Toyota Operations Improvement Plan

About Toyota For more than 50 years, Toyota Motor Corporation has been one of the world’s leading manufacturers of motor vehicles in the United States. It was born a Japanese company in 1935 and came to America in 1957. Now headquartered in Toyota City, Japan, it employs more than 300 thousand employees globally (Toyota Motor Corporation Company Profile, 2012). In addition Toyota is a global marketing organization. It strategically operates primarily through Japan, Asia, Europe, and North America; but its vehicles are sold in more than 170 countries and regions across the globe (Toyota Motor Corporation Company Profile, 2012).

The Toyota brand is traditionally defined by brand attributes such as global leadership, innovation, durability, reliability, and sustainability. It represents an industry leading product line of several models including the 1955 flop Toyopet, the 1965 comeback Corona, the Corolla, Toyota trucks, the luxury Lexus, the Avalon, Solara, Scion, and the world’s first hybrid the Prius. Toyota’s Rise to Number Two

As Toyota established itself in the US automotive industry, other players watched in admiration as Toyota plants around the world boasted consistent production of higher quality cars, fewer worker-hours, lower inventory, and fewer defects than any other competitor (Duvall, 2008). Many credited Toyota’s continued success and its ability to roll a new Camry, Avalon, or Solara off of the assembly line every 55 seconds to its application of its core competency, the Toyota Production System (TPS) (Duvall, 2008).

Among the various characteristics of this system that made it a success were concepts such as just in time production, real time defect monitoring and correction, waste reduction, and other process knowledge that offered Toyota a sustainable competitive advantage. Toyota’s unrelenting approach in manufacturing was eventually recognized simply as “The Toyota Way”.

Losing its Way As leadership within Toyota changed over the years, so did its priorities. In 1999, Fujio Cho imposed a cost cutting campaign designed to reduce cost by 50% (Greto et al., 2010). In 2002, Global Vision 2010 focused all efforts toward increasing global market share by 15% (Greto et al., 2010). In 2005, Katsuabi Watanabe launched his Value Innovation Strategy which targeted further cost reductions (Greto et al., 2010).

Amidst all of these competing priorities, the Toyota Way became cloudy and was lost. As early as 2006, the National Highway Traffic Safety Administration began an investigation into customer claims that ultimately resulted in 8.8 million recalls worldwide (Greto et al., 2010). This seemingly endless period of recalls was one of the most devastating crises that Toyota had ever experienced.

Indications of Toyota’s faltering quality were visible as early as 1999. Referred to as the oil-sludge crisis, roughly 3.3 million vehicles were cited as having engine failure which was said to be caused by oil jelling to the point where it clogged internal oil passages (Greto et al., 2010).

Despite the fact that the sheer quantity of vehicles impacted indicated a massive quality failure, Toyota refused to cover the repairs and denied warranty claims and in addition to sticking customers with an $8,000 repair bill, they blamed customers for not properly maintaining their vehicles (Greto et al., 2010). Eventually, in 2002 after receiving nearly 3,400 warranty claims and impact to at least 7.5 million customers, Toyota agreed to cover the cost of the repairs.

Over the next few years, Toyota customers began to report “surging”, “sticky accelerators”, or “faulty accelerator pedals”. Toyota’s reputation of quality depreciated rapidly as the death of an off duty highway patrol officer and his family due to a sticky accelerator made news headlines (Greto et al., 2010). Contrary to the fifth principle of the Toyota Way which requires stopping to fix a defect as soon as the defect is reported, Toyota’s actions more so resembled a rolling stop or yield as it simply issued a safety warning to customers.

Soon after, under pressure from the National Highway Traffic Safety Administration Toyota did recall some vehicles. Nevertheless, only one month later, four more lives were ended as a result of Toyotas quality plunge and failure to respond. Finally, one month after the death of its eighth victim, Toyota halted production to stop and fix the problem.

On top of the oil sludge recalls, this quality failure resulted in another 8.8 million recalls, a $2 billion direct financial hit to Toyota plus another $16.8 million in fines, too many innocent lives, a strained relationship with the NHTSA, and further brand deterioration (Greto et al., 2010). As if this weren’t enough, quality problems mounted week after week. Only months later in February 2010, the NHTSA revealed that it had received claims citing another life threatening defect in the break system for the Toyota Prius. More than 400 thousand Prius recalls resulted. In April of 2010, customers reported handling issues in the Lexus brand which resulted in another recall of 9,400 Lexus cars and a “Don’t Buy:

Safety Risk” rating from Consumer Reports. Also in April, the company voluntarily recalled Siennas to address a problem with corrosion on a spare tire cable. Later that month, Toyota voluntarily recalled 2003 Sequoia SUVs to improve the stability controls. 2010 Tacomas were also recalled for defective front drive shafts. Once the quality icon, Toyota had hit a really low point; so low that credit reporting agencies downgraded its credit rating having concern that the company would not be able to meet its financial obligations (Greto et al., 2010). To add insult to injury, it’s now lower credit rating would add additional long term financial strain for Toyota.

Problem Statement Toyota's reputation in the automotive industry is built upon quality and reliability. However, as a result of a series of poor management decisions and poorly implemented strategies, Toyota’s culture was transformed from one which utilizes TPS to one which prides itself on velocity and cost cutting.

This cultural change lead to operational decisions that resulted in recalls of more than nine million automobiles, including the Toyota, Camry, Corolla, Tundra, Tacoma, and Lexus models, citing safety issues which in some cases resulted in the death of customers. It further resulted in financial losses and the degradation of Toyota's reputation as its customers now second guess the quality and reliability of the company's products. Figure 1

It is perplexing to some that a company as highly exalted as Toyota could fall so far so fast. However, Figure 1 emphasizes the impact that the new cost focused strategy set forth by management had on manufacturing. It demonstrates that the culture incentivized cost savings and velocity forced employees to choose between strategy and the founding principles of Toyota, TPS. In many cases, when employees encountered these decision points, cost won. As a result, defects were passed further and further down the line until they were eventually reported by the customer. The Burning Platform

Though Toyota executives attempted to place the blame for its recalls in many other places, Deming (1987) suggests the true source of failure that is bad management. The scope of this analysis will include how changes in management via well thought out strategy can restore the TPS culture and subsequently confidence in Toyota. Resolution focused on restoration of quality is essential because many of Toyota’s automobile models compete on the grounds of reliability which has a direct link to quality.

By refocusing on the quality management aspects of its manufacturing process Toyota has an opportunity to proactively identify defects or quality issues on the manufacturing floor before they reach customers. There are many potential solutions to improving quality and many of these solutions are imbedded into the company’s basic principles and simply need to be restored and emphasized.

The resulting culture is one in which incentivizes quality, removes any emphasis on quantity, encourages ownership, accountability, and pride of workmanship, implements analysis tools such as checklists or Pareto analysis to identify root causes, and gathers feedback and encouraging ideas from technicians. In addition to continued customer satisfaction and brand integrity, these quality improvements offer the added benefit of reducing internal costs that occur as a result of rework, production losses, and legal fees. As Figure 2 details, this change must be initiated with management strategy and extend throughout the organization in the form of training, Figure 2 standard work, and culture.

This change is of great urgency because there is a cost associated with not producing while the defect is being escalated or resolved and an even greater cost is associated with producing defective material. The benefit to Toyota is essentially the cost savings from reactive management, lawsuits, recalls, reputation, etc. The cost of the 2010 recall can be used as a high end baseline for what the cost could potentially be. The benefit to Toyota is the reputation of its brand, reduced variable cost, increased quality, increased customer satisfaction and a successful positioning strategy. Recommendations

Figure 3 Perhaps one of the most critical steps in cultural change is ensuring that employees understand the strategy, values, and mission and their place in that structure. This is important for Toyota because previously any decision point where an employee was required to choose between cost and quality resulted in sacrifice of quality.

As Toyota seeks to restore TPS as its guiding principle it is important to measure the extent to which employees understand the organizations position on quality, and the impact of their decisions on quality. This is to be determined by an evaluation of whether or not an employee’s behavior is consistent with the culture. The measurement is to be accomplished by submitting a quarterly survey to all employees, companywide. Surveys are to be distributed via an independent online vendor and anonymously completed within a specified timeframe.

Figure 3 introduces a series of questions intended to evaluate each individual employees and determine whether or not quality is at the center of their work (the complete survey is available at: <here> The questions are targeted to specific characteristics that define a TPS culture (i.e. stop to fix, quality improvement, employee knowledge and preparedness). Once the survey has been completed, the results will be evaluated and an action plan will be completed by management. Possible action could be additional strategy cascade, incentives, process changes, restructures, etc.

In addition to surveys, Reports have been identified as an additional tool which can be used by Toyota management to assess quality improvement. Quarterly reports include those which measure the number of employee ideas submitted for process improvements compared to the number of ideas which are accepted and implemented. While employees should not unilaterally make decisions about processes that are wasteful, they do have to opportunity to seek cost improvement though submitting ideas for process changes.

Management is tasked to review, approve, and implement these changes. The suggested report ensures that these activities are taking place. Similarly, weekly reports regarding frequency of issue occurrence, length of time it takes from the time that an issue is reported until it is resolved and production down time per month offer insight to trends that could result in severe quality issues. The report allows management to observe the trends and take action. Cost/Benefit Analysis

Though the benefits of surveying employees in largely qualitative, they are known as one of the most powerful tools that management can use to assess the effectiveness of strategy and maximize the potential in human capital (Wiley, 2009 ). According to Wiley (2009) surveys can be used to identify warning signs of trouble with the business, evaluate the effectiveness of specific programs, measure satisfaction and engagement of others, or to drive performance by assessing employees perception of an organizations climate for service. Employee surveys offer a different perspective of what management knows as reality.

This data can be used to benefit the organization in a variety of ways as employee engagement has in studies been linked to productivity and favorable financial results. Though the service could easily be managed in house at a cost of little to nothing, it is important to encourage participation and generate trust by hiring a third party vendor to host the survey. Compared to the endless benefit potential of gathering employee perceptions through surveys, the cost is negligible. Conclusion

A happy ending for Toyota would be one in which customer satisfaction and employee engagement is superior. Quality improvement must begin from the inside out with a corporate culture in which quality and safety are the primary values. This appreciation for safety and quality will be evident in the engagement and work ethic of employees such that it is reflected in their workmanship.

The end product will provide the quality that Toyota customers are happy to pay for. Happy and satisfied customers will become emotionally attached to the brand and be less likely to switch to a competitor. Ultimately, the company will grow in profitability as a result of its quality improvements.

References DATAMONITOR: Toyota Motor Corporation. (2012). Toyota Motor Corporation SWOT Analysis, 1-13. Deming, W. E. (1987). Transformation of today's management. Executive Excellence, 4(12), 8-8. Retrieved from http://search.proquest.com/docview/204618490?accountid=27965. Duvall, M.(2006, September 5). What’s Driving Toyota. Baseline Magazine. Retrieved from http://www.baselinemag.com/c/a/Infrastructure/What-Is-Driving-Toyota/. Greto, M., Schotter, A., & Teagarden, M. (2010). Toyota: The accelerator crisis. [Case No. A09-10-0011].

Glendale, AZ: Thunderbird School of Global Management. Russell, R. S., & Taylor, B. W. (2011). Operations management: Creating value along the supply chain (7th ed.). Hoboken, NJ: John Wiley & Sons. ISBN: 9780470525906. Wiley, J. (2009). The Strategic Employee Survey [White paper]. Retrieved from http://www.kenexa.com/getattachment/d574675f-a339-49d6-809d-2606d9e29bd1/The-Strategic-Employee-Survey.aspx

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