Creating Sustainable Competitive Advantage: The Toyota Philosophy and Its Effects

Creating Sustainable Competitive Advantage: The Toyota Philosophy and Its Effects

What is Toyota Philosophy

Toyota is Japan's biggest car company and the second largest in the world after General Motors. The fundamental reason for Toyota's success in the global marketplace comes from their corporate philosophy, the set of rules and attitudes that govern the use of its resources. The Toyota philosophy is often called as the Toyota Production System. The system depends in part on a human resources management policy that stimulates employee creativity and loyalty but also, on a highly efficient network of suppliers and components manufacturers. Much of Toyota's success in the world markets can be attributed directly to the synergistic performance of its policies in human resources management and supply-chain networks.

Toyota philosophy in Human Resources

Although many other Asian automobile manufactures have earned a reputation for building high-quality cars, they have been unable to overcome Toyota's advantages in human resource management, supplier networks and distribution systems in the highly competitive US market.

The evolution of Toyota's advanced human resource management can be traced to the period immediately following the Second World War when the economic outlook was uncertain and human, natural and capital resources were in limited supply. The company developed a highly efficient production system, called lean production to utilize human resource more efficiently. Today, Toyota's philosophy of empowering its workers is the core of a human resources management system. It grows creativity and innovation by encouraging employee participation, and brings high levels of employee loyalty.

Toyota Philosophy in Supply chain management

In-house production has been decreasing for a number of years. Among US car makers, General Motors continues to manufacture a high percentage of components in-house, while DaimlerChrysler outsources more than any other firm. Volkswagen, a German brand, produces on average less than 50 per cent of its automotive components in Germany.

Outsourcing is increasing the importance for car makers because 85 percent of the direct cost of car production comes from engineering and component fabrication. The companies try to externalize many of these direct costs and minimize market risk. They also can receive the benefits of using specialized suppliers.

In Japan, supply chain relationships of Toyota are based on a complex system of co-operation and equity interests. Co-operation and asset concentration are encouraged, and antitrust prohibitions are far less restrictive than in the US.

It is also important to understand that both government and culture play a major role in Asian manufacturing and distribution practices. Asian values, more so than in western cultures, traditionally emphasize the collective good over the goals of the individual. This attitude clearly supports the Toyota's synergistic approach of supply chain management and has encouraged concern for quality and productivity.

Toyota has been able to transcend western cultural and institutional barriers and superimpose Asian models of supply chain management and co-operation elsewhere. The company realized real advantages in both production and customer satisfaction in the US. In contrast, Some Asian companies such as Daewoo were unable to transcend these cultural barriers and performed poorly in the US market.

Determining factors in productivity

Toyota decided to differentiate itself among foreign manufactures by following a strategic commitment and by borrowing technology. Since the 1950s Toyota has focus in Customer satisfaction strategic initiatives.

Toyota's success includes:

ЃEA world-class network of suppliers in both Japan and, more recently, in the US.

ЃEA highly efficient and effective just-in-time (JIT) inventory system that is heavily dependent upon the co-ordination of its supplier network.

ЃEA state-of-the-art assembly system incorporating the latest robotic technology. Toyota plants in Japan and North America have both won the World-wide Platinum Plant Quality Award.

ЃEAn effective and efficient human resources management system.

As a result of all this great strategies that Toyota has been mastering into the perfection, the company's success can be shown in the next table.

Table 1

Output of measures of productivity for lean versus non-lean automotive companies 1993-1999 (units per employee per year)

Non-Lean Companies Lean Companies

Year GM Ford Renault Volkswagen Toyota Nissan Honda