When organizations seek to improve or transform their resources into goods and services, they are, in a way, developing their process strategy in producing their customer and product specifications at lower costs and less managerial constraints. As companies are targeting global markets at present, each organization needs to decide on long-term competitive goals that are strategic in nature.
In making these process decisions, managers need to focus on controlling competitive priorities like quality, flexibility, time, and cost to meet the global demand for their products.
In having a look at Toyota Motor Corporation’s process strategy, it will be helpful to realize why their decisions for both service and manufacturing processes are successful. By determining the processes that comprise their operations, we will be able to assess if their value chains are managed efficiently and effectively.
According to Krajewski et al. (2007), a process strategy specifies the pattern of decisions made in managing processes so that they will achieve their competitive priorities.
Also, a “process strategy guides a variety of process decisions, and in turn is guided by operations strategy and the organization’s ability to obtain the resources necessary to support them”. Thus, a process strategy consists of decisions that help define the value chain. Usually these decisions seek the improvement of processes and they are done most likely when:
- A gap exists between competitive priorities and competitive capabilities.
- A new or substantially modified service or product is being offered.
- Quality must be improved.
- Competitive priorities have changed.
- Demand for a service or product is changing.
- Current performance is inadequate.
- The cost or availability of inputs has changed.
- Competitors are gaining by using a new process.
- New technologies are available.
- Someone has a better idea.
As a leading auto manufacturer in the world, Toyota Motor Corporation sells its vehicles in more than 170 countries and regions worldwide. Toyota’s primary markets for its automobiles are Japan, North America, Europe and Asia. Employing nearly 300,000 people, its headquarters is located in Toyota City, Japan. Their products include passenger cars, recreational and sport-utility vehicles; minivans and trucks. Toyota’s subsidiary, Daihatsu Motor Company, also produces and sells mini-vehicles and compact cars. While another brand, Hino Motors produces and sells commercial vehicles. More importantly, Toyota manufactures automotive parts, components and accessories for its own use and for sale. Toyota has 52 manufacturing facilities in 27 countries and regions (Toyota Website).
Process Strategies in Toyota
One of the most notable processes that Toyota Motor Corporation had made famous is the Toyota Production System (TPS). At present, TPS is also known for a variety of terms like lean systems or just-in-time (JIT) manufacturing, lean production, stockless production and zero inventories. Cox and Blackstone (1998) defined lean systems as “a philosophy of production that emphasizes the minimization of the amount of all the resources (including time) used in the various activities of the enterprise …” Lean systems thinking was initiated and developed as the TPS.
It was Toyota’s vice president Taiichi Ohno who pushed for the TPS beginning in 1937 when he discovered that labor at American manufacturers was nine times more productive than labor at Japanese manufacturers (Monden 1983, p. v). Since there was a pressure to improve after World War II because capital was restricted and production volumes were low, Ohno researched on some methods they can adopt in Toyota to make their production system work better. However, it was not until the 1973 oil crisis that most Japanese manufacturers became interested in TPS and it was not until the end of the 1970s that a significant number of U.S. manufacturers began to investigate TPS.
The Toyota Production System became widely known in the United States in 1983 when a book of that title was published. During the 1980s, the popular term in the United States for the TPS system was “just-in-time manufacturing”. At the beginning of the 1990s, the term lean systems became popular because of a series of books and articles by U.S. consultants and researchers in which they referred to TPS as “lean systems,” because they allow more and more to be done with less and less. Fact is that Ohno only borrowed important roots of lean systems from two distinct American institutions: Henry Ford’s mass production system and the supermarket.
Lean Systems That Sparked More Process Strategies
In the book by Womack and Jones (1996), entitled Lean Thinking, they simplified Ohno’s lean systems approach. As it is not just a set of techniques but a management philosophy, this means managers must have a different mental model or perspective of managing the manufacturing process. The five steps or principles to develop this mental model are:
- Precisely specify value for each specific product.
- Identify the value stream for each product.
- Make value flow without interruptions.
- Let the customer pull value from the producer.
- Pursue perfection.
During the 1980s, some U.S. companies have adopted lean systems successfully. But many more failed or even refused to take action. Many managers are skeptical that TPS could not succeed in the United States or it provided no real benefits. However, the publication of a book titled The Machine That Changed the World (Womack, Jones & Roos, 1990) ended the debate about whether lean systems created real, lasting benefits. The book presented the results of a three-year study of automobile manufacturing throughout the developed world.
They found that in 1990 a Japanese plant in Japan took 16.8 hours to build an auto, while a U.S plant in the United States took 25.1 hours per car. Not only did a Japanese plant produce cars faster, its cars had fewer defects per hundred vehicles, lower space requirements, and lower inventories than their competitors. Their findings also indicate that it is the management system and not the country’s culture that is responsible for the success of lean companies, since Japanese plants in the United States performed better than U.S. plants on all criteria.
Aside from the TPS, Toyota pursued total quality management or “kaizen”, a change strategy that involves a continuous incremental improvement of work procedures. Using kaizen, production-line employees are made responsible for finding ways to improve work procedures to drive down costs and drive up quality. Individually, and in quality groups or circles, employees suggest ways to improve how a particular Toyota car model is made. Over time, from their thousands of suggestions, incremental innovations made to the car assembly process result in major improvements to the final product. Employees receive cash bonuses and rewards for finding ways to improve work procedures, and the result has been a continuous increase in car quality and reduced manufacturing costs.
In the 2000s, under the leadership of Toyota’s new president, Jujio Cho, the company sought to increase the speed of change to further improve its efficiency and quality to gain an edge over its major competitors such as GM, Ford, and Daimler-Chrysler. It has begun a series of new kinds of change programs, each directed at improving some aspect of its operations, which Toyota hopes will bring both incremental and radical changes to the way it operates.
Some incremental change programs involve strengthening its kaizen program, such as “pokayoke,” or mistake-proofing. This initiative concentrates on the stages of the assembly process that have led to most previous quality problems; employees are required to double- and triple-check a particular stage to discover defective parts or to fix improper assembly operations that lead to subsequent customer complaints.
Another program is Construction of Cost Competitiveness for the 21st Century program or “CCC21,” which involves working with the company’s suppliers to find ways to reduce the costs of Toyota’s car components by 30 percent—something that will result in billions of dollars in savings. Toyota has also introduced a new manufacturing process called “GBL,” which uses a sophisticated new assembly process to hold a car body firmly in place during production.
This allows welding and assembly operations to be performed more accurately, resulting in better-quality cars. GBL has also enabled Toyota to build factories that Toyota to build factories that can assemble several different kinds of models on the same production line with no loss in efficiency or quality. This is a major competitive advantage. The company’s global network of plants can now quickly change the kinds of cars they are making depending on buyers’ demands for various models at different points in time (Dawson, 21 February 2005).
Other radical change efforts have focused on revamping Toyota’s development and design process to keep up with changing customer needs and demographics. In the 1990s, for example, the age of the average Toyota car buyer steadily rose. Despite Toyota’s climbing global sales (which exceeded $203 billion in 2006), the company was criticized for failing to understand how the market was changing. Some blamed the problem on centralized decision making at the company and a culture that had long been dominated by Toyota’s cautious and frugal Japanese designers. Rather than designing innovative, flexible vehicles customers were increasingly demanding, Toyota continued to focus on cutting costs and increasing the quality of its vehicles.
To quickly get an improved design process into gear, President Cho bolstered two new change techniques to radically alter the design process: PDCA and “obeya”. Obeya is based on frequent brainstorming sessions among engineers, designers, production managers, and marketers designed to speed new model cars to the market. PDCA (“plan,” “do,” check,” “action”) is a program designed to empower the company’s designers outside of Japan to intervene in the car development process and champion designs that meet the needs of local customers.
The results of promoting a flexible, decentralized car design process were the speedy introduction of the rugged eight-cylinder Tundra pickup truck and the angular, ScionxB compact in the United States, as well as the Yaris, Toyota’s best-selling European car. The Yaris was designed in Europe, and its success there led to its subsequent introduction in Japan where it also sold well (Hill, 2004).
Throughout its existence, we could see that Toyota has managed their process strategies effectively as they root everything out from the TPS. Through the TPS, they continued to change and improve their processes to lessen production time, lessen the wastes and make production efficient to the benefit of both the company and its employees. Also, it is important to note that, despite all these changes, their customers remain at the core of their focus as Toyota seeks to meet all their demands.
As for their management, the decisions are translated into actual process designs or redesigns. This matches the complementary philosophies for process design: (1) process reengineering and (2) process improvement (Krajewski et al., 2007). In this regard, we could say that Toyota Motors Corporation has an excellent decision patterns to further improve their manufacturing processes in the future.
The Process Analysis of the Toyota Motor Corporation
In the book The Toyota Way, Liker (2003) claimed that Toyota has the fastest product development process in the world. In analyzing their manufacturing process, Liker found that new cars and trucks take only 12 months or less to design in Toyota, while competitors typically require two to three years.
Also, Toyota has been benchmarked to be the best in its class by all of its peers and competitors throughout the world. This is because Toyota maintains high quality, high productivity, faster manufacturing speed and flexibility in processing their products (p. 5). All these successes are due to the TPS that Liket (2003) summarized into 4 Ps (Problem-Solving, People and Partners, Process and Philosophy (see Figure 1).
Figure 1. 4Ps That Comprise the Toyota Production Systems (Source: Liker, 2003).
Analyzing the TPS
In the process part of the TPS, we can see at its core is the goal of eliminating waste. For example, in the manual assembly operation of a truck chassis assembly line (see Figure 2). The operator takes many individual steps, but generally only a small number of the steps add value to the product, as far as the customer is concerned. In this case, only the three steps identified add value.
Although some of the non value-added steps are necessary (for example, the operator has to reach to get the power tool), the point here is to minimize the time spent on non-value-added operations by positioning the tools and material as close as possible to the point of assembly. Toyota has identified seven major types of non-value-adding waste in business or manufacturing processes:
- Overproduction. Producing items for which there are no orders, which generates such wastes as overstaffing and storage and transportation costs because of excess inventory.
- Waiting (time on hand). Workers merely serving to watch an automated machine or having to stand around waiting for the next processing step, tool, supply, part, etc., or just plain having no work because of stockouts, lot processing delays, equipment downtime, and capacity bottlenecks.
- Unnecessary transport or conveyance. Carrying work in process (WIP) long distances, creating inefficient transport, or moving materials, parts, or finished goods into or out of storage or between processes.
- Overprocessing or incorrect processing. Taking unneeded steps to process the parts. Inefficiently processing due to poor tool and product design, causing unnecessary motion and producing defects. Waste is generated when providing higher-quality products than is necessary.
- Excess inventory. Excess raw material, WIP, or finished goods causing longer lead times, obsolescence, damaged goods, transportation and storage costs, and delay. Also, extra inventory hides problems such as production imbalances, late deliveries from suppliers, defects, equipment downtime, and long setup times.
- Unnecessary movement. Any wasted motion employees have to perform during the course of their work, such as looking for, reaching for, or stacking parts, tools, etc. Also, walking is waste.
- Defects. Production of defective parts or correction. Repair or rework, scrap, replacement production, and inspection mean wasteful handling, time, and effort.
- Unused employee creativity. Losing time, ideas, skills, improvements, and learning opportunities by not engaging or listening to your employees (Liker 2003, p. 28-29).
Figure 2. Waste in a Truck Chassis Assembly Line (Source: Liker, 2003).
Figure 3. Timeline of Waste in a Value System (Source: Liker, 2003).
TPS: A Goal Driven Process
Like any system, the TPS is a goal-driven set of interrelated or linked activities. Managers who recognize that they are managing a system are aware of two main points: (1) the system reacts to any solution and (2) the system controls the behavior of those individuals who operate within it. The first point means that there are often unintended consequences when a solution to a problem in a system is introduced.
To avoid unintended consequences, managers must fully understand the system. The second point means that managers must avoid attributing the problems in a system to the character of the individuals within the system. The manager must instead identify how the structure of the system is shaping the choices of the individuals within the system. By understanding these two points, the manager can now redesign the system to increase the system’s performance.
The incorrect use of performance measures can prevent the successful introduction of lean systems. For example, a performance measurement system that encourages high equipment and high labor utilization often discourages production at the rate demanded by the customer. Indeed, these performance measures actually encourage large-batch production, thus creating the waste of overproduction and decreasing the system’s ability to respond to the customer.
Firms that implement lean systems often use a performance measure called overall equipment effectiveness (OEE). Soiichi Nakajima (1988) first formulated this performance measure to assess how effectively equipment is maintained and operated. Figure 4 shows six types of capacity losses in the right-hand column (breakdown losses, setup and adjustment losses, idling and minor stoppages, speed losses, quality defects, and start-up and yield losses). These capacity losses are organized into three categories: downtime losses, speed losses, and quality losses.
Figure 4. Six Probable Causes For Equipment Losses (Source: Masaji & Goto, 1992).
Knowing performance measurements are an important part of any manufacturing system, thus TPS support the elimination of possible waste. The operations manager must select the performance measurements that will encourage behaviors that lead to the desired business performance. In TPS, the desired business performance is shorter flow time, reduced costs, and faster response to the customer.
Another advantage of the TPS is its support towards employee empowerment as a means for continuous improvement. Toyota empowers its employees by training them to use the scientific method to continuously improve processes. The scientific method involves four elements: theory, hypotheses, data, and verification.
In the research of Spear and Bowen (1999) they indicated that the scientific method is integrated into the Toyota Production System so that every time a job is performed is an experiment. This creates a system where all the work processes are very specified and structured, but the system itself is very flexible and responsive. Toyota implements the scientific method as part of four unspoken rules that everyone in the organization must learn and practice:
- Highly Specified Work – Toyota’s first rule requires that managers, engineers, and line workers fully understand how a job is to be done and its relationship to other jobs. By ensuring that every job has a very clearly defined set of steps, it is obvious when the correct process is not being followed and it is also obvious when more training is needed or when the job definition needs to be changed. This allows quick identification and correction of any problems that occur. This first rule reduces variance in how work is done. By creating a highly specified sequence of steps to perform the job, Toyota is actually proposing a theory that this procedure is the best way to do the job. Given this theory, two implicit hypotheses in every standard job specification are first that each person doing the activity is capable of performing it correctly and second that performing the activity as specified actually creates the expected outcome.
- Direct Connections – Toyota’s second rule states that there must be direct, unambiguous communication between each customer and supplier. Direct, unambiguous communication means that each customer and each supplier know the exact form and quantity of goods and services to be provided. The theory implicit in this second rule is that the supplier has the capacity to meet the customer’s needs as they are communicated. This theory leads to two hypotheses: (1) the customers’ requests will be for goods and services in a specific mix and volume and (2) the supplier can respond to the customers’ requests. The production process generates data through the observation of the customer-supplier interactions.
- Simple Direct Pathways – Toyota’s third rule is that all pathways must be simple and direct. This means that goods and services must flow to a specific person or machine. The underlying theory in this rule is that having simple and direct pathways will quickly reveal any source of variances in the flow of goods and services. This rule suggests two hypotheses: (1) every supplier is necessary and (2) any supplier not connected to the pathway is not necessary. Each day of production provides data to analyze the hypotheses. Was there a supplier who was not connected to a pathway? Obviously any supplier or activity not connected to the flow pathway can be eliminated. This rule eliminates noise from the system and means that there are no pooled queues of completed work from suppliers waiting for the customers to use. Instead, completed work leaves one activity and goes to the next activity. If one supplier has a high variance in deliveries, their variance will not be hidden by the deliveries of the other suppliers.
- Scientific Method – Toyota’s fourth rule requires that employees be trained to formulate and test hypotheses about how they can improve their job activities. Toyota constantly encourages its workers to conduct experiments trying to identify a better method of performing their job activities.
In analyzing the Toyota Production System, we can deem that the company seeks to benchmark their operations to become more efficient. This is the reason why that the TPS is highly regarded among all companies in the world because it focuses on setting quantitative goals for improvement. TPS seeks to make Toyota’s manufacturing processes to be made simple and they are utilizing a scientific model that goes one step further it transforms their processes to be more dynamic. The Toyota management is also constantly gathering ideas for reengineering or improving a process become apparent after documenting the process.
They are carefully examining the areas of substandard performance, efficient interaction between departments and finally making customers’ preferences a prime priority. The ultimate goal of TPS is to apply the ideal of one-piece flow to all Toyota’s business operations, from product design to launch, order taking, and physical production by eliminating the unnecessary waste.
Thus, the TPS is an all-encompassing philosophy that includes product design, process design, equipment and facilities design, supply chain coordination, job design, and productivity improvement. If there is one “key” to successful implementation of TPS, it’s adopting a holistic approach. This is probably the reason why Toyota remains to be one of the most admired companies in the world because they implemented a system that cut all the unnecessary costs and produced faster results without compromising the product expectations of their stakeholders.
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