Operations management is an area of management which is focused on overseeing the designing or redesigning of business operations in the production of goods or services (Chase et al, 2001). The area of operations management is focused with ensuring that an organisation’s resources are efficiently utilised to produce goods and services and in a way which effectively meets customers’ needs. Thus operations management covers the whole spectrum from the production process of the goods and services right through to the methods through which customers acquire them and the customer processes management.
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According to the U.S. Department of Education (2009), operations management is the field of management which is concerned with managing and directing both the physical and technical aspects of an organisation’s operation, especially those concerned with the production and distribution of its goods and services. Pilkington and Meredith (2009) compare operations management with engineering, which blends art with applied science, with the requirement of people skills, creativity and rational analysis in order to succeed. Banker and Khosla (1995) suggest that many operations management techniques have been implemented in a bid to direct the attention of the organisation towards adding greater value from the customer or client’s perspective. Customer value is increased through cost reductions, quality improvements, increased flexibility in responding to changing customer demands and a reduction in lead or waiting times. Ultimately, improvements in customer value creation is aimed at increasing value for the organisation through building a larger customer base and hence generating more revenue. Banker and Khosla (1995) argue that several models of competition exist in economic literature, which can effectively be used to explain the choice of operations management practices adopted by any organisation.
According to Pilkington and Meredith (2009), the origins of operation management can be traced through the cultural changes of the 18th, 19th and 20th century, including the period of the industrial revolution (Wilson, 1995). This period saw the development and enhancement of various production methods, processes and systems. However, it is not until recent times that operations management appears to have been gaining momentum as a respected and independent academic discipline (Pagell and Krause, 2004). Pilkington and Meredith (2009) find that research in the field of operations management has moved over the years from the more tactical and standalone aspects such as inventory management, processes management and strategy formulation in favour of more strategic and macro issues such as the total supply chain management and organisational wide flexibility. This is supported by Johnston (2005), who states that research in operations management have over the years adopted and cross and multi function approach to operations management issues.
Banker and Khosla (1995) state that over the last two decades, competitive pressures faced by U.S. companies have instigated them to introduce several management practices such as just in time, total quality management, worker empowerment, in a bid to effectively compete with their overseas counterparts. Practices like the just in time method of supply chain management have traditionally been attributed to Japanese companies Inman and Mehra (1990). As such, Banker and Khosla (1995) classify operations management decision areas into the four broad categories of product design, process selection, production planning and control and quality management. Although some of these functions appear to be outside the scope of operations management and more about engineering, it is the overall objective of operations management to exert influence and control over how they are completed.
The main aim of this essay is to discuss the operations management practices of a case study. This will focus on the production and quality management practices within the company in order to highlight and recommend solutions to any weaknesses that may be revealed.
For the purpose of the study, the case study is Toyota Motor Corporation, one of the leading vehicle manufacturers in the world. The reason for the choice of the case study is because Toyota Motor Corporation employs some of the most advanced operations management techniques in the production and distribution of its products. For instance, the just in time system of inventory control was first implemented by Toyota as early as in the 1930s (Toyota Motor Corporation, 2011). However, it has recently been faced with the problem of faulty cars, which has prompted several million recalls around the world and the company has been engaged in law suits from the U.S. Government concerning weaknesses in the manufacture of its cars which was blamed for a number of accidents and deaths within the U.S. All of these have brought serious financial and publicity damage to Toyota and it lost its position as the leading motor vehicle manufacturer in the world. This study will therefore critically examine the operations management practices of Toyota to determine if they are to blame for the organisation’s failures.
The aim of this introduction has been to discuss issues of operations management in order to put the study into perspective. The next section will focus on examining the operations management practices of the case study. However, a brief history of the case study and how it has developed over the years will also be necessary in order to understand the practices within the organisation.
Toyota Motor Corporation:
Toyota Motor Company was established in 1937 by Kiichiro Toyoda, although its history can be traced as far back as 1933, when an automobile department was set up by Kiichiro Toyoda in the Toyoda Automatic Loom Works Limited. The company created its first product, The Type A Engine, in 1934 and built its first passenger car, The Toyota AA, in 1936, while still a department at the Toyoda Automatic Loom Works Limited. The company started operations at its Honsha plant in 1938, where the and when the Just in Time system of operation was launched in full scale.
In the 1950’s, following the financial crises face by Toyota, the Toyota Motor Sales Company Limited was created separately from the Toyota Motor Company. However, in 1982 the Toyota Motor Company and Toyota Motor Sales Company Limited merged to form the Toyota Motor Corporation. In 1951, the Suggestion System of positive employee participation began, and in 1955 Toyota Motor Company launched the Toyopet Crown, Toyopet Master and Crown Deluxe brands. The first prototypes of the Toyota Crown were exported to the U.S. in 1957 and this also saw the establishment of the U.S. branch of the Toyota Motor Sales Company. Toyota won the Deming Application Price for Quality Control in 1965 and the Corolla brand was launched in 1966.
In 1984, Toyota Motor Corporation entered into the New United Motor Manufacturing Incorporated joint venture with General Motors Corporation to begin production in the U.S.A. By the end of the 1980’s, Toyota started establishing new brands in the U.S., with the launch of its luxury brand, the Lexus in 1989. This followed the commencement of production at Toyota Motor Manufacturing USA in 1988.
Toyota Motor Manufacturing U.K. was launched in the early 1990s. The 1990’s also saw Toyota begin to move away from producing mostly compact cars, but including larger and more luxurious brands such as the Toyota Tundra and a host of other SUVs and sports vehicles. Within the 1990’s, Toyota saw its cumulative domestic production reach 100 million, while it continued to expand globally by establishing operations in Europe and Asia. The Prius brand was launched in 1997 as the world’s first mass produced hybrid car and it rapidly became the world’s best selling hybrid car.
Toyota Motor Corporation entered the Formula One World Championship in 2002, while the Toyota Partner Robot was publicly unveiled in 2004.
The Lexus brand was first introduced in Japan in 2005. By 2008, worldwide sales of the Toyota Prius had topped one million and by 2010, it had reached two million. Over the years, Toyota Motor Corporation has continued to grow internationally as well as develop numerous brands. Some of its more recent brands include: Toyota Rav4, Toyota Prado, Toyota Land Cruiser, Camry, Carina, Avensis, and a host of others.
The company is currently head quartered in Japan and operates across the globe. Today, Toyota Motor Corporation is one of the largest motor vehicle manufacturers in the world and employs over 70,000 people world wide. Toyota became the largest automobile manufacturing company in 2009, before experiencing problems with the quality of some of its models, which led to it being overtake at the top spot (Ryall, 2009). Some of the Toyota Motor Corporation group companies include Lexus, Daihatsu, Scion, Hino Motors and the company also operates a financial services division. Toyota is listed on the Japanese, New York and London Stock Exchanges.
Lynch (2009) demonstrates the annual production of and sales of Toyota brands in 2004 as follows:
Vehicle production by region (%age) Vehicle Sales by region (%age)
Adapted from Lynch (2009).
The charts indicate that although Toyota Motor Corporation manufactures more about two thirds of its products out of Japan, only about 35% of the total production is sold in Japan. This indicates how popular Toyota has become (Ryall, 2009).
Operations Management at Toyota:
Toyota Motor Corporation has long been recognised as one of the leading companies in the automobile manufacturing industry (Womack et al, 1990). Lynch (2009) states that Toyota Motor Corporation’s rapid rise to success can be pinned down to its operations and marketing strategies. Its management philosophy has evolved right from the time of its origin and has been reflected in the way in which the organisation operates. Some of the key features of the organisation’s operations have involved Lean Manufacturing techniques, as well as the Just in Time supply chain management processes, which the organisation was vary instrumental in developing (Liker, 2004). Hartley (1981) states that the Toyota production system was deemed to be very efficient such that by the mid 1980s the system was being recommended for introduction into the Western automobile manufacturing companies. Toyota’s system was used a model to amplify the changes required in the U.S. automobile industry (Lynch, 2009).
Toyota Motor Corporation (2010) states that Toyota’s production system is fully immersed in the philosophy of the complete elimination of all waste in every aspect of production, in the pursuit of the most efficient methods to be used by the organisation. The company’s vehicle manufacturing process, which is often referred to as the Toyota productions system ( a combination of Lean Manufacturing System and Just in Time system), has been built over several years of continuous improvements as a way of manufacturing and delivering the kind of cars demanded by customers in the quickest and most efficient way.
In 2001, Toyota Motor Corporation adopted its values and business methods, collectively known as the Toyota Way. Toyota Motor Corporation summarises its values and conduct guidelines in the five main headings of:
Go and See
Teamwork (Liker, 2004).
As a quality control tool, the Toyota production system incorporates within it the 5-why’s procedure (Hutson, 1993). The 5-why’s is incorporates a simple problem solving technique, which helps users to quickly identify the origin of a problem. It consists of asking a series of questions until the point where the answer indicates the origin of the problem (Ishikawa, 1990). The 5-why’s procedure can be illustrated diagrammatically and is very similar to the fish bone diagrams proposed by Ishikawa (1990).
An illustration of the 5-why’s will be completed after examining the problems faced by Toyota Motor Corporation.
Lean manufacturing is a production process which focuses on the utilisation of production material and processes only in a way that creates value for the end customer (Dennis, 2007). According to lean manufacturing principles, any expenditure of resources, which does not create added value for the end customer is wasteful and should be a target of elimination. In this case, value is defined as any action, good, service or process which the end consumer will be willing to pay for. Krafcik (1988) states that lean is a set of tools which assist an organisation in identifying and eliminating wastage in the production process (as waste is reduced quality increases, while production cost declines). Thus the Lean manufacturing process is totally focused on techniques of improving operations or creating and implementing the most efficient production processes. Miller (2008) suggests that another perspective of looking at the lean manufacturing philosophy is as a system of stopping. This is because it focuses on producing just what the customer is willing to pay for, at the right speed, quality and cost. The lean manufacturing methods, as adopted by Toyota Motor Corporation ensures cooperation within the various departments in the organisation in order to ensure that just what is required has been manufactured (Miller, 2008).
According to Holweg (2007), the lean manufacturing was born out of the financial hardship faced by Toyota Motor Company after the Second World War. The company was faced with rising levels of inventory and very low demand and as such was forced to rethink its strategy. This was formally documented into the Toyota Production System
The Lean philosophy basically has two pillar concepts, which include: Just in Time production scheduling and smart automation (Liker, 2004). This section will briefly discuss the Just in Time philosophy.
Just in Time Production Scheduling:
Lucey (2002) defines a just in time system as a production system where manufacturing only takes place to meet demand and there is consequently low or zero inventory, and a strong emphasis on perfect quality. The main focus of the just in time system is to eliminate wastage of resources through the cost of holding both inputs and outputs. Thus materials for production are only demanded for when there is need for production to take place, and production only takes place to satisfy an already existing customer demand, rather than just for speculative purposes. This therefore makes both the production line leaner as well as the distribution chains. Also resources, which would otherwise have been tied down in inventories of finished goods or raw materials is not available for more efficient use by the organisation. Both Liker (2004) and Lucey (2002) state that if well implemented the just in time method of production can produce very desirable results for the organisation. Lucey (2002) suggests that the just in time system requires a high level of automation and is a demand pull system as goods are only manufactured to meet demand, rather than taking them into stock.
Holweg (2007) suggests that the first formal documents on the Toyota Production System were supplier manuals that were published by Toyota’s Purchasing department in order to teach suppliers about the requirements of operating a just in time production system.
The main benefits of the just in time system is that it reduces over all cost in terms of holding inventory of both raw materials and finished products, employees with multiple skills are used more efficiently, there is increased emphasis on maintaining good supplier relationships and production scheduling can be more better managed (Liker, 2004).
However, Ohno (1988), states that the just in time production system is a means to production efficiency and not an end as it has several weaknesses. For instance, a key feature in the success of the just in time system is maintaining good relationships with suppliers in order for production not to be interrupted through supplier conflicts.
The charts below indicate the Toyota’s production and sales figures for 2010:
Vehicle production by region (%age) Vehicle Sales by region (%age)
Total Production (6,809,000 units)
Total Sales (7,237,000 units).
The charts above indicate that Toyota sold more cars in 2010 than it produced. Furthermore the company sold less cars in Japan than it produced, an indication that its globalisation strategy is working.
The Toyota Crisis:
Toyota has recently been plagued by a number of questions over the quality of its cars following several incidents with some of its models. This has led to financial penalties to the corporation as well as negative publicity to its reputation as a manufacturer of affordable and high quality reliable motor vehicles.
From November 2009 through to the 1st quarter in 2010, Toyota issued three separate but related recalls for over eight million cars world wide and even halted production and sales of some of its models while the fault was being investigated. The problem was first brought to light after it was discovered that faulty accelerator pedals or sticking brake pedals had caused a number of fatal accidents in the U.S.
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The first two recalls were initiated with the assistance of the U.S. National Highway Traffic Safety Administration after it had been reported that drivers of some models had experienced instances of unintended acceleration of their vehicles. Thus the main objective of the first recall was to correct an out of order driver’s floor mat after it was suspected that it could be the cause of the unintended acceleration.
However, it was later noticed that a number of accidents had occurred despite the corrections to the floor mats. Investigations revealed it was a result of a sticking accelerator pedal thus causing unintended acceleration. This led to a second recall to rectify the fault.
The third recall was issued in order to upgrade the hybrid anti lock brake software after complaints had been made about its performance.
Toyota’s problems can be better understood by grouping them into Hard and soft problems:
The main soft problem faced by Toyota is to its reputation. While it is difficult to quantify exactly how badly this will affect the company in the future, it is certain that the company’s reputation for manufacturing affordable high quality and efficient cars has been battered. The company however hopes that it will be able to repair this in the future.
The hard problems faced by Toyota have been two fold:
Firstly, Toyota has incurred enormous costs in the recalls it made in order to repair the cars. According to the BBC News (2010) Toyota stated that the costs for the recall of its vehicles were about $2 billion.
Secondly, Toyota has suffered several law suits which have resulted in fines and penalties for the company. The most prominent has been the law suit brought against the company by the U.S. Government. According to CBS News (2010), Toyota estimates that the cost of the lawsuits brought against it could reach $3 Billion.
While it is hoped that lean management practices as adopted by Toyota in the Toyota Production System would increase quality and reduce over all manufacturing cost, this wasn’t the case in this instance. Toyota states that its production processes are expected to come of a halt if a faulty product was found on the production line. However, the faulty cars were produced in bulk and went unnoticed by the system till when the faults started to manifest.
While lean manufacturing processes to aid organisations in reducing costs and increasing productivity, they are not necessarily a guarantee of high quality products. Thus even when lean production techniques are employed within an organisation, implementing additional quality control measures in order to verify the quality of the products manufactured. It is only by doing this that the quality of the products can be verified.
Toyota Crisis and the 5-why’s:
Utilising the 5-why’s in the above situation will require Toyota to ask a series of questions such as:
Why did the customer experience unintended acceleration?
Why was the acceleration pedal sticky?
The process simply asks another ‘why?’ question after every response until the cause of the problem is precisely identified. This can be presented diagrammatically as follows:
Why 1: Why did the defect occur?
Why 2: Why did that occur?
Why 3: Why did that occur?
Why 4: Why did that occur?
Why 5: Why did that occur?
From above, it can be seen that one question leads to the other until the original cause of the defect is found.
In conclusion therefore it is strongly recommended that Toyota Motor Corporation improves on the quality check processes of its products in order to ensure that defective products can be identified and modified before being sent out to the market.
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