Toyota – Page 2 – The OM Blog by Heizer, Render, & Munson

OM in the News: Eiji Toyoda’s Death at Age 100

Eiji Toyoda at NUMMI California plant in 1985

Eiji Toyoda, a member of Toyota Motor’s founding family and architect of its “lean manufacturing” method that helped turn the automaker into a global powerhouse, died this week in Toyota City, at age 100. “Toyoda,” writes The New York Times (Sept. 18, 2013), “changed the face of modern manufacturing.”

Toyoda is said to have developed an uncanny ability to spot waste. “Problems are rolling all around in front of your eyes,” Mr. Toyoda once said. “Whether you pick them up and treat them as problems is a matter of habit. If you have the habit, then you can do whatever you have a mind to.”

In 1950, he set out on a 3-month tour to survey Ford’s plant in Detroit, then the largest and most efficient factory in the world. That year, Toyota had produced just 2,685 automobiles, compared with the 7,000 vehicles the Ford plant was rolling out in a single day. Mr. Toyoda was unfazed, bringing back a thick booklet that outlined some of Ford’s quality-control methods; the company translated it into Japanese, changing “Ford” to “Toyota” in all references.

Even as he aggressively expanded production at Toyota, Mr. Toyoda applied a manufacturing culture based on concepts like “kaizen,” a commitment to continuous improvements suggested by the workers themselves, and JIT production, a tireless effort to eliminate waste. Those ideas became a core part of what came to be called the Toyota Production System. “One of the features of the Japanese workers is that they use their brains as well as their hands,” he said in 1986. “Our workers provide 1.5 million suggestions a year, and 95% of them are put to practical use. There is an almost tangible concern for improvement in the air at Toyota.”

The methods Mr. Toyoda nurtured have had global influence, and Toyoda pushed expansion overseas, establishing the company’s joint factory with GM, called NUMMI. There he introduced his lean-production methods as part of a migration of Japanese auto manufacturing the US.

Classroom discussion questions:

1. Summarize the principles of TPS (see Ch.16).

2. What was Eiji Toyoda’s major contribution to manufacturing?

Video Tip: Lean Operations at a NYC Food Bank

This summer, my older son, a senior majoring in OM at the University of Florida, interned at a wonderful non-profit called Feeding Children Everywhere. This organization manufactures and provides free prepackaged soup meals to millions and millions of needy families in the US and abroad. One packet, when added to 2 quarts of boiling water, delivers a healthy (and tasty) meal to a family of 4. Using efficient operations and a legion of volunteers, the cost is only 75 cents per package.

So when I came across this wonderful 6 minute video (click below) of how lean production helped improve a food bank in NYC, I thought it would make a perfect introduction to the role of OM in a non-profit–one that might really interest your students when you are covering Chapter 16.

http://www.youtube.com/watch?v=EedMmMedj3M

To aid families more quickly, we see in the video that Toyota partnered with Metro World Child to help them serve meals to more New Yorkers who were impacted, and still suffering, from Superstorm Sandy. Using the principles of the Toyota Production System, we see how the number of meals delivered hourly has increased 18-fold, meal-assembly time has significantly decreased, and the number of volunteers needed is nearly half of what it used to be. Toyota has also pledged to donate another meal for each viewing of the video up till July 19, 2013. Thanks to an explosion of online views, there have been more than 1 million meals given out on the company’s tab to date.

OM in the News: Toyota Airbag Cuts Open Doors to Global Suppliers

Cut-away of Toyota's Auris hybrid at Paris auto show — Cut-away of Toyota’s Auris hybrid at Paris auto show

Toyota has decided it no longer needs 50 kinds of airbags to protect drivers’ knees. Ten, the company says, ought to suffice. In one of Toyota’s biggest initiatives since 2009, reports Bloomberg (June 10, 2013), the carmaker is winnowing the number of parts it uses and increasing common components across models. The plan will cut both the time and cost for creating new models by as much as 30%. The automaker spent $9.6 billion in R&D last year.

In the past, Toyota focused on developing custom parts. It needed 50 types of knee-level airbags because seats for various models had different profiles. By standardizing “hip heights” across models, Toyota is reducing knee airbag variants by 80%. Last year, it had slashed radiators to 21 models from about 100. And it is reducing the number of cylinder sizes in its engines to 6 from more than 18. “From now on, Toyota will seek the compatibility of certain parts it uses with standard parts used by many automakers globally,” says the firm.

Toyota’s goal should make the company less vulnerable to supply disruptions by using parts from the largest manufacturers that can be substituted globally. The 2011 earthquake and tsunami in Japan forced Toyota to confront the complexity and risks of relying on thousands of suppliers, sub-contractors and sub-subcontractors making customized parts. The earthquake “really made us to look into our supply chain in great detail and see certain weaknesses there and look into things that needed to be fixed,” said Toyota’s spokesman.

International component makers such as Johnson Controls, Bosch GmbH and TRW Automotive are betting Toyota’s campaign will help them win contracts currently held by smaller Japanese companies. “This should mean more opportunities for global mega-suppliers with worldwide capacity and design expertise,” said one analyst.

Discussion questions:

1. Why is Toyota modifying its component options?

2. Why is this a supply chain issue and what are the potential downfalls?

OM in the News: Japan’s Keiretsu Scandal

The Wall Street Journal (Feb. 16-17, 2013) provides an interesting analysis of problems with keiretsu networks, a topic we discuss in Chapter 11, Supply Chain Management. The Journal writes: “For decades, Japan’s auto industry keiretsu—networks of parts suppliers closely allied with companies including Toyota and Honda appeared as a black box to outsiders. But there was a lot going on behind the scenes and some of it wasn’t legal.” In fact, some areas of the Japanese auto-parts business were rife with bid rigging and collusion, and have produced multimillion-dollar fines and a dozen prison sentences. A U.S. official calls the probe the “largest price-fixing investigation ever.” Prosecutors claim the Japanese firms conspired to boost the costs of some of the best-selling vehicles on the road.

Japanese auto makers have long seen keiretsu as a way to ensure quality over the long term by building trusted relationships with suppliers. The brand-name companies often own significant stakes in keiretsu parts makers and enjoy the right of first refusal for newly developed technology. Typically, they work closely from the design stage onward, sharing proprietary technology.

Those relationships began to change more than a decade ago when France’s Renault took a controlling stake in struggling Nissan and sent a Brazilian executive known as “Le Cost Killer,” Carlos Ghosn, to run it. Nissan disbanded its keiretsu and shifted to open-source bidding among suppliers, many based outside Japan. There has been some quiet pushback from industry officials in Japan who assert that any collusion was more of a bid for survival than for outsize profits. “Different suppliers work hand-in-hand and divide up large lot orders in a way that assures a steady flow of parts,” says one Japanese auto exec. Adds Toyota’s VP, “We feel a duty to protect our keiretsu. We are trying to incorporate more outside suppliers, but won’t give up on our own way of doing business in Japan.”

Discussion questions:

1. Why do the Japanese believe in the use of keiretsu?

2. Is a keiretsu “collusion,” or “a bid for survival?”

OM in the News: Toyota and “The Cost of Quality”

In our Chapter 6 discussion of the cost of quality (COQ), we note the external costs that occur after delivery of defective products (such as rework, liabilities, lost goodwill, etc.). Philip Crosby, author of Quality is Free, wrote that the cost of poor quality is understated and “there is absolutely no reason for having errors or defects in any product or service.” The New York Times (Oct. 10, 2012) article that Toyota just announced the recall of 7.4 million vehicles worldwide, including 2.5 million in the U.S., to repair power-window switches that can break down and start a fire , certainly brings Crosby’s ideas to the forefront for your class.

It was only 2-3 years ago that the company recalled more than 11 million cars to replace floor mats and sticky accelerator pedals. It has been seeking to reassure consumers about the quality of its vehicles since then. The recall could surely set back its efforts.

The vehicles affected in the U.S. include more than a million Camrys. Eight months ago, the National Highway Traffic Safety Administration opened an investigation into reports of smoke and fire coming from doors. During its investigation, the safety agency collected reports of 161 fires and of 9 injuries. In its news release, Toyota said there were “no crashes related to the recall,” but did not mention fires or injuries. Toyota said it originally wanted to conduct a “customer satisfaction campaign” but decided to pursue the recall after discussions with the agency. Toyota described the recall as voluntary, but under federal regulations once a manufacturer learns of a safety problem it must, within 5 business days, tell the safety agency of its plan for a recall or face a civil fine.

Discussion questions:

1. Will such recalls impact your students’ images of Toyota’s quality?

2. How does this compare to GE’s dishwasher recall several years ago in which the cost of repairs exceeded the value of all the machines?

OM in the News: Toyota’s Assembly Line Advances

Today’s Wall Street Journal (Nov.29,2011) features the pressures facing Toyota–overcapacity, weak demand, an exchange rate for the yen that makes Japanese-made cars expensive, quality problems that forced the recall of 10 million vehicles, and the supply chain issues caused by the March earthquake and tsunami. Competitors like Honda and Nissan are moving more manufacturing overseas, to plants closer to customers. But Toyota, long a proponent of corporate social responsibility to protect Japanese jobs, has also pledged to build at least 3 million cars annually in Japan, with 1/2 for export. So the company, which wrote the book in the 1960’s on lean manufacturing and JIT, is looking for new ways to wring out efficiencies from its production systems.

Toyota sees its first new plant in Japan in 18 years as the answer. Here is why: The Miyagi factory is designed for advanced low-volume, hyperefficient production, with 1/2 the workers and 1/2 the square footage of Toyota’s 16 other plants. Inside, half-built Corollas and Yaris sit side-by-side, rather than bumper-to-bumper, shrinking the assembly line by 35% and requiring fewer steps by workers. Instead of car chassis dangling from overhead conveyor belts, they are perched on raised platforms. This is 50% cheaper, and also reduces cooling costs by 40% because of lower ceilings. Finally, the assembly line uses quiet friction rollers to move the cars along. The rollers use fewer moving parts than typical chain-pulled conveyor belts.

This is a timely article to share with your class when you discuss assembly line layout in Chapter 9. And if you show the Wheeled Coach layout video for this chapter, the 2 assembly lines make for a good comparison.

Discussion questions:

1. How can Toyota’s new layout help improve the challenges facing the company?

2. Why are other Japanese auto manufacturers moving production to the US?

OM in the News: Why GE and Toyota Operations Managers Worry About “Rare Earths”

Here are 4 increasingly important manufacturing components you probably never heard of: (1) neodymium–used in magnets in wind turbines and Toyota Prius engines; (2) yttrium–used in wind-turbine blades and flourescent lamps; (3) lanthanum–used in batteries in hybrid cars and as a catalyst in gas and jet fuel; and (4) europium–makes the color red in TV, laptop, and iPhone screens.

As The Wall Street Journal (Sept. 12,2011) writes: “Manufacturers of high-tech products rely on a steady stream of metals–some of them scarce–to make their goods”. These “rare earth” metals, a collective name for 17 minerals used in products like these, have skyrocketed in price in the past 2 years as China (which controls 90% of global production) slashed exports to tighten control over the sector. Lanthanum, for example, jumped from $10/kg in 2009 to $160/kg today. Neodymium surged from $20/kg to $455/kg.

As a result, mining companies around the world, shut down by 20 years of cheap supply from China, are reopening. And companies like GE and Toyota are trying desperately to reduce or eliminate the need for the metals. GE, for example uses rhenium in engine blades. It has started experimenting with other hardening additives that are cheaper and more abundant. It has also started a global recycling program–pulling out old engines from scrap piles and dissolving them in acid baths to retrieve the scarce metal. Toyota is working with Tesla Motors to develop a new electric motor that does not use neodymium magnets.

Yet scientists have had little success in finding a replacement for the europium found in dozens of products from light bulbs to computer screens. This rare earth generates the color red, while terbium provides your iPhone’s green color.

Discussion questions:

1. Why are rare earths so important and now so rare?

2. How does an operations manager respond to changes in the supply chain such as these?

OM in the News: Toyota’s Quake-Proof Supply Chain

Still impacted by the massive earthquake 6 months ago, Toyota has just announced that it is creating a robust supply chain that would recover within 2 weeks in the event of another disruption. Toyota and other Japanese automakers were forced to halt a large portion of their production both inside and outside Japan for months after the quake and tsunami cut off supplies of 100’s of parts from the devastated northeast region.The Baltimore Sun (Sept.6, 2011) reports that Toyota is taking 3 steps to fight supply chain risks, a process that will take 5 years to implement.

The 1st is to further standardize parts across Japanese automakers, so they could share common components that could be made in several locations.

The 2nd step is to ask suppliers down the chain to hold enough inventory–perhaps a few months’ worth–for components that can’t be built in more than one location. This is to prevent a repeat of what happened with microchip supplier Renesas, which has yet to complete recovery.

The 3rd step is to make each manufacturing region (such as North America or Europe) independent in parts procurement so a disaster in Japan does not impact production overseas. This would also offset losses from the strong yen by lowering costs and creating a natural hedge. Last year, Toyota built 43% of its 7.6 million vehicles in Japan and exported more than half of them. Currently, the company provides engines and transmissions for cars built here and in Europe from Japan– at a cost that is high due to the strength of the yen. Toyota will also begin importing more components to cut cost of cars made in that country.

Discussion questions:

1. Is the plan overkill? If a part is made in a low-risk zone, does it need to be made in a half-dozen plants?

2. Do these initiatives apply beyond the auto industry?

Good OM Reading: What Really Happened to Toyota?

Consumers in the US were surprised in Oct., 2009, by the 1st of a series of highly publicized recalls of Toyota vehicles. It began with 3.8 million cars brought back for uncontrolled acceleration. Over the next 4 months, 3.4 million more recalls followed for gas pedal and software glitches. Then from Feb.-Aug., 2010, 13 more recalls followed. Just as things seemed to be settling down, 2 more recalls were announced in Jan.-Feb., 2011. The total had now reached 20 million vehicles!

How could this happen to the company that shaped the modern approach to quality improvement, asks UC-Berkeley Prof. Robert Cole in his excellent article in MIT Sloan Management Review (Summer, 2011). Had auto execs all over the world “been chasing after the wrong manufacturing model”? And to what extent did the problems originate with product design and assembly and to what extent to Toyota’s manufacturing systems?

One factor Cole found was a “reverse halo effect”. Toyota buyers in 2010 had heard a barrage of negative news and became far less forgiving about minor quality flaws than previous owners. A 2nd factor was that competitors’ products were improving to the point that Toyota didn’t look as outstanding by comparison as it had in the past.

Cole’s analysis found 2 root causes for Toyota’s problems: (1)management’s ambitious plans for rapid growth (which did not focus on quality issues already arising), and (2) the increasing complexity of the actual auto product.

I think this is an article that you will enjoy reading and that you will be able to use in your OM class.

OM in the News: Japan, Inc. Faces Offshoring Dilemma

If you think offshoring of jobs and production is a problem unique to the US, Nissan and Toyota would disagree. The Wall Street Journal (Feb.1, 2011) just reported that Japanese auto makers will be holding production steady in Japan (for now), but opening new plants overseas over the next 5 years to meet increased demand. This move to offshoring ( a topic in Supp.11) comes as the yen hovers near record highs against the dollar. Nissan, Toyota and the other auto firms are having trouble making money on exports when the dollar is at 90 yen or weaker. (It sits at 82 this week).

Nissan “will significantly reduce the number of models it exports from Japan over the next 3 years, while boosting production …overseas”, says the company. It turns out that a move in the dollar by one yen in either direction is equivalent to $219 million in operating profit annually at Nissan.

For political and union reasons, Nissan promises to keep making 1 million cars in Japan, while Toyota vows to stay at 3 million per year. But Nissan just shifted production of its Micra model from Tokyo to Thailand. And the Rogue SUV will begin production at a Smyrna, Tenn., plant in 2013–departing its current Kyushu, Japan location.

The additional good news for other countries wanting the jobs: Nissan will shift the outsourcing of many parts to cheaper production sites outside Japan.

Discussion questions:

1. Why are major Japanese auto makers attracted to the US, and other countries, for production?

2. Is offshoring a political decision in Japan?

OM in the News: Incentives Help Toyota’s Move to Mississippi

It was 4 years ago when the Mississippi governor doled out some big incentives to get Toyota to locate its next plant in Tupelo. The offer (see USA Today,Mar.5,2007) included $294 million to build out a factory infrastructure, add a 2-mile RR spur, and run 11 miles of natural gas lines. Not enough? How about closing the deal with a 20-year corporate tax holiday? Toyota signed on, promised 2,000 jobs, and the state finished the plant in 2008. Mississippi forecast a 10-year ROI, but hoped that more models would be one day added to the large SUV (Toyota Highlander) line, with dreams of new suppliers and spinoffs setting up nearby…meaning even more jobs in the future.

The problem, as The Wall Street Journal reports (Dec.27, 2010), is that the buildings have sat as empty shells for the past 2 years, thanks to the recession. Will the governor’s decision pay off? Toyota announced last year that it planned to proceed…but with the Prius gas-electric model instead. Then in June, it decided that the cheaper Toyota Corolla would be the product that rolls out—at the rate of 140,000 per year.

This decision, not discussed in the WSJ piece, is the latest setback for the beleaguered UAW union.The Corolla was previously built in a unionized plant—NUMMI, in Fremont CA that Toyota shut down in March,2010. The car has been built for the US market in Japan since that date. Mississippi is, of course, a “right-to-work” state and happy to have the $20/hour jobs.

As a side note, Toyota’s utilization of production capacity (Ch.1) at existing North American plants fell to 60% last year after peaking at 106% in 2006. The company expects 2010 capacity to climb back to 90% as sales pick up.

This is our 4th blog on incentives being used in location decisions. To see the others, type “incentives” in the search box on the right.

Discussion questions:

1. Discuss the incentives given to Toyota? How do they compare with offers to other auto firms?

2. Will the investment pay off for the state one day? Why?

3. Read the Ethical Dilemma in Ch.8, regarding UAL. What happens when a firm moves out, or in this case, if Toyota had never opened?

OM in the News: Japan’s Offshoring is Restructuring Its Economy

If you think outsourcing (transferring in-house processes to another company) and offshoring (which we define in Chapter 2 as moving business processes to another country, but retaining control) are a problem only in the US, think twice. Today’s Wall Street Journal (Oct.25,2010) reports that more and more Japanese companies are transferring their manufacturing abroad, creating a major restructuring of that country’s economy.

The reasons: too strong a yen and high wages, both of which make their goods more costly and less competitive in the global economy.

Toyota, for example, will make 57% of its cars abroad this year, including its flagship hybrid, the Prius, which it starts producing at a Bangkok plant. Nissan will hit 71% offshoring this year. And Sony is skyrocketing from 20% abroad in 2010 to 50% in the next fiscal year.

As Nissan CEO Carlos Ghosn recently stated: “sourcing more and more products outside Japan–there is no other way to compete”. Only 10.3 million Japanese now work in manufacturing, down from over 12 million in 2002.

Discussion questions:

1. Although controversial, why is Japan not fighting outsourcing/offshoring as much as the US does? (See our blog of Oct. 12th for some background on the battle against outsourcing in the US).

2. Why is Japan finding it necessary to go abroad?

3. Japanese are consumers are reluctant to spend. Why?

OM in the News: Toyota’s Quality Problems

Toyota’s sterling reputation for quality took a major hit in 2009-2010 with the recall of 5 million vehicles for unintended acceleration and braking issues. The auto maker was also slow to tell federal regulators about sticky accelerator pedals and was fined a record $16.4 million…not exactly the quality image the firm had built up over the past 4 decades! These quality problems led to a temporary shutdown of all US plants and a halt in the sales of 8 popular models.

The Wall Street Journal (Oct.5,2010) has just reported that all 2011 Toyota, Lexus, and Scion models are equipped with “black boxes” to help identify the cause of accidents.

Toyota’s situation would likely cause my mentor Phil Crosby to turn over in his grave. “There is absolutely no reason for having errors or defects in any product or service”, he wrote in his 1979 book Quality is Free.

Quality, it turns out, is not to be taken for granted, even when one is the leader in the field. Mercedes faced this same recall issue in 2004-2005, when its suppliers cut corners on quality in response to Mercedes’ desire to pump up corporate profits. Its recall was 1.3 million cars, costing $600 million. You may recall seeing a photo in Ch.6 of our book’s 9th ed. of an E -Class Mercedes setting itself on fire in Tokyo.

Companies that take their eye off the quality ball find that “quality is not free”, and that it may take several years to rebuild a reputation.

Discussion questions:

1.What was Toyota’s initial response to the “floor mat problem” (which it claimed caused the accelerator to stick)?

2.What is Toyota doing today to deal with customer complaints?

3. Name some other recent major recalls of cunsumer items. How were they handled?