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TOYOTA UNDER FIRE
LESSONS FOR TURNING CRISIS INTO OPPORTUNITY
By JEFFREY K. LIKER, TIMOTHY N. OGDEN
The McGraw-Hill Companies, Inc.Copyright © 2011Jeffrey K. Liker and Timothy N. Ogden
All rights reserved.
The Most Admired Company in the World
It is essential that our global leadership team embrace the concepts of the Toyota Way as we achieve our business goals in host countries which have a wide variety of customs, traditions, and business practices.
—Then President Fujio Cho in the Preamble to The Toyota Way 2001
As 2007 ended, it would be no exaggeration to say that Toyota was on top of the world. While you could argue whether it was the largest car company in the world, depending on what measurements you used, there was no question that it was the dominant car company globally. Toyota was the firm that all others benchmarked themselves against. It was far more profitable than its major American competitors. In fact, it had been continuously profitable for almost 50 years, a record that rivaled that of any global 1000 firm and was unheard of in manufacturing industries.
Its growth and profitability were driven by its extraordinary record of quality and customer satisfaction. It dominated annual quality awards and value-for-money rankings. Toyota's vehicles held their value much better than its competitors' products. Customer loyalty was tops in the industry. The company was profitable in every vehicle segment, from small cars to massive SUVs. It had even made the Prius—the world's first mass-production hybrid—profitable, a feat that, when the vehicle was launched, industry observers had claimed could never happen.
But Toyota's position was more dominant than even these impressive figures might suggest. Toyota had literally revolutionized manufacturing, process engineering, and quality, setting new standards for operational excellence that had become goals for companies in many industries. Toyota changed the way a large portion of the world thinks about quality and how to continuously improve any process. Today, almost every large organization, regardless of its sector or country, at least speaks the jargon of built-in quality, lean, and just-in-time operation, although only a select few have carried the concepts to anything approaching the level that Toyota has.
At the end of 2007, it seemed that everyone loved Toyota, even such diverse constituencies as Wall Street investors and hard-core environmentalists. Millions of books explaining Toyota's approach were sold, not least The Toyota Way, and companies were spending billions of dollars trying to understand, learn from, and replicate the Toyota model.
It's Toyota's overwhelming success that makes it hard to believe today that there was a time when "Made in Japan" was a synonym for junk rather than high quality, or when American car companies had a stranglehold on the global car business. Or that Toyota Motor Corporation began with a single self-taught inventor tinkering with looms in an obscure rural village outside Nagoya, Japan, in the late 1800s.
So how did Toyota rise from the rural rice fields of a backward, unindustrialized country to the top of the world, the vantage point that made its fall from grace so shocking? That history is not just a curiosity. Indeed, understanding the underpinnings of Toyota's success is critical to understanding what happened at Toyota from 2008 to 2010 and how it acted and reacted under fire.
From Humble Beginnings
Toyota was born out of the tinkering of Sakichi Toyoda, who grew up the son of a poor carpenter in a region of rice farmers. In the late 1800s, as Japan was trying to catch up to the industrialized nations after over 200 years of being closed to the outside world, the Japanese government encouraged the growth of small-scale manufacturing across the country. This included village and even home-based mills. The women of Toyoda's family were involved with weaving—at the time a difficult, labor-intensive process undertaken with manual looms, using technology that had not changed much in a century.
Just like the inventor-heroes of Western lore, such as Alexander Graham Bell, Charles Babbage, James Watt, Guglielmo Marconi, Louis Pasteur, and Thomas Edison, Sakichi Toyoda tinkered in his workshop for decades, refining his loom designs by trial and error, hoping to ease the manual labor of his female relatives. His first manual wooden loom in 1891 immediately reduced that burden by using gravity and a foot pedal to move the loom's shuttle back and forth, doubling productivity. Over the next few years, he made a number of other improvements to his looms, and by 1896 he had produced a steam-driven power loom that quadrupled productivity. Toyoda's tinkering not only led him to automatic loom design, but necessarily also took him into engine design—after all, the automatic looms needed a power source. But his best-known innovation, an innovation that set the pattern for all of Toyota's future history, was a way of eliminating common mistakes in the weaving process.
Using a manual loom, it was easy to spot mistakes and quality problems—the process was quite slow, allowing the weaver to closely inspect the cloth continuously. But the faster rate of automatic looms meant that defects or problems were harder to spot. And when an error occurred—the most common problem was a thread breaking—the loom could keep running long after the product was ruined. For a cottage weaving shop, this was potentially disastrous. Such a shop couldn't afford to waste materials, so people were stationed at the "automatic" looms to shut them down in case there were problems.
Of course, that defeated a lot of the benefit of automation. In response, Sakichi Toyoda invented a mechanism that would stop the loom automatically as soon as a thread broke. As he put it, he "freed the person from the machine" so that people could spend their time doing value-added work instead of simply monitoring the machine. This and other innovations were so groundbreaking that Platt Brothers of England, the world's dominant loom maker, eventually bought the rights to one of Toyoda's most popular looms. The proceeds from the sale funded the start-up of Toyota Motor Corporation. Now referred to in Japan as the "king of inventors," Sakichi Toyoda also is credited as being a leader in fueling Japan's industrial revolution.
The Toyota Production System and Toyota Business Practices
Those with at least a passing knowledge of Toyota's approach to manufacturing will recognize the origin of the now famous andon cord in Sakichi Toyoda's "mistake-proof" loom. The andon cord is pulled by a worker in a production plant to stop the assembly line as soon as an error is detected (all of Toyota's automated equipment also has built-in error detection that will shut down the machine automatically). The basic philosophy of immediately identifying and eliminating mistakes and waste has been a core pillar of the company from the very beginning.
The shift from looms to motor vehicles was driven by Sakichi Toyoda's son Kiichiro, on the advice of his father. Sakichi believed that the firm needed to expand into other areas of manufacturing. In 1929, Kiichiro began traveling to the United States and Britain regularly, ostensibly to negotiate licensing terms for the company's loom technology. In reality, he was also learning all he could about automobile and machine tool factories to help guide him in setting up the automobile division at Toyoda Loom Works, which he did in 1933. By 1937, Toyota Motor Company (today known as Toyota Motor Corporation or TMC), was the center of the business.
It was Kiichiro Toyoda who, in a key document in the late 1930s laying out Toyota's operating philosophy, first penned the words "just-in-time," describing a continuous flow of materials from raw mat
Excerpted from TOYOTA UNDER FIRE by JEFFREY K. LIKER. Copyright © 2011 by Jeffrey K. Liker and Timothy N. Ogden. Excerpted by permission of The McGraw-Hill Companies, Inc..
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