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Toyota is Japan's biggest car company and the second largest in the world after General Motors. It produces an estimated eight million vehicles per year, about a million fewer than the number produced by GM. The company dominates its home market, with about 40% of all new cars registered in 2004 being Toyotas.
Toyota also has a large market share in both the United States and Europe. It has significant market shares in several fast-growing South East Asian countries. The - 1 -company produces a large range of vehicles which are highly regarded for their quality, engineering, and value; their designs set global standards for safety, reliability and ease of maintenance.
The Company Philosophy
"Do the right thing for the company, its employees, the customer and the society as a whole."
The story of Toyota Motor Corporation began in September 1933 when Toyoda Automatic Loom created a new division devoted to the production of automobiles under the direction of the founder's son, Kiichiro Toyoda. Soon thereafter, the division produced its first Type A Engine in 1934, which was used in the first Model A1 passenger car in May 1935 and the G1 truck in August 1935. Production of the Model AA passenger car started in 1936.
Although the Toyota Group is best known today for its cars, it is still in the textile business and still makes automatic looms (fully computerized, of course), and electric sewing machines which are available worldwide.
During the Pacific War, the company was dedicated to truck production for the Imperial Army. Because of severe shortages in Japan, military trucks were kept as simple as possible. For example, the trucks had only one headlight in the center of the hood.
Toyota earns $1250 per vehicle produced while GM loses $2311 per vehicle produced. Toyota is producing nearly 50 percent more cars than in 2001 and this year it will almost certainly pass General Motors to become the world's largest auto company. Toyota alone earned more than all the rest of the world's 12 largest auto manufacturers combined - $11.4 billion. And it is pioneering a new technology for the 21st century that will shrink gasoline consumption and limit greenhouse gases.
FORTUNE GLOBAL 500 (Year 2005)
Rank: 7 (2004 Rank: 8)
$ millions % change from 2003
Revenues 172,616.3 12.7
Profits 10,898.2 5.9
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Rank Company 500 Rank Revenues ($ millions)
1. General Motors 5 193,517
2. DaimlerChrysler 6 176,688
3. Toyota Motor 7 172,616
4. Ford Motor 8 172,233
5. Volkswagen 15 110,649
6. Honda Motor 27 80,487
7. Nissan Motor 29 79,800
Toyota operation strategy:
The Toyota sales figures were skyrocketing, even their competitors were losing out in almost all markets. It is a matter of concern for all the automobile companies to regain their lost market share. Market capitalisation says it all. Toyota is worth more than the American Big Three put together, and more than the combination of its successful Japanese rivals, Nissan and Honda.
The Toyota way of production was discussed throughout the world, with lots of research being undertaken. The company's success is mainly due to the implementation of the following: -
1. Toyota Production System
3. Superior Technology & Quality
4. Hybrid Vehicles
5. Employee Welfare Costs
6. Employee Satisfaction
1. Toyota Production System
Toyota Production System, also read as Thinking Production System, makes use of the following vital elements, namely,
• Lean Manufacturing
• Pull System
1.1. Lean Manufacturing
Lean production is aimed at the elimination of waste in every area of production including customer relations, product design, supplier networks and factory management. Its goal is to incorporate less human effort, less inventory, less time to develop products, and less space to become highly responsive to customer demand while producing top quality products in the most efficient and economical manner possible.
Principles of Lean Enterprise: -
• Zero waiting time
• Zero inventory
• Scheduling - internal customer pull instead of push system
• Batch to Flow - cut batch sizes
• Cut actual process times
• Shrinks lead times
• Saves turnover expenses
• Reduces set-up times
• Multiplies inventory turns
Just-in-time is a manufacturing philosophy pioneered by Toyota in 1970s. It's a method of waste elimination by which the inventory levels are minimized. The heart of JIT is Kanban, Japanese word for card.
JIT implementations include: -
• Inventory reduction
• Smaller production lots and batch sizes
• Quality control
• Complexity reduction and transparency
• Waste minimization
Kaizen is the lean manufacturing term for continuous improvement and was originally used to describe a key element of the Toyota Production System. In use, Kaizen describes an environment where companies and individuals proactively work to improve the manufacturing process. Employing Kaizen means the following: -
• Proactively improve production
• Reduce manufacturing waste
• Increase employee involvement
• Increase customer satisfaction
Jidoka, a term used in Lean manufacturing, meaning "automation with a human touch". It is a quality control process used in the Toyota Production System which applies the following four principles: -
• Detect the abnormality
• Fix or correct the immediate condition
• Investigate the root cause and install a countermeasure
A Japanese term meaning, "signal". It is one of the primary tools of JIT system. It signals a cycle of replenishment for production and materials. It maintains an orderly and efficient flow of materials throughout the entire manufacturing process. It is usually a printed card that contains specific information such as part name, description, quantity, etc. The card contains,
• Instruction for production and conveyance
• Visual control tool to check for over production and to detect irregular processing speeds
• Tool to perform kaizen
The production line is stopped if there is a problem somewhere in the line. Every employee is empowered to stop the production on finding a defect. This is done to prevent the defective items from passing to the next stage. Andon electric boards will highlight the location where the defective part is located, and hence, can be attended.
1.7. Pull System
Under a 'push' system, there is little opportunity for workers to gain wisdom because they just produce according to the instructions they are given. In contrast, a 'pull' system asks the worker to use his or her head to come up with a manufacturing process where he or she alone must decide what needs to be made and how quickly it needs to be made.
Re-engineering has been a major factor for the success of Toyota. Consider a Toyota model, which is newly introduced in the market, failed to impress the market. The next Toyota strategy will be to re-engineer the model, i.e., completely alter the failed model using the same production facility. This method is not practiced at General Motors and Ford. Once a GM / Ford vehicle fails in the market, the whole manufacturing facility for manufacturing the model is scrapped and the employees are often pushed out of the company. This results in loosing the knowledge gained at great cost.
3. Superior Technology & Quality
All Toyota production facilities are designed in such a way so as to ensure flexibility, so that Toyota production facilities around the world could easily add / switch new models or ramp-up production of existing models within a short period while ensuring the top quality traditionally associated with the Toyota brand. Robots are used widely in mass production. By allowing the choice of either people or robots depending upon profitability, the production line offers the flexibility to handle everything from low-volume to mass production.
Toyota's quality control during production ensures that the correct materials and parts are used and fitted with precision and accuracy. This effort is combined with thousands of rigorous inspections performed by team members during the production process.
Team members on the line are responsible for the parts they use. They are inspectors for their own work and that of co-workers. When a problem on any vehicle is spotted, any team member can pull a rope - called an andon cord - strung along the assembly line to halt production. Only when the problem is resolved is the line re-started.
This process involves every team member in monitoring and checking the quality of every car produced.
GM takes 34 hours for producing a vehicle while Toyota does it in 27 hours, shows the technical superiority of Toyota.
Awards & Recognitions
Toyota manufacturing facilities around the world have won quality awards, which include the J. D. Power Quality Awards. Toyota plants in Japan and North America have won the prestigious World-wide Platinum Plant Quality Awards. Toyota products were ranked at the top with fewer than industry average of problems per 100 vehicles, which reinstate the Toyota quality.
4. Hybrid Vehicles
The hybrid cars market is on upswing and is growing very rapidly. America spend on gasoline every minute is about $200,000. There is an increased demand for the Hybrid vehicles all round the world especially in the US due to the following reasons: -
• Increased fuel prices
• Environmental factors
Hybrid engines have been touted as a way to make automobiles more fuel efficient and less costly to run. Toyota gave more emphasis in developing hybrids while GM and Ford concentrated on developing SUVs (Sports Utility Vehicles).
The Toyota Prius is one of the world's first commercially mass-produced and marketed hybrid automobile. The Prius first went on sale in Japan in 1997, and was introduced to the worldwide market in 2000. Prius was a run-away success with the demands exceeding the supply. Toyota plans to sell 1,50,000 hybrids in US in the year 2006. The company is also planning to expand the hybrid technology for all the models in the Toyota stable.
The company will be using the existing production facilities to manufacture hybrids rather than having a dedicated plant. Presently, the company offers hybrid versions for Prius, Toyota Highlander, Lexus RX330 and Camry.
Hybrids represented 1.2 percent of the total vehicles sold in 2005. The Toyota Prius led the way with 107,897 cars sold for the year 2005 - 52 percent of the total hybrid market. The next most popular hybrid was the Honda Civic Hybrid, which sold nearly 26,000 units.
The world's automakers are now embracing hybrid vehicles in an effort to match Toyota's success and give customers more options to combat high gas prices.
5. Employee Welfare Costs
The skyrocketing of the healthcare costs and the pensions for the retirees have drained the bottom lines of the Big Three, namely GM, Ford and Chrysler.
Healthcare Costs (for the plants in US)
Cost per Vehicle
General Motors $1,500
On pensions, the Big Three supports 8,00,000 retirees (from the US operations) while Toyota has hardly 1,000 retirees which is indicative of a much younger workforce.
6. Employee Satisfaction
Toyota has created an organizational culture that encourages employee participation, which is essential for successful TPM (Total Productive Maintenance). Group activities are promoted among the shop-floor team members. The knowledge base of all the employees is used to improve equipment reliability and productivity, thereby lowering maintenance and operating costs.
Two other important aspects of TPM are training and open communication between operators and engineering. Production personnel are trained to perform routine maintenance. High level of employee loyalty and commitment to quality is observed in Toyota employees.
Employee participation is ensured through
• Quality Circles
• Suggestion Schemes
• Incentive programmes
It is observed that there are more number of satisfied employees at Toyota when compared to GM and Ford.
It is for sure that with superior technology and best industry practices, Japanese auto major is giving a run for the auto industry, which is dominated by the Americans. Imminent is the day; the day Toyota will be the largest automobile manufacturer of the world, surpassing General Motors. All credits to the production prowess and the technical innovation, which made the Japanese sail through the rough waters, a journey that started in 1933 and is still continuing.