17 May 2012

Lean times at Toyota

Published:: 01 April 2010
Byline:: John Lamb

The crisis at Toyota, which will see the company test and modify more than eight million potentially faulty vehicles, at an estimated cost of 1.5bn euros, raises important questions about the management of the company's supply chain. For more than 30 years, its approach to manufacturing, known as the Toyota Production System, has been a model for the automotive industry. The company adopted what has come to be called lean thinking: constantly considering ways to cut down on waste.

Toyota developed concepts such as poka-yoke (reducing mistakes), kaizen (improvement), and just-in-time production. The company also put great stress on "the voice of the customer" using focus groups rather than statistical research to gather feedback on its products.

The company's rigorous approach to manufacturing - the Toyota Way - was not just applied to its factories but pervaded every aspect of its business. The approach has been widely copied. For example, the UK warehouses of 3PL Unipart are run along lean lines.

Yet despite a legendary attention to detail, the number of product recalls rose during the past ten years. Toyota's breakneck speed of expansion, fuelled by a desire to overtake America's General Motors, is cited by many commentators as the major cause of increasing faults.

The race to become the world's largest automobile maker resulted in overworked employees, too much emphasis on meeting sales targets and immense pressure on Toyota's all-important network of suppliers to cut costs and work more closely with the firm. It is significant that Toyota cut the number of parts suppliers. For many components there is now only one worldwide supplier, making it harder to spot defects and leaving Toyota vulnerable to errors.

"Design and specification down to a price risks long-term quality and reliability unless that is recognised in the planning and processes," observes Alan Braithwaite, chairman of LCP Consulting and visiting professor at Cranfield School of Management. "There is no substitute for rigorous governance and risk management of the supply chain but when you are winning these foundations are easy to ignore. Market leaders who try to exploit their position to drive profitability through sourcing and supply can easily become blind to the risks they are stacking up."

As those chickens came home to roost, Toyota was unable to respond quickly enough to safety issues, certainly as far as American consumers were concerned. The company's deliberate engineering culture got in the way and resulted in a public relations disaster.

Could Toyota's woes have been avoided? The short answer is yes; if managers had acted more determinedly. It is telling that one of the key actions announced by Akio Toyoda, Toyota's new president, is a return to a practice called genchi genbutsu, which involves managers finding out for themselves what is going on in the organisation.

Some believe more outside oversight might have done the trick. "It is time for shareholders to start asking questions about supply chains and take on more responsibility," says David Noble, chief executive of The Chartered Institute of Purchasing & Supply. "It's rare to hear analysts and shareholders interrogate companies about their supply chains but they need to realise that they can't drive more efficient, price-effective models without asking whether product quality has been compromised."

Others say Toyota's lean thinking may have hampered its supply chain visibility. "We can ask the question whether Toyota's lean concept has caused a lack of collaboration across its supply chain," says Ronald Teijken, marketing executive at Sterling Commerce. "Developing similar products for use across many different car models has resulted in a major recall of products."

A recent study by IBM revealed that the lack of visibility was greater within the automotive sector compared to other industries. Another study by Aberdeen claimed that the three least visible events in the supply chain from an inbound perspective were: raw material arrival, supplier production and projected production planning.

In one area, lean will certainly add to Toyota's headaches. The manufacturer has been very successful at saving money by reducing its dealerships in North America, which, ironically, has also cut the number of mechanics available to carry out modifications to recalled vehicles.

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