In 2008, it was the largest automobile manufacturer in the world, a title previously held for over 70 years by General Motors Co. There have been endless work stoppage issues which had started to affect the long-term viability of the internal structural management of the company's supply chain such as: Profit-Crushing Domino Effect:
The global supply chain for auto manufacturing relied on critical parts built in factories in Japan. Toyota had implemented Just-in-Time (JIT), and when the earth quake and Tsunami occurred in Japan during 2008, it had incurred massive loss because most of its suppliers of sub-assembly parts had been washed ashore. It not only embraced the strategy of only having the necessary parts available at the assembly line itself, it back sourced its warehouse reserve parts in the same way.
It was left needing everything that would arrive at the right time. It had to build new factories from scratch while changing the designs of some of its cars mid-year. Thus, throwing light upon the weakness of basic risk management in JIT because the lack of spare capacity across the supply chain has long term ramifications on rebuilding of the auto industry. Is Lean to be blamed for Toyota’s Recall issues???
In 2010, Toyota had been facing enormous challenges over its problems with rapid vehicle acceleration and the related billion dollar recall and public relations disaster stemming from the deaths of perhaps 40 people. This in turn had made some people to point the finger at Lean – the popular name for the legendary Toyota Production System – as an important factor in the quality problems.
This was not the first time issues related to quality had come up, in 2004 also there had been problems related to quality in Toyota, but were less publicized as they had not caused any deaths associated to acceleration problems. It was found that Toyota had been growing at a fast pace and with the implementation of JIT, had started ignoring the principles to be followed in Lean. The employee turnover was also a cause, as expertise in Lean had been shifting to other organizations and to meet the demand on time, the principles of Lean had been ignored. Toyota Supply Chain Lacked Risk Management Oversight.
The fixes that had been made in the acceleration issue, had not solved the problem. The company became increasingly dependent on suppliers outside Japan, seemingly downplaying the fundamentals of collaboration and perhaps discounting the difficulty of aligning manufacturers scattered across the world. Plus, Toyota not only continued to trust in its sole-sourcing approach, it pushed the concept even further, gaining unprecedented economies of scale by using single suppliers for entire ranges of its cars.
Toyota took its single source strategy to risky extremes without proper risk management oversight; the company needed much closer monitoring of the critical supply-base, particularly tier-two and tier three suppliers. Is Toyota's much vaunted supply chain management system on the verge of meltdown in the midst of the unfolding quality crisis centered on faulty accelerator pedals? The global quality crisis now hammering Toyota has launched a debate about whether the blame should be placed squarely on the company’s renowned system of supplier relations.
The problem is more complicated than a single design flaw or failed part. It began with two separate issues – floor mats that interfere with the accelerator, and “sticking” accelerator pedals, causing the car to speed up or the pedal to return too slowly to the idle position. CTS Corporation had been the producer of the pedal assemblers, and it had stated that based on the design specifications, the products are being developed, which also talked about the communication gap between Toyota and CTS Corporation. There were various Schools Of Thought related to the issue such as:
• Toyota's deeply integrated ties with its parts makers actually permitted the problems with the pedal modules to occur. How? The automaker has remained lean while its volume has increased dramatically since the days when the company's principles and methods were established. Thus, Toyota can no longer maintain sufficient support and quality control, especially as it adds new suppliers around the world. Yet it still governs the design of key components. • Toyota's streamlined supply base is at fault. By relying so heavily on sole suppliers and using parts across multiple platforms and vehicles, the automaker increases its risks.
• Toyota's methods have minimized the damage - enabling a relatively quick fix to the sticky pedal problem because of the automaker's inherent ability to work closely with suppliers on engineering solutions. But the consensus says that the Company had grown at a faster pace and it is now unable to maintain the same level of quality control and engineering rigor. It had also rushed into relationships with suppliers around the world, while moving away from trusted Japanese suppliers. SWOT ANALYSIS
Strengths: • Global organization, with a strong international position in 170 countries worldwide. • High financial strength. • Best known for quality, durability, reliability, environmentally safe, and value for money along with being convenient. • Strong distribution and marketing efforts focused on the meeting diverse needs, high quality sales and services, and close involvement with customers. • Research and development activities.
• Brand Image. Weakness • Japanese car manufacturer- seen as a foreign importer. • Production capacity, Toyota produces most of its cars in US and Japan whereas competitors may be more strategically located worldwide to take advantage of global efficiency gains. • In 2005, faced criticism because of large scale re-call and quality issues. • In 2008 and 2009 had faced financial crisis in its 70 years history.
Opportunities • Innovation-first to develop commercial mass-produced hybrid gas-electric vehicles (gas and electric) Example: Prius Model based on advanced technologies and R&D activity. • To expand more aggressively into new segments of the market. The launch of Aygo model by Toyota is intended to take market share in youth market. • To produce cars which are fuel efficient, have greater performance and less impact on the environment. • To develop new cars which respond to social and institutional needs and wants.
The development of electric cars, hybrid fuels and components reduces the impact on the environment. • Continued global expansion- especially in the emerging markets, where population and demand is accelerating. Example: China, Russia and India. Threats
• Saturation and increased competition, intense marketing campaigns increasing competitive pressure. • Shifts in the exchange rates affecting profits and cost of raw materials. • Prediction of a downturn in the economy. Example: Recession, will affect car purchases (especially new cars). • Changing demographics. Example: Number of large families is declining. Undermining the demand for large family cars. • Change usage- families using car less for taking children to schools. Home deliveries, Businesses-restricting business travel (tele-conferencing). • Rising oil prices (fuel cost) and the costs of maintaining cars. Increase in families who have chosen not to own car, or decided to use their car less.