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Introduction

Toyota is Japan's biggest car company and the second largest in the world after General Motors.
It produces an estimated eight million vehicles per year, about a million fewer than the number
produced by GM. The company dominates its home market, with about 40% of all new cars
registered in 2004 being Toyotas.

Toyota also has a large market share in both the United States and Europe. It has
significant market shares in several fast-growing South East Asian countries.

The company produces a large range of vehicles which are highly regarded for their quality,
engineering, and value; their designs set global standards for safety, reliability and ease of
maintenance.

The Company Philosophy

"Do the right thing for the company, its employees, the customer and the society as a whole."

Origins

The story of Toyota Motor Corporation began in September 1933 when Toyoda Automatic Loom
created a new division devoted to the production of automobiles under the direction of the
founder's son, Kiichiro Toyoda. Soon thereafter, the division produced its first Type A Engine in
1934, which was used in the first Model A1 passenger car in May 1935 and the G1 truck in
August 1935. Production of the Model AA passenger car started in 1936.

Although the Toyota Group is best known today for its cars, it is still in the textile business and still
makes automatic looms (fully computerized, of course), and electric sewing machines which are
available worldwide.

During the Pacific War, the company was dedicated to truck production for the Imperial Army.
Because of severe shortages in Japan, military trucks were kept as simple as possible. For
example, the trucks had only one headlight in the center of the hood.
Toyota earns $1250 per vehicle produced while GM loses $2311 per vehicle produced. Toyota is
producing nearly 50 percent more cars than in 2001 and this year it will almost certainly pass
General Motors to become the world's largest auto company. Toyota alone earned more than all
the rest of the world's 12 largest auto manufacturers combined - $11.4 billion. And it is pioneering
a new technology for the 21st century that will shrink gasoline consumption and limit greenhouse
gases.

FORTUNE GLOBAL 500 (Year 2005)

Toyota Motor
Rank: 7 (2004 Rank: 8)
Employees: 265,753

$ millions % change from 2003

Revenues 172,616.3 12.7
Profits 10,898.2 5.9
Assets 227,512.9 --

Rank Company 500 Rank Revenues ($ millions)

1. General Motors 5 193,517
2. DaimlerChrysler 6 176,688
3. Toyota Motor 7 172,616
4. Ford Motor 8 172,233
5. Volkswagen 15 110,649
6. Honda Motor 27 80,487
7. Nissan Motor 29 79,800

Toyota Success Recipe

The Toyota sales figures were skyrocketing, even their competitors were losing out in almost all
markets. It is a matter of concern for all the automobile companies to regain their lost market
share. Market capitalisation says it all. Toyota is worth more than the American Big Three put
together, and more than the combination of its successful Japanese rivals, Nissan and Honda.

The Toyota way of production was discussed throughout the world, with lots of research
being undertaken. The company's success is mainly due to the implementation of the
following: -

1. Toyota Production System

2. Re-engineering
3. Superior Technology & Quality
4. Hybrid Vehicles
5. Employee Welfare Costs
6. Employee Satisfaction

1. Toyota Production System

Toyota Production System, also read as Thinking Production System, makes use of the following
vital elements, namely,

Lean Manufacturing

Just-In-Time

Kaizen

Jikoda

Kanban

Andan

Pull System

1.1. Lean Manufacturing

Lean production is aimed at the elimination of waste in every area of production including
customer relations, product design, supplier networks and factory management. Its goal is to
incorporate less human effort, less inventory, less time to develop products, and less space to
become highly responsive to customer demand while producing top quality products in the most
efficient and economical manner possible.

Principles of Lean Enterprise: -

Zero waiting time

Zero inventory

Scheduling - internal customer pull instead of push system

Batch to Flow - cut batch sizes

Cut actual process times

 Shrinks lead times

Saves turnover expenses

Reduces set-up times

Multiplies inventory turns

1.2. Just-in-Time

Just-in-time is a manufacturing philosophy pioneered by Toyota in 1970s. It's a method of waste

elimination by which the inventory levels are minimized. The heart of JIT is Kanban, Japanese
word for card.

JIT implementations include: -

Inventory reduction

Smaller production lots and batch sizes

Quality control

Complexity reduction and transparency

Waste minimization

1.3. Kaizen

Kaizen is the lean manufacturing term for continuous improvement and was originally used to
describe a key element of the Toyota Production System. In use, Kaizen describes an
environment where companies and individuals proactively work to improve the manufacturing
process. Employing Kaizen means the following: -

Proactively improve production

Reduce manufacturing waste

Increase employee involvement

Increase customer satisfaction

1.4. Jikoda

Jidoka, a term used in Lean manufacturing, meaning "automation with a human touch". It is a
quality control process used in the Toyota Production System which applies the following four
principles: -

Detect the abnormality

Stop
 Fix or correct the immediate condition

Investigate the root cause and install a countermeasure

1.5. Kanban

A Japanese term meaning, "signal". It is one of the primary tools of JIT system. It signals a cycle
of replenishment for production and materials. It maintains an orderly and efficient flow of
materials throughout the entire manufacturing process. It is usually a printed card that contains
specific information such as part name, description, quantity, etc. The card contains,

Instruction for production and conveyance

Visual control tool to check for over production and to detect irregular processing speeds

Tool to perform kaizen

1.6. Andan

The production line is stopped if there is a problem somewhere in the line. Every employee is
empowered to stop the production on finding a defect. This is done to prevent the defective items
from passing to the next stage. Andon electric boards will highlight the location where the
defective part is located, and hence, can be attended.

1.7. Pull System

Under a 'push' system, there is little opportunity for workers to gain wisdom because they just
produce according to the instructions they are given. In contrast, a 'pull' system asks the worker
to use his or her head to come up with a manufacturing process where he or she alone must
decide what needs to be made and how quickly it needs to be made.

2. Re-engineering

Re-engineering has been a major factor for the success of Toyota. Consider a Toyota model,
which is newly introduced in the market, failed to impress the market. The next Toyota strategy
will be to re-engineer the model, i.e., completely alter the failed model using the same production
facility. This method is not practiced at General Motors and Ford. Once a GM / Ford vehicle fails
in the market, the whole manufacturing facility for manufacturing the model is scrapped and the
employees are often pushed out of the company. This results in loosing the knowledge gained at
great cost.

3. Superior Technology & Quality

All Toyota production facilities are designed in such a way so as to ensure flexibility, so that
Toyota production facilities around the world could easily add / switch new models or ramp-up
production of existing models within a short period while ensuring the top quality traditionally
associated with the Toyota brand. Robots are used widely in mass production. By allowing the
choice of either people or robots depending upon profitability, the production line offers the
flexibility to handle everything from low-volume to mass production.

Toyota's quality control during production ensures that the correct materials and parts are used
and fitted with precision and accuracy. This effort is combined with thousands of rigorous
inspections performed by team members during the production process.
Team members on the line are responsible for the parts they use. They are inspectors for their
own work and that of co-workers. When a problem on any vehicle is spotted, any team member
can pull a rope - called an andon cord - strung along the assembly line to halt production. Only
when the problem is resolved is the line re-started.

This process involves every team member in monitoring and checking the quality of every
car produced.

GM takes 34 hours for producing a vehicle while Toyota does it in 27 hours, shows the technical
superiority of Toyota.

Awards & Recognitions

Toyota manufacturing facilities around the world have won quality awards, which include the J. D.
Power Quality Awards. Toyota plants in Japan and North America have won the prestigious
World-wide Platinum Plant Quality Awards. Toyota products were ranked at the top with fewer
than industry average of problems per 100 vehicles, which reinstate the Toyota quality.

4. Hybrid Vehicles

The hybrid cars market is on upswing and is growing very rapidly. America spend on gasoline
every minute is about $200,000. There is an increased demand for the Hybrid vehicles all round
the world especially in the US due to the following reasons: -

Increased fuel prices

Environmental factors

Hybrid engines have been touted as a way to make automobiles more fuel efficient and less
costly to run. Toyota gave more emphasis in developing hybrids while GM and Ford concentrated
on developing SUVs (Sports Utility Vehicles).

The Toyota Prius is one of the world's first commercially mass-produced and marketed hybrid
automobile. The Prius first went on sale in Japan in 1997, and was introduced to the worldwide
market in 2000. Prius was a run-away success with the demands exceeding the supply. Toyota
plans to sell 1,50,000 hybrids in US in the year 2006. The company is also planning to expand
the hybrid technology for all the models in the Toyota stable.

The company will be using the existing production facilities to manufacture hybrids rather
than having a dedicated plant. Presently, the company offers hybrid versions for Prius,
Toyota Highlander, Lexus RX330 and Camry.

Hybrids represented 1.2 percent of the total vehicles sold in 2005. The Toyota Prius led the way
with 107,897 cars sold for the year 2005 - 52 percent of the total hybrid market. The next most
popular hybrid was the Honda Civic Hybrid, which sold nearly 26,000 units.

The world's automakers are now embracing hybrid vehicles in an effort to match Toyota's success
and give customers more options to combat high gas prices.

5. Employee Welfare Costs

The skyrocketing of the healthcare costs and the pensions for the retirees have drained the
bottom lines of the Big Three, namely GM, Ford and Chrysler.
Healthcare Costs (for the plants in US)

Cost per Vehicle

General Motors $1,500
Ford $1,300
Toyota $201

On pensions, the Big Three supports 8,00,000 retirees (from the US operations) while Toyota has
hardly 1,000 retirees which is indicative of a much younger workforce.

6. Employee Satisfaction

Toyota has created an organizational culture that encourages employee participation, which is
essential for successful TPM (Total Productive Maintenance). Group activities are promoted
among the shop-floor team members. The knowledge base of all the employees is used to
improve equipment reliability and productivity, thereby lowering maintenance and operating costs.

Two other important aspects of TPM are training and open communication between
operators and engineering. Production personnel are trained to perform routine
maintenance. High level of employee loyalty and commitment to quality is observed in Toyota
employees.

Employee participation is ensured through

Quality Circles

Suggestion Schemes

Incentive programmes

It is observed that there are more number of satisfied employees at Toyota when compared to
GM and Ford.

Conclusion

It is for sure that with superior technology and best industry practices, Japanese auto major is
giving a run for the auto industry, which is dominated by the Americans. Imminent is the day; the
day Toyota will be the largest automobile manufacturer of the world, surpassing General Motors.
All credits to the production prowess and the technical innovation, which made the Japanese sail
through the rough waters, a journey that started in 1933 and is still continuing.