Toyota: Origins, Evolution and Current Prospects

By Group 2 Abhishek Fedora Prathamesh Ajinkya Manisha

INTRODUCTION
The growth of Toyota has been one of the great success stories of Japanese industry during the last half century. 1947: Toyota was a little-known domestic manufacturer producing around 100,000 vehicles a year. 2004: Toyota stated that the company and its affiliates would produce a record 7.84 million vehicles ,ahead of Ford and 2nd only to General Motors in global industry 2006: It raised its production targets to 8.5 million vehicles - better-than expected sales in both North America and Asia. If Toyota meets this goal, it could surpass GM to become the worlds largest automobile-company.

The Evolution of Toyota

Post World War II, Kiichiro wanted Toyota to reestablish as automobiles manufacturer. Problems faced by Toyota doing this: Japanese domestic market was too small to support efficientscale mass-production facilities. The Japanese economy was starved of capital, thus difficult to raise funds to finance new investments. New labor laws introduced by the American occupiers increased the bargaining power of labor and made it difficult for companies to layoff workers. North America and Western Europe were full of large auto manufacturers eager to establish operations in Japan.

Conventional Mass Production System

The basic philosophy behind mass production was to produce a limited product line in massive quantities to gain maximum economies of scale.

1ST: The economies came from spreading the fixed costs involved in setting up the specialized equipment required to stamp body parts and manufacture components over as large a production run as possible.

Since setting up much of the equipment could take a full day or more, the economies involved in long production runs were reckoned to be considerable.

2ND : Each assembly worker performs a single task, than a variety of tasks. Idea behind this: the worker became completely familiar with single task, and perform it much faster, thus increasing labor productivity.

Problems of Mass Production System

Long production runs created massive inventories to be stored in large warehouses. Expensive cost of warehousing and inventories tied up capital in unproductive uses. If the initial machine settings were wrong, long production runs resulted in the production of a large number of defects.

The sheer monotony of assigning assembly line workers to a single task generated defects, since workers became lax about quality control.
The extreme division of labor resulted in the employment of specialists such as foremen, quality inspectors, and tooling specialists, whose jobs logically could be performed by assembly line workers. The mass production system was unable to accommodate consumer preferences for product diversity.

Reducing Set Up Time

Manufacture auto body parts in small batches, reduced the time it took to

set up the machines for stamping out body parts.

The production workers were directed to perform the die changes themselves. Reduced the time required to change dies on stamping equipment from a full day to 15 minutes by 1962 and 3 minutes by 1971. In comparison, in early 1980s many American and European plants required between 2 and 6 hours to change dies.

Toyotas System v/s Conventional System

Conventional mass producing system produces each required part in bulk and stores the inventory in warehouses. Toyota on the other hand produces each part in small quantities as compared to a conventional mass producing system. Toyota also reduces the number of excess workers like foremen and supervisors and believes in multi specialization of its work force.

Advantages: Toyota drastically cut down the time taken to complete certain processes Reduced the cost of production. The benefits of this reduced cost are passed on to the customers of Toyota and its investors.

Organization of the Workplace

Group the work forces into teams Reduce the need for specialist Create more flexible work force Increased workers productivity

Improving Quality
Fords mass production was a wasteful process according to TOYOTA Reasons:
1. Little incentives to correct the error themselves 2. An enormous amount of rework required to fix it 3. Defects getting carried forward

Contd..
Ohnos approach
1. 2. Stop the assembly line if a problem emerged Find the ultimate cause and solve it

Developing the Kanban System

1. 2. Just in time Signal technique Minimize WIP by increasing inventory turnover Elimination of buffer inventories Defects were traced faster Decentralizing the responsibility Does away with the need for extensive centralization &control

3. 4.

Organizing Suppliers
The company decided that while it should increase inhouse capacity for essential subassemblies and bodies, it would do better to contract out for most components. Four reasons seemed to bolster this decision:
1. Toyota wanted to avoid the capital expenditures required to expand capacity to manufacture a wide variety of components 2. Toyota wanted to reduce risk by maintaining a low factory capacity in case factory sales slumped.

Contd..
3. Toyota wanted to take advantage of the lower wage scales in smaller firms. Toyota managers realized that in-house manufacturing offered few benefits if it was possible to find stable, high-quality, and low-cost external sources of component supply.

4.

Toyota managers felt that the American practice of inviting competitive bids from suppliers was self-defeating.

Consequences
The consequences of Toyota's production system included a surge in: labor productivity (number of vehicles produced per employee) a decline in the number of defects per car(performance of Toyota plant)

Vehicle Produced per Worker

GM v/s Toyota Plant

Distribution and Customer Relations

The strategy used aimed at bringing customers into the Toyota design and production process. To this end, through its dealers, Toyota Motor Sales assembled a huge database on customer preferences. Much of this data came from monthly Or semiannual surveys conducted by dealers.

Contd ...
Customer preferences considered were:- styling
Model types Colors Prices, Other features

Toyota also used these surveys to estimate the potential demand for new models.

This information was then fed directly into the design process.

Product Strategy
Initial Aim- Small cars New entrants- Camry and corolla Two factors
Rising level of income Desire to hold onto US consumers

Toyota in 2004
The company had overtaken Ford to become the second largest automobile company in the world, and it had its sights firmly set on General Motors. Its goal of attaining a 15 percent share of the global market seemed attainable. Toyota was now a truly international company.

Contd
Its overseas operations had grown from 11 production facilities in 9 countries in 1980 to 42 production facilities in 24 countries around the world by 2004
In the all important U.S. market, the world's largest, Toyota held a 13.1 percent share of passenger car sales in 2003 and a 9.6 percent share of light truck sales, up from 11 percent and 7.6 percent, respectively, in 2000.

Contd
Toyota has always maintained a high level of productivity with the help of superior supply chain and technology. E.g. In its American assembly operations, Toyota took 20.6 employee hours to build a car in 2004. This compares with 23.6 hours at General Motors, 25.4 hours at Ford, and 26.0 hours at Daimler Chrysler. Toyota's ability to stay on top of productivity and quality rankings can be attributed to a company-wide obsession with continuing to improve the efficiency and effectiveness Of its manufacturing operations

 Toyota has developed and installed a simplified assembly process known as the "global body line" or GBL.
According to Toyota, the GBL system has the following consequences:
30 percent reduction in the time a vehicle spends in the body shop 70 percent reduction in the time required to complete a major body change .. 50 percent cut in the cost to add or switch models 50 percent reduction in the investment to set up a line for a new model 50 percent reduction in assembly line footprint

SWOT Analysis
Strengths: Kanban System : Toyotas strategic aspect which differentiates them from other auto manufacturers, is their production process. Organizing Suppliers : To develop efficient manufacturing system, Toyota focused on developing strong relationship with suppliers. Continuous improvement: From reducing setup times to Kanban, from organization of workplace to distribution & customer relations, efforts were always made to improve existing level of performance of company.

SWOT Analysis
Strengths: Cultural Advantage Loyalty : More devoted to groups as compared to individuals. Strong distribution and marketing efforts focused on meeting diverse needs, high quality sales and services and close involvement with customers. Keen focus to constantly improve quality in the production process.

SWOT Analysis
Weaknesses: Unable to establish market in foreign markets because Toyota cars were not competitive enough. Poor performance of Toyota cars on American highways when Toyota entered the USA market. Heavily relying on importing machine parts from Japan, instead of developing connections with overseas supplier network. Gap between productivity and quality higher for few years compared to global competitors.

SWOT Analysis
Opportunity: Producing fuel efficient, high quality and smaller automobiles to attract consumers. American designers pushed Toyota to redesign the Prius Hybrid car first introduced in Japan Transplant operations in America Market expansion in UK and Europe.

SWOT Analysis
Threats: Increasing maintenance cost of vehicles, changing customer preference, rising fuel price are challenging threats. Environmental regulations and associated apprehension concerning carbon emissions have sensitivity to environmental protection globally. Increased competition, forceful marketing campaigns and market saturation. Impact of fluctuations in foreign currency conversion rates.

PEST Analysis
Political: Pursuit of environmental technologies Loan policies to help survive during the financial crisis

PEST Analysis
Economic: Inflation of fuel prices causing negative effect. OPECs raise in oil prices helped Toyota to sell small fuel efficient cars in U.S. Agreement to voluntary import quotas resulted in stagnant growth between 1981and 1984.

PEST Analysis
Social: Developing Hybrid cars in the new age. Voluntary improvement plan addressing environmental, national and regional issues. Working in co-operation with society Rising power of middle class

PEST Analysis
Technological: Demand for hybrid engine system Developing GBL Global Body Line assembly process Developing & integrating Kanban with the manufacturing process.

Supplier relations at Toyota v/s Typical U.S. Auto Manufacturer

When Toyota began improving its production process the norm at the time amongst the European car manufacturers was to follow a policy of vertical integration in order to meet the demand for various components required in an automobile. Nearly half the components were met by in house production. The rest were outsourced to companies after a bidding process.

Toyota initially followed this strategy but eventually moved on to outsource majority of its components needs.
Instead of receiving bids the company developed long term relationships with suppliers. They would finance suppliers and even have a small stake in the suppliers units. These methods gave suppliers more confidence and faith in the company.

Toyotas approach to Customer Relations influence its Design and Production Planning Process
Toyota has a policy wherein it collects its customers preferences through data banks available at its affiliates and dealer showrooms. The company takes the view points of customers very seriously and tries to develop products that match customers expectations and comfort level. Ever since the company used this strategy to redesign its model The Company has been making use of customers preferences to evolve and redesign new cars.

This has helped it gain market share and meet customer expectation.

Basis of Toyotas competitive advantage

It lies neither with resources or technology but the fact that the company has been constantly able to improve on existing processes. This flexibility and drive to constantly improve on already established and industry accepted methods have being the backbone of the companys competitive advantage. While new technology or improvements in the process can be imitated, competitors have found it very difficult to imitate the drive of Toyota.

Since Toyota is constantly making change it becomes difficult for competitors to imitate.

Will Toyota be able to sustain its competitive advantage in the future?

Keeping environmental factors aside the founding family now owns a very
small stake in the company.

If the initial drive to keep moving forward is lost then the company may not be able to maintain its advantage.

However if the company keeps moving forward and constantly seeks

improvement then the company should be able to maintain its competitive

advantage.

Markets that Toyota should concentrate in future

Toyota like the rest of the auto industry constantly seeks new markets to tap. While Europe, North America and most of Asia saturated the company will most probably look to Africa to push its products.

Due to population and a growing number of middle class families Africa could be a viable option for Toyota to look at.
At the same time investing into Africa could be a challenge to the company as the continent is plagued with political instability which could result in a lot of investment going to waste.

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