Operations Management of Toyota Motor Corporation - Essay Example

A REPORT ON THE OPERATIONS MANAGEMENT OF TOYOTA MOTOR CORPORATION BY TABLE OF CONTENTS Introduction 3 Open-system organziational theory and the Toyota production system 4 1 Requirements of Customers 6 1.1 Identify Customers 6 1.2 Achieve customer requirements with the use of appropriate resources 7 1.3 Achieve customer requirements within organizational constraints 8 2 Manage the Design and Process System 9 3 Control and implementation of projects 12 4 Monitoring and Evaluation Process 14 Summary 16 Recommendations and Conlusion 16 Introduction Operations management is a key sector of the business management process. Jeannet (2000:83) defines operations management as “the business management function that is concerned with the physical development or generation of a product or service.” Essentially, operations management ensures that the core function of a business is delivered to its targeted customers in a cost efficient, quality assured and profitable manner. This paper examines the role of operations management in the achievement of the overall businesses objectives. The paper will utilise the Toyota Motor Corporation (hereon referred to as Toyota) as a case study. Toyota is a Japanese car manufacturing company and it is one of the leading companies in the global automobile industry, producing well known models such as Corolla, Camry 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 has moved onto become the leader in the global automobile industry. By March 31 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). The key objective of this paper will be to examine and evaluate how Toyota successfully manages key components of its operational management such as meeting customer requirements, improving product quality, effective implementation of projects as well as efficient monitoring and evaluation of completed projects. The essay will utilise the open system organisational theory and how it is manifested in the Toyota Production System (TPS) to guide the operations of the company. Thereafter, the TPS will be utilised to highlight how Toyota manages the procedures associated with new product introduction and old product improvement as well as describe how the company critically analyze performance of its services and products. In addition, this research paper will make recommendations on how Toyota could improve on its operations management. Figure 1: The Toyota Management System 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) Open-system organisational theory and the Toyota Production System The open-system theory is an organisational theory that aims to understand how organisational principles are vital to the success of all kinds of organisations. In the case of business organisations, open-system theory examines how the delivery of goods or services to consumers in done is such a manner that quality is assured and profits are realized (Jeannet 2000: 56). This theory states that all organisations are guided by a unique organisation structure and organisational psychology. This element of uniqueness is highlighted in the TPS structure that guides Toyota´s management philosophy and practices. Like the open system theory purports, TPS aims to ensure Toyota produces quality products by removing inconsistency and eliminating waste. The TPS is guided by principles commonly known as the Toyota way. These principles are guided by five core values namely challenge, kaizen (improvement), genchi genbutsu (go and see), respect and teamwork. According to the open-systems theory, all large organisations are comprised of multiple subsystems, each of which receive inputs from other subsystems and turns them into outputs for use by other subsystems (Jeannet 2000: 56). However, the theory assumes that not all of the subsystems are equally essential and that a failure in one subsystem will not necessarily impact the entire system. This element of the theory differs from the guiding principles of the TPS which state that malfunction in one part of the system can directly impact another part of the system. For example, malfunction in the technical department will directly impact the sales department. In this regard, the TPS differs from what the open-system theory believes an organisation should operate. Furthermore, the open system theory states that an organisation’s success is impacted by various environmental influences such cultural values, economic conditions, political environment, the network of suppliers, distributors, strength of competitors and quality of work force, all as a result of the geographical area in which the organisation operates (Jeannet 2000: 57). This notion holds true for Toyota. As a multinational corporation, Toyota had to make TPS flexible enough to accommodate cultural values, political background, economic conditions and the level of education of the workforce in the different regions the company operates, a factor that has proven to be the TPS main challenge. Figure 2 The 4Ps Model [Adapted from Jeffrey K. Liker, The Toyota Way (2004)]. 1. Requirements of Customers Guided by the TPS, the company has redefined the rules of operations management in areas like product development, manufacturing process, vendor management, human resource management and customer relations (Morgan and Liker 2006: 34). 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. Essentially, Toyota aims to attain brand loyalty by establishing an emotional connection with the customer (Morgan and Liker 2006: 34). This connection is aimed to be attained through the maximization of positive effects associated with Toyota vehicles. These effects include convenience, comfort and affordability of which Toyota believes can be attained through the proper utilization of resources. To emphasise the importance of customer requirements in the production of Toyota vehicles, in 2005, the company launched the customer first campaign with the aim to provides quality products according to need of the customers (www.toyota.com).Toyota has made a careful study of its customer’s internal (dealers) or external (direct customers). These two groups of customers have different requirements that need to be met. 1.1 Identify and achieve customer requirements In order to identify and achieve both the internal and external customers’ requirements Toyota has set up a system through which they remain in continuous touch them for which a smooth communication network has been established. 1.1.1 Internal Customers a. Who are the internal customers? The internal customers at Toyota are the dealers. b. What are the internal customers’ requirements? For the dealers, the requirements include the supply of required amount of faultless vehicles and the provision of support services such as training. c. Ways to identify internal customers’ requirements. Toyota has employed numerous ways in which the requirements of the internal customers can be identified. Firstly, Toyota has established a network of dealers worldwide and has also given them, a place in the board of management of the corporation. By appointing them in the board of management, Toyota is informed of any requirements or problems faced by the dealers of the organization. This greatly helps in enhancing the level of communication between the management and the dealers. 1.1.2 External Customers a. Who are the external customers? The external customers of Toyota are the direct customers. b. What are the external customers’ requirements? The direct customers’ requirements are varied ranging from affordability, to reliability, to fuel efficiency. c. Ways to identify external customers’ requirements. To identify the customer’s requirements, Toyota goes beyond the general customer surveys and remains in continuous touch with the customers. 1.2 Achieve customer requirements with the use of appropriate resources In order to achieve customer requirements by using appropriate resources, comfort features such as navigation systems, iPod and mobile phone holder and mp3 player radio have in the recent past featured highly on the list of customer requirements. In addition, factors such as car design, the nature of airbags and climate control are also part of the list of Toyota’s customer requirements. Essentially, customer requirements are impacted by the changing lifestyle of individuals. Therefore, the varied range of customer requirements presents a challenge as well as an opportunity for innovation in the designing of Toyota vehicles. Thus, by utilizing appropriate resources, Toyota not only offers its customers with comfort but also with style and safety. In order to overcome the problem of being aware of the continuous change in the lifestyles and requirements of the customers, Toyota has maintained a system of continuous research, communication and networking. The company evaluates field quality data, market research and competitor’s product to understand its customer requirements. The identification of customer requirements is essentially a task led by the company’s Chief Engineer (CE). The CE spearheads the customer requirement information gathering process with the aim of establishing what the customer values in a vehicle and “how these value characteristics can be meshed with the program’s vehicle performance characteristics” (Morgan and Liker 2006: 30). In addition, the customer understanding task is sometimes outsourced to an independent evaluator or research company so as to get more objective results. Once the customer requirements have been identified, appropriate resources are put into place to ensure the effective implementation of these requirements in the final product or service. To meet the requirement of faultless vehicles of the internal customers, that is, the dealers Toyota has established a network through which the cars produced are scrutinized for any fault or problem. This system enables the organization to overcome the problem before the product reaches its desired dealers. Furthermore, there is a specialized team of personnel which looks into these problems. For this specialized employees Toyota has established numerous training centres where these employees are trained in meeting the customer requirements and expectations. 1.3 Achieve customer requirements within organizational constraints They are continuous challenges and constraints in meeting customer requirements. These challenges include organisational constraints, competition, market turmoil and the ever changing needs of customers. An example of an organisational constraint is the shortage of work force with the necessary skills to implement the ever changing customer requirements. To combat this challenge, Toyota has established training centres in various regions dedicated to training its workforce on how to successfully meet customer demands. At the end of the day meeting customer requirements is regarded as a priority in the operations management process and a key component of ensuring the end product is of a desirable quality to the end user. It also ensures sales and profit making which is the ultimate goal of the meeting customer requirement process. Furthermore, in order to stay in constant touch with the ever changing customer requirements, 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. To make the presence felt in every corner of the world smooth, seamless communication network between the company and its internal customers is the basic requirement. In order to deal with customer complaints and queries, Toyota provides its customers with a network known as Mitel network in UK which that provides customers service and quality. These networks provide the solution for customer’s problems and then the available resources are effectively deployed to solve the customer’s problem within time. 2. Manage the Design and Process System By the end of 2009, Toyota had officially become the world largest automaker by sales. One of the company’s objectives was to establish itself as a global brand for reliable and good quality cars. However, in the past two years the company has had to recall about 1.3 million vehicles worldwide to fix defects in seatbelts and exhaust systems. This signals a fault in the existing operational processes and systems which is impacting on the quality of the end product. This problem with the quality is due to the widespread operations and additions of an increasingly complex product line at Toyota. Among these hurdles the most important to overcome is quality assurance, which requires that no matter where Toyota vehicles are made; they have the same quality (Magee 2007: 48). 2.1 In order to overcome this problem, the top management at Toyota needs to employs techniques which would enable them to overcome this problem. Firstly, by utilizing the Kaizen principle, the TPS would ensure that processes and systems are constantly being challenged hence enabling the company to continually innovate and improve. The principle of Kaizen would help Toyota offer both its internal customers with an environment where they would have a chance of continually improving themselves and different aspects of Toyota. Indeed, according to Morgan and Liker (2006: 40), Kaizen is essentially an ongoing improvement involving all sectors of a company. Another technique that I would suggest Toyota through which it can overcome its problems is the utilization of a rigorous problem-solving process that requires a detailed assessment of the current state of affairs and a plan for improvement. In this, the top management can appoint a special team whose duty would be to not only identify and solve the problem on an apparent level but discover the root of that problem and use appropriate methods and resources to overcome it. One problem solving technique that can be used by Toyota is the Six Sigma Root Cause Analysis. In this the problem is not just solved from the face of it, but the root cause is identified and overcome in order to prevent it occurrence in the future. 2.2 One way that Toyota can employ the problem solving technique is through the use of Quality circles which can carry out detail assessment of current state of affairs before implementing improvements. These quality circles are essentially a team consisting of workers from the different sectors of the company who come together with the intention of solving a problem or brainstorm on process and system improvement. For example, Magee (2007: 255) highlights an example where the Avalon car model had a problem in getting the rear reinforcement if the vehicle easily installed. A special hammer had to be utilized to fit the parts. A Quality circle was formed to try and identify all the potential causes of the problem and find possible solutions. Through the Quality circle, it was established that the problem was a result of a bad fit of parts supplied by an external supplier. The supplier was promptly made aware of this problem and corrective measure taken. Thus, the Quality circle team can identify the root cause of the problem and take appropriate steps are then taken to overcome this for future prevention. Furthermore, the implementation of the Kaizen principle enables the employees at Toyota to continuously improve the existing products and fulfil the customers’ expectations. These quality circles are however temporary teams. Hence one way existing operational processes and systems could be redesigned to improve quality is to make these quality circles a permanent aspect of the operations management. Toyota could train a global quality circle specialised team that could receive specialised skills to maintain quality and detect faults in a consistent manner in whichever plant that Toyota operates. This will enable all plants to become self reliant with regard to quality assurance. At the moment, they tend to be an over reliance in experts from Japan to uphold quality levels in plants based outside Japan. Furthermore, the quality circles teams can be further trained into specialized task forces which would not only save time in but would also help the organization into cutting down the cost that is otherwise used in selecting, recruiting and training of the task force. It is no doubt that Toyota considers quality control as a key part of the activities to produce products or services economically and to be of a standard, which exceeds customer needs. As earlier noted, customer satisfaction is at the heart of all Toyota activities. At the moment, all Toyota employees have the added responsibility of ensuring the high level of quality. Everybody from research and development to manufacturing, retailing and servicing contribute to the quality control process. Essentially therefore, all members have two roles, their own job and quality assurance. At Toyota, this is called “Company wide quality control” (Magee 2007: 49). However, this company wide quality control should not be the main way quality control is carried out but rather a mere added factor above the functions being performed by the quality circle team. Gantt chart on Problem solving by the Quality Circle Team ACTIVITY 1 2 3 4 5 6 7 8 9 10 11 12 RESPONSIBILITY Identification of the problem by the Chief Engineer Chief Engineer and Quality circle team (QCT) Brainstorming and identification of possible alternatives for the solution Production engineer and team Best alternative selected Chief Engineer Production engineer and team Plan of action developed and approved by the Chief Engineer Production engineer and Quality circle team (QCT) Implementation Production engineer and Quality circle team (QCT) Feedback Production engineer and Quality circle team (QCT) Project starts Project ends Milestone The milestone chart depicts the problem solving by the quality circle team over a period of 12 weeks. The triangles in the milestone chart illustrate the specific events taking place over the 12 weeks. These include identifying the problem by the chief engineer, the problem statement being approved by the chief engineer, etc. The stars in the Gantt chart depict reaching of the milestone. The milestone on the Gantt chart also depicts a combination of two or more events such as brainstorming and identification of the possible alternatives for the solution of the problem. The milestones on the Gantt chart are shown in different colours which show the status of the events. In this case, the collection of feedback started from the 11th week and ended in the 12th week. The milestone chart is a clear illustration of solving the problem overtime. It effectively summarizes the different aspects involved in problem solving to improve quality of the product. 3. Control the implementation of projects 3.1 Developing of new products in an automobile industry calls for heavy capital and it is also time consuming process but it is also an essential function to retain competitive advantage and tap into new markets. Toyota aims to come up with new products while utilizing the lean product development philosophy that maximizes the use of resources. For example, Toyota has increasingly invested in hybrid technology. The objective for investment in manufacturing hybrid cars was to meet customer requirements with regard introducing vehicles that are environmental friendly. Two projects in particular stand out in the company’s attempt to produce environmental friendly vehicles. These two projects are namely: the introduction of the Toyota Prius to the USA market and the establishment of flexible fuel vehicles (FFV) in Brazil Introducing Toyota Prius to the USA In introducing the Toyota Prius to the USA market, the company was responding to the customer requirement for vehicles that are environmental friendly. The Toyota Prius has won many awards for being the most innovative, economical and use friendly hybrid car. In the designing and production process, Toyota had to develop new engines which are more fuel efficient. Further more vehicle weight had to be significantly reduced. Apart from fuel efficiency improvements, resources had to be put in place to investigate the most efficient way of using alternative fuel like bio ethanol or photovoltaic cells and the use technologies such as electricity charging. 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 working harder to reduce the cost of hybrid cars, its size and weight so that it could be applied to all the cars is one of the company’s vision. To develop alternative energy driven cars, rechargeable batteries for long duration with lesser weight and capacity is the basic challenge. 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. Flexible fuel vehicles (FFV) 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. Toyota started with developing new gasoline and diesel engines with lower fuel consumption and electronic control so as to reduce CO2 emission. 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 gives Toyota an edge over others in reducing the emission level of specific particulate matter (PM) and nitrogen oxide in exhaust gases. The main bottleneck Toyota has been facing is the cost and timing as well as the mass production ability of these innovative technologies. 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 (Toyota Sustainability report, 2008). In order to overcome the time, cost and quality problems in the implementation of the two projects, TPS has moved its focus away from the designing of individual machine and utilization to designing products that run smoothly throughout the process. By designing the machines in the right size, to make certain of the quality initiate machines that check and scrutinize themselves, setting up the machines in the required sequence, bringing in new rapid processes so each machine produces small volumes of numerous part numbers, and encompassing each process stage alert the earlier stage of its present requirements for materials, Toyota endeavoured to reduce cost, high variety and quality, and very quick reactions to the dynamic customer needs and wants. At Toyota, the team leaders of the two projects emphasized on the Japanese management principle of Nemawashi, that is, decision making by consensus, after considering all options (Vedpuriswas, 2009). The team leaders gathered the group of experts to discuss, review and make important decisions. This way communication among the team members improved significantly. The team of experts discussed multiple alternatives in designing the machine. The experts were asked keep the software, that is, the customer needs the center of attention, than the hardware that is, the engineering. Discussion sessions brought forward terms like natural resources and environment. The team of experts came up with the phenomenon of hybrid engine in their exploration of an environment friendly car that was fuel efficient. This machinery offered the best possible combination of fuel cutback, low emissions feasibility and handiness. After finalizing the idea, the Toyota management devised plans for the making of both the projects. The engineers at Toyota worked extremely hard and industriously and at last came up with the new product months before the target date set for its launch. (Vedpuriswas, 2009). There were numerous techniques employed by the people who were involved in the project to save the time, cost and control. Firstly, as the objective was to sell one million Toyota Prius cars by early 2010, therefore the team involved used control measures to ensure that the time objective was efficiently and effectively met. Toyota employed different control measures from the start to ensure the actual implementation of the project followed the original plan of launching the car by early 2010. For this, the management included the manufacturing team from the start of the project so that they were not faced with any kind of problem during the production process. Also, once the product was launched in the market, control measures like regular monitoring of sales through continuous research were undertaken. Moreover, the management also constantly reviewed the sales performance to check for any abnormalities. The implementation of such control measures not only helped in saving time but also resulted in the project being cost effective as continuous monitoring enabled the management to overcome any wastage that might have occurred. The cost of the project was controlled through continuous monitoring of the raw material and the production process to eliminate waste. While checking the raw material it was made sure that no contaminated material was used which might have increased the cost. Furthermore, the quality of the product was also controlled throughout the process by keeping a constant check on the production process for any irregularity or defect. 3.2 The two projects illustrated Toyota’s high class competence in concurrent engineering, which is the key feature of lean product development. During the constant check on the production process for any irregularity or defect to control quality, one problem that arose during the implementation of the Toyota Prius was the failing of the brakes. After continuous deliberation by a team of specialized personnel, the Toyota management solved the problem by installing Lexus version of the brake system as it uses the system as Toyota Prius. 4. Monitoring and Evaluation of Performance Toyota performance monitoring and practicing depends on the six organizational mechanisms. Three of them are primarily social processes, that is, 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. Toyota has developed guiding principles to monitor and evaluate performance of the organization at every level. The aim of these principles is develop relentless reflection (Hansei) and continuous improvement (Kaizen) so as to guide the production process. The aim is to enable problems to be easily identified and immediately remedied. 4.1 Customer Services Customer services are monitored through dedicated research to determine the attitudes of customers towards products. Unlike the gathering of information for customer requirements carried out by the Chief Engineer and his team, the monitoring and evaluation task is often outsourced to an independent researcher. The required information is not only gathered through regular surveys, but employees are personally sent to different existing or potential customers in order to identify the customers’ requirements or problems. Toyota employs various techniques in monitoring and evaluating customer services. They offer their customers with the perfect customer experience. The organization stays in constant touch with the customer even after the purchase of the product by offering them with the perfect customer experience. This is provided by the organization by delivering the product in a perfect condition and if any problem may arise, fixing it right the first time. Furthermore, the organization makes sure that the customers’ demands are fulfilled by providing then with safe, innovative and outstanding high quality products and services. 4.2 Resource Utilization The project utilisation of resources must be documented and communicated to the team members in a consistent, reliable and appropriate manner for each level of the project team. Justification for using more resources must be provided and in cases where less resources where used, reasons must be identified. 4.3 Costs and Benefits to the Organization With regard to costs and benefits to Toyota, the management must compare the time, cost and performance of the project to the budget, schedule and the tasks defined in the approved project plan. This must be done in an integrated manner at regular intervals, not in a haphazard, arbitrary way. Any significant departures from the budget and the schedule must be reported immediately, because these anomalies affect the viability and the success of the entire project. 4.4 Design, Planning and Implementation Process When it comes to design, planning and implementation process, Toyota principles state that management decisions should be based on long term philosophy even at the expense of short-term financial goals. To this end, Toyota grows leaders who thoroughly understand the work, live the philosophy, and teach it to others. In addition, Toyota only uses reliable, thoroughly tested technologies that serve its people and processes. Summary Toyota Motor Corporation has set a benchmark in automobile industry. It has aimed to create operational excellence through its Toyota Production System. This system has largely ensured continuous growth, innovation and increase in people skills. It has clearly emerged that customer requirements are highly valued and effort is put into ensuring that these requirements are met in the end product. As the company continues to expand globally, it is faced with challenges such as shortage of skills and inability to guarantee quality. Toyota is however putting effort to standardize operations in all its plants to ensure uniform quality. This quality improvement can be enhanced by the presence of a clear monitoring and evaluation plan which can detect unfavourable aspects of the production management. Recommendation and conclusion The Toyota Production System (TPS) has become renowned for implementing continuous quality improvement that gives Toyota an advantage over many of its competitors. However, there have emerged many weaknesses in attempting to globalize the TPS to the different Toyota plants in different parts of the world. This therefore highlights the notion that TPS is too strict a system that needs to be modified and made flexible enough to accommodate organizational cultures of different plants. There is clear need to bring quality uniformity in the companys global strategy. REFERENCES 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. 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. 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. Fujimoto, T. (1999). The evolution of a manufacturing system at toyota. New York, NY: Oxford University Press. Monden, Y. (1998). The toyota management system. 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