Toyota: a case study

Background

Toyota Motor Company was founded in 1937 by the Toyoda family.

Business was relatively unsuccessful until Eiji Toyoda introduced the method
of lean production after studying Fords Rouge plant in Detroit in 1950.
This lean production method became known as the Toyota Production
System.
The production executive, Taiichi Ohno, successfully helped Toyoda improve
his company using this new production method and mode of thinking.
 Environment
Cultural
Company as a community: lifetime employment, access to company facilities,
seniority-based wages (in return for 1/3 work force layoff in 1946) ; as a return,
employees must be more flexible and actively promote interests of company >>
Implications: labor = Fixed cost

Economic
Postwar conditions put Japan into a country lacking significant capital, so that
Japan had to rely mostly on producing its own technology.

Political
The Ministry of Intl Trade and Industry (MITI) encouraged Japanese firms to
enter the automobile industry despite established competitors from the West by
imposing high tariffs discouraging imports and prohibiting foreign ownership.
Japans work force, under Western influence after WWII, grew more powerful
and more demanding, thus limiting producers efforts to reduce labor costs.
 Environment (cont.)
Demographical
The domestic market was very small and un-uniform. Thus, goods had to be
very tailored to specific consumer taste. E.g. luxury cars for officials, small cars
for city residents, etc.

Technological
Commitment to innovation and improvement
Large skilled-labor pool to draw from

Social
Commitment by employees to work
 Country Differences?
Western careers vs. Japanese community

Focus on long-term growth as opposed to short-term profits

More interpersonal relationships with employees, suppliers, and customers

 Organizational Structure

Multi-regional lean enterprise

Primarily network structure

Network of suppliers
Network of dealers/distributors

Frequent interaction between all levels of the organization

 Strategy Lean Production
Final assembly plant
Moved from move the metal mentality to kaizen
Introduced idea of stopping assembly lines in order to correct problems before
continuing
As a result, quality improved and yields are close to 100%

Product development and engineering

Focused on leaders that knew all steps of a process rather than those with highly
specialized knowledge; also, skill-building
More emphasis on proactive thinking by employees
Thus, increased productivity, product quality, and responsiveness to changing
consumer demand
quality circles
 Lean Production in more detail

2 organizational features:
Transfer max number of task and responsibilities to those workers actually
adding value to the car on the line
has in place a system for detecting defects that quickly traces every problem,
once discovered, to its ultimate cause

Thus, need tight teamwork and open communication among workers

(comprehensive info display system on electronic displays visible from all
work areas)

4 areas of importance:
Leadership: Toyotas large-project leader w/power vs. Western coordinator
Teamwork: from many functions, ties with department, and general interest in
promoting team, not department
Communication: conflicts resolved in beginning, more people => less people
Simultaneous Development
 Competitive Advantages

Reliability

Product variety
Production plants in North America build 2-3 products at a time, as opposed to
one by Western firms.
Firms keep models for an average of four years, as opposed to an average of
close to ten years by Western companies.
Western companies sell almost twice as many cars of the same model as
Japanese firms do.
 Suppliers Lean Production Supply Chain
Organized suppliers into functional tiers
First-tier suppliers: worked together in a product-development team
Second-tier: made individual parts

Encouraged cooperation and communication among first-tier suppliers

In house supply operations turned into a network of quasi-independent

first-tier supplier companies

Substantial cross-holdings between Toyota and suppliers, as well as among

suppliers themselves even though each supplier is an independent company

Cross- sharing of personnel through

Toyota sending personnel to suppliers to compensate for greater workload
Toyota transferring senior managers to suppliers for top positions

Developed the just-in-time (JIT) system, or kanban

 Suppliers Lean Production Supply Chain
(cont.)
market price minus system, not supplier cost plus system
Value analysis reduces costs
Declining prices over life of model due to learning curve

Production smoothing enables suppliers to maintain a constant volume of

business

Focus is on long-term relationships that underscores cooperation,

teamwork, and gradual mutual improvement, rather than price through
bidding as a way to choose a supplier
 Consumers
The market began to fragment in the 1960s as cars increased in popularity
and became essential household goods.

Marketing executive Shotaro Kamiya focused on building a sales network

modeled after Toyotas supplier network.
Distributors with a shared destiny: wholly owned companies or ones in which
Toyota held equity
aggressive selling: promoted long-term relationship between assembler, dealer,
and buyers
Dealer => production system => build-to-order system
Buyers => product development process
Direct calls to households with large database of households and buying preferences
Focus on repeat buyers
Also focus on brand loyalty => Toyota family

5 distribution channels in Japan: Toyota, Toyopet, Auto, Vista, and Corolla

Closer and more familiar relationship between buyer and salesperson

Focus on customer-specified order

 Marketing

Door-to-door selling/very customized

Emphasis on pull marketing: giving consumers what they want

Tight relationship with previous buyers to keep clients

Sales personnel received intensive training before starting their jobs

Up-to-date and detailed database of consumers helps keep track of trends,

interests, and tastes
 Competitors
American companies upon which Toyota originally developed many of its
own production processes from
GM
Ford
Etc.

Korean companies with planned production

Other Japanese companies, especially Nissan and Honda

 Problem

Obstacle: inward focus of Japanese lean producers

Lack the ability to think and act globally rather than from a narrow national
perspective

Backlash to Japanese direct investment in North American and Europe, a

prominent reason of which is that it creates friction as a result of Japanese
corporation biases, mainly two classes of citizenship in their organizations
E.g. keiretsu
 Possible Solutions
Appoint native managers to head their manufacturing operations in North
America and Europe

Designate native supplier companies as source for certain categories of

components

Governments: restrictions on visas for Japanese employees at new facilities

and in Europe, strong pressures to attain high levels of domestic content
asap

Author suggests: build a truly global personnel system in which new

workers from North America, Europe, etc. where a company has design,
engineering, and production facilities, are hired in at an early age and given
the skills, including language and exposure to management in different
regions, needed to become full citizens of the company
Same for suppliers
Need increased transparency
 Conclusion Watch for quality
fear of repetition of Fords experience in Britain after 1915

Wholesale substitution of domestic managers and suppliers, to deal with

investment friction, will degrade performance of production system toward the
existing level

Evidence that plants that perform best are those with very strong Japanese
mgmt presence in early years of operations and those that have moved slowly
and methodically to build up their domestic supply base

Need managers and suppliers that understand lean production and are
committed to it, mostly Japanese
 Financial figures
In fiscal 2003, ended March 31, 2003, Toyotas consolidated net revenues
increased 9.2%, to 15.50 trillion, operating income rose 16.3%, to 1.27
trillion, and net income was up 34.9%, to 750.9

ROE reached 10.4%, surpassing the short-term target of 10%.

As of March 31, 2003, treasury stock repurchased by the Company totaled

1.38 trillion, or 416 million shares, and total shares issued and
outstandingexcluding treasury stockhad decreased to 3.45 billion
shares.

In fiscal 2003, the Company paid its highest-ever annual dividend36.00

per share, up 8.00 from the previous fiscal year.