Case Study toyota-prius-2016-05
Strategies and Key Success Factors of Toyota

Executive Summary

In this article, the principal operating task and strategies of Toyota will be defined and discussed. Firstly, the various operational objectives for the company will be outlined, and then the various order winning and order qualifying criteria for Toyota is discussed. After that, the operational strategies used by Toyota will be presented. Specifically, it is discussed that lean system has been envied by many and many more tried to adopt it in their own factory or organization. However, not many that has been successfully adopted and practiced lean system such as Toyota Motor Corporation. We will analyse the lean production system practiced by Toyota and critically look at the success factor of the system and where it can be improved on in the respect of operation management. First of all we will look at the philosophy behind the lean operating systems of Toyota, the corporate culture that has been embedded in each and every employee, the human resource management system and how it encourages innovation and creativity. Secondly we will critically analyse the Toyota production system as a whole and the practices and principles of the production system; elimination of wastes, kanban system, just in time manufacturing and automation of work processes. We will be looking at the main processes involved and the strategies and procedures employed in the Toyota production system. Recommendations for Toyota’s current production system and ways it may implement continuous improvements towards achieving their ultimate objectives of being the market leader in the automotive industry. Last we conclude that Toyota production system is a lean system envied by others.

Background of Toyota

Toyota Motor Corporation is a vehicle producer, based in Japan, especially in the production of passenger cars and light commercial vehicles. The firm sells its vehicles in exceeding 170 countries all over the world. Toyota’s prime markets are Japan, the United States, Canada, countries in Europe and Asia. Toyota Motors main office is in Toyota City, Japan and hires about 320,808 people.

The company strives to sustain its efficient manufacturing position and profitability growth in the long term by improving its business in North America, and other parts of the world.  Toyota also is the pioneer in the green technology by being the first to produce hybrid cars which aims to provide ecological sustainability. (Liker, J. 2010)

Toyota Motor Corporation strives to be in the pole position for the industry that they are in. The advanced operation management techniques were in fact invented by them and continued to be practiced by Toyota in their manufacturing and production of vehicles in an efficient and cost effective way without compromising on the quality.

Toyota Production System which is now the highly followed program in manufacturing and production industries to improve company’s profitability and efficiency. All in, under Toyota Production System (TPS) approach, which stress on the values of “total elimination of all wastes”, imbues all dimensions of manufacturing in pursuit of the most competent methods, tracing back its roots to Sakichi Toyoda’s philosophy. The Toyota Production System has evolved through many years of experimentation to improve efficiency based on the Just-in-Time concept developed by Kiichiro Toyoda, the founder (and second president) of Toyota Motor Corporation. (Liker, J. 2010)

The modernization pushed by Sakichi Toyoda improved working method through automation of work which used to be manual labour but also built the competence to make decision into the automated robot itself. By completely remove erroneous products and the inefficient methods, Sakichi successfully in improved manufacturing efficiency and work productivity.

Kiichiro Toyoda, who received this values practiced by the founder, set out to realize his philosophy that “the ideal surroundings for manufacturing are created when machinery, amenities, and human operate together to add value without generating or minimizes wastes.” He envisages approaches and procedures for eliminating waste between work procedures, between both production lines and work processes. The result was the Just-in-Time method. (Katz,  2010)

By practicing the philosophies of “Continuous Improvements” and “Good Thinking, Good Products” the Toyota Production System has changed into a world-wide acknowledged efficient production system. Furthermore, all Toyota production departments are making advances to the Toyota Production System on a daily basis to ensure its continued progression and innovation.

Until this modern day, the “Toyota spirit of operating things” is now famously referred to as the “Toyota Way.” It has been taken up by most companies not only Japan or the car making industry, but in manufacturing activities across the globe.

Toyota’s Order Winning and Order Qualifying Criteria

Toyota has a broad client base from all around the world. Most of the customers are in fact buying the vehicles produce by Toyota for family or sometimes, for commercial usages. Judging by the popularity of Toyota cars in the market, it is reasonable to conclude that the products produced by Toyota meet customers’ requirement and needs. Customers are satisfied with the vehicles manufactured by Toyota because the company able to meet various needs by the customers, through several orders winning and order qualifying criteria.

Toyota Order Qualifying Criteria

There are three order qualifying criteria possessed by Toyota. Firstly, the car manufactured has a user friendly interface, which enable to customers to know how to use the car properly. Only by the design of user friendly interface, the customers will consider to purchase the vehicles, as essentially no one will buy something that he does not know how to operate or use.  Secondly, Toyota vehicles also able to provide personal mobility capability to customers; i.e., the ability to move from one place to another. This is easy to understand as all vehicles buyers want to drive from a single place to another. Thirdly, the many car buyers will consider Toyota products because the company has strong and safe robotic technology. If a car is designed with easily break down technology, or is not safe to be driven, it is impossible that customers will consider the cars produced by Toyota.

Toyota Order Winning Criteria

There are many order winning criteria possessed by Toyota, enabling the company to win out in the highly competitive car industry. First of all, Toyota is superior and favored by customers due to its high technology and quality. Toyota cars are equipped with high technology, and the car is designed with superior quality. The vehicles are dependable, reliable and long lasting. Not only are those, the cars also designed for great safety and comfort. This is the main factor causing the customers to favor Toyota cars in the purchasing decision making process. Besides, it is also well-know that the manufacturing process in Toyota is superior, leading many buyers to purchase the vehicles made by the company. Apart from that, the designs of Toyota cars are also stylish and modern. Many of the car designed has remarkable nice outlook and fulfill the consumers’ preferences, tastes and requirements. Thus, consumers may simply decide to buy the car mainly being attracted by the highly appealing car outlook and model. Last but not least, the pricing of Toyota cars are also competitive and highly affordable by the mass public. The low pricing is made possible as the company is practicing a lean manufacturing philosophy and implements various ways to eliminate the wastes in the company. Due to the cheap pricing, it successfully becomes one of the car manufacturers that secure the largest market share around the globe.

Toyota Corporate Culture

The justification behind Toyota’s achievement in the automotive industry lies in its company philosophy – the set of policy and behaviour that govern the use of its assets. Toyota has successfully penetrated world wide automotive industry segments and successfully a renowned presence by merit of its quality. The organization’s methods to both product improvement and delivery are very customer-friendly and industry-driven.

Toyota’s philosophy of giving autonomy to its workers is the centre piece of a employee management system that encourages creativity, continuous development, and innovation by encouraging employee participation, and that likewise it encourages high levels of employee loyalty. Knowing that an office with high esteem and work satisfaction is more likely to produce dependable, high-quality vehicles at reasonable prices, Toyota have recorded many effective lean operation strategies. Toyota has not only able to achieve these in its own manufacturing lines but also in other components provider’s plants that was experiencing inefficiency. (Katz, J. 2008)

Although many vehicles’ producers have earned a name for developing high-quality vehicles, they have been not able to overcome Toyota’s strengths in employee management, components provider networks and delivery systems in the extremely competitive consumer cars market. In fact, most of Toyota’s success in the industry is mainly contributed by the synergistic performance of its policies in employee management and components provider’s networks.

Principal Operational Strategies in Toyota

Toyota’s worldwide competitive edge is based on a business ideal known as the Toyota Production System. The Toyota Production System is a manufacturing system whereby it is special in the sense of lean production system which many other production companies are adopting the strategies.

The lean system whereby adopted just in time strategies and reducing mistake at source is some of the practice by Toyota. The system depends on productive employee management policy that encourage workforce creativity and allegiance but also on an extremely efficient cooperative of essential parts and car components suppliers.

Toyota Production System is based on a house structure. The structure is built with strong foundations where the most important aspect is placed at a solid company philosophy. Followed closely by Visual Management and stable and standardised processes and levelled production. A levelled production is necessary to keep the whole production stable and allow for just in time practice or to keep inventory to a minimum possible.

The two pillars of the house, one of it is the famous and mostly publicised values; Just in Time, where inventory are limited to just enough for the current operation. And the other pillar, Jidoka, which means in station quality, looks at giving its labour more autonomy and freeing them of manual work through automation and quality control. (Liker, J. 2010)

The house itself focuses on waste reduction and waste elimination while another part focuses on people and teamwork. Waste reduction would ensure parts and components received are free of defects and the workforce are cross trained to ensure most people are able to take over anyone’s role in the organization to reduce mistakes and absenteeism.

Each element of the Toyota Production System’s house structure is important. Any link which is unstable will weaken the whole structure. Therefore importance is placed in all aspects of the production system rather than just a part of it. It functions as a whole to produce the best results.

Lean Manufacturing

Lean manufacturing simply means a highly adaptable system that consumes minimal resources and yet able to produce excellent products or services. The two most important concept in the Toyota production system as reflected in the Toyota production system house model would be the two important pillars. Just in time and jidoka concept.

Just in Time

The ideal stage for manufacturing goods is the one where automation, facilities and human resources carry out operations, processes and procedures without wastes; it will serve to add value. “Just-in time production” was design primarily to change this ideal stage into practical production process, between each department, each work procedures, each processes and each outlet. In other words, by utilizing “Just-in-time production” concepts, each process can supply necessary and relevant components at accurate volume at the correct timing.

Toyota production system aims to manufacture quality products efficiently through the complete elimination of waste, provide consistencies, and efficient performance on the production line. In order to deliver cars ordered by a consumer as quickly as possible, the car is efficiently built within the shortest possible time. The following describe processes of just in time concept. (Liker, J. 2010)

  1. When a car order is obtained, a production instruction must be generated to the front line of the car manufacturing line as fast as possible.
  2. The manufacturing line must be supplied with required number of all needed components so that any type of ordered car can be produced.
  3. The assembly line is now then designed to replace the components utilized by retrieving the same amount of parts from the components-producing process (kanban system).
  4. The kanban system must be stocked with small amounts of all sorts of components and produce only the amount of components that were retrieved by a worker from the subsequent process.

Jidoka

Jidoka brings the meaning of quality at source. Each employee is expected to perform continuous inspection of the components and products they are producing for quality assurance. The main idea here is that defective parts are not passed on to the next work station.

Another point of view of “Jidoka” concept would mean whenever a defective condition arises, machines or automation producing the defective part or operating lines may be stopped by the worker to take corrective measures. In short “Jidoka” lays emphasis not on operating machines to full extent but on making the machines to stop by the employees as soon as defects are detected in order to take necessary corrective actions. (Jayaram, Das, and  Nicolae, 2010)

If automation or robots is down or defective components are discovered, the affected robots automatically stop, and workers cease processes to rectify the problem. For the Just-in-Time system to function, all of the parts that are made and supplied must meet predetermined quality standards. This is achieved through jidoka ( Jayaram, Das, and Nicolae, 2010).

Jidoka means that a robot automation safely stops when the normal processing is completed. It also means that, should a quality is affected or robot automation problem arise, the robots detects the problem on its own and stops or the employees may stop the machines if they detect any defects, preventing defective components or parts from being produced. With that, only products that are able to fulfill the requirement of adding value will be propagated on to the subsequent processes on the production lines or steps.

Since a particular machine is designed to be automatically halted when a processing process is finished or when a problem occurs, such an issues can be communicated through the usage of “andon” (i.e., problem display board), so that operators can confidently proceed to carrying out their works at another machine, as well as to more conveniently identify the problem’s root cause in order to prevent such problems from happening again. This means that every single operator is given the role and responsibilities to take care of many machines, which ultimately resulting in higher performance, while the application of continuous improvements philosophy will lead to greater processing capacity in the future (Liker, J. 2010).

Elimination of Waste

The core idea in the Toyota production system is that the primary objective is to eliminate waste. The system itself has identified seven types of waste and is working closely with all other departments to reduce other than what is necessary. (Katz, 2010)

The seven types of wastes identified are:-

  1. Overproduction. Production of items, parts and components that are not in used at the particular moment is complete waste. It creates additional problems such as storage capacity, transportation of the components because of excess of components.
  2. Waiting time. Out of stocks, process delays, machinery down time, bottlenecks are all waiting time. At any situation where the work force tends to do nothing will be considered as a waste.
  3. Unnecessary movements. Moving work in process, goods, components, parts and materials in and out of storage facility, between processes or departments through long distances are also considered wastes.
  4. Over processing or Incorrect processing. When taking additional steps during processing parts or components is considered as wastes because it creates unnecessary motion, time into the production of that item. A higher quality parts than necessary is produced is also considered as wastes.
  5. Excess inventory. Excess inventory can be in any forms. It can be in over supply of raw materials, work in progress; finished products would cause increased lead time, storage facility costs, damages and transportation cost to increase.
  6. Unnecessary Movement. Any additional movements that are created by the work force during their course of work are considered as waste. Example would be when the employee needs to searching for items, reaching for high places, stacking parts or tools and walking is also considered as wastes.
  7. Defects. Producing defective components or components that require corrective measurements are all considered as wastes. It leads to increase handling time such as inspections, quality control and replacement. Solving the

In lean production system, it is very important to first identify the processes involved in the whole manufacturing systems. Secondly, identify the value added processes and continuously find ways to eliminate the extra processes involved. In operation management, lean production is the objective or goals to achieve efficient manufacturing.

Toyota’s view of any and everything that does not add value to the production system is actually a waste, does have its own merits. Reducing on the extra processes actually reduces lead time in manufacturing.

Elimination of wastes basically helps the customer or user at the other end to receive products or components that is free of defects. When receiving the components, processes and procedures involved are also made to custom that they add value to the work in process and eliminate unnecessary motion. Inventories are kept to a minimum and all raw materials or work in process are delivered to the work station just at the right time before the workstation can or able to accumulate any finished products or have any short of supply.

The concept of eliminating wastes actually help the customers which is the users between workstations and also the end user which is the customer or car purchasers have the confidence that the products received are actually gone through a very thorough process and procedures which Toyota as an organizations tries to achieve zero defects and delivered a product which has the most competitive price.

The winning edge in this practice is that Toyota have managed to lower their inventory cost and improve on adding value to the processes as the work is being moved from one work station to another. Processes and procedures that are non essential and unnecessary are avoided and defects are tackled at the roots. This provides the company with best practices and able to make profit even in economic turmoil where demands are low. ( Jonathan Katz.  2010)

Kanban System

By definition, kanban means a manual system that use signals for the needs of components or raw materials. The system is used for controlling the movement of components that responds to the demand of the components and delivery to the sections that actually needs it. (David Drickhamer.  2005)

In the Toyota Production System, the “kanban system” has a crucial role. The kanban system is also frequently referred to as the “Supermarket method” because the concepts and procedures behind the system are derived originally from supermarkets. Such big supermarkets which carries a lot of different products use product control cards containing product-related information, such as a item name, barcode and warehouse location, are entered. Because Toyota used kanban signs for use in their manufacturing processes, the approach came to be referred to as the “kanban system.” (Krieg &  Kuhn, 2008)

In the Toyota production lines, when a particular process is taking inputs or materials from another process, it uses a kanban to communicate which parts have been used or to be used. Kanban system is used for two major functions; to retrieve components and also to give instructions to produce more of the parts.

Kanban system has been effective visual communication tool among departments and work station. Item are replenished or produced to match the production capacity, the system basically handles the inventory flow of work in progress to match the speed of production without disrupting the flow processes. The customers in the kanban system would be the one receiving the components or parts to further add value to the final products. Therefore it is important that the goods received and supplied are in perfect condition as any defects would cause shortages and disrupt work flow.

 

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Source: Drickhammer (2005)

Recommendations

Toyota production system integrates quality assurance, inventory control and human resource management while pursuing the objective of cost reduction. Improvement activities are vital element and Toyota has created a thinking group which operates in a smaller groups. These groups are called the quality control groups where recommendations and decision making allows for improvements and changes to review the processes and procedures of the operation in the work station.

The group will be vital in assuring the products are defects free and the respect for ideas and suggestion allows this group to come out with continuous improvements on the procedures and processes. The ultimate winner in the group will be the customers who will be receiving parts or components from the preceding process.

Conclusion

The objective of Toyota production system is to increase financial profits by reduction of unnecessary cost such as holding of inventory, rework on defective components, unwanted motions from its workers and also solving root cause of its problems.

Operations management especially in manufacturing and production will always look for ways to adopt the Toyota production systems as to reduce the inventory cost and also apply just in time concepts. Not all companies are able to adopt the processes and procedures even though they have shown measureable results. Mainly because it all boils down to the corporate culture, and changing culture usually takes years to achieve.

 

References

Jonathan Katz.  2010. Lean Times for ‘The Toyota Way’? Industry Week, April 1, 20-21.

Jayaram, J., A. Das, and M. Nicolae. 2010. Looking beyond the obvious: Unraveling the Toyota production system. International Journal of Production Economics 128, no. 1, (November 1): 280.

Katz, J. 2008. Toyota Culture: The Heart and Soul of The Toyota Way. Industry Week, October 1, 18.

Leggett, S. 2010. TPS Troubles. Quality Progress 43, no. 4, (April 1): 8-9.

Liker, J. 2010. The way back for TOYOTA. Industrial Engineer, May 1, 28-33.

Martínez, C., and J. Farris. 2009. Lean Product Development: A Systematic Literature Review. IIE Annual Conference. Proceedings January 1   326-331.

Drickhamer, D.  2005. The Kanban E-volution. Material Handling Management, March 1, 24-26.

Beth Bacheldor, and Laurie Sullivan. 2004. NEVER TOO LEAN. InformationWeek, April 19, 36-44.

John M Betts, and Robert B Johnston. 2005. Just-in-time component replenishment decisions for assemble-to-order manufacturing under capital constraint and stochastic demand. International Journal of Production Economics 95, , (January 28): 51-70.

Khadem, M., S. Ali, and H. Seifoddini. 2006. Efficacy of Lean Matrices in Evaluating the Performance of Manufacturing Systems. IIE Annual Conference. Proceedings January 1   1-6.

Krieg, G., and H. Kuhn. 2008. Performance evaluation of two-stage multi-product kanban systems. IIE Transactions 40, no. 3, (March 1): 265.

The Portal to Lean Production: Principles and practices for doing more with less. 2006. Mechanical Engineering 128, no. 5, (May 1): 58

Thun, J., M. Drüke, and A. Grübner. 2010. Empowering Kanban through TPS-principles – an empirical analysis of the Toyota Production System. International Journal of Production Research 48, no. 23, (December 1): 7089.

 

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