TOYOTA: The Evolution of the Toyota Production System
...ished systems in managing and organising suppliers. 5. Effective distribution network and good customer relationship. 6. High globalization 1. Weak market position in Europe Strengths Toyota has been very efficient and effective in their well know production system, Toyota Production System (TPS) or some call it as “Thinking” Production system. TPS below characteristics which make is one of the most important competitive advantage to Toyota. a. Just in Time system The JIT pull system enables Toyota to have a lean production. It eliminated the need to hold large inventories, thereby reducing warehouse costs and freeing up capital for strategic investments. In addition, TPS also incorporate the Kanban system in inventory control. It increases inventories turnover and eliminated centralised management system to control inventories. b. Cut lead time Implementing just-in-time production starts with reducing the lead-time for making things. The way to cut lead-time is to cut out all the things that don't add value. In the whole manufacturing processes, there are only a few processes that actually involve processing. Most of the time was wasted in transferred from place to place. TPS stress in cutting lead-time by reducing unnecessary activities in their production system. c. Deal with defects immediately when they occur In TPS, the production line will be halted there's a problem. This will prevent the defective items to move on to the next stage. This will also enable them to know where the problem occurred. Hence, in TPS, they have a visual control to indicate problems in the line call “andon” electric light board. By committing itself to finding and fixing problems, TPS enable effective control in its production lines with fewer personnel. d. Root cause fixing by asking "Why?" five times. TPS stress the employees to ask the question "Why?" five times over because they believe that will drive everyone to fix the root cause and not just the problem. TPS also emphasizes that on-the-spot observation rather than deduction is the only correct way to answer a "Why?" question. One of the missions of Toyota is “developing next generation technology”. In order to do that, they have to have a very strong R&D system. For basic through advanced technologies, its wide-ranging and intensive R&D activities are carried out in various sites around the world. With the Head Office Technical Center as the core facility for R&D operations, Toyota also has full-scale technical and design development facilities in the U.S. and Europe to create and offer cars globally to meet the needs of customers. The yearly budget for R&D is set at £1.5 billion for various research centers around the world, the highest amongst car manufacturers. This willingness to invest has brought Toyota an innovative image and created products such as the Prius, “the world’s first mass produced hybrid” (Toyota). The main selling point of Toyota vehicles is their supreme quality. In J.D. Power and Associates 2002 Vehicle Dependability Index (VDI) Study, Lexus ranks highest in long-term dependability. In addition, Toyota is the highest-ranking corporation in the 2003 IQS by ranked highest in six out of 16 segments. Toyota stress long term partnership with its major suppliers. Toyota worked closely with its suppliers, providing them with management expertise, engineering expertise and sometimes capital to finance new investment. It also encourgae the supplier to look into continuous improvement and cost reduction by sharing the outcome of successes. Toyota believes in developing mutually beneficial, longterm relationships based on mutual trust. To foster that trust, Toyota pursues close and wide-ranging communication with suppliers. One example is the establishment of the Suppliers Center within the Head Office site in Aichi Prefecture in March 1998. The Suppliers Center features numerous large and small presentation rooms and provides an opportunity for new product/technology presentation to suppliers worldwide regardless of their current business relationship with Toyota. Through such activities, Toyota tries to enhance communications with both Japanese and overseas suppliers. In 1935, the late Shotaro Kamiya of Toyota described Toyota’s sales philosophy in the following way: “Customer first, dealer second, manufacturer third.” This stance is the best means of securing the confidence of both customers and Toyota dealers, and the results will ultimately benefit Toyota.” To this day, Toyota promotes sales activities based on this concept. This has been possible because Toyota and its dealers engage in on-going communication and build relationships of mutual understanding and trust. This indirectly enable Toyota to built long term relationship with customers through dealers. Toyota collects customer evaluation data through wide-ranging information collection activities, including directly through consultations with customers, complaints from customers, and also through quality reports from dealers and questionnaires given to purchasers of new cars. One of the strength of Toyota is its highly globalised structures. As of October 2003, Toyota had a total of 45 overseas manufacturing companies in 26 countries / locations. Toyota markets cars worldwide through its overseas network consisting of more than 160 importers / distributors and numerous dealers. The highly globalised structure enable Toyota to be sensitive to changes in local needs and policies. It also provided Toyota the competitive advantage in terms of responsiveness to customers and minimise the threats of uncertainty in a certain country. Weaknesses Toyota has recognized that European customers have separate needs from Japanese and American buyers, yet their reputation of reliability is often not enough to convince European buyers who like to express themselves with their choice of car and therefore prefer cars with higher prestige from manufacturers such as BMW, Mercedes and VolksWagen. Some buyers might prefer a car from a domestic producer to support the home industry (although Toyota has a production facility in the UK). Because of this (and the EU import restrictions until 2000) Toyota’s market share has increased but still remains low at 4% in the UK. 3.0 Business Level Strategy 3.1 Market Penetration Strategy Toyota started a joint venture manufacturing plant named NUMMI with General motor in 1983 to produce Chevrolet Nova car for GM. The joint venture provided a chance to find out whether it could build quality cars in the US using American workers and American suppliers. It also provided Toyota with experience dealing with American union and with a means of circumventing “voluntary” import restrictions. GM’s role was marketing and distributing the plant output. Toyota designed the product from designed, equipped and operated the plant. By the fall of 1986, the NUMMI plant was running at full capacity and the early inactions were that the NUMMI plant was achiving productivity and quality level close to Toyota major plant in Japan. Encouraged by this success at NUMMI, in December 1985 Toyota announced that it would build an automobile manufacturing plant in Georgetown, Knetucky. The plant, which came on stream in May 1988, officially had the capacity to produce 200,000 Toyota Camry a year. However, by early 1990 it successfully produced the 220,000 cars per year. 3.2 Growth Strategy Toyota 1st priority is to maintain their leading position in the development of environmental and other technology. Rapidly approaching global motorization makes it imperative that they actively tackle environmental issues. Taking on these challenges is indispensable to the growth of Toyota and the automobile industry as a whole. With this in mind, their primary growth strategy is to maintain their superiority in the development of environmental technology while positioning their technologies as the industry’s de facto standard. In implementing this strategy, they are committed to developing key environmental technologies in-house. They will also further increase the market penetration of their hybrid technology, which is already becoming a firmly established core technology. They will therefore welcome companies hoping to incorporate their environmental technologies into their own products. With regard to fuel cell vehicles, Toyota will continue to take a leading role in the development of major unit components, such as the FC stack. 3.3 Market and product growth strategy Toyota’s growth strategy for products and marketing is to offer cars that are even more appealing to customers; they will begin restructuring their domestic sales network. The Toyota Group is one of the few car manufacturers that offer a full lineup—everything from minivehicles to luxury sedans, SUVs, large trucks, and buses. Their basic marketing strategy is to leverage this strength to provide products that cater to regional needs around the world. In North America, for example, they have steadily built up a range of vehicles that have brought about dramatic growth in their respective niche markets. In this region, their model lineup extends from sedans, such as the Corolla and the Camry, to the Lexus RX330, a luxury SUV. They plan to progressively expand and diversify this lineup by increasing their selection of models for the promising SUV and light truck markets. In addition, they launched two new models targeting the youth, or “Generation Y,” market under the Scion car marque in June 2003 in the United States. In Europe, they are also building brand presence and bolstering their sales network. Having already brought the Yaris and the Corolla to market, they rolled out a new-generation Avensis in March 2003. In Japan, they will build a more efficient and competitive domestic sales network by reorganizing their current five Toyota-brand sales channels into four in spring 2004. In conjunction with those efforts, their will bring their exclusive Lexus brand to the Japanese market in August 2005. Their goal is to develop the Lexus, which has been a strong seller in the U.S. market, into a truly global, top-class brand. 3.4 Cost reduction activities for Toyota Toyota is always looking at ways to reduce costs with a view to bolstering their competitiveness and revenue base. In Toyota, cost cutting is a never-ending management challenge faced by all manufacturers. Looking ahead, automakers will have to redouble their cost reduction efforts to offer customers in global markets appealing automobiles at lower prices. With CCC21, they challenged themselves to achieve world-class cost competitiveness for about 170 major components that account for more than 90% of their overall parts purchasing costs. They are now within sight of reaching that target through collaborative efforts among parts suppliers and their engineering, production engineering, production, and purchasing divisions. Toyota is continuing to pursue manufacturing innovations aimed at achieving cost reductions on an almost unheard of scale. To be successful, these types of programs require relentless hard work behind the scenes. But given Toyota’s tradition of comprehensive reviews of fundamental systems, their strengths will really come to the fore in taking on this challenge. 3.5 Toyota’s Basic Strategy for Environmental Technology They environmental technology strategy is a paradox, because they are trying to develop vehicles that realize apparently incompatible goals. By focusing on the creation of an environmentally-friendly, motorized world, Toyota draws on its wide array of technologies to build vehicles that offer environmental and safety features well as unmatched driving pleasure. In environment-related R&D, hybrid technology is the common denominator in their development activities that reflect growing use of alternative energy sources. Also, they have always made it a point of principle to develop key technologies in. This gives them a competitive edge by enabling them to reduce costs and rapidly commercialize the world’s best technology in this field. 3.6 Offering Advanced Solutions to the Environment vs. Driving Performance Dilemma through New Hybrid Systems In 1997, Toyota launched the world’s first mass-produced hybrid vehicle, the Prius, which featured an onboard Toyota Hybrid System (THS). Ever since, they have boasted an unassailable lead in hybrid systems. And, more than 120,000 Prius models have been sold worldwide to date. Following up on this success, Toyota unveiled the new Prius at the New York International Automobile Show in April 2003. This all-new Prius features their next-generation hybrid system, the Toyota Hybrid System II, or THS II, which they developed based on the Hybrid Synergy Drive concept. In other words, Toyota has created a system that meets the conflicting demands of the environment and driving performance even more successfully than its predecessor. While control-system advances, such as increased electrical system voltage have raised the output of the electric motor 1.5 times, THS II also realizes enhanced environmental performance. Toyota independently developed all of the major components for this completely renewed system—including the electrical system, motor, generator, and battery. Their new, high-voltage electrical system is the main technology underpinning THS II. The newly developed high-voltage power circuit inside THS II’s power control unit increases the motor and generator voltage to a maximum of 500V, compared with roughly 274V for its predecessor THS. Thanks to these innovations, the new-model Prius offers dramatically increased driving pleasure. With a 1.5-liter gasoline engine, the new Prius achieves standing start and passing acceleration comparable to or greater than that of a 2.0-liter gasoline engine vehicle. They have also improved the environmental performance of the Prius by enhancing its overall energy efficiency. According to Toyota’s in-house measurements, the new Prius with THS II onboard is fully compliant with a range of emissions regulations, including California’s Advanced Technology Partial Zero Emission Vehicle (AT-PZEV) regulations, the world’s most stringent emissions law due to come into effect in 2003; Japan’s Ultra-Low Emissions Level regulations; and Europe’s next-generation EURO IV requirements. They will accelerate the market penetration of their hybrid technology by increasing the number of models using their original hybrid systems. As part of this initiative, Toyota plans to install the system in one of its SUV models. They have also decided to supply hybrid systems to Nissan Motor Co., Ltd., beginning in 2006. No matter how outstanding a technology is, it cannot effectively contribute to the preservation of the environment unless it is widely used through incorporation in as many vehicles as possible. Accordingly, they will continue to make they technology widely available to other companies. They do not regard hybrid technology as simply a steppingstone on the way to the age of fuel cell vehicles. Instead, they see it as the core technology that will become dominant in the eco car market and eventually evolve to form the basis of what they call the “ultimate eco car.” With both of these goals in mind, Toyota will integrate its hybrid systems with gasoline engines, diesel engines, alternative energy vehicles, and fuel cell vehicles. 3.7 Securing a Competitive Edge in the Market for Fuel Cell Hybrid Vehicles Toyota led the way for the world’s first commercial fuel cell hybrid vehicle (FCHV) through a limited sales launch of the Toyota FCHV in Japan and the United States in December 2002. They have also been testing their fuel cell hybrid bus, which they developed jointly with Hino Motors, Ltd., on public roads in Japan since October 2002. And, in January 2003, Toyota and Hino were chosen by the Tokyo Metropolitan Government to provide vehicles for a pilot scheme in which fuel cell hybrid buses will operate on public bus routes in Tokyo. Toyota has a distinct competitive advantage in fuel cell hybrid vehicles because it develops all main components independently, including the FC (fuel cell) stack, the traction motor, the air compressor, and the power control unit that controls the electric motor. Fuel cells are the core component of any fuel cell vehicle. Since first setting out to create fuel cell vehicles in 1992, Toyota has made a point of keeping its fuel cell development in house. The fruit of these efforts is the Toyota FC Stack, which boasts the world’s best performance among fuel cell vehicles and power density that is already surpassing that of gasoline engines. Aside from passenger cars, They are also collaborating with Toyota Group companies to adapt the Toyota FC Stack for application in a wide range of products, including city buses, mini-vehicles, and fuel cell cogeneration systems for home use. 3.8 Leading the Development of Environmentally-Friendly Materials Toyota is actively working to develop recycling technologies and automobile components that incorporate plant-based, bioplastics or natural materials, such as kenaf, which effectively preserves forest resources and absorbs CO2. For example, kenaf is used as the base material in the door trim of the Soarer and in the package tray trims of the Camry, Premio, and Allion. Furthermore, the Raum, unveiled in May 2003, is the world’s first automobile to include a plastic produced by combining kenaf fibers and polylactic acid derived from sugar cane and sweet potatoes. This Toyota Eco-Plastic is used for the vehicle’s spare tire cover and a part of the floor mats. The Raum also showcases Toyota’s leading-edge recycling design, which has achieved revolutionary improvements in the recoverability of chassis materials. “Considerate to people, society, and the environment, Toyota’s product technology represents a new direction for car manufacturing. In fact, with Toyata innovative safety technology, user-friendly design, and integrated IT and intelligent transport systems, Toyota’s vehicles offer a window on the motorized society of tomorrow.” 3.9 Toyota’s Basic Strategy for Safety and User-Friendly Technologies Toyota’s main aim is to improve today’s motorized world by developing products that are more accommodating to people, society, and the environment. For example, they are creating safety systems that augment drivers’ senses and response rates and using ergonomic measurements to realize the ideals of universal design in their vehicle development. They are also working hard to develop telecommunications capabilities paradigms for the approaching “networked society” and the new auto culture that will accompany it. As a result of such innovations, the leading edge technology onboard their vehicles is fast becoming the prototype for private transportation in the 21st century. “Aiming to build higher-quality vehicles at lower cost, Toyota is working on innovative development programs that overturn conventional engineering ideas. Engineering initiatives that increase manufacturing efficiency are opening up an array of new possibilities in Toyota’s operations.” 3.10 Toyota’s Basic Strategy for Production Engineering To win out against today’s growing global competition, it is vital to lower costs while improving product quality. Meeting this challenge requires a revolutionary approach to vehicle manufacturing. They have already reached milestones in process reform and cost reduction through the development and introduction of Global Body Line (GBL), a leading-edge body-welding assembly line that can be adapted to small or large production volumes. Now, they are working hard on Unit & Material Manufacturing Reform (UMR) measures, which are aimed at achieving unprecedented reductions in the production cost of unit components. 3.11 Revolutionizing Production Engineering through UMR Project UMR is a production reform project on a breathtaking scale. Based on entirely new concepts, they are fundamentally rethinking existing development and design processes, production equipment, manufacturing met...