International Business

Week Five – Case Study:

Toyota: rise of a global corporation

Preface: I work in a company that has been working toward emulating the Toyota Production System for 3 years. I have been to several conferences and seminars lead by Toyota executives and have read a lot of literature. I will try to reference as much material as possible, but much of my thinking may be common knowledge.

1- Compare lean production to mass production. How is lean superior?

The typical mass production system does everything in large quantities with its main focus for cost reduction based on maximizing economies of scale. To utilize economies of scale large batches of each product are made. This reduces the down time needed to change machines over to start producing the next product. Toyota manufactures everything in small “batches” because they did not have the capital to make parts that would sit in a warehouse until they were needed. They needed the cash to buy more raw materials for the next car to be made. To make this efficient Toyota needed to reduce the time it took to change machines over to the next product. Now they make up to eight distinct vehicles on the same assembly line (BusinessWeek).

The second method that mass production uses is the specializations of assembly workers to do only one job. This is based on the increased efficiency a worker gets after they master a particular job (Hill p.522). Toyota wanted to utilize learning effects as well but also wanted to remove the problems associated with this mind set. They wanted workers to have many jobs to keep their minds engaged and reduce errors associated with autopilot workers. They also educated the workers to do more than just assembly but also quality control, equipment changing and maintenance. .

2- Compare traditional supplier relationship to Toyota. What are the benefits and drawbacks?

American manufacturing companies have typically used the economic principal of competition to keep costs low. They have traditionally given a part out to bid and forced companies to give the lowest possible price. All bids were strictly based on who could provide the lowest price part. Toyota has established relationships with their vendors and work with them in the design to reduce costs. By developing a relationship the risk associated with new business are greatly reduced.

“As a consequence, Toyota’s suppliers have no problem with investing in equipment...that can be used only for meeting Toyota’s orders. Toyota’s reputation for fair dealing translates into lower risk costs thought the supply chain which, in turn, translates into lower production costs for suppliers and lower prices for Toyota’s parts” (McKenzie, p243).

The drawbacks to this type of relationship are that other suppliers may develop a superior technology that may give their competitors an advantage. If Ford, for example, awarded a contract to a new manufacturer to produce wheels to a company that had developed a technology that reduced the cost of wheels by 70%, Ford would then have an edge on Toyota as far as cost or profitability. Toyota works with all of its suppliers to continually reduce costs and has set up information sharing within suppliers to ensure that this scenario is not played out (Hill, p524).

3- What forced the creation of lean? What was unique about Japan as breeding ground for lean?

After WWII Toyota faced many challenges that really created a perfect environment for the creation of a lean productions system. First, Japan and very little capital to invest in anything which forced them to find low cost ways of dealing with the problems associated with producing cars. The money conscious Toyota manufacturers realized they needed to reduce any and all costs even the cost of holding and storing inventory (Liker, p28).

Second, the domestic market for Japan was small and did not allow for them to produce large quantities of one single product (Hill, p522). This made them look for ways to utilize the sunken cost of buildings and equipment. This caused them to develop the ability to change equipment over quickly and produce many different products on the same line. They continue to use this philosophy in the largest automobile market, the US where they can produce up to eight platforms on one line (BusinessWeek).

Third, Toyota was required to use labor much more efficiently because of laws placed on them by the US occupiers (Hill, p522). Now they needed to use as few employees as possible while increasing production. This forced Toyota to cross train workers to do multiple jobs like changing dies, quality inspections as well as assembly (Liker, p39).

Since Japan was already an advanced manufacturing nation before the war they wanted to continue to grow, even internationally. To make that a reality they needed to overcome these three main obstacles and lean is what came out of their efforts. They continue to make improvements and hold to many of the same philosophies that enabled them to become competitive in the restricted market conditions they faced in the 1950’s.

4- Why did Toyota enter NUMMI? How did they benefit?

Toyota was looking at ways to expand manufacturing into the largest market in the world. They had already established the market for their product, but there were some negative implications because they were based in Japan. There was pressure by the US government to limit the number of imported vehicles from Toyota and they wanted to change their global image. One of the questions Toyota executives had was if they could successfully produce a quality car in North America using US workers and suppliers (Hill, p527).

Toyota used NUMMI to understand how to work in the US and what needed to be modified to fit into American culture. Liker states in the forward to The Toyota Way “I witnessed the transformation of a workforce from one of the worst in the General Motors system to one of the best in any manufacturing facility in the United States” (Liker, xi). NUMMI truly showed the Japanese that it was possible to take their methodology to a different culture and be successful.

5- What drove Toyota to expand globally?

Toyota again faced problems with its reputation when becoming a global competitor. Nations where it was selling saw a foreign company taking away profits that should be made by local companies. Some nations required Toyota to manufacture locally to sell into the market, while in other markets they wanted to increase the impressions of the public, like the US. They have branded themselves a North American manufacturer to assure US consumers that buy buying Toyota products they can still support the US economy. In fact Toyota has a domestic content similar to the “Big Three” (cars.com)

6- How much does national culture play in lean?

With the success of it international manufacturing facilities coming close to that of its domestic plants, it can be inferred that the national culture has little to do with the success of Toyota’s Production System (TPS). However, when this issue is looked at more closely I believe it shows that the problem solving culture of Toyota has been able to succeed in spite of the cultural differences. Through problem solving Toyota has been able to make small modifications to what worked in Japan without sacrificing the ideals behind TPS. I heard a story from an executive at Toyota about the first time he went to work in the Japanese Toyota factory:

He had worked at Toyota in Kentucky for five years and was progressing into higher management. They sent him to work on the line in Japan and shortly after he was done being trained he was on his own attaching wheel well liners. His screw gun slipped and he scratched the paint…He thought about it and decided it might not ever get caught because of where it was, but his trainer had told him over and over to stop the line if there was any problem. So he stopped the line by pulling the “andon” chord. His trainer came over and marked the car to be fixed down the line then showed him how to prevent it from happening again. Then at break time all the other workers were talking about him (he could only understand his name because he didn’t speak Japanese) and then they all came over to him and shook his hand and congratulated him for stopping the line and fixing the problem.

In the US mistakes are something we hide, that is cultural. Now Toyota has done some significant brainwashing and really solved the problems of transmitting their culture into factories all over the world.

7- How is Toyota becoming more global? What will this mean for Toyota, long term?

One of the evidences seen in this case that Toyota is becoming more global minded is that they are starting to listen to their global designers about what the local consumers are asking for. The case used the example of the Tundra and the redesigned Prius (Hill, p530). They are using the people who are located in the market to set some of the targets for future products. This is more of the transnational strategy that will allow them to be more successful as they continue to expand and give more control to the local designers and engineers. By having a better understanding of local needs there is less wasted design time or even market surveying. Toyota should have learned their lesson when they first released their minivan into the US market. It failed because the product was designed with the same requirements as the vehicles made for sale in Japan (Hill, p528). Then they went back to the drawing board and four years later they release a new version that did very well. The four years were consumed by engineers driving the minivan all over North America as well as doing surveying from buyers and potential buyers, then a complete redesign (Liker, p229).

BusinessWeek . Can anything stop Toyota? Retrieved June 14, 2008 from http://www.businessweek.com/magazine/content/03_46/b3858001_mz001.htm

Cars.com. A closer look at domestic parts content. Retrieved June 14, 2008 from: http://www.cars.com/go/advice/Story.jsp?section=top&story=amMadeParts&subject=ami

Hill, Charles (2008). International Business: competing in the global marketplace, e7. New York: McGraw-Hill Irwin.

Liker, Jeffery (2004). Toyota Way. New York: McGraw Hill Professional.

McKenzie and Lee (2006). Microeconomics for MBA's: the economic way of thinking for managers. New York: Cambridge University Press.