4.2.1 Toyota’s mission
Toyota has made substantial long-term investments in Europe with the aim of designing and manufacturing vehicles that meet the needs of European customers. Guided by a clear vision of a sustainable future, It has developed a wide range of vehicles powered by advanced petrol, clean diesel and hybrid engines.
- Towards a prosperous society
Ever since the founding of Toyota, it has aimed to contribute to the creation of a prosperous society. It wants to grow as a company together with its stakeholders, including customers, employees, shareholders, business partners and society at large. To realise this ambition, it conducts the business operations with the utmost honesty and integrity.
- Commitment to the environment - aim: zero emissions
Minimising environmental impact throughout the vehicle's lifecycle has always been a top priority. Thanks to the extensive Research & Development efforts, it has taken a leading role in developing and marketing new technologies and designs that limit the environmental burden of our cars. These efforts have become a hallmark of Toyota’s business philosophy for the 21st century, an approach which is based on a vision of sustainable mobility.
Toyota’s goal is to turn customer satisfaction into Complete Customer Satisfaction. This means delivering beyond expectations to ensure that owners feel positive about Toyota vehicle at every stage of the customer experience. Toyota’s ongoing drive for excellence ensures that customers can experience its highest standards of quality, safety, performance and driving pleasure.
4.2.2 Operation strategy
Toyota’s operations strategy focuses on maximum reliability, easy maintenance of its cars in each class, production systems that includes product design, processes, and supply chain management focused on its goal.
Fewer man-hours, less inventory, this is how Toyota is. They consistently have the highest quality cars with the fewest defects compared to its competitors in the manufacturing (auto) industry. Its well-known “Toyota Production System” (TPS) or “Lean Production” seems to be Toyota’s secret weapon in improving the speed of its business processes, quality of its product and service, as well as the reduction of costs. The TPS developed as a new paradigm of manufacturing excellence, which transforms businesses across different industries.
This is the very core reason why Toyota, despite the competitors’ effort of imitation, continues to gain market share and huge profits continues on building new plants, retains a harmonious relationship with its supplier and enthusiastic workforce, with its labor costs retained at a lower amount compared to others. It is also described as “the fastest runner in the race” in auto industry. Production efficiency helps Toyota reach that point. Toyota’s record (most productive) of 27.9 hours per-vehicle time surpasses the record of its competitors like Ford and Chrysler. The tools of the TPS seem to work smoothly for them.
4.2.3 Toyota Prius Strategy
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Mission: Toyota is the largest motor company in Japan, and the third largest in the world.
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Goal: Toyota understands the desire for personal mobility, but also the impact on finite resources.
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Strategy: Toyota has established a lead in process - with lean manufacture and product development.
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Tactics: Toyota has now gained a lead in product - with the Toyota Hybrid System.
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Operation: Toyota has secured it with patents, and is exploiting it directly, and through licensing and joint ventures.
To formulate an effective strategy, Toyota managers must take into account the distinctive competencies of the organization, and they must scan the environment. They must determine what competitors are doing or planning to do and take that into account. Toyota must critically examine other factors that could have either positive or negative effects. This is referred to as the SWOT approach.
SWOT analysis of Toyota Prius
- Strengths: better fuel efficiency than other similarly sized cars, comfortable and quiet ride, smooth acceleration and braking without gear changes, spacious interior, bristling with all sorts of hi-tech features, extremely high customer satisfaction, low pollution, performance is good for normal use - no problem reaching and exceeding normal cruising speeds or ascending steep hills.
- Weaknesses: remains reliant on fossil fuel, more expensive than other similarly sized cars, fuel economy can be highly dependent on season, climate, and driving style, specialist attention needed for servicing and repairs.
- Opportunities: evolution into a "Plug-in Hybrid" with higher capacity batteries and a drive train designed to operate for extended periods in electric-only mode, spread into other market sectors (already happening at the top end with Lexus hybrid models) and increasing awareness of environmental issues likely to keep demand high.
- Threats: various rumors (usually false) continually circulated attempting to undermine its credentials , may serve to decrease credibility or consumer confidence... e.g. the batteries need replacing every year and are really expensive, or Prius is more damaging to the environment than a Hummer, if fuel prices fall significantly, consumer interest in fuel economy may wane.
In formulating the successful Toyota Prius strategy, Toyota must take into account the order winners. Order winners are those characteristics of Toyota Prius that cause them to be perceived as better than the competition
Toyota Prius & its competition:
Toyota Prius is the first thing that comes into customers’ minds when they talk about hybrid cars ( a car with 60 miles per gallon ). Even though there are many other cars like Civic Hybrid, Porsche Cayenne , Panamera that claim to be the best, Prius was & is the ultimate benchmark in this segment. The first generation car was a petrol-electric trailblazer and has earned a place in automotive history. The third generation hybrid from Toyota is definitely going to face more competition .Even though the third generation hybrid that has been launched now looks quite similar to its older siblings; the new hybrid is much faster, agile like regular cars, has more mileage & more over is built with better quality materials. In the pricing aspect, Prius will be competitively priced and that the specifications & equipment levels will be different from the U.S version. And there will be a couple of features only the Australians will have the privilege to enjoy, which is great news. "We are selling a Prius. But we keep an eye on all our competitors." says Mike Breen of Toyota Australia ,which is quite a great statement as it ensures that the new Prius may be better than the competition.
4.3 Productivity
Productivity is one of the primary responsibilities of a manager to achieve productive use of an organization’s resources. Productivity has important implications for business organizations and for entire nations. For nonprofit organizations, higher productivity means lower costs; for profit-based organizations, productivity is an important factor in determining how competitive a company is. For a nation, the rate of productivity growth is of great importance. Productivity growth is the increase productivity from one period to the next relative to the productivity in the preceding period. Productivity growth is a key factor in a country’s rate of inflation and the standard of living its people.
Over the years, Toyota Motor Corporation has experienced an ever increasing volume of vehicles. Productivity has been an important factor for the Toyota.
4.3.1 Toyota led in total productivity in 2007.
- Productivity in manufacture 2007:
Toyota was the top-ranked automaker in the 2007 Harbour Report on manufacturing in North America, with a combined 29.93 labor hours per vehicle. That score covers stamping, engine production, transmission production and vehicle assembly. Toyota’s total manufacturing hours per vehicle, was not as strong as its 2005 performance of 29.40.
Toyota’s Georgetown No. 2 plant, which produces the Camry and Solara, ranked 10th. Overall, Toyota’s assembly performance declined 3.3 percent from 2005. Despite a 13 percent increase in North American sales, Toyota’s North American production volume actually declined 4 percent at the five assembly plants participating in The Harbour Report North America.
Recently, Toyota accomplished a 9 percent year-over-year improvement, outpacing the industry while achieving its best PPH (problems per hundred) levels ever. The company won four segments: Camry (Cars), Fortuner (SUV), Tundra (Trucks), Prius (Hybrid) and its TMMK Toyota Manufacturing Kentucky, Inc, assembly plant receive the honors plant award. Toyota are pleased that Georgetown, Ky, transmission plant was number one for the second year in a row. But it's clear that all manufacturers are upping the game and Toyota need to focus on improvements to stay in front.
Some of Toyota’s productivity highlights in the Harbour Report include:
- At 29.93 total labor hours per vehicle (including assembly, stamping, engine and transmission manufacturing), Toyota improved its overall manufacturing productivity slightly by 0.2 percent from 2006
- Toyota has the top transmission plant in North America.
Georgetown, Ky, transmission plant, ranked #1 at 2.37 hours per transmission.
- Toyota has three of the top 10 assembly plants in North America.
+ San Antonio #1, ranked #2 at 15.18 hours per vehicle.
+ San Antonio #2, ranked #3 at 16.17 hours per vehicle.
+ Turdra, ranked #7 at 18.12 hours per vehicle.
- Toyota has two of the top ten stamping plants in North America, based on the Stamping Index.
+ Buffalo, West Virginia, ranked #5
+ San Antonio, ranked #9
- Toyota has five of the top 10 engine plants in North America.
+ Fremont, California, ranked #2 at 2.53 hours per engine.
+ Huntsville, Alabama, ranked #5 at 3.07 hours per engine.
+ Tijuana, Mexico, ranked #6 at 3.09 hours per engine.
+ Cambridge, Ontario, ranked #7 at 3.19 hours per engine.
+ Princeton, Indiana, ranked #10 at 3.46 hours per engine.
- Toyota led in three engine segments--up one from last year.
+ Delta, B.C, ranked #1 in 8 cylinder overhead valve.
+ Long Beach, CA, ranked #1 in 6 cylinder overhead valve.
+ Blue Springs, ranked #1 in 6 cylinder overhead cam.
Toyota Motor Corp. led all North American automakers in manufacturing productivity in 2007 .Toyota also continues to improve productivity in other areas of its business.
Moreover, in the early of 2007 , Toyota planned to sell 10.4 million vehicles globally in 2009, a sales target that would put the Japanese automaker ahead of a record hit by world leader General Motors 30 years ago.
The company planned to boost sales not only in North America and Europe, but also in emerging markets such as Brazil, India, China and Russia. Sales in Japan, though, were expected to stay relatively flat.
In 2007, Toyota Motor Corp's global vehicle sales rose 5 percent in October to about 640,000 units, marking the first year-on-year increase in 15 months, Kyodo News reported .At the same time, Toyota's sales in its biggest market, the United States, fell 3.5 percent, but grew 15 percent in Japan and 45 percent in China.
4.3.2 Productivity Improvement Program
Toyota use the productivity improvement programs on the analysis of losses in the production process. Toyota Motors Corporation is one of the leaders in developing new approaches in production efficiency. Its program to improve productivity has been based on a critical review of company wastes .Among wastes analyzed are overproduction, idle time of workers and equipment, transportation delays, poor quality, etc. This analysis was used by the Toyota Motor Corporation to evaluate and improve the combination of equipment and processes to make the company more productive. Alan Lawlor (1985) presented a waste analysis as part of his productivity method study. He also classified the areas of waste and showed their influence on productivity.
Investigating these and other examples of loss-based analysis and productivity improvement, we may conclude that the following: labor and material loss play not only a great role as a productivity analysis base, but they also appear as an active element in productivity growth. However, Toyota does not use quantitative measurements or quantitative techniques to evaluate the real influence of loss on the productivity movement. The main idea of this is to base productivity improvement on a new measurement system that fully describes the productivity behavior according to loss variation. The system should be able to produce scientifically based recommendations in productivity improvement. The assumptions of this approach are:
- Achievement of significant productivity improvement without major expenses.
- Elimination of the loss as a main basis for productivity growth.
- Consideration of all possible losses.
- Creation of an appropriate model describing loss influence on productivity.
4.3.3 High technology in productivity
Numerous factors affect productivity. Generally, they are methods, capital, quality, technology and management. A commonly held misconception is that workers are the main determinant of productivity. According to that theory, the route to productivity gains involves getting employees to work harder. However, the fact is that many productivity gains in the past have come from technological improvement. Actually, technology alone won’t guarantee productivity gains; it must be used wisely and throughout fully. Without carefully planning, technology can actually reduce productivity, especially if it leads to inflexibility, high costs or mismatched operations.
In this situation, we can see clearly that the factor affecting Toyota productivity positively is high technology. With oil prices so high, everyone is focusing on making their vehicles as fuel efficient as possible. And, as far as the big car manufacturers are concerned, no one does this better than Toyota. We can say that, dual powered engine really helps Toyota Prius.
About Toyota Prius with dual powered engine:
Toyota Prius is the first hybrid-powered production car in the world. It is claimed to cut pollutants by 90%, fuel consumption by 50% and CO2 emission by 50%.
Prius' hybrid system consists of a 1.5-litre lean burn engine and an A.C. induction electric motor. They are so compact that they are mated in-line, mounted transversely in the front and drive the front wheels like ordinary FWD cars. They can power the car individually as well as simultaneously. The transition is smoothly implemented by means of planetary gears located between them.
The fuel tank is unusually small, since Prius drinks 50% less fuel than conventional cars. Electric motor is supplied by the 40 pieces of Ni-MH (Nickel-Metal Hydride) batteries located above the rear axle. The batteries weigh a lot less than pure electric cars because of the help from petrol engine. Moreover, they will be automatically recharged by the engine when electricity level is low.
II. System Design.
1. Product design.
Design Characteristics:
1.1 Define Product
Toyota defines as clearly as possible what the automobile market desires, without either overshooting or undershooting on performance, features, and quality. Voices of the customer tools are applicable during this first step. Some tools and methods are used by Toyota to consider include:
- A lean and more efficient version of quality function deployment (QFD).
- Probe and learn feedback techniques.
- Market or customer surveys.
- Focus groups.
- Kano methods are used to identify spoken and unspoken customer needs.
List of Customer needs:
Environmentalism / Politics:
- Want to drive a car that is consistent with genuine concern for the environment.
- Want to protect the environment by emitting less pollution.
- Want to reduce dependence on oil imports.
Fashion / Vanity:
- Want to be more attractive and “cool” by driving the “in” technology.
- Want to be on the cutting edge of technology.
- Want to set an example for others in family, peer group, and community.
- Want to appear to be “green” “Conspicuous environmentalism”.
Economics:
- Want to spend less money on gasoline.
1.2 Establish Product Line Optimization Team (PLOT).
With a reasonably clear product definition in hand, Toyota can convene an appropriately chartered Product Line Optimization Team (PLOT). This team will consider how new products fit within existing material inventory, processes, factory layout, core competencies... Process capability is evaluated against proposed specifications.
This PLOT will provide some specific recommendations for improving the synergy and manufacturability of product to the development team at the kick-off of the project.
The PLOT also increases a product roadmap to guide product development through the expected life cycle of the product line.
1.3 Determine Target Cost.
Once their project is underway, design requirements are prioritized based on customer benefits and needs. A target cost is established. Toyota develops a preliminary cost model to put some teeth into the target cost. This is a tool that designers can use early in the conceptual design. This model will evolve over time to become an accurate representation of the actual cost at volume for the new product.
1.4 Translate Requirements into Specifications.
The design team of Toyota uses Value Engineering techniques to generate a broad and innovative list of design alternatives for new products. Toyota has successfully used this “set-based” approach to generate and consider a broad spectrum of possibilities before selecting the final concept. The design team uses a simple cost and performance trade-off tool to determine which concept has the best combination of manufacturing costs and customer values. To ensure the final design choice represents the best balance between customer needs, quality and cost, Toyota usually evaluates alternative designs against twenty cost factors in five categories:
- Direct Labor.
- Direct Materials.
- Assignable Capital
- Design Costs.
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Factory Overhead.
1.5 Design at System Level.
Upon arriving at an optimal concept, the design team consults the product line roadmap. From this forward looking document, Toyota identifies opportunities to extend and customize their products. Platform design considerations are incorporated into the rapidly solidifying design. Toyota also considers scalability, modularity, and mass customization strategies as ways to capture economies during future product line expansion.
1.6 Design at Detailed Level
While detailed design starts, Toyota determines the compatibility of the new design to existing and planned manufacturing processes. Six Sigma methods are used to evaluate trade-offs relating design tolerances, process capabilities and costs of poor quality.
To optimize design variables or controllable process parameters, Toyota uses a powerful Six Sigma methodology called Design of Experiments (DOE). DOE is the only method capable of dealing successfully with the usual situation of multiple design and process variables having interactive effects on product performance. The traditional practice of testing one variable at a time is ineffective in this situation, even counter-productive. DOE has the additional capability of “robust design”—designing a product to perform consistently in the face of uncontrollable manufacturing or use-environment factors.
1.7 Production Preparation Process (3P)
To ensure smooth and rapid transition of new designs to the factories, Toyota considers the manufacturability of their products from the standpoint of touch labor, standard materials, cell-layout, task time, capacity... A model for this “Production Preparation Process” (3P) has recently emerged from studies of the “Toyota Way.”
Although this is the final step, these considerations are addressed, in developing levels of detail, throughout the first six steps as well.
The seven-step Lean Design process is an integrated approach to new product development. It will reduce the time to market and improve the market acceptance of Toyota new products. It will capture manufacturing cost reductions that are inaccessible to after-the-fact applications of Lean and Six Sigma.
2. Environment Issues
There are certain obligations that Toyota has as an automobile manufacturer. Toyota seeks to contribute to the creation of an abundant society by providing automobile products, while also engaging in activities to hand down to future generations the earth’s environment and its natural resources. Their approach is to seek to realize sustainability in the three areas of technology, manufacturing and social contribution.
2.1 Technology
Toyota offers vehicles that meet the needs of society and the environment by conducting R&D on vehicles that take both safety and the environment into consideration
2.2 Manufacturing
Toyota pursues manufacturing that is in harmony with nature from the vehicle production stage to distribution and recycling rather than thinking of vehicles as a mere product.
2.3 Social contribution
Toyota develops social contribution activities to continue to achieve improvements in society, including the fostering of human resources for the future and support in such areas as the arts, culture and community care
3. Why do Toyota’s products succeed?
Toyota products are successful because they:
3.1 Provide private benefits to the customer:
A successful product, by definition, provides benefits that gratify a consumer’s needs and wants. Product benefits can be intrinsic (e.g., pleasure that results from owning or using the product) or extrinsic (e.g., monetary value generated from owning or using the product). Toyota products merit exists on both dimensions and therefore extends relevance to multiple consumer segments.
The core Toyota advantage is simple to understand: the car requires less gasoline to run, and is therefore cheaper to operate. Such a straightforward value proposition is not necessary for a successful product, although it helps.
Toyota products deliver a significant increase in gas mileage that lowers the operational cost of an automobile and adds to a driver’s disposable income. The more you drive, the more you “save.”
In order to save money, Toyota saves time spent at the pump, creates intrinsic pride for its owner as a responsible consumer, and provides consumers with a role in addressing environmental concerns. The latter benefit often is overlooked by companies outside niche industries; however, with societal challenges such as global warming and foreign oil dependency becoming more prevalent, customers increasingly want to feel like they are part of the solution, and Toyota makes this possible.
3.2 Provide public benefits without requiring customer sacrifice.
For Toyota, the private benefit leads to public benefits: less gasoline use leads to less pollution, less greenhouse, gas emissions, and less dependence on foreign oil. Car buyers often consider these three characteristics, along with gas savings as the most important reasons to buy a hybrid car.
It’s important to notice that Toyota provides these public benefits without requiring private sacrifice: it’s a hybrid car, but it meets or exceeds the standards set by conventional automobiles, therefore customers who choose Toyota will not feel they are giving up benefits such as performance or style.
It has been amply demonstrated that the majority of consumers will choose green products only if they are substantially equivalent to, or better then, the conventional alternatives. However, green products which meet or exceed the standards of substitutes are able to charge a premium, and this appears to apply in the case of Toyota products.
Positive public perception awaited hybrid vehicles. Immediately upon its appearance, Toyota products were profiled as an environmentally, friendly, progressive, civic-minded automobiles.
Car owners knew that driving a Toyota product provided a public benefit. At the same time, Toyota cars didn’t compromise quality, functionality, or safety. Ratings of the vehicle consistently rank it high on all the factors that are important to car buyers, including comfort and driving experience Style and power were initially a concern, but Toyota listened to customers after its initial launch of their products, and retooled it into a modern, fashionable car with a more than adequate 110- horsepower engine.
3.3 Generate peer-to-peer buzz
To succeed in the global automobile market, Toyota must balance usability, compatibility, complexity, and risk from the perspective of the driver without losing the feel of a next generation automobile. Over time, Toyota succeeded on all fronts, creating cars that drivers love to evangelize.
Recent surveys have shown that fuel savings, specific technological features, and environmental benefits are the best-liked and most discussed attributes of a hybrid car. Almost every Toyota products owner loves to discuss his automobile, how it works, and how it makes him feel.
Every car implicitly associates its owner with a particular set of values. Owning a Toyota car, and talking about it, makes a driver look and sound smart, politically and technologically savvy, and socially conscious. This will leads to a positive feedback loop, whereby the more a Toyota product owner talks about his car, the better he feels about it, and the more inclined he is to continue to evangelize.
To feed this cycle, Toyota humanized some new and unfamiliar technologies within their products, by providing many clearly understandable real time graphical displays that helped the driver understand how the hybrid technology worked and how it affected the car’s efficiency while driving.
3.4 Are publicly recognizable.
Successful brands have identities those consumers inherit by wearing, operating, or associating with their products. Labels, logos, shapes, and other unique design characteristics help customers distinguish one brand identity from another. In its 2004 redesign, Toyota reconceived their products design, in styles that set it apart from all other automobiles on the market.
As a result, their products are instantly recognizable. Toyota products’ distinctive design is thought to add to the car’s appeal because it ensures their cars will never be mistaken for a conventional automobile.
This desire by Toyota product owners for their car to sport a distinctive design has proven to be a shared attribute among hybrid consumers: hybrid surveys reveal consumers like their hybrids to have a noticeably different design or at least reveal in some way that the car is a hybrid.
3.5 Connects the product and its use with the private and public benefits it generates.
Toyota designed the interior of their products to reinforce customer behavior, and to call attention to the product’s most important differentiating quality: fuel efficiency.
Inside the vehicle, a dashboard console helps drivers understand when the two energy mechanisms (the gasoline engine and the battery) are engaged, how power is flowing, and how this affects gas mileage as the car is being driven.
This graphical display communicates complicated electrical concepts clearly to even techno phobic customers, and as it does so, it constantly connects the consumer’s behavioral choices (driving technique) with their products’ private benefits (fuel savings) and public benefits (reduced emissions). By showing drivers how their use of the gas and brake pedals affect gas mileage; it continually reminds the drivers that fuel efficiency is as dependent on the driver as it is on the technology. And by showcasing high mileage as it is being achieved, it continually shows drivers how much more efficient and environmentally friendly their products are in comparison to conventional automobiles.
3.6 Reflects a consistent corporate strategy.
Financial markets reward short-term goals, but a lasting brand innovation often takes years to develop, design, and refine. Toyota developed the hybrid engine for 9 years before driving the car onto showroom floors in the US and still sales were considered moderate, at best, in the first few years. Toyota understood their challenges associated with deploying a new technology in the market; they remained persistent, and continued to improve the features, styling, and performance of the car in response to consumer feedback.
4. Products Development System
Some of these key challenges involve Toyota Products Development System include:
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A new approach to engineering leadership: a re-thinking of engineering management roles and skill sets.
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A new approach to knowledge management: new systems for storing, accessing and using engineering data.
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A new approach to design variations: implementation of set-based concurrent engineering.
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A new approach to the development process: less focus on process standards and more focus on product standards and design results.
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A new organizational design: creation of the “Big Room” and use of visual management for the development process.
KEY ELEMENTS OF THE TPDS
Current Flow of Toyota Products and Service.
This diagram shows the global flow of products and services for Toyota Motor Corporation. Toyota is the very top long bar and their customers are represented by the long bar at the bottom of the diagram. The process for Vietnam is contained on the right hand side of the diagram. It is important to notice that the position of financial services as very close to the customer.
Services Design
5. Capacity
5.1. Capacity planning.
Capacity planning consists of two aspects: the internal plant capacity review and the supplier capacity review
5.1.1 Internal capacity planning.
Each assembly plant conducts a periodic review of its production capacity. The purpose is to calculate the upper and lower limits of its operations rate for each product. The capacity planning activities are performed on an annual (or, in some cases, a semiannual) basis. However, most major investment to the facilities are usually implemented during the next major model change. For assembly plants, the products are the various vehicle models that are produced on each assembly line. For component or unit plants, the products are the components such as engines and transmission. Using the annual plan volumes as a forecast, each production facility will consider the variables that impact capacity. A key constraint is how much the operations rate varies by assembly plant, the following are some of the variables that impact the operations rate and thus can be adjusted:’
- Direct labor and the flexibility to add workers-or reduce the workforce-and thus, adjust the production rate. Because Toyota strives to avoid lay-off of Toyota employees, most Toyota plants employ some percentage of temporary workers to support the normal production level .If production needs to slow down because of slow demand, then temporary workers can be reduced. On the other hand, if production needs to be increased, then, most likely, temporary workers would be added initially. If the increase appears to be permanent, then some temporary workers would be converted to full-time employees.
- Facility and equipment. Each process must be analyzed to determine the weakest link in the production process. In other words, even if one could add unlimited numbers of workers, there will be some equipment that would not be able to produce at a higher rate. It could be a machine that is used to install a sunroof, perhaps an additional paint booth might need to be installed.
5.1.2 Supplier capacity.
So that potential weak links in the sully chain can be identified, supplier capacity as well as internal capabilities must be evaluated. Because this is a joint responsibilities, purchasing and production control need to work with each supplier to identify any constraints that could restrict the supply of apart. Although most companies focus attention on the upper limit of each supplier’s capacity, it is also important for a supplier to highlight any planned production cutback that would severely impact its abilities to operate. Thus, a result of this capacity planning study is for Toyota to document the upper and lower range of production for each part and supplier.
Proactive steps can be initiated to solve the capacity issue. For example, a supplier could be added if production volume for a part were increasing rapidly. Such a step would provide Toyota with a backup situation in the event its primary supplier has a problem. But there are other reasons that Toyota would consider developing a dual source for some parts. Some of these considerations are risks because of location of suppliers that could restrict supply (e.g. poor weather or the potential of flooding of earthquakes) or the financial stability of the supplier. Thus capacity planning provides a perspective of overall production rate that can be executed across the sully chain.
5.2 Capacity Evaluation
5.2.1 Factories Capacity:
Number of Toyota companies in the world
Toyota Corporation in most parts of the world, manufacturing or assembling vehicles for local markets. Toyota has manufacturing or assembly plants in , , , , , , , , , the , the , , , , , and more recently, , , , , , , , , , the , and .
In 2002, Toyota initiated the Innovative International Multi-purpose vehicle project (IMV) to optimize global manufacturing and supply systems for pickup trucks and multipurpose vehicles, and to satisfy market demand in more than 140 countries worldwide. IMV called for to be made in Thailand, in Indonesia and in the Philippines, for supply to the countries charged with vehicle production. For vehicle assembly, Toyota would use plants in Thailand, Indonesia, Argentina, South Africa and Pakistan. These four main IMV production and export bases supply Asia, Europe, Africa, Oceania, Latin America and the Middle East
5.2.2 Production capacity.
Recently, Toyota has decided to cut its global production capacity in a bid to increase utilization rates at underused plants, though it’s also resuming weekend production at five of its factories in Japan, including some its manufacturing subsidiaries.
Toyota is looking at reducing its global production capacity by up to 10% in response to weak sales in some major markets. Toyota will cut its global annual production capacity by 1 million units to 9 million units, starting from as early as this fiscal year (FY), ending in March 2010. But, local broadcaster claims that the reduction will total only 700,000 units.
According to Toyota spokesperson, the company will suspend production at one of two lines at its Takaoka plant in Aichi prefecture from early 2010 through until late 2011, lowering its overall capacity at the facility by 220,000 vehicles. He declined to comment on capacity reductions at other facilities, but reports claim that Toyota is likely to shut down its New United Motor Manufacturing Incorporated joint venture with General Motors in California (US), which has an annual production capacity of 400,000 units. Toyota is also likely to halt one of two lines at its plant in Burnaston, Derbyshire (UK), which produces mainly Auris cars. This may lead to a capacity reduction of a further 200,000 units per annum. Toyota will also idle the affected production lines in Japan and the UK so that it can improve production in the wake of a recovery in demand.
Meanwhile, Toyota Corporation plans to resume weekend production at five of its facilities in Japan during September in a bid to meet strong demand for its fuel-efficient vehicles and other models. The company will operate its Tsutsumi and Tahara plants in Aichi Prefecture on 12 and 19 September, and the plan has already been accepted by its labor unions. Among its manufacturing subsidiaries, the Kanto Auto Works plant in Iwate Prefecture will operate on two Saturdays to produce the Corolla Rumion car, while Central Motor will operate its plant in Kanagawa Prefecture for three additional days in September to produce small cars for sale in North America. Daihatsu Motor's facility in Kyoto Prefecture will operate for two additional days in September. However, the company will carry out this improvement in production using its existing workforce, as the recent recovery in sales could be short-lived.
5.2.3 Employee capacity:
The number of employees in Toyota is about 320,000 persons so far this year. Currently, Toyota has decided to deploy about 900 university-educated first-year employees who entered their company this spring to its factories for about three months beginning in January.
These employees, including those in white-collar and engineering positions, are scheduled to help assemble cars and perform other factory jobs. Though university graduates usually are sent to factories as a part of training, it’s extremely rare for them to join assembly lines in full operation.
Toyota's production sites are facing a labor shortage because its hybrid cars are in great demand. However, it is difficult to employ new workers due to cost-reduction efforts and because future demand is uncertain. To cope with their situation, Toyota decided to utilize its first-year employees to help alleviate the labor shortage for the time being.
These new employees were assigned this month to Toyota's headquarters, branches and research institutions after completing training at factories and distribution outlets.
Their new workplaces likely will be plants producing Toyota's major car models, including the Tsutsumi factory in Toyota, Aichi Prefecture, which has been producing the Prius.
The number of cars that Toyota produced domestically dropped to 140,000 a month in February, when the company was forced to make their largest-ever production cuts.
However, Toyota sales have been improving thanks to the government's introduction of tax breaks and a subsidy system to encourage customers to change to more environmentally friendly cars. The trend is expected to continue before the subsidy system expires at the end of March. To cope with Toyota's plans to produce about 300,000 cars monthly between January and March, the company has been forced to secure more production staff.
Toward this end, Toyota is using support personnel dispatched from its business partners, including car parts makers, since June and began employing temporary workers in October for the first time in 16 months.
However, Toyota likely will be cautious about employing a large number of additional temporary workers, as the company was criticized for its decision to not renew temporary worker contracts.
6. Facility layout.
The assembly line manufacturer of Toyota is large-size. Toyota operates in high-mix, low-volume conditions that require them to be both Lean and Flexible. The foundation for being a Lean and Flexible manufacturer is a good facility layout for achieving delay-free minimum-cost material flows. In fact, the Lean Manufacturing considers facility layout to be an important enabler for waste elimination and delay-free material flow.
Applying the lean manufacturing in facility layout, Toyota has reached many benefits for producing: - Replacing manual methods, such as Value Stream Mapping and Flow Diagrams, with more effective computer-aided methods that can handle a product mix with 250-500 (or even more) different manufacturing routings.
- Get the facility layout correct at the outset.
- Re-arranging/expanding the existing facility.
- Re-locating the existing facility into another building.
- Purchasing flexible manufacturing equipment to replace 2-3 existing machines.
- Installing a flexible manufacturing cell and identify a family of parts that could potentially be produced in this cell.
- Determining how to diversify and rationalize the product mix without introducing chaos and complexity into current operations.
6.1 How to build a car in Toyota’s factory.
With the flexible facility layout and accurate production line, Toyota takes as little as 24 hours to build the car from a roll of steel to the finished vehicle driving-off the production line.
There are over 500 robots in the Weld shop. They are very fast and accurate, and capable of moving at about 1 meter per second and are accurate to within one tenth of a millimeter.
Engine plants handle 11 million kilos of molten aluminums per year.
Approximately 30,000 parts and components (counting every part down to the small screws) are fitted to each vehicle including as many as 550 parts in the engine.
Following is process of how to build a car in Toyota’s factory:
III. Toyota Way and Toyota Production System.
Toyota has the fastest process of product development and become a model of quality, productivity, manufacturing speed and flexibility for all competitors and companies over the world. Toyota can achieves respected success thank to the great combination of Toyota Way and Toyota Production System.
1. Lean Production.
Lean production is a Toyota approach to management that focuses on cutting out waste, whilst ensuring quality. This approach can be applied to all aspects of a business – from design, through production to distribution.
Lean is about doing more with less: less time, inventory, space, labor, and money aims to cut costs by making the business more efficient and responsive to market needs.
Establishment and mastering of a lean production system, Toyota has achieved many following benefits:
- Waste reduction by 80%.
- Production cost reduction by 50%.
- Manufacturing cycle times decreased by 50%.
- Labor reduction by 50% while maintaining or increasing throughput.
- Inventory reduction by 80% while increasing customer service levels.
- Capacity in current facilities increase by 50%.
- Higher quality and profits.
- Higher system flexibility in reacting to changes in requirements improved.
- More strategic focus.
- Improved cash flow through increasing shipping and billing frequencies.
2. Toyota Production System.
Toyota Production System (TPS) is the first production model that had been developed and presented after the 2nd World War by two leaders of the Toyota Group: Eiji Toyoda and Taiichi Ohno.
TPS is an integrated that comprises its management philosophy and practices. It help Toyota manages equipment, materials, and people in the most efficient manner while ensuring a healthy and safe work environment.
The main objectives of the TPS are to design out overburden and inconsistency, and to eliminate waste. The most significant effects on process value delivery are achieved by designing a process capable of delivering the required results smoothly, by designing out inconsistency. It is also crucial to ensure that the process is as flexible as necessary without stress or overburden since this generates waste. Finally the tactical improvements of waste reduction are very valuable.
TPS has been many companies and industries of Japan copied and applied successfully, contributing to the development of the economy of Japan. Now, many companies in different sectors of work (other then manufacturing) have attempted to adapt some or all of the principles of the TPS to their company. These sectors include construction and health care.
2.1 The Toyota Production System House.
The simple house was used to visually describe the Toyota Production System. All other components are inherited to the system. Examples: Safety, Customer First, Heijunka (Leveled production), etc.
There are different versions of the house, but the core principles remain the same. It starts with the goals of best quality, lowest cost, and shortest lead time—the roof. There are then two outer pillars- Just-In-Time, probably the most visible and highly publicized characteristic of TPS, and Jidoka, which in essence means never letting a defect pass into the next station and freeing people from machines—automation with a human touch. In the center of the system are people. Finally there are various foundational elements, which include the need for standardized, stable, reliable processes, and also Heijunka, which means leveling out the production schedule in both volume and variety.
2.2 Production methods.
To optimize the production system, Toyota Motor Corporation connects the benefits of the production craft and mass production. This method helps organizations avoid the high costs of previous production methods; it also overcomes the rigid method of current production methods.
In addition, they recruit a staff of multi-skills at all levels of the organization and use machines with high flexibility and automation to produce a large multi-product category.
TPS is defined as the economy-production methods (or Lean Production), because it uses less than all of the resources compared to current mass production methods. For example: it uses only half the number of personnel, half the space of production, half the investment in tools, half time to develop a new product and half time of production compared with mass production methods.
The biggest difference between the mass production method and TPS is the final goal of the company. The mass production manufacturers just set a sufficient limited target, such as giving a number of acceptable errors products, a maximum level of inventory, and a narrow range of standard products. Meanwhile, the economy-manufacturers put goals more clearly to perfection.
2.3 Just-In-Time
TPS is a technology of comprehensive production management. The basic idea of this system is to maintain a continuous flow of products in the factory and adapt dynamically to changes of demand. Manufacturing products in accordance with the amount needed at the time needed is described by the phrase "Just in time".
For example, in a process of assembling the car should have the necessary accessories at time needed with the necessary quantities. If this concept is aware of the factory, the amount of unnecessary inventory will be deleted entirely, so the factory will not need the creation of warehouses and reduce storage costs.
In the TPS, the workers in the process will have to go to the previous process to obtain the necessary accessories with a number needed at the time of need. Then, work of previous process is only producing enough units to replace what was taken away.
2.4 Self-control error
To ensure that production process is implemented right time, 100% good quality products have to run in the priority production line, and this line must operate rhythmically without interruption.
Therefore, management quality is very important and must exist simultaneously with production activities. Self-control error that is building a mechanism that including means to limit the false mass production in machines and production line. Self-control error system automatically checks the unusual point in the process.
Self-control error is a machine with a device installed for stopping automatically. In Toyota’s factories, most machines are automatic, so it can prevent the false mass production and broken down machines will automatically be checked.
The idea of self-control error also extended to the line manually. If there is anything unusual point occurred in the production line, the worker will press the stop button (or pull the cord signal), the line does not stop immediately when the worker press the stop button, rather it continues until it reaches a "fixed position," it will stop unless the supervisor pulls it again to reset it.
Here's how it works. When the worker sees a problem, he or she notifies the supervisor by pressing a button which illuminates a light on the Andon board. The supervisor reacts by speeding immediately (within the worker's job cycle) to the station that is experiencing the problem and makes a set of decisions. The first decision is whether to let the vehicle continue to its "fixed position" at which point the line will stop. That's because if the line stopped immediately, the work of each worker on the line would have been interrupted, causing quality, safety or other problems. So, the work of every worker along the assembly line is tied together, choreographed to start and stop at the same time.
The electric board (called Andon) is hung where people can see it easily. Electronic board system Andon in TPS plays an important role to help self-control error automatically, and also an typical example of "Toyota visual control system”
3. Supply Chain Management
50 years ago, when Toyota began selling cars to U.S., they were imported completely vehicle from Japan, which were made entirely from Japanese parts. Today, while many other manufacturers in U.S. look overseas for low-cost manufacturing and supply, Toyota cars sold in the U.S. are produced at North American factories.
The term “distribution model” defines the method used to distribute vehicles from the assembly plant to the dealers. There are many variations in the distribution model within the automotive industry. At Toyota, the distribution model is different for various regions around the world. For example, the United States, Europe, and Japan all have different models, and in some cases the models vary within a regional area.
Toyota has a set of central core values but allows individual divisions to customize to local conditions, when it comes to supplying to different geographies, different products, or at different times in the product life cycle, the company adapts the design and control of its demand chain so that it has the right demand chain for the right product, in the right place, and at the right time.
3.1 The physical flows of Toyota’s supply chain.
According to physical flows of Toyota’s supply chain above, Parts are produced by suppliers and transported by inbound logistics to the assembly plant. At the assembly plant, the vehicle begins in the body shop, moves to the paint shop, then to assembly, and finally to inspection. Once the vehicle is produced, it is transported to the dealerships via outbound logistics. This process looks very simple; however, it is complex because a vehicle is very large and bulky, it is assembled from thousands of parts that are produced by hundreds of suppliers, and there are thousands of vehicle combinations that could be produced.
- Suppliers: Suppliers provide thousands of parts and components that go into the vehicle.
- Inbound Logistics: After parts are produced by the suppliers, they are shipped to the assembly plants.
- Production: Vehicles are produced at the final assembly plant from the parts provided by hundreds of suppliers.
- Outbound Logistics: Vehicles that are produced at an assembly plant must be transported to each dealer.
- Dealers: Dealers play a key role in the supply chain because they are the face of Toyota to the customers.
3.2 Toyota Supplier Selection.
At Toyota, choosing a supplier is a long, drawn-out process that involves verifying whether the supplier will mesh with the supply network. In some cases, suppliers are selected because they have innovations that improve processes or decrease costs. Both new and existing suppliers are expected to share their innovations with other suppliers that supply similar products. Thus, being a supplier brings along with it an opportunity to receive ideas generated across the supply network. Toyota’s goal is to minimize the number of suppliers and create long-term partnerships by nurturing existing suppliers to expand and grow with Toyota instead of growing the number of suppliers to induce competitive price bidding.
Individual suppliers receive a contract for a fraction of the total market over the life of a model. Suppliers are promised all of the orders associated with a market segment or a fixed fraction of a certain market or all of the orders for a particular car model. The goal of the supplier is to maintain delivery performance, high quality, productivity improvements, and so on, over the life of the model.
3.3 Supplier Location Decisions
Toyota’s planning for assembly plant sites assumes that most suppliers will be located at a reasonable distance from the assembly plant and that their delivery schedules will permit efficient operation of the assembly plant to produce vehicles based on the final vehicle mix and sequence. The low lot sizes of assembly plant parts orders imply that suppliers need to be located close to the assembly plant.
Toyota suggests that a planning rule be used of 50-mile-per-hour travel time from supplier location to assembly plant. That assumption is one factor that is used to determine when supplier parts orders are released. Many suppliers choose to be located close to an assembly plant. In Japan, 85 percent of the volume comes from suppliers located within a 50-mile radius of a plant In North America and Europe, the goal is for 80 percent of the parts to be delivered within three to five days lead time.
3.4 Network logistics
The network logistics model enables Toyota to operate a very efficient and effective operation. Figure above shows an example of a logistics network. The entities of the network are suppliers, cross-docks, and Toyota plants. The entities are connected by a continuous flow of trucks that move containers of parts inbound to the plants or move empty containers back to the suppliers. Plants include not only the assembly plants but also component plants that produce engines and transmissions. Toyota’s strategy is “small lots, frequent deliveries.” The ideal situation is for each supplier to ship parts every day to each plant. That course of events is where network design plays an important role.
IV. Quality Control
In June 1960, Toyota Motor Corporation decided to build quality into processes which is known as quality control after creating the document “Requests regarding inspection.” Eiji Toyoda, Executive Vice President, pointed out that “the idea behind an inspection is to eliminate the need for inspections.” He meant that quality control system would replace inspections which became unnecessary during manufacturing. The purpose of this is to standardize processes in manufacturing and could be always kept these processes at the highest possible levels.
With high demand of automobiles in Japan quickly surged at that time, the company was short of a huge influx of trained new staff in factories which was leading to serious consequence on product quality.
In mid-1961, Toyota Motor Corporation applied a system of Total Quality Control (TQC) into automobiles production was to support and modernizes management operations. To acknowledge the TQC, all employees in Toyota Motor Corporation were required to provide amount, quality of goods, and services in a timely manner. Quality control would help the company determine the cause of defects when they occurred and devise countermeasures to prevent reoccurrence. Moreover, quality teams were formed at all levels in company and each of team has taken its responsibility in the quality of products and processes to make sure nothing goes wrong before the vehicles go further down the line.
1. Planning
In the planning process, Toyota Motor Corporation emphasizes a product with defect-free as possible is an important factor which should be concerned and focused on. In other words, the company brings quality control in automobile design.
There were a lot of technical advances which have helped their designers create and adjust their automobile specification faster than in the past during the planning process such as Computer-Aided Design (CAD). This tool allows designers to see their ideas as they take shapes on a monitor screen, in addition to clay models.
Quality is an essential part of the pre-manufacturing process and is an important factor which helps company meets the goals of design, cost and production volume. The planning stage is a time to get outline of inspection process in detail which benefits for the next steps on the product line. Besides that, quality control is required staff in different departments work close together.
2. Production
Quality control of Toyota Motor Corporation is a process which ensures that the materials, machines, equipments, and parts are used correctly and are suitable with each level during production process with precision and accuracy. This process is a combination of thousand strict inspections which are examined seriously by team members during manufacturing process.
Team members on the product line have to be in charge of their parts they are working on. They can be considered inspectors for their own work and also for their co-workers. If there is a problem which occurs in production process, they have to stop the manufacturing operation on the product line and investigate where problem comes from and find out solution to resolve it before production process can go further down line. This can be done by co-operation with every team member on the product line in monitoring and examining the quality of each produced car.
3.Testing
Testing is a final part of quality control which has to be done before products are sold in the market. Testing consists of vehicle performance and roll and brake test area.
- Tires
- Lights
- Horns
- Wheel alignment
- Steering
- Headlamp adjustment
- Roll and brake test area.
- Simulated drive
- Gear shifting
- Smoothness of ride
- Braking power
- Parking brake
- Instrument panel
- Engine and chassis fluids
There are two methods which are key parts of Total Quality Control in Toyota Motor Corporation: Kaizen and the 14 principles of the Toyota way. They are useful in enhancing the staff’s relationship at all levels in the company and improving production process.
4. Kaizen
Kaizen is a core part of Total Quality Control and is known as improvement of managerial performance activity at all levels in the different departments in Toyota Motor Corporation. This activity is required the co-operation of all people in the company including top management (like director, vice director), managers, supervisors, workers not only in the same department but also in all areas of corporate activities in the company such as market research and development, product planning, design, preparation of product, purchasing, vendor management, manufacturing, inspection, sales and after sales services, as well as financial and personnel departments, and so on… This is called “Company-wide quality control”. This will make all employees have the good relationship, closer, and work together. This will benefits the production process faster, more accurate and precise.
5. The 14 principles of the Toyota way
The 14 principles of the Toyota way are also a key part of Total Quality Control during manufacturing process and known as “A system designed to provide the tools for people to continually improve their work” or “Lean manufacturing”.
The purpose of these principles is to improve the Toyota Corporation’s work and production processes by enhancing their workers, staff, and managers with the relevant skills and also be willing to help their partners and suppliers. In addition, monitoring and examining should be always proceeded to ensure nothing goes wrong during production process. If so, quickly finding out solution to resolve it.
These principles are grouped into four sections:
- Long-term philosophy
- The right process will produce the right result
- Add value to the organization by developing its people and partners
- Continuously solving root problems drives organizational learning
Long-term philosophy
- Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals.
The right process will produce the right result
- Create a continuous process flow to bring problems to the surface.
- Use "pull" systems to avoid overproduction.
-
Level out the workload (). (Work like the tortoise, not the hare).
- Build a culture of stopping to fix problems, to get quality right the first time.
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Standardized tasks and processes are the foundation for continuous improvement and employee empowerment.
- Use visual control so no problems are hidden.
- Use only reliable, thoroughly tested technology that serves your people and processes.
Add value to the organization by developing its people and partners
- Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others.
- Develop exceptional people and teams who follow your company's philosophy.
- Respect your extended network of partners and suppliers by challenging them and helping them improve.
Continuously solving root problems drives organizational learning
- Go and see for yourself to thoroughly understand the situation
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Make decisions slowly by consensus, thoroughly considering all options; implement decisions rapidly ().
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Become a learning organization through relentless reflection () and continuous improvement ().
V. Inventory Management
Inventory management is an important issue in all industries, especially in automobile industry. In automobile industry, the demand of storing the large of amount vehicles after production’s completion and parts which are needed for making cars during manufacturing process is very important and essential. It is required a big land to make warehouse store those finished products and those parts becomes a big and headache issue in this industry.
Toyota Motor Corporation is a good example in case lacking of places to keep finished products and necessary parts during production process. In the past, Toyota Motor Corporation could not have enough warehouses or big lands to keep them and this was a big disadvantage of the company before 1950s. It made economic lot size of Toyota Corporation reduce. An economic lot size is the number of identical products that should be produced, given the cost of changing the production process over to another product.
To overcome this above problem, Toyota engineers reused the tools such as paint-spraying and welding for those cars have the same model. In addition, they also designed the whole sizes which were used to hang parts on hooks. These actions helped Toyota reduce warehouse space and tools if they produced those cars have the same model.
1. Just-in-time
Besides that, Toyota Motor Corporation also applied “Just-in-Time” (JIT) method into inventory management. This method means “What is needed, when is needed, and how many are needed”.
The main idea of JIT is for those manufacturing organizations which have a little space or no room for warehouse to store inventory. This method was created allows those companies with little space for warehousing their products and needed parts make a right decision what parts are needed, when they have arrived at an opportune moment, and how many parts are needed for manufacturing process on the product line. This process is required the preparation of scheduled plan properly and clearly that make sure everything will be occurred just in time. In addition, it can help those companies eliminate waste, inconsistencies, and unreasonable requirements, resulting in improved productivity.
There are some advantages and disadvantages of Just-in-time method.
Advantages
- Possible increase in profits.
- Quality products.
- Quicker setup.
-
Eliminates costs of storage facilities.
- More flexible employees.
- Quality relationships with suppliers.
- Elimination of waste.
- No down time.
Disadvantages
- Long-term commitment
- Possible large initial cost with no short-term returns
- Problems with supplier can cost the company with large amounts of money
- Risk of never successfully implementing JIT
2. Kanban System
Kanban system is a part of Toyota Production system and it plays an important role in inventory management. It is also suitable for those manufacturing organizations with limitation about little warehouse space or no room for warehousing.
It is also known as “Supermarket method” because its role plays the same as activities in supermarket. It means those needed parts will be labeled by using cards which contains product-related information about product name, product code, product storage location.
Based on these above information, Toyota Motor Corporation can control their inventory by equating the supermarket and customers with the preceding process and the next process, respectively. It means when the customers have demand about buying vehicles, the company will use Kemban system to check whether products are available or not, and how many in quantity are needed by using the information which is labeled on the product. This system will improve Toyota Production System effectively and easy to manage the amount of completed products and needed parts during manufacturing process when demand exceeds the amount of stored product in warehouse.
In addition, this method is also improved by using Information Technology to record product-related information to computer. It is known as “e-kanban” which will help the company optimize the inventory management and increase productivity even further.
This below diagram will show how the Kanban system works.
VI. Forecasting for the fiscal year 2010
People make and use forecasts all the time, both in their jobs and in everyday life; they forecast answers to questions and then make decisions based on their forecasts. To make these forecasts, they may take into account two kinds of information. One is current factors or conditions. The other is past experience in a similar situation. Sometimes they will rely more on one than the other, depending on which approach seems more relevant at the time
Forecasting for business purposes involves similar approaches. In business, however, more formal methods are used to make forecasts and to assess forecast accuracy. Forecasts are the basis for budgeting, planning capacity, sales production and inventory, personnel, purchasing and more. Forecasts play an important role the planning process. Because of these results, Toyota also makes forecast to enable managers to anticipate the future so they can plan accordingly.
1. Toyota and forecasting techniques.
Forecasts affect decisions and activities throughout Toyota, in accounting, finance, human resources, marketing, and management information systems, as well as in operations and other parts of Toyota Motor Corporation. Especially, in this situation, Toyota makes forecast which are based on executive opinions, consumer surveys, opinions of the sales staff, and opinions of experts. In addition, Toyota use the forecasting techniques based on time-series data and business model that’s demand-driven where Toyota builds and adjusts volumes based upon what the customers buy. Therefore, it can predict profits, revenues, costs, productivity changes, prices and availability of energy and raw materials and movements of key economic indicators more easily and effectively.
2. How does Toyota control its forecast?
Although Toyota has the use of computers and sophisticated mathematical models, forecasting is not an exact science. Instead, successful forecasting often requires a skillful bleeding of art and science. Experience, judgment, and technical expertise all play a role in developing useful forecast. Along with these, a certain amount of luck and dash of humility can be helpful, because the worst forecast occasionally produce a very good forecast, and even the best forecasts sometimes miss completely. Because of these, Toyota wants to minimize the forecast errors.
Every day customer tastes are evolving. Customers are increasingly more demanding and the industry must be more responsive. Nobody wants the particular car that's coming off the line, and fewer cars are wanted overall. Toyota can control its forecasting by always updating information about economic conditions, customer demands and other related factors such as: petrol prices, taxes…From that, Toyota needs to make forecast quarterly.
3. Toyota and its forecast for the fiscal year 2010.
Toyota forecast the trend in total vehicles sales growth in 2010:
Toyota faced a management crisis in 1950, pollution problems and oil crises in the 1970s, and trade issues and voluntary export controls in the 1980s. But whatever obstacles they faced, Toyota overcame them by working together with suppliers and dealers, using forecasting and creativity. Beginning in fiscal 2003, there have been subtle signs that demand for new cars and trucks are improving. Toyota increased its production capacity by more than 500,000 vehicles a year. This enabled Toyota to meet its customers’ needs. By forecasting customers’ demands, it plans to increase production over the next few months. The World's Largest Automaker has raised its sales forecast by 3% to 6.7 million units for the year ending March 2010.
Toyota forecasts loss on lower sales and cuts dividend:
In 2009, Toyota Motor Corp., the world’s largest automaker, cut its annual dividend for the first time and predicted a loss that’s almost twice analysts’ estimates as global car demand plunges.
The company announced it would see its first annual loss since 1950 and estimated a 150 billion yen shortfall due to a collapse in consumer demand for vehicles amid the global economic downturn. Now the company is upping the damage, saying it expects to lose $5 billion, or 450 billion yen, in its vehicle making operations for the fiscal year ending March 31. The news marks an abrupt reversal from the record 1.72 trillion yen profit Toyota posted in the previous fiscal year and is another indicator that no automaker is immune to the current financial climate.
"Toyota is going to get worse before it gets better," Tairiku Sakaguchi, an auto analyst at Shinko Securities in Tokyo told the paper. "The question is how quickly Toyota can move to deal with inventory, excess production capacity and other problems."
Friday's shut-down of all but one assembly line is the first in a series of production breaks the company has planned. The production suspensions scheduled for Japan in February and March are part of its effort to keep production in line with market demand. There are no plans to shut factories completely, but the Japanese company is aiming to cut its fixed costs by 10 percent. Toyota has cut about 3,000 temporary workers in Japan. All Toyota can do now is save costs as much as possible and wait until the uproar subsides.
Industry Turmoil
The lower forecast and dividend cut come as the credit crisis, sparked in the U.S. last year, has crippled car demand worldwide and led to a reshuffling of the auto industry. In the U.S., Chrysler LLC filed for Chapter 11 bankruptcy protection on April 30 to reorganize with Italy’s Fiat SpA. GM, the largest U.S. automaker, faces a June 1 deadline to restructure outside of bankruptcy courts.
In Europe, Porsche SE’s controlling shareholders, the Porsche and Piech families, agreed to create a combined company with its Volkswagen AG unit on May 6, ending the sports-car maker’s bid to increase control over Volkswagen, Europe’s largest automaker.
Toyota’s vehicle sales may fall 14 percent to 6.5 million in the 12- month period. North America sales may fall 16 percent to 1.86 million vehicles. Toyota aims to cut production-related costs this fiscal year. The automaker, which has already decided to eliminate bonuses for board members, said last month it will reduce managers’ summer bonuses in Japan by 60 percent.
Spending Cuts.
The maker of Prius hybrid plans to release four new hybrid vehicles in Japan and three new ones overseas this fiscal year. The company cut production-related costs for the new Prius by 30 percent, compared with the previous version.
Toyoda, the grandson of the company’s founder, was named president on Jan. 20. He will succeed Watanabe, who will become vice chairman, in June. Toyoda has replaced some of Toyota’s top executives to guide the company through the industry crisis.
Strong Yen
Japanese automakers are struggling to offset the yen’s 13 percent average gain against the dollar last quarter, which is eroding the value of sales in the U.S., the world’s biggest auto market. Industry wide sales in the U.S. tumbled 37 percent in this year’s first four months.
Toyota forecasts net revenues by regions for the fiscal year 2010:
Toyota Motor Corporation (TMC) announced financial results for the six months ended September 30, 2009.
On a consolidated basis, the net revenues for the first half of the fiscal year totaled 8.378 trillion yen, a decrease of 31.3 percent compared to the same period last fiscal year (US GAAP). Operating income decreased from 582.0 billion yen to a loss of 136.9 billion yen, while income before income taxes and equity in earnings of affiliated companies was a loss of 63.0 billion yen. Net income decreased from 493.4 billion yen to a loss of 56.0 billion yen.
Operating income, compared to the same period last fiscal year, decreased by 718.9 billion yen. Major factors contributing to the decline include 910.0 billion yen due to the effects of sales volume and mix and 320.0 billion yen due to the appreciation of the Japanese yen against the U.S. dollar and the euro that overrode the positive impact of Toyota reduction in fixed costs and cost reduction efforts.
The net revenues and profits declined for this period due to the decline in vehicles sales in each region, as well as the negative impact of the yens appreciation. However, Toyota continued to make improvements in its reduction in fixed costs and cost reduction efforts in the first half of fiscal year 2010. Progress with its Emergency Profit Improvement activities have been steadily bearing fruit.
Consolidated vehicle sales for the first half totaled 3.13 million units, a decrease of 1.12 million units compared to the same period last fiscal year.
In Japan, operating income will decrease by 579.4 billion yen, mainly due to the appreciation of the yen against the U.S. dollar. However, monthly vehicle sales in the domestic market have been improving year on year since August. In North America, operating income will decrease by 7.4 billion yen. In Europe, operating income will decrease by 27.3 billion yen. Operating income in Asia decreased by 71.8 billion yen.
In Central and South America, Oceania and Africa, operating income decreased by 38.5 billion yen.
Toyota boost yearly sales forecast:
In September, 2009, Perhaps another sign that the global auto market is poised for a rebound in the next few months, Toyota – the world’s largest automaker – has increased its yearly sales forecast. Additionally, Toyota has also increased its global production schedule for the year ending March 2010 by 3 percent, totaling 6.7 million units. Additionally, Toyota also plans to boost its global output by 8 percent over the next few months, resulting in a total of 6.45 million vehicles.
Although Toyota was one of the hardest hit by the global economic slowdown, the Japanese automaker has seen solid growth over the last few months, largely due to government incentives. Here in the U.S., Toyota saw a 9 percent sales increase during the month of August. Toyota has seen particularly strong demand in its home country of Japan, thanks in large part to a $2,800 government incentive for the purchase of more fuel efficient vehicles. The program is set to expire next year, but Toyota is lobby for the incentives to extend through 2012.
Reference
- “Building quality into processes”, Vision and Philosophy, Sep/Oct 2005, Toyota web site,
- “Toyota Quality”, About, Quality, TMMK Toyota Motor Manufacturing, Kentucky Inc,
- Vadim Kotelnikov, “Kaizen and Total Quality Management”, 1000 ventures web site,
- “The Toyota Way”, Wikipedia web site,
- “Just in Time, or JIT – Toyota’s Manufacturing Technique”, Japan-101 Information resource,
- Scott C. Frazier, “JIT Manufacturing – Just-in-Time”, Undergraduate Student, Ball State University, Spring 2004
- “Toyota Production System”, Vision and Philosophy, Toyota web site,
