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Toyota Production System

Collected by: Vincent Gaspersz ASQ CMQ/OE, CQE, CQA, CSSBB IQF SSMBB APICS CFPIM RABQSA QMS-A Lean Six Sigma Master Black Belt Toyota's production ethos has helped steer it to the top. But can these principles be implemeted throughout the business? In 2007 or 2008, Toyota is expected to overtake General Motors as the worlds biggest vehicle manufacturer. In the year to March 2006, Toyota sold almost eight million vehicles around the world, and has set itself the target of selling 10.3 million by 2010. By that date, production in Europe is due to increase to 1.2 million vehicles. However, the Japanese carmaker is expanding production dramatically around the world, building factories in China, Russia, the US and south-east Asia. The latest financial results highlight Toyotas success. For the year ending March 2006, Toyota achieved record sales of 21,037bn (94.6bn). The carmakers full-year operating income increased 12% to 1,878bn. Its recorded net income of 1,372bn represents an increase of 17% the fourth consecutive annual increase. However, net income is not expected to rise next year, due to a stronger yen and higher raw materials costs. Nevertheless, when announcing the companys annual results, Katsuaki Watanabe, Toyotas president, said the company would aim to maintain an operating profit-to-sales ratio of around 9%, having achieved an operating margin of 8.9% in the year to March 2006. Research pays Part of Toyotas success stems from its high levels of research and development investment and its commitment to launching new vehicles that meet the mood of the times. The car maker has announced, for example, that it is planning to sell ethanolpowered vehicles in the US by 2008. Its fuel-efficient hybrid petrol-electric systems are already well established. Toyotas recent history has not been problem-free, however. Last autumn, it had to recall almost 1.3 million cars, such as the Corolla and Vitz, because of a defective headlight switch design. During 2005, it recalled 1.88 million vehicles. This July alone, Toyota recalled more than 380,000 Lexus and Toyota Highlander vehicles globally.

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Meanwhile, a criminal investigation is underway following suspicions that managers delayed one particular safety recall report for eight years. Akio Toyoda, the founders grandson, has been put in charge of a back-to-basics campaign intended to rereemphasise the importance of quality over cost-cutting or pure design. Despite these hitches, Toyotas reputation for producing quality cars remains strong. A key reason behind this and the carmakers financial success, is its Toyota Production System (TPS). This has as its central philosophy the aim of the complete elimination of all waste, whether that waste is in the form of excess stock, an unnecessary process step or defective products. The TPS is based on a number of key principles (see below), such as kaizen, which can be translated as continuous improvement to eliminate waste. Whenever Toyota has set up production in locations outside Japan it has sought to ensure the TPS approach is incorporated in the new facility. However, with Toyota soon to be the largest car producer in the world, questions are being4 asked about how the company can keep generating improved results. The TPS has already been extended up the supply chain, to bring in external suppliers under its philosophical and operational umbrella. Now, attention is being turned to Toyotas retail operations to see whether dealerships could improve customers buying experience and hence not only immediate sales figures, but also repeat business. Toyota is trying to transfer these TPS values into the retail sector, says Gary Reed, director of research at the Centre for Automotive Management at Loughborough University Business School. They are looking at what aspects can be taken from TPS to try and improve the customer experience. Holistic approach In theory, the TPS approach could also be applied to all functions within a business, including the finance function. Any department could find there are better and more efficient ways of working, says Reed. It is essentially about giving people the information and services they require. With finance, for example, you could think about management information. People in dealerships often have a printout on their desk, but they never look at it. It doesnt mean anything to them. So its about thinking about what people really need. Within Toyota itself, non-production personnel support the TPS approach. We very much value the Toyota way, says David Betteley, managing director of Toyota Financial Services (UK) and vice president operations for Europe and Africa. The key values of the Toyota way are teamwork, respect, challenge, kaizen and genchi genbutsu. You produce a new product and it can be replicated by a competitor almost immediately, so you have to be always innovating. We are very dealer focused. We have to provide not only a competitive service pricewise to dealers, but also be competitive in terms of the

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length of time it takes to deal with things. We have to be moving and changing all the time and never sit still. Applying the TPS to non-production areas of the business isnt easy, of course. Its a challenge converting these best practices in Toyota that have been developed for production and moving them down into sales and marketing, which is what we do, says Betteley. Moving the good ideas from production to sales and marketing is a challenge, but a challenge we have taken on. Our mission is to attract customers for life. We dont just want to finance one car, but many cars. Our ambition is to become the most admired sales finance company for all stakeholders. There are no plans to make finance the most important part of the Toyota group, however. The finance arm currently represents about 10% of Toyotas income a far smaller percentage than that contributed by the finance divisions of competitors such as Ford or General Motors. Toyota realises the importance of its financing arm to support dealers, distribution and its retail customers, but we dont want to grow the finance operations to be more than 10% to 15% of Toyotas total revenues, says Betteley. Dealer support Supporting dealers is a core part of the work of Toyotas financing arm. Selling through dealers is fundamental to Toyota, says Betteley. We have no plans to go direct. Its important for dealers to know we will be with them for the long haul. Income from finance packages and insurance is essential for dealers businesses, Betteley stresses. Perhaps 50% or 75% of dealers income is from finance and insurance, he says. Without that they dont survive. The UK market for finance and insurance is highly competitive, however. The key issue in our business is margin, Betteley says. We have got a reducing margin in most markets and thats driven by competition. We have very heavy competition from traditional banks, but also new entrants like supermarkets. Customers are more savvy. They want to take control of their financial life and the use of the Internet is more relevant too. Customers are now taking decisions about how to buy the car when they start thinking about what to buy. We have to find a way to convert more customers to use us and not go somewhere else. So we need to get better at contacting customers in the sale process. We have to work with the dealers to reach customers at the start of the sales process, and that might mean by making an attractive offer on the website an offer thats attractive enough for the customer, but so that the dealer can make some income from it as well.

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At the same time, Toyota Financial Services is considering expanding its service offering. As part of its customers for life strategy, it is looking at introducing new products in some regions, including credit cards, insurance and investment products. In that way we can be a one-stop shop for customers financial requirements, says Betteley. TPS PRINCIPLES The Toyota Production System is based on a number of key principles: Just in time: The production process delivers what is needed for the next process when it is needed, rather than simply aiming formass production to achieve economies of scale. Jidoka : Embodies the idea that machines will stop production as soon as any problem or defect is identified. Kaizen: Continuous improvement to eliminate waste, improve efficiency and product quality. Genchi genbutsu: If a problem arises, assessing the problem directly is more effective than hearing about it through a third party. Challenge: Challenge the status quo. For example, to try and improve service levels or create more efficient budgets. Teamwork: The causes of problems can arise in areas beyond an individuals domain. Multi-skilling enables personnel to help colleagues in other teams at busy periods. Respect: TPS recognises the intelligence and ability of all staff and gives them responsibility. Respect also extends to the external environment in which the company operates. QUALITY TIME The Centre for Automotive Management at Loughborough University Business School has been invited by Toyota to act as the primary researchers monitoring the progress of attempts to see how TPS principles can be applied from production, by dealerships, through the development of a Toyota Retail System. A working paper produced by the Loughborough research team notes that adopting four key practices of kaizen, genchi genbutsu, teamwork and respect ought to result in a culture that reflects the goals and values of TPS. In the automotive retailer, kaizen can reduce waste through addressing inefficiencies in the provision of customer service. the paper says.

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Workers can generate solutions to problems, which they encounter in their own work processes, such as poorly designed showrooms, which may restrict, for example, disabled customers from assessing the vehicles they are interested in. Similarly, it considers the application of genchi genbutsu in car retailers, in terms of really understanding the sales process and the needs of customers: Understanding the customer perspective enhances customer service since it allows sales staff to adapt their selling approach to establish each customers needs. On teamwork the paper notes: Multi-skilling means that staff teams become adaptable and can help each other at busy times, leading to improved customer service. On respect: TPS develops respect for employees and customers. For employees, respect through empowerment gives staff autonomy to make decisions, for example, in negotiating trade-in prices without referring to senior staff. By reducing the communications chain the purchase experience for customers is improved. Respect for customers is shown by the pull focus of TPS in providing what customers want, rather than persuading customers to buy a car which is available, but would not necessarily choose to buy. Toyota first caught the worlds attention in the 1980s when consumers started noticing that Toyota cars lasted longer and required fewer repairs than American cars. Today, the company is the worlds most profitable car manufacturer, consistently producing high-quality cars using fewer man hours and less on-hand inventories. To this day, Toyota continues to raise the bar for manufacturing, production development and process excellence. The Toyota Production System (TPS) and Lean Production

The Toyota Production System is a paradox. On the one hand, every activity, connection,
and production flow in a Toyota factory is rigidly scripted. Yet at the same time, Toyota's operations are enormously flexible and responsive to customer demand. How can that be? After an extensive four-year study of the system in more than 40 plants, Bowen and Spear (1999) came to understand that at Toyota it's the very rigidity of the operations that makes the flexibility possible. That's because the company's operations can be seen as a continuous series of controlled experiments. Whenever Toyota defines a specification, it is establishing a hypothesis that is then tested through action. This approach the scientific methodis not imposed on workers, it's ingrained in them. And it stimulates them to engage in the kind of experimentation that is widely recognized as the cornerstone of a learning organization.

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The Experiments of the Toyota Production System

Rule Hypotheses The person or machine can do the activity as specified. If the activity is done as specified, the good or service will be defect free. Customers' requests will be for goods and services in a specific mix and volume. Signs of a problem The activity is not done as specified. The outcome is defective. Responses don't keep pace with requests. Responses Determine the true skill level of the person or the true capability of the machine and train or modify as appropriate. Modify the design activity.

Determine the true mix and volume of demand and the true capability of the supplier; retrain, modify activities, or The supplier is idle, reassign customer-supplier pairs The supplier can respond to waiting for as appropriate. customers' requests. requests. A person or Every supplier that is machine is not connected to the flow path is actually needed. required. Determine why the supplier was unnecessary, and redesign the flow path. Learn why the nonspecified supplier was actually required, and redesign the flow path. Learn how the activity was actually performed or the connection or flow path was actually operated. Determine the true effects of the change. Redesign the change.

A nonspecified Any supplier not connected supplier provides to the flow path is not an intermediate needed. good or service. A specific change in an activity, connection, or flow The actual result is path will improve cost, different from the quality, lead time, batch expected result. size, or safety by a specific amount.

Source: Bowen and Spear (199), Based on an article in the Harvard Business Review, September/October 1999. The Toyota Production System grew out of the workings of the company over 50 years, and it has never actually been written down. Making the implicit explicit, the authors lay out four principles that show how Toyota sets up all its operations as experiments and teaches the scientific method to its workers. The first rule governs the way workers do their work. The second, the way they interact with one another. The third governs how production lines are constructed. And the last, how people learn to improve. Every activity, connection, and production path designed according to these rules must have built-in tests that signal problems immediately. And it is the continual response to those problems that makes this seemingly rigid system so flexible and adaptive to changing circumstances.

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Toyota invented Lean Production in the 1940s and 50s. The company focused on eliminating wasted time and material from every step of the production process (from raw materials to finished goods). The result was a fast and flexible process that gives the customers what they want, when they want it, at the highest quality and most affordable cost. Toyota improved production by:

Eliminating wasted time and resources. Building quality into workplace systems Finding low-cost and yet reliable alternatives to expensive new technology. Perfecting business processes. Building a learning culture for continuous improvement.

The 4P model of the Toyota Way

How Toyota Became the Worlds Best Manufacturer Toyota developed the Toyota Production System (TPS) after World War II. While Ford and GM used mass production and economies of scale, Toyota faced very different business conditions. Toyotas market was very small but it had to produce a variety of vehicles on the same assembly line to satisfy customers. The solution: making the operations flexible. This resulted in the birth of TPS. TPS borrowed some of its ideas from the United States. The core idea of the Just in Time (JIT) system came from the concept of the pull-system, which was inspired by the American supermarkets. In the pull system, individual items are replenished as each item begins to run low on the shelf. Applied to Toyota, it means that the first step in the process is not completed until the second step uses the materials or supplies from Step 1. At Toyota, every step of the manufacturing process uses Kanban to signal to the previous step when its part needs to be replenished.

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The company was also inspired by W. Edwards Deming. Aside from broadly defining customers to include internal and external clients, he also encouraged Toyota to adopt a systematic approach to problem solving, which became a cornerstone for continuous improvement (known as Kaizen). The Heart of the Toyota Production System: Eliminating Waste The point of the TPS is to minimize time spent on non-value adding activities by positioning the materials and tools as close as possible to the point of assembly. The Major types of non-value adding waste in business or production process are: 1. 2. 3. 4. 5. 6. 7. 8. Overproduction. Waiting or time on hand. Unnecessary transport or conveyance. Over processing or incorrect processing. Excess inventory. Unnecessary movement. Defects. Unused employee creativity.

The Toyota message is consistent: Do the right thing for the company, its employees, the customer and the society as a whole. This long-term philosophy is the guiding post of the company in its continuous quest to offer the best in quality and service to its customers, employees and stockholders. Long-term goal should supersede short-term decision making or goals. Develop, work, grow and align the company towards a common goal that is bigger than making money. Your philosophical mission is and should be the foundation of all your other principles. Toyota is aligned around satisfying the customer. It believes that a satisfied customer comes back and gives more business through referrals. It generates value for the customer, the society and the economy. One of the keys to success of Toyota is that it lives by the philosophy of self reliance and a lets do it ourselves attitude. This can be best illustrated when it ventured into the luxury car industry. It did not buy a company that already made luxury cars. Rather, it created its own luxury division the Lexus from scratch in order to learn and understand the essence of a luxury car. Toyota House Toyota House is seen in the following picture.

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Reference: H. Kent Bowen and Steven Spear, Decoding the DNA of the Toyota Production System, 1999 Sarah Perrin, Corporate Profile: TPS, Accountancy Age, 04 Dec 2006

Do you want to implement Toyota Production System? Contact:

Vincent Gaspersz, Lean Six Sigma Master Black Belt 0251-332933/0813-1940-6433 [email protected] http://www.esnips.com/web/GratisDariVincentGaspersz

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Artikel ini boleh dikutip dan disebarluaskan kepada siapa saja sepanjang menyebutkan sumbernya! Artikel-artikel lain dari penulis dan sumber lain yang dikumpulkan oleh penulis dapat didownload gratis dari: http://www.esnips.com/web/GratisDariVincentGaspersz/ ***) Vincent Gaspersz, adalah Guru Besar (Professor) dalam bidang Operations and Total Quality Management pada Program Pascasarjana MM Universitas Trisakti, Jakarta (SK Mendiknas RI No. 38044/A2.III.1/KP/2002). Ia Memperoleh pendidikan dalam bidang Magister Sains (S2) Statistika Terapan, IPB, 1985; Doktor Teknik Sistem dan Manajemen Industri, ITB, 1991 (IPK = 4.0), dan Doctor of Science in Management of Engineering and Technology, Southern California University for Professional Studies (GPA = 4.0). Ia Memperoleh sertifikat CPIM (1996) dan CFPIM (1998) dari APICS dan telah mempertahankan gelar CFPIM sampai April 2008. Ia adalah Senior Member of the ASQ (American Society for Quality) sejak 1994 dan Member of APICS sejak 1995. Sepanjang tahun 2006, Ia memperoleh empat gelar profesional dari ASQ: Certified Six Sigma Black Belt (CSSBB), Certified Quality Engineer (CQE), Certified Quality Auditor (CQA), dan Certified Manager of Quality/Organizational Excellence (CMQ/OE). Pada Agustus 2005, Ia memperoleh IQF (International Quality Federation) Six Sigma Master Black Belt by Exam SSMBB. Ia juga terdaftar sebagai RAB (Registration Accreditation Board) Quality System Auditor, USA. Ia pernah bekerja pada Salim Group of Companies (Indonesia), Gajah Tunggal Group of Companies (Indonesia), dan Garibaldi Industries (Canada). Ketika di Canada ia terlibat sebagai Board Member of British Columbia Exporters mewakili Garibaldi Industries, Inc. Saat ini ia sedang diminta bantuannya untuk menangani beberapa proyek implementasi Design for Lean Six Sigma (DFLSS) dan Lean Six Sigma dalam skala Corporate pada beberapa industri besar di Indonesia. Ia juga telah membantu manajer-manajer Indonesia untuk memperoleh gelar profesional dari APICS (CPIM) dan ASQ (CMQ/OE, CQE, CQA, CSSBB). Ia telah mempublikasikan 33 (tiga puluh tiga) buku teks dan puluhan artikel/paper. Ia memperoleh penghargaan sebagai Penulis Terbaik dari Menteri Pendidikan dan Kebudayaan RI pada tahun 1994. Kontak: [email protected]

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Center for Lean Six Sigma Quality Management

Sustaining Member of the American Society for Quality No.: 1124262 Prof. Dr. Vincent Gaspersz, CMQ/OE, CQE, CQA, QMS-A CSSBB/MBB, CFPIM Lean Six Sigma Master Black Belt International Member of ASQ and APICS
Baranangsiang Indah A2 No. 9 Bogor 16143

Telefax: 0251-332933 H.P. 0813-1940-6433 E-mail: [email protected]

http://www.esnips.com/web/GratisDariVincentGaspersz Training, Consulting and implementing:

Lean Six Sigma Management System (5S, Kaizen Blitz, Value Stream Process Mapping, Lean Six Sigma Supply Chain Management, Lean Six Sigma Manufacturing/Service, TPM, Design For Lean Six Sigma, etc) SCOR (Supply Chain Operations Reference) ISO 9001:2000, MBNQA, Balanced Scorecard, Blue Ocean Strategy Integrated Performance Management System (Organizational Excellence) Customer Service Excellence Total Quality Leadership and Strategic Planning Total Productivity and Quality Improvement Statistical Process Control/FMEA Design of Experiments and Process Optimization Production Planning and Inventory Control (PPIC) ASQ Certified Quality Engineer (CQE), Certified Manager of Quality/Organizational Excellence (CMQ/OE), Certified Quality Auditor, Certified Six Sigma Green Belt (CSSGB), Certified Six Sigma Black Belt (CSSBB) IQF Six Sigma Green Belt, Black Belt, Master Black Belt (SSGB/BB/MBB) APICS Certified in Production and Inventory Management (CPIM) Tailor-Made (Customized Programs)