Thursday, November 23, 2006

Company Review: Toyota *)

Review of
Toyota Motor Manufacturing, U.S.A., Inc.

I. Backgroud

In early 1980s, Japanese auto industry was thinking to build their plant in North America because of political pressure caused by trade imbalance. However, they were doubtful about maintaining high quality and low cost. In such situation experimentally Toyota Motor Corporation unveiled its plan to open an $ 800 million green field plant in Kentucky in 1985. In 1988, Toyota Motor Manufacturing (TMM) U.S.A began production Camry sedans in Georgetown, Lexington with a annual capacity of 200,000. In March 1992, TMM started producing wagon version of the new Camry exclusively within Toyota’s worldwide network.

I.1. Toyota Production System
Main objective of Toyota was to produce better car for more people to meet their divergence demand and supply in time. In order to produce world-class, quality automobiles at competitive price levels, Toyota has developed an integrated approach to production which manages equipment, materials, and people in the most efficient manner while ensuring a healthy and safe work environment known as Toyota production system (TPS).

TPS is built on two main principles. The first one is “Just-In-Time” (JIT) production. It refers to the manufacturing and conveyance of only “what is needed, when it is needed, and in the amount needed.” The second principle is "Jidoka". It refers to the ability to stop production lines, by man or machine, in the event of problems such as equipment malfunction, quality issues, or late work. Jidoka helps prevent the passing of defects, helps identify and correct problem areas using localization and isolation, and makes it possible to “build” quality at the production process. Underlying this management philosophy and the entire Toyota production process is the concept that "Good Thinking Means Good Product".

I.2. The Georgetown Ramp Up
Toyota’s foremost priority was to development of human infrastructure in transplanting TPS to Georgetown. That’s why during the time when construction was going on Georgetown in early 1986, TMM initiated the hiring and training program for officials from managers to core operation’s personnels; these people came from within the industry and form the nucleus of TMM operation, in Tsutsumi, Japan. After that, they were sent to Georgetown plant. As a result, in early 1992, Georgetown’s huge complex employed over 4000 people, representing $150 million in annual payroll.

II. Operation

In Georgetown, the power train plant supplied engines and axles to the assembly plant, which performed sheet-metal stamping, plastic molding, body welding, painting, and assembly operations. In these direct operations as well as in their support functions, TPS was deployed as a set of management tools to be practiced daily.

II.1. Assembly
Assembly operations performed along 353 stations on a conveyor line, over five miles in length and consisting of several connected line segments: the trims lines, chassis lines, and final assembly lines. Assembly and part handling required 769 team members, who were paid an average of $17 an hour (not including benefits), plus a 50% premium for overtime. A team usually had four members and one team leader, who received a premium of 5% to 8%.

Assembly operations were built based on the principle of jidoka and kaizen. Jidoka is the stopping of production when a problem is noticed and fixing it. This strategy prevents defective items from being passed on to the next station, reduces waste, and most important, enable operations to build quality into the production process itself. Kaizen literally means “changing something for the better.” The objective of change usually includes the standardized work, equipment, and other procedures for carrying out daily production. Kaizen requires that a process be first standardized and documented so that ideas for improvement can be evaluated objectively.

II.2. Production Control
The mission of the production control (PC) department was to feed necessary parts into TMM operations so that the right number of cars in the right mix could be delivered to the sales company’s JIT. To achieve this mission, the planning process was reflected based on the principle of heijunka and kanban. Heijunka describes the idea of distributing volume and different specifications evenly over the span of production such as a day, a week, and a month. Under this practice, the plant’s output should correspond to the diverse mix of model variations. Heijunka practice achieved two goals. Firstly, by spreading out the demand for parts as evenly as possible, it relieves suppliers of a surge of workload and facilitates their just-in-time production. Secondly, it synchronizes the assembly line with the ultimate sales of the cars. Kanban, the Japanese term for “sign”, uses standard lot sizes and often, returnable containers with a card attached. These kanban cards, which are pulled as assembly-line workers use parts, alert suppliers that part levels need to be replenished.

II.3. Quality Control
TMM’s quality control (QC) department pursued a mandatory routine of setting tough quality standards, inspecting every vehicle against those, and following through on the customer’s experience with shipped vehicles. In addition, assembly group leaders help them solve assembly quality problems and work out part quality problems with supplier called on QC engineers. QC served two other functions as well. The first was providing instant feedback to direct operations including final assembly. The second was preventing problems from occurring in the first place.

II.4. Purchasing
Because TMM’s PC and QC departments engaged in fire fighting to solve delivery and quality problems directly with part suppliers, upon requests from assembly, the purchasing department was freed up to concentrate on managing costs over the long haul. Manager of purchasing should find low cost suppliers rather than low price supplier. Low price suppliers always came back to jack up their initial quote. Moreover, without low cost, it’s logically impossible for any supplier to offer low price consistently. To achieve this approach, the company encourages suppliers to share their cost data and help them improving their manufacturing process that can lead into low cost production.

III. The Seat

III.1. Manufacturing and installation
Manufacturing: Kentucky Framed Seat (KFS) used a system of sequential pull, so a Camry passed through the final assembly work station every 57 seconds, and the seat completely match the model type as the principle all just in time. The system operated when body shells emerge from the paint line, then a small transmitter was attached to each body to send the information to both TMM and KFS in real time. KFS’ manifest specified the style and color of the seat. In the process of manufacturing the car traveled down TMM’s five-mile-long assembly line and did all the seat assembly pieces. After the inspection, the cars would be loaded on the truck and transfer from KFS to TMM.

Installation: The overhead seat conveyor line ran above panel of the steel mesh that shielded cars and people below. At the rear seat loading workstation, a team member unstapled the seat set and placed all the rear seat pieces into the car. At the front seat workstation, team member guided the front seat assemblies into the car and fixed the bolts in place with a pneumatic wrench.

III.2. The problems of the seats
The main topic of the case was the problems caused by defective or damaged seats. At first the problems caused by the increase in the Camry seat options as demand of the market and the taking on of all the wagon productions for TMM Which cause the run ratio was drop 10 percent. Moreover, the problem also occurred to the relationship between TMM USA and its seat supplier Kentucky Framed Seats (KFS), so Doug Friesen and his colleagues had to set the meeting to brainstorm about the information and tried to figure out the problems and solve them:
 These are the problems which TMM USA was facing in the process of manufacturing.
 The first problem was a build up of cars with seat problems in the off-line operation area, when the JIT and JIDOKA principle seemed to not effective in the process of manufacturing.
 The second problem was the departure from the Toyota Production System (TPS) when dealing with the seat problem. Rather than fix the problem with the seat when it happened, they continued with the car’s production and worried about the seat afterwards.
 The third was the actual defects with the hooks and the damaged caused by cross threading by employees when installing the seats.

After Doug Friesen found the problems, he was not sure about the system and the principle of the company, and he needed to find the way to change the routine off line of the company.

IV. Questions and Answers

1. As Doug Friesen, what would you do to address the seat problem? Where would you focus your attention and solution efforts?

In April 1992, TMM had problems in the run ration of the plant. The run ration was down to 85% from 95%. It meant a shortfall of 45 cars per shift, which had to be made up with overtime. Consequently, too many cars needed off-line operations of one type or another before they could go on to shipping. The main source of the problem was the seats defects in the cars.
In case of the cars with seat problems, the car went through the assembly line with the defective seat in it. Then the car was driven to the Code 1 clinic area to see if the problem was correctable there. If the problem called for a replacement seat, the car was moved to the overflow parking area where the car waited for new seat to be delivered from the supplier. This routine is in fact an exception given the quality control process in TMM.
In TMM, TPS principles would make any production problems instantly self-evident and stop producing whenever problems were detected. In case of the defective seats, the reasons for exception were:
 The final assembly people already knew of the problem.
 It was possible to finish building the car without seat assemblies.
 It was felt that stopping the line was too expensive given how long it took to obtain the replacement seat.
The seat set was the most expensive of all the purchased parts. TMM’s sole seat supplier was Kentucky Framed Seat (KFS), which teamed up well with TMM’s operations until TMM proliferated its products, the seat styles increasing from 3 styles with 4 colors up to 18 styles. Even though the supplier tried to adapt the cars with seat defects became the major concern of the assembly plant in 1992.
In fact, the manager of the assembly, Dough Friesen should focus mainly on the legitimacy of the exception in the case of the defective seats and the coordination between the plant and the seat supplier:
 It is reported that KFS responded with a special delivery of replacements twice a week. But still, there were cars waiting for the new seats for more than 4 days.
 Occasional incidents of cross threading, that is, when a team member shot a bolt at an angle were fixed easily by team leaders.
 There were very few incidents, which could damage the seat covering with hand tools.
 The hook breakage problem reported by one of the group leaders might also derivate assembly process.
Consequently, the manager of the assembly should first identify those processes needing improvement. Second, he should gather more data about the problems by interviewing the personnel in details. Finally, he should analyze this data in order to figure out gaps between the standards and the current outputs.
2. What options exist? What would you recommend? Why?

We noted that the signs of problems appear after TMM proliferated the number of seat styles from 3 to 18. Even though KFS operated as a part of the assembly line, all the seat parts being detected through the line from the beginning to the end, the cars have seat defects. In fact, it is not reported that the seats are delivered defective to the plant. The seats are damaged during the assembly. Hence, one of the options that the manager has is to revise seat assembly team. Another issue is to redesign or improve off-line operations in case the manager decides to continue correcting seats off-line.
The manager should also think through the overwork that the plant has after TMM became the sole source of the Camry wagons for the first time for Toyota worldwide. So in this case, we recommend him these actions:
 Revision of the seats design in order to control assembly defects.
One of group leader, Shirley Sargent, suspected that its sharp edge made it difficult to assemble. TMM have also to listen to such feedback.
 To have multi-suppliers to lighten the burden of the only one supplier who works for 18 different styles.
It was obvious that this problem started after the styles expanded, so having several supplier could solve this overburden.
 Revision of the off-line operations in order to avoid overtime work.
TMM should be able to change its operation mode, since the Clinic Area and Overflow Parking Area were not enough to cover this mass problem.
These are the possible recommendations that may be useful for the manager of the plant, since the high level of off line vehicle inventory affects negatively the sales and most importantly the JIT principle of TMM. In addition, it is important to note that maintaining the quality in the long run is closely dependent on the efficiency of each step of the production process.

3. Where, if at all, does the current routine for handling defective seats deviate from the principles of the Toyota Production System?

The current routine for handling defective seats deviates from the two guiding principles of TMM:
 First, Majority of the defective cars inventory did not apply to the just-in-time principle. It is considered a deviation of the true production, which is hence a waste given the Toyota Production System’s principles.
 Second, the current application is against JIDOKA principle, which insists on building quality in the production process and on stopping production whenever a problem is detected.
Also, two strong attitudes created within the organization stick to the facts and get down to the root cause of the problem are ignored. A typical discussion of a problem would start with “let’s go see it” and then converge on the five whys exercise until the root cause was identified and determined.
Contrarily to these principles, the plant currently tries to handle defective seats with off-line operations. In case of the cars with seat problems, the car went through the assembly line with the defective seat in it. Then the car was driven to the Code 1 clinic area to see if the problem was correctable there. If the problem called for a replacement seat, the car was moved to the overflow parking area where the car waited for new seat to be delivered from the supplier. This creates the need for overtime in order to fix waiting cars. It is obvious that the handling is not suitable to the design of the production in the plant

4. What is the real problem facing Doug Friesen ?

In 1992, Doug Friesen, manager of assembly for Toyota's Georgetown, Kentucky, plant, faces a problem with the seats installed in the plant's sole product--Camry. A growing number of cars are sitting off-line with defective seats or are missing them entirely. The problem with the seat was due wrong parts, loose rear seat backboard, loose front seat backboard, rear seat lock, material defects, scratches etc. As a result, production was dropping by 10%. They were not able to supply the car to customers on time. Although they were working with JIT and Jidoka principles but the production was dropped and they were not able to find any solution .That was the main problem will be added after due.

*) International Technology and Management 3E (ITM) – 70674
Professor HIBARA Nobuhiko


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