The Modern Theory of the Toyota Production System - Case Study Example

Information about case analysis and references General Environment Analysis The environment of Toyota consists of internal and external analysis. SWOT Analysis This analysis is conducted with an aim of identifying and analysing Toyota’s strengths, weaknesses, opportunities and threats. Strengths Toyota is a key player in the automotive industry and is therefore perceived as a brand that is reliable and trustworthy. Its durable, safe and environmentally friendly vehicles are sold worldwide. This makes launches of new products easy as the brand’s popularity makes it easily to cover the introduction stage. Another strength of Toyota is that it is easy and affordable to find its car parts making customers to have it as a preferred brand. Toyota is also strong financially and thus can afford skilled employees and training opportunities. Its financial stability also enables it to conduct innovation researches and maintain its position as the industry’s key player (Muller, 2011). Toyota’s innovative culture focuses on constant innovation which makes it one of the most innovative auto companies. It was the first auto company to introduce Total, Kanban, and Kaizen quality Management systems. It was the first company to do mass production and sell hybrid vehicles. It also has a strong brand portfolio where it sells over 60 different car models currently under its brand thereby satisfying each consumer group, while constantly creation of brand awareness. Toyota is also the leader in the development of ‘green Cars as it understands that consumers are sensitive in the choice of cars that use fuel efficiently and reduce CO2 emissions (Marksberry, 2012). Weaknesses Toyota’s electric cars are new and unique in the market. However, they have no practical use except the need for constant recharging. Toyota is a big company implying that it has several levels of communication which may be inefficient in most cases. Over the past few years there has been quite a large-scale vehicle recalls by Toyota. In 2009 and 2010 nine million vehicles were recalled and in 2012 seven million cars were recalled (Toyota, 2013). This recall damages the firm’s brand and hurts it financially. Toyota has a weak presence in markets that are emerging. Toyota’s major markets are Europe, US, and China but has a small percentage of its sales in India and China the emerging economies. This becomes a challenge for the company to compete with General Motors which dominates the market share in those countries. Opportunities Consumers are having positive attitude towards vehicles that are ‘green’. They are aware of air pollution caused by cars which emit large quantities of CO2. They are thus likely to buy electric or hybrid cars that emit less CO2. The worldwide increasing fuel prices will open up more and new markets for hybrid cars of Toyota as consumers move towards fuel efficient cars. Consumers’ tastes and needs keep on changing. These needs could be satisfied by introduction of Toyota’s new car models (Public Bonds, 2005). There is a potential of Toyota growing through acquisitions to gain access to new markets, assets, and new skills. Threats As extraction of shale gas takes place, there is a high possibility that prices of fuel will drop. Electric cars and fuel-efficient hybrid cars may become less attractive to main customer group for Prius model of Toyota. The new standards of emission may require Toyota to invest into cleaner engines to be produces, which may lower its profit. Raw metal are main car manufacturing components. As prices for raw material rises it ignites increase in costs and leads to low profits for Toyota. There is growing intense completion from auto manufacturers like General motors and Volkswagen group. The manufacturing facilities of Toyota are in Indonesia, Thailand and Japan among others which are subject to natural disasters. This disrupts the manufacturing of more cars and therefore decreasing production volumes of Toyota. Toyota’s most revenues are received from countries abroad (Borowski, 2010). The profits earned from those countries are converted to yen after they are sent back to Japan. If the yen exchange rates against foreign currencies appreciates means Toyota will have lower profits. External Environment (PESTEL Analysis) Political Factors Toyota Company is influenced by some political factors. Changes in the government policies, regulations, and laws in the market affects operations of Toyota particularly government policies, regulations and laws relating to safety of vehicles and remedial measures such as vehicle emissions, environmental protection, vehicle fuel economy, trade and recalls (Toyota Global, 2014). Other changes in government policies, regulations, and laws that affect operations of Toyota include investigations, government proceedings, legal proceedings and future litigation. Economic Factors Automobile companies are affected by major economic factors. Currency exchange rates fluctuations with respect to the value of Euro, the Russian ruble, the British pound, the Canadian dollar, the U.S dollar, and the Japanese yen affect Toyota. Consolidated financial statements of Toyota are presented in Japanese yen, which are affected by fluctuations in foreign currency exchange through both transaction and translation risks. Changes in rates of foreign currency exchange rates affect products pricing of Toyota and materials purchased in foreign currencies. If Japanese yen is strengthened against the U.S dollar operating results of Toyota can also be affected adversely. There has been Japanese yen fluctuation against other currencies in the previous year, and if it appreciates rapidly against these currencies the operations results and financial condition of Toyota may be affected adversely. Increased prices of raw materials used in manufacturing vehicle components and parts including precious metals, plastic parts, aluminium, non-ferrous alloys and steel, may lead to high production costs for those components and parts. If Toyota decides not to let costs be consumed by its suppliers or pass the costs to its customers, its future profitability may be affected. The decline in the financial markets could affect Toyota’s ability to raise capital. The global financial crisis has disrupted financial markets worldwide. Many investors and financial institutions have faced challenges in providing financial markets with capital to their deteriorating financial conditions. The consequence of this is that many companies may not be able to raise capital. Toyota’s operations results and financial condition could be affectedly unsympathetically if it cannot be able to raise capital when needed. Social-cultural Factors Population, influence of consumer movement, cultural differences, and social responsibility affects automobile industry directly. Consumers are sensitive on the type of the car they would like to drive. Toyota like any other auto manufacturer needs to understand this in order to manufacture vehicles that meet consumers with different social needs. The society portrays someone driving a nice car as wealthy and of high status. Everyone wants to be seen driving the latest and attractive car to get a better impression of themselves and to be appreciated by other people. Consumers are also concerned about mileage, after sales services, car brand and price when purchasing a vehicle. Age and personal status influence on what group to target when selling vehicles. Budget, safety and space also play a major role. Corporate customers buy large amount of vehicles. Technological Factors The field of technology is advancing very faster creating problems for the automobile companies as products and plans of companies become obsolete as a result. Toyota is thus forced to quickly adapt to the new technology to stay relevant. In today’s world customers go to the internet to check out the latest information on available vehicles by visiting the manufacturers websites before making actual visit to dealers for test drive. At the moment there is fuel consumption problem that is forcing Toyota, Honda and other auto companies to manufacture hybrid engines to reduce consumption of fuel. Air bags, seat belts, and ABS brakes are needed to protect passengers. Toyota also has to invest in innovations, research and development to increase sales. Environmental Factors The environment factors like emission, pollution, fuel economy are the challenges faced by automobile industry. Manufacturers are forced to resort to new innovations in consideration of the environment. There is an increase of demand for vehicles that are fuel efficient and reduce pollution. The introduction of hybrid vehicles is aimed at meeting this demand Legal Factors There are legal proceedings that Toyota may be subjected to in respect to certain issues including infringement of intellectual property, and product liability. Negative outcome of these legal proceedings could affect the future results of operations and financial conditions of Toyota. Increasing or decreasing of taxes per country can affect the usage and sales of Toyota. Each country has different import laws that must be followed by Toyota. Competitor Environment Analysis Toyota is one of the top automobile companies which is strong and innovative. However, the company faces stiff competition as there are many other companies and vehicles preferred by consumers over Toyota (Interbrand, 2013). The direct competitors of Toyota are Ford, Honda and Hyundai motors companies. Honda Motor Company is a Japanese motor company that manufactures motorcycles and automobiles. It is the largest manufacturer of internal combustion engines worldwide when measured by volume. It produces over fourteen million internal combustion yearly (Honda, 2014). It is the second largest automobile manufacturer in Japan and the eighth largest in the world. Ford Motor Company is an American auto company selling commercial and automobile vehicles (Ford, 2014). It owns Troller the Brazilian SUV manufacturer and FPV the performance car manufacturer. It is the second largest automobile manufacturer in the U.S and the fifth largest in the world. The Hyundai Motor Company is South Korean automobile company. It was name the fifth largest automobile manufacturer worldwide in 2012 (Hyundai, 2014). In Ulsan, South Korea the company operates the largest integrated automobile manufacturing facility in the world. The facility has the capacity to produce 1.6 million units every year. The fiercest competitor of Toyota is Honda Motor Company. However, Toyota has tried to stay competitive by providing new products and price points as shown below: Category Toyota Toyota-Stripped Toyota-Loaded Honda Honda-stripped Honda-loaded Mini-van Sienna 28012 36250 Odyssey 24440 26853 Mini-SUV RAV-4 18975 25287 CR-V 17110 26853 Family Sedan Camry 18970 25405 Accord 15880 29886 Small Car Corolla 13330 18880 Civic 13010 21210 Honda matches Toyota consistently of low price but the prices of Honda vehicles seems to be higher than Toyota products on high prices. This would give Toyota a major even of value and better price on high quality products. Cash dividends per share Company 2008 2009 2010 Toyota ¥ 140.00 ¥ 100.00 ¥ 45.00 Honda ¥ 86.00 ¥ 63.00 ¥ 38.00 Estimated Dividend yield* % Company 2008 2009 2010 Toyota 2.82%| 3.18% 1.20% Honda 3.02% 2.74% 1.15% The above financial ratio shows how much Toyota and Honda pay out dividends yearly relative to their share prices. The dividend yield is the return on investment for a stock. For three years Toyota is top in paying higher dividends per share compared to Honda. Toyota has also provided its shareholders with a higher ROI in stocks investment. A report by International Business Times (Toyota, 2014) showed comparison in U.S automobile one year sales for 2013 and 2014 first month. January 2014 January 2013 % change Honda $91,631 $93,624 -2.1% Hyundai $81,016 $80,015 1.3% Toyota $146,365 $157,725 -7.2% Ford $154,644 $166,501 -7.1% In comparing unit sales for the month of January 2013 and 2014 it seems like the U.S market share for Toyota has dropped by 7.2%. Hyundai is gaining popularity in the market by increasing its sales units by 1.3%. Just like Toyota, Ford has unit sales have dropped significantly. However, the market share performance of Toyota against its competitors cannot be determined only on one month’s sales. Stock analysis on Net (2014) shows the performance of Ford and Toyota companies in the in terms of revenues as shown below. (USD $ in millions) Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Ford 139,369 126,567 128,168 119,280 105,893 Toyota 234,327 226,106 228,427 203,686 208,995 The above report shows that Toyota had higher net revenues over the years compared to Ford Motor Company. References: CSM. (2006). CSM Worldwide Automotive Industry Research Analysis. Retrieved from www.CSMWorldWide.net Ford Motor Company. (2014). Retrieved from http://www.ford.com/ Honda Motor Co. Ltd. (2014). Retrieved from http://world.honda.com/ Hyundai Motor Company. (2014). Retrieved from http://worldwide.hyundai.com/WW/Worldwide/index.html Interbrand (2013). Best Global Brands 2012. Retrieved from http://www.interbrand.com/en/best-global-brands/2012/Best-Global-Brands-2012.aspx Marksberry, P. (2012). The Modern Theory of the Toyota Production System: A Systems Inquiry of the World’s Most Emulated and Profitable Management System. CRC Press. Muller, C. (2011). Case Study and Comparative Strategic Analysis of Toyota and Ryanair. GRIN Verlag. Public Bonds. (2005). A Brief Overview of Toyota and Its Historical Roadblocks. Public Bonds Online Magazine. Stock Analysis on Net. (2014). 100 U.S Stock Market Leaders. Stock Analysis on Net Toyota (2014). Investors: 2012 Financial Results. Retrieved from http://www.toyota-global.com/investors/financial_result/2012/ Toyota-Global (2014). Company profile: Overview. Retrieved from http://www.toyota-global.com/company/profile/overview/ Toyota. (2014) Financial results. http://www.toyota-global.com/investors/financial_result/ Borowski, A. (2010). Report on the Toyota Company. GRIN Verlag. Read More