce the need for specialist • Create more flexible work force • Increased workers productivity .

Improving Quality • Fords mass production was a wasteful process according to TOYOTA • Reasons: 1. Defects getting carried forward . Little incentives to correct the error themselves 2. An enormous amount of rework required to fix it 3.

2. • Ohno’s approach 1. Stop the assembly line if a problem emerged Find the ultimate cause and solve it • Developing the Kanban System 1. Just in time Signal technique – Minimize WIP by increasing inventory turnover Elimination of buffer inventories – Defects were traced faster Decentralizing the responsibility – Does away with the need for extensive centralization &control 3. 4. 2.Contd.. .

Toyota wanted to avoid the capital expenditures required to expand capacity to manufacture a wide variety of components 2. Toyota wanted to reduce risk by maintaining a low factory capacity in case factory sales slumped.Organizing Suppliers • The company decided that while it should increase inhouse capacity for essential subassemblies and bodies. • Four reasons seemed to bolster this decision: 1. . it would do better to contract out for most components.

• Toyota managers felt that the American practice of inviting competitive bids from suppliers was self-defeating. and low-cost external sources of component supply. 4. Toyota managers realized that in-house manufacturing offered few benefits if it was possible to find stable. .. Toyota wanted to take advantage of the lower wage scales in smaller firms. high-quality. 3.Contd.

Consequences • The consequences of Toyota's production system included a surge in:– labor productivity (number of vehicles produced per employee) a decline in the number of defects per car(performance of Toyota plant) – .

Vehicle Produced per Worker .

GM v/s Toyota Plant .

• To this end. through its dealers. • Much of this data came from monthly Or semiannual surveys conducted by dealers. Toyota Motor Sales assembled a huge database on customer preferences.Distribution and Customer Relations • The strategy used aimed at bringing customers into the Toyota design and production process. .

.. • This information was then fed directly into the design process. • Customer preferences considered were:. . Other features • Toyota also used these surveys to estimate the potential demand for new models.styling – – – – Model types Colors Prices.Contd .

Small cars • New entrants.Product Strategy • Initial Aim.Camry and corolla • Two factors – Rising level of income – Desire to hold onto US consumers .

Toyota was now a truly international company. . • Its goal of attaining a 15 percent share of the global market seemed attainable.Toyota in 2004 • The company had overtaken Ford to become the second largest automobile company in the world. and it had its sights firmly set on General Motors.

6 percent share of light truck sales. the world's largest. .1 percent share of passenger car sales in 2003 and a 9. up from 11 percent and 7. Toyota held a 13. respectively.6 percent. market. in 2000.Contd… • Its overseas operations had grown from 11 production facilities in 9 countries in 1980 to 42 production facilities in 24 countries around the world by 2004 • In the all important U.S.

• E.4 hours at Ford.6 hours at General Motors.6 employee hours to build a car in 2004. • Toyota's ability to stay on top of productivity and quality rankings can be attributed to a company-wide obsession with continuing to improve the efficiency and effectiveness Of its manufacturing operations .Contd… • Toyota has always maintained a high level of productivity with the help of superior supply chain and technology. 25. and 26. This compares with 23.0 hours at Daimler Chrysler. In its American assembly operations. Toyota took 20.g.

the GBL system has the following consequences: – 30 percent reduction in the time a vehicle spends in the body shop – 70 percent reduction in the time required to complete a major body change . • According to Toyota.• Toyota has developed and installed a simplified assembly process known as the "global body line" or GBL. – 50 percent cut in the cost to add or switch models – 50 percent reduction in the investment to set up a line for a new model – 50 percent reduction in assembly line footprint ..

• Organizing Suppliers : To develop efficient manufacturing system. is their production process.SWOT Analysis Strengths:• Kanban System : Toyota’s strategic aspect which differentiates them from other auto manufacturers. • Continuous improvement: From reducing setup times to Kanban. from organization of workplace to distribution & customer relations. efforts were always made to improve existing level of performance of company. Toyota focused on developing strong relationship with suppliers. .

high quality sales and services and close involvement with customers. • Keen focus to constantly improve quality in the production process. . • Strong distribution and marketing efforts focused on meeting diverse needs.SWOT Analysis Strengths:• Cultural Advantage –Loyalty : More devoted to groups as compared to individuals.

• Poor performance of Toyota cars on American highways when Toyota entered the USA market. .SWOT Analysis Weaknesses:• Unable to establish market in foreign markets because Toyota cars were not competitive enough. • Heavily relying on importing machine parts from Japan. • Gap between productivity and quality higher for few years compared to global competitors. instead of developing connections with overseas supplier network.

high quality and smaller automobiles to attract consumers. • American designers pushed Toyota to redesign the Prius – Hybrid car first introduced in Japan • Transplant operations in America • Market expansion in UK and Europe.SWOT Analysis Opportunity:• Producing fuel efficient. .

• Environmental regulations and associated apprehension concerning carbon emissions have sensitivity to environmental protection globally.SWOT Analysis Threats:• Increasing maintenance cost of vehicles. forceful marketing campaigns and market saturation. • Impact of fluctuations in foreign currency conversion rates. rising fuel price are challenging threats. • Increased competition. . changing customer preference.

PEST Analysis Political:• Pursuit of environmental technologies • Loan policies to help survive during the financial crisis .

PEST Analysis Economic:• Inflation of fuel prices causing negative effect. . • Agreement to voluntary import quotas resulted in stagnant growth between 1981and 1984. • OPEC’s raise in oil prices helped Toyota to sell small fuel efficient cars in U.S.

PEST Analysis Social:• Developing Hybrid cars in the new age. • Working in co-operation with society • Rising power of middle class . • Voluntary improvement plan addressing environmental. national and regional issues.

.PEST Analysis Technological:• Demand for hybrid engine system • Developing GBL – Global Body Line assembly process • Developing & integrating Kanban with the manufacturing process.

Instead of receiving bids the company developed long term relationships with suppliers.S. The rest were outsourced to companies after a bidding process. Nearly half the components were met by in house production.Supplier relations at Toyota v/s Typical U. • • • Toyota initially followed this strategy but eventually moved on to outsource majority of its components needs. Auto Manufacturer • When Toyota began improving its production process the norm at the time amongst the European car manufacturers was to follow a policy of vertical integration in order to meet the demand for various components required in an automobile. These methods gave suppliers more confidence and faith in the company. They would finance suppliers and even have a small stake in the suppliers units. • .

• The company takes the view points of customers very seriously and tries to develop products that match customers’ expectations and comfort level.Toyota’s approach to Customer Relations influence its Design and Production Planning Process • Toyota has a policy wherein it collects its customer’s preferences through data banks available at its affiliates and dealer showrooms. . • Ever since the company used this strategy to redesign its model The Company has been making use of customers’ preferences to evolve and redesign new cars. • This has helped it gain market share and meet customer expectation.

While new technology or improvements in the process can be imitated. .Basis of Toyota’s competitive advantage • It lies neither with resources or technology but the fact that the company has been constantly able to improve on existing processes. • This flexibility and drive to constantly improve on already established and industry accepted methods have being the backbone of the company’s competitive advantage. competitors have found it very difficult to imitate the drive of Toyota. • • Since Toyota is constantly making change it becomes difficult for competitors to imitate.

Will Toyota be able to sustain its competitive advantage in the future? • Keeping environmental factors aside the founding family now owns a very small stake in the company. • However if the company keeps moving forward and constantly seeks improvement then the company should be able to maintain its competitive advantage. . • If the initial drive to keep moving forward is lost then the company may not be able to maintain its advantage.

• At the same time investing into Africa could be a challenge to the company as the continent is plagued with political instability which could result in a lot of investment going to waste. .Markets that Toyota should concentrate in future • Toyota like the rest of the auto industry constantly seeks new markets to tap. • Due to population and a growing number of middle class families Africa could be a viable option for Toyota to look at. North America and most of Asia saturated the company will most probably look to Africa to push its products. • While Europe.

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