Operations Management Case Study: Toyota

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Table of Contents

Introduction: Toyota Operation Management
SWOT Analysis for Toyota
Toyota Operations Strategy
Toyota’s Differentiation Strategy
Toyota’s Competitive Advantage
Toyota’s Kanban: Push and Pull System
Toyota’s Just-In-Time
Toyota Operations Forecasting
Operations Management of Toyota: Conclusion
References

Introduction: Toyota Operation Management

Many operations management scholars have identified Toyota’s production systems as some of the best management systems in terms of efficiency and their continued increment of productivity. The effectiveness of production systems of Toyota is articulated to the fact that they merge practice and theory coherently.

Investigations of the operations management approaches for Toyota reveal terms such as Kaizen, Lean Manufacturing, and Just-In-Time Manufacturing among other approaches that have seen Toyota Company cut down tremendously on its production costs to increase its output capacity to out power most of the world’s major automakers.

This study conducts a business analysis of Toyota Company in the effort to unveil reasons for the continued success of the operations management for Toyota Company in an automobile industry, which is characterised by the ever-growing levels of competition. To realise this endeavour, the study first presents a SWOT analysis followed by Toyota’s business operations strategy and then its differentiation plan with an emphasis on technology and innovation.

A consideration is also given to discuss the company’s competitive advantage using Porter’s competitive stratagem coupled with its push and pull process without negating the discussion of its Just-In-Time (JIT) scheme and forecasting approaches to operations management.

SWOT Analysis for Toyota

The acronym ‘SWOT’ stands for strength, weakness, opportunities, and threats. For Toyota Company, some of its strengths include possession of an incredible culture of innovation and the fact that its brand name is highly cognised and valued by many people across the globe (You Sigma 2011).

The company has managed to establish a strong position in the automobiles production. Hence, it has established a strong and performing brand portfolio. Additionally, the company has been able to take market leadership in the production of green cars. This strategy is instrumental especially in the times when global warming is a matter of concern to many people across the globe (Toyota 2013, Para 5).

From the paradigm of the weaknesses of Toyota, the company has less establishment and hence low presence especially in the emerging markets.

It also encounters incidences of large sales recalls. Major opportunities for Toyota include positive reception of its green car efforts, rising costs of fuels, which resort to increased demand for fuel economy cars, dynamics of customer needs, and the capacity to enhance growth of the company to take advantage of economies of scale through strategies such as acquisitions (Strategic Management Insight 2013, Para.4).

Lastly, major threats of Toyota include rapid fluctuation of prices of fuels, revisions of emission standards, hiking costs of raw material, rising and intensification of competition, appreciation of the exchanges rates for Yen currency, and incidences of natural disasters, which affect its production routines.

Toyota Operations Strategy

Toyota is the second largest company in the world. This immense success of the company has attracted scholarly interest to unveil the business strategy deployed by the company, which many scholars believe that it can form a significant benchmark. To enhance the success of an organisation, an investment in a credible corporate strategy is crucial (Johnson, Scholes & Whittington 2005: Barney 2009). Toyota’s business strategy revolves around five main operational facets.

These are development of a production system that is unique to Toyota only, investments in re-engineering, high emphasis on quality and superior technology, production of hybrid vehicles, high concerns on employees’ welfare-related costs and building a motivated workforce through adoption of various employee satisfaction strategies (Slack & Lewis 2002).

Although each of these facets are incredible in business strategies for success, Toyota recognises that a production system can affect the overall direct costs of production in such a way that the final products would be offered to the market at exorbitant prices.

This case would in turn influence the sale volume and hence the profitability of a company. It is for this purpose that Toyota has invested on technologically aware production systems with the aim of cutting costs of production. These systems include lean manufacturing, the just-in-time strategy, Kaizen, Jokoda, Andan, Kanban, and pull system.

Toyota’s Differentiation Strategy

A differentiation strategy is significant for helping to a build strong brand loyalty to a product. It is upon building brand loyalty that an organisation is capable to maintain and attract new clients (Cohen & Levinthal 1999, p 137: Ferdows & Meyer 2001, p.171). One of the most significant differentiation strategies adopted by Toyota Company is the heavy investment in innovation and technology.

In the deployment of technology and innovation as a differentiated strategy, Toyota Company has designed its production facilities such that they are flexible to accommodate variation of designs. This argument means that Toyota production systems can easily switch from one model to another with minimal time and without impairing the quality of the new models.

As Toyota (2013) laments, “by allowing the choice of either people or robots depending on profitability, the production line offers the flexibility to handle everything from low –volume to mass production” (Para.8). This extent of innovation permits Toyota Company to make use of both the right resources and making sure that the commodities produced are fitted with both exactness and care at minimal prices.

People in the production lines are their own bosses coupled with managers of their fellow staff members. By pulling a rope referred to as an Andon, every worker in the production line is able to bring to a halt the entire production system until the problem is solved. The resolution of a problem involves teamwork so that, while GM produces a car after almost one and half days, Toyota takes only a day.

Toyota’s Competitive Advantage

The competitive advantage of a company can be analysed from a wide number of approaches (Prahalad & Hamel 2000). One of such ways is from the paradigms of Porter’s competitive strategy (Hayes, Pisano, Upton, & Wheelwright 2005, p.106). From Porter’s approach to competitive advantage of a company, five main forces shape the degree of rivalry in any industry.

With regard to Management Study Guide ( 2013), these are “threat of new potential entrants, threat of substitutes products, bargaining power of suppliers, bargaining power of buyers, and rivalry among current competitors” (Para. 1). In vehicle production, there is a little suppliers’ bargaining capacity.

There is a global distribution of suppliers of various parts of automobiles including the cooling systems, electrical systems, and braking systems among others meaning that suppliers are not free to determine the prices of the products supplied to the manufacturers of automobiles or assemblers.

In terms of the bargaining power of the buyers, the competitive advantage of Toyota is at stake since buyers have an incredible accessibility to information from the internet and other sources, which guide them in the selection of their preferred automobile models. Heavy capital base requirements to start an automobile company make threats of new entrants minimal for Toyota Company.

Embracement of technology reduces the cost of Toyota vehicle. Consequently, the company is able to sale its products at much competitive prices in comparison to its competitors in the industry. The only substantial current competitor is GM, which is the world’s market leader. Threat of substitutes is minimal.

Toyota’s Kanban: Push and Pull System

Kanban is a pull system tool for accomplishing the just-in-time production strategy. It embraces a system of scheduling that aims at helping to make decisions on what needs to be produced, at what time, and how such production processes need to be executed. Under the system, the worker is the chief decision maker.

The principle purpose of Kanban is to ensure a sustained constant flow of materials in the entire manufacturing process. This goal is achieved through a means of printed card-carrying information such as quality, description of parts, part names, production instructions related to conveyance, and necessary visual control of quality among other necessary information.

Toyota’s Just-In-Time

Toyota Company adopted the just-in-time strategy as a manufacturing philosophy first in the 1970’s. The focus of the philosophy is waste elimination coupled with reduction of inventory levels. The central mechanism for operation of the strategy is based on Kanban, a Japanese term that means a card.

The key aspect of JIT embraces “quality control, waste minimisation, reduction of production complexities, and increase in transparency and ensuring that production is done in small lots or batches” (Toyota 2012). Increasing the competitive advantage of the Toyota Company through the model rests in the need to satisfy customers.

According to Toyota (2012), this aim is accomplished through “fulfilling customer demand efficiently and promptly by linking all production activities to real marketplace demand” (Para. 2). Ideally, JIT is dependent on the processes, which are finely tuned so that an assembly sequence only makes use of materials, which are only required, and which are of the right quality and quantity.

Faced with the challenge of meeting an appropriate mix for production of various models of automobiles, the Toyota Company has to select an appropriate product mix that will satisfy the demand to ensure production of the demanded automobiles in a cost effective manner.

In this extent, Toyota (2012) reckons, “Just-in-time offers a smooth, continuous, and optimised workflow, with carefully planned and measured work-cycle times and on-demand movement of goods, reduces the cost of wasted time, materials and capacity” (Para.2). Through an effectively planned production process, workers are given an opportunity to concentrate on tasks that add value to an organisation.

Toyota Operations Forecasting

Production forecasting is an essential component for ensuring that an organisation is capable of continuously meeting the demand placed on it by its clients by projecting an organisation’s future business (Lorette 2011, p.43).

In many companies, with Toyota inclusive, some products may be regarded as the mainstay products to imply that they are relied upon to drive forward the profitability of an organisation. In the effort to make sure that such products continue to serve the purposes for which they are meant to, effective sales and management planning processes are essential. Such processes encompass various steps for which forecasting is one of the critical steps.

Through forecasting, Toyota Company is able to make a prediction of the anticipated sales to yield certain profitability levels. For instance, based on the 2012 forecasts, Toyota anticipates regaining its title as the globally leading automaker by raising its sales by 2 percent.

This rise is forecasted to be enhanced by the increasing oversees demand for Toyota-made automobiles. Through forecasts, the company also expects its subsidiaries such as Camry and Corolla to register an immense increase in sales volumes to about 22 percent, which is an increase of about 9.7 million cars. Toyota’s sale forecasts also indicate that its demand in the US-based markets would rise by 8 percent.

However, it anticipates its local sales in Japan to slow down by 2.04 million. It is through such forecasting strategies that drive Toyota’s strategic plans for opening new production plants. For instance, considering that Asia remains to be a major region that would drive the profitability of the company, Toyota plans to open an engine making plant in Indonesia in the effort to ease supplies logistics in the Asian markets.

Operations Management of Toyota: Conclusion

The manner in which an organisation plans and schedules its operations determines the extent to which the organisation in question succeeds in terms of profitability in the long-term. The paper argued that the success of the Toyota operations management is related to the fact that the company is able to link cutely its theoretical approaches to increase productivity of the company to practice.

For instance, although the concept of just-in-time production technique was seen by many automobile industry analysts of the 1970s as a mere theoretical approach to enhance the operations of Toyota, the concept turned out to be an incredible mechanism of enhancing competitive advantage of the company.

From this perspective, the paper argued that the just-in-time production helps to minimise inventory levels and customers’ satisfaction once their demands are met in time and at the right quality. In this regard, the paper identified the concept of Kanban as iconic for enhancing the success of JIT. The relevance of Kanban in facilitating success of the JIT is articulated to helping to trace parts as they flow through the production process.

From the perspective of Porter’s analysis of competitive advantage of Toyota Company, the paper maintained that, although there may be competition in supplies for low materials, the bargaining power of the suppliers is weak since many suppliers of automobile parts are also randomly distributed across the globe.

Consequently, the suppliers lack the privilege of setting prices for the parts they deliver to the automakers as completed parts such as the electrical and cooling systems. From the dimensions of the bargaining power of the buyers, the paper argues that clients have access to a variety of information on existing automakers.

This accessibility makes them have a variety of choices hence making the bargaining power of the Toyota Company’s buyers high. The threat of new entrants is minimal since starting up an automobile company is an expansive venture. The paper also argued that the treats of substitutes are also minimal in the automobile industry. Hence, it is not an important factor for shaping the degree of rivalry encountered by Toyota.

While considering the SWOT analysis of Toyota company, the paper argued that the Toyota Company has a number of strengths, which it must combine with the existing opportunities while ensuring that its weakness and threats do not impact its future forecasted growth and operational plans.

References

Barney, J. 2009, ‘Firm resources and sustained competitive advantage’, Journal of Management, vol. 17 no. 6, pp. 99–120.

Cohen, W. & Levinthal, D. 1999, ‘Absorptive Capacity: A New Perspective on Learning and Innovation’, Administrative Science Quarterly, vol. 35 no. 1, pp. 128–152.

Ferdows, K. & Meyer, A. 2001, ‘Lasting improvement in manufacturing’, Journal of Operations Management, vol. 9 no. 2, pp. 168–184.

Hayes, R., Pisano, G., Upton, D., & Wheelwright, S. 2005, Operations, Strategy and Technology: Pursuing the Competitive Edge, John Wiley, New York.

Johnson, G., Scholes, K, & Whittington, R. 2005, Exploring Corporate Strategy, Prentice Hall, Harlow.

Lorette, K. 2011, Forecasting Tools Used for Production Planning, Oxford University Press, Oxford.

Management Study Guide 2013, Porter’s Five Forces Model of Competition. Web.

Prahalad, K. & Hamel, G. 2000, ‘The core competence of the corporation’, Harvard Business Review, vol. 68 no. 3, pp. 79–91.

Slack, N. & Lewis, M. 2002, Operations Strategy, Pearson Education, Harlow.

Strategic Management Insight 2013, SWOT analysis of Toyota. Web.

Toyota 2012, Toyota material handling. Web.

Toyota 2013, Investors: 2012 Financial Results. Web.

You Sigma 2011, Toyota Motor Corporation: SWOT analysis. Web.

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