The Building Blocks for Toyota - a Base of Management Decisions on a Long-Term Philosophy - Case Study Example

Toyota: A Case Study Executive Summary The paper focuses on the innovative supply chain management theories adopted by the leading Japanese automobile company, Toyota. It discusses how Toyota created leadership, developed a company culture, formed strategies and built lasting relationships with suppliers for developing a unique supply chain management philosophy within the organisation. Contents 1 Toyota: A Case Study 1 Executive Summary 2 Contents 3 1.Introduction 4 2.The Toyota Production System 4 3.Identifying waste 7 4.Product development 8 4.1. Heijunka 11 4.2. Quality 11 4.3. Standardisation 13 4.4. Leadership 16 5.Conclusion 16 Reference 17 1. Introduction Toyota, a Japan-based automobile manufacturer, has presently the fastest process to develop products in the world. As per reports, Toyota takes around 12 months and sometimes even lesser than that to design a new car, while most automobile manufacturers require more than two to three years. Further, despite such a tough deadline, the company has been able to maintain exceptional quality standards as compared to its competitors in the market. Toyota has been able to create operational excellence by developing various strategies through the use of methodologies and tools to improve quality. Further, it has also developed a deep-seated business philosophy which helps in understanding the employees and motivating them to work towards achieving business goals and visions. The success of Toyota’s supply chain management is based on the company’s ability to create teams and leaders, develop a supportive culture, form strategies, build lasting relationships with suppliers and to maintain an organisation based on sustained learning (Harrison and New 2002). This paper therefore would focus on how Toyota through its innovative strategies has been able to measure and improve supply chain management. The paper would further discuss how the company has created operationally one of the best managed firms globally and what other companies may learn from Toyota to improve their supply chain management. 2. The Toyota Production System The Toyota Production System was being developed by Toyota post the Second World War. During that era GM and Ford used strategies such as economies of scale, large equipments, mass production to create as many machine parts as possible in a cheaper manner. Toyota on the other hand had a very small market and was required to create a variety of cars through the same assembly line for satisfying its clients (Callioni and Billington 2001). Toyota also shortened the lead times and kept the production lines flexible, which led to better quality, productivity, customer responsiveness and optimal utilisation of space and equipment. It has been generally believed that machine downtime in case of mass production creates waste and the fact that in case the machine is shut down for repairs it creates loss for the company. However, Toyota through its production plans challenged this idea. As per Toyota the best thing a company should do is to keep the machine idle for some time by stopping production, so that the downtime for repairs is low. Further, in Toyota, over production is seen as waste. The company believes that it is better to create an inventory of finished products so that it could tally with the production schedule and the company does not have to produce as per the changing demands of the customers (Liker and Wu 2000). In order to minimise inventory and create a foundation for pull and flow systems in the supply chain, the company levels its schedule or as it calls, heijunka. The levelling of production help sin smoothening the volume as well as mixing the items being produced, creating only small changes in the day to day production schedule. Further, it might be good idea to substitute and add selective overhead in case of direct labour. In case waste is being taken away from workers adding value, it is possible to provide them with high quality support. Also, it might not be a good idea to keep the workers engaged in making parts in a faster manner. Instead, companies should focus on producing according to the rate at which the customer demands a product. It might prove counter-productive if the workers are made to work faster for getting more work done by them (Liker and Wu 2000). Further, it is also beneficial to use information technology in a selective manner and use manual processes even at a time when automation for the process is available. Even if it seems justifiable to reduce cost by cutting the headcount, it is still believed that as compared to automation, employees are still flexible resources and therefore could be moulded as per the requirements. However, it is also necessary to streamline the manual process as well to derive maximum efficiency (Gunasekaran et al. 2001). Toyota also believes in investing into its people in a continuous manner to promote a culture that focuses on improving constantly. The company at the time of setting up its assembly lines only chooses those workers who are the brightest and the best and keeps on challenging them to grow in their work through the creation of an environment of solving problems. Further, the other businesses of Toyota such as the engineering division, sales staff, accounting, service parts and even human resources employ only those individuals who could help the company to grow and improve the processes by using innovative methods to create customer satisfaction. Thus, Toyota could be seen as a proper learning organisation wherein the firm has learnt and evolved since its inception a century ago (Lai et al. 2002). Although, most US-based companies have also employed the lean tools and other such philosophies of Toyota, it has not been able to create a holistic work environment as compared to Toyota, as most of them do not understand the production process being employed by Toyota. Such a production process is ingrained into the corporate culture of Toyota which might be difficult to replicate although easier to understood and customise as per the requirements of an individual firm (Otto and Kotzab 2003). 3. Identifying waste In order to create value in its production process, Toyota always focuses on the query of how the customer would derive value from the process. Thereby, by looking at the process from the customer’s perspective, the company is able to create value addition and separates the processes that would not provide any value for the system (Simchi-Levi et al. 2000). In fact some of the non-value adding processes that Toyota has identified include: 1. Overproduction: Creating items without any orders leads to storage paucity, overstaffing and adding to transportation costs. 2. Waiting: Employees are given the job to supervise an automated machine or to wait for the next processing step to begin or are required to work due to delays in lot processing, stockouts, machine downtime or other bottlenecks. 3. Unnecessary transport: Carrying on unproductive transport system, creating work in process schedule over a long time and distances, transporting parts, materials or finished products from the stores or during the processes. 4. Incorrect processing or over-processing: Creating processing system that is inefficient because of poor product design and tool, which causes pointless movements and produces defective products. Waste is also being created when a company produces products that are of higher quality than required. 5. Surplus inventory: Most companies indulge in creating excess inventory to balance their production, hide issues such as product defects, late deliveries of products, machine downtime etc. 6. Pointless movement: Waste is also generated when employees are required to move to perform work such as searching for something, reaching out to someone, stacking products or fetching tools. Even walking from one part to another part of the building also creates waste. 7. Defects: Creating defective machine parts, repairing or reworking on parts, generating scraps, replacing parts during production, inspecting handling of wastes also requires resources and time. 8. Idle employee creativity: Non-engaging employees or not helping them to gain skills, improving their creativity and non-creation of learning opportunities. 4. Product development Because of Prius, which is a hybrid car, project, Toyota’s outstanding product development process has shown improvement in the two main areas. The chief engineer and the cross-functional team are able to work together on a consistent basis in the same room which is called obeya. In the traditional approach as designed by the company, at the start of the planning phase, chief engineer design a concept, and discuss it with the design groups as well as a the planning group, which translates into a concrete plan. As far as Prius was concerned, specialists from various design, manufacturing and evaluation groups were brought into big room along with the engineer and the decision was made in the real time frame. In order to facilitate as well as discuss, computer-assisted design (CAD) terminals were made available in the room and was known as "obeya" or the big room (Burgess and Singh 2006). Manufacturing engineers are now able to work with the design engineers at the concept development stage for giving input on the issues of manufacturing. The level of cooperation in these stages has been very unusual in the automobile industry. The company has been incorporating simultaneous engineering for many years now even before coming up with Prius. But Prius project intensified the process to thrust greater coordination and simultaneous work. It was seen that there was unparalleled cooperation between the teams such as design or manufacturing for meeting the strict deadlines for releasing Prius (Hausman 2002). Towards one piece flow For becoming lean, firms are suppose to create some continuous flow which are applicable everywhere. By shortening the elapsed time from the stage of raw materials to the finished goods or even services leads towards the lowest cost, best quality and minimum delivery time. This flow also tends towards forcing the implementation of the other lean tools as well as philosophies which are used as preventive maintenance. By creating flow, bring inefficiencies which demand solutions for the company that can be used in the longer period. Most of the people who are engaged in the process are most motivated for fixing the problems and decreasing inefficiencies else, the plant would be forced to shut down in case they aren’t able to eradicate it. On the other hand, processes in traditional business have the capacity for hiding these vast inefficiencies without being noticed (Sterman 2000). As seen, the flow means that the customer order triggers the process for obtaining raw materials which is needed for manufacturing the order of the customer. The raw materials is flowed immediately to the supplier plants where the work is commenced immediately for filling the order with the components desired, and then flown immediately into the plant, where workers are responsible for assembling the order and then completing the order immediately for the costumer. This process could take a few hours or even days only (Barratt 2004). In a operation that has large batch, this may take weeks of work for processing between operations and might just take weeks or months since the time a defect is caused and rectified accordingly. Until such time, it becomes difficult to track or identify the defect and its occurrence. By designing an effective product flow, it helps eliminate wastes. For creating a working and effective flow would mean that we are linking the operations which in other case is disjointed. It can have more teamwork, early feedback provided at the quality problems, complete control over the process, and direct pressure for people for solving these problems for thinking towards the issues and growing within the organisation. At the end, one of the benefits of these one-piece flows is that, it is able to challenge people for improving and thinking out of the box (Ballou 2004). Quality. It is considered that one piece flow is very easy to build in terms of quality. Each operator is also considered to be an inspector and then works for fixing the problems in the station before being able to pass them over. In this case, the defects does gets missed and gets passed on. While they would be able to detect this very quickly and the problems could be eradicated or corrected. Real Flexibility. In case the equipments are dedicated to the product line, the flexibility is less for scheduling it to make it useful for other purposes. On the other hand, the lead time to make product can be very short, there is more flexibility given for responding and making the product per customers demand. Alternatively, instead of taking new order in the system and getting a lead time for getting the product out; it would be rather that the lead time can be restricted to mere hours and the order can be filled within a few hours. Thereafter, accommodating the changes in the customer’s demand can be provided within no time (Burt et al. 2003). Higher Productivity. One of the reasons as it appears that the productivity tends to be highest when the operation can be organized by the departments has been because each department has been measured by the equipment utilization as well as people utilization. On the other hand, it is hard to determine how many people are needed for producing a specific number of units in the large batch of operation as productivity cannot be measured as per the value-added work (Burt et al. 2003). Most of the productivity is lost in case people are utilized for overproducing the parts, which have to be moved to the storage for protection. Also, most of the time is lost when defective parts or components or even repair is needed on the finished products. In the one-piece-flow cell, one can easily identify who is too busy or may be idle. Thereafter, it becomes easy to calculate the value-added work and then calculate the number of people needed for reaching such for certain rate of production (Ballou 2004). 4.1. Heijunka Heijunka is the process of levelling of the production by product mix and volume. The firm does not build any products as per the actual flow of orders by the customer that can witness a swing. The volume of these orders has been done with the levelled out so that same amount as well as mix is made each day. In case where the demand fluctuates significantly, Toyota would often keep the least small inventory of the finished goods. There can be a contradiction to the process of lean thinking. Although, the small inventory protects the production schedule from becoming stalled or upset with the sudden spikes in the demand scenario. In living with the waste of the finished goods inventory, companies are able to eliminate more waste in the entire production process and in the supply chain (Liker and Wu 2000). 4.2. Quality Philosophy of Toyota is to identify the defects and that can occur and then automatically stop the production so that that the problem can is fixed become the defects goes down into the order. Jidoka is referred to automation, which means that the equipment has been endowed with human intelligence for stopping itself when the problem emerges. The in-station quality control parameter that prevents the problems from passing from the down the line has been more effective and less costly than repairing or inspecting quality problems after the facts come to fore (Frohlich and Westbrook 2001). On the other hand, in traditional mass manufacturing although allows the production to halt, the defective parts are labelled and kept aside for being repaired at the later stages. The idea there is to produce large quantities and then fixing the issue later. Lean manufacturing also increases dramatically the importance of manufacturing things right at the first time so that errors can be reduced too much. In case of low level of inventory, with no buffer for falling back, there can be issues related to quality problem. In case there are problems in an operation, i.e. in a division, it would shut down the operations in B division. In case the equipment halts or shuts down, lights or flags that accompanies alarm or music has been used for signalling this helps in solving the a quality problem (Handfield and Bechtel 2001). It is unfortunate that many companies, in the essence of building quality gets entangled in bureaucratic as well as technical details. Some of the things like -9000, have lead to believe that the companies that in case they put together the rule books, these strictures can be followed to the word “T”. Also, quality planning departments have data that can be analyzed by using sophisticated statistical tools for conducting these kinds of analysis. Projects like, Six Sigma black belts is able to attack quality problems with the sophisticated methodology designed by technical experts. Although, Toyota follows a different approach altogether, it keeps things very simple and is able to use complex statistical tools only when required or to the minimum. Some of the quality specialists and the members have identified the following To be a part of the problem, to go and see; Should be able to analyse the situation; To be able to use one -piece flow for abandoning any surface problems; Should be able to ask "Why?" five times (Chopra and Meindl 2004). Andon is effective when the employees know the importance of getting the problems to the surface. If there is a problem and there is a process to solve the issue already and people are able to follow it as well, there shouldn’t be a point to spend money on technology that is useless. The company prefers to use people and thereafter use technology for solving problems, and then support it by technology to eradicate it completely. One of the common parameter that Toyota follows for quality tactic has been to anticipate problems with ease and placing countermeasures even before the problems surfaces. On an occasional basis a time-out can be required for reflecting the purpose as well as directing the projects before finally commencing it. In Toyota, the emphasis is on stopping or even slowing down for getting quality right at the first attempt so that productivity can be enhanced in the longer run (Heizer and Render 2005). 4.3. Standardisation Toyota also believes that standardization of work has been the basis of empowering workers and giving vent to innovation at the work place. In case the process keeps shifting the improvement would only produce more variation which may be ignored. There should be standardisation of process and then stabilize occurs automatically before setting up the improvements. Workers follow very detailed standardized procedures that touch every aspect of the organization. In the workplace, everything must be in its place. There is strict discipline about time, cost, quality and safety-virtually every minute of the day is structured. But Toyota also values many of the characteristics associated with flexible organizations referred to as "organic": extensive employee involvement, a lot of communication, innovation, flexibility, high morale, and a strong customer focus (Krajewski and Ritzman 2002). Standardisation does not imply taking up bureaucratic approach. In cases, coercive bureaucracy can be used for controlling people, if we are able to catch them breaking the rules and reprimand them can get people in line. On the other hand, Toyota preaches their worker and considers them most valuable resource, and an analyst who can be a problem solver. The system used by Toyota is best practices methods, which is designed, improved with participation from the workers or employees. These kinds of standards help in people being in control and controlling their work (Handfield and Bechtel 2001). One of the important tasks while implementing standardisation has been to find balance among providing employees with the rigid procedures for following and providing freedom for innovating and creating or meeting challenging that targets consistency in cost, delivery and quality. Key being achieving this kind of balance being in the way people are able to write standards and the ones who are able to contributes towards them as well. At the onset, the standards should be specific enough for being useful guides, but should be general for allowing some kind of flexibility. Secondly, people’s work has to be see improvement with regards to standards (Ballou 2004). The five Ss which are being followed are: 1. Sort-Sort the items and keep the ones that are needed and dispose the things which are not required. 2. Straighten (orderliness}- A place where everything and everything is in place. 3. Shine (cleanliness)- The process of cleaning is also acts as the inspection method that exposes abnormal or even pre-failure conditions that can curtail quality or even cause machine failure. 4. Standardize (create rules}-Develop procedures and systems for maintaining and monitoring first three S's. 5. Sustain (self-discipline}-Maintain a stabilized workplace for making the process ongoing for continuous improvement. Technology The firm is able to introduce new technology only after it has been proven by the direct experimentation with the discussion and viewpoint of a broad of cross-section of the employees. Even before introducing a new technology, Toyota would understand at length the impact it can have on the existing processes. Firstly, it would examine the nature of the value-added work that is being performed by the workers for a particular process. It would look for a new opportunity for eliminating waste and also out of flow. It would then use a pilot area for improving the process with the existing equipment, people and technology. As and when it accomplishes improvement in comparison to the present process, Toyota would ask for additional improvements by introducing newer technologies. These kinds of technology can be carefully analysed for seeing if it conflicts Toyota's philosophies or any operating principles. The principles include valuing people over above technology, making decision in consensus and being operational focus for eliminating waste (Hausman 2002). In case the new technology has been accepted, the main guiding principle has been to use it as supporting continuous flow the production process and helping the employees for performing better in the Toyota standards. 4.4. Leadership In the history of Toyota, key leaders are always found within the company. Top leaders in the company are home grown. These leaders should be able to live and understand the culture. One of the critical elements being genchi genbutsu, that means that within Toyota, for going places and see the actual situation for understanding. Gemba, refers to "the actual place". One of the first place for problem-solving or development of new product or evaluating the performance of the associate is grasping actual situation that requires “going to gemba." The company promotes as also expects people to think creatively. They are also supposed to remain grounded and have understanding of the entire actual situation (Liker and Wu 2000). 5. Conclusion Toyota firmly confirms and lives with the fact that overproduction is always considered to be fundamental waste. Producing more than what is required by the customer leads to a build-up in the inventory. This material is just around and waits till it can be processed with the next department. These buffers lead to suboptimal behaviour, which can be reduction in motivation for continuously improving operations. JIT also means removing the inventory which is used for buffering operations against the problems which may arise in production. By using smaller buffers, it means that the problems like the quality defects can be reduced immediately. This also reinforces jidoka that helps halting the production process. The employees or workers are required to resolve these problems immediately for resuming production. One of the requirements for working with the inventory and then stopping production when there is a problem also insinuates a sense of urgency amongst the workers. In case of mass production at the time when the machine comes down, the sense of urgency vanishes. Maintenance department is able to fix the problem while the inventory keeps these operations running. On the contrast, in case of lean production, when the operators pulls down or shuts down for fixing a problem, the other processes also stops producing, thus creating crisis. Some of the people may have to scramble to fix these problems for getting the equipment up and running. Also, they can get into the root problem from stopping it from recurring again. The Building Blocks for Toyota is to base the management decisions on a long-term philosophy, even if the expenses can be seen in the short-term financial goals. Some of the other techniques used by Toyota include creating continuous process flow for bringing problem to the fore, using the "pull" systems for avoiding overproduction and levelling the workload or heijunka. Building a culture for stopping and fix problems and for getting quality right the first time and standardising tasks have been the foundation for improvement and empowering employee. The company is also using visual control so that problems cannot be hidden or using reliable and thoroughly tested technology which helps employees. Reference Ballou, R.H. 2004, Business Logistics/Supply Chain Management, 5th ed., Prentice-Hall, Upper Saddle River, NJ. Barratt, M. 2004, “Understanding the meaning of collaboration in the supply chain”, Supply Chain Management: An International Journal, Vol. 9 No. 1, pp. 30-42. Burgess, K. and Singh, P. 2006, “A proposed integrated framework for analyzing supply chains”, Supply Chain Management: An International Journal, Vol. 11 No. 4, pp. 337-44. Burt, D.N., Dobler, D.W. and Starling, S.L. 2003, Worldclass Supply Management: The Key to Supply Chain Management, McGraw-Hill, New York, NY. Callioni, G and Billington, C. 2001, “Effective collaboration”, OR/MS Today, Vol. 28, pp. 34–39. Chopra, S. and Meindl, P. 2004, Supply Chain Management, Prentice-Hall, Upper Saddle River, NJ Frohlich, M.T. and Westbrook, R. 2001, “Arcs of integration: an international study of supply chain strategies”, Journal of Operations Management, Vol. 19 No. 2, pp. 185-200. Gunasekaran, A., Patel, C. and Tittiroglu, E. 2001, “Performance measures and metrics in a supply chain environment,” Int J Opns Prod Mngt, Vol. 21, pp. 71–87. Handfield, R.B. and Bechtel, C. 2001, “The role of trust and relationship structure in improving supply chain responsiveness”, Journal of Operations Management, Vol. 10, No. 1. Harrison, A. and New, C. 2002, “The role of coherent supply chain strategy and performance measurement in achieving competitive advantage: an international survey,” J Opl Res Soc Vol. 53, pp. 263–271. Hausman, W.H. 2002, “Supply chain performance metrics”, In: Billington C, Harrison T, Lee H and Neale J (eds), The Practice of Supply Chain Management, Kluwer: Boston. Heizer, J. and Render, B. 2005, Operations Management, 7th ed., Prentice-Hall, Upper Saddle River, NJ. Krajewski, L. and Ritzman, L. 2002, Operations Management: Strategy and Analysis, 6th ed., Prentice-Hall, New York, NY. Lai, K., Ngai, E.W.T. and TCE Cheng 2002, “Measures for evaluating supply chain performance in transport logistics”, Transp Res Part E Vol. 38, pp. 439–456. Liker, J.K. and Wu, Y. 2000, “Japanese automakers. US suppliers and supply-chain superiority,” Sloan Mngt Rev, Vol. 42, pp. 81–93. Otto, A. and Kotzab, H. 2003, “Does supply chain management really pay? Six perspectives to measure the performance of managing a supply chain,” Eur J Opl Res, Vol. 144, pp. 306–320. Simchi-Levi, D., Kaminsky, P. and Simchi-Levi, E. 2000, Designing and Managing the Supply Chain: Concepts, Strategies, and Case studies, Irwin/McGraw-Hill: Boston. Sterman, J.D. 2000, Business Dynamics: Systems Thinking and Modeling for a Complex World, McGraw-Hill: Boston. Read More