Toyota Paper

Toyota

/
Chairman: / Hiroshi Okuda
Founded: / By Kiichiro Sakichi in 1933 within Toyoda Automatic Loom, “independent” as of 1937
Headquarters: / Toyota City, Japan (US HQ in Torrance, CA)
Philosophy
“The Toyota Way”: / 1. Belief in “Mono-zukuri” (Making good products);Just-in-time => Lean Management
2. Principle of “Customer first”; Customer Satisfaction No.1, Quality No.1
3. Respect for People (employees); “Mono-zukuri” is “Hito-zukuri” (Making good product is equal to making good people); Mutual trust of management and employees
Business Units: /
  • Daihatsu Motor Co., Ltd.
  • New United Motor Manufacturing, Inc.
  • Toyota Motor Credit Corporation
  • Toyota Motor Sales, U.S.A., Inc.
  • Toyota Motor Thailand Company Limited
And, as of 1984:
  • Toyoda Automatic Loom
  • Aichi Steel
  • Toyoda Machine Works
  • Toyota Auto Body
  • Aisin Seiki
  • Nippon Denso
  • Toyota Gosei
  • Kanto Auto Works
  • Koito Works
  • Aisan Industries
/ Products: /
  • the Lexus line of luxury cars
  • Prius (hybrid-powered [gas and electric] sedan)
  • Cars, pickups, minivans, and SUVs including:
  • Camry
  • Celica
  • Corolla
  • 4Runner
  • Echo
  • Land Cruiser
  • Sienna
  • WiLL
  • V-8 Tundra pickup truck
  • Industrial vehicles
  • Cellular phones
  • Financial services

Manufacturing: / Japan (15 plants), Rest of East Asia (17), North America (8), Latin America (5), Europe (4), Middle East & Southwest Asia (4), Africa (2), Oceania (1)
R&D: / Japan (1 HQ, 1 tech center, 1 proving ground), USA (1 engineering, 1 design), Belgium (1 engineering, 1 design), France (1 design)
Financial Data – Millions $ (FY ends 12/31) /
2000 / 1999
Sales / 119,656 / 105,797
Net Income / 4,540 / 3,746
Employees: World / 214,631 / 183,917
Site Background: / Toyota’s Tsutsumi factory is located in Toyota City, close to the worldwide headquarters of Toyota Motor company. In and around this site in Aichi Prefecture are situated a total of 12 Toyota plants.
This factory was opened in 1970 and employed 5,700 workers by 1999. This makes it the third largest Toyota plant in Japan, by workforce.
The factory occupies an area of 600,000m2 on a site nearly twice as large.
As of March 1999, according to our data, the main products being produced here were the Camry, Caldina, Corona, Mark II, Vista, Windom (ES300). However, we’ve been told to expect to see the production of Lexus luxury vehicles at the plant so either there have been some changes to the plant’s lines or some of our information is wrong.

Toyota Paper: Introduction

Welcome to the MIT Sloan 2001 Japan/Korea Trip Toyota Team Paper

In this paper we aim to present some information essential to understanding Toyota and its place in the Japanese economy and the global auto industry, to prepare for our visit to the company and its production facilities on Monday 26th March 2001.

We have designed the paper as easily-digestible chapters which can be read stand-alone in spare moments while in transit around airports and on buses, to suit the specialized needs of Trip participants.

To cut down the overhead in reading this paper we have as much as possible removed “filling” sections such as transitions from chapter to chapter, and kept introductory remarks extremely brief.

The chapters are as follows:

ONEState of the global auto industry
The main trends in automobile production and marketing today

TWOCharacteristics of the Japanese auto industry
What’s special about the way this industry developed?

THREEHistory of Toyota
A straightforward account of the timeline from 1937 to 2001

FOURCurrent company facts
Financials and production figures; stated strategy and direction

FIVEToyota Production System
A primer, with glossary of terms, to this famous system

SIXToyota’s relationships
How Toyota deals with its employees, suppliers and customers

If you have any further questions, please contact one of us:

Aaron Fyke

Gary Mi

Tony Palumbo

Yukihiro Wada

Grace Webber

March 19th, 2001

ONE: State of the Global Auto Industry

In 2001, there are four major trends impacting the global auto industry:

Overcapacity, mergers and alliances

With overcapacity estimated at around 30% (Economist Feb 11th 1999) or the capacity to produce 23 million more cars per year than the market will take (Robert Eaton of Chrysler, quoted in the Economist), this is an industry in trouble. We have seen mergers and alliances, for instance Daimler-Benz with Chrysler. There is speculation (Jac Nassar of Ford) that there is only room for six volume car makers in the future: two in Japan, two in Europe and two in the US. Smaller manufacturers without the highest production expertise and economies of scale will simply disappear.

Economic downturn

Over the last couple of years, demand for new vehicles has slowed, putting pressure on automakers all round the world to slim down their operations, close unproductive plants and focus on core strategic activities.

Shifting consumer demands

Led by the US, consumers are no longer satisfied with mid-sized family cars. Increasingly they are demanding more specialized vehicles such as SUVs, minivans and light trucks.

The adjacent graph from the Economist shows the dramatic shift in sales from cars to light trucks.

Increasing variety in demand is causing a growing emphasis on flexible manufacturing systems to enable rapid response to market variations, and “mass-customized” product to be ordered for the customer straight off the production line.

Removal of European trade barriers

Until 2000, Europe had strict quota limits on the import of Japanese cars. This had encouraged investment by Japanese car firms in manufacturing plants within European borders and had also protected the domestic markets of the smaller European manufacturers. With the removal of these trade barriers, the European market is being opened up to more competition. However, it remains to be seen how far governments will go in removing the safety net from their domestic auto industries. Industry consolidation would lead to plant closures, with large-scale job losses, which are difficult for many European governments to swallow, and the calls for intervention and subsidy introduction could be too loud to be ignored.

TWO: Characteristics of the Japanese Auto Industry[*]

From followers to leaders

For many years, Japanese companies struggled to produce automobiles up to the standards of the US and Europe. They were producing much lower volumes, which hindered them from achieving scale economies. They also lacked learning, technology and the ability to produce quality that the US companies had. Many of the products developed by the Japanese car companies in the first half of the 20th century were manufactured from kits supplied by, or based on designs reverse-engineered from, foreign competitors. The up-and-coming leaders of the Japanese automotive industry spent their time touring production facilities in the US, learning manufacturing techniques and automobile engineering from (it seems) proud and willing tutors at Ford and GM.

During the 1960s and 1970s the Japanese automobile industry continued to work on process improvements to increase their quality and production efficiency, and on their own designs of smaller, more-affordable cars to suit their domestic market more appropriately. They developed their supplier networks of subsidiaries and partly-owned companies to provide them with the high-quality components they needed.

“Suddenly” from the 1970s/1980s, Japanese cars had become well-made and inexpensive. In manufacturing systems the Japanese had leapt ahead of the west they had so diligently studied earlier in the century. In the coming years, car manufacturers from all over the world would be studying Japanese automakers (especially Toyota) to learn their production techniques. Indeed these firms had become the new most-admired engineering organizations in the world.

From domestic market to exporters

At the dawn of the Japanese car industry, there were many manufacturers vying principally for domestic business. Large volumes of imports were arriving from overseas on Japanese shores, since Japanese consumers preferred the more reliable imports.

Capital available to the Japanese firms was fairly limited and they concentrated on developing their production to compete in their domestic market. Yet, as improvements in efficiency and quality came through, and excess capacity grew as home market growth slowed, Japan’s auto exports grew rapidly. By 1974, Japan had displaced West Germany as the world’s largest automobile exporter, and by 1976 most of Japan’s auto output was exported.

History of government intervention, direction and regulation

From 1936 onwards, successive Japanese governments had protectionist policies and levied huge import taxes (e.g. 40%) on foreign automobiles. Support for domestic manufacturing was seen as a way of preventing the foreign currency drain of imports.

The Ministry of Commerce & Industry (MCI), after 1949 the Ministry of International Trade & Industry (MITI), set tariff policies. MITI also provided low-interest loans with tax privileges for investment, tried to reduce competition in an overcrowded industry, and urged the industry to focus on particularly promising market segments.

When Japanese products had achieved a quality leadership position and well-recognized brands in their home market, MITI removed the now-redundant import tariffs.

THREE: History of Toyota

Toyota started in 1937, growing out of Toyoda Automatic Loom Works, headed by Sakichi Toyoda. Toyota Motor Company was founded by Kiichiro Toyoda, Sakichi's son. Due to the fact that “Toyoda” had a meaning in Japanese, it was decided, after a large contest, that the company name would be changed to Toyota, which held no meaning in Japanese.

In 1950 the company experienced its one and only strike. This strike proved to be a major turning point in the history of Toyota as Toyota’s labor policies and management style emerged from this stoppage. Both sides were firmly committed to establish the principles of mutual trust amongst its members, a corporate philosophy that still guides Toyota’s growth today.

Due to the lack of resources in post war Japan, a production system that concentrated on improving efficiency and eliminating waste emerged. Taiichi Ohno, the systems founder, based TPS on the principles of continuous improvement, and “Just-in-time” manufacturing. Lean production, as it later became known is a major factor in the reduction of inventories and defects in the plants of Toyota and its suppliers, and it underpins all the operations across the World.

Toyota launched its first car in 1947 and production of vehicles outside Japan began in 1959. The first expansion overseas for Toyota was in a small plant in Brazil. Toyota claims to believe in locating its operations locally to provide customers with the products they need where they need them. Whether this is actually the case, or only really true when mandated by government policy is another story. Nevertheless, in addition to their manufacturing facilities,Toyota has design and R&D facilities located throughout the world, servicing the three major car markets of Japan, North America and Europe.

Source, Toyota Motor Company

FOUR: Current Facts

1. Business Segments

Automotive:

The “automotive” business involves the design, manufacturing and sale of passenger cars, recreational vehicles, sportutility vehicles, minivans, trucks and related parts. Automobiles are manufactured mainly by Toyota andDaihatsu Motor Co. Automobile parts are manufactured by Toyota and their suppliers, such as companies like Denso Corporation.

These products are sold through Tokyo Toyo-Pet Motor Sales Co., Ltd. and other dealers. Some sales, tocertain large customers, are made directly by Toyota in Japan, bypassing the dealership network. Overseas, sales are made through ToyotaMotor Sales, U.S.A., Inc. and other distributors and dealers. Volkswagen and Audi vehicles arealso sold through the Toyota dealership network in Japan.

Financial Services:

This business involves providing loans and leases to customers and loans to dealers. The Toyota Finance Corporation handles this business in Japan, whereas Toyota Motor Credit Corporation and others providesales financing of Toyota’s products and the products of its affiliates, overseas.

All other:

Other businesses include the manufacturing and sale of industrial vehicles such as forklifts and logistics systems, andthe design, manufacturing and sale of prefabricated housing, telecommunications and other business. Industrial vehiclesare manufactured by Toyoda Automatic Loom Works, Ltd. and sold through dealers in Japan and distributorsand dealers overseas. Housing is manufactured by TMC and sold through domestic housing dealers. Inthe telecommunication business, IDO Corporation provides domestic telephone services. Toyoda TsushoCorporation engages in the purchase and sale as well as import and export of various products.

2. Business results (fiscal year) (million yen)

1996 / 1997 / 1998
Period / April 1995
- March 1996 / April 1996
- March 1997 / April 1997
- March 1998
Consolidated accounts / Net Sales / 10,718,740 / 12,243,834 / 11,678,397
Income before income tax / 420,801 / 708,299 / 828,791
Net income / 256,977 / 385,915 / 454,349
Vehicle production (units) / 3,849,817 / 4,293,682 / 4,233,371
Vehicle sales (units) / 4,148,641 / 4,559,515 / 4,456,344
Employees / 146,855 / 150,736 / 159,035
Unconsolidated accounts / Net sales / 7,957,152 / 9,104,792 / 7,769,486
Income before income tax / 340,734 / 620,412 / 625,640
Net income / 182,534 / 303,312 / 365,140
Vehicle production (units) / 3,174,300 / 3,500,782 / 3,421,729
Vehicle sales (units) / 3,250,681 / 3,543,778 / 3,468,544

.Consolidated subsidiaries (261 companies): domestic consolidated subsidiaries
(152 companies), overseas consolidated subsidiaries (109 companies)

.Affiliates accounted for under the equity method (60 companies): domestic affiliates
(44 companies), overseas affiliates (16 companies)

3. Outlook and Strategy

Mid-term and long-term management strategy

Toyota plans to enhance its competitiveness in the global market through advanced technology, and improvements in production efficiency and sales.

In technological development, Toyota aims to lead other automakers in the field ofenvironmental technologies. These include targets such as reduced emissions, improved fuel efficiency, and higher vehiclerecoverability rate. To meet these criteria, Toyota is investing to develop technology in hybrid electric vehicles, fuel cell vehicles and other next-generation automobiles with the aim of commercializing them as quickly aspossible.

Toyota plans to continue promoting cost reduction efforts such as the common use of vehicle platforms, reductions in component types and the streamlining ofproduction lines.

In order to respond to the customer’s overall needs, which are bound to expand from automobiles toinclude other related areas, Toyota intends to develop its business strategically by effectively allocatingmanagement and other resources to its finance, information and communication businesses.

Product Diversification

Toyota traditionally has regarded customers principally as buyers of automobiles and of a very limited range of closely related products, such as financing and replacement parts. Now, Toyota is deepening its relationships with automobile customers through new products and services, such as innovative packages that combine financing and insurance. And it is diversifying into markets where it develops customer relationships through products unrelated-or indirectly related-to automobiles, such as cellular telephones and credit cards.

Finance business

Much of the increased value that Toyota plans to cultivate downstream in its value chains is in financial services.As Toyota expands its activity in the financial sector, it needs to manage risk systematically and manage operations efficiently. Therefore Toyota placed all the financial services operations under a newly-established financial management company in July 2000.

Information technologydevelopment

Toyota intends to get onto the cyberspace map through multimedia ventures supporting value-added functions in automobiles, such as navigation. Toyota’s GAZOO website, which began as an automobileinformation service, is being developed into a provider ofdiverse services. Its most developed functions provide price estimates andbrochureware for Toyota vehicles and the nearest locateddealers, and it also hosts a growing array of virtual shops for Internetshopping, including access to music downloading sites.

Toyota is the second-largest shareholder of KDDI Corporation (with 13% of shares), formed in 2000 through the merger of Toyota’s IDO subsidiary and KDD corporation. KDDI Corporation is a leading provider of international and cellular telephone services in Japan’s highly competitive telecommunications industry.

Development of Environmental Technology

Creating automobiles with low environmental impact is no longer "just an option" for Toyota - it has become a crucial part of corporate strategy. The development of technology to reduce environmental impact enables Toyota to sit in the driving seat setting new global standards, so gaining competitive advantage in exploiting them. The “Prius” hybrid vehicle was launched to critical acclaim and much positive PR. In addition, leading Toyota’s sales growth in Japan is its small car, the “Vitz,” and its derivative models, which are very popularfor their high fuel efficiency.

FIVE: The Toyota Production System

Toyota is known for quality vehicles, produced the world over. However, what Toyota has done exceptionally well, is implement a manufacturing system so successful it has influenced not just auto making, but manufacturing standards across many other products all over the world. Through the Toyota Production System (TPS) Toyota has managed to cut costs, reduce time to market, and dramatically improve quality. This allows Toyota to be one of the few companies able to compete simultaneously as a premium and as a low cost producer.

There are several important aspects to TPS. These relate to either cost reduction, or quality improvement, or both. The underlying philosophy of TPS is a relentless desire to continually find and remove waste – wasted time, wasted money, wasted material. This attitude results in continual improvement of quality and efficiency. Some of the mechanisms for this improvement are listed below:

JIT (Just in Time) – Just in time inventory control reduces the amount of inventory in a system to its bare minimum. Material is only provided when needed. This is opposed to having large amounts of inventory being piled up waiting to be processed (WIP – work in progress). JIT has many advantages over conventional systems. Eliminating WIP inventories results in reduced holding costs. JIT also improves quality as it allows for quick detection of quality problems. Because units are only produced on an “as needed” base, there will not be the situation in which large amounts of defecting WIP needs to be reworked. JIT also tightens the relationship between the producer and supplier, allowing for better linking of engineering, product development and quality control as it becomes in the supplier’s best interest to reduce variability in their production line.