Problem Statement: Toyota grew at a record speed and could not keep up with the speed in which it was growing. They are a centralized company and Japan only made the decisions. This prevented the company to keep up with the safety problems. The process that Toyota external suppliers follow when improving product and making sure the product is functioning properly before shipping to Toyota needs to be improved before they release the product from their warehouse to be sent to Toyota. This problem began when the company started to rapidly grow. Toyota’s lack of communication led to the faulty gas pedal recall.
According to Deming (1987), “Performance of management should be measured by potential to stay in business, to protect investment, to ensure future dividends and jobs through improvement of product and service for the future. The first step is to learn how to change” (p.8). Management must learn how to change their communication strategy. This will improve productivity and decrease costs.
This will also drive out the fear people have of the company so everyone will gain trust back in Toyota. In order for this to happen their must be long term commitment from the management that seeks transformation (Deming, 1987). There were communication problems amongst the non-Japanese speaking engineers and oversees suppliers. There were also inexperienced Toyota engineers who were not experienced in Toyota practices and standards assigned to global technical centers (Cole, 2011). Toyota’s communication needs to be transparent.
There were early warning signs of the safety issue. Toyota has no choice, but to increase their resources to get a handle on this problem. Toyota must first find where the communication line failed and correct this gap in order to find stability. According to Cole (2011) “A basic principle of risk management is to identify risk early and eliminate them while they are still minor problems” (p.32). Chris Tinto, Toyota’s U.S. vice president in charge of technical and regulatory affairs, warned higher up executives of these gas pedal issues. Higher up executives ignored these signs from lower-ranking executives (Cole, 2011). Background of the issue
Toyota has not changed the way it has functioned since it was found in 1933. All Information is reported to Toyota Headquarters in Japan. All decision-making is made by headquarters in Japan. Toyota does not integrate its operations. When Toyota began the functionality they used then was productive for the company. Now that the company has grown rapidly they must find a new way to function because the old way is failing them. All decisions, sign-offs and approvals must be done in Japan. This method is time consuming and by the time it gets back to the company from Japan has it’s been too late to deal with some of the issues.
Toyota being centralized has reduced cost and allowed them to have more control over operations. This has also caused delays and the company’s inability to handle issues in a timely manner. If Toyota would decentralize they would have a quicker response in dealing with issues, which would help with recalls and safety issues before they hit the market. The leaders could be knowledgeable of what is going in each of their businesses. There would be more information readily available to Toyota leaders. Implications
If the Operation Improvement Process is not put in effect soon Toyota could face more financial burdens. Toyota could risk losing loyal customers, as well as potential customers. Toyota could lose their market shares as well as their competitive edge. External suppliers may be hesitate on doing business with Toyota due the recall. Toyota must change their management structure or they will continue to have communication issues that lead to poor quality and safety issues of their vehicles. The central point of management needs to be decentralized across the board instead of Japan making all the decisions.
The Operation Improvement Plan will lead to Toyota strengthening their communication and their process of evaluating the quality of their parts. It is important that Toyota improve their communication and process of evaluating their parts because if they don’t they risk losing customers and market shares. An improved process would also give them reassures that this issue does not arise again.
According to Porter (1996) “Delivering greater value allows a company to charge a higher average unit price; greater efficiency result in lower average unit cost” (p.62). Toyota needs to focus more on quality than quantity. After quality is critiqued then they can continue to grow at a lower rate. If Toyota gives their North American companies power to make decisions than it would be a huge improvement to the companies and less risk of safety issues.
Toyota showing their customers, potential customers and shareholders that they have improved the way they communicate their process and procedures will lead to gaining their confidence back in the way Toyota does business. This will also allow Toyota to gain their good reputation back and lead to gaining profits. Communication is the most important asset in how a company does business and is the strength of a company. Toyota closing gaps and strengthening the way they communicate will lead to a stronger Toyota. Desired outcome
Toyota going from centralized to decentralize will give them more opportunity to quickly respond to issues. Incorporating external information will give Toyota a more competitive edge. Decentralizing Toyota will not be costly, but will benefit them and the company will be able to be more proactive, which will save them money in the long run. Communication gaps aren’t amongst the stakeholder’s, but between the companies, management and external suppliers.
According to Porter (1996) “Cost is generated by performing activities and cost advantages arise from performing particular activities more efficiently than competitors” (p.62). The recovery loss from the recall was $14.6 million and the implementation of the Operation Improvement Plan will only cost the company roughly around $1 million dollars. The cost of the Operation Improvement Plan is merely a fraction of the losses the company endures from these recalls.Companies most constantly improve operations in order to achieve superior profitability (Porter, 1996).
References: Cole, R. E. (2011). What really happened to Toyota? MIT Sloan Management Review, 52(4), 29-35. Retrieved from http://search.proquest.com.library.capella.edu/docview/875531966?accountid=27965
Deming, W. E. (1987, December). Transformation of today's management. Executive Excellence, 4(12), 8. Retrieved from http://search.proquest.com.library.capella.edu/docview/204618490?accountid=27