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Toyota Victor Araman
Toyota Motor Manufacturing
TOYOTA F1 Technologies
The US automobile market $250 billion.
Highly concentrated: top 8 companies account for more than 90%
Major drivers of US demand are employment and interest rates
Profitability depends on manufacturing efficiency, product quality,and effective marketing
US imports have exceeded exports by over $100 billion (NAFTA)
The average hourly wage is $30 (75% above US manufacturing)
Fringe benefits, including health care and retirement programs averageabout 45% of the hourly wage
Corporate Average Fuel Economy (CAFE)
China is the worlds second largest car market, replacing Japan (10%annual demand growth)
Industry Overview
A Few Facts about the Car Industry
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Process: Highly automated assembly lines
Productivity:Annual revenue per employee is about $1.4 million Between 2002 and 2005, the number of US auto production workers
decreased 8.5 percent; shipments increased 5 percent
Capacity: A typical plant produces 200,000 vehicles annually
Flow Time: Efficient plants require 15 to 25 labor hours per vehicle
Product Mix: 45% cars and 55% light trucks (including SUVs)
Supply Chain Management: As many as 15,000 parts pervehicle
Manufacturing Costs: Material costs 70% of selling price
Operations
A Few Facts about the Car Industry
Ford & Toyota GM & Toyota
GM & Exxon Toyota & Exxon
A Few Facts about the Car Industry
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U.S. Lig ht Vehic le Retail Sales - February 2009
Feb 2009 Feb 2008 %Chng.
General Motors Corp. 126,170 268,737 -53.1%Total Cars . . . . . . . . . . . . . . . . . . . . . . 53,813 107,592 -50.0%
Total Light Trucks . . . . . . . . . . . . . . . 72,357 161,145 -55.1%
memo: Saab. . . . . . . . . . . . . . . . . . 712 1,734 -58.9%
Ford Motor Company 99,050 192,178 -48.5%Total Cars . . . . . . . . . . . . . . . . . . . . . . . . . 36,765 63,270 -41.9%
Total Light Trucks . . . . . . . . . . . . . . . . . . . 62,285 128,908 -51.7%
memo: Volvo. . . . . . . . . . . . . . . . . . 3,356 7,505 -55.3%
Chrysler LLC 84,050 150,093 -44.0%Total Cars . . . . . . . . . . . . . . . . . . . . . . . . . 18,761 49,494 -62.1%
Total Light Trucks . . . . . . . . . . . . . . . . . . . 65,289 100,599 -35.1%
Toyota Motor Sales U.S.A. Inc. 109,583 182,169 -39.8%
Total Cars . . . . . . . . . . . . . . . . . . . . . . . . . 64,956 101,926 -36.3%Total Light Trucks . . . . . . . . . . . . . . . . . . . 44,627 80,243 -44.4%
PASSENGER CARS 341,855 554,982 -38.4%
LIGHT TRUCKS 347,054 620,937 -44.1%
TOTAL LIGHT VEHICLE SALES 688,909 1,175,919 - 41.4%
Product Mix
20
40
60
80
100
95 96 97 98 99 00 01 02 03 04Year
Chevrolet Ford Toyota
Inventory Performance in the US Auto Industry
ProducerDays of
Supply
No. of
Dealers
Sales per
Dealer
Total
Sales
Chevrolet 73 4227 627 2,652,244
Ford 74 3939 795 3,129,397
Toyota 42 1200 1251 1,501,322Averages during years 1999-2004
Inventory Turns
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Competitive Advantage
The Ford Focus reign as the top-selling Cash for Clunkers
vehicle appears to be over at least for now. Several reportshave emerged indicating that the Toyota Corolla has taken overas the car attracting the most clunker trade-ins
Some of the momentum gained by the Corolla might be due inpart to better availability on dealership lots. Many Ford storesreported earlier this week that inventory of Focus models hadessentially been depleted by the program. Galpin Ford, thelargest Ford dealership in the world, showed no Focus coupes orsedans in stock, while Longo Toyota, the largest Toyota dealer inthe U.S., showed more a stock of more than 40 Corollas.
Both dealerships are located in the Los Angeles area.
LeftLanes.com, August, 6th, 2009
Toyota Victor Araman
Toyota Victor Araman
What are the issues with the seatinstallation?
What should Doug Friesen do?
Toyota Production System
Relevance of TPS to business Cultural factors
Generalization to other contexts
The Cost of Stopping the Line
The Seat Problem: What was really done?
Agenda
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Toyota Victor Araman
What is this case about?
What are the issues with the seat installation?
What should Doug Friesen do?
Case Discussion
Toyota Victor Araman
Just-In-Time (JIT) Production
Jidoka
People
Kaizen
Elements of TPS
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Toyota Victor Araman
Produce only what is needed, only how much isneeded, and only when it is needed.
Elements of TPS: JIT Production
Toyota Victor Araman
Jan Feb Mar Apr May
Initial ProductionPlanning Order
(PPO)
PPO Revised
PPO is fixed and iscalled the Total
Vehicle Order(TVO)
TVO is brokendown weekly
Final parts orders to suppliersand daily productionsequence for the 1st week ofMay are finalized
Production Preparation
Production forthe 1st week ofMay
JIT Production: Production Control
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Toyota Victor Araman
Evening out (balancing) the total order in the dailyproduction sequence
Variety in May 1992: 23 sedan and wagon models,11 exterior colors, 29 interior variations & 30 otheroptions
Benefits Level production
Less risk of inventory obsolescence
Synchronization with sales
Challenges and complexities Reduce setups to allow frequent changeovers
Incorporate production schedule in material andinformation flows
JIT Production: Heijunka
Toyota Victor Araman
Every parts container carries a Kanban card including part code #, description, batch size, delivery address,
Card physically travels with the container and then backto the supplier
Pull production: only a Kanban triggers the production of
parts
Information flow is embedded in the process.
Inventory control: amount of WIP inventory is closelylinked to # of Kanbans
Actual daily production sequence is given by Kanbancards, not heijunka.
JIT Production: Kanban Cards
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Toyota Victor Araman
Make any production problems instantly self-evident and stopproducing whenever problems are detected
Build in quality in the production process
Any deviation from value addition is a waste
Value is defined from the viewpoint of the next station down the line
Standardize the process and document standards
Work chart: cycle time, sequence of tasks, breakup of cycle time intothe tasks
Colored tape to mark where everything belonged
Andon cord
Why detect problems when and where they happen?
What are the costs and benefits of pulling the andon cord?
Andon board
Highlight problems to successively higher levels, e.g., Code 1status
Elements of TPS: Jidoka
Toyota Victor Araman
Patiently select and invest in peoples knowledge and
skills One-on-one coaching Learn by doing: continuous improvement
Worker: training and discipline to add value and improveprocesses; solve problems by root cause analysis andcountermeasures (Employee Empowerment)
Team Leader: most knowledgeable/skilled in work zone;best leader-teacher.
Group Leader: Experience as a team leader plus broadersystem knowledge
Assistant Manager: Broader skills and knowledge
Role of managers: strategic thinking, not fire-fighting.
Elements of TPS: People
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Toyota Victor Araman
changing something for the better
Improve the standardized work, equipment, andother processes for carrying out daily production.
Eliminate waste in seven categories
1. Overproduction 5. Blocking & starvation
2. Inessential handling 6. Non-value adding processes
3. Excess inventory 7. Inefficient Motion
4. Corrections necessitate
by defects
Elements of TPS: Kaizen
Toyota Victor Araman
Eliminate fear: Separate the people from the problem
Root cause analysis: 5 Whys
Quality control department Setting quality standards
Design quality; Supplier specifications Inspection during final assembly
Assembly quality problems
Parts quality problems with suppliers
Following through on customers experience
Quality Control at TMM
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Toyota Victor Araman
If the line stops for one cycle (57sec) then the costwould be
1. The value of a car $18,500.
2. The profit margin per car 17% of $18,500 $3,145
3. The variable (labor) cost of a cycle $0.269 per worker
TPS: Cost of Stopping the Line
Toyota Victor Araman
Lost production is made up using overtime (@ 50%extra wage rate).
One car is produced every 57 seconds (cycle time).
If the line stops for about 1 minute, then the cost ofthe stoppage is OT required to produce 1 car.
Various areas of the plant are buffered from eachother with a small inventory; e.g., Final 1 and Final 2in Assembly by a few cars, Assembly & Paint line byabout 30 cars, etc. Implication: Short line stops affect only a part of the plant,
but long stops can affect the entire plant.
TPS: Cost of Stopping the Line
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Toyota Victor Araman
For example, if shut down is for 1 minute in Final 1,then only that segment is shut down
# of people in Final 1 = 30.
OT / person-min = ($17/60) * 1.5 = $0.425 per minute.
Total OT/min = 30 * 0.425 = $12.75 per minute.
If stoppage is long enough to affect all of the assemblyline, then OT is paid to 769 workers = 769 * 0.425 =$327 per minute (with team and group leaders) = 1019* 0.425 = $433 / min.
TPS: Cost of Stopping the Line
Toyota Victor Araman
Facts: 12 andon pulls per team member with 1 actual stoppage
Standard time per shift = 450 minutes
Run ratio = 85-95%
Lost production per shift = 5 to 15% of 450 minutes= 22.5 to 67.5 minutes.
Consider Final 1 with 30 people # of cord pulls = 30*12 = 360
# of stops per shift (1 in 12) = 360/12 = 30 stops
Avg. downtime per stop = Total downtime / Totalstops = [22.5/30, 67.5/30] = [0.75, 2.25] mins perstop.
TPS: Impact of Cord Pulls
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Toyota Victor Araman
Cost of not stopping the line: Need for rework
Propagation of defective products through the system
Excessive waste
Difficult to attach a $ number to this phenomenon
Toyota Philosophy:
the risk of snowballing waste is such that stopping the line ispreferred to not stopping the line even if the cost of notstopping is not quantifiable.
Cost of Not Stopping the Line
Toyota Victor Araman
Cost of stoppage easy to compute Short stoppages have very little cost
Benefits are huge but hard to estimate Quick identification of defects
Fast feedback
Continuous improvement
Buffering between line segments limits impact ofstoppage
Seat Problem: If problem is diagnosed but notsolved yet, then do not stop the line. Instead, collectproblem cars in the overflow area and repair themlater
TPS is pragmatic !
TPS & the Andon System
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Toyota Victor Araman
The good things I saw [at Tsutsumi] werejust common sense and no big deal at all.My eyes werent open back then.
- Doug Friesen, Manager of Assembly,
Toyota Motor Manufacturing,
Georgetown, Kentucky, Plant.
A Quote
Toyota Victor Araman
May 1: Managers, including Doug Friesen, have justlearned about the seat problem, long after it hasbecome one
Implies that TPS has not been appliedcorrectly/completely in this case
Two problems: seat defects and the fact that it has not been
recognized for a while No one knows what the real cause of the problem is
What must be done: Install new mechanisms for managers to learn about what they
need to know
Managers should be forced to confront the symptoms as soonas they arise and trace them to root causes (Jidoka)
The Seat Problem
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Toyota Victor Araman
Seat reorder form was revised KFS stationed QC engineers at TMM seat receiving area
To discover more about the problem
KFS: altered lighting in their final inspection area
Friesen guessed that insufficient lighting could havebeen a problem at KFS inspection area
Clearly marked area within the overflow area for seat-
defective cars When this space was filled, a mini-May 1 type meeting
would be held to give immediate feedback to KFS.
Actions Taken after May 1(not in the case)
Toyota Victor Araman
Bulletin board in the overflow area with 8 slots fordifferent kinds of defects and a copy of the reorder formwas placed in these slots What defects are common?
How fast are replacements arriving?
Jidoka procedure:
Number of seat defected cars in the overflow area reaches fourArea group leader calls in an asst. manager of assembly andKFS people to review the situation
Number of seat defect cars in the overflow area reaches six
Area group leader calls in the manager of assembly and KFSpeople to review the situation. KFS ships replacement in anhour
Actions Taken after May 1(not in the case)
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Toyota Victor Araman
More kaizen training to group and team leaders Training for KFS
By the end of May 1992: heightened awareness of seatdefects, faster problem-solving cycle
Results: weekly defect counts fell by 25 %
Continued improvement even after the introduction ofseveral new models in the summer
Summary of the seat problem:
Managerial Problem stemming from the lack of a system that
helped people autonomously improve the status quo Such problems will always occur in a dynamic environment and
a relentless pursuit of the cause of the defects andopportunities for improvement is necessary
Actions Taken after May 1(not in the case)
Toyota Victor Araman
Toyota: has been intensively researched anddocumented
Practices (kanbans, for example) have been copied inmany other companies.
Many companies have tried to develop their ownversions of the TPS and have failed
Reasons are NOT country/continent related Even Nissan and Honda could not
TPS has been introduced successfully in Toyota, NorthAmerica
Why is it so difficult?
Decoding the DNA of the Toyota Production Systemby Steven Spear and Kent Bowen, Harvard Business Review 1999
More on Toyota Production System
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Toyota Victor Araman
WSJ: Sept. 03, 2004
Why is it so difficult?
Toyota Victor Araman
Key Idea: TPS is not just the tools and practices visibleto a visitor
Key Idea: TPS creates a community of scientists
Every new initiative establishes a set of hypothesis whichare tested
The scientific method is intrinsic to the system
Rigorous problem solving approach: Detailed assessment of the current state
Detailed plan and documentation for improvement
Experimental test of proposed changes
Reliance on such a scientific method stimulatesworkers and leaders to make Toyota a continuouslylearning organization
More on the Toyota Production System
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Toyota Victor Araman
Skilled workers; Invest in training and standardizationof processes.
Integrate quality into the design and the productionprocess
Integrate your suppliers
Instant feedback in case of problems. Do not delegateto QC inspectors
Do not create waste
Continuous Improvement
Key Learning from TPS
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Toyota Victor Araman
Toyota Victor Araman