Strategic Management Toyota - Case Study Example

Strategic Management- Toyota While aiming to achieve corporate development and longevity, Toyota Industries also strives to fulfill its role as a good corporate citizen so that the regions which provide a foundation for its corporate activities and employees' lifestyles become more prosperous and comfortable to live in. To accomplish this, Toyota Industries actively promotes cooperative support activities with the objective of contributing to society through the provision of human resources, facilities, and funds. Toyota Industries' employees also endeavor to be of service to the community through activities such as volunteering. (Schifferes 2007). The history of Toyota is indeed remarkable in that it has ventured into manufacturing of small cars in a big way. It has introduced new car making technology by mass producing hybrid gas electric vehicles with a capacity of 1 million globally. During the year 2005, Toyota has produced 8.5 Million vehicles and has a large market share. Toyota now claims to be the 8th largest car manufacturing company in the world. However one of the fact remains that it has not been able to make much inroads in the European markets. The success story of Toyota lies in its use of scientific systems and procedures for car making .Through the use of Kaisen, which entails efficiency and optimum work effort, and is basically designed for improving efficiency. Lean management which is based on developing managers who are problem solvers is based on serving customers and heightened level of performance attainment. Lean Management is a total holistic concept which is designed to attain efficiencies in all spheres of car making through the use of waste elimination. The basic theme of Toyota Production System (TPS) is to achieve operational excellence and instil an organisational culture that values and respects people and nurture and develop their creative abilities. The stage is set for small cars, to come in a big way, in the international arena, fuelled by mounting fuel costs and strong pollution laws. It is widely believed that in the next 5 years, the global demand for small cars would grow by nearly 30%, averaging nearly 18 Million (Schifferes 2007). The major players who manufacture and sell small cars are Indian brands like Tata, Maruthi, Renault, Fiat, Peugot, Daewoo (GM), Hyundai and Daihatsu. The fact remains that the almost prohibitive costs of fossil fuels and stringent pollution norms have become a severe deterrent for automakers. It has therefore become essential to seek ways and means for finding out cheaper and clean, fuel efficient alternatives. Toyota could rightly claim to have established brand leadership in hybrid cars and has surged ahead of even Ford and General Motors (GM). However, the spread of alternative technology involves large investments and technological barriers. However, the full scale development and product implementation of advanced fuel alternatives is an expensive and time-consuming matter and may take around a decade for its final development. "But in the long run, no major car company doubts that ethanol, diesel, electric, hybrid and even hydrogen-powered vehicles will become more important in the future." (Schifferes 2007). The present day automotive industry is going through a total and thorough change in its production methods. It has now become necessary for scientific techniques, principally based on lean management, aimed at reducing the costs of making small cars, and also making it easier for automakers to shift their production patterns to match customer preferences and tastes over a period of time. This is also one of the principle reasons why Toyota has overtaken GM as the most powerful automaker in the higher efficient production system (Globalization). During the middle of the 20th Century, the American automaker GM dominated the US car markets with 100 % share. But now, at the beginning of the 21st century, its market share has come down to 52% with Japanese and European carmakers at 43% and 5% respectively. (Share of US Car Market. 2007). The main reasons for this have been GM had been adversely affected by hike in oil prices and Japanese imports and could not respond adequately to market changes or customer preferences. Besides, it had high cost of production which threatened to cut into their margins. However, Toyota was ready to take the market on its terms. They had lean management in place with Just-in time material scheduling which entailed reordering of materials immediately after usage, thereby, saving substantial inventory costs and stock overheads. Toyota also recognizes that it is crucial to alleviate the adverse impact of products and services on the environment and feels that secure environmental protection is not only in the best interests of the automaker but also for the car industry as a whole. Toyota's environmental and pollution concerns has led to the marking of fuel efficient hybrid cars "Toyota's Prius hybrid car combines a gasoline engine with an electric motor to create an environmentally advanced, fuel-efficient passenger car." (Sinn 2005). We shall now take up the key factors that are responsible for the success of Toyota Company. (KFS) Effective implementation of Kaisan Lean management usage Toyota production systems Just-in-time Effective implementation of Kaisan: Kaisan does not merely denote a function but is an integrated buildup of several functions and procedures that are designed to create optimum efficiencies in the systems by eliminating wastes and improving production methods. The elements involved in Kaisan are as follows: The entire process is first considered as a composite whole. Next, Brainstorming sessions are held whereby the various thought aspects connected with the improvement of the work is done. Next, a revaluation of the proposed schemes are made. It is generally felt that Kaisan may not yield immediate results, or the type of improvements may be small in nature, but it needs to be remembered that the collection of all small improvements may gain good betterment. The main rotation of Kaisan therefore could be: An operation or work process is first assessed and its quantitative measurements are considered, next, the comparison of the measurements against the requirements is made, and the changes are adopted after consideration of all its aspects. Kaisan has been one of the hallmarks of the Toyota management systems and has been a unique aspect of Toyota's quest for all round excellence. Lean Management: It is basically designed in the identification and elimination of wastes and also involves continuous process improvements. The process is more important than the goal, since the process has to be perfected and programmed to attain objectives. The Lean management systems are designed to get the right things done at the right time and through applications of the right procedures for attaining it. The concepts of lean management are ingrained in the minds and actions of the work force through training and retraining, and by its continuous implementation in the shop floor. By seeking to reduce or eliminate elaborate complexities in the production processes, the Lean management seeks to simplify the way processes are executed with least time and efforts. Through a categorization of waste procedures as muda (non -significant), muri (heavy burden) and mura (non standard) it is possible to attain optimum efficiencies in work. Muri is the preparation and planning of processes, mura is the implementation of standardization and muda is the process of focusing on significant aspects while also attending to lower significant processes. The collective aspects of utilising the good aspects of these methods would be within the scope and functional usage of lean management. In short lean management is meant to eliminate superfluous movements and efforts and work schedules are carried out on the basis of best methods possible for optimum use of men, materials and machine hours available. Toyota production system: This is a unique system in that it is one of the prime reasons for the popularity of Toyota Company. The TPS has been used along with the Lean Management in the Toyota work system. It is meant to reduce the lead time for operations and effect cost reductions. It has been seen as the leader in manufacturing and production of automotives. TPS is the entire system which includes aspects like Just-in time, Lean Management, kaisan, kamban etc. There are certain fundamental principles that guide the TPS and they are as follows The use of the right process would produce the desired results. It is often found that on the shop-floor, the work force may indulge in work which may not be very productive or fruitful in the long run, or may be doing work which does not serve any good purposes. The work may not be a part of the total production chain process for the raw materials to be transformed into the finished product. Therefore it is necessary to first chalk out the preferred planning and scheduling of work processes at the shop floor levels in order to achieve the production targets and allocate work to the workers accordingly. Thereby, individuals work would also move smoothly and the productions are also taken care of. It is necessary to establish production goals and achieve them. through use of the right processes Value creation is done only through a process of training developing and moulding the people and partners, since they are the people, responsible for good or bad products. By supplying the right inputs to them, and by using scientific and time-tested models, it is possible to get the best outputs from the workforce. However it is necessary to take the workforce into confidence, sort out their problems and setbacks and guide and encourage them whenever necessary. The TPS believes that the strong, contented and proactive work force has been the vital asset for Toyota. Just in time method relates to inventory control systems. Through a process of tight controls over inventory, which are termed as costs, or outflows, severe savings in inventory and warehousing costs are envisaged , which could increase the Return on Investments substantially. Under this method, the stocks replenishments are done only after the present stocks are exhausted, through automatic processes, and thereby the dangers of idle or surplus stocks are eliminated if not considerably reduced. Car manufacturing industries, by their inherent nature are capital intensive, and require heavy investments in raw materials and process goods and inventories. What had happened to American automakers is that they depended on heavy warehousing inventories which, in the long run became inoperable, and thereby, a lot of funds were locked up in stock and inventory investments. This created heavy losses, in the sense that, availability and usage of stock and inventory were done on unscientific lines and there were heavy losses due to wastages, spillages, process losses etc. However, Toyota was able to avoid these risks to a very large extent, due to their excellent inventory control mechanism through the Just in time methods. Under this method, the shop floor would have only the barest minimum requirements of inventory for production, and upon its exhaustion, they would be reordered from the suppliers, or warehouses. Thus, it was ensured that no extra inventory carrying costs were entailed. Through this process, Toyota was able to effect good savings which was reflected in their profits and bottom lines. The advantages of JIT is that it creates a stronger and strategic business relationships with the vendors, the setting up time for the products are reduced and the transportation of goods form the Warehouses to the Shop floor are also reduced. Further, the different types of skills of the workmen could also be utilized in the sense, that they could be used for a variety of jobs at the shop floor. Moreover, the scheduling of the stocks could also be better managed by the shop floor supervisors. Thus it is seen for the above reasons; Toyota was in a position to establish itself as the Number 1 automaker in the global markets today. A lot of efforts and labour have gone into this and yet, they were able to establish themselves within a span of 5 decades after the American automakers GM and Ford were sent to lower ranks of the global car dominant leadership positions, since they did not invest in the use of the right technology needed for sustenance in a fiercely competitive international car making environment. Question 2: Core Competencies and capabilities As has already been mentioned in previous discussions, the Toyota Company was able to establish their dominance in the world auto market due to their inherent characteristics of strict quality maintenance, team building and attention to the barest details of car making. The production assembly lines are so designed that it is possible to detect the faults at that level itself. The Toyota team at the shop floor would inspect the product as it moves along the assembly line and taken corrective measures wherever necessary, so what would be gong to the final customer would be the 100% Tested and approved products, after through checking. Therefore, the need for any further testing and approval at the site of the customer would be obviated since checking has been done at each stage of production itself. Next it is necessary to speak about the Toyota's commitment to its customers and vendors. The Toyota Company enjoys excellent strategic communication relationships with its customers and, this is enforced with each day, by constant interaction and interfacing. This ensures that all matters are discussed and sorted out between the customers and the manufacturers at the early stages it and therefore, customer goodwill and satisfaction is ensured, which is the bedrock of Toyota's success story. The next factor regarding Toyota is their marketing style which is different from others Manufacturers. While other manufacturers produce cars and dumps it in the market, hoping for customers to come and purchase it, Toyota does just the opposite. It first studies the market preferences, which brands are popular, which customer segments should it cater to, what are the customers' preferences in terms of colour, design and interior accessories. It makes a complete market survey before launching its products regarding the needs and demands of the market and then only does it produce cars for entry into the market. It is natural that the cars Toyota makes are the cars which the customers seek and covet and therefore, marketing ceases to be a problem for Toyota, since their products are market tested and proven. It is also relevant to mention in this context that Toyota makes cars to create brands and consolidate them, whereas the other car manufactures impose their brands on the customers, through a process of aggressive selling and back-up advertisement and publicity, using celebrities and having heavy investments in ads in order to fill the customers psyche with only their brands and not other brands. It is common knowledge that customers would only buy cars on its benefit value and how it serves a useful purpose for the buyers, and the discerning buyers would not be influenced by high profile advertisements and publicity for the purchase of cars. Toyota serves to increase their brand value and also make cars for utility value of the customers. This accounts for the excellent response being given to their products which have technical superiority and added features when compared to the brands offered by the competitors. Therefore it is seen that Toyo9ta creates brand value for its products and serves the industry well by making cars which are prefeed by the customers whether in their own countries or in the international market. During earlier times, Toyota used to produce their vehicles in Japan and used to distribute it to the global markets. But now this strategy has changed. Nowadays, Toyota sets up production centres where they feel there are ready markets. Thus developing countries like India, China , and Brazil etc have gained heavily from the production units of Toyota and these countries have access to international quality cars produced in their own countries, which may work out to be cheaper than if it were to be imported form Japan. This policy also offers employment opportunities for the denizens of the countries in which Toyota has production units and also improves their standard of living and living styles. This also obviates the necessity for making heavy investments setting up production centres in their county of origin. The main advantages of setting up production centres in other countries would be that the local economy receives a fill up, greater job opportunities are generated and the masses would become more erudite and socially aware, especially in the rural and backward areas. One of the main reasons for the phenomenal success of Toyota has been their emphasis on right production methods, adherence to quality and delivery schedules and the constant passion for innovation in their quest for excellence in car making. Toyota is never satisfied with the present levels of all aspects of the car making process and is always on the lookout for better, cost efficient, effective and standardized methods for car making and this is one of the primary reasons they are the leaders in the global car making industry today. However it is necessary to also work out the Strengths, Weaknesses, Capabilities and overall competencies of the Toyota Company. The strengths of the Toyota Co would be in terms of its strong base not only in Japan, its country of origin but also in the global car manufacturing markets. Strength would be its technical expertise in Car making for well over 3 decades in the global markets. Its strengths also lie in organisational skills and putting theory of car making into practice. The constant drive for excellence coupled with an inquisitive mind for matters connected with car making is also a true strength of this company. However, the most strongest aspect of this company has been its Employees, from the President of the Toyota Company to the factory workman, who all share a commitment to make the best car in the world for their customers Their weaknesses are that they have not been able to make much impact on the European car segment, dealing with their competitors in Europe like Daimler, Porches, Skoda, etc. It would need to make forays into the European markets if it wished to consolidate in the global scene for a long time to come. Another weakness of Toyota is that they need to have strong brands for catering to the international car buyers and also need to have some Premium Brands which could improve their profitability considerably and also establish market presence in relatively unknown markets and territories. This Japanese car maker has prove through expertise and sound production and delivery systems that they are indeed very capable and competent and have established themselves as the No 1 brand in the world, outracing even General Motors and Ford Motors. They are poised to reach greater heights in car making through strategic alliances, especially in developing markets like India, China, Brazil, Middle East Countries and other emerging economies of the world. However, they also need to introduce several new models and especially spacious cars for the European and American markets since there is very high demand for these cars in those premium markets. The overall competence of Toyota has been conspicuously established due to their market presence in several countries of the world, including the US markets. It is believed that in the years to come they would further develop and expand these markets with a view to get a larger share then the present 43 % market share in the US markets. The key competencies of Toyota has been in their production and distribution networks, their marketing strategies, segmentation and positioning of their products in high potential areas and also their ability to penetrate strong markets in the developed and developing countries of the world. It may be concluded that today Toyota enjoys a very good stature and reputation as an ideal car maker in global markets. This has been possible due to the adherence to best industry practices, being ethical in business and using good business methods to achieve their corporate goals and objectives. In a regime where most automakers are deep in debt, incurring crippling losses and lowering of market demands, which have force many auto makers to close down, Toyota has shown the way by expanding exponentially and opening new production centres regularly and catering to the needs of the vast multitude of potential car users in the world. This has been achieved due to their strong commitment to the value systems enshrined in their corporate philosophy of keeping their market commitments first and foremost and by producing cars that are in demand by the consumers. Bibliography Globalisation. The Car Industry. [online]. BBC News. Last accessed 26 November 2007 at: http://news.bbc.co.uk/1/shared/spl/hi/guides/457000/457029/html/nn3page1.stm SCHIFFERES, Steve (2007). Globalizing the car industry. Saturated markets. [online]. BBC News. Last accessed 26 November 2007 at: http://news.bbc.co.uk/1/hi/business/6346325.stm Share of US Car Market. (2007). Globalisation. The Car Industry. [online] BBC News. Last accessed 26 November 2007 at: http://news.bbc.co.uk/1/shared/spl/hi/guides/457000/457029/html/default.stm SINN, Alfred (2005). Toyota drives environmental reporting. [online]. The Epoch Times Business. 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