Operations Management System for Toyota - Assignment Example

Business management Introduction: The operations management function is the practical aspect of the organisation including vital activities to be carried out in order to produce the intended goods and services. Overall operations management is concerned with managing inputs in the form of resources through makeover processes to deliver outputs in the form of services or products. This conversion of inputs to outputs involves various complex and critical activities, with specific focus on quality and productivity aspects. These activities are carried out through specific methods and employ distinct tools and techniques. The ultimate goal of operations management is to produce goods and/or services that add value to the organisation, are in line with organisational strategies and facilitate achievement of organisational competitive priorities. The present discourse is an in-depth evaluation of operations management from a strategic operations management perspective. Hence, establishing a link between operations strategy and corporate strategy will help in analyzing how and what competitive priorities are chosen by organisations. Further, key management functions such as planning, controlling, coordinating, and leadership are applied to operations management. These aspects of operations management are studied taking the example of the Toyota Production System. Operations refer to all the activities performed by an organisation in order to produce products or services. Management of these activities directly related to the production of goods and services is termed as operations management. For example, activities related to banking, transportation, shipping, and manufacturing of goods or products such as automobiles, food items, textiles etc all constitute operations management (Chase Jacobs & Aquilano, 2005). Operations management is defined as the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services (Chase et al, 2005, 7). Operations are the critical and central units of any business and are comprised of complex activities involving or related to almost every management function within the organisation. On the whole, operations management involves critical activities such as production, planning and designing production processes of goods and services, and also effective integration of marketing, finance, human resources management and strategy which facilitate the business to enter the market and also compete with both new and existing organisations in the market. In other words, operations management helps the firm to establish itself and also provide operational capabilities that promote its success and sustainability. Operations management involves complex processes that are interdependent; the core processes involve capacity planning, supply management, inventory management, quality and efficiency, technology and systems and human resources management. Theoretical aspects of operations management in manufacturing and service industries constitute a combination of three distinct functions, strategic functions, tactical functions and operational planning and control functions (Chase et al, 2005). The main management functions such as planning, organising, controlling and leadership are applicable to operations management. Main operational processes in operations management include planning, production, purchasing or inventory management, supply chain management, distribution and marketing. All operations functions are strategically aligned to its larger or strategic business goals. Thus, operations functions are designed based on strategic decisions that match the organisational strategies (Heizer & Render, 2008). These strategic decisions are referred to as operations strategies. These strategic decisions define the conditions in which operations will be carried out in short and long terms. Operations strategies are the total pattern of decisions which shape the long-term capabilities of an operation and their contribution to overall strategy (Slack & Lewis, 2009. p.18). Organisations decide on competitive priorities based on their corporate strategies. Secondly, tactical planning includes planning for production such as capital, human resources, technology, facilities etc to carry out specific operations; scheduling and staffing methodologies to accomplish the targeted products/services; sales and services; scheduling delivery and defining quality of supplies, types of inventories, etc. Thirdly, operational planning includes short-term planning of work and capacity along with responsibilities and priorities assigned to different levels or groups of workforce. Strategic integration of operations management with organisational goals requires appropriate operations strategies that are framed in accordance with the corporate strategy of the organisation. Corporate strategy is composed of corporate level strategy and business level strategy. Operations management is directly based on the business level corporate strategy. At business level, as Kay (1993) describes, corporate strategy constitutes the match between its internal capabilities and its external relationships. It describes how it responds to its suppliers, its customers, its competitors and the social and economic environment within which it operates (cited in Lynch, 2006, p.40). However, operations management is also linked to corporate level strategy through the competitive priorities of the organisation which determine the operations strategies. Operations strategies determine the strategic position of the firm, which makes it imperative for operations strategies to be aligned to corporate strategy. This inclusion will aid in formulating policies and plans for using the resources that will enable optimum production of goods and services for longer time. Corporate strategy at Toyota includes growth, efficiency and stability, which Toyota accomplishes through congruent operations strategies. At Toyota, operations strategy covers process design rather than innovative end products; process design includes different methods of manufacturing, assembling and marketing the products (Elnadi, 2009). In general, operations strategy involves decisions related to design of the process of production or service providing as well as facilities and/or infrastructure needed to support the process. Toyota aims at producing defect-free products at minimal time and to occupy largest market share. Besides these, it also focuses on reduction of wastage in terms of material, time, efforts, and space. As a global organisation Toyota’s strategy also involves localization of production in its major markets (Borowski, 2010). Competitive priorities are chosen based on customers’ expectations and market competition, and are linked to operations strategy. In general, competitive priorities are framed across cost, flexibility, services and quality including dependability and are aligned to corporate strategy through specific dimensions. For instance, at Toyota, action plans towards cost include low cost or minimum wastage; flexibility includes reactive to customer orders and market mix, fast design changes; action plans around services priorities include fast product distribution, good customer and supplier relation, and product technology; dimensions around quality include consistent quality and high quality products (Miguel, Vanalle, Filho, 1999). The dependability dimension is included in services and/or quality part as it involves action points such as on-time delivery of goods/services and/or reduced variation in products/services quality and performance (Finch, 2008). Firms modify these priorities according to their business needs and customers and in line with operations and corporate strategy (Chase et al, 2005). Toyota’s main competitive priorities are quality and dependability; however, the processes used at Toyota help in achieving all competitive priorities (Correa, 2001). Toyota achieves low-costs by adopting specific tools and techniques like Lean methodology; high and consistent quality product through TQM; time-related factors such as lowest production time, on-time delivery, coping with changes in demand for goods; flexibility that provides customization of products, variety, as well as volume flexibility; and new product introduction. As one of the dimensions of quality, Toyota imbibes dependability through Just-in-time inventory acquisition and also maintaining consistency in the products manufactured. The latter dimension provides confidence to its customers about the reliability of quality while the former helps in managing their inventory and saving costs. All competitive priorities may not be equally efficient or implementable. Although organisations adopt various competitive priorities depending upon their business and strategy, they are also required to trade-off certain priorities. For example, high speed service or production cannot accommodate wide range of services and products, respectively. In such cases, organisations are forced to trade off product and/or service variety. Even if organisations decide not to trade-off any dimension, then it will be a direct impact on cost. Hence, trade-offs become necessary. As Chase et al. point out, ‘A strategic position is not sustainable unless there are compromises with other positions. Trade-offs occurs when activities are incompatible so that more of one thing necessitates less of another’ (2005; 27). To maintain quality and dependability, Toyota provides lesser variation in the types of products. Besides focusing on high-quality production system, Toyota adopts innovative approaches to minimize wastage and rework; these approaches provide Toyota with the advantage of minimal trade-offs on its various competitive dimensions. For example, Toyota’s major production is that of four-wheel automobiles and therefore lesser variation and flexibility. Manufacturing organisations choose their competitive priorities that match their corporate strategies. Operations strategies are designed based on competitive priorities and are associated with core competencies, capabilities and processes, systems, and technology. In general, operations strategies help in making decisions regarding the strategic and long-term operations functions that are meant to create and deliver products and services to external and internal customers. Secondly, operations strategies are meant to direct the operational activities to be performed by the members belonging to different departments or value chains within the organisation (Lowson, 2002). From this perspective, operations strategies direct the organisation as to what kind of functions or activities would be required to achieve competitive priorities around cost, flexibility, services and quality. The operational strategies that help in achieving these competitive priorities include the key operations functions such as planning, organising, controlling and leadership. Strategies within each of these functions are linked to the company’s competitive priorities. Planning is one of the key operations management functions and involves product and/or process deign, capacity planning, and the work system. Product and/or process design involves functional design and production design. Functional design refers to dimensions, materials to be used, type of final product, etc. This aspect considers functional aspects, customer appeal, cost, production methodology and maintenance. Production design refers to methods and processes used for production of goods and/or services. This involves standardization, modular designs and simplification (Shim & Shigel, 1999). Standardization in design of products as well as process can be achieved in the planning process; this process helps in cost reduction. At Toyota, standardization of processes are achieved through production smoothening or Heijunka. This involves standardization of tasks by assigning cycle time or takt time, sequence of doing things, and required amount of inventory helps in manufacturing in optimum time (Liker, 2004). Production planning also includes framing of modular designs that are easy to be produced and assembled. Modular designing is a technique for designing a variety of new products by combining a restricted number of component types (Hino, p.292). the main issue with modular designs is the uniformity and simplicity in the look of the products, which may interfere with flexibility options of products. Further design simplification helps in reduction of number or design of certain parts. Another critical aspect of planning is the capacity planning, which refers to determining the capacity available at each workplace or production unit at each time; determining the amount of work load based on number of products to be produced, assembled, checked or processed; and making arrangements to provide the required capacity of raw materials or resources for achievement of the desired tasks (Arnold, Chapman & Clive, 2008). Capacity planning is done with respect to raw material, equipment, direct and indirect labour, tools, engineering, sales and administration (Shim & Shigel, 1999). At Toyota, capacity planning involves planning for internal machinery requirement and supplies planning. Capacities required for assembly lines, facilities, units are very different and are planned on an annual basis. Workforce capacity planning is done based on demand and supply requirements. Toyota employs temporary staff during high demand. Planning during peaks also includes facility and equipment planning. Toyota evaluates its supplier capacity and also internal capabilities by linking purchasing and production control; moreover, Toyota manages its supplier capacity also in order to avoid any gaps in production because of issues with supplies. In addition, Toyota’s capacity planning considers monthly planning based on forecast and demand information and global and regional forecast (Iyer, Sheshadri & Vasher, 2009). Organising activities in operations involve the process of collecting and coordinating the workforce and production material in a manner that optimizes the production. To achieve the best organisation of operational activities, managers need to possess specific skills and knowledge in terms of process and equipment. Traditionally, organising involved grouping of similar machines, similarly skilled people and similar work together. This results in grouping or departmentalization of operational activities. These processes provide the advantage of economies of scale and flexibility in scheduling. These methods are employed for mass production units, where machines and labour are grouped according to the work. However, such organising would also require additional effort and planning for moving material or products from one department to another and this involves additional cost, labour and time. At Toyota, operational activities are organised in different ways that adopt Lean methods (Liker, 2004). At Toyota, operations that are organised into different processes are scheduled on a weekly basis with weekly targets. This method leverages production targets of each unit and for each worker; further, it provides sufficient time to cover up for less production on specific days due to workers’ absence or any other reason. This process at Toyota ensures maximum work in process (WIP) inventory. Moreover, Toyota’s workflow process is focused on completion of each product rather than batch completion. It follows work designs that are grouped by product rather than by process (Liker, 2004, 93). Operations management involves scheduling work processes in a manner that optimizes production, efficiency and quality and minimizes costs, wastage and rework. The one-piece or product-based work schedule at Toyota provide all of these advantages in addition to higher safety, reduced cost of inventory, minimal space, and flexibility of production. Control in operations refers to standardization of product quality, production efficiency, avoiding errors and rework, inventory and supply management and workforce performance. For each of these activities, different control systems are used. For instance, control over product quality is achieved by implementing specific quality management principles like Total Quality Management (TQM), ISO 9000, Six Sigma etc. These principles are applicable for both product and process quality control. Toyota is known for implementing different TQM tools and techniques. Toyota lays much emphasis on inventory planning and control through just-in-time (JIT) system. Other methods of exercising inventory control include outsourcing, value engineering, and work simplification (Koontz & Weihrich, 2006). The JIT inventory system allows to procure inventory only when required and suppliers supply the inventory on demand. Besides inventory management, the competitive priority of dependability is reinforced by strong supplier relationships. By doing this Toyota also ensures quality products are acquired from suppliers whenever required (Baker & Powell, 2005). Toyota avoids stocking of any inventory for long-term use. However, Toyota does maintain inventory for use during unpredictable downtime or yields; during time-consuming setups or processes; and to meet high customer demands (Spear & Bowen, 2009). At Toyota, production control is achieved through demand-flow manufacturing or the pull system. In this system, goods are produced only when there is a demand instead of stocking finished goods. This way, firms control inventory, space occupation, rework and scrap, setup and maintenance costs, and idle labour costs (Summers, 1998). Implementation such controls requires highly standardized and perfected processes in order to avoid delay of production. Hence, Toyota uses standardization as a means to control production time, production process, and inventory. These standard processes facilitate on-time delivery of products as per the demand. Another aspect of operations control includes performance management that aims to attain specific standards of performance in terms of efficiency, productivity and quality. Performance management includes performance measurement, performance appraisal, training and development and recognition. Most of the multinational organisations adopt a standardized performance management with minimum local adjustments. Toyota encourages its managers from all over the world to participate and contribute their views, which can be shared and adopted at other locations (Hino, 2006). Toyota’s standardized performance management includes team-based recognition, evaluation against benchmarked targets, daily evaluation and feedback. Toyota also has slow promotion process based on experience and seniority. Toyota’s attendance monitoring system not only levels out performance but also aids in effective workforce capacity planning (Liker & Hoseus, 2008). As Leaders at Toyota preach, “before we build cars, we build people” (Liker, 2004, p.182). Any management requires effective leadership that can coach, guide, monitor, encourage and motivate the workforce as well as effective plan, schedule and execute the activities in accordance with operations strategies. Basically, leaders are the driving forces of operational activities. In order for leaders to drive the activities, organisational culture must be supportive. In addition, leaders themselves should be highly committed towards organisational goals and corporate strategies. For instance, leaders at Toyota are highly committed to the Toyota Way (Liker & Hoseus, 2008; p.32). Toyota’s global spread is also attributed to its leaders’ commitment to drive Toyota culture worldwide. At Toyota, organisational culture is deliberately aligned to the organisational goals. An important aspect that leadership must drive within operations management is continuous learning and improvement. The success of TQM is based on this principle. Another aspect of effective leadership is its people centricity. As Liker puts it, ‘Toyota leaders have a distinctive approach and philosophy that fits the Toyota Way” (2004; p.180). Leaders at Toyota look for continuous value add work from their employees. Leaders at Toyota lead by leading and also by managing. Toyota’s management systems as well as culture facilitate its two-dimensional philosophy of leading with directives and through development. Liker points that leaders at Toyota have a combination of in-depth understanding of the work and the ability to develop, mentor, and lead people; these qualities of technical knowledge as well as leadership are highly respected (2004; p.182). Operations management is a combination of all the activities such as planning controlling, coordinating, leadership quality and production. Organisations adopt various methods to perform these activities; these methods conform to the organisation’s strategies and endure to achieve organisational goals besides aiding in production functions. The Toyota Production system is a classic example of successful and sustainable operations management, which has also benefited many other companies that have adopted tools and methods used at Toyota. The TPS is formed on the basis of Lean methods, which is a part of the Toyota culture and directly driven by the leadership. At Toyota, the lean methodology considers overproduction, waiting time, unnecessary transport or conveyance, over processing, rework, excess inventory, unnecessary movement, low quality or defects as wasteful. Specific tools and techniques are employed to eliminate or minimize these wastes. All these methods facilitate in achieving the competitive priorities and operational strategies at Toyota. Toyota’s basic principle is based on continuous improvement, or Kaizen. Toyota follows the pull system of production; just-in-time inventory system; production smoothing or Heijunka for standardization of processes; takt time or cycle time for every activity in production; and jidoka for quality which involves stopping the process to build quality products. Heijunka is a strategic approach to reduce variation in quality of products, thereby fostering dependability. It uses the 5-S technique to eliminate wastes in which the five steps involve sorting the items to be used, straightening all items in one place, shining or cleaning the process, standardization of the process and sustaining the stabilized work after standardization. Toyota uses the most advanced information and technology systems to transfer information and keep their people free from information and data handling. Another important principle followed in the TPS is the genchi gunbutsu, which is a cultural integration of problem solving by actually seeing the problem and understanding its root cause instead of simply trying to fix the problem (Liker, 2004). These unique methods adopted in operations provide support to the people, process and values and are hence highly advantageous to the organisation as well. Operations management is a dynamic sphere of management because of the challenges presented by stiff competition, globalization, and changing customer expectations. Challenges emerge from various angles including customers, suppliers, business partners, employees, systems and technology. These challenges further necessitate innovation of new methods and techniques in production and operations. Organisations need to be aware of and prepared to tackle the challenges strategically. Incorporating an element of strategically handling the challenges requires strategic risk assessment, thorough market research, strong leadership, and strategic change management. From people perspective, major challenges in any management stem from performance management because performance management is directly linked to rewards and career advancements, the main motivating factors for the workers. Strategic human resources management based on the resource-based view considers people at the core of the business and are critical for organisations’ competitive advantage. Organisations derive this advantage based on the strategies related to performance management. Secondly, leadership plays a critical role in deriving the optimum out of human capital. Conventional autocratic leadership in manufacturing and service industries will help in achieving organisational goals in short term, but sustenance of competitive position would require encouragement of innovation and participation, which is followed at Toyota (Liker, 2004). Another challenge relates to fostering collaboration and cooperation between different departments within the company and across locations; this requires high leadership competencies in terms of communication, connectedness, and knowledge in the form of servant leadership. On these terms, Liker and Hoseus (2008) state, servant leadership is an important value in the Toyota Way leadership culture, and it transcends or blends with the cultures of all the Toyota employees, regardless of their national or religious background (p.321). Though Toyota claims to have adopted appropriate leadership across borders, perfecting these qualities and competencies is extremely difficult owing to the national and cultural influences on one’s leadership styles. Due to these influences, strategic HR practices followed at one location cannot yield similar outcomes at other locations. Hence, organisations would be required to make changes to their HR strategies with local adjustments in order to achieve the desired outcomes. Leaders in multinational setups find it extremely difficult to manage or liaise with people at other locations during their expatriation period. Another challenge to operations management form people perspective is the unscheduled absenteeism that is rampant in production industry. Unscheduled absenteeism is attributed to various causes related to health, workplace factors like work overload, hygiene, stress, lack of support etc. This issue is a serious concern for organisational performance and productivity (Taylor, 2008). Employee motivation and commitment play a significant role in organisational performance. Motivational factors are numerous, and it becomes very difficult for organisations to cater to all individuals’ motivational needs. Motivation directly impacts commitment and loyalty. These issues can be addressed only through effective leadership and effective HR strategies. In contemporary management, advancement of organisation depends upon their human capital and knowledge pool, ands so does employee motivation and commitment. Strengthening of knowledge pool and enhancing employee motivation and commitment can be achieved through continuous learning and development. Organisations adopt practices such as job enrichment, job rotation, cross training, promotions, etc to address learning and development. At Toyota, leadership drives continuous learning though TQM principles and encouraging innovation (Liker 2004). Challenges related to process and production management revolve around coordination and control of activities related to operations such as production, interdepartmental liaison, forecasting of resources and workload, and managing distribution networks. Coordination involves the management of exchange of information, goods, expertise, technology and finances in different business functions such as logistics, suppliers, finance etc. For this, organisations would require a strong information and technology network within and between different locations and with associated partners. Coordination between different functions requires specific strategies that facilitate coordination between different value chains. . In case of operations set up at different locations, changing environmental demands can create challenges to coordination function in terms of decision making processes and organisational structures that may work in one location and not in others. Specific geographic locations are chosen for operations based on specific advantages such as low cost labour and raw materials, skilled labour, access to technology etc; however, a firm will benefit only when all of these advantages can be achieved. Access to one or few of these requirements will increase costs related to other aspects of operations. . In conclusion, operations management is a dynamic process that requires absolute planning, strong coordination and control and effective leadership to drive employee motivation. The dynamics related to operations fluctuate with changing customer expectations and advent of competitive products in the market. These further necessitate changes to forecasting or capacity planning, inventories, pace of production, and quality of products. Therefore, operations strategies need to consider these challenges before finalizing on any specific method. In this regard, the TPS can be considered as the most ideal operations management system. Strategic approaches to operations at local and global levels should be different and should be according to challenges faced at these levels. In short, operations management should be based on top-down model wherein organisational goals are converted to organisational and corporate strategies; these strategies are further incorporated into operational strategies. The operational strategies should be formulated based on or considering customer expectations, environmental factors, employee needs, as well as competitive priorities of the organisation. 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