Toyota- taking out costs and adding value
Over the last 30 years, Toyota Motor Corporation has become one of the top three global car companies, alongside General Motors (US) and Ford (US). Its rise centres on twin strategies related to operations and marketing. This case study concentrates mainly on its operations successes but also touches briefly on marketing, since the two areas are interlinked. The Toyota operations strategies have been copied around the world, though rarely with the same success. Background
In the year to end-June 2004, Toyota produced and sold over 6.5 million vehicles around the world. The company had only started car production in the 1930s. Even in the early 1950s, it was still only averaging 18,000 vehicles per annum. The increase in production and sales between 1950 and 2004 was, by any standards, remarkable – Figure 9.4 shows the recent data for 2004.
Toyota’s strategic problem was that it was a tiny company competing against large competitors. The only way that it could survive was by finding new, flexible production methods that could be used by smaller companies. ‘The Toyota Production System originated as a means of achieving mass production efficiencies with small production volumes’ (Toyota Annual Report and Accounts 1998). Importantly, even in 2004, the major Toyota production location was Japan – from a strategy perspective, this raises important questions about how long its Japanese factories can remain low-cost centres of production.
Many of the production successes between 1950 and 1980 have been accredited to the Toyota Production System and its chief engineer during that time, Taiichi Ohno. He started experimenting to improve production in the late 1940s, but it took many years to develop the systems described below, such as kaizen and kanban, and to have them widely adopted across the company. Even in the 1990s, experimentation and change were still taking place to improve production. Indeed, such change was by definition an integral part of the process of achieving production improvements: it was called ‘continual improvement’ or kaizen in Japanese. During the same period of time, Toyota operated a separate marketing company that essentially sold Toyota production. It was headed by Shotaro Kimaya, who had trained in US marketing methods after the Second World War. He is credited with many marketing innovations in the company during the 1960s and 1970s. They slowly propelled Toyota to market leadership in Japan, with over 40 per cent of the market. Among other initiatives, he set up dealer networks, cheap car finance for customers and a strong, dedicated sales-force. He also developed Toyota exports so that by the 1970s around 40 per cent of all production was being sold outside Japan, especially in the US. Toyota’s Camry model is today the biggest single-selling car in the US.
Operations initiatives at Toyota between 1950 and 1980
During this period, Toyota introduced a whole series of operations initiatives that assisted car and truck production – essentially a repetitive, mass-manufacturing process. The new procedures were designed to achieve three main objectives:
1 to reduce costs;
2 to increase quality;
3 to control the production process more tightly, thus reducing the inputs needed and making the company more responsive to market demand.
The first two objectives had an immediate impact on added value in the plant; the last had an indirect influence on added value. To achieve these objectives, Toyota had a number of key operations strategies: ● Design. More costs can be taken out at the design phase of operations than at any other stage. For example, Toyota has consistently used research and development to undertake such tasks as combining components so that they can be produced by one process rather than two. ● Kaizen. This means ‘continuous improvement’ across every aspect of production. Toyota’s engineers invented this...