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Toyota Victor Araman

Toyota Motor Manufacturing

TOYOTA F1 Technologies

The US automobile market $250 billion.

Highly concentrated: top 8 companies account for more than 90%

Major drivers of US demand are employment and interest rates

Profitability depends on manufacturing efficiency, product quality,and effective marketing

US imports have exceeded exports by over $100 billion (NAFTA)

The average hourly wage is $30 (75% above US manufacturing)

Fringe benefits, including health care and retirement programs averageabout 45% of the hourly wage

Corporate Average Fuel Economy (CAFE)

China is the worlds second largest car market, replacing Japan (10%annual demand growth)

Industry Overview

A Few Facts about the Car Industry

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Process: Highly automated assembly lines

Productivity:Annual revenue per employee is about $1.4 million Between 2002 and 2005, the number of US auto production workers

decreased 8.5 percent; shipments increased 5 percent

Capacity: A typical plant produces 200,000 vehicles annually

Flow Time: Efficient plants require 15 to 25 labor hours per vehicle

Product Mix: 45% cars and 55% light trucks (including SUVs)

Supply Chain Management: As many as 15,000 parts pervehicle

Manufacturing Costs: Material costs 70% of selling price

Operations


Ford & Toyota GM & Toyota

GM & Exxon Toyota & Exxon


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U.S. Lig ht Vehic le Retail Sales - February 2009

Feb 2009 Feb 2008 %Chng.

General Motors Corp. 126,170 268,737 -53.1%Total Cars . . . . . . . . . . . . . . . . . . . . . . 53,813 107,592 -50.0%

Total Light Trucks . . . . . . . . . . . . . . . 72,357 161,145 -55.1%

memo: Saab. . . . . . . . . . . . . . . . . . 712 1,734 -58.9%

Ford Motor Company 99,050 192,178 -48.5%Total Cars . . . . . . . . . . . . . . . . . . . . . . . . . 36,765 63,270 -41.9%

Total Light Trucks . . . . . . . . . . . . . . . . . . . 62,285 128,908 -51.7%

memo: Volvo. . . . . . . . . . . . . . . . . . 3,356 7,505 -55.3%

Chrysler LLC 84,050 150,093 -44.0%Total Cars . . . . . . . . . . . . . . . . . . . . . . . . . 18,761 49,494 -62.1%

Total Light Trucks . . . . . . . . . . . . . . . . . . . 65,289 100,599 -35.1%

Toyota Motor Sales U.S.A. Inc. 109,583 182,169 -39.8%

Total Cars . . . . . . . . . . . . . . . . . . . . . . . . . 64,956 101,926 -36.3%Total Light Trucks . . . . . . . . . . . . . . . . . . . 44,627 80,243 -44.4%

PASSENGER CARS 341,855 554,982 -38.4%

LIGHT TRUCKS 347,054 620,937 -44.1%

TOTAL LIGHT VEHICLE SALES 688,909 1,175,919 - 41.4%

Product Mix

20

40

60

80

100

95 96 97 98 99 00 01 02 03 04Year

Chevrolet Ford Toyota

Inventory Performance in the US Auto Industry

ProducerDays of

Supply

No. of

Dealers

Sales per

Dealer

Total

Sales

Chevrolet 73 4227 627 2,652,244

Ford 74 3939 795 3,129,397

Toyota 42 1200 1251 1,501,322Averages during years 1999-2004

Inventory Turns

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Competitive Advantage

The Ford Focus reign as the top-selling Cash for Clunkers

vehicle appears to be over at least for now. Several reportshave emerged indicating that the Toyota Corolla has taken overas the car attracting the most clunker trade-ins

Some of the momentum gained by the Corolla might be due inpart to better availability on dealership lots. Many Ford storesreported earlier this week that inventory of Focus models hadessentially been depleted by the program. Galpin Ford, thelargest Ford dealership in the world, showed no Focus coupes orsedans in stock, while Longo Toyota, the largest Toyota dealer inthe U.S., showed more a stock of more than 40 Corollas.

Both dealerships are located in the Los Angeles area.

LeftLanes.com, August, 6th, 2009



What are the issues with the seatinstallation?

What should Doug Friesen do?

Toyota Production System

Relevance of TPS to business Cultural factors

Generalization to other contexts

The Cost of Stopping the Line

The Seat Problem: What was really done?

Agenda

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What is this case about?

What are the issues with the seat installation?

What should Doug Friesen do?

Case Discussion


Just-In-Time (JIT) Production

Jidoka

People

Kaizen

Elements of TPS

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Produce only what is needed, only how much isneeded, and only when it is needed.

Elements of TPS: JIT Production


Jan Feb Mar Apr May

Initial ProductionPlanning Order

(PPO)

PPO Revised

PPO is fixed and iscalled the Total

Vehicle Order(TVO)

TVO is brokendown weekly

Final parts orders to suppliersand daily productionsequence for the 1st week ofMay are finalized

Production Preparation

Production forthe 1st week ofMay

JIT Production: Production Control

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Evening out (balancing) the total order in the dailyproduction sequence

Variety in May 1992: 23 sedan and wagon models,11 exterior colors, 29 interior variations & 30 otheroptions

Benefits Level production

Less risk of inventory obsolescence

Synchronization with sales

Challenges and complexities Reduce setups to allow frequent changeovers

Incorporate production schedule in material andinformation flows

JIT Production: Heijunka


Every parts container carries a Kanban card including part code #, description, batch size, delivery address,

Card physically travels with the container and then backto the supplier

Pull production: only a Kanban triggers the production of

parts

Information flow is embedded in the process.

Inventory control: amount of WIP inventory is closelylinked to # of Kanbans

Actual daily production sequence is given by Kanbancards, not heijunka.

JIT Production: Kanban Cards

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Make any production problems instantly self-evident and stopproducing whenever problems are detected

Build in quality in the production process

Any deviation from value addition is a waste

Value is defined from the viewpoint of the next station down the line

Standardize the process and document standards

Work chart: cycle time, sequence of tasks, breakup of cycle time intothe tasks

Colored tape to mark where everything belonged

Andon cord

Why detect problems when and where they happen?

What are the costs and benefits of pulling the andon cord?

Andon board

Highlight problems to successively higher levels, e.g., Code 1status

Elements of TPS: Jidoka


Patiently select and invest in peoples knowledge and

skills One-on-one coaching Learn by doing: continuous improvement

Worker: training and discipline to add value and improveprocesses; solve problems by root cause analysis andcountermeasures (Employee Empowerment)

Team Leader: most knowledgeable/skilled in work zone;best leader-teacher.

Group Leader: Experience as a team leader plus broadersystem knowledge

Assistant Manager: Broader skills and knowledge

Role of managers: strategic thinking, not fire-fighting.

Elements of TPS: People

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changing something for the better

Improve the standardized work, equipment, andother processes for carrying out daily production.

Eliminate waste in seven categories

1. Overproduction 5. Blocking & starvation

2. Inessential handling 6. Non-value adding processes

3. Excess inventory 7. Inefficient Motion

4. Corrections necessitate

by defects

Elements of TPS: Kaizen


Eliminate fear: Separate the people from the problem

Root cause analysis: 5 Whys

Quality control department Setting quality standards

Design quality; Supplier specifications Inspection during final assembly

Assembly quality problems

Parts quality problems with suppliers

Following through on customers experience

Quality Control at TMM

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If the line stops for one cycle (57sec) then the costwould be

1. The value of a car $18,500.

2. The profit margin per car 17% of $18,500 $3,145

3. The variable (labor) cost of a cycle $0.269 per worker

TPS: Cost of Stopping the Line


Lost production is made up using overtime (@ 50%extra wage rate).

One car is produced every 57 seconds (cycle time).

If the line stops for about 1 minute, then the cost ofthe stoppage is OT required to produce 1 car.

Various areas of the plant are buffered from eachother with a small inventory; e.g., Final 1 and Final 2in Assembly by a few cars, Assembly & Paint line byabout 30 cars, etc. Implication: Short line stops affect only a part of the plant,

but long stops can affect the entire plant.


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For example, if shut down is for 1 minute in Final 1,then only that segment is shut down

# of people in Final 1 = 30.

OT / person-min = ($17/60) * 1.5 = $0.425 per minute.

Total OT/min = 30 * 0.425 = $12.75 per minute.

If stoppage is long enough to affect all of the assemblyline, then OT is paid to 769 workers = 769 * 0.425 =$327 per minute (with team and group leaders) = 1019* 0.425 = $433 / min.



Facts: 12 andon pulls per team member with 1 actual stoppage

Standard time per shift = 450 minutes

Run ratio = 85-95%

Lost production per shift = 5 to 15% of 450 minutes= 22.5 to 67.5 minutes.

Consider Final 1 with 30 people # of cord pulls = 30*12 = 360

# of stops per shift (1 in 12) = 360/12 = 30 stops

Avg. downtime per stop = Total downtime / Totalstops = [22.5/30, 67.5/30] = [0.75, 2.25] mins perstop.

TPS: Impact of Cord Pulls

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Cost of not stopping the line: Need for rework

Propagation of defective products through the system

Excessive waste

Difficult to attach a $ number to this phenomenon

Toyota Philosophy:

the risk of snowballing waste is such that stopping the line ispreferred to not stopping the line even if the cost of notstopping is not quantifiable.

Cost of Not Stopping the Line


Cost of stoppage easy to compute Short stoppages have very little cost

Benefits are huge but hard to estimate Quick identification of defects

Fast feedback

Continuous improvement

Buffering between line segments limits impact ofstoppage

Seat Problem: If problem is diagnosed but notsolved yet, then do not stop the line. Instead, collectproblem cars in the overflow area and repair themlater

TPS is pragmatic !

TPS & the Andon System

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The good things I saw [at Tsutsumi] werejust common sense and no big deal at all.My eyes werent open back then.

- Doug Friesen, Manager of Assembly,

Toyota Motor Manufacturing,

Georgetown, Kentucky, Plant.

A Quote


May 1: Managers, including Doug Friesen, have justlearned about the seat problem, long after it hasbecome one

Implies that TPS has not been appliedcorrectly/completely in this case

Two problems: seat defects and the fact that it has not been

recognized for a while No one knows what the real cause of the problem is

What must be done: Install new mechanisms for managers to learn about what they

need to know

Managers should be forced to confront the symptoms as soonas they arise and trace them to root causes (Jidoka)

The Seat Problem

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Seat reorder form was revised KFS stationed QC engineers at TMM seat receiving area

To discover more about the problem

KFS: altered lighting in their final inspection area

Friesen guessed that insufficient lighting could havebeen a problem at KFS inspection area

Clearly marked area within the overflow area for seat-

defective cars When this space was filled, a mini-May 1 type meeting

would be held to give immediate feedback to KFS.

Actions Taken after May 1(not in the case)


Bulletin board in the overflow area with 8 slots fordifferent kinds of defects and a copy of the reorder formwas placed in these slots What defects are common?

How fast are replacements arriving?

Jidoka procedure:

Number of seat defected cars in the overflow area reaches fourArea group leader calls in an asst. manager of assembly andKFS people to review the situation

Number of seat defect cars in the overflow area reaches six

Area group leader calls in the manager of assembly and KFSpeople to review the situation. KFS ships replacement in anhour


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More kaizen training to group and team leaders Training for KFS

By the end of May 1992: heightened awareness of seatdefects, faster problem-solving cycle

Results: weekly defect counts fell by 25 %

Continued improvement even after the introduction ofseveral new models in the summer

Summary of the seat problem:

Managerial Problem stemming from the lack of a system that

helped people autonomously improve the status quo Such problems will always occur in a dynamic environment and

a relentless pursuit of the cause of the defects andopportunities for improvement is necessary



Toyota: has been intensively researched anddocumented

Practices (kanbans, for example) have been copied inmany other companies.

Many companies have tried to develop their ownversions of the TPS and have failed

Reasons are NOT country/continent related Even Nissan and Honda could not

TPS has been introduced successfully in Toyota, NorthAmerica

Why is it so difficult?

Decoding the DNA of the Toyota Production Systemby Steven Spear and Kent Bowen, Harvard Business Review 1999

More on Toyota Production System

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WSJ: Sept. 03, 2004

Why is it so difficult?


Key Idea: TPS is not just the tools and practices visibleto a visitor

Key Idea: TPS creates a community of scientists

Every new initiative establishes a set of hypothesis whichare tested

The scientific method is intrinsic to the system

Rigorous problem solving approach: Detailed assessment of the current state

Detailed plan and documentation for improvement

Experimental test of proposed changes

Reliance on such a scientific method stimulatesworkers and leaders to make Toyota a continuouslylearning organization

More on the Toyota Production System

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Skilled workers; Invest in training and standardizationof processes.

Integrate quality into the design and the productionprocess

Integrate your suppliers

Instant feedback in case of problems. Do not delegateto QC inspectors

Do not create waste

Continuous Improvement

Key Learning from TPS


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