Toyota’s recall crisis is a serious threat to its reputation, but its abiding strength has been how rigorously it manages its supply chain and production. In that respect Toyota must get back to its roots
The sticky accelerator crisis is certainly a low point in the otherwise shining history of Toyota. Unsurprisingly this has led to great deal of talk about the damage inflicted on Toyota as a business. Will not Toyota be threatened by the damage to its brand? Is not Toyota’s strength its reputation for reliable motorcars? As so frequently in the automotive sector, logisticians have a key insight into this question. They, perhaps more than any management practitioners, understand the huge strengths of the Toyota Production System (TPS).
This is not to deny the importance of reliability for Toyota. Survey after survey in North America or Europe places Toyota near the top for reliability. However its competitors in this area are typically Japanese: Honda, Mazda, Subaru, Suzuki. Why? Japanese consumers demand reliability even more than their western counterparts do. Yet amongst Japanese carmakers, Toyota is the unrivalled leader in the global marketplace.
The key to Toyota’s success, even more than the strength of its brand, is the fact that it can make cars more profitably than any other volume producer. And the reason for that is the logistics system known as TPS.
Inspired from its days of penury in 1950s Japan, TPS emphasises frugality. Its approach to ‘just-in-time’ inventory management is well known. What is less well grasped is the power and confidence it gives Toyota to utilise its assets in the most economic manner possible.
Toyota orients its operations to optimise its assembly plant capacity. Production must be neither too high, nor too low. It is even willing to forego sales to achieve this. As a result its assets work harder than other volume carmakers.
The insight that TPS gives into the nature of the business of making and selling cars is still unique to Toyota. Only Toyota has the self-belief to implement it so rigorously. Other manufacturers say they run their businesses like this, but the judgement is reflected in the bottom line.
It has been pointed out that Toyota’s concepts were evolved to work within Japan. This is true, yet over the past twenty years Toyota has developed a production base outside of Japan, which includes a new supply chain. This production network has coped admirably well, with plants mostly matching the performance of those in Japan. What Toyota may be having difficulty managing now is its supply chain.
Toyota has been accused of being arrogant, of expanding too quickly and losing its focus on quality. There may be truth in this. Its recent missive to its suppliers demanding huge reductions in component prices was redolent of the purchasing policies of less successful carmakers. Yet perhaps the present crisis is also symptomatic of a deeper problem that Toyota has to deal with.
Motorcars continue to become more complicated. Once simple mechanisms such as brakes and accelerator pedals are now composed of many components and are consequently more liable to failure through poor design. All of this pulls Toyota away from the principles of simplicity that up to now have ensured quality of assembly and design. Today, ensuring the engineering is reliable in even the most straightforward mechanisms demands a new level of co-operation with suppliers. Toyota has traditionally had a good relationship with suppliers but the quality of that relationship was dictated by TPS. Toyota set the benchmark and suppliers had to follow. A more complex supply chain demands differing types of partnerships, more collaborative and possibly more equal.
TPS was the result of a profound understanding of the business of making and selling motorcars. The leaders of Toyota thought about the management problems of mass production from a new perspective and evolved an approach that drove them to the pinnacle of the sector. Now the industry is changing and Toyota’s present travails may indicate that the business of managing supply chains is also changing.
The challenge for Akio Toyoda is not so much to manage the public relations around the present crisis. Toyota will not go out of business nor will it lose its leadership of the sector even in the short term. The company is fundamentally too efficient. However, if he is to ensure the continued strength of the company, Toyoda’s top management might need to think about the new processes emerging within the automotive supply chain as deeply as his own grandfather thought about the structure of the industry in the 1950s and 1960s.