Toyota Corporation - Report Example

Report 0 Introduction satisfaction is the key to both the continuity of a business as well as its success. It therefore means that the customer is the reason for the existence of the company and so it follows that the company should strive to fulfil the needs of the customer. This report looks at the value stream map for one major customer of Toyota Corporation. Since these are the elements of lean philosophy and so a review of the literature on lean management; the concepts, applications and frameworks available in businesses generally and that is appropriate for Toyota Corporation is also provided. Researchers views and framework on lean management is also discussed. A description of how an introduction of the concepts would be operationally beneficial to Toyota Corporation as well as, how the subject of lean management will be developed in the next five (5) years are provided. Additionally, the application of lean management concepts to a process at Toyota Corporation in order to facilitate improvements in the value stream is also described. A cost benefit analysis showing the potential losses to the company and the opportunities for an improvement in earnings that accompanies the change is also provided. 2.0 The Value Stream Map for a Customer of Toyota Corporation In order to understand what a value stream map is for a customer of Toyota Corporation it is important to have a clear understanding of what is meant by a value stream. In order to do that the meaning of each word is provided. Value is defined by the customer and only has meaning when assessed in terms of a product and or service that meets a customers needs at a specific price and time. A process either adds value or does not add value. This is determined by the customer. A Stream is a flow and so the processes that are carried out to bring a product or service to a customer are called a value stream. It does not matter whether the processes add value or not. A map is a diagram that represents a guide of something. It consists of both symbols and information that can increase understanding. Value Stream Mapping involves the preparation of flowchart showing ‘the steps, activities, flow of materials, communication lines, and other elements of the processes involved in production (Ramesh, Prasad and Srinivas 2008). A value stream map (VSM) illustrates the flow of events from obtaining materials to bringing the product or delivering the service to the customer (Womack, 2006). It is a three step process that involves an analysis of the current state – that is, what is actually happening. Non-value added time and processes are recorded in order to determine the processes that can be eliminated from the value stream. Processes that do not add value are described as wastes and these are the ones that are eliminated. They are called wastes because they use up time and resources but do not create or add value for the customer. It makes no sense to continue to perform that process since it does not provide satisfaction for the customer. The current value stream map of Toyota Corporation from the order of a car by a customer to its production is illustrated below in Figure 1. Within each of those processes is a set of processes. The assembly process involves the shell passing through several assembly lines (Toyota Motor Corporation Australia Ltd n.d.). Jidoka which is the Japanese word for automation identifies problems and stop the process to call attention to them (Toyota Motor Corporation n.d.). This means that one assembly line will stop running so that the problem can be sorted out. Things like defects in parts are automatically picked up at this point. The fact is that machines have to be set up before they start running. Once a problem is identified and an assembly line stops operating there a period involved in getting the workers or even the robots to move to another assembly line or to do something else. A method needs to be identified to reduce labour costs in times like these. This simply requires a change in the assembly process. Defects and other problems with parts need to be identified before they get to the assembly line. Figure 1 A Kaizen Bursts is a symbol that is normally used to highlight an area that can be improved. The area needs to be improved at Toyota is the assembly process. See symbols in Table 3 of the Appendix. 3.0 Literature Review 3.1 Lean Management Principles According to Emiliani (2006) lean management lean management is critical to the improvement of performance in an organisation. It facilitates cost reductions, quality improvement; reduction in the time that lapses between process (lead times); increases market share, and enables the development of new products and services, human resources and other … Emiliani (2006) that if correctly practiced it assist n the avoidance of decisions that leads to trade-offs which are not desirable and that has a negative impact on staff members, suppliers. T could further affect the profitability of the company and therefore investors. Toyota Motor Company is recognised as the having created this management system which originated in the management of the company’s production system – thus its name – Toyota Production System (Emiliani 2006). Schroeder (2008) indicates that the objective of lean management is to eliminate waste; make use of all workers and suppliers; and continuously improving the product or service that is being provided. The objective of this approach is to increase the profit margin as well as the return on funds invested in the business. Schroeder (2008) provides a list of nine factors that helps to facilitate a lean system: 1. a level master schedule 2. Utilising the Kanban system 3. Producing goods in small lot sizes 4. Fast set-up times 5. Workers who can carry out more than one task – multi-skilled workers; 6. Layout of the work area should be one that promotes efficiency – linear flow 7. Continually improving each process and always aiming to produce a better quality product or to offer a better quality service 8. Excellent relationship with suppliers 9. Receipt of deliveries in time to prevent stoppages on the production line. All these factors can help to prevent or reduce seven wastes identified by Schroeder (2008) – producing above requirements (push production); idle machines waiting for parts from customers; unnecessary movement of raw materials because of poor layout of the work area; over-processing that leads to poor design; holding inventory over and above the amount required to sell customers. Lean thinking not only involves the supply chain but extends to the entire business (Schroeder 2008). In expounding the five principles of lean philosophy – namely: value, the value stream, identification of all steps in the process, pull, and perfection; Schroder (2008) indicates that value should be decided by the customer. The value stream map should be used as a means of identifying all the steps in the supply chain. Supply should be based on what the customer requires. Therefore pull production is recommended rather than push. In other words, let customer demand determine what is produced. Do not produce anything that customer do not demand. Customer knows what suit their needs. These are the things that they places value on. Perfection is achieved by satisfying customers’ needs. 3.2 The Importance of Customers in Facilitating Value Creation According to Setijono and Dahlgaard (2007a), customer values are the main elements for the derivation of the key performance indicators (KPIs) of a business. It is a high level of agreement on the intricate relation between the quality management and the creation of customer value for a business. In fact, Anderson and Narus (2006) have suggested that customer value plays an important role in the derivation of the quality evolution process. Thus the quality concept can be effectively derived from the expectations of the customers and profitability can also be determined by the customer. The ultimate goal of quality management is to ensure profitability and efficiency of the business and this is related to satisfying the needs of customers. In fact, most businesses aim to design their quality management process to meet the demands and requirements of the customers (Miller et al 2010). There is a clear understanding that the ultimate objective of the quality management processes in a business is to increase the value creation and customer satisfaction level for the business. Lian and Van Landeghem (2007) indicate that customer value is the underlying concept that drives the values for the other entities within the business like those of stakeholders including shareholders. Thus, the quality management processes of a business start with focusing on the expectations of the customers which ensure that subsequently the other necessary values are also created. Lindgren and Wynstra (2005) argue that there is a major theoretical gap between the incorporation of quality management concepts like lean management and Six Sigma and the reflection of customer expectations and value within the company. The demands and requirements of customers follow a fluctuating pattern and thus becomes a very complex concept but the quality management processes are designed so as to make the company equipped enough to adapt to the changing patterns of consumer demand levels. Quality management involves the implementation of concepts like Total Quality management, Kaizen, Six Sigma, Lean production and Just-in-Time all of which have essentially been derived from the new customer expectations from a business at a particular time. Johnson and Weinstein (2004) suggests that there are many scepticisms in relation to the different quality management concepts which suggests that the quality management processes are conceptualized by a thorough understanding of consumer behaviour and the competitive structure of the market. However, these scepticisms could not be strongly established as it has been understood that the concept of quality management is a philosophy that has been designed on the basic principles of focusing on the customers in order to attain standard quality based objectives. Weinstein, A. (2004) proposed that quality management focuses on the creation of value and therefore, the understanding and representation of the expectations of customers is critical for driving the quality management techniques. It is only when the expectations are understood, that the company is able to deliver greater value and satisfaction for the customers through introducing and implementing effective techniques within their quality management processes. The gap between quality management and customer value creation can be removed by ensuring that the quality management processes mirror the expectations of the customers from the business. Berghman et al (2006), indicates that meeting or exceeding the expectations of the customers is critical to ensure a higher level of customer satisfaction. The proper reflection of the expectations of the consumers in the quality management processes of the business is mandatory for the creation of products and services that add to the delight of customers. However, the requirements and demands of the customers are based on different criteria which influence the total quality management concepts in a business. A business that is highly demand driven and in which more fluctuation in the demand pattern of the customers is noticed, calls for the implementation of just-in-time mechanisms which ensure that the production levels in the quality management process are decided by demand end users (consumers). For the implementation of proper quality management concepts which contribute significantly to lean management it is important to understand the expectations of customers (buyers) as well as the expectations of the consumers (end-users) of the products or services. Customers’ expectations may be dependent on the context involved and relates to two different levels of abstraction. At the lower level of abstraction, factors like the characteristics of the products and services become critical for meeting or surpassing the needs of customers. At a higher level of abstraction, more emphasis is placed on factors like the personal values and experiences of the customers. However, consideration of both levels of abstraction is required for the creation of a proper quality management process (Denton, 2013). The selection of the different total quality management and other operational processes is highly dependent on the customer expectations and the degree to which the business expects to meet or exceed the level of customer expectations and requirements. Customer expectations are considered to be the ideas of the customer regarding the actual experience that he is going to derive from the product or service. The quality management processes are incorporated by an in-depth analysis of the customer expectations from the products or services. The analysis includes the thorough understanding of the different dynamics of the customer expectations. According to Shingo and Dillion (2004), the analysis of the total quality management processes of the company mirrors the expectations of the customers in its quality management processes. Toyota Motor Corporation implements a pull technique rather than a push technique in its quality management. The production is driven by the needs and demands of the customers rather than pushing the stocks in the market. Quality is incorporated as a factor which ensures meeting or exceeding the expectations of customers. Toyota incorporates the lean management system and extensively focuses on building people before they build cars. 3.3 The future of lean management The area of lean management is expected to develop tremendously over the next five years as managers find ways to improve on their product and eliminate waste. This will help to create additional value for the business as they seek to satisfy customers’ needs. Salah et al (2011) proposes the integration of Six Sigma and lean management – two of the most significant methods of continuous improvement. They are both aimed at excellence. In fact, Setijono and Dahlgaard (2007b) indicates that the conceptual link between the two methods is that quality – which is important to the customer, time and costs – two positively related elements contributes to value-added. Any implementation of the metrics requires adopting Lean (Six) Sigma and Lean Accounting (Activity Based Costing). Enyinda et al (2011) point out that quality, cost, regulatory compliance, reliable service, the proper management of risk, supplier characteristics and green purchasing should be used as the strategy in selecting suppliers. This will help to ensure that good quality raw materials and zero defects are closer to reality. Quality is very important to Toyota if the company wants to maintain brand value and remain competitive. The quality of the cars that the company produces depends on the quality of the parts that is used to manufacture them. Cost is usually crucial to supplier selection and in order to remain competitive low cost items of the highest quality are required. In order to ensure compliance with regulations laws relating to labour and the environment should be adhered to by trading partners. Toyota depends on reliable suppliers and so the company must exhibit reliability. Toyota also needs to ensure that suppliers have good reputation, are flexible, have the necessary capacity to enable the provision of products, are in good health financially, and have proper production facilities. The internet and by extension social media is a very useful tool for businesses if used correctly. The employment of personnel to communicate with both current and potential customers can provide a boost to the company’s earnings. The feedback generated from this media could help to identify more waste and to add even more value to the current product. This is one of the most cost effective methods of facilitating the development of lean management. 4.0 Application of Lean Management Principles at Toyota Motor Corporation In applying further lean principles to Toyota Motor Corporation raw materials (parts) should be tested to ensure that they conform to requirements in terms of quality and description before they are used on the assembly line. This should be done before they are placed in inventory that is ready for the production process. The amended or Future State VSM is shown in Figure 2. Figure 2 – Future State VSM In the diagram labelled Figure 2 the parts are checked to ensure that they meet the requirements before they enter the system. By doing so the assembly line is not slowed down by too frequent stoppages. Although the checks involve time and labour it is more focused and is therefore less costly. Frequent stoppages in the assembly process are wasteful and needs to be avoided. This new process will not only result in a faster production runs which would be beneficial to the company in terms of the increased number of cars that can be produced on a daily basis but also in terms of costs. This will also prevent defective cars from reaching customers as well as reducing the number of recalls for things like faulty floor mats. Toyota Motor Corporation has been the model of lean management for some time and this should not be allowed to end. The history of this approach to efficiency, customer satisfaction and growth has its place in the history of an effective system that facilitates goal achievement. In order to continue to satisfy customers the company needs to continue to map the value stream of the business and capitalise on whatever benefits it can gain. A cost benefit analysis is an important approach to determine whether an opportunity for change – a Kaizen burst should be ignored or given ful attention. 5.0 Cost Benefit Analysis A cost benefit analysis provides useful information on the costs to be incurred and a quantification of the benefits that may be derived from making changes to a process. In Toyota’s case, Jidoka has resulted in waste and it needs to be eliminated. This does not mean that automating the assembly process should be process eliminated. It simply means that checking for defects should be removed from the assembly line and done beforehand. This will prevent delays in completing production as well as meeting customers’ demands. It will also reduce the hours of idle time in getting workers to move to other activities as well as to set-up a different assembly line. Table 1 shows an analysis of the cost and benefits to be derived from the amendment to the current VSM – Figure 1. Cost-Benefit Analysis of Amended VSM   £ Costs:   Salaries of Additional labour 30,000   New Machine - one off cost 25,000   55,000     Benefits:   Reduce overtime to complete production 40,000   Remove interruptions 20,000   Removal of time to move between assembly line 15,000     75,000 Net (benefit)/cost     (20,000) Table 1 The information in Table 1 indicates that although workers and machines would be required to check the parts before they enter the production system, the cost of these factors of production will be much less than the benefits that the changes will facilitate. The benefits include the requirement for less overtime to complete a production run and to supply a finished product in the time required by the customer. In fact, Figure 2 shows that the time to assembly the Toyota Camry for the customer would take 2 hours instead of the 5 hours required when defects are checked during assembly. The total savings or benefit to the company is £20,000. The cost of the machine is a one off cost since the machine is a fixed asset that last for several years. Table 2 shows the result of this change. Cost-Benefit Analysis of Amended VSM   £ Costs:   Salaries of Additional labour 30,000   New Machine - (Cost £25,000 over 5 years) 5,000   35,000     Benefits:   Reduce overtime to complete production 40,000   Reduce set-up time 20,000   Removal of time to move between assembly line 15,000     75,000 Net (benefit)/cost     (40,000) Table 2 Table 2 shows that if the cost is apportioned over the expected life of the machine – five (5) years, this would result in an increase in the net benefit from £20,000 to £40,000. Additionally, if Toyota Corporation decides to write off the asset immediately, the benefit would increase from £20,000 to £45,000 in future years. This would imply increased profits and a higher return on investment. References Anderson, J. & Narus, J. (2006). Business Marketing: Understand What Customers Value. 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