A CASE STUDY Toyota

A CASE STUDY On Toyota The rise of a Global Corporation International Trade Course No-310

Submitted to: Mohammad Toufiqual Islam Assistant Professor Department of Management Studies University of Dhaka

Submitted By: Name

Class Roll

Md,.Alamgir Mollah Md. Sahal Arifin Md. Sagir Hossain Md. Waesh Ali Md. Robiul Islam

103 141 168 214 119

Department of Management Studies University of Dhaka Submission Date: 08/03/2010

Overview of the Toyota: Toyota is becoming more of a global corporation and would be largest automobile company in the world. It has established in 1937 from a loom manufacturing company by a person named Sakichi. It

has made $ 11 million profit in 2006. It has most efficient and effective production system in the world. Key concepts of Toyota: 1. Founder(s): Kiichiro Toyoda 2. Founded: 1937 3. Lean production system 4. Mass production 5. Reducing set up time 6. Organization of the Work place 7. Improving Quality 8. Developing Kanban system 9. Organizing Supplier 10.Expanding Globally 11.Transplant Operation 12.Product Strategy

Summary: Toyota motor company is the world most leading company. Sakichi was the inventor of the company. Its production system is lean basis. The primary stage of Toyota faced the capital shortage. The massive production system was produced limited product line in massive quantities to gain maximum company’s goal. Though the lean production system; this company succeed in reducing the time in production. In the work place, the company was to form group and equal family. The ultimate aim was to bring customers into the Toyota design and production process. On the basis of customer involvement and continuous development Toyota is able capture the most of the market in the whole world.

Questions answers: 1. Compare and contrast Toyota revolutionary lean production system with traditional mass production system for making automobiles. How is Toyota system superior? Answers: Comparing and contrasting Toyota revolutionary lean production with traditional mass production system for making automobiles1. The basic philosophy of mass production is to produce limited product line in massive quantities. This economic scale can be achieved through mass production by spreading fixed cost over a large production run as possible. 2. It takes the advantage of maximum economic of scale 3. In this system the setting up time of much production process could waste huge time 4. In this long run production process, assembly workers of Toyota should perform a single task lonely. 5. The worker become familiar as it is associated with variety of task assigned to them 6. Large number of specialties are required to inspect the action of the workers Lean production system of Toyota: Lean production system is the combination of those operations system that maximize value added by each of a company’s activities by paring necessary resources and delay from them1. Small lot size is maintained in the lean production system as to avoid risk of fall market demand against huge investment 2. In this system, with using simple mechanized adjustment production workers are directed to perform several tasks 3. The task or step of process Toyota’s lean system allocated into the trained team of workers. 4. If any errors occur at any step then it is immediately required to vanish by the team responsible to avoid further wastage cost and time. 5. Suppliers are treated as the family in the system as they should be trained to deliver the quality raw materials.

Why lean production is superior to the traditional mass production:  Small production run is economical as it reduces the cost of ware housing and frees the tied up capital for investing elsewhere.  Small lot size and uniform workstation load is meant to be smaller number of defective component of Toyota  Economical or calculated use of capital and moderate wage rate in small workstation declines the risk of investment  Defective component could be corrected immediately by the skilled team of workers as it might be harder while detected at the final stage of assembly in Toyota.  Close ties with the suppliers could assure the steady supply desired quality raw materials.  Errors are sent back to the source to be corrected.  Flexible workforce is engaged with several standardized components and work methods. For that the need for extra specialties in different task were reduced in Toyota.

2. Compare and contrast the arm’s length relationships that Toyota used to manage suppliers in Japan with the approach traditionally taken by U.S. auto-mobile manufacturers. What were the benefits of the Toyota system? Can you see any draw backs? Answer: Comparison between the arm’s length relationships of Toyota and traditional approach of USA towards suppliers are given below in logical expression: a) Traditional approach of vertical integration made the American manufacturers efficient by reducing their dependence on other firms for materials and components. On the other hand, Using Arm’s length relationship Toyota wanted to avoid capital expenditure required to expand the capacity to promote vertical integration.

b) America’s GM and FORD made sequentially 68% & 50% of their components in-house basing on the assumption of limiting their vulnerability to opportunistic overhanging On the contrary, TOYOTA promoted close ties with suppliers holding a view that the reduction of risk maintaining low factory capacity can be beneficial in case of factory sales slumped. c) Automobiles of USA were required high qualified and high waged employees to built the major component In contrast, Arm’s length relationship with suppliers paved a way for Toyota to take the advantage of the lower wage scales in smaller firms. d) In contrast to the traditional approach the Toyota managers realized that in house manufacturing offered few benefits with poor quality as playing suppliers against each other. It was not possible in traditional approach to find stable, high quality and low- cost external sources of supply for competitive biddings between suppliers. As evolving this arm’s length relationship during 1950s and 1960s, the Toyota takes several steps to deepen with its suppliers. They took 20 or 40 or more percentage of shares of Suppliers Company and made contracts of allocation of 50/50 additional profits. For that, both are intended to reduce cost and maintain desired design and quality to gain profit. The benefits of Toyota’s system are discussed below: e) First-tier suppliers and second-tier suppliers performed the almost full design of the intended model f) As Suppliers were included in the project design and engineering, they supplied accurate delivery on the right time. g) In 1980s TOYOTA was responsible for 27% of value of finished automobile comparing to 70% at GM h) 83% of the value had come from outside suppliers for Toyota in 1980s

i) Long term improvement in productivity and quality comparing to others. I can find out some draw backs of arm’s length:  Demanding share of auto mobile by suppliers  Lack of independence  Pricing while long contract may be expensive in future. 3. What drove the development of TOYOTA’s revolutionary “lean production system” during the 1950s to 1980s? To what extent were factors unique to Japan during this time frame responsible for the development of lean production system? Answers: The factors that drove the development of Toyota’s revolutionary lean production system during the 1950s to 1980s are discussed below: 1. 2. 3. 4. 5. 6. 7. 8. 9.

small market of Japan to support massive mass production starvation of capital in that economy increased bargaining power of labor cost of maintaining massive inventory which tied up unproductively Huge defective component detected in final stage Gathering of high waged specialties in each step. ignored consumer preferences for product diversity Lax of quality from single worker. Supplier’s delivery of inaccurate & low quality raw.

The above factors were highly unique during the time frame to develop the revolutionary lean system. Some of them are discussed below—  Set up time for one component created huge inventory. So, to reduce the setup time Toyota introduce and develop lean production where one worker was assigned to several tasks. For example Toyota succeeded in reducing the time required to change dies from full day to 15 minutes in 1962 and to 3 minutes in 1971.  As sheer monotony of assembly workers leads to poor quality and huge specialties were needed to inspect, then it developed lean system. By establishing team work it had been successful by cutting 25% of workforce after 1950.

 Another factor of promoting lean system was the errors were detected in huge amount and it were harder to fix them when they were detected at final assembly. Kanban system was successfully applied to remove this problem.  To avoid huge capital expenditure and risk, it was strongly required to develop lean system. By this system Toyota maintained close ties with suppliers building only 27% in-house component.

4. Why did Toyota enter into the NUMMI joint venture with Genral motors in 1984? What were the benefits of this venture to Toyota? Answer: Toyota entered into the U.S market into the NUMMI as a joint venture because1. America had imposed tax and tariff in Japanese company. 2. Toyota also wanted to set up a plant in the U.S. so it has intentionally imposed import quota to export cars in America to set up a plant in USA. So I entered into the NUMMI joint venture with General Motors in1984. There are some benefits of this venture to Toyota. They are as follows: 1. 2. 3. 4. 5. 6. 7. 8.

to get permission to work America as a 50/50 joint venture with GM to reduce transportation cost to export car from Japan to America to supply the product at low cost Opportunity to use American labors and suppliers. to gather experience in American Union to use Japanese expertise in America to help establishing new product in America To compete with the competitors by supplying low cost product.

5. What drove Toyota’s subsequent expansion of production facilities in United States and Europe? Answer: There are some causes which drove Toyota’s subsequent expansion of production facilities in the United States and Europe. They are as follows: 1. in 1960s Japanese were not competitive in low scale production in overseas market 2. Toyota products were high priced for 40% tax 3. subsidiary were flopped in the US and American market 4. Problem prolonged high spaced driving as excessive variation for small engines. Because of the above reason Toyota cannot compete but it wanted to drive the US market. So it as done the following things to expand in the American and the European market…. I.

In 1984 has set up a joint venture with General Motors based in California named NUMMI. II. In 1985 announced to set up a individual plant Georgetown, Kentakey and established in 1988 and produced 220000 cars which were more than its target. III. Second plant set up in Georgetown in 1990. IV. Expand its plant different plants In America invested $16.8 billion and produced 105 million vehicles a years. V. Lobbying to the UK government to open new plant and successfully done it by joint venture and then separate plant. From the above discussion Toyota has done the job successfully to expand their market in the European Market.

6. In general Toyota’s foreign plants achieved productivity level similar to those in Japan. What conclusion can you draw from this about the role of national culture in shaping the Toyota’s production system? a) As a small country Japanese always want to use the existing resources like TOYOTA

b) National culture of Japanese teaches them not to wasting time staying idle. As they are inherited this kind of quality, it is natural to Toyota to introduce lean system to reduce set up time in different steps c) Japanese are very industrious and psychologically strong to take risk. For this attitude or culture Toyota had implemented the changing innovation instead of traditional practice. d) Culture of Japan advocates the cordial relationship with outsiders. For this culture Toyota maintained close ties with suppliers and was benefited too. e) Japanese are very reliable and honest to keep the promise of others. TOYOTA too wished to satisfy the customer by reducing the defects. And they have now much flawless image in the world market today. 7. What evidences is there in the case that Toyota is becoming more of a global corporation? What are the implications of this for the long term competitive advantage of the company? Answers: Toyota is becoming more of a global corporation and would be largest automobile company in the world. There is some symptoms as well historical implementation of various activities. From analyzing the following data we would be able to reach a conclusion reasons behind Toyota will become world largest corporation. a) Overseas operation has grown from 11 production facilities in 9 countries in 1980 but in 2006 it has 52 production facilities in 26 countries. b) Have a vision to capture 15 percent of the automobile market where 11% were 2006 but 14.7% has achieved in 2010 in March. c) Required less assembly time and fewer defects in Toyota cars than General Motor, Ford, Nissan and less inventory stock time. d) Earned $11 billion net profit on share $152milion and have set up 3 most efficient assembly plant in the world. e) Reduced installation time from 12 second to 3 second and reduced loading time in die making set large body panels from 3 months to 107 months. f) Toyota used long term supply relationship with suppliers as well as customers. Example Toyota back 2.8 million cars for break problem. g) Toyota use global body system to produce their cars which is faster as well los cost and time consuming.

From the above discussion we can come to a strong discussion that Toyota would be world largest as well as most efficient automobile company.

Recommendations: 1. Toyota should introduce new system to minimize its cost. 2. Making strong relationship with all the people of the distribution channels