Toyota Case Study Assignment

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Toyota Case Study Assignment

Abstract

Toyota had bittersweet experiences while launching globally to serve various international markets such as the US. The company has been lauded in various quarters for its management and operational strategies such as the ‘Toyota Way’. However, the company has also attracted negative publicity due to the failure of its quality management process. Toyota employs the Toyota Production System for quality management. The system is predicated on a long term philosophy that aims to reduce the rate of defects and ensure efficiency of it operations (Greto 2010). However, the system has caused various mishaps in practice. For instance, it was unable to properly remedy the engine clog defect that caused huge public outcry. Ford Motors, on the other hand, employs the Six Sigma quality management approach. The approach is more quantitative as compared to Toyota’s TPS. Despite huge success in quality management, the Six Sigma also has high profile failures such as the inability to properly address imbalance concerns of the Ford Explorer.

History

Toyota’s history dates back to 1933 when the company was founded as a business division of the Toyota Automatic Loom Works. The subsidiary was tasked with producing engines such as the Type A engine. Subsequently, the company also ventured into the production of automobiles. The Toyota Motor Corporation was spurn out as an autonomous company in 1937 and was engaged in the production of passenger vehicles. However, the company was contracted by the Japanese government for the exclusive production of military trucks over the duration of the Second World War.

The company saw huge potential in the US market and set up a sales and distribution office in the country in the late 1950s. However, it was not until 1982 when the company would commence production in the US through a joint venture with the General Motors Company (Udagawa 2005). Later, the company sought organic growth in the US market through its wholly owned American subsidiary, Toyota Motor Manufacturing USA. The new outfit had a keen understanding of the American market and developed bespoke brands that resonated with the market. At present, Toyota has taken the form of a conglomerate that has divested into different sectors such as aerospace, robotics, financial services as well as agricultural biotechnology.

Toyota Motor Corporation has undergone significant operational and managerial changes over the course of its existence. It has grown from a simple company with a simple business model to a formidable multinational with superior organizational capabilities. Moreover, the company has also changed its managerial style where it has sought to add fresh blood and progressive ideas into its managerial ranks. For instance, the company made the unorthodox appointment of the youthful Akio Toyoda as the new president in 2009 breaking from a culture that emphasized on experience (Grato 2010).

The Toyota Production System

The Toyota Production System (TPS) came as a consequence of the gradual changes that took place in the company. The system emanates from the ‘Toyota Way’ which is a philosophy that calls for planning over the long haul, encouraging collaborative efforts and inviting self-criticism in order to spearhead continuous improvement (Jayaram 2010). Toyota Production System is hinged on two main tenets. Firstly, it calls for the immediate suspension of all manufacturing activities as soon as a defect is noted. Therefore, the company is able to maintain high quality by minimizing the production of faulty products. Secondly, it advocates for efficiency where a singular production process only yields what is needed for a subsequent production process (Grato 2010).

The Toyota Production System was set in motion in 1995 when a non-family management team pursued an aggressive global strategy that was aimed at spurring growth for the ailing company. The team doubled down on its efforts to increase the company’s plants and factories in overseas markets. The strategy was quickly followed by a move to consolidate and harmonize growth by forming a global manufacturing network that would unlock value to the company. Finally, the company undertook a cost leadership strategy where it aimed for a significant decrease in its cost of production for its various business lines. The exercise was actualized into a campaign that came to be known as the Construction of Cost Competitiveness for the 21st Century (CCC21).

Toyota Production System had varied ramifications for the company. Firstly, Toyota Motors Corporation was able to grow its revenues and incomes over the next 15 years to become one of the largest automobile companies in the world. The company was also able to significantly cut down on its cost of production and increase its profitability. For instance, the company reported industry leading operating margins in 2010. Toyota also received international acclaim and accolades from different stakeholders. The company also became a case example and a gold standard of how businesses can unlock value through operational efficiency. The Toyota Production System also posed massive challenges to the company. Firstly, the company’s brand image took a hit when customer complaints escalated due to product defects and malfunctions such as sludge of the engine oil (Grato 2010). The aggressive growth strategy that the company pursued left much to be desired with regards to quality control. Therefore, the company was seen to be stepping away from its main value proposition to its clients. The company also endured negative publicity as customers filed actionable suits against the company due to accidents that occurred as a result of car malfunction. Therefore, the company relinquished market share to its close rivals such as General Motors. Moreover, it was also charged multiple fines as a result of the law suits levelled against it. One of the analysts initiating coverage on the company’s stock, Takaki Nakanishi, summed the company’s predicament most appropriately. He opined that the company’s rapid growth eclipsed its duty to foster and enforce its culture in overseas markets.

There are two concepts that have been developed for the Toyota Product System: There are two concepts that have been developed for the Toyota Product System: “jidoka,” (this can simply be interpreted as “automation with a human touch,” as and when the issue arises, the machinery instantly stops, preventing the production of defective products; and concept of (Just-in-time) where each process only generates what it needs in a continuous flow for the next process. TPS is the source of sustainable strength and unparalleled benefits for Toyota and its cost-reduction strategy.

For Toyota, Jidoka means that when an abnormality happens, a system must come to a safe stop. Therefore, to achieve jidoka, systems need to be manually designed and developed until they are stable and safe. Human engineers first carefully design every new part line by hand to stringent standards and then simplify their operations constantly by gradually improving kaizen. The additional advantage by human operators of the line gradually disappears, so that every operator can make the same result from the line. The jidoka mechanism is only then integrated into the production lines in practice. By repeating this process, the machinery will be easier and economical while maintaining would take less time and cost less, allowing simple, compact, versatile lines to be built that respond to production fluctuations. Toyota’s jidoka is basically based on this loop of developing human skills and technology. Based on the principle of reduction of all wastes, the Toyota production system (TPS) pursued by the most powerful methods has its origins in the automatic loom of Sakichi Toyoda. During several years of trial and error, TPS has evolved to boost productivity based on just that-in-Time concept created by Toyota’s founder (and second chair) Kiichiro Toyoda.

Although many businesses attempt to adopt the Toyota Manufacturing System (TPS), Often they fail because they don’t understand that you need to put in place the whole system, not simply bits and pieces, to achieve the same sort of culture and process development that Toyota boasts about. The Bottoms-up strategy, in which workers are free to define and introduce procedures to strengthen their operations, contributes to more efficient measures and better efficiency, is one of the key assets of TPS.

Toyota’s Crises

i. Engine Clogs

A myriad of challenges have been posed to the company over the recent past. Firstly, at least 3.3 million vehicles were affected as their engines grew susceptible to oil sludge (Grato 2010). The malfunction occurred when the oil passages in the engine became clogged. Therefore, the automobile owners had to incur hefty costs to replace the engines. However, the company was largely unsuccessful in dealing with the issue. Firstly, the company denied any possibility of being at fault and instead blamed the consumers for the oil clogging. The company’s position invited backlash from the public. Affected customers also filed actionable suits against the company. Finally, the company made a decision to cover the replacement costs. However, most customers had already replaced their engines and borne the cost themselves. The Toyota Production System failed to completely address the concerns related to the engine clogs. While the framework calls for the immediate suspension of production once a fault is recognized, the company continued with its production efforts even as customer complaints grew. Secondly, the TPS framework also failed in its key mandate of ensuring operational efficiency and cost cutting. While the company employed a cost leadership strategy to cut down on production costs, the company ended up incurring extra reimbursement costs to compensate its consumers for the repair of faulty engines.

ii. Structural challenges

The other set of challenges that the company had to deal with emanated from a sub-optimal corporate structure. Toyota employed a centralized operational and decision making system where key decision were made in the Japanese office (Shirouzu 2010). The other subsidiaries unilaterally reported to Japan and took commands on what to do. Division heads in the Toyota subsidiaries often complained that they had minimal contact with the dealership agents within their jurisdiction who instead reported to the Japan office. The Toyota office in Japan maintained power at the expense of organizational efficiency. Therefore, the company was slow to anticipate and act on the new market trends in the overseas markets leading to declining international sales. Moreover, the company was also slow in responding to quality and safety issues by customers as soon as they surfaced. Therefore, the company’s brand image was eroded in the automobile industry as customer complaints escalated and as negatives reviews appeared on acclaimed automobile publications.

The ineffective corporate structure also came to haunt the company as it failed to quickly identify and report on defective car models. Therefore, the automobile regulator in the United States fined the company USD 16.4 million as a result of the delay. The Toyota Production System also failed to address the concerns presented by Toyota’s organizational structure. The company failed to pick up anomalies and defects in good time. Therefore, the company continued to produce defective parts thereby compromising on product quality. The company also failed to produce its products efficiently. Toyota’s compromise on quality created negative backlash and invited the regulators attention to its misdeeds. Therefore, the company was found to have been in contravention to standard procedures and was consequently fined. The hefty fines added to the cost base of the company.

iii. Supply chain inefficiencies

Toyota also had challenges that emanated from its complex and inefficient supply chain. Prior to going global, Toyota employed a Japanese supply chain structure called Keiretsu. The structure involved building a conglomerate around related businesses as well as vertical integration within an industry (Grato 2010). Therefore, the constituent businesses would form a supply chain where they relied on each other for their supply needs. However, the company had to change its supply chain structure as it ventured globally since its trading partners did not operate in the new jurisdictions. The company found it difficult to secure international suppliers for each of their parts. Therefore, the company often resulted to contracting suppliers for their whole range of supply needs. However, the decision resulted in the procurement of sub-optimal supplies.

The Toyota Production System exacerbated the challenges that the company faced with regards to it supply chain. The system, which was quite different from the Western supply chain models, led the company to form intimate relationships with a few suppliers. Therefore, the company often overlooked quality concerns pertaining to the components that it secured from the suppliers. The system was also unable to pick up and quickly respond to reports on defective supplies and other supply chain inefficiencies. Finally, the system increased operating costs of the company as it sought to replace the defective parts. Moreover, the company’s international subsidiaries such as the US were unable to secure needed supplies on time. Therefore, the subsidiaries production schedules were affected in the process.

iv. Management and Public Relations Crisis

Finally, Toyota was also plagued by public wrangles between family officials and non-family executives within the managerial echelons. The situation was further complicated by the Japanese management culture that sought to avoid confrontation and throwing blame. The non-family executives felt that Toyota’s CEO was only concerned with the company’s topline and remained indifferent on other important aspects of the company. However, these opinions often went unspoken and instead surfaced in a bitter wrangle between the two sets of executives. The infighting was so tumultuous to an extent that international media houses such as the Wall Street Journal got wind of the saga. The scandal had a devastating effect on the company’s public image. The company’s CEO, Mr. Toyoda, informed the public on the reasons for the infighting during a Congressional testimony. (Shirouzu 2010) However, much harm had been done and the move did little to secure confidence from the public. The Toyota Production System was also shown to have been ineffective in this case. Firstly, the ‘go-and-see’ principle of the TPS proved ineffective in international jurisdictions since the Japanese executives could not always keep up with proceedings in the global subsidiaries. Secondly, the TPS framework was also unable to get the different offices to work harmoniously. Therefore, there was boiling up of resentment that culminated in the public wrangles in the company.

Ford Motors Quality Management Approach

Ford uses the Six Sigma framework for quality management within the organization. The framework was formally adopted in the year 2000 to replace the former Total Quality Management (TQM) framework. The main aim of the process is to reduce defects and errors to at most 3.4 defects per million operations (Kuei 2003). The projects selected for the Six Sigma have to meet various pre-requisites. Firstly, the projects have to be in line with the customer satisfaction objectives of the company. The projects should also accrue cost savings of at least USD 250,000 for the company (Arnheiter 2005). The project is phased in six stages that include problem definition, measurement, analysis, process improvement, control measures and auditing.

The Six Sigma process has some similarities to Toyota’s TPS. The two systems have a keen regard for customer satisfaction. Moreover, the two systems are also keen on improving efficiency of company operations. On the other hand, the two systems have various differences. For instance, the Six Sigma is more quantitatively oriented while TPS is more qualitative. Ford Motors has had varied success in dealing with the recall of its vehicles. The company has been able to quickly identify and recall faulty products in some instances. However, the company has also failed to promptly act in other instances such as the imbalance of its Ford Explorers (Farmer 2002). The Six Sigma approach proved ineffective in containing the situation since it required multiple data points which the company failed to provide.

Conclusion

The paper has made an in-depth discussion on quality management systems. It commenced with a discussion of Toyota’s venture into overseas territories such as the United States. It also evaluated the company’s quality management systems, TPS. The TPS is keen on reducing the defect rate in production as well as making the operational process more efficient and cost effective. The TPS was held by many industry practitioners and scholars as a gold standard in quality management. However, cracks in the framework began to surface as the company was posed with various challenges. For instance, the handling of faulty accelerators by Toyota demonstrated that the company’s TPS framework had major flaws. On the other hand, Ford Motors employs a more quantitative approach known as the Six Sigma. The framework is quite thorough but requires many data points for it to work effectively as demonstrated by the Ford Explorer scandal.

References

Arnheiter, E. D., & Maleyeff, J. (2005). The integration of lean management and Six Sigma. The TQM magazine.

Farmer, C. M., & Lund, A. K. (2002). Rollover risk of cars and light trucks after accounting for driver and environmental factors. Accident Analysis & Prevention, 34(2), 163-173.

Greto, M., Schotter, A., & Teagarden, M. B. (2010). Toyota: The accelerator crisis. Thunderbird School of Global Management.

Jayaram, J., Das, A., & Nicolae, M. (2010). Looking beyond the obvious: Unraveling the Toyota production system. International Journal of Production Economics, 128(1), 280-291.

Klefsjö, B., Wiklund, H., & Edgeman, R. L. (2001). Six sigma seen as a methodology for total quality management. Measuring business excellence.

Kuei, C. H., & Madu, C. N. (2003). Customer?centric six sigma quality and reliability management. International Journal of Quality & Reliability Management.

Shirouzu, N. (2010). Inside Toyota, executives trade blame over debacle. Wall Street Journal, 13.

Udagawa, M. (2005). The development of production management at the Toyota Motor Corporation. Business History, 37(2), 107-120.