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TOYOTA COMPANY CASE STUDY

Toyota’s history goes back to 1897, when Sakichi Toyoda (Sakichi) diversified into the handloom machinery business from his family traditional business of carpentry. He founded Toyoda Automatic Loom Works (TALW) in 1926 for manufacturing automatic looms. Sakichi invented a loom that stopped automatically when any of the threads snapped. This concept of designing equipment to stop so that defects could be fixed immediately formed the basis of the Toyota Production System (TPS) that went on to become a major factor in the company’s success. In 1933, Sakichi established an automobile department within TALW and the first passenger car prototype was developed in 1935.

Sakichi’s son Kiichiro Toyoda (Kiichiro) convinced him to enter the automobile business. After this the production of Model AA began and Toyota Motor Corporation was established in 1937. Kiichiro visited the Ford Motor Company in Detroit to study the US automotive industry. He saw that an average US worker’s production was nine times that of a Japanese worker. He realized that the productivity of the Japanese automobile industry had to be increased if it were to compete globally.

Back in Japan, he customized the Ford production system to suit Japanese market. He also devised a system wherein each process in the assembly line of production would produce only the number of parts needed at the next step on the production line, which made logistics management easier as material was procured according to consumption. This system was referred to as Just-in-Time (JIT) within the Toyota Group.

The JIT production was defined as ‘producing only necessary units in a necessary quantity at a necessary time resulting in decreased excess inventories and excess workforce, thereby increasing productivity.’ Kiichiro realized that by relying solely on the central planning approach, it would be very difficult to implement JIT in all the processes for an automobile.

Hence, TPS followed the production flow conversely. People working in one process went to the preceding one to withdraw the necessary units in the necessary quantities at the necessary time. This resulted in the preceding process producing only quantities of units to replace those that had been withdrawn.

In 1990, around 25% of newly hired young workers left the company in their first year itself. To deal with the labor shortage problem, Toyota employed many temporary workers in the assembly plants. The ratio of temporary workers in the workforce soon reached more than 10% – some work groups had around 75% temporary workers. As these temporary workers were not adequately trained, the annual working hours of the company increased, while productivity decreased.

Further, according to analysts, Toyota management’s focus on increasing production efficiency by achieving higher production levels with less number of workers resulted in increased stress for the workers. This also played a major part in the worker exodus. Toyota’s problems increased with by the global upsurge in car demand during 1987-1991 because of which the demand for labor shot up. As high wage jobs were easily available to the limited pool of young male workers, many Toyota workers began to leave the company. To handle the crisis, Toyota radically changed its production management and human resource management practices.

The company decided to change its working conditions to attract high school female graduates and workers over forty years. Toyota realized that it would have to rely on Kaizen for modifying its existing assembly lines to attract workers.

Under Ohno’s guidance, Toyota adopted many operational practices that later became benchmarks for production practices across the global corporate world. It was one of the first companies in the world to adopt practices such as Kanban, Jidoka and JIT. However, Kaizen kept TPS, JIT, Kanban, and Jidoka working smoothly as an interlinked strategic operational plan. Some analysts even felt that Kaizen was the major contributor to the company’s global success.

The founder of the Japan-based ‘Kaizen Institute,’ Masaaki Imai, defined Kaizen in his book, ‘Kaizen – The Key to Japan’s Competitive Success’ as, “Kaizen means continuous improvement in the personal life, home life, social life and working life.”

When Kaizen is applied to the workplace it means continuous improvement for – managers and workers. Thus, Kaizen involves everyone in an organization to make improvements ‘without large capital investments.’ It can be seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and processes. The Kaizen strategy begins and ends with people. With Kaizen, an involved leadership guides people continuously to improve their abilities to meet high quality expectations, low cost and on-time delivery, which in turn helps the organization gain a competitive edge.

Questions: –

1. How kaizen has changed the quality and the productivity of the Toyota plant?

2. What are the tools and techniques has been used for improvement of productivity?