Operational Management - Toyota - Essay Example

Contents page number Introduction 2 Background of Toyota Motor Corporation 2 Toyota Production System (TPS) 3 Customers’ requirement and customer relation management 5 Organizational constraints 7 Projects of Toyota 9 Monitoring and Evaluation 12 Summary 15 Recommendation and conclusion 16 References 18 Operational management-Toyota Introduction The analysis of production or manufacturing management brought about with it a new concept known as the Operations management. Operations management, like any other functions of an organization is also a distinct function. Every corporate that offer any goods or services will have operations function, the only difference will be in the structure, whereby some corporate have discrete operations function. On the other hand, similar to marketing and accounting, it is a basic function of the firm with competently trained operations or production managers who are held accountable for conversion of wherewithal into the required product and service combining.  The operations of an establishment are all the activities which are directly linked to accomplish the key function of the organization – be it producing a product or rendering services. In both the cases the operations system of rules will offer the transition of certain inputs, like materials and labour, into outputs, as products or services. This paper will discuss about the company Toyota Corporation and how it became the number one car maker. Background of Toyota Motor Corporation Toyota Motor Corporation, which is based in Toyota, Japan, is one of the world’s largest automobile manufacturer offering well known car models like Camry, Corolla, Corona and Lexus. Though a late entrant compared to General Motors and Ford, Toyota had become one strongest player in the automobile industry. In an industry generally considered to be mature in terms of technology, Toyota had continued to set benchmarks for providing value to customers more effectively than competitors. Toyota had also redefined the rules of operation management in various areas like product development, manufacturing process, vendor management, customer satisfaction and human resource management. The formal establishment of Toyota motor company ltd., took place in 1937 and since then it moves onto become the leader in the global automobile industry. By 31st march 2008, Toyota group approximately sold 8.9 million vehicles in 170 countries under the Toyota, Lexus, Daihatsu and Hino brands. Since the automobile industry is now facing a recession, Toyota aims to achieve sustainable growth by building a more flexible and stronger operational process and corporate structure to counter the challenges of the hyper competitive market world over (Annual Report, Toyota, 2008). Toyota Production System (TPS) Toyota devised lean production which is otherwise known as the Toyota Production System (TPS) which has started a worldwide shift in almost every industry to Toyota’s manufacturing and supply chain doctrine and techniques over the previous decade. Due to this, the employees of Toyota are sought by many companies in nearly every industry all over the world for their expertise (Ohno, 1988; Womack, Jones & Roos, 1991; Monden, 1993; Rother & Shook, 1999; Fujimoto, 1999; Liker, 2004). The car maker has been successful because of its excellence in operation management. It had become the source of many innovative techniques like Just in Time (JIT), Kanban Andon, Jidoka and Kaizan, which were used all over the world. Kanban eased continuous flow of information regarding production quantity, time method, sequence, transfer quantity, transfer time, destination, storage point, transfer equipment, containers etc. between succeeding stages of the production process within Toyota and between Toyota and its suppliers. Kanban had been simplified by Hegunka, which ensured, smooth production flow by emphasizing the even distribution of work among the shop floor workers. Jidoka meant automation with a human touch i.e. investing machines with human like intelligence. Kaizan, another unique feature of the TPS, meant continuous improvements. Kaizan emphasized looking for better, safer, easier and more efficient ways of working which could improve efficiency and reduce waste no matter how small the tasks were. Figure 1 The “4P” Model [Adapted from Jeffrey K. Liker, The Toyota Way (2004)]. For all intents and purpose, Toyota created the Toyota Production System and thus the concept of Lean Production (oftentimes called Lean Manufacturing) Maybe the briefest illustration of the TPS, and its 14 principles, is the “4P” model Liker (2004) (Figure 1). Many car makers have followed this model to their rationales of lean to build supplementary rules and precepts to be utilised more generically. “One fundamental difference between Toyota and others is the significant involvement of everyone in the improvement process…if we operate as a lean system, we can have everyone in the organization focused real time on solving problems and driving waste out of the organization” (Flinchbaugh, n.d., p. 2). Toyota working model -- Development System (TDS); Total Toyota Production System (T-TPS); Toyota Marketing and Sales System (TMSS); and Toyota Management System (http://www.qv-system.com/file/Oobeya%20article%202009.pdf accessed 1st October 2009) Customers’ requirement and customer relation management Toyota has made a careful study of its customer’s internal (dealers) or external (direct customers). To identify the customer’s requirements, Toyota goes beyond the general customer surveys and remains in continuous touch with the customers. Apart from routine surveys from customers Toyota sends its representatives into the field to converse with the customers or potential customers to understand the problems or requirements as well as to have firsthand experience of their life styles so that product could be modified accordingly. Apart from meeting its customers directly, Toyota has established a network of dealers worldwide and has also given them, a place in the board of management of the corporation. To make the presence felt in every corner of the world smooth, seamless communication network between the company and its internal and external customers is the basic requirement. One such network which is providing Toyota’s customers service and quality is Mitel network in UK. These networks provide the solution for customer’s problems. Then the available resources are effectively deployed to solve the customer’s problem within time. Toyota (GB) PLC is one of the distributor and importer of Toyota in UK and responsible for sales marketing and customer satisfaction. Actually developing new model in an automobile industry is highly capital intensive and time-consuming. However Toyota is considered as a pioneer in team product development, a philosophy which emphasized development of new products, with minimum resources. Toyota realized the need to balance two conflicting objectives to fulfil customers demand i.e. Encouraging creativity and cutting costs. It wanted to minimize duplication of existing technologies and at the same time encourages the development of new technologies that would ease the introduction of new products. Toyota created this development centres, each focussed on one type of platform design-rear wheel drive, front wheel drive and utility vehicles/vans. Later, it set up another centre that focused on developing components and subsystems that could be shared by different vehicles in the three centres. The objective was to focus on product families with shared components rather than on stand-alone products, to dedicate engineering resources to the platform groups and to streamline the flow of designs all the way into production so that new vehicle could be taken from concept to launch in about two years. Each centre had 1500 to 1900 people and typically worked on five new vehicle projects simultaneously. Healthy competition existed among the three centres. Senior executives and centre head encouraged, engineers in one centre to learn from other centres. Toyota has also created centre to develop components and systems for all the vehicle projects. The company reorganized the grouping which worked on advance technologies. Centre closely supported vehicle development by providing specific projects with components and subsystems. To fulfil the customer’s requirements, Toyota has based on restructuring of number of functional engineering divisions. Each centre had only 6 engineering divisions when compared to 16 different functional divisions of old structure. The new organization improved product development in various ways. It excluded some areas of component development to allow projects to focus on integration of product development activities, as opposed to the development of parts. One part of the organization could focus on new technologies. The close co-ordination between the product development centres and the component development centre also brought a strong result orientation into Toyota’s R&D activities. Under this new system, Toyota’s product development process improved significantly. Toyota doubled its engineering output with, and additional budget allocation of only 20% in a period of about 4 years. Toyota used set based concurrent engineering to increase the effectiveness of its product development activities. Toyota also expected its suppliers to come with multiple design ideas. The ideas were evaluated because of material cost and performance, quality, tool and mold investment, total weight, cost etc. Toyota used various organizational mechanisms and processes to optimize its product development activities. Toyota also used a mentoring process to upgrade the capability of young engineers. Toyota rotated most of its engineers within only one function to promote specialization and standardization. Toyota prefers to develop and rely on the skills of its personnel and it shapes its product-development process around this central idea: People not systems design cars, to adopting various technologies and innovative management practices; Toyota has achieved customer satisfaction to the maximum despite hyper competition, market turmoil and ever changing needs of the customers. Organizational constraints Risk in building up a product Developing of new products in an automobile industry calls for heavy capital and of course, it is time consuming also. Still automakers had to come up with innovative ideas so that they could keep up with their business. Toyota was a pioneer in this field. They followed a lean product development and this philosophy was a novel idea to come up with new products by making use of minimum resources. In the year 1955, Toyota followed a model ‘Crown’ that is a practice to appoint a ‘susha’ meaning a project manager who would head the development of a plan right from its inception and follow it until its completion (http://www.icmrindia.org /casestudies/ Toyota.htm, retrieved on 29 September 2009). In the year 1965, Toyota officially founded a product planning division to coordinate and back up sushas. The structure applied by Toyota was fundamentally a matrix, with functional specialists accounting to a functional manager and the susha. The matrix structure served Toyota to merge the best features of both functional and divisional organizations. During that time, there were 10 sushas and 5-6 staff members under each susha. However, in 1989, the company replaced the name susha by chief engineer the same structure of its product planning modes was followed by Toyota (http://www. icmrindia.org /casestudies/ Toyota.htm, retrieved on 29 September 2009). Marketing Risks The universal auto market was exceedingly competitive and recurring. Demand for motorcars in each market could differ significantly from year to year. Demand reckoned largely on common economic situation in a given market, the cost of buying automobiles and the accessibility and cost of credit and fuel. Toyota’s unit sales in Japan reduced during fiscal 2002 mostly due to poor market conditions and changed competition, which Toyota had to face from its local manufacturers. This decrease was a follow through of the increased sales of Toyota’s coupes during the fiscal year 2000-2001, which was also driven by new models and the local dealers’ strong sales efforts(http://www. icmrindia.org /casestudies/ Toyota.htm, retrieved on 29 September 2009). Dogmatic Risks Alterations in laws, rules, policies and other governmental activities could influence the profitability of Toyotas automotive performances. These laws, policies and regulations included environmental matters and vehicle safety, fuel economy and emissions. Such laws considerably augmented the cost of vehicles (http://www. icmrindia.org /casestudies/ Toyota.htm, retrieved on 29 September 2009). Financial Risks Toyota had to face different risks due to modifications in foreign exchange rates, interest rates and prices of certain commodity and equity. Toyota made use of different derivative and financial instruments so that it could overcome the risk cropping up from changes in foreign currency exchange rates and interest rates (http://www. icmrindia.org /casestudies/ Toyota.htm, retrieved on 29 September 2009). Projects of Toyota Project I: Hybrid Vehicles Toyota has adopted several projects. Toyota has been developing fuel efficient engines through improving the existing engines and developing new engines, reducing vehicle weight, improving transmission line efficiency etc. Toyota is a pioneer in developing hybrid vehicles. Developing hybrid vehicle is the core area of moving towards sustainability. Apart from fuel efficiency improvements, better emission standards, hybrid technologies i.e. using alternative fuel like bio ethanol or photovoltaic cells, use of electricity charging are some of the technologies where all automakers have to move in the future. Since the launch of its hybrid car Prius, Toyota has sold 1.5 million by May 2008. It becomes popular world over due to its ability to reduce CO2 emission and gasoline consumption. Toyota is aiming to sell 1 million hybrid cars by as early in the year 2010 and planning to integrate hybrid technologies in its entire vehicle by the year 2020. Therefore Toyota is working harder to reduce the cost of hybrid cars, its size and weight so that it could be applied to all the cars and can improve the quality. To develop alternative energy driven cars, rechargeable batteries for long duration with lesser weight and capacity is the basic challenge Toyota is facing. Toyota has started testing of these batteries in US, Japan and Europe plants to introduce lithium-ion batteries driven vehicles by 2010. The basic efforts Toyota is making to develop high performance batteries with lesser size and weight and high power and rechargeable capacity. Toyota has established the battery research division in July 2008. This new division is very much on the way to develop high efficiency batteries (lithium—ion batteries) and conducting research for future generation batteries. The basic challenges Toyota is facing is to develop high efficiency batteries with lower cost and high standard quality. Toyota has not been able to produce a battery which has the output to 100HP over 36 continuous hours with weight 225 kg and size 280 litres. Though Toyota has rolled out its hybrid car way back in 1997 but still not reached to the level of mass production and acceptance by the customers all over the world. One reason for this non acceptance especially is emerging economy of the world like India, China or Brazil is only due to its cost and efficiency. The requirement of these countries and their customer is a compact car with fuel efficiency and have low cost. On this front this project of developing hybrid cars has not accelerated yet. These batteries driven or hybrid cars are good for short distance running or urban movement but long distance driving on alternative fuels still a dream for car owners. Toyota has launched E10 compatible cars (10% Ethanol + 90% gasoline) since 2006. Project II: Flexible Fuel Vehicles Toyota has also launched flexible fuel vehicles (FFV) in Brazil where high concentration vehicles are easily available. Toyota is researching cellulosic ethanol which could be stably supplied and hoped to begin production when possible. The main bottleneck Toyota has been facing is the cost and timing as well as the mass production ability of these innovative technologies. Hybrid system performance and fuel efficiency are also a point of concern for Toyota which needs to be solved when possible. To reduce CO2 emission, Toyota started with developing new gasoline and diesel engines with lower fuel consumption and electronic control. Toyota has introduced new gasoline engines of 1.3 litres and 2.5 litres of which 1.3 litres engine uses Toyota stop and start system. This innovative system contributes to improve fuelling efficiency and reducing CO2 emission. Promoting clean diesel engine with a wide line-up from 1.4 litres to 4.5 litres giving Toyota an edge over others in reducing the emission level of specific particulate matter (PM) and nitrogen oxide in exhaust gases. Despite sales of hybrid vehicles, Toyota is trying to achieve the goal of selling one million vehicles in year 2010. It requires drastic improvements in hybrid system performance and fuel efficiency. Toyota is working onto develop high performance motors, inverters and batteries and other devices while working onto reduce cost, size and weight of batteries. Toyota is aiming to reduce cost, size and weight of batteries by one fourth when possible (Sustainability report, 2008). GANTT for Toyota (Courtesy: System (http://www.qv-system.com/ file/ Oobeya %20 article %20 2009.pdf accessed 1st October 2009) Monitoring and Evaluation of Performance Based on the vision of “Zeronize and Maximize” Toyota aims to minimize negative effect and maximize the positive effect, such as convenience, comfort, enjoyment and excitement. So Toyota has evolved a system which satisfies the customers as well as proper utilization of resources. Toyota is also modifying its design, planning and implementation processes. Toyota production system is based on technical competence of its people. As a manufacturer, Toyota emphasized on quality of its products and its main priority is to improve the quality of its vehicles according to customer’s perspective. It has launched “Customer first” campaign since 2005. From the customer point of view early detection and solution to the problems of customers is the basic requirement to move on. Toyota “Built-in-quality” takes this even further. It assures that quality built in process so that it can be passed onto next level. If of any problem occurred during a particular process, the causes could be known immediately and plans, facilities and management processes will be reviewed. So improvement processes could be implemented not only in manufacturing processes but other processes also such as sales and service & management. Toyota has been improving its engines to improve fuel efficiency of the vehicles. Toyota ways of problem solving is one unique way in the industry. Toyota is maximizing its performance through its trained manpower. Every employee is used to follow the system regularly and this collective effort play tremendous improvement in processes and operational improvements. Problems have been categorized according to their difficulties and occurrences and resources have been deployed accordingly. Larger issues could be addressed by management directed and management controlled activities such as management Kaizen Training, other problems are generally solved by supervisors or team members or by individuals. Individual or group efforts to solve the problems enhance the performance of the organization to many folds. A continuous improvement is the key to quality and utilization of resources and is part of every employee daily activities. Toyota performance monitoring and practicing depends on the six organizational mechanisms. Three of them are primarily social processes i.e. mutual adjustment, close supervision and interactive leadership from product head and standard skills, work processes and design standards are from standardization. This mechanism provides Toyota a tightly linked product development system and cross-functional co-ordination. This mechanism provides Toyota a tightly linked product development system and cross-functional co-ordination. This mechanism allows, balance and integration of projects over time. However Toyota seems to rely highly on formalized rules and standards. Such rigid policies and follow of system and rules can have some drawbacks. To avoid these drawbacks, Toyota is likely to provide some flexibility. Toyota has developed 14 guiding principles to monitor and evaluate performance of the organization at every level. These principles are: Base your management decisions on a long term philosophy even at the expense of short-term financial goals Create continuous process flow to bring problems to the surface Use pull systems to avoid overproduction Level out the work load(Heijunka-work like the tortoise not the hare) Build a culture of stopping to fix problems, to get quality right the first time Standardized tasks are the foundation for continuous improvement and employee empowerment Use visual control so no problems are hidden Use only reliable, thoroughly tested technology that serve your people and processes Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others Develop exceptional people and team who follow company’s philosophy Respect extended network of partners and suppliers by challenging them and helping to improve Go and see thoroughly understand the situation (genehi genbutsu) Make decisions slowly by consensus, thoroughly considering all options, implementing decisions rapidly Become a learning organization through relentless reflection (Hansei) and continuous improvement (Kaizen). (Accessed from the website www.toyota.com ) Toyota has built stronger relationship with all its stakeholders, including shareholders, customers, business partners, local communities and employees. To achieve long-term sustainable growth, Toyota provides quality products according to need of the customers. Toyota has a unique corporate culture that place emphasis on problem solving based on the actual situation on the site. Toyota’s approach is to build quality through manufacturing processes, enhancing the quality of everyday operations. Toyota’s management team and employees conduct operations and make decision founded on the common system of checks and balances. To monitor the management, Toyota has adopted an audit for system. Monitoring and evaluation of production/processes and synchronization with other activities enhanced the performance of the organization. Toyota improved its timing and took average less than 10 minutes to change dying, which it did three times per day, and produced in many only one day’s supply for most items. Toyota’s inventory management practices represented a sharp break from conventional wisdom. Toyota’s assembly lines are one of the most efficient one and 3-5 models can be assembled on the single assembly lines. Toyota has used several concepts to improve customer services, resource utilization, improving designs, planning and effective implementation processes. Toyota could generate various scheduling options as production lines were flexible. Each line had the capacity for producing different types of product on a daily and monthly schedule. Summary Toyota as an organization, has set the benchmark in automobile industry. It has created operational excellence and developed various concepts like Just in Time (JIT), Kaizen, and Jidoka Kanban etc. These operational excellence and Toyota production system is the existing system which provides Toyota an advantage over others. Most of the automakers tried to replicate the TPS but failed. Toyota has not been dependent on occasional improvement but the system has inbuilt continuous improvement processes. Toyota “Customer First” practice and networking with dealers and suppliers improved the efficiency of the whole system considerably. The current operational processes, systems, and plan to implement new projects with utmost detail and efficiency making Toyota as one of the successful automakers in the world. The system of Toyota is so flexible and continuously changing that any change could not be planned but it takes, shape continuously and automatically as, when needed. Recently, Toyota is working on hybrid cars using alternative fuel options like battery driven, ethanol driven, photovoltaic cells driven or driven on gasoline and any other alternative fuels. This project is still at the starting stage due to non-viable options. Cost, size, weight, efficiency and power of battery are some of the constraints. Organization has the culture of constant and continuous monitoring and evaluation. So continuous improvement in customer services, resource utilization, minimum waste, recycling of waste, sustainable development to technologies and cost benefit of each process has to be analyzed before implementation of any operational processes and system. Recommendation and conclusion Finally we come to the conclusion that Toyota’s team processes had made it truly outstanding business model the competitors found it extremely difficult to replicate. According to well known Management scholars, Consumano and Nobeoka (1998), for several decades, Toyota has been a leader in adopting new organisational structures and processes in both manufacturing and product development. For firms in different industries, it has served as a benchmark for performance in these areas. “Observers confuse the tools and practices they see on their plant visits with the systems itself” (Steven Spear and H. Kent Bowen, 1999). They have explained why western companies, despite several visit to Toyota plants had found it difficult to replicate Toyota’s business model. Activities, connections and production flows in a Toyota factory are rigidly scripted yet at the same time Toyota’s operations are enormously flexible and adaptable. Activities and processes are constantly being challenged and pushed to a higher level of performance enabling the company to innovate continuously and to improve – the rigid specification is the very thing that makes flexibility and creativity possible. Though no system is ideal but Toyota’s system of production is almost nearing to perfection. It has been stated that for Toyota the output of an ideal person, group of people or machine is defect free ( i.e. it has the features and performance the customer expects) can be delivered one request at a time (a batch size of one) can be supplied on demand in the version requested can be delivered immediately can be produced without wasting any materials, labour, energy or other resource ( such as costs associated with inventory ) can be produced in work environment that is safe physically, emotionally and professionally for every employee (Spear and Bowen, 1999) Now keeping in mind this ideal situation Toyota is working hard and improving its processes and systems continuously to achieve the ultimate in automobile industry. References: 1. www.toyota.co.jn accessed on 21st August 2009. 2. Cusumano, Michael A. And Nobeoka, Kentaro (1998), “Thinking beyond lean: How multi project management is transforming product development at Toyota and other companies”, Simon and Schuster. 3. Spear, Steven and Bowen H. Kent (1999), “Decoding the DNA of the Toyota production system”, Harvard Business Review, September-October, pp. 96-106. 4. Jeffrey K.Liker, The Toyota Way: 14 Management Principles from the World’s Greatest Manufacturer, McGraw-Hill, 2004. 5. Flinchbaugh, J. (n.d.). Beyond lean: Building sustainable business and people success through new ways of thinking. Retrieved August 22nd, 2009 from www.leanlearningcenter.com/Beyond%20Lean.pdf. 6. Flinchbaugh, J. (2001). Is lean a fad? As appeared in The Manufacturer of Michigan Journal October, 2001. Retrieved August 22nd, 2009 from www.leanlearningcenter.com/fad.pdf. 7. Fujimoto, T. (1999). The evolution of a manufacturing system at toyota. New York, NY: Oxford University Press. Monden, Y. (1998). The toyota management system. Portland, OR: Productivity Press. 8. Ohno, T. (1988). Toyota production system: Beyond large-scale production. Portland, OR: Productivity Press. 9. http://www. icmrindia.org /casestudies/ Toyota.htm, retrieved on 29 September 2009 Read More