Toyota

Manufacturing
Company
FINAL CASE STUDY

Franziska Morrow
MGMT 365-ON1 |
I. Background Facts

In 1985 Toyota Motor Company (TMC) decided to begin making cars in North America, and

released a plan to open an $800 million plant in Kentucky.

The plant had an annual capacity of 200,000 Toyota Camry sedans, therefore it would replace

most of the Japanese imports for that model.

In 1992, Toyota was expected to supply 240,000 of the new Camry models.

o Sales were up 20% for that specific model.

o The new Camry model was competitive with the midsize family models on the market;

which constituted one third of the total American car market.

o The average pretax profit was around 17%.

o The sticker price for the new model averages $18,500.

The Toyota Production System (TPS) was an essential part of TMCs competitive advantage in

the car manufacturing industry.

TPS aimed at cost reduction by thoroughly eliminating waste, this included overproduction.

They believed overproduction concealed the location of the true problem.

TPS utilized the Just-In-Time production principle; where you only produce what is needed, and

only when it was needed. They believed that any production over what was truly needed was

considered waste.

The second principle that was utilized in TPS was jidoka a problem-solving method. This process

was aimed to make any production problems instantly self-evident and to stop production

immediately until the problem was detected.

o Employees on the production line would pull an andon cord that would halt

production everywhere when an employee found a problem. Because of that

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 supervisors would come directly to the problem and they would not start production

until they got to the root of the problem.

TPS emphasized continued innovation and improvement and valued input from line workers.

Every station on the assembly line embodied jidoka and kaizen tools.

The production control department mission was to coordinate between the production

department and the sales companies, so that they manufactured and then delivered he right

amount of cars, just in time.

The quality control department was responsible for setting tough quality standards, then

inspecting the vehicles against those standards, and then shipping the vehicles.

o They were also involved in the problem-solving process when dealing with quality

control issues on the assembly line.

o Focused on preventing problems before they occurred in the first place.

Production department focused on managing costs over the long term

The Camry seat was made up of several pieces: the front left and right assemblies, the rear seat

bench and backrest, and the rear bolsters.

Kentucky Framed Seat (KFS) was TMMs sole seat supplier.

KFS and TMM synchronized their production process to embody the Just In Time Principle, so

that they produced the exact seat, in the exact color and size for every car that was being

produced in the TMM plant.

TMM and KFS were located near each other geographically, because of this TMM taught KPS the

Toyota Production System so that they could work seamlessly together.

In 1991 the Toyota Camry had a model change, that offered far more options and variations

than ever before.

II. Problems

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 TMCs main priority was to implement the TPS in Georgetown. They first sent employees to train

in Tsutsumi with TPS experts. Then Tsutsumi people came to Georgetown by the hundreds to

train and coach the TMM employees. They focused on a hands-off training method where they

did not do any of the work for the trainee, they talked them through the process and required

them to always do the work themselves. This process was very time consuming and in order to

be effective there needed to be constant supervision. Although many trainers from Tsutsumi

came to train the Georgetown factory, they were not there nearly long enough to truly immerse

the employees in the TPS method. In order to teach someone TPS you needed to get to know

that individual very well and it was most effective over a long period of time. This is a limitation

of TPS because it requires a lot of time and commitment to implement it.

On average, a team member pulled the andon cord about a dozen times a shift, and typically

at least one of the andon cord pulls resulted in a complete line stoppage. This is a key element

of TPS. In the beginning it can result in a lot of time lost, and valuable production time lost.

In the production control department, they rely heavily on extensive forecasting and planning to

serve their worldwide market. Their system is within a 20% accuracy of what is needed, but this

deviation goes against the Just In Time method.

The Camry seat features posed several challenges for many areas of assembly:

o In its final assembly its soft material was prone to damage and by far the bulkiest of all

the parts.

o For Quality Control is was crucial for meeting quality controls for safety and car crash

performance.

o The seat was an aesthetic item, that had to appeal to the customer, with the desired

look and feel.

o The seat was the most expensive of the purchased parts, costing $740.

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 The relationship KFS entered with TMM was unique, because it was the first time a car company

did not manufacture the seat themselves. TMM wanted to institute the TPS system at KFS and

that required a lot of time and money. The startup of this relationship was not seamless, and

TMM management admitted that now KFS is an extension of TMM and they are both students.

Because these are two completely different companies it is difficult to correctly allocate the

necessary personnel, time and finances into getting KFS to run as smoothly as TMM.

During the fall of 1991 Toyota instituted a model change for the Camry. KFS was required to

continue producing the exact same product until the very last day. Then KFS only had ten days

to change over the process and 10 weeks to build up to working at full capacity for the new

model. This was a small time frame to expect of a new company to TPS. Although TMM was a

great resource and partner for KFS they did not completely control their production and

management, so the change over to the newer model caused a lot of production problems for

KFS.

After instituting a tight schedule for changing the model, Toyota increased the seat variations,

offering them in more sizes and colors. This coupled with them servicing to a worldwide market

(not only North America) caused many production problems with KFS.

3 Months after the change, the run ratio was down to 85%, and it had been at 95% earlier in the

month. The run ratio measures the number of cars actually assembled in proportion to the

number of cars that could have been assembled with no line stoppages. This 10% decrease

resulted in a 45 car deficit, which in turn had to be made up with overtime.

This loss in production will cost TMM $16,000 per shift and $8.4 million per year.

On May 1, 1992 they found 18 vehicles offline with seat problems. And some dating back to

April 27, which was surprising because policy dictated that vehicles be refit to another seat

within that shift or the following day at the latest.

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 When management came to the scene and was trying to solve the problem, he began asking

employees what they thought of the situation and they looked increasingly puzzled when

Friesen (manager) kept asking about seat problems. This shows that someone along the line

was not pulling the andon cord to stop production and alert the factory that there was a

problem with quality control or production problem. This is a clear deviation from TPS.

A group leader in Final 2 said she had submitted a request for an engineering change several

months ago regarding the seat. The manager was unaware. She claimed that there was a

problem since last fall, and in April it is finally being brought to a managers attention.

They that the problem resulted from a hook, and they learned three facts from QC:

o Modifying the relevant tool for the hook would cost KFS about $50,000

o In Tsutsumi, they had used the identical engineering drawings for the part but had not

reported any problems.

o The hook breakage frequency had gone down from several occurrences per shift to only

one per shift by April.

When management was trying to solve this problem, they did not go through the 5 Whys

method to get down to the root cause of the problem.

III. Strategic Operational Issue

Toyota had two major strategic operational issues, and they are both interconnected. The first is the

Camry seat problem, they are losing valuable time and cost of production by having cars having to be

taken out of the assembly line and needing additional work. They were underproducing around 4 cars a

shift as a result of this problem. This issue goes against all ideals and principles of TPS. The fact that a

manager was unaware of the problem contributes to the magnitude of the problem. The Georgetown

personnel were trained to be able to deal with problems that arise on the spot and for the most part

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independently. If they were unable to find the root cause then they involved higher management. In this

case that did not happen and the problem continued for over a month.

The question is whether or not TMM can follow the TPS method and come to a solution to this seat

problem, or if the overall procedure goes against the TPS as a whole. When TMM did not stop

production and attempted to solve the problem in real time (they simply put it in another area for

review) they were in violation of the TPS philosophy.

Their second strategic operational issue is their relationship with KFS. KFS is their sole supplier of

seats and they rely heavily on KFS to work interconnectedly with TMM to provide seamless service and

production. Although TMM taught KFS the TPS method, for TPS to be effective it must be ingrained in

their culture, employees cannot simply be taught the methods they have to believe in them for the TPS

method to work. The additional variations and sizes were a problem that KFS was not ready for, they did

not know how to standardize the process and make the changes work in their plant. For Toyota adding

these additional seat variations went against the ideals of standardizing the process. A priority for TMC

is to produce cars, quickly, affordably and ones that consumers want. Possibly adding that many

variations would be too overwhelming to KFS.

IV. Alternative/Solutions

TMM should maintain a stronger relationship with TMC and KFS so that they can properly

coordinate. It was stated that Tsutsumi had not reported problems with the new seat installations. A

reasonable and cost effective option would be to communicate with Tsutsumi and see what they are

doing differently. Maintaining a closer relationship among all parties will facilitate the execution of the

TPS system, ideally you would want all three companies to flow as if they were one.

The Georgetown factory would benefit greatly by creating a specific quality control team that can

analyze the situation and get to the root of the problem. Creating a team whose sole purpose is to

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identify the cause of the problem and come up with possible solutions would create accountability and

management could be presented with the right data to make an informed decision.

When assembly line workers experience a problem they should immediately pull the andon cord so

that supervisors are alerted. They could also create a separate area to put cars with defective seats so

that additional information (other cars out of assembly line for various reasons not involving the seat

defect) is not clouding the problem at hand. For example, if there are ten cars taken out of assembly and

six of them are because of seat defects it is easier to see the problem when you are solely dealing with

that problem, not others as well. If a separate area was created this could give the quality control

department more comparative data as well.

Toyota could also consider reducing the amount of seat variations in the short term so that

production is not hindered for too long. The Toyota Production System production system ideals are to

standardize the process and to continue to innovate and improve. When they introduced the Camry seat

variations with little planning time (only 10 weeks) for KFS that went against the standardization of TPS.

Although the ideals of TPS are rooted in TMM, KFSs TPS culture is not as strong as TMM. Therefore,

they were unable to fix the problem when it first started. If the Georgetown facility maintained a closer

relationship with KFS they could have seen this problem earlier. It would be beneficial is Toyota places

some of their own quality control employees in the KFS plant.

V. Recommendations

I recommend that TMM, TMC, and KFS maintain a closer relationship. TMM should be

communicating any ongoing problems (that they were unable to solve themselves) to TMC so that they

can get their feedback and advise. Toyota Motor based out of Japan are TPS experts and they would

know how to properly guide their Georgetown counterparts correctly. In their communications they

could also request a reduction in the amount of seat variations and explain their reasonings. TMM

should maintain a stronger relationship with KFS by taking an investment in the company, they should

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have a quality control department (at the very least assign a team to monitor QC in KFS) within KFS so

that they can help with defects or protentional problems.

TMM should immediately create a QC team that is dedicated to identifying the problem and then

coming up with various solutions. They will be there when assembly line workers pull the andon cord

and they will also look at the cars taken off the assembly line. By creating a team, they are creating

guidelines and assigning tasks. This team then can study this and then present the facts and solutions to

management so they can make an informed decision.

They also much reinforce the TPS system in their Georgetown factory because the proper

procedures were not followed when the assembly line experienced the seat problems. They were

supposed to immediately stop production and solve the problem. If they had done this, it would have

costed them some time in the beginning of the process but it would have resolved in a faster time

frame. Because now Toyota is losing time and money every day because of this problem (the loss of 45

cars having to be made up in overtime). Maybe this means more training and instruction, but it is

important that the TPS system is truly engrained in their culture, the employees have to believe in the

process and see its benefits for it to continue to provide benefits.