Toyota Motor Corporation Production

INTRODUCTION

This case is about Japanese automakers Toyota Motor Corporation (TMC) starting a manufacturing facility in Kentucky, USA. Toyota Motor Manufacturing USA was conceptualized in 1985 expected at a total cost of $800million over an area of 1300 acres. The pilot batch and mass production started in 1988. The first model produced in this plant was Camry Sedan replacing the bulk of Japanese imports of that model. In 1992, the plant expanded its product line to include Wagon version for the worldwide market. The complete timeline is represented in Exhibit 1.

TOYOTA PRODUCTION SYSTEM

Toyota has always striven for “better cars for more people”. They had a high emphasis on flawless quality, affordable prices and perfect timing. They figured out the way to reduce cost is to eliminate waste and came up with the unique Toyota Production System (TPS). The main principles of TPS are:

1. Just in time (JIT): This meant produce only what was needed, only how much was needed, and only when it was needed. Two main components of JIT:

a) Heijunka: Distributing volume and different specifications evenly over the span of production to spread out the demand for parts as evenly as possible relieved suppliers of a surge of workload and facilitated their JIT production.

b) Kanban: Part identification tag with part code number, its batch size, its delivery “address,” and other related information o avoid having teams run out of parts or containers overflowing onto the plant floor.

1. Jidoka: This system ensures to make any production problems instantly self-evident and stop production whenever problems were detected. One main feature is this principle is Andon cord, a fail safe feature that helps employees to stop the assembly whenever a problem occurs by pulling the cord.  
2. Kaizen: This means to change for better. The object of change usually includes the standardized work, equipment, and other procedures for carrying out daily production.

OPERATIONS

In contrast to the operations in 1988, there were radical changes in the operations in 1992. In 1988, given the cycle time of 57 seconds and utilization rate of 95%, TMM produced approximately 450 cars per day. In 1992, Toyota Motor Manufacturing’s sales increased by 20% and annual capacity increased by 25% from 200,000 to 240,000 cars. In 1992, TMM was manufacturing Camry sedans and Camry wagons for the entire worldwide market.

After the introduction of production for the worldwide market, there were some notable problems that impacted the operations of the plant. An employee’s regular shift lasted for 525 minutes which included a total break of 75 minutes and therefore their actual production time was 450 minutes or 7.5 hours. Due to the offline repairs, the cycle time increased by 10% and the run ratio dropped by 45 cars a day (See Exhibit 2). Loss of productivity led to a increase overtime cost. A team member was paid $17/hour whereas a team leader received 5%-8% extra on it (approximately $18.36/hour). In 1988, the 615 members and 154 team leaders (769 team members) would have required 43 minutes within the regular shift to manufacture 45 cars. In 1992, the same amount of work required 47 minutes over and above the regular shift which required the company to pay the team members and team leaders an extra hour of overtime wage at 50% premium on their regular wage. The additional labor cost was considerably large (See Exhibit 3). If we compound the daily cost of approximately $19,923.67, we get $597,710.10 overtime pay for a month. This cost doesn’t include the resources required for offline repairs.

As a measure of temporary solution, TMM deviated from the normal practice of Andon cord principle. The changes were made in order to continue production and take the tagged car offline for repairs. The tagged cars were sent to Code 1 Clinic and a decision was made regarding fixing the car then or in the future (See Exhibit 4).

PROBLEMS

TMM expanded its product line to include multiple variations in its models. This product proliferation led to many complications and problems in the TMM-KFS (Kentucky Framed Seat) production system (See Exhibit: 5). The seat was especially prone to damages since the material was soft and the product was bulky compared to other installed parts. The problems included the arrival of flawed seats sent from the sole seat supplier- KFS. Some seats were sent containing defective materials while others had missing parts. We also find that there were quite a few seats damaged in the process due to a seat bolster TMM was using. This may have been due to a flaw in the bolster itself, or poor training of workers handling the bolster. The bolster damages did reduce as time progressed which suggests there was a learning curve for the workers.

In addition to these problems, KFS sometimes delivered incorrect seats upon reorder. This further added to the repair wait time. All these problems, caused by product proliferation, resulted in the loss of productivity. The run ratio, the number of cars produced compared to the number of cars that could have been assembled without any stops in the process, decreased from 95% to 85%. This means a decrease of 45 cars per shift. In order to address this loss in production, there was an increase in overtime work shifts. In addition to the loss of production, the pay for overtime work (which is 1.5 times the normal wage pay) can substantially cost the company.

OPTIONS

        Doug Friesen has a number of options in front of him that can help resolve the slow offline repair problem and the seat defect problem.

1. Quicker turnaround for cars with defective seats: There are a couple of reasons so as to why the offline repairs have been slow, leading to overflow of the parking area. The first is that the repair process has not been standardized and thus is taking them longer to the defect and send the car to quality control for shipment. Standardizing the repair process can help the workers move down the learning curve and thus reduce time for each repair. Kaizen can also be practiced to reduce wastage and speeding the repair process. The second reason is that the set reorder form is not computerized and illegible hand writing often leads to confusion and thus shipment of wrong replacement parts (See exhibit 6). Kanban can be practiced here to ensure clear and correct information is passed to the supplier so that there is no misunderstanding and that the required part is delivered.
2. Buffer stock: Alternatively, TMM can resort to buffer stock to ensure that the right seat is installed in the assembly and there is no need for offline repairs. Buffer stock can also speed up the offline repair process for the defects that are caused during the seat installation.
3. KFS: The root cause for the disruption of “magic moment”, material flaw and missing parts is the inadequacy KFS. With the increase in number of variations, KFS is experiencing difficulty in keeping up with production and quality control. Implementing the principles of Jidoka and Kaizen can help the them build quality control in operation and thus reduce the number of defects. They may also need to add additional production capabilities in order to keep up with variations in demand.
4. Reduction in seat variations: Given the incapability of KFS to deliver quality product on time due to the increase in set variations, reducing the number of variations will help ease the burden on the them. KFS maintained delivery and quality prior to the increase in variation and thus maybe more adept to supply fewer variations
5. Multivendor approach: This is a long term solution as developing new suppliers and training them in the principles of Just in Time will require time and capital. KFS is the sole supplier for seats and the burden of the variations is affecting their quality. Having multiple suppliers can help mitigate that issue and ensure quality and correct parts are used in the assembly.

RISK ANALYSIS

Each of the options facing Doug Friesen has some sort of risk associated with it and he must consider them before making a decision.

1. The seat defects vary and thus standardizing the repair process may not very effective. As we have seen before, there are a wide range of seat defect issues and a standardized process may not be the best solution. Also, standardizing the repair process may be perceived by employees as making mistakes is fine and that we can increase efficiency in fixing the problems offline.
2. Keeping buffer stock goes directly against the Just in Time principle employed by TMC. The buffer stock will increase inventory and the issues related with inventories such as logistics and cost. This will also not help resolve the core issue but merely help solve the temporary problem of offline repairs.
3. Toyota Service Support Center can help KFS with their operations and educate them in the principles of Jidoka and Kaizen but that still may not be enough. KFS could still not be able to keep up with delivery and quality due to sheer lack of production capability and size.
4. Reducing the number of variations offered in the different markets may attract negative publicity and wrath of the customers. TMC will most likely reject this option and will push to find an alternative.
5. Many advantages helped KFS develop as the sole supplier of seats to TMC and it may be difficult to copy the success to other vendors. Location was a key advantage as it helped both parties in their Just in Time approach. As a sole supplier, implementing Kanban was easy as the seats would come in the correct order for assembly. There will be a need for a staging area for the seats coming in from multiple vendors in order to set them in the correct order for assembly.

RECOMMENDATIONS

        After examining the options and studying the risk analysis, we recommend the following to Doug Friesen to address the immediate problem of the offline repairs and the underlining problem of them deviating from TPS’s principles in fixing the seat defect issues.