1. Toyota: a case studyToyota: a case study

2. BackgroundBackground
 Toyota Motor Company was founded in 1937 by the Toyoda family.Toyota Motor Company was founded in 1937 by the Toyoda family.
 Business was relatively unsuccessful until Eiji Toyoda introduced theBusiness was relatively unsuccessful until Eiji Toyoda introduced the
method of lean production after studying Ford’s Rouge plant in Detroit inmethod of lean production after studying Ford’s Rouge plant in Detroit in
1950.1950.
 This lean production method became known as the Toyota ProductionThis lean production method became known as the Toyota Production
System.System.
 The production executive, Taiichi Ohno, successfully helped ToyodaThe production executive, Taiichi Ohno, successfully helped Toyoda
improve his company using this new production method and mode ofimprove his company using this new production method and mode of
thinking.thinking.

3. EnvironmentEnvironment
 CulturalCultural
 Company as a community: lifetime employment, access to company facilities,Company as a community: lifetime employment, access to company facilities,
seniority-based wages (in return for 1/3 work force layoff in 1946) ; as a return,seniority-based wages (in return for 1/3 work force layoff in 1946) ; as a return,
employees must be more flexible and actively promote interests of company >>employees must be more flexible and actively promote interests of company >>
Implications: labor = Fixed costImplications: labor = Fixed cost
 EconomicEconomic
 Postwar conditions put Japan into a country lacking significant capital, so thatPostwar conditions put Japan into a country lacking significant capital, so that
Japan had to rely mostly on producing its own technology.Japan had to rely mostly on producing its own technology.
 PoliticalPolitical
 The Ministry of Int’l Trade and Industry (MITI) encouraged Japanese firms toThe Ministry of Int’l Trade and Industry (MITI) encouraged Japanese firms to
enter the automobile industry despite established competitors from the West byenter the automobile industry despite established competitors from the West by
imposing high tariffs discouraging imports and prohibiting foreign ownership.imposing high tariffs discouraging imports and prohibiting foreign ownership.
 Japan’s work force, under Western influence after WWII, grew more powerfulJapan’s work force, under Western influence after WWII, grew more powerful
and more demanding, thus limiting producers’ efforts to reduce labor costs.and more demanding, thus limiting producers’ efforts to reduce labor costs.

4. Environment (cont.)Environment (cont.)
 DemographicalDemographical
 The domestic market was very small and un-uniform. Thus, goods had to beThe domestic market was very small and un-uniform. Thus, goods had to be
very tailored to specific consumer taste. E.g. luxury cars for officials, small carsvery tailored to specific consumer taste. E.g. luxury cars for officials, small cars
for city residents, etc.for city residents, etc.
 TechnologicalTechnological
 Commitment to innovation and improvementCommitment to innovation and improvement
 Large skilled-labor pool to draw fromLarge skilled-labor pool to draw from
 SocialSocial
 Commitment by employees to workCommitment by employees to work

5. Country Differences?Country Differences?
 Western “careers” vs. Japanese “community”Western “careers” vs. Japanese “community”
 Focus on long-term growth as opposed to short-term profitsFocus on long-term growth as opposed to short-term profits
 More interpersonal relationships with employees, suppliers, and customersMore interpersonal relationships with employees, suppliers, and customers

6. Organizational StructureOrganizational Structure
 Multi-regional lean enterpriseMulti-regional lean enterprise
 Primarily network structurePrimarily network structure
 Network of suppliersNetwork of suppliers
 Network of dealers/distributorsNetwork of dealers/distributors
 Frequent interaction between all levels of the organizationFrequent interaction between all levels of the organization

7. Strategy – Lean ProductionStrategy – Lean Production
 Final assembly plantFinal assembly plant
 Moved from “move the metal” mentality toMoved from “move the metal” mentality to kaizenkaizen
 Introduced idea of stopping assembly lines in order to correct problems beforeIntroduced idea of stopping assembly lines in order to correct problems before
continuingcontinuing
 As a result, quality improved and yields are close to 100%As a result, quality improved and yields are close to 100%
 Product development and engineeringProduct development and engineering
 Focused on leaders that knew all steps of a process rather than those with highlyFocused on leaders that knew all steps of a process rather than those with highly
specialized knowledge; also, skill-buildingspecialized knowledge; also, skill-building
 More emphasis on proactive thinking by employeesMore emphasis on proactive thinking by employees
 Thus, increased productivity, product quality, and responsiveness to changingThus, increased productivity, product quality, and responsiveness to changing
consumer demandconsumer demand
 ““quality circles”quality circles”

8. Lean Production – in more detailLean Production – in more detail
 2 organizational features:2 organizational features:
 ““Transfer max number of task and responsibilities to those workers actuallyTransfer max number of task and responsibilities to those workers actually
adding value to the car on the line”adding value to the car on the line”
 ““has in place a system for detecting defects that quickly traces every problem,has in place a system for detecting defects that quickly traces every problem,
once discovered, to its ultimate cause”once discovered, to its ultimate cause”
 Thus, need tight teamwork and open communication among workersThus, need tight teamwork and open communication among workers
(comprehensive info display system on electronic displays visible from all(comprehensive info display system on electronic displays visible from all
work areas)work areas)
 4 areas of importance:4 areas of importance:
 Leadership: Toyota’s large-project leader w/power vs. Western coordinatorLeadership: Toyota’s large-project leader w/power vs. Western coordinator
 Teamwork: from many functions, ties with department, and general interest inTeamwork: from many functions, ties with department, and general interest in
promoting team, not departmentpromoting team, not department
 Communication: conflicts resolved in beginning, more people => less peopleCommunication: conflicts resolved in beginning, more people => less people
 Simultaneous DevelopmentSimultaneous Development

9. Competitive AdvantagesCompetitive Advantages
 ReliabilityReliability
 Product varietyProduct variety
 Production plants in North America build 2-3 products at a time, as opposed toProduction plants in North America build 2-3 products at a time, as opposed to
one by Western firms.one by Western firms.
 Firms keep models for an average of four years, as opposed to an average ofFirms keep models for an average of four years, as opposed to an average of
close to ten years by Western companies.close to ten years by Western companies.
 Western companies sell almost twice as many cars of the same model asWestern companies sell almost twice as many cars of the same model as
Japanese firms do.Japanese firms do.

10. Suppliers – Lean Production Supply ChainSuppliers – Lean Production Supply Chain
 Organized suppliers into functional tiersOrganized suppliers into functional tiers
 First-tier suppliers: worked together in a product-development teamFirst-tier suppliers: worked together in a product-development team
 Second-tier: made individual partsSecond-tier: made individual parts
 Encouraged cooperation and communication among first-tier suppliersEncouraged cooperation and communication among first-tier suppliers
 In –house supply operations turned into a network of “quasi-independentIn –house supply operations turned into a network of “quasi-independent
first-tier supplier companies”first-tier supplier companies”
 Substantial cross-holdings between Toyota and suppliers, as well as amongSubstantial cross-holdings between Toyota and suppliers, as well as among
suppliers themselves even though each supplier is an independentsuppliers themselves even though each supplier is an independent
companycompany
 Cross- sharing of personnel throughCross- sharing of personnel through
 Toyota sending personnel to suppliers to compensate for greater workloadToyota sending personnel to suppliers to compensate for greater workload
 Toyota transferring senior managers to suppliers for top positionsToyota transferring senior managers to suppliers for top positions
 Developed the “just-in-time” (JIT) system, orDeveloped the “just-in-time” (JIT) system, or kanbankanban

11. Suppliers – Lean Production Supply ChainSuppliers – Lean Production Supply Chain
(cont.)(cont.)
 ““market price minus” system, not “supplier cost plus” systemmarket price minus” system, not “supplier cost plus” system
 Value analysis reduces costsValue analysis reduces costs
 Declining prices over life of model due to learning curveDeclining prices over life of model due to learning curve
 Production smoothing enables suppliers to maintain a constant volume ofProduction smoothing enables suppliers to maintain a constant volume of
businessbusiness
 Focus is on long-term relationships that underscores cooperation,Focus is on long-term relationships that underscores cooperation,
teamwork, and gradual mutual improvement, rather than price throughteamwork, and gradual mutual improvement, rather than price through
bidding as a way to choose a supplierbidding as a way to choose a supplier

12. ConsumersConsumers
 The market began to fragment in the 1960s as cars increased in popularityThe market began to fragment in the 1960s as cars increased in popularity
and became essential household goods.and became essential household goods.
 Marketing executive Shotaro Kamiya focused on building a sales networkMarketing executive Shotaro Kamiya focused on building a sales network
modeled after Toyota’s supplier network.modeled after Toyota’s supplier network.
 Distributors with a “shared destiny”: wholly owned companies or ones in whichDistributors with a “shared destiny”: wholly owned companies or ones in which
Toyota held equityToyota held equity
 ““aggressive selling”: promoted long-term relationship between assembler, dealer,aggressive selling”: promoted long-term relationship between assembler, dealer,
and buyersand buyers
 Dealer => production system => build-to-order systemDealer => production system => build-to-order system
 Buyers => product development processBuyers => product development process
 Direct calls to households with large database of households and buying preferencesDirect calls to households with large database of households and buying preferences
 Focus on repeat buyersFocus on repeat buyers
 Also focus on brand loyalty => “Toyota family”Also focus on brand loyalty => “Toyota family”
 5 distribution channels in Japan: Toyota, Toyopet, Auto, Vista, and Corolla5 distribution channels in Japan: Toyota, Toyopet, Auto, Vista, and Corolla
 Closer and more familiar relationship between buyer and salespersonCloser and more familiar relationship between buyer and salesperson
 Focus on customer-specified orderFocus on customer-specified order

13. MarketingMarketing
 Door-to-door selling/very customizedDoor-to-door selling/very customized
 Emphasis on “pull” marketing: giving consumers what they wantEmphasis on “pull” marketing: giving consumers what they want
 Tight relationship with previous buyers to keep clientsTight relationship with previous buyers to keep clients
 Sales personnel received intensive training before starting their jobsSales personnel received intensive training before starting their jobs
 Up-to-date and detailed database of consumers helps keep track of trends,Up-to-date and detailed database of consumers helps keep track of trends,
interests, and tastesinterests, and tastes

14. CompetitorsCompetitors
 American companies upon which Toyota originally developed many of itsAmerican companies upon which Toyota originally developed many of its
own production processes fromown production processes from
 GMGM
 FordFord
 Etc.Etc.
 Korean companies with planned productionKorean companies with planned production
 Other Japanese companies, especially Nissan and HondaOther Japanese companies, especially Nissan and Honda

15. ProblemProblem
 Obstacle: inward focus of Japanese lean producersObstacle: inward focus of Japanese lean producers
 Lack the ability to think and act globally rather than from a narrow nationalLack the ability to think and act globally rather than from a narrow national
perspectiveperspective
 Backlash to Japanese direct investment in North American and Europe, aBacklash to Japanese direct investment in North American and Europe, a
prominent reason of which is that it creates friction as a result of Japaneseprominent reason of which is that it creates friction as a result of Japanese
corporation biases, mainly two classes of citizenship in their organizationscorporation biases, mainly two classes of citizenship in their organizations
 E.g. keiretsuE.g. keiretsu

16. Possible SolutionsPossible Solutions
 Appoint native managers to head their manufacturing operations in NorthAppoint native managers to head their manufacturing operations in North
America and EuropeAmerica and Europe
 Designate native supplier companies as source for certain categories ofDesignate native supplier companies as source for certain categories of
componentscomponents
 Governments: restrictions on visas for Japanese employees at new facilitiesGovernments: restrictions on visas for Japanese employees at new facilities
and in Europe, strong pressures to attain high levels of domestic contentand in Europe, strong pressures to attain high levels of domestic content
asapasap
 Author suggests: build a truly global personnel system in which new workersAuthor suggests: build a truly global personnel system in which new workers
from North America, Europe, etc. where a company has design,from North America, Europe, etc. where a company has design,
engineering, and production facilities, are hired in at an early age and givenengineering, and production facilities, are hired in at an early age and given
the skills, including language and exposure to management in differentthe skills, including language and exposure to management in different
regions, needed to become full citizens of the companyregions, needed to become full citizens of the company
 Same for suppliersSame for suppliers
 Need increased transparencyNeed increased transparency

17. Conclusion – Watch for qualityConclusion – Watch for quality
 fear of repetition of Ford’s experience in Britain after 1915fear of repetition of Ford’s experience in Britain after 1915
 Wholesale substitution of domestic managers and suppliers, to deal withWholesale substitution of domestic managers and suppliers, to deal with
investment friction, will degrade performance of production system toward theinvestment friction, will degrade performance of production system toward the
existing levelexisting level
 Evidence that plants that perform best are those with very strong Japanese mgmtEvidence that plants that perform best are those with very strong Japanese mgmt
presence in early years of operations and those that have moved slowly andpresence in early years of operations and those that have moved slowly and
methodically to build up their domestic supply basemethodically to build up their domestic supply base
 Need managers and suppliers that understand lean production and areNeed managers and suppliers that understand lean production and are
committed to it, mostly Japanesecommitted to it, mostly Japanese

18. Financial figuresFinancial figures
 In fiscal 2003, ended March 31, 2003, Toyota’s consolidated net revenues
increased 9.2%, to ¥15.50 trillion, operating income rose 16.3%, to ¥1.27
trillion, and net income was up 34.9%, to ¥750.9
 ROE reached 10.4%, surpassing the short-term target of 10%.
 As of March 31, 2003, treasury stock repurchased by the Company totaled
¥1.38 trillion, or 416 million shares, and total shares issued and outstanding
—excluding treasury stock—had decreased to 3.45 billion shares.
 In fiscal 2003, the Company paid its highest-ever annual dividend—¥36.00
per share, up ¥8.00 from the previous fiscal year.