Please read (From Attached Power point):
17.1: Identify the essentials of operations and services management.
17.2: Explain what value chain management.
Once you have read the above, read the Toyota case and then answer questions 1 and 3.
CHAPTER 17 CASE STUDY
Toyota: Looking Far into the Future
By borrowing the best ideas from North American brands and innovating the rest itself, Toyota has become a paragon of auto manufacturing efficiency. Its vehicles have been widely known for their quality and longevity—and Toyota's sales numbers are once again the envy of the North American Big Three as it recently regained the global sales crown. Toyota had slipped as low as third following the natural disasters in Japan and Thailand that hurt production and demand. Here is how Toyota became so efficient at producing high-quality automobiles and, yet, it is still facing challenges.
There used to be a sentiment encouraging Canadian and U.S. car buyers to purchase domestic models built and assembled in North America. Those who still tout the movement to buy domestic have likely done a good bit of head-scratching over how to classify Toyota—a Japanese company operating in Ontario that employs Canadian workers and that uses Canadian- and American-made parts to produce vehicles sold across North America. What to think when this Japanese brand achieves a product quality superior to long-known North American brands and surges ahead of General Motors and Ford to rank number one in global auto sales? Yet Toyota, the model automotive manufacturing company, is still facing its own quality challenges.
Quality by Design
Toyota's success and growth in the North American auto market were based on strategies honed since the 1950s to earn and retain customer satisfaction by producing superior vehicles within a highly efficient production environment. From the home office to factories to showrooms, two core philosophies guided Toyota's business: (1) creating fair, balanced, mutually beneficial relationships with both suppliers and employees; and (2) strictly adhering to a just-in-time (JIT) manufacturing principle.
Over the decades, other North American auto manufacturers developed relationships with their suppliers that emphasized tense competition, price-cutting, and the modification of suppliers' production capacities with the changing needs of the domestic market. Year after year, parts suppliers had to bid to renew contracts in a process that valued year-to-year price savings over long-term relationships. Domestic manufacturers, notorious for changing production demands mid-season to comply with late-breaking market dynamics or customer feedback, forced suppliers to turn to double or triple shifts to keep up with capacity and thus avoid the problems—quality slips, recalls, line shutdowns, layoffs—that ultimately slow the final assembly of vehicles. When a carmaker doesn't know what it wants, suppliers have little chance of keeping up. This system of industry dynamics proved susceptible to new approaches from Japanese competitors.
Toyota's model of supply chain management displayed an exclusive commitment to parts suppliers, well-forecast parts orders that were not subject to sways in the market, and genuine concern for the success of suppliers. Supply chain relationships among Asian manufacturers are based on a complex system of cooperation and equity interests.
Visiting other North American auto plants and seeing months' worth of excess parts waiting to be installed taught Toyota the benefit of having only enough supplies on hand to fulfill a given production batch. Toyota plans its production schedules months in advance, dictating regularly scheduled parts shipments from its suppliers. Suppliers benefit by being able to predict long-range demand for products, scheduling production accordingly. This builds mutual loyalty between suppliers and the carmaker—almost as if suppliers were a part of Toyota. The fit and finish in Toyota vehicles is precise because its suppliers can afford to focus on the quality of their parts. And consumers notice: Toyota vehicles consistently earned high marks for customer satisfaction and retained their resale value better than almost any others.
Keep It Lean
Early Toyota presidents Toyoda Kiichiro and Ohno Taiichi are considered the fathers of the Toyota Production System (TPS), known widely by the JIT moniker or as “lean production.” Emphasizing quality and efficiency at all levels, it drives nearly all aspects of decision-making at Toyota.
Simply put, TPS is “all about producing only what's needed and transferring only what's needed,” said Teruyuki Minoura, senior managing director at Toyota. “The answer is a flexible system that allows the line to produce what's necessary when it's necessary. If it takes six people to make a certain quantity of an item and there is a drop in the quantity required, then your system should let one or two of them drop out and get on with something else.”
To achieve maximum efficiency, workers at Toyota plants must be exceptionally knowledgeable about all facets of a vehicle's production, able to change responsibilities as needed. “An environment where people have to think brings with it wisdom, and this wisdom brings with it kaizen [the notion of continuous improvement],” noted Minoura. “If asked to produce only one unit at a time, to produce according to the flow, a typical line worker is likely to be flummoxed. It's a basic characteristic of human beings that they develop wisdom from being put under pressure.” However, kaizen also has to compete with the pressure of Mother Nature. The earthquake and subsequent tsunami that occurred in 2011 in Japan took a heavy toll on Toyota's supply chain and hurt its overall production of vehicles.
Keeping Up with the Times
No vehicle represents Toyota's focus on continuous improvement and innovation better than the wildly successful hybrid, the Prius. A niche car when introduced in Japan in 1997, Prius is now the world's third bestselling car, recently topping the three-million mark. Toyota now offers 18 hybrid passenger models in over 80 countries, accounting for 15% of total Toyota sales.
On the other hand, no Toyota vehicle has come to represent the challenges of adapting to a changing sales landscape more than its Tundra pickup truck has. Toyota built a Tundra plant in Texas to prove that its trucks were as North American as those made by the Big Three. But truck sales began to decline as the price of oil rose. Contractors and builders began to think twice about new pickup purchases; the Tundra plants began to run well under capacity. To try to turn things around, Toyota was betting heavily on its 2014 Tundra model. Based on feedback from focus groups, designers and production paid more attention to power and capacity and less to style and comfort.
Yet quality, and in turn Toyota's reputation, has suffered in the past. Toyota is still dealing with the fallout from negative publicity when it recalled 7.6 million vehicles because of acceleration problems, which led to dozens of accidents and some deaths in the United States. Toyota's reputation for quality took another hit when influential magazine Consumer Reports pulled its recommendation on Toyota's popular flagship Camry sedan, plus the RAV4 and Prius v due to poor front crash test results. Toyota's no. 2 safety technology officer says, “From a production point of view, it requires a drastic change. So it requires time.” As in all things in the fast and flexible world of operations management, time is the essence of success.
1. How could Toyota's competitors draw from kaizen to gain efficiencies in their supply chain management?
3. Looking at the Prius, undertake a value chain analysis and highlight at what stage Toyota created the most value.