Toyota Case Study Analysis

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Toyota in 2009:
The Origin and Evolution of the World’s Leading Automobile Manufacturer by: Charles Hill

The Toyota Case study by Professor Hill includes several very interesting items for consideration. Among the most notable is the difference between Toyota’s manufacturing processes and those in use by the majority of the automotive industry, including the large automobile manufacturers in the United States. There are several important items that are integral to Toyota’s manufacturing system, just-in-time inventory, long-term partnership agreements with major suppliers, team-based production, and a focus on identifying issues/defects at as early a point in the process as possible. Each of these components provides an advantage to Toyota over its rivals. When these elements are combined the advantage becomes strategic. At a conventional assembly facility the inventory on-hand is equal to several days production needs. Having this much inventory requires a large capital investment in both the inventory and in warehouse capacity to hold the inventory. The investment of that capital in inventory also prevents rapid changes in vehicle features without also having the different components on-hand – yet more inventory. An issue with holding such a large inventory is the introduction of defects. With a small inventory defects are identified very quickly and can be corrected. Identifying defects quickly ensures that minimal capital is wasted through defective components. Having large amounts of inventory complicates the identification of the source of a defect and at what point the defect was first introduced along with the task of isolating assemblies that may have used the defective part. This can cause a very large amount of waste or worse, allow defective products (automobiles) to leave the factory. By developing a team –based approach Toyota eliminated the need for several levels of intermediate management that did not actually provide any real production capacity. Another Toyota development, systems that allowed the production teams to change out necessary equipment, eliminated the need for groups of specialists and large amounts of production down-time while the machines were being changed. These two items significantly reduced the staff time required to assemble a vehicle (from 31 hrs/car at GM to 16 hrs/car at Toyota)1 and costs per vehicle while ensuring production capacity was not adversely affected by the absence of any one worker. Having the work teams cross-trained also helped in the identification of defects earlier in the process. The combined effects of smaller parts inventories and cross-trained teams enabled Toyota to achieve a defect rate of 45 defects per 100 cars, one-third that of GM in 19871. Having a production system that produced vehicles in half the time with a defect ratio one-third that of its competitors and production equipment setup times in minutes instead of hours enabled Toyota to provide a wider variety of vehicle models with far fewer defects with a much smaller company. Continuing this Toyota outsourced a large percentage of its production work, keeping only a few key components and the final assembly. This change from traditional automobile production allowed Toyota to focus on those items that truly were key to its success and to take advantage of the lower labor costs at smaller production facilities, further reducing costs. Another change from conventional automotive production, Toyota developed partnerships with their suppliers instead of continuous competitive bidding. The reasoning was that while competitive bidding was more cost effective in the short-term it did not allow the long-term advantages in quality and process that could be gained in a more stable business relationship. Furthering the partnership, Toyota expanded the lean production techniques to its partners, enabling them to take advantage of just-in-time inventories and the...
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