Decoding the DNA of the Toyota Production System - Term Paper Example

 Introduction Toyota manufacturing company (TMC) is a multinational company that primarily deals with the production of automobiles. The company has its roots in Japan and has its headquarters in Aichi. In terms of production, the company is the world’s largest producer of automobiles. In 2010, the company was recorded as having employed about 317,734 people worldwide. Toyota was formerly referred to as Toyoda but after a scare in the first years of operation that nearly saw the company bankrupt, the name was changed. The company has grown to worldwide acclaim and now has many brands under it developing from the Toyota AA in 1936 to a group of companies that include the Lexus, Scion, Hino Motors and Daihatsu brands today. Toyota has grown steadily throughout the years and it overtook General Motors in 2008 to become the leading global manufacturer of automobiles. In 2006, the company was announced as the most profitable in the automotive industry with its profits rising to $11 billion in that year. During this period, its market share increased with improvement in sales across the board. The most notable increase in the company sales was observed in the US. The company has many subsidiaries and the Toyota Financial Services is the most notable. The company sells finances, as well as dealing with other investment and trading ventures. Apart from the brands that the company wholly owns, it has a 51% stake in the Daihatsu brand, 5.9% in Isuzu Motors Ltd., and 16.7% in Fuji Heavy Industries a company that also manufactures Subaru vehicles. Other products include hybrid vehicles that run on gasoline and electricity, an automated parking system and economy shifting and eight speed automatic transmission vehicles among many other inventions. Toyota´s market share Toyota has a large market share in the United States, Africa, Australia and Asia. However, the market share is relatively small in Europe. In 2005, there were 8.54 million vehicles that were produced by Toyota together with its half-owned subsidiary, Daihatsu Motors. This figure represents about 500,000 less in the number that General Motors produced in the same year. The Daihatsu conglomerate can be considered to be the fastest growing branch of the company in Southeast Asia. Considering the competition that is present in the Far East Asia countries, the company can be considered as having a very sound marketing campaign as it has a substantial market share in those countries also. Fortune Global 500 placed Toyota as the fifth largest company in the world. After the recession that was witnessed in the United States in 2001, Toyota took the opportunity to expand rapidly in that market and substantially increase its market share. Since the company follows a lean production method, it is possible for it to enter highly specialized markets and still offer products that are relatively cheaper than those offered by the competitors (Cusumano, 1994). The challenge for the company has been in Europe. Here, the company commands a very small share of the market as it is outmatched by European giants like BMW, Mercedes, Volkswagen and others. The market in Europe is mostly focused on luxury vehicles. The Lexus which is Toyota’s luxury brand commands a 0.3% market share in Europe compared to 2% of the same market for American luxury brands. Currently, Toyota has a 16% share of the market in America and is only second to GM in terms of volumes. Toyota´s finances and size Toyota has three core functions that it considers in order to increase its hold on the global market. These functions; regional strategy, business-sector strategy and product strategy are the ones that are considered in the development of human resources, the minimization of costs and the maximization of profits. The lean business model that is aimed at lowering the cost while increasing quality in the centre of Toyota’s financial strength. The company has an operating income of about 1 trillion yen which is realized at the present company sales volumes. The aim of the company is to achieve about 5% annual operating return on sales and also hopes to increase the volume of sales to about 7.5 million vehicles. Toyota is currently the world largest producer of automobiles in terms of volumes. The market share of the company has been discussed in the previous section and according to the facts that have been outlined; the company is one of the largest in the world. The fact that it was the fifth largest company in the world means that it has a solid capital base and is increasingly becoming profitable. Previously, the company has been ranked as the most profitable automobile company. However, the recent global economic meltdown affected the company’s profitability and in 2009, together with the problems occasioned by recalls in their brands, the company projected that it was going to make a loss for the first time in its 70-year history. By the end of 2007 however, the company had gross sales of 8.15million yens in Japan, 8.8million yens in North America, 3.35million yens in Europe, 2million yens in Asia and 1.7million yens in other emerging markets. Global presence The Toyota Motor Corporation (TMC) is a global leader in the manufacture of automobiles. The company has base of operations in virtually all countries in the world. For example, the Camry is assembled around the world including in Japan, Australia, Malaysia, Vietnam, India, United States, China, Russia, the Philippines, Taiwan and Thailand. The company has many factories in most parts of the world that are involved in both the manufacture and assembly of Toyota automobiles for consumption in the local markets. In 2002, Toyota started the International Multi-purpose Vehicle project that was meant to standardize the production of vehicles in more than 140 countries of operations. In this project, the company directed that gasoline engines be solely manufactured in Indonesia, diesel ones in Thailand and manual transmissions be centered in India and the Philippines. The export bases that the company identified were in South Africa, Indonesia, Thailand and Argentina. These centers were where the vehicles would be assembled and then shipped out to other countries. The North American branch of Toyota is referred to as Toyota Motor Engineering and Manufacturing North America (TEMA). The headquarters of the company is located in Torrance, California with the manufacturing branch being headquartered in Hebron, Kentucky. Another branch of the Toyota Company in North America is the Toyota Canada Inc. which has an aluminium wheel plant in Delta, British Columbia. The collaboration between Toyota and Hino Motors allows for trucks to be produced in Woodstock, Ontario. Prior to 2009, Toyota had a joint venture with General Motors which has now been halted. These ventures including an ongoing one with Subaru ensures that Toyota maintains a large presence in the continent. It is recorded that no other company has sold as many hybrid cars as Toyota has in the United States alone. Toyota´s production and operations management Toyota has been in operation for a long time. During this period, the company has endeavored to build a bilateral, as well as a multilateral way of sharing knowledge between itself and its suppliers, meaning that it has developed a superior network. The collaboration between the company and its suppliers ensures that routines in the manufacturing process are shared and as such, no resources are wasted in the long run. The business model that the company has identified is the one that exemplifies the principles of continuous learning and improvement (Tidd & Takahiro, 1995). The company is large. This fact in itself avails the resources that may be needed for any venture that it may wish to follow. However, many other large companies cannot be said to be at the same level with Toyota, meaning that there is something more that the company does to tell it apart from others. The company is lauded for having adopted the lean production technique that has aimed at cutting its costs of production and, in turn producing automobiles that are affordable to a wide range of customers with different levels of disposable incomes. The company has realized that there are two broad areas that need management. The first is information and the other is know-how. The latter has been identified as the most sustainable and Toyota has a mode of talent management that is the basis of its development (Spear & Kent, 1999). The sharing of information within the Toyota network is one of the reasons that the company has achieved worldwide acclaim. The strategic placement of manufacturing plants and export bases is one of the strengths of the system. Mostly, the company identifies the countries where raw materials are easily available and sets its base there. The area where the company saves most of its costs is on labor. This has been through the establishment of production plants in areas where labor is easily and cheaply available. Team management There are problem solving teams in the Toyota Company that are aimed at the transfer of knowledge that is within the network members to other members. The problem solving teams are charged with the responsibility of unearthing knowledge that will be vital in the resolution of problems within the networks. For example, if a supplier is experiencing a form of quality problem, the Quality Assurance Division (QAD) will be charged with the responsibility of forming a team that will be aimed at looking for a solution to the problem, assuming that it is the first time the problem has occurred and no prior way of resolution had been developed. The team will encompass all the departments in the company where the problem occurs and also may include the supplier. This method is aimed at bringing the knowledge that is present in the professionals to bear so that amicable solutions can be arrived at. The team is charged with the role of defining the problem and its causes. Then, after the supplier´s quality problems have been defined, the team hands over the responsibility to the relevant department within the company. An example is a flaw in the design. The process will begin with the formation of a problem solving team that will, of course, encompass the members of the design team, the suppliers and other senior members within the company. Once the design flaws have been established and defined, the problem solving team then leaves the responsibility to the design team and the supplier to work closely at ensuring that solutions to the problems are gotten in an organized manner. Toyota may require that the supplier work with another supplier in an attempt at overcoming the flaws. This is because the company procures identical parts from different suppliers and, therefore, expects that both products are of the highest quality. The knowledge may be transferred from the inferior supplier to the superior one depending on the agreement between the parties. Toyota´s capability to adjust Toyota has built its reputation as a company that exemplifies commitment to quality, excellence in design, focus on the customer, manufacturing, continuous improvement and reliability. These strengths of the company have ensured that there are increased market share, financial strength and customer loyalty. However, the company has rapidly grown, hence, putting a strain on the manufacturing, engineering and designs which have prompted the company to encounter flows in their products a move that has forced the recall of over 4 million vehicles since 2003. It was not until 2009 when a California officer crashed while in a Toyota which resulted in his death and those of his family, that the problem was given national attention. The floor mat had developed problems which caused the accelerators to stick on them causing major problems for motorists. In 2009, 3.9 million vehicles were recalled. In the next year, an additional 2.3 million vehicles had been recalled with the same problem of a sticking accelerator. The company was forced to suspend sales of its vehicles for 8 months. Additionally, the recalls were extended to Europe and to China with Toyota shutting down several of its manufacturing plants. The president of the company, Akio Toyoda, apologized publicly for the inconveniences that the flaws had caused. Before matters could cool down, the third recall was announced which involved the braking system of the company´s crown jewel, the Prius. There were over 8 million recalls worldwide with 6 million of these having been in the US alone in 2009 and 2010. The company had to contend with massive losses that resulted from the recall of these vehicles. The company started the recalls by giving a public apology to the customers for the inconveniences. Additionally, the management ensured that the affected plants were shut down. The other action was the halting of sales so that the cars would be reexamined. Finally, the company extended the recalls into other models that they thought had been affected all with the aim of restoring customer confidence in the automobiles. The resultant action from the Department of Transportation and the National Highway Transportation Safety Board was the increased scrutiny of the company. When congressional hearings on the cases started in the USA, the brand reputation of the company worked to buffer the company. However, the reaction from the company towards the crisis was considered insufficient. This led to a strained relationship between the car manufacturer and the buyers, suppliers, regulators and the government. The straining of the relationships was evident as the sales in the company´s cars dwindled with a 16% drop in January and a subsequent 8.7 % drop in February as compared to the figures in previous years. The company has since recovered most of its market share, but the global economic crisis only served to strain matters further. In comparison to other manufacturers in the US like General Motors, it is possible to observe that Toyota is still the market leader and as such proves that despite the problems it faces, it has the capability to manage the crisis amicably (Durward et al, 1998). General Motors without the problem of recalls was downed by the global economic crisis. Toyota, despite the recalls, was able to maneuver through the global economic crisis and did not suffer the kind of losses that the other companies did. The large global presence helped the company since it continued making profits in other areas in the globe despite the losses it was making in the US. Toyota is a world leader in the formulation of business models. The lean production method that follows the Kaizen principle was formulated form the models that Toyota has adopted since its inception (Womack & Daniel, 1994). The company boasts a large market share in all the continents in the world and is regarded as the largest automobile manufacturer. Prior to the recalls that negatively affected the company and the global economic crisis that followed, the company had never in its 70 year recorded a loss. However, in exemplifying that it is, indeed, a world class company, the company has bounced back from that disappointment and is on its way towards the restoration of lost glory. References Cusumano, M. (1994). The Limits of ‘Lean’. Sloan Management Review vol. 35(4), 27-32. Durward, K. et al. (1998). Another Look at How Toyota Integrates Product Development. Harvard Business Review Vol. 76(4), 36-49. Spear, S. & Kent, B. (1999). Decoding the DNA of the Toyota Production System. Harvard Business Review vol. 77(5), 97-106. Tidd, J. & Takahiro, F. (1995). Work Organization, Production Technology, and Product Strategy of the Japanese and British Automobile Industries. Current Policies and Economics of Japan vol. 4(4) 241-180. Womack, J. & Daniel, T. (1994). From Lean Production to the Lean Enterprise. Harvard Business Review vol. 72(2) 93-103. Read More