Discuss about the Operation Analysis of Toyota.
Toyota was established in the year 1937 in Japan. It is the largest and the most profitable automobile manufacturer in the world. As far as Japan is concerned, Toyota is the largest company listed there, when it comes to the World, it is the 14th largest company. It has its operations in 27 different countries, producing around 70 different kinds of vehicle models, and the credit to its strong position goes to the practices the company is following since 1940.
Since the foundation of the company, it has been consistently using its guiding principles to produce reliable vehicles and sustainable development of society by providing quality products.
The sales figure of Toyota is showing commendable growth, even when other automobile companies are striving to regain their market share lost due to the dynamics of market. In order to achieve the dominance in market, an organization needs to follow very strong and distinctive strategies. Toyota’s way of production is a well discussed and researched topic throughout the world. Toyota is able to stand out the competition because it followed following world class competitive operation strategies:
1. Toyota Production System.
2. Excellent technology and quality.
3. Re-engineering.
4. Innovative products.
5. Generic Strategies.
6. Employee Satisfaction.
Toyota Production System or T.P.S, as it is known worldwide, is a combination of following crucial essential elements:
Lean Manufacturing: It is aimed at reducing the unproductive efforts or waste in all the areas of production process. These results in consuming minimum human efforts, reducing the lead time, being highly responsive the requirements and producing high quality products for customer. Following are the basis of lean manufacturing;
Zero waiting period; Nil Inventory; Scheduling- Pull system for internal customer; Reducing lead time; Minimizing the actual process time; Multiplying inventory turns.
Just-In-Time (JIT): Toyota is following this manufacturing philosophy since 1970. This practice is based on the principle ‘produce only what is needed, how much is needed and when is needed’. Any divergence from the specified production needs is referred as waste. JIT brings down the work-in-progress inventory to a great extent. It is basically a waste reduction methodology based on the principles of Kanban and Heijunka.
Kanban- It is a card system for scheduling and controlling the logistics involved in the production function, and the inventory management.
Heijunka: It is the system of breaking down the complex and large processes into simpler ones. Evenly distributing and balancing the task so that none of the machine is overloaded with work, neither a machine remains idle.
1. Kaizen: Toyota believes in continuous improvement of its offerings and is a vital element in the Toyota Production System. It describes the concept of proactively improving the manufacturing process, reduction in the waste during manufacturing process, increasing level of employee involvement, and enhancing customer satisfaction.
2. Jikoda: It is a quality control process by which the machine stops working whenever it detects a deviation from the specified procedure, the employee detects the problem, fixes it, and installs a counter measure. Jikoda is also termed as Automation with a human touch.
3. Andon: A notification method comprise of a visual signal, audio alarms, display boards installed at the workstations to notify the co-workers of a quality or a process defect. Whenever an employee detects a defect in the process, he pulls the Andon cord which turns on a flash light and a sound alarm. The number of the workstation is displayed at the Andon board at which the problem is encountered. The notification is stopped after the problem is resolved.
4. Pull System: In a pull system, the worker at the assembly line knows exactly what activity needs to be done next. He uses his intellect to find which part is to be made next and within what time frame.
Excellent technology and quality: Quality is given the utmost level of priority at Toyota. Their belief in building an environment of getting the right quality for the very first time and every time reinstates the quality level for which Toyota is known for. Every employee has the authority to halt the production whenever he spots an issue with the quality. The company widely uses robots for their mass production. The production facilities are designed in such a way that any alterations can be done to the existing production lines in a short period of time. The production line provides a choice between using humans or robots for low volume or mass production, depending upon the profitability of the production. Toyota takes only 27 hours to completely build a unit. Also, the company is among the few producing products with below than average problems per 100 units produced in the industry.
Re-Engineering: The Company focuses a lot on designing the production facility. If in case, a product fails to attract the attention of potential customers in market, the company can easily adopt the strategy to revamp the product and present the failed product in completely altered way, using the same production line and facilities. This prevents the company to prevent the possibility of huge losses.
Innovative Products: With the unstable global issues of increased fuel prices and environmental factors, the demand for alternative products is on the rise. Toyota has responded promptly by emphasizing on building hybrid engines. The company has provided the customers with an alternative option of commuting in style by an environmental friendly and economic mode of transportation.
Generic Strategies: The Company follows following three generic strategies for its intensive growth in market.
Market Penetration. The main intensive strategy followed by the company is market penetration. It is followed in order to increase the reach of the company and to attract more and more customers. This is done by providing different types of products to cater every segment of the customer.
Product Development. The Company emphasizes on attracting customers by offering innovative products with new features, uniqueness, and advanced technology which differentiates the company from its competitors.
Market Development. As the effect of globalization is increasing, so is the opportunity for various organizations to enter new markets. Toyota is also entering into new markets, catering to new segments, providing people with more and more options for their choices, and maximizing its global presence.
Employee satisfaction: The Company improves the level of employee satisfaction by inviting employee participation, promoting group activities among the team members, providing regular training to the employees, promoting the policy of open communication between the engineering department and the execution staff. The employee participation helps in maintaining and improving the work methods so as to increase the reliability and productivity of the equipments, and thus reducing the operational and maintenance costs. This is ensured through quality circles, asking for the suggestions from employees, giving incentives.
The Business organizations have three basic functions:
1. Finance
2. Operations
3. Marketing
OM is defined as that functional part of organization which is responsible for the transformation of factors of production (such as land, labor, capital, etc) into the offerings for the customer after their processing (transformation). The better is the operation function, better are the offerings of the organization. Better the offerings, more is the customer satisfaction. More the customer is satisfied, it will generate more revenue. And, in turn, better is the economic position of the nation and competitive position with reference to the other nations. Matching supply with the changing demand is one of the most important functions of the organization.
OM can be defined as from different perspectives: one in relation with its role and consolidated inputs to the organization; another focusing on the day-to-day activities that fall in the purview of its area of responsibilities.
The operations management system of Toyota is flexible and responsive enough to adapt to the conditions of demand.
The operation functions can be divided into three broad categories:
The essence of operation function is Value addition to the inputs during their transformation into the final offering. The value addition can also be described as the difference between the costs of inputs and the price of the offering.
Following are the important functions of Operations Management:
The need for kinds of vehicles in the recent future, changes in the taste and preference of the customer. Change in future demand of the product due to the change in the political, economic, demographical, technical, and geographical factors of the target market. Taking into account the effect of positioning with respect to the competitor’s product, level of technology expected and anticipated by the customer.
1. Capacity Planning. It is very important for the organization to exactly find out the number of vehicles of the models demanded in the different markets. And, planning the capacity of assembly lines in the plant so that the organization is able to match the products demanded with the right amount of supply.
2. Controlling deviations. The deviation from the set standard are controlled through:
JIDOKA: Under this, any deviation from value addition is termed as a waste.
JIT: Under this, any deviation from true production needs is referred as waste.
1. Monitoring and controlling the costs and productivity.
2.Supply Chain Management.
3. Location planning, scheduling, inventory management and quality control.
With the changing economic conditions and competitive strategies of the competitors, the business organizations have started emphasizing on:
1. Operations strategy
2. Optimizing the use of resources
3. Managing the revenue
4. Analysis and improvement in process and quality
5. Proactive in responding to change
6. Lean production
The operations management helps in making informed decisions. It helps in establishing a relationship between the objectives and the actions to be taken in an organization, in light of the resources available. As the decision involves many different possible outcomes, a critical evaluation of all the alternatives is very important. Following are the factors affecting the decisions:
1. What? What are the resources that would be needed and in what quantity?
2. When? When would be requirement of each resource will arise? When should the organization schedule the work? When should company order for materials and other supplies? When is the need of corrective action?
3. Where? Where should the company start to work?
4. Who? Who will be assigned the responsibility of accomplishing work?
5. How? How will be the design of product/service? How the resources will be allocated?
5S (seiri, seiton, seiso, seiketsu, and shitsuke)
1. Sort –Sort- Restoring only those items which are of use for value-addition, and disposing off those which don’t add value.
2. Straighten (Order)
3. Shine (Cleanliness) – Often refer as the inspection of the procedures to detect any possibility of failures or deviations from the quality standards.
4. Standardize-Developing systems and tools for maintaining and controlling the laid down procedure.
5. Sustain- Continuous improvement
Following are few of the major issues faced by the today’s business operations across the world:
1. Economic conditions: Many economies are still in the recovery phase of the recession. The investors are skeptical about investing in those economies, also, the management is unable to decide whether to rehire those workers, who were laid off during recession, or not.
2. Quality issues: Many operational dysfunctions related to product design, testing, vendor oversight, risk assessment, and timely responding to the potential problems.
3. Risk involved: Many of the unforeseen or underscored risks needs to be taken into consideration and should be addressed as and when they arise. This is advisable so as to minimize the potential damage that these can cause to the organization (market value, demand, brand image, etc).
4. Innovation: With the ever changing demands and scarcity of resources, the organizations should focus on new and improved produce design. This step will eventually add value to the organization.
5. Global competition: The low-cost labor from the third world countries is increasing the pressure on the organizations to reduce down the labor cost. The factors such as productivity improvement methods, low wage areas, internally reducing the cost, changes and improvement in the product designs should be taken into consideration before outsourcing the operations.
By the end of the first revolution, manufacturing industry witnessed the rise in the trend of product variety. This made the firms to reconstruct their supply chain management. This arise the need to handle the manufacturing of wider range of products without holding too much inventory. While entering the second revolution, Toyota successfully addressed this issue with by following the principle of lean production system. The Toyota Motors decided to do in-house manufacturing of key components and their final assemble. The components in bulk were sourced from the large number of suppliers of Toyota who were also the part of the Keiretsu system, which is a set of companies having interlocked relationship of business and shareholdings. These suppliers were not only had long-term relationship with the company but were all closely located to the manufacturing plant of the company.
Similarly, during the market slowdown of 2008, most of the manufacturing firms were made to lay off their employees to survive it. Unlike its competitors, Toyota did not lay off any of its permanent employees and instead reduced the working hours, hence, the pay cuts. It also reduced its breakeven point of its plants from 80% of capacity to 70%.
Another fight that Toyota has taken is competing with the market of China. After reaching the record of annual sale of 10 million units, Toyota was challenged with the problem of quality management and parts electrification. With the increase in more designs, the number of parts also increased and a program called TNGA (Toyota New Global Architecture) was developed. It aimed at standardization of the parts while addressing the issues of cost cutting, quality assurance, and improved marketing.
Figure 1: Process Map
Source: Create by Author
References
Anon., n.d. HomePage. [Online] Available at: https://www.toyota-global.com/company/profile/ [Accessed 27 6 2016].
Hino, S., 2005. Inside the Mind of Toyota: Management Principles for Enduring Growth. s.l.:CRC Press.
Iyer, 2009. Toyota: Supply Chain Mgmt. s.l.:Tata McGraw-Hill Education.
Liker, 2005. The Toyota Way Fieldbook. s.l.:Tata McGraw-Hill Education.
Shah, J., 2009. Supply Chain Management: Text and Cases. s.l.:Pearson Education India.
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