Analyzing Toyota’s Recipe for Success – The Toyota Way

The fundamental reason for Toyota’s success in the global marketplace lies in the so called “Toyota way”. The Toyota Way is not only about technology and efficiency, it is about doing the right thing for the company, its employees, the customer and the society as a whole.

In other words, the incredible success of the Toyota way is a direct result of operational excellence. Toyota has turned operational excellence into a strategic weapon. This operational excellence is only in part based on tools and quality improvement methods made famous by Toyota in the manufacturing world, such as JIT, Kaizen, and one-piece-flow. Although such techniques helped spawn the “lean manufacturing” revolution, tools and techniques are no secret weapon for transforming a business. Toyota’s continued success at implementing this tools stems from a deeper business philosophy based on its understanding of people and human motivation. Its success is ultimately based on its ability to cultivate leadership, teams and culture, to devise strategy, to build supplier relationships, and to maintain a learning organization. In summary, the Toyota way can be described by using the following 4 P model – Philosophy, Process, People & Partners, and Problem solving.

Analyzing Toyota's Recipe for Success - The Toyota Way

1. The Toyota philosophy

One of the fundamental reasons for Toyota being so successful in the global marketplace lies in its corporate philosophy. The corporate philosophy of a company can be defined as the set of rules and attitudes that govern the use of the companies resources. In the Japanese culture, long-term orientation and long-term thinking plays an important role. This is shown in a very impressive way by Konosuke Matsushita’s famous 250-year plan for the growth of his company, Matsushita Electric Industrial Company Ltd., which he expressed in the year 1932.

At Toyota Motor Corporation, this basically means that management decisions are based on a long-term philosophy, even at the expense of short-term financial goals. To be more specific, the main ideas of Toyota’s philosophy are to base management decisions on a “philosophical sense of purpose”, to think long term, to have a process for solving problems, to add value to the organization by developing its people, and to recognize that continuously solving root problems drives organizational learning.

2. Processes

Besides this long-term oriented corporate philosophy, another success factor that enabled Toyota to become the world’s most successful automobile company is its famous manufacturing method, the so called Toyota Production System (TPS). Both elements, Toyota’s corporate philosophy and its special manufacturing method, are the double helix of Toyota’s DNA. They define its management style and what is unique about the company. Nevertheless, one important question still remains: What makes the TPS so unique?

2.1 The Toyota Production System (TPS)

The evolution of the Toyota production system approach can be traced to the period immediately following the second world war when the economic outlook was uncertain and human, natural and capital resources were in limited supply. Against this background, the most important objective of the Toyota System has been to increase production efficiency by consistently and thoroughly eliminating waste. This concept developed between 1948 and 1975 by Toyota’s former president Toyoda Kiichiro and later by Ohno Taiichi and Eiji Toyoda represents a highly efficient production system that is similar to that of Henry Ford several decades earlier, although Toyota’s approach to both product development and distribution proved to be much more consumer-friendly and market-driven.

The main objective of TPS is to produce goods synchronously to customer requirements, thus designing out overburden (muri) and inconsistency (mura) and eliminating waste (muda) for instance caused by overproduction, unnecessary transports and waiting times. In order to achieve these goals, the Toyota Production System makes use of five different methods.

2.1.1 Synchronization and Standardization of Processes – Lean manufacturing

One of the greatest advantages of TPS is its strong focus on lean production. Lean production is aimed at the elimination of waste in any area of production including customer relations, product design, supplier networks and factory management. Its goal is to incorporate less human effort, less inventory, less time to develop products, and less space to become highly responsive to customer demand while producing top quality products in the most efficient and economical manner possible.

In order to achieve these goals, Toyota pioneered and implemented several highly efficient strategies. For instance, during the 1970s Toyota invented Just-in-Time (JIT), an inventory strategy that strives to improve a businesses’s return on investment by reducing in-process inventory and associated carrying costs, following the simple philosophy that inventory is waste. To meet its objectives, one of the primary tools of a JIT system are signals (jap. Kanban) between different points in the process, which tell production when to make the next part. Such signals maintain an orderly and efficient flow of materials throughout the entire manufacturing process, improving a manufacturing organization’s return on investment, as well as quality and efficiency.

Closely linked to Toyota’s JIT principle is the company’s outstanding supply chain management, as the high efficiency and effectiveness of a JIT inventory system is heavily dependent upon the smooth co-ordination of a company’s supplier network. Toyota as well as other Japanese car manufacturers are able to ensure such a smooth co-ordination and close and trustful cooperation with their suppliers through the so called keiretsu. A keiretsu is a traditional Japanese institution and can be defined as a set of companies with inter-looking business relationships and shareholdings. In general, there are three different types of keiretsu:

  1. Kigyo shudan – Horizontally diversified business groups
  2. Seisan keiretsu – Vertical manufacturing networks
  3. Ryutsu keiretsu – Vertical distribution networks

Today, Toyota is widely considered the biggest of the vertically-integrated keiretsu groups, with companies like the Denso Corporation – the world’s second largest automotive components manufacturer – as well as 300 other component suppliers being more or less directly linked to the company.

In addition to JIT and an outstanding supply chain management, the high efficiency of Toyota’s manufacturing plants is also due to a high level of standardization. For Toyota, standardized tasks and processes are the foundation for continuous improvement and employee empowerment. In this context, one of the most important principles for Toyota is to visualize standards to ensure that no problems are hidden. Included in this principle is the so called 5S Program comprising five steps that are used to make all work spaces efficient and productive, help people share work stations, reduce time looking for needed tools and improve the work environment.

2.1.2 Avoiding Errors

One of the most important aspects when working with a minimum stock of materials and JIT inventory systems is to ensure that each part entering the next step of the production process meets the highest possible quality standards. To meet this requirement, it is not enough to take samples. In fact, all employees working in production and logistics must be trained and sensibilized for this set of problems.

At Toyota, this is ensured by the so called Total Quality Management (TQM) approach. TQM is an integral management concept coined in the 1940s by W. Edwards Deming, an American statistician, professor and consultant. It can be defined as a set of management practices throughout the organization, geared to ensure the organization consistently meets or exceeds customer requirements. TQM places strong focus on process measurement and controls as means of continuous improvement. One of the principal aims of TQM is to limit errors to 1 per 1 million units produced.

2.1.3 Improvement of the Production Lines

Another fundamentally important pre-condition for a highly efficient and effective production is the continuous improvement of the production line and the facilities. Only if the machinery and the equipment are at the forefront of technology and are working reliably without any defects and failures, it can be ensured that the machine up time is predictable and the process capability is sustained, avoiding that the process must keep extra stocks to buffer against any uncertainties and that the flow through the process will be interrupted.

At Toyota, this in ensured through the application of Total Productive Maintenance (TPM). TPM is a proactive approach that essentially aims to prevent any kind of slack before occurrence and has been the first methodology Toyota used to improve its global position in the 1950s. According to the motto “zero error, zero work-related accident, and zero loss”, in TPM the machine operators perform much, and sometimes all, of the routine maintenance tasks themselves. This auto-maintenance ensures appropriate and effective efforts are expended since the machine is wholly the domain of one person or team.

2.1.4 Employee Training and Qualification

At Toyota’s production factories, the work-people are seen as the most important factor within the whole production process. Toyota has understood better than anybody else that investing into employee training and qualification is the critical success factor in the battle for quality and costs. According to the understanding that continuous process improvement means continuous employee qualification, Toyota for instance offers training’s for its assembly-line workers in its own training centers to ensure that they are able to meet the company’s standards before they start working at the actual assembly line. This procedure is aimed at avoiding frustration among the employees due to excessive performance requirements, thus guaranteeing a high level of commitment and motivation among the workforce.

2.1.5 Continuous Improvement through Kaizen

Finally, the Toyota Production System is famous for the strict implementation of a continuous improvement process (CIP) referred to as Kaizen (jap. “improvement” or “change for the better”). In general, the term Kaizen describes the philosophy or the practices that focus upon continuous improvement of processes in manufacturing, engineering, supporting business processes, and management. Its core principle is the self reflection of processes through intensive feedback with the purpose of identifying, reducing and eliminating sub-optimal processes in order to raise overall efficiency. In addition, the emphasis of continuous improvement is on incremental, continuous steps rather than giant leaps.

Used in the context of the Toyota Production System, CIP has some sort of workshop character, describing an environment where all individuals – from the CEO to the individual assembly-line worker – work to improve all functions within manufacturing and all related processes. In addition, of fundamental importance is senior management’s willingness to implement the findings of the CIP as well as to empower all employees to enable them to implement suggestions for improvement by themselves.

In summary, the outcome of Toyota’s remarkable production system, based on a careful analysis of its own resources and competencies, in addition to the strict orchestration of these resources and competencies over time, can be clearly seen in the measures of productivity for lean versus non-lean automotive companies.

2.2 The Concept of Re-engineering

In addition to the famous Toyota Production System, the concept of re-engineering has been another major factor for the success of Toyota. Re-engineering can be defined as the process of the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical measures of performance such as cost, service, and speed. It combines a strategy of promoting business innovation with a strategy of making major improvements to business processes so that a company can become a much stronger and more successful competitor in the marketplace.

In the case of Toyota, one must just consider a Toyota model which is newly introduced into the market, but fails to impress the market. In this case, Toyota’s next strategic step will be to re-engineer the model, which means completely altering the failed model using the same production facility, learning from the mistakes they made in the past. This method is for instance not practiced at General Motors and Ford. Once a GM or Ford model fails to reach market expectations, the whole manufacturing facility for producing the model will be scrapped and the employees are often pushed out of the company. However, this approach results in loosing the knowledge gained at great costs.

3. People and Partners

Besides its long-term corporate philosophy and state-of-the-art processes like TPS and the concept of re-engineering, another major success factor of Toyota is its highly effective and efficient human resource management system. For Toyota, human resources is the cornerstone for a high level of employee loyalty and commitment to quality. The underlying principle is that a workplace with high morale and a high level of job satisfaction is more likely to produce reliable, high-quality products at affordable prices.

In contrast to other car manufacturers like GM or Ford, Toyota has managed to create an organizational culture that strengthens employee motivation and encourages their participation, which is an essential precondition for the functioning of the TPS. For instance, in Toyota factories group activities are promoted among the shop-floor team members. In addition, the knowledge base of all employees is used to improve equipment reliability and productivity, thereby lowering maintenance and operating costs.

In general, Toyota’s human resource management aims at growing leaders who live the Toyota philosophy and to respect, develop and challenge its people, teams and partners (e.g. suppliers).

4. Problem Solving

Finally, the top of the pyramid of Toyota’s success is characterized by the willingness for problem solving and continuous improvement and learning which is deeply-rooted in the Toyota culture. And this does not only imply the process of continual organizational learning through Kaizen as mentioned before under point 2.1.5. In fact, this also results in the belief that one always has to see for himself in order to thoroughly understand the situation (jap. Genchi Genbutsu), and that making decisions slowly by consensus, thoroughly considering all options, is the key for sustainable problem solving and long-term business success.

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