Strategic Operations Management
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Toyota Motor Corporation is a one of the quality producing automobiles in the automobile sector. The company headquartered in Toyota city of Japan owns popular brands such as Toyota, Scion and Lexus, having a majority stake in Hino Daihatsu motors, and shareholding in Isuzu Motors, Fuji Heavy Industries, Mitsubishi Aircraft Corporation, and Yamaha Motors. Ever since, its inception in 1937, the company and its subsidiaries have tremendously contributed to the sustainable development of society through the manufacturing of innovative and high quality products and services.
Through these untiring efforts, they have produced a corporate philosophy for all organizations that have passed from generations to generations throughout the organization and this philosophy is popular as the “Guiding Principles”. Toyota has also incorporated these methods and values in the “Toyota Way”. Such methods and values should be shared globally to realize the “Guiding Principles”, and they are pursuing to pass on to future generations. These principles have also become an example, a powerful tool and significant contributor of success for a large number of organizations. The whole world recognizes the contribution of Toyota towards sustainable development. As their operations became global, the company needed to reassert their philosophy and issued a report in January 2005 under title “Contribution towards Sustainable Development”.
This paper explains the strategies and production policies that helped Toyota to become one of the leading quality producers of automobiles. Further, it also examines how the company can contribute towards sustainable development with its stakeholders. The company strongly believes that by adopting the Guiding principles, it will successfully fulfill its contribution for attaining sustainable development.
1. Overview of Toyota and its Strategies
For recognition of its brand, Toyota continuously developed a number of development strategies and outcome of these strategies depicts its success. The first stage of the company’s strategy is cross nation strategy. Through this strategy, Toyota implemented a marketing strategy in Japan and across the world. This strategy calls for blanketing all potential markets with Toyota products all over the world.
Since its inception, implementation of three powerful strategies ensured its success. First and most essential was that the company must have high quality suppliers. Second by providing entertainment and housing amenities for employees and their families because Toyota believes employees play a crucial role in company’s success. The third was a strong network of powerful and initiative dealers who have an ambition to grow as the company grows.
1.1. Toyota Operation Strategy
Toyota operation strategy leans on the maximum reliability and production systems that incorporate product design and supply chain processes focused to achieve their goals. The company’s lean manufacturing strategy enables it to focus on consistency in designing and responsive approach, in production operation. Toyota’s workforce is self-guided, and customer oriented criteria, and output based measures motivates them.
The concept of Kanban, Just in time and respect for workforce together with quick problem solving approach enables Toyota to pursue lean innovations. The lean manufacturing enables the company in developing its production successfully by including new types of designs. The fourteen guiding principles enable the company to manage its value stream, analyze customer value and employ a pull approach, which ropes the flowing of deficient materials and the overall development in production processes.
The achievement of this ingenious strategy enables Toyota to rise to global heights in the automobile sector. While Toyota still maintains its outstanding performance in the implementation of lean approaches, less of its competitive edge is traceable in its total production system, more comes from implementing the strategies of lean product development. As a result, best lean practices give synergy to company production system.
Further, the company’s supply chain management is a perfect combination of Kierestsu strategy, Eliyahu Goldratt’s theory of constraints, and porter’s value chain strategy. Supply chain includes all activities connected with the transformation of raw materials into finished products and smooth flow of products to consumers. Toyota updated its supply chain strategy by applying information management systems in the late 1980’s by connecting dealers, customers and suppliers with the company network system. The overall aim of supply chain is to connect all the vital components in order to ensure total efficiency in its value chain processes. For example, connecting vendors and warehouse enables the inventory management keeps running efficiently at all times.
Up until 1994, the company adopted its third phase of development strategy, which emphasized on the globalization strategy. The company inducted modern global expansion plans to localize and increase imports of cars produced overseas. One such example of this strategy is the New Sienna produced by the company in Kentucky, USA. Another globalization process was the publishing of supplier’s guide with the aim at providing the new suppliers a clear understanding on company’s purchase activities, and acquainting them with guidelines on how to sell to the Toyota. In 1997, the company formulated another plan by providing internet services to its suppliers and hence for procurement of auto parts from the overseas supplier became easier. As up to April 1998, the company developed 35 overseas subsidiaries all over the world, 140 distributors in five continents and 30 countries. This shows the Toyota‘s success in entering the foreign market.
1.2. Business Strategy
From the achievements of the Toyota, It is clear that the company centered its business strategy on customer orientation/satisfaction, rather than driving a mere shareholder value. With this logic and value proposition, the company’s strategies are apparent: cost leadership and differentiation. With differentiation strategy, Toyota focuses on product quality and reliability. With cost leadership strategy, the company focuses on fuel efficiency and affordability. These two strategies address accurately what customers’ value. The company’s business strategy being a competitive strategy focuses on product leadership (implementing metrics such as reliability, safety and quality), competitive price (using affordability and fuel efficiency) and customer experience.
1.3. The impact of Business Strategy
This business strategy of Toyota has put customers its priority. The company focuses on zero defects in quality and adheres to strict control measures across its all production processes. The company continuously devotes itself to process improvement by conducting controlled experiments, investing heavily in research and developments and sharpening organizational learning skills. This continuous process improvement allows the company to design and produce automobiles that fulfill customers’ increasing requirements on fuel efficiency, affordability, reliability, and safety standards. All of these contribute to collective customer satisfaction, thus help Toyota to establish reputation and win market share. The product strategy being a part of its business strategy focuses on high quality, developing innovative technologies by continuous research, creativity and also hard work. In its product strategy, the Toyota uses KAIZEN strategy that focuses on continuous improvement and measures its effect on the level of product quality. This strategy is an integrative and cross functional strategy that demands the gradual improvement in all parameters of productivity, competitiveness and quality, with direct involvement of all workforces.
In the business strategy matrix, two aspects of pressure for cost reductions and local responsiveness, transitional strategy receives the highest degree along both aspects. Toyota like many other leading automobile companies chooses transitional strategy in its business operations.
2. Main Processes of the Organization
Toyota production processes and systems
Toyota implements various processes in its production to ensure zero defects quality. The company’s philosophy of producing automobiles with 100% quality in parallel with minimized process storage relies on the five significant elements of the TPS, which represent an interdependent system. The prime pillars of the TPS are; JIT (just in time), Jidoka, and TQC (total quality control), which leans on the principle of flexible production and minimization of cost through waste reduction. The TPS implementation is through standard processes and techniques and continuous improvement supported by on the job training.
This aspect of the Toyota is the most popular. It enables the material flow through different processes quickly, ensuring availability of the right part to the proper place and at the proper time. This process creates a production cell where raw material flows from operation to operation without interruption. In certain cases, it becomes necessary to interrupt the material flow in order to connect different processes together. For instance, stamping presses build in batches during the changes of dies cannot be put in a cell. Hence, a supermarket concept is applicable with stamping storing up to a certain levels of inventory and then replenish only what the customer carries away. Demand from the customer triggers replenishment in the store thus maintaining inventory up to a certain level is necessary. This concept of pull by replenishing can be adopted for all raw material suppliers.
Jidoka Production Process
Jidoka is a more complex process, and its application finds a suitable place in the concept of Toyota’s TPS. It connects a machine with human intelligence. The intelligence is for doing one easy job, which is to identify a deviation from a standard and stop while waiting for assistance. This concept is applicable to all those manual processes in which operator pulls a cord and stop the machine when occurs any problem. When an operator or machine halts for a problem, there is a necessity to signal for help.
This system applies use of sounds and lights to signal for help. Music plays and lights up by pulling a cord, and a group leader arrives for help, and this assistance is available in the next few seconds. Thus, stopping the problems the problem restricts before it leak out. The company believes that problems must surface as it leads to improvement.
Heijunka Production Process
This process is for providing the total constancy on which JIT systems can be formed and the system demand continuous adjustment by stopping to rectify the problems. Hejunka in other words is leveling. The aim is to create a level work load and a leveled stream of orders. When leveling the load of work, there are chances to standardize processes and work load leveling is necessary to know how much inventory should be available in stores. In case of a shortage in a store for a product, this system will not be applicable to keep up. Toyota realizes that standardized and stable processes are mandatory otherwise its JIT production will simply mean no production. Without sufficient inventory to replenish for instability, the system will shut down, and it will be worse in case an operator pulling the chord and stopping the production line.
2.1. Tools and Technology
Toyota involves latest tools and technologies in developing and building product. The technology not only incorporates CAD systems, digital manufacturing and testing technologies and machine technology, but all those soft tools, which support the efforts of the workforce involved in the project whether it is standardizing best practices, learning, or problem solving.
The company uses the latest technology in its standardized assembly process planning. This technology comprises of interdependent systems of individual tool that permits a parallel operation of macro planning (sequencing of work steps, line layout and assigning of operations) and micro planning (planning of operation including tool and parts lists, assembly lines, explosion drawing).
The macro planning uses assembly line and flow chart to describe the sequencing of assembly line equipment and work operation. MPS (master process sheets) states the detailed analysis for micro planning. During the development and production phase of the product, both macro and micro planning acts simultaneously. Depending on their skills, the workers rewrite MPS into SMP (standard methods and procedure sheets) for additional assembly information and training. This production process technology boosts the morale of production workers and the outcome are that while shining their performance, they improve the quality of the product.
2.2. Analysis of Processes
Many automobile producers, throughout the world, are trying to learn from Toyota’s production process systems, but they limit their knowledge to a few superficial lean tools. Some of the leading automobile producers anticipate success with lean tools in their manufacturing operations and want to implement them in their own product development processes. The production system of Toyota stands on two pillars; they are just in time or lean manufacturing, which focus on high efficient production, detailed planning and minimized inventory. Its second pillar is the Kanban system; it allows goods to be pulled depending upon need and also procurement for parts through the supply chain system. The company consistency in performance is a product of operational perfection, converting the perfection into a strategic weapon. The techniques introduce based on operational excellence, and quality improvement helped generate the lean production technique or lean manufacturing; the methods are just in time, Kaizen, one piece flow and heijunka. Toyota achieved success over time by using these processes; the processes focus on the human understanding and motivation of people, on the ability to cultivate leadership and culture to design a strategy as well as to build supplier relationship and a learning culture in an organization.
3. Value Chain and Quality Level
The value chain developed by Porter (1985) recognizes that an organization is a set of numerous activities, which are designing, producing and marketing to support its product or service. All such activities represent a value chain and the differences between value chains of a competitor are a powerful source of competitive advantage. The added value is the price, which the customer agrees to pay for a service or product. This value remains unaccomplished until a customer purchases the product. Value chain analysis examines how each part of the value chain plays its role towards adding value in an organization and how it differs from the competition.
Toyota incorporates all essential elements of the value chain in its production processes and famous for its lean production capabilities. The company remained lean while its sales volume increased dramatically. The company’s streamlined supply base relies heavily on suppliers and usage of parts across its multiple platforms. Toyota’s waste reduction system has always been a focus from the point of view of the customer or end user in its value chain system. Anything in the production, if it does not improve or enhance the customer’s experience deems to be a waste.
The first question that arises in Toyota’s production system is, “what does the customer need from these processes?” This question is extremely significant when defining value. Toyota always carries the process from the customer’s perspective, and value added steps segregate from non value added one. This is because the company realizes that the only thing that will add value in any processes of the value chain whether it is a production, marketing, or a supply chain process is the physical transformation of the product that customer needs. From time to time, the company devise various new technologies to reduce the production costs, but at the same time, ensuring the high quality.
Adam Smith states that production costs will decline when there is a specialization in certain production processes, resulting an increased output in production. At this crucial junction, workforce requires a high degree of cooperation and coordination among the participants. These additional cooperation efforts also accelerate the total cost because the participation of more specialized will result in higher coordination costs.
For instance, Toyota invested heavily for improving fuel efficiency and reducing gas emission by adopting latest eco friendly technology. The company succeeded in reducing carbon monoxide, nitrogen and hydrocarbon gas emissions through advanced technologies, but ultimately its coordination costs increase costs of production and this increased cost affect the complete value chain and customer.
Toyota extends the sphere of its value chain for constructing an integrated support system. The key elements of the value chain focus in e-commerce, transport systems and financing. Toyota’s e-commerce venture is steadily growing with membership having increased three million. Toyota dealers on an average receive 360,000 requests for catalogues and price quotes annually with 11% of these requests ultimately result in purchases of Toyota automobiles.
The value chain of Toyota continues to change as its business environment changes. Internet and information technology enabled its interrelationships among different parts of the value chain, and strategic alliances with competitors have become an integral part of the company’s value chain.
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