case study of toyota company

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14.1 Organizational Structure: The Case of Toyota

Figure 14.1

Mike Mozart – Toyota – CC BY 2.0.

Toyota Motor Corporation (TYO: 7203) has often been referred to as the gold standard of the automotive industry. In the first quarter of 2007, Toyota (NYSE: TM) overtook General Motors Corporation in sales for the first time as the top automotive manufacturer in the world. Toyota reached success in part because of its exceptional reputation for quality and customer care. Despite the global recession and the tough economic times that American auto companies such as General Motors and Chrysler faced in 2009, Toyota enjoyed profits of $16.7 billion and sales growth of 6% that year. However, late 2009 and early 2010 witnessed Toyota’s recall of 8 million vehicles due to unintended acceleration. How could this happen to a company known for quality and structured to solve problems as soon as they arise? To examine this further, one has to understand about the Toyota Production System (TPS).

TPS is built on the principles of “just-in-time” production. In other words, raw materials and supplies are delivered to the assembly line exactly at the time they are to be used. This system has little room for slack resources, emphasizes the importance of efficiency on the part of employees, and minimizes wasted resources. TPS gives power to the employees on the front lines. Assembly line workers are empowered to pull a cord and stop the manufacturing line when they see a problem.

However, during the 1990s, Toyota began to experience rapid growth and expansion. With this success, the organization became more defensive and protective of information. Expansion strained resources across the organization and slowed response time. Toyota’s CEO, Akio Toyoda, the grandson of its founder, has conceded, “Quite frankly, I fear the pace at which we have grown may have been too quick.”

Vehicle recalls are not new to Toyota; after defects were found in the company’s Lexus model in 1989, Toyota created teams to solve the issues quickly, and in some cases the company went to customers’ homes to collect the cars. The question on many people’s minds is, how could a company whose success was built on its reputation for quality have had such failures? What is all the more puzzling is that brake problems in vehicles became apparent in 2009, but only after being confronted by United States transportation secretary Ray LaHood did Toyota begin issuing recalls in the United States. And during the early months of the crisis, Toyota’s top leaders were all but missing from public sight.

The organizational structure of Toyota may give us some insight into the handling of this crisis and ideas for the most effective way for Toyota to move forward. A conflict such as this has the ability to paralyze productivity but if dealt with constructively and effectively, can present opportunities for learning and improvement. Companies such as Toyota that have a rigid corporate culture and a hierarchy of seniority are at risk of reacting to external threats slowly. It is not uncommon that individuals feel reluctant to pass bad news up the chain within a family company such as Toyota. Toyota’s board of directors is composed of 29 Japanese men, all of whom are Toyota insiders. As a result of its centralized power structure, authority is not generally delegated within the company; all U.S. executives are assigned a Japanese boss to mentor them, and no Toyota executive in the United States is authorized to issue a recall. Most information flow is one-way, back to Japan where decisions are made.

Will Toyota turn its recall into an opportunity for increased participation for its international manufacturers? Will decentralization and increased transparency occur? Only time will tell.

Based on information from Accelerating into trouble. (2010, February 11). Economist . Retrieved March 8, 2010, from http://www.economist.com/opinion/displaystory.cfm?story_id=15498249 ; Dickson, D. (2010, February 10). Toyota’s bumps began with race for growth. Washington Times , p. 1; Maynard, M., Tabuchi, H., Bradsher, K., & Parris, M. (2010, February 7). Toyota has a pattern of slow response on safety issues. New York Times , p. 1; Simon, B. (2010, February 24). LaHood voices concerns over Toyota culture. Financial Times . Retrieved March 10, 2010, from http://www.ft.com/cms/s/0/11708d7c-20d7-11df-b920-00144feab49a.html ; Werhane, P., & Moriarty, B. (2009). Moral imagination and management decision making. Business Roundtable Institute for Corporate Ethics . Retrieved April 30, 2010, from http://www.corporate-ethics.org/pdf/moral_imagination.pdf ; Atlman, A. (2010, February 24). Congress puts Toyota (and Toyoda) in the hot seat. Time . Retrieved March 11, 2010, from http://www.time.com/time/nation/article/0,8599,1967654,00.html .

Discussion Questions

• Do you think Toyota’s organizational structure and norms are explicitly formalized in rules, or do the norms seem to be more inherent in the culture of the organization?
• What are the pros and cons of Toyota’s structure?
• What elements of business would you suggest remain the same and what elements might need revising?
• What are the most important elements of Toyota’s organizational structure?

Organizational Behavior Copyright © 2017 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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Russell 2000, bitcoin usd, cmc crypto 200, esg case study – toyota motor corporation.

This article was originally published on ETFTrends.com.

By Sara Rodriguez, Sage ESG Research Analyst

About Toyota Motor Corporation

Toyota Motor Corporation is a Japanese multinational automotive company that designs, manufacturers, and sells passenger and commercial vehicles. The company also has a financial services branch that offers financing to vehicle dealers and customers. Toyota is the second-largest car manufacturer in the world and ranked the 11th largest company by Forbes — and produces vehicles under five brands: Toyota, Hino, Lexus, Ranz, and Daihatsu. Toyota also partners with Subaru, Isuzu, and Mazda.

Environmental

Motor vehicles are one of the largest contributors to greenhouse gas (GHG) emissions and, as a result, climate change, with the transportation sector accounting for a third of U.S. GHG emissions in 2018. Although most emissions come from vehicle usage rather than the process of manufacturing vehicles, government regulations place the burden on auto companies to improve fuel efficiency and reduce overall emissions. While climate change regulations present financial risk to automakers, they also offer opportunities; increased fuel efficiency requirements are likely to lead to more sales of electric vehicles and hybrid systems. Toyota pioneered the first popular hybrid vehicle with the 1997 release of the Prius, the world’s first mass-produced hybrid. Since then, Toyota has sold 15 million hybrids worldwide . In 2018, hybrids accounted for 58% of Toyota’s sales, contributing to Toyota reaching substantially better carbon dioxide (CO2) emissions from new vehicles than regulatory standards and the best levels in the industry (102.1g/km compared to U.S. regulation of 119g/km). In 2020, Toyota reduced global average CO2 emissions from new vehicles by 22% compared to 2010 levels by improving vehicle performance and expanding its lineup. Toyota’s goal is to increase that number to 30% by 2025, with the goal of 90% total reduction by 2050. The company aims to offer an electric version of all Toyota and Lexus models worldwide by 2025. (Toyota does not yet sell any all-electric vehicles to the U.S., but it does outside the U.S.)

In addition to greenhouse gases, cars emit smog-forming pollutants that contribute to poor air quality and trigger negative health effects. Recently, a London court ruled that air pollution significantly contributed to the death of a nine-year-old girl with asthma who had been exposed to excessive nitrogen dioxide (NO2) levels. NO2 is a toxic gas emitted by cars that use diesel fuel, and although European Union laws set regulatory levels for NO2 in the air, Britain has missed its targets for a decade due to a lack of enforcement. As Toyota expands into European markets, the smog rating of its cars will be financially material and an important aspect of risk management.

Compared to industry peers, Toyota excels in addressing emissions and fuel efficiency. In 2014 Toyota Motor Credit Corporation, the financial arm of Toyota Motor Corporation, introduced the auto industry’s first-ever asset-backed green bond and has since issued five total green bonds. The newest $750 million bond will go toward developing new Toyota and Lexus vehicles to possess a hybrid or alternative fuel powertrain, achieve a minimum of 40 highway and city miles per gallon, and receive an EPA Smog Rating of 7/10 or better. The bond program was reviewed by Sustainalytics, which found that Toyota leads its competitors in supporting its carbon transition through green bond investments.

In addition to curbing emissions caused by Toyota’s vehicles, the company seeks to reduce plant emissions to zero by 2050 by utilizing renewable energy and equipment optimization. In automaking, water is used in painting and other manufacturing processes. Toyota has implemented initiatives to reduce the amount of water used in manufacturing and has developed technology that allows the painting process to require no water. In 2019, Toyota reduced water usage by 5% per vehicle, with the goal of 3% further reduction by 2025, for an overall reduction of 34% from 2001 levels. To reduce the environmental impact of materials purchased from suppliers, Toyota has launched Green Purchasing Guidelines to prioritize the purchase of parts and equipment with a low environmental footprint. We would like to see Toyota continue to develop its supply chain environmental policies.

As the global population grows, so does number of cars on the road, which creates waste when they’ve reached the end of their useful lives. Toyota’s Global 100 Dismantlers Project was created to establish systems for appropriate treatment of end-of-life vehicles through battery collection and car recycling. Toyota aims to have 15 vehicle recycling facilities by 2025. Toyota is also working to minimize waste by prolonging the useful life of its vehicles. Toyota has a strong reputation for producing quality, reliable vehicles. Consumer Reports lists Toyota’s overall reliability as superb, and Toyota and Lexus often take the top spots in Consumer Reports Annual Auto Reliability Survey. An Iseecars.com study found that Toyota full-size SUV models are the longest-lasting vehicles and most likely to reach over 200,000 miles.

Driving is an activity with inherent risk. The World Health Organization estimates that 1.35 million people die in car accidents each year. Accidents are worse in emerging nations where transportation infrastructure has not kept up with the increase in the number of cars on the road; without countermeasures, traffic fatalities are predicted to become the seventh-leading cause of death worldwide by 2030. Demand for personal vehicles will continue to increase as developing countries experience higher standards of living, and product safety will be paramount to automaker’s reputations and brand values. Toyota has put forth a goal of Zero Casualties from Traffic Accidents and adopted an Integrated Safety Management Concept to work toward eliminating traffic fatalities by providing driver support at each stage of driving: from parking to normal operation, the accident itself, and the post-crash. Toyota and Lexus models regularly earn top safety ratings by the National Highway Traffic Safety Administration (NHTSA) and the Insurance Institute for Highway Safety. In addition to traditional safety features, Toyota actively invests in the development of autonomous vehicles, including a $500 million investment in Uber and autonomous ridesharing. If fully developed, autonomous driving can offer increased safety to passengers, lower accident rates, and provide mobility for the elderly and physically disabled.

Accidents caused by defective vehicles can have significant financial repercussions for auto manufacturers. Toyota experienced significant damage to its reputation and brand value in 2009 when unintended acceleration caused a major accident that killed four people riding in a dealer-loaned Lexus in San Diego. Toyota subsequently began recalling millions of vehicles, citing problems of pedal entrapment from unsecured floor mats and “sticky gas pedals.” Toyota’s failure to quickly respond resulted in a $1.2 billion settlement with the Justice Department and $50 million in fines from the NHTSA. The scandal generated an extraordinary amount of news coverage, and the Toyota recall story ranked among the top 10 news stories across all media in January and February 2010. Litigation costs, warranty costs, and increased marketing to counter the negative publicity of the event were estimated to cost Toyota over $5 billion (annual sales are about $275 billion). As a result of bad press, Toyota’s 2010 sales fell 16% from the previous year and its stock price fell 10% overall, while competitors like Ford benefitted and experienced stock price growth of 80% over the same period. Future recalls and quality issues are certain to prove costly for Toyota and may continue to negatively impact its consumer reputation.

Another social issue that can be financially material for automakers is human rights. Automobiles consist of about 30,000 parts, making their supply chain extensive and at high risk for human rights abuses. Toyota addresses human rights concerns in its Corporate Sustainability Report (CSR) and cites Migrant Workers and Responsible Sourcing of Cobalt as its priorities for 2020; however, Toyota does not have a clean labor record. A 2008 report published by the Institute for Global Labour and Human Rights accused Toyota of a catalog of human rights abuses, including stripping foreign workers of their passports and forcing them to work grueling hours without days off for less than half of the legal minimum wage. Toyota was also accused of involvement in the suppression of freedom of association at its plant in the Philippines. Toyota’s CSR lists a host of external nongovernmental organizations the company partners with to promote fair working conditions, however; due to the high-risk present in its supply chain and its past offenses, we would like to see the company further develop its labor and human rights policies.

Lastly, we would mention that Toyota has been accused of discriminatory practices. In 2016, Toyota Motor Credit Corporation, the financial arm of Toyota Motor Corporation, agreed to pay 21.9 million in restitution to thousands of African American, Asian, and Pacific Islander customers for charging them higher interest rates on auto loans than their white counterparts with comparable creditworthiness. Toyota has since taken measures to change its pricing and compensation system to reduce incentives to mark up interest rates.

Toyota shows strength in its transparency, and its Corporate Sustainability Report (CSR) is prepared in accordance with multiple sustainability reporting agencies, including the Global Reporting Initiative, Sustainable Accounting Standards Board, and the Task Force on Climate-Related Financial Disclosures; the CSR data is also verified by a third party. Starting in 2021, Toyota’s CSR will be updated whenever necessary to ensure timely disclosure, rather than annually. In 2019 Toyota created a Sustainability Management Department and added the role of Chief Sustainability Officer to its executive management team in 2020. Toyota’s CSR offers thorough information on its executive compensation policies, however; the composition of Toyota’s board of directors is an area of weakness for the company. There is a lack of independence among board members, and the chair of the board is not independent. In general, when compared to the U.S., Japanese companies have a smaller percentage of outside directors due to a history of corporate governance emphasizing incumbency and promotion from within. However, since the release of the Japanese Corporate Governance Code in 2015, companies have felt pressure to make meaningful board composition changes. We hope to see Toyota strengthen its board composition and adopt executive renumeration policies that are tied to sustainability performance.

Like other automakers, Toyota has lobbied aggressively to weaken Obama-era fuel economy standards. In 2017, the Environmental Protection Agency announced plans to work with Toyota to overhaul internal management practices at the agency. Inviting a company regulated by the agency to alter internal practices has been previously unprecedented and raises concerns over how Toyota could wield influence over EPA functions. Toyota is a member of the Alliance of Automobile Manufacturers, the most powerful automotive industry lobbying association, which has strongly opposed climate change motivated regulation since 2016, contradicting the company’s public stance on emissions.

Risk & Outlook

Sage believes Toyota to be well adapted to manage sustainability challenges, despite the high environmental and social risks in the automotive industry. We expect the auto industry to see an increase in regulatory risk surrounding vehicle emissions and fuel efficiency; however, we believe Toyota will continue to innovate to meet and exceed emission standards and the company is well positioned to benefit from future fuel efficiency regulations. We hope to see Toyota continue to improve its social performance and expand on its recently introduced human capital policies. In addition to regulation, the auto industry faces disruption caused by new areas of technology such as automated driving, electrification, and shared mobility, and these areas will be important to monitor. Toyota’s strong management of ESG issues makes the company a leader amongst its peers; however, due to risk present in the automotive industry we rank Toyota a 3/5 for its Sage ESG Leaf Score.

Sage ESG Leaf Score Methodology

No two companies are alike. This is exceptionally apparent from an ESG perspective, where the challenge lies not only in as­sessing the differences between companies, but also in the differences across industries. Although a company may be a leader among its peer group, the industry in which it operates may expose it to risks that cannot be mitigated through company management. By combining an ESG macro industry risk analysis with a company-level sustainability evaluation, the Sage Leaf Score bridges this gap, enabling investors to quickly assess companies across industries. Our Sage Leaf Score, which is based on a 1 to 5 scale (with 5 leaves representing ESG leaders), makes it easy for investors to compare a company in, for example, the energy industry to a company in the technology industry, and to understand that all 5-leaf companies are leaders based on their individual company management and the level of industry risk that they face.

For more information on Sage’s Leaf Score, click here.

Originally published by Sage Advisory

ISS ESG Corporate Rating Report on Toyota Motor Corporation.

Environmental Report 2020 Toyota Motor Corporation.

Sustainability Data Book 2020 Toyota Motor Corporation.

Lambert, Lisa. “Toyota Motor Credit settles with U.S. over racial bias in auto loans” February 2, 2016.

“Automobiles” Sustainability Accounting Standards Board. September, 2014.

Kaufman, Alexander. “Scott Pruitt’s Plan to Outsource Part Of EPA Overhaul to Automaker Raises Concerns” December 12, 2017.

“How the US auto industry accelerated lobbying under President Trump” November, 2017.

Charles Kernaghan, Barbara Briggs, Xiaomin Zhang, et al. “The Toyota You Don’t Know” Institute for Global Labour and Human Rights. 2008.

Road Safety World Health Organization.

Toyota Motor Credit Corporation Green Bond Framework Second-Party Opinion January 21, 2020.

Toshihiko Hiura and Junya Ishikawa. "Corporate Governance in Japan: Board Membership and Beyond" Bain & Company. February 23, 2016.

Taylor, Lin. ”Landmark ruling links death of UK schoolgirl to pollution" December 16, 2020.

Disclosures

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. The infor­mation included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. This report is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results. Sustainable investing limits the types and number of investment opportunities available, this may result in the Fund investing in securities or industry sectors that underperform the market as a whole or underperform other strategies screened for sustainable investing standards. No part of this Material may be produced in any form, or referred to in any other publication, without our express written permission. For additional information on Sage and its investment management services, please view our web site at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

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Toyota Motor Corporation Case Study 1

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Incremental improvement of a deeply embedded technology system has been a hallmark of the automotive industry for a very long time. Efforts to develop alternatives have repeatedly failed. This paper analyses how Toyota started to challenge this pattern in the late 1990s, by the architectural innovation embodied in Prius, the first mass-produced hybrid-electric car.

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"Abstract: Purpose – The article shows how changes in product architecture have become the driving force behind a breakthrough strategy that has enabled Chinese carmakers to produce vehicles that are broadly equivalent to the products of western carmakers but at a fraction of the price. Design/methodology/approach – The article presents an analysis of the development of a strategy based in an innovative product architecture used by a Chinese carmaker. The analysis covers the period between 1998 and 2006 and presents the results of a longitudinal study carried out by one of the authors in China between 2002 and 2007. Findings – The article uses the literature on product architecture and breakthrough strategy to describe a quasi-open modular product architecture used by Chinese carmakers. It provides an historical account of one company's approach to car making using this strategy and describes how it has allowed it to move from being a manufacturer of refrigerators to the ninth largest carmaker in China in period of ten years. Practical implications – The article highlights the strategic potential of innovations in product architecture in general and that of quasi-open modular architectures in particular. It also highlights the role of the emerging markets in China as the source of potential drivers for breakthrough strategies and as a threat to the current position of western carmakers. Originality/value – This article uses evidence based on direct observation to describe a novel approach to product architecture that has been pioneered in the emergent markets in China."

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(Still) learning from Toyota

In the two years since I retired as president and CEO of Canadian Autoparts Toyota (CAPTIN), I’ve had the good fortune to work with many global manufacturers in different industries on challenges related to lean management. Through that exposure, I’ve been struck by how much the Toyota production system has already changed the face of operations and management, and by the energy that companies continue to expend in trying to apply it to their own operations.

Yet I’ve also found that even though companies are currently benefiting from lean, they have largely just scratched the surface, given the benefits they could achieve. What’s more, the goal line itself is moving—and will go on moving—as companies such as Toyota continue to define the cutting edge. Of course, this will come as no surprise for any student of the Toyota production system and should even serve as a challenge. After all, the goal is continuous improvement.

Room to improve

The two pillars of the Toyota way of doing things are kaizen (the philosophy of continuous improvement) and respect and empowerment for people, particularly line workers. Both are absolutely required in order for lean to work. One huge barrier to both goals is complacency. Through my exposure to different manufacturing environments, I’ve been surprised to find that senior managers often feel they’ve been very successful in their efforts to emulate Toyota’s production system—when in fact their progress has been limited.

The reality is that many senior executives—and by extension many organizations—aren’t nearly as self-reflective or objective about evaluating themselves as they should be. A lot of executives have a propensity to talk about the good things they’re doing rather than focus on applying resources to the things that aren’t what they want them to be.

When I recently visited a large manufacturer, for example, I compared notes with a company executive about an evaluation tool it had adapted from Toyota. The tool measures a host of categories (such as safety, quality, cost, and human development) and averages the scores on a scale of zero to five. The executive was describing how his unit scored a five—a perfect score. “Where?” I asked him, surprised. “On what dimension?”

“Overall,” he answered. “Five was the average.”

When he asked me about my experiences at Toyota over the years and the scores its units received, I answered candidly that the best score I’d ever seen was a 3.2—and that was only for a year, before the unit fell back. What happens in Toyota’s culture is that as soon as you start making a lot of progress toward a goal, the goal is changed and the carrot is moved. It’s a deep part of the culture to create new challenges constantly and not to rest when you meet old ones. Only through honest self-reflection can senior executives learn to focus on the things that need improvement, learn how to close the gaps, and get to where they need to be as leaders.

A self-reflective culture is also likely to contribute to what I call a “no excuse” organization, and this is valuable in times of crisis. When Toyota faced serious problems related to the unintended acceleration of some vehicles, for example, we took this as an opportunity to revisit everything we did to ensure quality in the design of vehicles—from engineering and production to the manufacture of parts and so on. Companies that can use crises to their advantage will always excel against self-satisfied organizations that already feel they’re the best at what they do.

A common characteristic of companies struggling to achieve continuous improvement is that they pick and choose the lean tools they want to use, without necessarily understanding how these tools operate as a system. (Whenever I hear executives say “we did kaizen ,” which in fact is an entire philosophy, I know they don’t get it.) For example, the manufacturer I mentioned earlier had recently put in an andon system, to alert management about problems on the line. 1 1. Many executives will have heard of the andon cord, a Toyota innovation now common in many automotive and assembly environments: line workers are empowered to address quality or other problems by stopping production. Featuring plasma-screen monitors at every workstation, the system had required a considerable development and programming effort to implement. To my mind, it represented a knee-buckling amount of investment compared with systems I’d seen at Toyota, where a new tool might rely on sticky notes and signature cards until its merits were proved.

An executive was explaining to me how successful the implementation had been and how well the company was doing with lean. I had been visiting the plant for a week or so. My back was to the monitor out on the shop floor, and the executive was looking toward it, facing me, when I surprised him by quoting a series of figures from the display. When he asked how I’d done so, I pointed out that the tool was broken; the numbers weren’t updating and hadn’t since Monday. This was no secret to the system’s operators and to the frontline workers. The executive probably hadn’t been visiting with them enough to know what was happening and why. Quite possibly, the new system receiving such praise was itself a monument to waste.

Room to reflect

At the end of the day, stories like this underscore the fact that applying lean is a leadership challenge, not just an operational one. A company’s senior executives often become successful as leaders through years spent learning how to contribute inside a particular culture. Indeed, Toyota views this as a career-long process and encourages it by offering executives a diversity of assignments, significant amounts of training, and even additional college education to help prepare them as lean leaders. It’s no surprise, therefore, that should a company bring in an initiative like Toyota’s production system—or any lean initiative requiring the culture to change fundamentally—its leaders may well struggle and even view the change as a threat. This is particularly true of lean because, in many cases, rank-and-file workers know far more about the system from a “toolbox standpoint” than do executives, whose job is to understand how the whole system comes together. This fact can be intimidating to some executives.

Senior executives who are considering lean management (or are already well into a lean transformation and looking for ways to get more from the effort and make it stick) should start by recognizing that they will need to be comfortable giving up control. This is a lesson I’ve learned firsthand. I remember going to CAPTIN as president and CEO of the company and wanting to get off to a strong start. Hoping to figure out how to get everyone engaged and following my initiatives, I told my colleagues what I wanted. Yet after six or eight months, I wasn’t getting where I wanted to go quickly enough. Around that time, a Japanese colleague told me, “Deryl, if you say ‘do this’ everybody will do it because you’re president, whether you say ‘go this way,’ or ‘go that way.’ But you need to figure out how to manage these issues having absolutely no power at all.”

So with that advice in mind, I stepped back and got a core group of good people together from all over the company—a person from production control, a night-shift supervisor, a manager, a couple of engineers, and a person in finance—and challenged them to develop a system. I presented them with the direction but asked them to make it work.

And they did. By the end of the three-year period we’d set as a target, for example, we’d dramatically improved our participation rate in problem-solving activities—going from being one of the worst companies in Toyota Motor North America to being one of the best. The beauty of the effort was that the team went about constructing the program in ways I never would have thought of. For example, one team member (the production-control manager) wanted more participation in a survey to determine where we should spend additional time training. So he created a storyboard highlighting the steps of problem solving and put it on the shop floor with questionnaires that he’d developed. To get people to fill them out, his team offered the respondents a hamburger or a hot dog that was barbecued right there on the shop floor. This move was hugely successful.

Another tip whose value I’ve observed over the years is to find a mentor in the company, someone to whom you can speak candidly. When you’re the president or CEO, it can be kind of lonely, and you won’t have anyone to talk with. I was lucky because Toyota has a robust mentorship system, which pairs retired company executives with active ones. But executives anywhere can find a sounding board—someone who speaks the same corporate language you do and has a similar background. It’s worth the effort to find one.

Finally, if you’re going to lead lean, you need knowledge and passion. I’ve been around leaders who had plenty of one or the other, but you really need both. It’s one thing to create all the energy you need to start a lean initiative and way of working, but quite another to keep it going—and that’s the real trick.

Room to run

Even though I’m retired from Toyota, I’m still engaged with the company. My experiences have given me a unique vantage point to see what Toyota is doing to push the boundaries of lean further still.

For example, about four years ago Toyota began applying lean concepts from its factories beyond the factory floor—taking them into finance, financial services, the dealer networks, production control, logistics, and purchasing. This may seem ironic, given the push so many companies outside the auto industry have made in recent years to drive lean thinking into some of these areas. But that’s very consistent with the deliberate way Toyota always strives to perfect something before it’s expanded, looking to “add as you go” rather than “do it once and stop.”

Of course, Toyota still applies lean thinking to its manufacturing operations as well. Take major model changes, which happen about every four to eight years. They require a huge effort—changing all the stamping dies, all the welding points and locations, the painting process, the assembly process, and so on. Over the past six years or so, Toyota has nearly cut in half the time it takes to do a complete model change.

Similarly, Toyota is innovating on the old concept of a “single-minute exchange of dies” 2 2. Quite honestly, the single-minute exchange of dies aspiration is really just that—a goal. The fastest I ever saw anyone do it during my time at New United Motor Manufacturing (NUMMI) was about 10 to 15 minutes. and applying that thinking to new areas, such as high-pressure injection molding for bumpers or the manufacture of alloy wheels. For instance, if you were making an aluminum-alloy wheel five years ago and needed to change from one die to another, that would require about four or five hours because of the nature of the smelting process. Now, Toyota has adjusted the process so that the changeover time is down to less than an hour.

Finally, Toyota is doing some interesting things to go on pushing the quality of its vehicles. It now conducts surveys at ports, for example, so that its workers can do detailed audits of vehicles as they are funneled in from Canada, the United States, and Japan. This allows the company to get more consistency from plant to plant on everything from the torque applied to lug nuts to the gloss levels of multiple reds so that color standards for paint are met consistently.

The changes extend to dealer networks as well. When customers take delivery of a car, the salesperson is accompanied by a technician who goes through it with the new owner, in a panel-by-panel and option-by-option inspection. They’re looking for actionable information: is an interior surface smudged? Is there a fender or hood gap that doesn’t look quite right? All of this checklist data, fed back through Toyota’s engineering, design, and development group, can be sent on to the specific plant that produced the vehicle, so the plant can quickly compare it with other vehicles produced at the same time.

All of these moves to continue perfecting lean are consistent with the basic Toyota approach I described: try and perfect anything before you expand it. Yet at the same time, the philosophy of continuous improvement tells us that there’s ultimately no such thing as perfection. There’s always another goal to reach for and more lessons to learn.

Deryl Sturdevant, a senior adviser to McKinsey, was president and CEO of Canadian Autoparts Toyota (CAPTIN) from 2006 to 2011. Prior to that, he held numerous executive positions at Toyota, as well as at the New United Motor Manufacturing (NUMMI) plant (a joint venture between Toyota and General Motors), in Fremont, California.

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Strategic Issues At Toyota – A Case Study

Disclaimer: This is not a sample of our professional work. The paper has been produced by a student. You can view samples of our work here . Opinions, suggestions, recommendations and results in this piece are those of the author and should not be taken as our company views.

Type of Academic Paper – Case Study

Academic Subject – Management

Word Count – 4500 words

Introduction

In the contemporary business environment, businesses are continually facing strategic issues that have resulted in either loss of market share and performance, or even liquidation (Freeman, 2010). One of such leading companies is Toyota, which is renowned for being the world’s largest automaker company headquartered in Japan (Hill, Jones and Schilling, 2014).

Even though the company has offered its customers, across the globe, a variety of vehicles, it has surely faced a variety of issues ranging from more car recalls than any of its competitors (Fan, Geddes, and Flory, 2013, p. 101), marketing challenges, pricing strategy, as well as stagnated sales in the home market. Considering all these aspects, the purpose of this study is to evaluate and investigate the overall strategic issues faced by the company, followed by offering a variety of solutions to the business like total quality management, improved marketing activities, competitive advantage based on design and quality, and international expansion.

Toyota, the leading car producer, is amongst the leading automobile companies offering the customers a wide variety of products ranging from mini-sized cars to trucks as well as buses, which are sold in both developing and developed nations (Piotrowski and Guyette Jr, 2010, p. 89).

Considering the overall operations of the business, the company has continually hired hundreds and thousands of employees, even in the financial and economic downturn, where the companies were laying off their permanent and contract-based employees; however, the company overlooked what their competitors were doing and avoided termination of employees based on ethical and cultural values (Connor, 2010).

The company is known for having the strongest car manufacturing facilities, where they have continually believed in offering the customers improved and customised cars that could represent their customers’ lifestyle (Krishnan et al., 2013, p. 417). The multinational company has factories and facilities operating in developing and developed nations and is responsible for assembling and producing vehicles. According to the company’s website, the company has manufacturing facilities located in France, Poland, the United Kingdom, and the Czech Republic (Despeisse, Oates, and Ball, 2013, p. 34). All of these facilities have played an influential role in the success and growth of the business while increasing the overall market share and competitive advantage of the multinational company.

Existing Sources of Competitive Advantage

With respect to competitive advantage, Toyota has implemented a variety of strategies and techniques to increase its overall market share in the industry. For instance, the company’s production process has been argued to be quite strong in comparison to its competitors, which is both efficient and effective in terms of cost (Hesterly and Barney, 2010). Considering this strategy, the company has been able to increase its overall competitive advantage.

More importantly, the business has capitalised upon its cost-saving strength in order to reduce the price of the vehicles offered to the customers in comparison to other competitors operating in the same industry. This implies that the strategy to reduce cost and optimal utilisation of resources has resulted in the creation of a competitive advantage for Toyota (Kindstrom, 2010, p. 486).

Strong cultural advantage has also resulted in the creation of competitive advantage for Toyota. In particular, the devotion of employees in their job, and their desire to improve the company has resulted in the optimal level of performance (Liker and Franz, 2011). Since employees are treated equally and fairly, it has created a legitimate sense of loyalty and respect.

More importantly, the way in which employees value their work is significantly different from American brands, which can even be reflected in the quality of the vehicles offered (Wilhelm and Kohlbacher, 2011, p. 78). As a result of empowering employees, Toyota has ultimately created a strong competitive advantage, which has also encouraged the employees to respect the hierarchical authority that results in quick decision-making and the implementation of the strategic plans in an agile manner.

Strategic Issues at Toyota

Even though Toyota is regarded as the world-leading automobile manufacturer, it has experienced a variety of strategic issues ranging from product recall to marketing issues. Following are some of the most common strategic issues at the multinational company;

Product Recall

In the intensely competitive industry, Toyota has been found to recall more vehicles than any other competitor operating in the same industry, which can even be considered as inappropriate management or lack of interest from the company’s side (Andrews et al., 2011, p. 1071). Even though the company has a reputation to maintain being the largest automobile manufacturer, the lack of ability to assure the quality of products to its customers portrays incompetency of the entire strategic management layer (Liker and Ogden, 2011).

In particular, the company had to recall more than 5.8 million vehicles from both local and international markets due to potentially faulty installation of airbags inflators (Reuters, 2016). The brand recall was primarily due to the pressure from the US authorities, where more than 50% of the airbags installed within the Toyota vehicles were defective.

The brand recalled by Toyota included one of its bestselling models; Corolla, as well as Vitz. As a result of brand recall, the company is in constant financial assistance to pay the huge liabilities associated with the brand recall and has been in meetings with the customers as well as the potential sponsors to discuss the options of survival in the contemporary business environment (Kumar and Schmitz, 2011, p. 244).

From the case of brand recall, it is evident that lack of management’s interest and faulty installation of airbags have become a strategic issue, which can even result in loss of market share and brand image; thus leading to a significant decline in the competitive advantage of the brand against its competitors.

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Marketing Strategies

Marketing has also become a rising concern for multinational companies. Since the company has been continually recalling brands for a variety of issues, the consumers have shifted their attention from the purpose of Toyota over others available in the marketplace (Hurst, 2011).

Considering this, the company’s marketing team has found it extremely difficult to convince the existing and potential consumers to purchase the vehicles (Feng, 2010). Since the company’s brand loyalty has been continually but into question, the company has adopted a variety of marketing strategies, which can be argued to be ineffective in changing the mindset of the consumers.

In particular, the company has embraced a variety of marketing initiatives ranging from traditional television and radio marketing to the hiring of public relations specialists to help the company revamp its strategic position in the automotive industry (Bernstein, 2010). Moreover, the company has continually bought advertisements on search engines available over the internet to change consumers’ mindsets when they use the search engine to look for information related to automobiles.

However, all the strategies have not produced any significant results that the company can call an achievement in the intensely competitive marketplace (Bernstein, 2010); therefore, the overall marketing strategies and techniques can be considered to be ineffective, and the company must focus on effective marketing strategies and tactics to change the overall perception of the brand across the global consumers.

Pricing Strategy

             Over the years, Toyota has pursued a cost leadership strategy for its competitive advantage in the automotive industry (Cusumano, 2010). In particular, the company has remained focused on reducing the costs and its associated elements from its entire operations ranging from suppliers to the logistics and delivery of the final products to the consumers (Kohli and Suri, 2011, p. 569). This is also evident in the case of Europe, where the company has adopted a low-cost leadership strategy to remain ahead of competitors while increasing the brand’s competitive advantage.

However, the low-pricing strategy has become a strategic issue for the company for a variety of reasons. For instance, the low pricing strategy has encouraged the company to purchase low-quality airbags and accelerators, which ultimately resulted in brand recall from across the globe (Hurst, 2011). Though consumers prefer low-cost automotive in the economic uncertainty, they have overlooked the company for the use of sub-standard materials. This has ultimately become a rising concern for the business, which eventually reduced the loyalty and devotion of the consumers with respect to the brands offered by Toyota.

Stagnated Sales

             In the year 2016, the sales of Toyota remained stagnated, and even the management expected the sales to remain flat in the year 2016 at 10.11 million vehicles (Reuters, 2017). Moreover, the recent decision of Britain to leave the European Union further decreased the company’s sales figures resulting in the loss of global sales title to Volkswagen.

In particular, VW sold a total of 5.04 million vehicles in the initial 6 months, whereas the company was only able to sell 5.02 million in the same quarter; however, the company was able to record an outstanding operating revenue and profit. In particular, the company’s net income for the first quarter increased by 10 percent (i.e. $5.27 billion); meanwhile, the revenue increased by 9.3 percent to approximately $56.94 billion (Reuters, 2017).

Despite the stagnating sales, the company was able to increase its profitability, which could be argued as the offset from favourable currency rates. In particular, Yen’s increase in comparison to the US resulted in an increase of the operating income by $1.43 billion (Greimel, 2015); otherwise, the company would have experienced a rapid decline in its operating income (AutoNews, 2016).

The stagnated sales can also be associated with the company’s negative reputation for using sub-standard materials in the vehicles offered, which has ultimately reduced the interest of the customers with respect to purchasing the brand in comparison to other alternatives available in the marketplace.

Industry Related Factors and Toyota

             With respect to the industry, Porter’s Five Force model has been applied as it focuses on depicting the overall effect of the external factors on the company as well as the industry in which the company operates. Following is a brief analysis of the industry factors and their overall effect on the strategic issues of the company;

Competitive Rivalry

             The foremost industry factor relates to the intensity of competition within the industry, where it was found that the automotive companies are aggressive against their competitors with respect to innovation and marketing (Laudon and Laudon, 2011). Moreover, the company has to compete against a variety of firms, which have differentiated their offerings based on quality, fuel efficiency, costs, and other variables. Considering this, the company has been in competition with only a handful of firms, which implies that the company must focus on increasing its competitive advantage by addressing the company-related strategic issues (Zapata and Nieuwenhuis, 2010), which could help in improving its overall strategic position in the industry.

Bargaining Power of Customers

             The customers of the company have a direct impact on the revenues of the business. This aspect of the model focuses on determining the influence of buyers on the overall business. In this regard, it can be stated that the company’s consumers can easily switch from Toyota to any other firm competing in the automotive industry with no additional costs with respect to the purchase of new cars.

Since a variety of substitutes are available in the marketplace and consumers have access to information through the internet, the consumers can easily determine the vehicle that they want to purchase (Cole, 2011, p. 29). In this regard, Toyota has differentiated its products based on convenience and price factors, which has resulted in making the brand quite prominent across the globe (Danes and Lindsey-Mullikin, 2012, p. 296). However, the company must continually remain focused on ensuring that the vehicles are in accordance with the expectation and preferences of the customers across the globe.

Bargaining Power of Suppliers

             The availability of suppliers and their overall ability to provide the company with the required materials can have a significant impact on the performance of the business. In the case of Toyota, it is evident that the company has a vast number of suppliers to work with based on the global reputation of the business (Marksberry, 2012, p. 281). Since the company has the available supply that is used in the manufacturing of products, it has significantly reduced the bargaining power of the suppliers.

Moreover, the suppliers of the business do not have much impact on the business as factors like forwarding integration or ownership are rarely to be seen in the suppliers operating in the global automotive industry (Matsuo, 2015). Considering this, the overall impact of the bargaining power of the suppliers, in the case of Toyota, is moderate.

Threat of Substitutes

             In the majority of the cases, customers have a wide variety of options with respect to substitutes available in the marketplace. Considering this, the substitutes available for Toyota include public transportation and bicycles; however, their availability in the sub-urban areas has created a superior demand for Toyota based on price and convenience factors (Litman, 2014). Since the company has differentiated its products based on the aforementioned factors, customers can readily purchase from a variety of vehicles offered by the company; thus reducing the overall impact of this factor on the performance of the company. However, the company must readily address the threat of substitutes by making its products more durable, convenient, and affordable for the customers (Litman, 2014).

Threat of New Entrants

Since the company operates in the automotive industry, the threat of new entrants has significantly decreased as the costs associated with establishing, maintaining, and growing are significantly higher (Cusumano, 2011). Moreover, the new entrants are required to follow the industry standards, which further reduce the threat to a significant extent. Considering this, the overall threat of new entrants in the case of Toyota is significantly low.

Solutions for Strategic Issues

From the aforementioned discussion, it is evident that the company i.e. Toyota, has faced a series of strategic issues, which have resulted in the loss of competitive advantage and reputation of the business in the intensely competitive business environment. For instance, the company had to recall millions of its vehicles based on defective airbags installed, which ultimately resulted in the loss of loyal customers. Considering the strategic issues discussed earlier, the following are some of the most important solutions that the business could take into consideration to revamp its overall image and competitive advantage in the contemporary business environment;

Total Quality Management

Total Quality Management (TQM) has always remained the foremost priority of Toyota in the automotive industry throughout its 75-years history and has been widely appreciated for its lean production system. However, the recent product recall indicates that the company is somewhat lacking in ensuring the quality of the products that are available in the marketplace.

Considering this, the company must reintegrate and re-evaluate its total quality management approach with respect to continuous improvement and total participation, where the employees must be encouraged to share their opinions and feedback regarding the strategies that could be undertaken by the company to reduce the quality issues (Anvari, Ismail, and Hojatti, 2011).

Moreover, the company is also recommended to implement an emergency protocol with respect to brand recall. Since the company has recalled more than millions of its vehicles, the company failed to set a predefined procedure that ultimately resulted in inconvenience for the customers as well as the management. The convenience factor could also help the company to regain the lost trust of customers while helping them to understand that the company is doing its best in ensuring that the vehicles offered to them are safe and in accordance with their preferences and requirements (Zink, 2012).

The re-evaluation of the total quality management and lean management would allow the company to improve its overall operations while reducing the level of defects in the vehicles offered to the customers. This could further help the business in changing the mindset of the customers with respect to the recent product recall. Moreover, it could also help the business to regain the trust of the customers, which could result in improved performance and profitability; thus increasing its overall competitive advantage in the automotive industry.

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Improved marketing activities.

The company has been using traditional marketing activities and initiatives being the largest automotive company across the globe; however, the use of traditional marketing activities can be considered to be ineffective with respect to the stagnant sales (Shirouzu, 2010). Considering this, the company must consider modern means of advertising i.e. the use of social networking platforms to increase customer awareness about the low-cost vehicles offered by the business.

For instance, the company can capitalise upon its resources with respect to the use of Facebook and Instagram. Since social networking websites has become the priority for millennial, the use of both the aforementioned platforms can help the business in influencing them to purchase the vehicles in accordance with their needs and demands (Berthon et al., 2012).

Moreover, the use of social networking platforms would allow the business to reach global customers, which implies that it could not only be used for marketing purposes but can also be used by the company to ensure that the customers remain updated about the newly introduced products and services offered by the business.

Moreover, social networking platforms can also be used for brand recall. Since the company has continually been recalling their brands in the international marketplace, the social networking websites can help the business to publically apologise for the inconvenience and could inform where the customers could take their cars for maintenance (Weinberg and Pehlivan, 2011, p. 278).

This could help in regaining the trust of the customers while influencing them to purchase the brands more frequently in comparison to others available in the marketplace. More importantly, the social networking platforms could become the foremost priority of the business based on the fact that advertising through social networking platforms is cost-efficient, and has a global reach; thus resulting in increased sales and profitability of the business.

Improved Design and Quality

Design and Quality, though, have remained the foremost area of interest in the case of Toyota; the company must also focus on increasing the environmental performance of its vehicles, which implies that the company must focus on highly fuel-efficient engines that are in accordance with the corporate social responsibility standards (Rutledge, Xu, and Simpson, 2010).

Considering this, the company must leverage its position in the market for improving the fuel efficiency improvements over the vehicles offered by the competitors. Since the customers are more interested in purchasing vehicles that are fuel-efficient and offer superior quality, Toyota can capitalise on its years of experience in this matter resulting in improved brand reputation and loyalty amongst the customers.

The company can further improve the design and quality of its vehicles by employing Atkinson Cycle in its engines, which could result in the reduction of waste heat and increased expansion ratio; thus resulting in superior thermal efficiency. Moreover, the company can further improve the overall fuel efficiency in the vehicles through the use of Variable Valve Timing-intelligent Electric technology (VVT-iE), which could help in improving the combustion, while reducing the loss (Siczek, 2016).

Moreover, the company must ensure that the vehicles are eco-friendly; otherwise, customers might overlook the vehicles offered by the company, which is evident from the case of Volkswagen, where the customers banned the purchase of the vehicles based on the fact that it had negative environmental footprints (Hu et al., 2012). Taking this into consideration, the company can increase its competitive advantage by focusing on eco-friendly designs and superior fuel efficiency.          

International Expansion

Over the years, the company has expanded its manufacturing facilities in developed nations, which has helped in satisfying the demands and requirements of the customers in the most effective manner. Considering this, the company can expand internationally by focusing on the development of manufacturing facilities in India. India is amongst the most developing nations in the Asian region, and the direct presence of the company would present the business with an opportunity to better meet the demands and requirements of the customers in the most profitable manner (Arnold et al., 2016, p. 22).

This would also help the business in improving its sales based on its years of experience in the automotive industry. Since the customers in India are price-sensitive, the presence of the brand would increase Toyota’s appeal in the region, and the company would be in a better position to meet the external demands as the labour in India is relatively cheaper than in developed nations. This implies that international expansion of the business can also help the business to revamp its stagnated sales while allowing the business an opportunity to increase its overall competitive advantage.

Toyota follows a low-cost pricing strategy and has focused on the cost-leadership generic strategy for the attainment of competitive advantage against its rivals in the automotive industry. Considering this, the company has successfully developed a loyal customer base; however, the recent brand recall has become problematic for the business and its overall competitive advantage (Yan, 2010, p. 515).

Considering this, it would be recommended for the business to focus on changing its pricing strategy, which could provide the business with sufficient capital to work on its defects and issues in the existing models offered to the customers. In particular, it would be recommended to use a competitive pricing strategy, where the price of the vehicles should be in accordance with its fiercest rivals.

Since the company has a loyal customer base and years of experience in the industry, customers are more interested in the purchase of vehicles based on the convenience and quality of the products (Yan, 2010, p. 515). Therefore, the company is in the perfect situation to change its pricing strategy in the contemporary business environment.

The change of pricing strategy from low-cost to competitive pricing would help the business with its focus on continuous improvement and superior quality vehicles. More importantly, it could help the business in increasing its profitability and revenues generated from the sales of vehicles across the globe (Hinterhurber and Liozu, 2012).

Though the change in pricing strategy can influence the immediate sales of the vehicles, it would help the company to improve its sales in the forthcoming years as the majority of the companies that Toyota competes with, have relied on either premium pricing strategy or competitive pricing strategy; thus the change in the pricing strategy could help the business to be at par with the closest rivals.

Conclusively, Toyota is amongst the world’s leading vehicle producers across the globe, with manufacturing facilities in both developed and developing nations. The company offers a wide range of vehicles, where the priority remains of the convenience and accessibility of the vehicle to the consumers. However, the company has faced a series of strategic challenges resulting in the loss of business profitability and sales.

The most prominent challenges faced by the company included; brand recall, marketing challenges, pricing strategy, and stagnated sales in the home market. Through the analysis, it was found that the company has 75 years of experience in the industry, yet the company had to recall millions of its vehicles based on the quality of material used within the vehicles.

Considering this, it was proposed that the company must focus on re-evaluating its total quality management practices, and must encourage the employees to share their opinions and feedbacks while developing an emergency protocol for its brand recall. This would allow the business to improve its standards, which could help in convincing the customers that the vehicles are safe and convenient for their usage.

Moreover, the company failed to address the issue effectively through its marketing initiatives. For instance, the company used traditional television and radio advertisement for convincing the customers to purchase the vehicles, yet the company saw stagnated sales across the globe. With respect to marketing initiatives, the company also hired public relations specialists, but it failed to change the perception of the customers with respect to the automobiles offered by the company.

In this regard, the company was recommended to consider the use of social networking platforms to reach global customers without bearing the extra cost. The use of social networking platforms like Facebook and Twitter can also help the company in creating awareness related to the newly introduced vehicles, which could ultimately result in improved performance of the business.

Pricing has also become a strategic issue for the business. The company has focused on the use of cost-leadership strategy, which has offered the business a competitive advantage over its rivals in the automotive industry; however, the changing business environment has presented a series of strategic issues for the company with respect to its pricing strategy.

With respect to the pricing strategy, the company was presented with a solution of changing its pricing strategy from low-cost to competitive pricing as it would present the company with an opportunity to increase its level of revenue generated from the sales of the vehicles, and would offer the company with an ability to improve its overall quality and design of the products offered in the automotive industry.

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ESG Case Study – Toyota Motor Corporation

By Sara Rodriguez, Sage ESG Research Analyst

About Toyota Motor Corporation

Toyota Motor Corporation is a Japanese multinational automotive company that designs, manufacturers, and sells passenger and commercial vehicles. The company also has a financial services branch that offers financing to vehicle dealers and customers. Toyota is the second-largest car manufacturer in the world and ranked the 11th largest company by Forbes — and produces vehicles under five brands: Toyota, Hino, Lexus, Ranz, and Daihatsu. Toyota also partners with Subaru, Isuzu, and Mazda.

Environmental

Motor vehicles are one of the largest contributors to greenhouse gas ( GHG ) emissions and, as a result, climate change, with the transportation sector accounting for a third of U.S. GHG emissions in 2018. Although most emissions come from vehicle usage rather than the process of manufacturing vehicles, government regulations place the burden on auto companies to improve fuel efficiency and reduce overall emissions. While climate change regulations present financial risk to automakers, they also offer opportunities; increased fuel efficiency requirements are likely to lead to more sales of electric vehicles and hybrid systems. Toyota pioneered the first popular hybrid vehicle with the 1997 release of the Prius, the world’s first mass-produced hybrid. Since then, Toyota has sold 15 million hybrids worldwide . In 2018, hybrids accounted for 58% of Toyota’s sales, contributing to Toyota reaching substantially better carbon dioxide (CO2) emissions from new vehicles than regulatory standards and the best levels in the industry (102.1g/km compared to U.S. regulation of 119g/km). In 2020, Toyota reduced global average CO2 emissions from new vehicles by 22% compared to 2010 levels by improving vehicle performance and expanding its lineup. Toyota’s goal is to increase that number to 30% by 2025, with the goal of 90% total reduction by 2050. The company aims to offer an electric version of all Toyota and Lexus models worldwide by 2025. (Toyota does not yet sell any all-electric vehicles to the U.S., but it does outside the U.S.)

In addition to greenhouse gases, cars emit smog-forming pollutants that contribute to poor air quality and trigger negative health effects. Recently, a London court ruled that air pollution significantly contributed to the death of a nine-year-old girl with asthma who had been exposed to excessive nitrogen dioxide (NO2) levels. NO2 is a toxic gas emitted by cars that use diesel fuel, and although European Union laws set regulatory levels for NO2 in the air, Britain has missed its targets for a decade due to a lack of enforcement. As Toyota expands into European markets, the smog rating of its cars will be financially material and an important aspect of risk management.

Compared to industry peers, Toyota excels in addressing emissions and fuel efficiency. In 2014 Toyota Motor Credit Corporation, the financial arm of Toyota Motor Corporation, introduced the auto industry’s first-ever asset-backed green bond and has since issued five total green bonds. The newest $750 million bond will go toward developing new Toyota and Lexus vehicles to possess a hybrid or alternative fuel powertrain, achieve a minimum of 40 highway and city miles per gallon, and receive an EPA Smog Rating of 7/10 or better. The bond program was reviewed by Sustainalytics, which found that Toyota leads its competitors in supporting its carbon transition through green bond investments.

In addition to curbing emissions caused by Toyota’s vehicles, the company seeks to reduce plant emissions to zero by 2050 by utilizing renewable energy and equipment optimization. In automaking, water is used in painting and other manufacturing processes. Toyota has implemented initiatives to reduce the amount of water used in manufacturing and has developed technology that allows the painting process to require no water. In 2019, Toyota reduced water usage by 5% per vehicle, with the goal of 3% further reduction by 2025, for an overall reduction of 34% from 2001 levels. To reduce the environmental impact of materials purchased from suppliers, Toyota has launched Green Purchasing Guidelines to prioritize the purchase of parts and equipment with a low environmental footprint. We would like to see Toyota continue to develop its supply chain environmental policies.

As the global population grows, so does number of cars on the road, which creates waste when they’ve reached the end of their useful lives. Toyota’s Global 100 Dismantlers Project was created to establish systems for appropriate treatment of end-of-life vehicles through battery collection and car recycling. Toyota aims to have 15 vehicle recycling facilities by 2025. Toyota is also working to minimize waste by prolonging the useful life of its vehicles. Toyota has a strong reputation for producing quality, reliable vehicles. Consumer Reports lists Toyota’s overall reliability as superb, and Toyota and Lexus often take the top spots in Consumer Reports Annual Auto Reliability Survey. An Iseecars.com study found that Toyota full-size SUV models are the longest-lasting vehicles and most likely to reach over 200,000 miles.

Driving is an activity with inherent risk. The World Health Organization estimates that 1.35 million people die in car accidents each year. Accidents are worse in emerging nations where transportation infrastructure has not kept up with the increase in the number of cars on the road; without countermeasures, traffic fatalities are predicted to become the seventh-leading cause of death worldwide by 2030. Demand for personal vehicles will continue to increase as developing countries experience higher standards of living, and product safety will be paramount to automaker’s reputations and brand values. Toyota has put forth a goal of Zero Casualties from Traffic Accidents and adopted an Integrated Safety Management Concept to work toward eliminating traffic fatalities by providing driver support at each stage of driving: from parking to normal operation, the accident itself, and the post-crash. Toyota and Lexus models regularly earn top safety ratings by the National Highway Traffic Safety Administration ( NHTSA ) and the Insurance Institute for Highway Safety. In addition to traditional safety features, Toyota actively invests in the development of autonomous vehicles, including a $500 million investment in Uber and autonomous ridesharing. If fully developed, autonomous driving can offer increased safety to passengers, lower accident rates, and provide mobility for the elderly and physically disabled.

Accidents caused by defective vehicles can have significant financial repercussions for auto manufacturers. Toyota experienced significant damage to its reputation and brand value in 2009 when unintended acceleration caused a major accident that killed four people riding in a dealer-loaned Lexus in San Diego. Toyota subsequently began recalling millions of vehicles, citing problems of pedal entrapment from unsecured floor mats and “sticky gas pedals.” Toyota’s failure to quickly respond resulted in a $1.2 billion settlement with the Justice Department and $50 million in fines from the NHTSA . The scandal generated an extraordinary amount of news coverage, and the Toyota recall story ranked among the top 10 news stories across all media in January and February 2010. Litigation costs, warranty costs, and increased marketing to counter the negative publicity of the event were estimated to cost Toyota over $5 billion (annual sales are about $275 billion). As a result of bad press, Toyota’s 2010 sales fell 16% from the previous year and its stock price fell 10% overall, while competitors like Ford benefitted and experienced stock price growth of 80% over the same period. Future recalls and quality issues are certain to prove costly for Toyota and may continue to negatively impact its consumer reputation.

Another social issue that can be financially material for automakers is human rights. Automobiles consist of about 30,000 parts, making their supply chain extensive and at high risk for human rights abuses. Toyota addresses human rights concerns in its Corporate Sustainability Report ( CSR ) and cites Migrant Workers and Responsible Sourcing of Cobalt as its priorities for 2020; however, Toyota does not have a clean labor record. A 2008 report published by the Institute for Global Labour and Human Rights accused Toyota of a catalog of human rights abuses, including stripping foreign workers of their passports and forcing them to work grueling hours without days off for less than half of the legal minimum wage. Toyota was also accused of involvement in the suppression of freedom of association at its plant in the Philippines. Toyota’s CSR lists a host of external nongovernmental organizations the company partners with to promote fair working conditions, however; due to the high-risk present in its supply chain and its past offenses, we would like to see the company further develop its labor and human rights policies.

Lastly, we would mention that Toyota has been accused of discriminatory practices. In 2016, Toyota Motor Credit Corporation, the financial arm of Toyota Motor Corporation, agreed to pay 21.9 million in restitution to thousands of African American, Asian, and Pacific Islander customers for charging them higher interest rates on auto loans than their white counterparts with comparable creditworthiness. Toyota has since taken measures to change its pricing and compensation system to reduce incentives to mark up interest rates.

Toyota shows strength in its transparency, and its Corporate Sustainability Report ( CSR ) is prepared in accordance with multiple sustainability reporting agencies, including the Global Reporting Initiative, Sustainable Accounting Standards Board, and the Task Force on Climate-Related Financial Disclosures; the CSR data is also verified by a third party. Starting in 2021, Toyota’s CSR will be updated whenever necessary to ensure timely disclosure, rather than annually. In 2019 Toyota created a Sustainability Management Department and added the role of Chief Sustainability Officer to its executive management team in 2020. Toyota’s CSR offers thorough information on its executive compensation policies, however; the composition of Toyota’s board of directors is an area of weakness for the company. There is a lack of independence among board members, and the chair of the board is not independent. In general, when compared to the U.S., Japanese companies have a smaller percentage of outside directors due to a history of corporate governance emphasizing incumbency and promotion from within. However, since the release of the Japanese Corporate Governance Code in 2015, companies have felt pressure to make meaningful board composition changes. We hope to see Toyota strengthen its board composition and adopt executive renumeration policies that are tied to sustainability performance.

Like other automakers, Toyota has lobbied aggressively to weaken Obama-era fuel economy standards. In 2017, the Environmental Protection Agency announced plans to work with Toyota to overhaul internal management practices at the agency. Inviting a company regulated by the agency to alter internal practices has been previously unprecedented and raises concerns over how Toyota could wield influence over EPA functions. Toyota is a member of the Alliance of Automobile Manufacturers, the most powerful automotive industry lobbying association, which has strongly opposed climate change motivated regulation since 2016, contradicting the company’s public stance on emissions.

Risk & Outlook

Sage believes Toyota to be well adapted to manage sustainability challenges, despite the high environmental and social risks in the automotive industry. We expect the auto industry to see an increase in regulatory risk surrounding vehicle emissions and fuel efficiency; however, we believe Toyota will continue to innovate to meet and exceed emission standards and the company is well positioned to benefit from future fuel efficiency regulations. We hope to see Toyota continue to improve its social performance and expand on its recently introduced human capital policies. In addition to regulation, the auto industry faces disruption caused by new areas of technology such as automated driving, electrification, and shared mobility, and these areas will be important to monitor. Toyota’s strong management of ESG issues makes the company a leader amongst its peers; however, due to risk present in the automotive industry we rank Toyota a 3/5 for its Sage ESG Leaf Score.

Sage ESG Leaf Score Methodology

No two companies are alike. This is exceptionally apparent from an ESG perspective, where the challenge lies not only in as­sessing the differences between companies, but also in the differences across industries. Although a company may be a leader among its peer group, the industry in which it operates may expose it to risks that cannot be mitigated through company management. By combining an ESG macro industry risk analysis with a company-level sustainability evaluation, the Sage Leaf Score bridges this gap, enabling investors to quickly assess companies across industries. Our Sage Leaf Score, which is based on a 1 to 5 scale (with 5 leaves representing ESG leaders), makes it easy for investors to compare a company in, for example, the energy industry to a company in the technology industry, and to understand that all 5-leaf companies are leaders based on their individual company management and the level of industry risk that they face.

For more information on Sage’s Leaf Score, click here.

Originally published by Sage Advisory

• ISS ESG Corporate Rating Report on Toyota Motor Corporation.
• Environmental Report 2020 Toyota Motor Corporation.
• Sustainability Data Book 2020 Toyota Motor Corporation.
• Lambert, Lisa. “Toyota Motor Credit settles with U.S. over racial bias in auto loans” February 2, 2016.
• “Automobiles” Sustainability Accounting Standards Board. September, 2014.
• Kaufman, Alexander. “Scott Pruitt’s Plan to Outsource Part Of EPA Overhaul to Automaker Raises Concerns” December 12, 2017.
• “How the US auto industry accelerated lobbying under President Trump” November, 2017.
• Charles Kernaghan, Barbara Briggs, Xiaomin Zhang, et al. “The Toyota You Don’t Know” Institute for Global Labour and Human Rights. 2008.
• Road Safety World Health Organization.
• Toyota Motor Credit Corporation Green Bond Framework Second-Party Opinion January 21, 2020.
• Toshihiko Hiura and Junya Ishikawa. “Corporate Governance in Japan: Board Membership and Beyond” Bain & Company. February 23, 2016.
• Taylor, Lin. ”Landmark ruling links death of UK schoolgirl to pollution" December 16, 2020.

Disclosures

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. The infor­mation included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. This report is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results. Sustainable investing limits the types and number of investment opportunities available, this may result in the Fund investing in securities or industry sectors that underperform the market as a whole or underperform other strategies screened for sustainable investing standards. No part of this Material may be produced in any form, or referred to in any other publication, without our express written permission. For additional information on Sage and its investment management services, please view our web site at www.sageadvisory.com, or refer to our Form ADV , which is available upon request by calling 512.327.5530.

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What Really Makes Toyota’s Production System Resilient

• Willy C. Shih

“Just-in-time” only works as part of a comprehensive suite of strategies.

Toyota has fared better than many of its competitors in riding out the supply chain disruptions of recent years. But focusing on how Toyota had stockpiled semiconductors and the problems of other manufacturers, some observers jumped to the conclusion that the era of the vaunted Toyota Production System was over. Not the case, say Toyota executives. TPS is alive and well and is a key reason Toyota has outperformed rivals.

The supply chain disruptions triggered by the Covid-19 pandemic caused major headaches for manufacturers around the world. Nowhere was this felt more acutely than in the auto industry, which faced severe shortages of semiconductor chips and other components. This led many people to argue that just-in-time and lean production methods were dead and being superseded by “just-in-case” stocking of more inventory.

Yet Toyota, the originator of lean concepts, fared better than most of its competitors and passed General Motors to become the top seller in North America in 2021. People watched the company continue to churn out vehicles and concluded that it must have turned its back on its principles of minimal inventories and a pull production system. But the truth was that its performance during the pandemic highlighted how less understood aspects of its system actually led to greater resilience and a better capacity to accommodate disruptions.

“In reality, TPS [the Toyota Production System] is really what allowed us to do as well as we did,” Chris Nielsen, executive vice president of Toyota North America, told me. Nielsen oversaw quality and demand/supply management and managed through numerous disruptions over the last two years. In this article, Nielsen and Jamie Bonini, the president of the Toyota Production System Support Center (TSSC), share insights on how TPS has evolved and continues to adapt in a changing world.

Lean doesn’t mean zero inventory.

Toyota takes a strategic approach to inventory planning. Operationally this stands on three legs: strategically sized inventories in the right locations to act as a buffer to meet changing demands, safety stock that factors in the risk of disruption, and a nuanced view of lead times. It has been pointed out that the company learned a great deal from the Tōhoku earthquake and tsunami of 2011, after which it identified parts vulnerable to disruption and, as a result, were candidates to be stockpiled. How Toyota factors lead times into its inventory planning is the key.

Creating A More Resilient Supply Chain

Lead time is the delay between ordering a part and receiving it. Traditionally, that can include the time to procure raw materials, produce the part, and then deliver it. After the earthquake, the company became deeply involved in the restoration of production at the Renesas semiconductor fab in Naka, Japan, the critical supplier of automotive microcontrollers that was taken offline. While it assisted in the rebuilding of the facility, the company learned a great deal about the fragility of the chip manufacturing process and the location of so much of the world’s critical chip production facilities in areas prone to natural disasters.

“With the increasing number of semiconductors used in our vehicles and the fragility of the system, we realized that we had to redefine our notion of lead time, first in semiconductors,” Nielsen explained. So a decade earlier than other automakers, it realized it needed to carry far more inventory of semiconductor chips.

Lead time and the appropriate inventory plans are influenced by usage rates and patterns. One of the most famous examples of just-in-time manufacturing is the seat-installation process at the company’s assembly facility in Georgetown, Kentucky. As vehicle bodies come out of the paint shop, an order is transmitted to the seat supplier who is less than an hour away. The supplier builds the correct color and model seats and delivers them in the correct sequence to the assembly line several hours later. Because the seats are installed near the end of the line, the lead time can be several hours, and the company maintains about two hours of inventory next to the assembly line. At the San Antonio plant, the seats initially were installed far earlier in the line, so the seat supplier was located 10 yards away from the final assembly line as the lead time was down to about 20 minutes. With a short lead time, the same amount of inventory as maintained in the Kentucky plant was neither necessary nor appropriate. As the line design subsequently evolved, the lead time requirement changed with it.

The range of inventory carried can vary considerably. The company maintains 13 weeks of steel coil inventory in Georgetown because it uses a custom alloy that is made in batches. “Many people have the mistaken impression that TPS is against having inventory; that’s not right,” Nielsen said. During the winter months, the company increases the amount of parts inventory on hand by one shift’s worth to reflect the inevitability of ice storms or winter weather that will affect logistics networks. Once the winter is over, it adjusts quantities back down.

Multiple suppliers are a source of resilient capabilities.

Many firms view dual sourcing primarily as a way to drive down costs by making suppliers compete in bidding wars. But Toyota takes a very different view: Having two suppliers means it can enjoy resilient capabilities.

It might source a steering wheel for one model family exclusively from one supplier and a steering wheel for another exclusively from a second supplier. The two suppliers would then compete constantly for the next design as new models enter production, but they would compete more on innovation and capabilities than on price. The cost has to be reasonable, and the suppliers know Toyota will have a good handle on what the cost needs to be.

“For us it’s not a bidding war,” Nielsen explained. “It’s competition to make you better.” The company wants its suppliers to be profitable so that they can invest in new technology and better designs; it knows that it will benefit.

“For suppliers to really invest in their people, in their facilities, in their technology development, they have to know that they’re going to have the business tomorrow,” Nielsen said. “So one of the things that we really emphasize is stability in the supply base. The benefit of competition is long term. A lot of it is around technology and design.”

Supplier relations are based on trust.

Trust and supplier support are core principles of TPS. This means relationships should be built around long-term partnerships and should not be transactional in nature.

When a suppler encounters problems, Toyota offers to help them address them, and they are willing to accept it. “Our supplier partners open the door for us and say, ‘Look, we know you’re not going to penalize us for some mistake we made, and you’re here to help, you’re part of the team,’” Bonini, the president of the Toyota Production System Support Center, told me.

When Bonini worked in a supplier development division, he was one of the many Toyota people who went into those suppliers to help when they were struggling with production issues, particularly in high-risk situations involving the introduction of new technologies. He often spent weeks onsite helping suppliers solve problems, building trust in the process.

“If you are going to run a really tight just-in-time system, you have to have the expertise as well as the trusting relationship to go into a supplier and help out when there is a problem,” Bonini said. “If a supplier gets in real trouble, we’ve got people that can jump in, with the technical skills to really help solve the problem. We don’t walk in and call for an audit of their recovery plans; we roll up our sleeves and help problem-solve as part of a collaborative effort.”

Thus, when a problem at a supplier threatens to disrupt Toyota’s production, Toyota gives the issue its attention. It partners with the supplier to resolve the problem quickly.

TPS is a learning system.

The biggest thing most people overlook about TPS is that it is a system designed for learning. This focus on learning and continuous improvement occurs at multiple levels. At the shop floor, the emphasis is on frontline problem-solving skills. This is supported by a hierarchy of team and group leaders with greater expertise and the ability to teach. Many people who see a Toyota vehicle assembly line view the number of layers as inefficient, but the reality is the opposite. The rapid problem-solving drives improvement and enables tight just-in-time systems to work efficiently. So the staffing more than pays for itself.

The learning extends to supplier support as well. When Toyota invests the effort to help suppliers fix problems, it also learns their production processes. Then, the next time a problem comes up, it is better able to help. And because it often works with suppliers two to three years before the launch of new products, it is well positioned to help with start-up problems.

Bonini explained: “We can help them with the design, and we can get them to tweak or optimize the design to make it more manufacturable. Then if there is a problem at launch, we have a quality issue come up, or we have an engineering change, we have both the trust with the supplier and we know the process. Collaboration is the key.”

Not only will supplier processes be more robust at the outset, what Toyota learned throughout will deepen its understanding of future problems should they come up. This will lead to quicker resolution and faster development of alternatives if necessary.

TPS is an organizational culture.

The Toyota Production System is an organizational culture as much as it is a factory operating system. Its core philosophy — to motivate and develop people so that they can surface and solve problems quickly and build a culture of continuous improvement — obviously extends beyond the company’s own walls to include its suppliers.

And suppliers report that their relationship with Toyota is different from those with other customers, one that is clearly valued when problems arise. This helps explain why the company has weathered the supply chain disruptions of the last few years better than most, even as it continues to learn and evolve.

As with any culture, Toyota’s culture is deeply rooted in values . That means if you really want to get the benefits of the company’s operating system, it is not sufficient to copy just the tools like lean and just in time. You have to start with the values and beliefs. That makes it much harder to replicate, even though the benefits are clear.

• Willy C. Shih is a Baker Foundation Professor of Management Practice at Harvard Business School.

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Toyota External Analysis: Opportunities & Threats

Toyota Motor Corporation (TMC) is an automotive manufacturer based in Japan. The company focuses on automobile design and production. As part of the Toyota Group conglomerate, TMC operates mainly in the automotive industry. The firm has limited diversification because most of its products are vehicles, engines, and automotive parts. With global operations, Toyota Motor Corporation is now one of the biggest players in the automobile market, directly competing with other companies, like Honda, General Motors , Tesla , Ford , Volkswagen, Nissan, and BMW. Toyota continues to globally expand through investments and joint ventures. While the industry fluctuates based on changing market conditions and the transportation sector’s situation, the company’s organizational size is bound to increase as the business continues to grow.

This external analysis of Toyota shows that business success rests on the ability to exploit opportunities and respond to threats in the automobile industry environment. In this global environment, it is of interest to determine if company executives and independent analysts agree on ways to address such opportunities and threats. The focus is on business opportunities and threats, which are external factors that influence profitability and industry health. The fulfillment of Toyota’s mission statement and vision statement partially depends on how these external factors are strategically managed.

Toyota’s Opportunities

Toyota and its competitors have similar opportunities. The automotive industry situation is a race among firms to exploit opportunities as soon as possible. For example, automotive firms compete in terms of technological advancement to make their products more attractive and profitable. Delays or lags in taking advantage of these opportunities can reduce Toyota’s performance compared to competitors, like General Motors , Volkswagen, and Tesla . These automakers are competitive and have the resources to continue growing and enhancing their products and business performance. As a major player in the global industry, Toyota has the potential to utilize external factors that present opportunities for multinational business.

Opportunities in the automotive industry typically involve technological innovation, diversification, growth, and expansion. Thus, Toyota’s main opportunities relevant to the current business condition are as follows:

• Technological innovation . The company can further increase its investments in research and development. Toyota vehicles are among the most innovative. Increasing R&D investment can boost competitive advantages, in support of Toyota’s generic strategy for competitive advantage and intensive strategies for growth . This strategic action is important in today’s automobile market, where competitors are always on the lookout for new ways to innovate.
• Sustainability . Sustainability issues affect all industries. In the automotive industry, sustainability focuses on fuel economy and the environmental impact of business processes. For example, Toyota can develop new engines and designs to improve the fuel economy of its products, especially its trucks. The company can also address environmental concerns through higher efficiency in manufacturing processes. Exploiting these opportunities can help the business improve its brand image, customer perception, and customer loyalty.
• Diversification . Toyota Motor Corporation has limited diversification. Most of the company’s business is in the automotive industry. A significant drop in the automobile market’s performance readily leads to a significant reduction in the company’s business. Toyota can diversify its business as a way of reducing such risk. For example, the company can invest more in developing heavy machinery and robotics to distribute its business to these different industries.

Threats Facing Toyota Motor Corporation

The current threats in the automotive industry have the potential to weaken Toyota’s position as one of the industry’s leading firms. The company’s executives recognize the threat of strong competition due to market trends (see Porter’s Five Forces Analysis of Toyota ). For example, globalization creates easier channels for other auto manufacturers to compete in the biggest markets, such as the United States and China.

The threats in the automotive industry are linked to the economy. However, there are threats related to the organizational activities of competitors. The following are threats facing Toyota:

• Aggressive competition . Companies in the automotive industry directly compete against Toyota through innovation and marketing. For example, competitors use aggressive strategies, such as aggressive marketing to increase their market share. Rapid technological innovation among these competitors also increases their competitive advantages.
• Rising fuel prices . The price of oil generally continues to increase over time, despite some periods of decline. Customers look for more economical options from the automotive industry. Toyota must continue to develop cars that are hybrid, electric, or with better fuel economy. This strategic approach aims to satisfy customers’ preferences regarding fuel economy and environmental impact.
• New entrants . The threat of new entrants is low because of high capital requirements in the automotive industry. However, the company faces significant threat from large firms, like those in China. Chinese firms have the potential to enter and sell their products in the markets where Toyota currently operates. These Chinese companies can compete on price and value.

Toyota’s Actions for Addressing Opportunities & Threats

Toyota’s executives take steps to address external contingencies in the automotive industry. The aim is to prevent competitors from taking the company’s market share. While the firm has taken many steps to improve and strengthen its position, the following are the most notable:

• Product-oriented management . Toyota implements product-oriented management to satisfy the needs of different areas of operations. This step entails customization of operations and services to address variations in customers’ demands and preferences. By customizing operations and services, Toyota expects an increase in its ability to satisfy customers. Higher customer satisfaction leads to stronger competitiveness. For example, customer satisfaction in engine fuel economy can increase the company’s market share. Thus, this action addresses the threat of aggressive competition and the threat of new entrants in the automobile market.
• Technology and skills enhancement . Toyota pushes for improvements in technologies and skills in its organization. This strategic action entails product design improvement for better efficiency. For example, the company’s design improvement efforts ensure automobile products have competitive fuel economy. This strategic action also involves better technologies that employees use for higher job performance at Toyota. Such changes increase the firm’s competitiveness through higher efficiency and higher customer satisfaction. In this way, the company addresses the threat of aggressive competition and the threat of rising fuel prices facing the automotive industry.

Toyota is among the leading firms in the automobile market. This external analysis shows that the company must effectively address threats and opportunities to maintain its market position. Some of the firm’s actions directly respond to the threats identified in this external analysis. However, more strategies are needed to exploit current opportunities. Strategies for the opportunities can boost the company’s business performance in the long term. In relation to these opportunities and threats, the SWOT analysis of Toyota provides insights on the internal factors (strengths and weaknesses) that influence the company’s strategies and industry position.

• Lampón, J. F., & Muñoz-Dueñas, P. (2023). Are sustainable mobility firms reshaping the traditional relationships in the automotive industry value chain? Journal of Cleaner Production, 413 , 137522.
• Toyota Motor Corporation – Form 20-F .
• Toyota Motor Corporation – Initiatives to Improve Safety .
• Toyota Motor Corporation – Sustainability .
• U.S. Department of Commerce – International Trade Administration – Automotive Industry .
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Implementation of Total Quality Management (TQM): Toyota Case Study

Introduction, implementation of tqm in toyota, tqm practices in toyota, benefits of tqm in toyota, examples of tqm in toyota, toyota quality management, toyota tqm implementation challenges.

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The Toyota Corporation case study report is based on the implementation of total quality management (TQM) meant to improve the overall performance and operations of this automobile company. TQM involves the application of quality management standards to all elements of the business.

It requires that quality management standards be applied in all branches and at all levels of the organization. The characteristic of Toyota Corporation going through the total quality process is unambiguous and clear.

Toyota has limited interdepartmental barriers, excellent customer and supplier relations, spares time to be spent on training, and the recognition that quality is realized through offering excellent products as well as the quality of the entire firm, including personnel, finance, sales, and other functions.

The top management at Toyota Corporation has the responsibility for quality rather than the employees, and it is their role to provide commitment, support, and leadership to the human and technical processes (Kanji & Asher, 1996).

Whereas the TQM initiative is to succeed, the management has to foster the participation of Toyota Corporation workers in quality improvement and create a quality culture by altering attitudes and perceptions towards quality.

This research report assesses the implementation of TQM and how Toyota manages quality in all organization management systems while focusing on manufacturing quality. The report evaluates the organization management elements required when implementing TQM, identifies, and investigates the challenges facing Quality Managers or Executives in implementing Quality Management Systems.

In order to implement TQM, Toyota corporations focused on the following phases:

• The company extended the management responsibility past the instantaneous services and products
• Toyota examined how consumers applied the products generated, and this enabled the company to develop and improve its commodities
• Toyota focused on the insubstantial impacts on the procedures as well as how such effects could be minimized through optimization
• Toyota focused on the kaizen (incessant process development) in order to ensure that all procedures are measurable, repeatable, and visible.

The commitment from business executives is one of the key TQM implementation principles that make an organization successful. In fact, the organizational commitment present in the senior organizational staff ranges from top to lower administration. These occur through self-driven motives, motivation, and employee empowerment. Total Quality Management becomes achievable at Toyota by setting up the mission and vision statements, objectives, and organizational goals.

In addition, the TQM is achievable via the course of active participation in organizational follow-up actions. These actions denote the entire activities needed and involved during the implementation of the set-out ideologies of the organization. From Toyota Corporation’s report, TQM has been successful through the commitment of executive management and the organizational workforce (Toyota Motor Corporation, 2012).

Through inventory and half the bottlenecks at half cost and time, the adopters of TMS (Toyota Management System) are authorized to manufacture twice above the normal production. To manage the quality in all organizational management systems, the Toyota Production System incorporates different modernisms like strategy or Hoshin Kanri use, overall value supervision, and just-in-time assembly.

The amalgamation of these innovations enables Toyota to have a strong competitive advantage despite the fact that Toyota never originated from all of them. The 1914 Henry Ford invention relied on the just-in-time production model. The Ford system of production, from a grand perspective, warrants massive production, thus quality (Toyota Motor Corporation, 2012).

Kanji and Asher (1996) claim that to manage the minute set of production necessitated by the splintered and small post-war marketplaces, the JIT system focuses on the motion and elimination of waste materials. This reduces crave for work-in-process inventory by wrapping up the long production lines. Toyota Corp wraps the production lines into slashed change-over times, a multi-trained workforce that runs manifold machines, and new-fangled cells into a U shape.

When supplementing the just-in-cells, the system of kanban is employed by the Toyota Corporation to connect the cells that are unable to integrate physically. Equally, the system helps Toyota integrate with other external companies, consumers, and suppliers.

The TQM and the creativity of Toyota proprietors both support the quality at the source. The rectification and discovery of the production problems require the executives to be committed. At the forefront of Toyota operations, the managers integrate a number of forms of operational quality checks to ensure quality management at all levels.

The uninterrupted tests help the Toyota workforce engaging in the assembly course to scrutinize the value of apparatus, implements, and resources utilized in fabrication. The checks help in the scrutiny of the previously performed tasks by other workers. However, the corporation’s own test enables the workers to revise their personal advances in the assembly course.

The Toyota process owners set up the mistake-proofing (Poka-yoke) procedures and devices to capture the awareness of management and involuntarily correct and surface the augmenting problems. This is essential for the critical production circumstances and steps that prove impractical and tricky for Toyota employees to inspect.

Nevertheless, the policy deployment system decentralizes the process of decision-making at Toyota. This context of implementing Total Quality Management originates from Hoshin Kanri’s management by objective (MBO).

This aspect becomes more advantageous to Toyota when dealing with quality management. The system initially puts into practice the coordinated approach and provides a clear structure for the suppliers, producers, and consumers through inter-organizational cost administration. Moreover, Toyota executives can solve the concurrent delivery, cost, and quality bottlenecks, thus replacing and increasing the relatively slow accounting management mechanisms.

Customer focus that leads to the desired customer satisfaction at Toyota Company is one of the major success factors in TQM implementation. For every business to grow, it should have understanding, reliable, and trustworthy customers. The principle of customer satisfaction and focus has been the most presently well-thought-out aspect of Toyota’s manufacturing quality.

The TQM may characteristically involve total business focus towards meeting and exceeding customers’ expectations and requirements by considering their personal interests. The mission of improving and achieving customer satisfaction ought to stream from customer focus.

Thus, when focusing on manufacturing quality, this aspect enhances TQM implementation. The first priorities at Toyota are community satisfaction, employees, owners, consumers, and mission. The diverse consumer-related features from liberty. The concern to care is eminent in Toyota Corporation during manufacturing.

Toyota has three basic perspectives of TQM that are customer-oriented. These are based on its manufacturing process traced back to the 1950s. The strategies towards achieving quality manufacturing, planning, and having a culture towards quality accomplishment are paramount for TQM implementation to remain successful. To enhance and maintain quality through strategic planning schemes, all managers and employers must remain effectively driven.

This involves training workers on principles concerning quality culture and achievement. Scheduling and planning are analytical applications at Toyota Company that purposes in assessing customer demand, material availability, and plant capacity during manufacturing.

The Toyota Corporation has considerable approaches that rank it among the successful and renowned implementers of TQM. From the inherent and designed structure of Toyota, it becomes feasible to comprehend why quality manufacturing is gradually becoming effective. The inspection department is responsible for taking corrective measures, salvaging, and sorting the desired manufactured product or service quality.

The Toyota Corporation also has a quality control system that is involved in determining quality policies, reviewing statistics, and establishing quality manuals or presentation data. Furthermore, quality assurance is one of the integral principles in quality implementation that is practically present at Toyota. The quality assurance and quality inspectors throughout the Toyota Company structure also manage research and development concerning the quality of manufactured products and services.

The Toyota production and operations management system is similarly dubbed as the managerial system. In fact, in this corporation, operational management is also referred to as the production process, production management, or operations (Chary, 2009). These simply incorporate the actual production and delivery of products.

The managerial system involves product design and the associated product process, planning and implementing production, as well as acquiring and organizing resources. With this broad scope, the production and operation managers have a fundamental role to play in the company’s ability to reach the TQM implementation goals and objectives.

The Toyota Corporation operations managers are required to be conversant and familiar with the TQM implementation concepts and issues that surround this functional area. Toyota’s operation management system is focused on fulfilling the requirements of the customers.

The corporation realizes this by offering loyal and express commodities at logical fees and assisting dealers in progressing commodities proffered. As Slack et al. (2009) observed, the basic performance objectives, which pertain to all the Toyota’s operations, include quality, speed, flexibility, dependability, and cost. Toyota Company has been successful in meeting these objectives through its production and operation functions.

Over several decades, Toyota’s operational processes and management systems were streamlined, resulting in the popularly known Toyota Production System. Although the system had been extensively researched, many companies, such as Nissan, experienced difficulties in replicating TPS.

The TPS was conceived when the company realized that producing massive quantities from limited product lines and ensuring large components to achieve maximum economies of scale led to flaws. Its major objectives were to reduce cost, eliminate waste, and respond to the changing needs of the customers. The initial feature of this system was set-up time reduction, and this forms the basis of TQM implementation.

At Toyota Corporation, quality is considered as acting responsibly through the provision of blunder-gratis products that please the target clientele. Toyota vehicles are among the leading brands in customer satisfaction. Due to good quality, its success has kept growing, and in 2012, the company was the best worldwide. Moreover, Toyota has been keen on producing quality vehicles via the utilization of various technologies that improve the performance of the vehicles.

While implementing TQM, Toyota perceives speed as a key element. In this case, speed objective means doing things fast in order to reduce the time spent between ordering and availing the product to the customer.

The TPS method during processing concentrates on reducing intricacy via the use of minute and uncomplicated machinery that is elastic and full-bodied. The company’s human resources and managers are fond of reorganizing streams and designs to promote minimalism. This enhances the speed of production.

Another objective during TQM implementation is dependability. This means timely working to ensure that customers get their products within the promised time. Toyota has included a just-in-time production system comprised of multi-skilled employees who work in teams. The kanban control allows the workers to deliver goods and services as promised. Advancing value and effectiveness appears to be the distress for administrators, mechanical specialists, and other Toyota human resources.

During TQM implementation, Toyota responds to the demands by changing its products and the way of doing business. Chary (2009) argues that while implementing TQM, organizations must learn to like change and develop responsive and flexible organizations to deal with the changing business environment.

Within Toyota plants, this incorporates the ability to adopt the manufacturing resources to develop new models. The company is able to attain an elevated degree of suppleness, manufacturing fairly tiny bunches of products devoid of losses in excellence or output.

The organizational hierarchy and job descriptions also determine the successful implementation of the TQM. Toyota is amongst the few companies whose organizational structure and task allocation have proved viable in TQM implementation. The company has three levels of management. See the diagram below.

Management hierarchy

Despite the hierarchy and task specification, employees are able to make independent decisions and take corrective measures when necessary to ensure quality during production. Team working is highly encouraged at Toyota Corporation, and this plays a significant role during TQM implementation. All stakeholders are incorporated in quality control initiatives to ensure client demands are satisfied.

However, all employees are required to carry out their assigned tasks, and the management closely supervises the ways of interactions between workers. The management ensures that the manufacturing lines are well-built and all employees are motivated to learn how to improve the production processes.

Toyota is among the few manufacturers in the complete automobile industry that consistently profited during the oil crisis in 1974. The discovery was the unique team working of the Japanese that utilized scientific management rules (Huczynski & Buchanan, 2007).

The joint effort in Japan, usually dubbed Toyotaism, is a kind of job association emphasizing ‘lean-assembly.’ The technique merges just-in-time production, dilemma-answering groups, job equivalence, authoritative foremost-streak administration, and continued procedure perfection.

Just-in-time (JIT) assembly scheme attempts to accomplish all clients’ needs instantly, devoid of misuse but with ideal excellence. JIT appears to be dissimilar from the conventional functional performances in that it emphasizes speedy production and ravage purging that adds to stumpy supply.

Control and planning of many JIT approaches are concerned directly with pull scheduling, leveled scheduling, kanban control, synchronization of flow, and mixed-model scheduling (Slack et al., 2009).

Toyota appears to be amongst the principal participants in changing Japan to a kingpin in car production. Companies, which have adopted the company’s production system, have increased efficiency and productivity. The 2009 industrial survey of manufacturers indicates that many world-class firms have adopted continuous-flow or just-in-time production and many techniques Toyota has been developing many years ago.

In addition, the manufacturing examination of top plant victors illustrates that the mainstream them utilize lean production techniques widely. Thus, team-working TPS assists Toyota Corporation in the implementation of TQM.

Executives and Quality Managers face some challenges while implementing Quality Management Systems in organizations. In fact, with a lack of the implementation resources such as monetary and human resources in any organization, the implementation of TQM cannot be successful. Towards the implementation of programs and projects in organizations, financial and human resources have become the pillar stones.

The approach of TQM impels marketplace competence from all kinds of organizational proceeds to ensure profitability and productivity. To meet the desired results in TQM implementation, an organization ought to consider the availability of human and financial resources that are very important for the provision of an appropriate milieu for accomplishing organizational objectives.

In the case of Toyota, which originated and perfected the philosophy of TQM, the Executives, and Quality Managers met some intertwined problems during TQM implementation. The flaw in the new product development is increasingly becoming complicated for the managers to break and accelerate, thus creating reliability problems. Besides, secretive culture and dysfunctional organizational structure cause barriers in communication between the top management, thus, in turn, augmenting public outrage.

The top executives may fail to provide and scale up adequate training to the suppliers and new workforces. As a result, cracks are created in the rigorous TPS system. In addition, a lack of leadership at the top management might cause challenges in the implementation of TQM. Therefore, in designing the organizational structures and systems that impact quality, the senior executives and managers must be responsible, as elaborated in Figure 2 below.

Total Quality Management is a concept applied in the automobile industry, including the Toyota Corporation. It focuses on continuous improvement across all branches and levels of an organization. Being part of Toyota, the concept defines the way in which the organization can create value for its customers and other stakeholders. Through TQM, Toyota Corporation has been able to create value, which eventually leads to operation efficiencies.

These efficiencies have particularly been achieved by continuous correction of deficiencies identified in the process. A particular interest is the central role that information flow and management have played in enabling TQM initiatives to be implemented, especially through continuous learning and team working culture.

The Toyota way (kaizen), which aims at integrating the workforce suggestions while eliminating overproduction and manufacturing wastes, helps the company to respect all the stakeholders and give clients first priority. The objectives are realized through TPS.

Chary, D. 2009, Production and operations management , Tata McGraw-Hill Education Press, Mumbai.

Huczynski, A. & Buchanan, D. 2007, Organizational behavior; an introductory text, Prentice Hall, New York, NY.

Kanji, G. K. & Asher, M. 1996, 100 methods for total quality management , SAGE Thousands Oak, CA.

Slack, N. et al. 2009, Operations and process management: principles and practice for strategic management, Prentice Hall, New York, NY.

Toyota Motor Corporation 2012, Annual report 2012. Web.

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IvyPanda . (2023) 'Implementation of Total Quality Management (TQM): Toyota Case Study'. 25 August.

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Home » Management Case Studies » Case Study of Toyota: International Entry Strategies

Case Study of Toyota: International Entry Strategies

Toyota is being known world-wide and being accepted as the world most popular car manufacturer . Wherever we go, not even a single soul did not know what a Toyota is. This is what we called as Toyotaism. But, to accomplish this was not that easy compared to how it sounds. Toyota had to face several issues and problems also had taken multiple actions to solve them. Hiroshi Okuda had identified 3 issues relating to the management of Toyota. Those management issues are; (1) Lag in product Planning, (2) Declining market share in Japan, and (3) was behind in overseas expansion. Due to these main issues, Toyota had taken several steps for the manufacturer to survive in its own name in own country and also to the world outside.

For Toyota to make known of its brand name , a number of development strategies had been taken by Toyota.

The first stage of Toyota’s development strategy is Cross-Nation Space Strategy. It is where Toyota implemented a strategy of marketing its product in Japan and in other nations around the world. It is a strategy of blanketing the nations with all Toyota’s product. Manufacturing of product for Toyota started in 1938 where its first plant was built which is the Honsha Plant. It is after 20 years of incorporating that Toyota could construct their second plant which was in the year 1959. Upon incorporating, there were three major strategies being taken to ensure their success. First and foremost was to have high quality auto suppliers. Second, was for Toyota to built affiliates like providing housing and entertainment facilities for its own employees and families. This was because Toyota is making its employees and families as their crucial factors of Toyota’s success. And thirdly was webbing Toyota dealers in which they developed on their channel of distribution.

It was up until 1960s that Toyota adopted nation-specific strategies to provide their automobiles throughout the nations outside. Due to that, Toyota Motor Sales (TMS) had set up export department for the main reason to pioneer the overseas market. First exporting activities being done by Toyota was after receiving an order from Brazil for 100 units of Model FXL large trucks. As Brazil was a developing country at the moment, it was a golden opportunity for Toyota to introduce its brand name overseas and highly potential to penetrate the automobiles market in Brazil. But, because Brazil eventually had a poor infrastructure, Toyota grabbed this opportunity and tend to market its Four-wheeled-Drive (4WD) Land Cruiser as this vehicle is able to withstand the poor road conditions of Brazil. Starting from this point, Toyota had Ipiranga, Brazil, and had the first-mover advantage to meet the demand locally. This enabled Toyota the chance to export its product to other Latin America nations like Colombia, Costa Rica, Venezuela, and Puerto Rico. For the South-East Asia, the first export was to Thailand which is in 1950s to 1960s. The action of Toyota Motor Sales to gain market in Thailand has enabled Toyota to receive for the second time the advantage as the first-mover in the Thailand’s local automobiles industry. And as for the Middle-East, it was in 1947 that the first exporting activity being done by Toyota which was to the King of Egypt. During this period also Toyota had already started exporting its products to gain market on the automobiles industry in China. Toyota hesitated in exporting its products to the Europe at first because Europe is known as the world’s most sophisticated market. So, Toyota had no intention to do any transaction with the Europe during that particular period. But, a European representative had come all the way to Tokyo asking Toyota to exports its automobiles. As a result, Toyota had export its model, Crown and Land Cruisers to Denmark and Ethiopia.

After the expansion of products to the Latin America, Toyota had expanded its automobiles to the North America Continent especially the United States of America. This is where the second stage of Toyota’s Development Strategies took place. In this stage, Toyota implemented the Cross-Continent Space Strategy by establishing 5 assembly factories. However, due to the weather condition in the USA, it brought some difficulties to Toyota in promoting its vehicles. Thus, Toyota started to export the new Corona and Corolla to Canada. Another core factor that influenced Toyota to expand its cars to United States is due to the existence of large port cities in the West Coast Region that were crucial for Toyota in distributing its products to the USA. Toyota Crown was the first model that arrived in United States, specifically Los Angeles. After a while, Toyota’s cars being condemned as it vibrates badly and easily overheated while driving all the way on United State’s highway. To replace the failure of Toyota Crown, Toyota had produced another improved car, Tiara, to the consumers of the USA. But, the Tiara also had not fulfilled the demand of the consumers and Toyota having serious problems in selling its cars. From this, Toyota had learned its lesson motor vehicles that are not competitive in performance, price, and brand names had no chances at all of being accepted by the markets. Until then, Toyota had been striving eminently to develop its new international product of the new Corona .

As for the development on the automobiles market in Thailand, Toyota had made a joint-venture with one of the car manufacturer of Thailand to become Toyota Motor Thailand. This was later enabled Toyota to establish its own assembly plant in Thailand where it provided multiple job opportunities to the locals indirectly.

The expansion of Toyota’s products continued to the West Region, then to the Central Region and lastly to the East Region of United States especially to New York City. This expansion process was successfully carried out with one of the factor of the establishing of the second wholly-owned subsidiary of Toyota which located in Brazil. The expansion leads to a success when Toyota Do Brazil (TDB) merged with Toyota of Argentina to export Toyota’s automobiles to Latin America and Central America. As Toyota was backed with high political influence due to its several contributions to the local politician during the election years, this guaranteed the successfulness of Toyota to world generally.

Approaching 1970s, two major developments occurred to the Toyota manufacturer. First is the oil crisis. As the price of oil increased tremendously during the period, Toyota’s cars are highly demanded as Toyota promoted a reasonable price on its cars. Another development occurred was the appreciation of Japanese currency. For this reason, Toyota had swift its manufacturing of high grade of small cars to sporty cars. The examples are Celica and multi-use pick-up trucks.

Next strategy implemented was the establishment of the product plants. The main factor that leads Toyota to put this strategy into action was due to the oil crisis that eventually increase the number of units sold of Toyota’s products. In January 1982, Toyota Motor Company (TMC) and Toyota Motor Sales (TMS) combined to form Toyota Motor Corporation. This restructuring and merger initiative was to grasp the capabilities of Toyota to the fullest. Toyota had been in a joint venture with General Motors (GM) with the reason that a voluntary restriction on Japanese exports to USA was initiated in 1981. This was after an action to joint-venture with Ford Motors failed. As a result, facilities of its own by Toyota being able to set up in the United States of America. The advantages towards this plan were to reduce risks and to accumulate experience in the local production. In this strategy also, Toyota decides to build production plants in developing countries and targeting places in Urban City like the Shenyang and Tianjin in China. In 1998, Toyota acquired Tianjin Motor Group to become Tianjin Toyota Motor Engine where they were in charged in supplying Daihatsu and later exported to Japan.

Up until 1995, Toyota implemented its third stage of development strategy which stressed on the globalization strategy . New global business plan being initiated with the efforts to further localize (overseas) and increase imports of automobiles produced overseas (in Japan). One of the strategy made was the New Sienna which was made by the manufacturer of Toyota in Kentucky, USA. Other globalization plan that were made was the published of supplier’s guide with the intention to aim at providing the first timer suppliers a greater understanding on Toyota’s purchasing activities and giving outlines on how to sell supplies to the Toyota. In 1997, Toyota made another plan which providing internet services where it makes overseas supplier request for auto parts easier. As up to March 1998, Toyota had already had 34 overseas subsidiaries and affiliates throughout the world, 150 distributors in 5 continents and 25 countries. This indicates that Toyota is successfully entered the foreign market.

One key factor that leads Toyota to be able to expand effectively is due to its active played the role of a good corporate citizen. Toyota is actively donating to social and cultural activities, exchange students programs and traffic safety campaign. This global business strategy has being a major plan for Toyota to keep consumers driving its products from generation to generation.

In short, all of the above strategies created by Toyota can be explained as; first, Toyota started to target the international market by focusing on the national level, then the global level. Ways of making its products known throughout the world are through exporting at first, joint ventures and later towards the establishing of Toyota’s own subsidiaries to manufacture its products in the host country. After creating a potential hopes on the 5 continents’ market, Toyota began to be part of the local communities’ choice of automobiles in their own country.

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Toyota Case Analysis

Toyota Motor Corporation is a Japanese multinational automotive manufacturer headquartered in Toyota, Aichi, Japan. In 2017, Toyota’s corporate structure consisted of 364,445 employees worldwide[5] and, as of September 2018, was the sixth-largest company in the world by revenue. As of 2017, Toyota is the world’s second-largest automotive manufacturer. Toyota was the world’s first automobile manufacturer to produce more than 10 million vehicles per year which it has done since 2012, when it also reported the production of its 200-millionth vehicle. As of July 2014, Toyota was the largest listed company in Japan by market capitalization (worth more than twice as much as #2-ranked SoftBank) and by revenue.

Toyota is the world’s market leader in sales of hybrid electric vehicles, and one of the largest companies to encourage the mass-market adoption of hybrid vehicles across the globe. Toyota is also a market leader in hydrogen fuel-cell vehicles. Cumulative global sales of Toyota and Lexus hybrid passenger car models achieved the 10 million milestone in January 2017. Its Prius family is the world’s top selling hybrid nameplate with over 6 million units sold worldwide as of January 2017.[10]

The company was founded by Kiichiro Toyoda in 1937, as a spinoff from his father’s company Toyota Industries to create automobiles. Three years earlier, in 1934, while still a department of Toyota Industries, it created its first product, the Type A engine, and its first passenger car in 1936, the Toyota AA. Toyota Motor Corporation produces vehicles under five brands, including the Toyota brand, Hino, Lexus, Ranz, and Daihatsu. It also holds a 16.66% stake in Subaru Corporation, a 5.9% stake in Isuzu, as well as joint-ventures with two in China (GAC Toyota and Sichuan FAW Toyota Motor), one in India (Toyota Kirloskar), one in the Czech Republic (TPCA), along with several “nonautomotive” companies. TMC is part of the Toyota Group, one of the largest conglomerates in Japan.

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Case Study of Toyota: Significance of Operation Management in Manufacturing Sector

Executive Summary

In the next section of the study, problem exploration and analysis will be elaborated. Problems and challenges faced by Toyota in account of Covid-19 pandemic in 2020-2021 will be explained. There are many automobile manufacturing companies including Toyota that are unable to sustain consistency in their business due to heavy restriction by the government with respect to working places. For this reason, Toyota has decided to improve its operation management. This will significantly help the organization to deal and overcome this problematic condition and, at the same time seek opportunity to increase the customer demand. Relationship among operation management, change management with the organizational success will also be demonstrated to overcome the problem. The section has also delivered a few theoretical framework and models by considering the problems faced by Toyota, in its manufacturing facility. The themes mentioned in here are based on the importance and effectiveness of the process of operational management in the better management of the automobile sector productivity. Along with that, the second theme is also associated with the utilisation of Robot Assisted sensing as a potential approach in the course of the development of organisational productivity and management. The discussion of the based on a vivid and descriptive analysis of the collected themes and thereby helps in providing a detailed understanding of the topic of operational management.

Introduction

Problem definition

According to the published report of Statista.com (2021), it is noted that in the financial year of 2021 total sales of the automobile industry have increased by 71 million units. This fact is clearly indicating the people prefer to use personal vehicles in order to prevent the spread of Covid-19 infection. It is also noted that sales of Toyota have also increased by 39% across the world but the authority is failing to meet the demand of consumers (Theguardian.com, 2021).

Sudden hike of demand in the automobile industry is creating challenges in the operation management process of different organizations. Toyota is one of the organizations that is struggling to fulfil demands of consumers because of the lack of productivity (Raval et al.  2020). Health crisis created by Covid-19 pandemic and norms of social distancing are the main reasons behind the sudden demand hike. According to the published report of Theguardian.com (2021), it is noted that Toyota is not being able to meet the demands of consumers because of the absence of a significant operation management system. Considering this situation, this report is aiming to find the importance of operation management behind the success of the manufacturing sector.

Demands of automobile products are increasing across the world in present days. According to the study of Raval et al.  (2020), it is noted that due to the reason of Covid-19 pandemic and health concerns people are choosing personal transportation. High demand for Persian transport is automatically creating a high demand in the automobile manufacturing sector. Sudden hike of demands is influencing manufacturers to restructure the operational management system. As this study is aiming to find out associated challenges of operation management in the manufacturing sector, that is enlarging the scope of the research. Clear outlines of challenges in relation to the operation management process will help managers of the manufacturing sector to prepare a follow up. Along with that, determinations of prospective ways to resolve challenges of operation management can help the manufacturing industry to mitigate challenges and to meet success.

Aim of this report is to find out the significance of operation management in the success of the manufacturing sector.

• To determine the importance of operational management in the manufacturing sector
• To develop understanding about the concept of operation management and associated challenges
• To determine prospective way to resolve operational challenges in the international company
• To recommend effective operation management strategies for the manufacturing company

Q 1-  What is the importance of operational management in managing the business of Toyota?

Q 2-  What are the critical challenges incorporated to the business of Toyota?

Q 3-  What are effective measures and methods needed to be considered for resolving the operational challenges of Toyota?

Q 4-  What are the effective operation management strategies that can support the future growth for the company in international business?

H0-  Operation management processes improve the overall success rate of business.

H1-  Operation management processes do not improve the overall success rate of business

Problem exploration and analysis

Problem in the business context

Demand for automobile products is growing significantly over the time. Automobile industries had encountered difficulties to fulfil this growing demand that affected their business performance. As per the latest reports it is expected that the worldwide sales of automobiles will grow over 71 million units in 2021 (Statista.com, 2021). Therefore, to match the huge demand increase it is essential for the automobile industries to adopt suitable practices that will enhance their productivity. It might also be the biggest opportunity for the top automobile manufacturers like Toyota, Ford and Volkswagen to earn significant profit by boosting their revenue to a great extent. As per the views of Laato  et al.  (2020), the recent pandemic of Covid-19 also had an impact on the consumer purchase behaviour. Due to the social distancing norms and guidelines people more prefer to use their own vehicle that also resulted in a certain demand hike of the automobile products. However, on the other hand, automobile manufacturing organisations are unable to maintain consistency in their business process due to the restrictions by the Government for workplaces for pandemics. Therefore, in this situation consideration of operation management becomes essential for audible industries to overcome the problematic situation and capitalize the opportunity of high demand of automobile offerings. Toyota is one of those organisations that encounter issues related to inability to fulfil the demand of the customers due to the lack of productivity. Therefore, this study will illustrate the significance of operation management in the business context of Toyota that can help the firm to gain back its business position by meeting their consumer demands efficiently.

Figure 1: Global car sales statistics

(Source: Statista.com, 2021)

Concept of operation management

Operation management can be defined as the administration of all the business processes and practices for the establishment of the highest possible level of operational efficiency in the organisation. Therefore, in simple words it can be said that operation management can be termed as the optimisation of business attributes for delivering best possible performance in business. This concept can be useful for Toyota to streamline their operational activities and business processes which might be helpful for the productivity enhancement of the company. As stated by Shad  et al. (2019), operation management can be useful for organisations to establish proper balance between all the organisational attributes which is crucial for improving the ratio of converting labour and products into goods that is related to the achievement of better profitability. Therefore, consideration of the operation management concept can enable Toyota to make possible improvements in their internal attributes that will deliver a noticeable boost in organisational productivity and can resolve the business problem of Toyota permanently.

Importance of operation management in business success

Operation management process ensures utilisation of business resources in a planned and organised manner that can deliver better return to the business in terms of both efficiency and profitability. Therefore, for organisations like Toyota, operation management can be very helpful to deal with productivity crisis. As mentioned by Cousins  et al. (2019), operation management improves the supply chain management process of business. Therefore, it might be helpful for the automobile industries like Toyota to make their procurement process more responsive which is crucial to eliminate the issues related to productivity crisis. Moreover, resolution of the supply chain issues might be also helpful to control the overall cost of the final products that might be helpful to offer products at lower price. It is associated with the chances of establishing cost leadership that can attract more customers. According to Gemünden etal. (2018), operation management greatly helps organisations by delivering better control in their operational activities. It ensures minimal defects of productivity errors. It is also associated with the enhancement of organisational productivity at Toyota. Moreover, operation management principle is able to manage and optimise inventory better which is essential for performance betterment of business by facilitating the logistic operations. Hence, it can also be a crucial aspect for the business of Toyota to overcome from the issue of productivity crisis.

Factors associated with operation management

Operation management in business is a vast area as it covers optimisation or regulation of the entire business to make it more responsive and goal oriented. As stated by Ferràs-Hernández  et al.  (2017), availability of technology is one of the factors associated with operation management in automobile industries. Modern and effective technologies such as AI-based equipment, automated machines can complete production related tasks with better efficiency and accuracy. Therefore, it might resolve the productivity issue of Toyota with ease. Moreover, the skills of employees are another crucial factor associated with operation management. Better skills of employees ensure minimal operational error and greater operational output. So, it is also highly interlinked with operation management. As stated by Basheer  et al.  (2019), operation management of business heavily relies on operational planning. Better operation planning helps in organising the business resources, scheduling activities & operations which are essential for cost control. Hence, operational planning must be considered as a key factor of operation management. Change readiness of an organisation is a key factor in operation management. Application of operation management principle leads to change in certain business aspects therefore, it is crucial for the organisation to become ready for the change. In the case of the automobile industry, Toyota application of operation management principle might require change in workforce distribution, change in schedule etc. therefore, organisations must be ready to adopt those changes easily.

Interrelationship between operation management and organisational success

Operation management greatly helps organisations to establish proper balance between all the organizational aspects which is one of the key success criteria of business. As mentioned by Lim  et al. (2017), operation management helps organisations to control their operating cost. Therefore, organisations are able to earn more profitability through operation management which finally leads to organisational access. Operation management process ensures better utilisation of resources, technologies with proper planning that ensures better output conversion. It might be helpful for automobile organisations to fulfil the growing need of consumers that can deliver business success. Automobile manufacturing organisations can be benefited through the planning improvement and implicational viability enhancement for operation management. It also helps organisations to achieve a better level of productive efficiency which is directly associated with business success. As outlined by Sklyar etal. (2019), operation management helps to organise the tasks or activities in a structured way. It can deliver better operational results with optimal accuracy. Thus, it also leads to organisational success.

Relationship between operation management and change management

Change management is one of the essential aspects in business that make possible improvements in the operational process for the improvement of business stability and flexibility. As opined by Raval etal. (2020), operation management principles in business basically integrate certain activities and eliminate unnecessary operations for the performance betterment. Thus, basically a change has been initiated at the workplace which links operation management with change management at an organisational context. In the automobile industries in most of the cases operation management has been considered in terms of making improvement in the manufacturing operations. Therefore, possible changes have been considered related to the technological improvements, scheduling of operations, elimination of operations wastes etc. all of these processes are associated with changes therefore, it is quite obvious that operation management is highly interlinked with organisational change management in the case of the automobile manufacturing industries. Hence, it can be said that the higher authorities of Toyota must concentrate on the change management to eliminate their productivity issue, to which the company is unable to fulfil the growing demand of the market.

Operation management and key performance indicator

Key performance indicators are basically the indicators that represent the progress or improvements in certain areas. It basically helps the supervisors or operational managers to monitor certain activities which is essential for the all-round betterment of the aspect. The main aim of operation management is to make best possible improvements by which the firm can deliver best possible output. Key performance indicators basically shed light on those areas that facilitate operation management in business. Key performance indicators also demonstrate the current progress on certain aspects that helps the business authorities to prioritise their business activities. It helps in operation scheduling which is one of the essential aspects of successive operation management. It has been found that, operation management relies on distribution of tasks as per the resources and workforce. Key performance indicators enable the operation manager to distribute task resources as per the requirements. Thus, operation management and key performance indicators are also linked with each other. It is found that key performance indicators are also able to deliver detailed insight about the current condition of business and how the executives can understand any improvements. It is suitable for the application of effective operation management practices.

Theories and models associated with operation management

Six Sigma is a methodology-based theory that consists of different ideas of quality control within the operations management of an organisation. This theoretical framework was developed by an organisation named Motorola Inc. in 1986. The method considers using a data-driven approach and review to limit defects and mistakes within a corporate business process. The Six Sigma approach does emphasize the cycle-time improvement whereas at the same time, it decreases the manufacturing defects to a certain level of no more than 3.4 occurrences in million units (Bhaskar, 2020). While most business associates consider undertaking this framework in manufacturing facilities, it can also be applicable to each type of business within any market industry. As per the problem analysis in the current study, it is identified that Toyota, being a famous global car manufacturing company, is struggling with its production facility as it is failing to meet the market demands, especially during the Covid-19 pandemic period.

Figure 2: DMAIC method in Six Sigma methodology

(Source: Influenced by Bhaskar, 2020)

In this concern, the Six Sigma approach can be useful for the organisation as the successful implementation of the framework depends on a key component such as buy-in as well as support from business executives. In this framework, the most prominent method of improving operations management is the DMAIC method. This method depends on a few procedures such as defining problems in an operation along with goals, measuring various aspects of current operations management, analysing data to find the root defects within a process, improving the operational process and controlling how the process is delivered in the future (Pugna et al . 2016). Eventually, the Six Sigma framework has become an industrial standard containing legal certifications offered to operations managers and other business practitioners. With this theoretical framework, Toyota can improve their operations management by identifying the issues they are facing and the ways to improve the production process.

Just-In-Time (JIT)

The Just-In-Time framework or concept refers to a manufacturing workflow methodology that is aimed at diminishing flow times as well as costs in the production systems and distribution system of an operations management. The concept was popularized by the organisation itself, which is chosen for the problem exploration and analysis in the study, Toyota. The company chose this framework because they wanted to meet customer demands in the market with minimum production delays. The primary goal of the JIT approach is for zero inventories across the operations management and its logistics and supply chain management (Xu and Chen, 2016). This completely utilizes the capabilities of an organisation and it also maximizes the ROI. As per this framework, successful implementation and operation depends on creating business initiatives, encouraging increased staff encouragement and developing mobilized strategies and policies.

Figure 3: Just-In-Time manufacturing model

(Source: Influenced by Khaireddin et al . 2015)

As per the consultancy report, the identified issue in the chosen case-study company is lack of improvement in the production facility and failure to meet the rising demand of customers in this pandemic period. Therefore, the JIT framework can be crucial for the operations management as it helps establish a long-term supplier-consumer relationship and it also creates a stabilized work schedule. It means that by successfully implementing this framework, Toyota’s operations management can ensure more control and improvement in the manufacturing process. For instance, Toyota does not usually purchase raw materials for products until orders are received from the market.

4Vs of operation management

Business operations management can be described as the main focus of a corporate firm where the majority of direct labour system takes place. Within a manufacturing business, operations are basically task-oriented where management does follow some basic steps until the manufacturing and distribution are accomplished. All kinds of operational procedures have a common aspect as they all consider their inputs such as raw materials, knowledge and skills, equipment and time. On this note, the operations management can be classified into four ways such as Volume, Variety, Variation and Visibility. All together, this is called the model of 4Vs of Operations Management.

• Volume within the operations management is key to how the business is organised. Essential to the operation is an ideal repeatability of the tasks along with the work systemization.
• The variety dimension of the operations management is usually based on service organisations within the global market. Whilst service operations offer a similar service, flexibility and variety, the difference of service quality may depend on the size of an operations management.
• The dimension of variation refers to how much the demand level changes over time due to various external factors (Chircu et al . 2016). Different market factors may sometimes make it hard for the operations management to predict variation. For instance, the current production issues and market demand failure in Toyota are occurring due to the current Covid-19 pandemic period.
• The visibility dimension refers to the value chain of an operations management. Consumers need to experience an organisation’s products or services. Service industries have a higher level of visibility, as compared to manufacturing industries like the automobile industry.

Scientific management theory

It is a management-based theoretical framework advocated by Federick Taylor. It uses the scientific methods for analysing the most effective and prominent manufacturing procedure, in order to enhance productivity. The scientific management theory has argued that it is the duty of workforce managers to develop an ideal production system to achieve economic efficiency. The author of this theoretical understanding devised a few key principles for the scientific management within an operation.

Figure 4: Scientific management and modern management

(Source: Influenced by Uddin and Hossain, 2015)

• Selecting methods on the basis of science is essential, rather than allowing individuals in the workforce the freedom to utilise their own ‘rule of thumb’ method for accomplishing a task.
• Assigning jobs among workers is beneficial when it is done by understanding their aptitudes. It always helps an operations manager to assess the skills, knowledge and competency of each worker (Uddin and Hossain, 2015). This ensures efficient work distribution within an organisation.
• Efficiently monitoring the performance of workers is another key principle of scientific management in which workers’ efforts and engagement is closely monitored by operations management. It increases the productivity level of an organisation.
• Ideally dividing the workload between workers and operations managers is another scientific management principle in which workers are trained and then asked to imply what they have been taught.

Different approaches to operation management

Operational management serves the functions of sustaining the procedure of transforming the inputs in terms of materials, energy and labor into outputs in the form of final products and services. In order to do so, various approaches are developed and incorporated into the operation management. As per the views of Bag  et al.  (2020), it is crucial to make sure that the strategic objective of the firm is maintained by making tactical decisions in terms of utilization of the resources to make sure that the competitive advantages is maintained effectively within the current market. The approaches to operation management consist of contingency approach, system approach, operational approach, decision theory approach, socio-technical system approach and empirical approach. All these approaches are crucial and imply that operation management cannot be successful without an appropriate strategic plan, coordination of various activities and proper direction and reasonable control over the decision-making processes. As a result, managers of the operation management are equipped with a right skill set in managerial competence along with effectiveness of the human resource management, leadership and problem solving.

Operational approach is crucial of all approaches that is borrowed from the work of Bridgman as it attempts to bring together all the knowledge and understanding of the management that is associated with the functionality of the operation management. On the other hand, the operational approach gathers all the management principles, concepts and techniques within the management practices as said by Bastas and Liyanage (2018). As a result, the operational approach is seen as the most effective and modern approach to operation management.

Suitable practices to mitigate operational issue in Toyota

The outbreak of the novel corona virus has brought a severe and negative impact on every aspect of society that also includes the automotive industry. The suppliers of Toyota in January and February have been scrambling to keep the automobiles in an organized line, but unfortunately March has allowed the Toyota to take concerted action by aligning with the governmental advisories in order to keep its operational management safe and secure. The employees of Toyota were furloughed on account of economic conditions that the company was facing (Billedeau and Wilson 2018). In order to maintain the protocols and maintain social distancing, the whole workforce was not allowed at work at a time. This was the biggest operational issue in Toyota. On the other hand, it has been observed that due to the crisis, no customer was willing to purchase an automobile, as it was a time when people were laid off from their jobs, people did it had enough to even buy necessary things. In such scenarios people only focus on efficiently spending money. For this reason, Toyota has introduced a “customer connect” program to mitigate the operational issue and alleviate inconveniences for the Toyota owners. Toyota has announced the extension of free emergency support to the customers that do not have coverage till 15 days post the lockdown. Moreover, a series of measures was also announced in 2020 for dealer partners (Autocarindia.com 2020). This has targeted to ensure the liquidity to manage the business by securing the dealers for approximately 38-75 days by offering cash flow support.

Methodology and justification

Research methodology refers to the specific process and techniques of selecting processing and analyzing data. Clear outline of research methodology guides new research to complete the research 0bjectives in order to obtain results. In this regard to gain great understanding about the operating management process of Toyota research philosophy, research approach, design of research is presented. Further discussion is based on data collection methods and the process of data analysis. Sampling methods and ethical consideration of this research is highlighted along with the research limitation.

Research Philosophy

Research philosophy refers to the development of assumptions. According to the statement of Novikov and Novikov, (2019), it can be said that research philosophy determines the research activity. Research philosophy is a particular belief that has been discussed in developing this consultancy report. Positivism, post-positivism, interpretivism and realism are major four types of research philosophy that can be used in developing consultancy reports regarding the performance management of Toyota and Kampen, (2019) commented that interpretive research philosophy is based on the principle which plays an important role in observing the social world. On the other hand, realism research philosophy guides to describe specific phenomena that happened recently. In this regard to analyze the operation management process of Toyota and to understand the role of operation management in the success of manufacturing industry  interpretivism  and  positivism  research philosophy have been selected. Positivist approaches help to develop hypotheses in order to test the research objectives through empirical experimentation.

Research approach

Inductive and deductive are two main research approaches which are being followed by researchers. According to the comment of Žukauskas  et al.  (2018), it can be said that inductive research approaches help to develop a theory and deductive research approaches guide to test an existing theory. In order to test the research hypothesis regarding the operation management system  deductive  research approaches have been selected. This consultancy report about the operation management process of Toyota is relying on deductive research approaches because it is providing the opportunity to test the research hypothesis. Inductive research approaches are not selected because this is a complex method where research findings can be invalidated. Along with that it is needed to mention that deductive research approaches enlarge the scope of success because it tests existing theories.

Research design

In order to develop the consultancy report regarding the operation management system in manufacturing industry exploratory, explanatory or descriptive research design can be followed. As per the views of research design focus on the aims and objectives of research to obtain results. Exploratory design generally determines cause and phenomena by highlighting the cause of the phenomena. On the other hand, descriptive design of research generally focuses on describing phenomena rather than highlighting the factor associated with the phenomena (Doyle  et al.  2020). Considering the particular characteristics of above mentioned research design,  descriptive  research design has been selected. Descriptive research design is helping to identify and explain important factors that are related to the operation management system of the manufacturing industry. Along with that, descriptive research design holds the capability to determine the importance of the operation management system in organizational success because it is describing all important phenomena considering literary evidence.

Data collection method

In order to find out challenges of the operation management system of the manufacturing industry and to recommend effective operation management strategies  secondary  data have been collected. From the literary evidence secondary qualitative and quantitative data is obtained to develop the understanding about the concept of operation management system of the manufacturing sector. Along with that, it is needed to mention that both qualitative and quantitative data is providing all required information related to the sales and demand of products manufactured by Toyota. Secondary data collection method have been selected because it guides researchers to complete research and to develop consultancy reports within the time (Ong and Puteh, 2017). Moreover, it can be said that the secondary data collection method takes less time to complete reports regarding research topics. On the other hand, research by collecting primary data takes more time because the data synthesis process is time consuming. In relation to reducing the time of preparing report secondary data have been collected.

Data analysis

There are three main types of data analysis which include quantitative analysis, qualitative analysis and mixed data analysis.  Secondary qualitative  analysis process is being followed to complete the consultancy report. On the basis of qualitative data,  thematic  analysis is conducted to test research hypotheses. Thematic analysis is conducted because it helps to meet the research objective by synthesizing secondary qualitative data. According to the study of Ong and Puteh (2017), it can be said that quantitative analysis is a complex method as compared to qualitative thematic analysis. On a similar note, it can be commented that quantitative primary analysis can create volatility in meeting research objectives because success of qualitative analysis depends on authenticity of research questions (Sattar  et al.  2017). Considering this fact,  secondary thematic  analysis has been selected to develop this consultancy report regarding the operation management process of Toyota and manufacturing sector.

Sampling size and method

This consultancy report is based on the secondary data obtained from journal articles to determine operational challenges in the manufacturing industry. Along with that, it can be highlighted that  4 research articles and 4 themes  have been selected to conduct thematic analysis regarding the operation management process of the manufacturing industry.

Ethical consideration

Data protection Act 1998  is followed to protect the data confidentiality and to complete the research in an ethical way (Legislation.gov.uk, 2020).  GDPR principles  are also abided by at the time of conducting research. No personal data of human beings involved in the research. As this research is completed on the basis of secondary data there are less amounts of risk related to the data breach.

Research limitation

Research is based on secondary data collected from peer reviewed articles or published newspaper reports. Secondary data collection methods may limit the viability of research because it lacks practical and direct observation.

Findings and analysis

Thematic analysis

Importance of operational management within the automobile manufacturing sector

The concept of operational management is based on the effective deals and decision making which is further identified to be directly associated with that of the production procedure. The concept of operational management is considered to be closely aligned with that of the specific production of the goods and services. Operational management is known to be utilised in various manufacturing sectors. Hence, based on the requirement, the automobile manufacturing sector can be considered to be the most suitable for the sustainable incorporation of the operational management. Various automobile manufacturing organisations have been manufacturing products and services as per the demands and requirements of their target customers. The cost of the automobiles also tends to alter and differ based on the customer requirements as well. In the current situation of technological advancement and escalation of demand and productivity, the automobile makers are providing their sustainable emphasis towards the operational management process. As mentioned by Jung  et al.  (2018), the organisations are also known to introduce the concept of modular platforms based on which the better management and operation of the organisations are taken into consideration.

The importance of including operational management within the automobile sector is further known to be based in the different aspects and factors including the ethical behaviour within the workplace, the environmental factors, social factors as well as the people factors like the employee involvement training acquired by the employee’s supplier customer relationship, team performances and so on. The potential importance of the automobile industry based on operational management is quite a few. A sustainable involvement of operational management helps to ensure profitability within the automobile sector. It is further known to be a sustainable reason based on which the customer retention is maintained. As per the findings of Lampón  et al.  (2017), the automobile industry is often known to be involved with customer complaints and warranty claims. The concept of operations management also helps to accurately sort them and mitigate the complaints as effectively as possible. Furthermore, incorporation of an effective operational management is also known to lower the wastage of the resources and raw materials within the firm thereby causing a steep decline in the company’s financial expenditure. It is also capable of providing the organisation with a greater percentage of market share as well as sustainably increase and escalate the employee and customer engagement.

Therefore, it can be stated that a sustainable and satisfactory utilisation of the operational management process can provide the companies with a detailed understanding regarding the organisation’s internal environment as well as the existing market condition. The concept of operational flexibility is also known to witness a steep escalation as a result of direct implementation of this concept. As mentioned earlier, operational management also helps to better align with the cost reduction as well as ensure a much better scope and sales economy.

Approach for improving  scale  of production in automobile industry by Robot Assisted Sensing

The comprehensive structure of the automobile sectors tends to change and alter based on the requirements of the customers. The production of the vehicles and automobiles are also considered to be an essential aspect based on which the position of the automobile industry tends to escalate and diminish over the course of time. The current advancement of technological aspects has led to the inclusion of various technological features within different manufacturing sectors and it has also led to the sustainable growth of the industry as well. Based on a similar factor, a newer technological aspect known as the Robot Assisted Sensing (RAS) has been widely used in the automobile manufacturing industry. As per the identification of Smys and Ranganathan (2019), robots are known to be used to a wide extent in the automobile manufacturing industry. This particular system is further known to add various flexibilities and safety within the different stages of the production process. Along with the escalation in the production capacity, the inclusion of Robotics within the manufacturing process also helps in keeping the employees safe from any types of dangerous accidents. It also helps to improve the peer production quality, relieve the bottlenecks within the organisation as well as accentuates the organisational capacity.

The incorporation of robotics is known to provide an immense competitive advantage to the organisations based on the automobile sectors. The automobile sectors are considered to be entirely based on the preparation of the cars and their parts. The implementation of robotics can provide a sustainable aid in the process by helping in welding, painting, assembly, removal of the materials, sealing process, coating of the cars, parts transfer and so on. The inclusion of robotics is also known to sustainably reduce the variability of the parts. As stated by Kangru  et al.  (2018), there are different types of robots that are used for different functions as well. More specifically, the pick and place robots are predominantly used within the automobile industry for the purpose of assembly, packaging, bin packaging and in the inspection process as well. The predominant utilisation of the robots and robotics within the automobile manufacturing industry is based on the fact that they can be used for transferring and relocating the materials and car parts that are heavy and thereby difficult to handle and move. Furthermore, it can be depicted that the robots can also be customised by the organisations to perform the activities as per their requirements.

Hence, a comprehensive analysis and understanding regarding the incorporation of Robotics within the automobile manufacturing firms provides with a general idea that it can actually enhance and escalate the peer production rate and scale of a firm. It can also be mentioned that the enhancement of efficiency within the process of manufacturing and production of the vehicles are also an essential aspect in terms of the Robotics implementation. Although, the implementation of robotics can be costly, the improvement in the technological aspects and innovative features can be turned into a more affordable and user-friendly experience.

The concept of operations management and its associated challenges in the global manufacturing sector

The concept of operations management refers to the administration of various business practices that creates the higher level of efficiency within a business operation. It is highly concerned with converting labour and raw materials into finished products and services. In global manufacturing industries, the operations management concept has become more viable as it helps organisations maximize their profit margin. Associate teams of operations management make attempts to balance costs with organisational revenue for achieving the highest possible net operating profit. The concept of operations management does involve utilising resources from labour, materials, machines and equipment and innovative technologies (Atasu  et al . 2020). Managers within an operations management team acquire, create and deliver products and services to their clients based on market needs and organisational capabilities. Operations managers handle several strategic issues such as determining the size of production plants and the project methods as well as executing the structure of software applications and information technology networks. With various operational methods and processes, operations managers ensure minimal waste occurs within the use of raw materials and equipment and manufacturing goods and services. Apart from the manufacturing, operations management is also concerned with the logistics and supply chain management within an organisation. To ensure better supply management, operations management professionals understand local, regional and global market trends, consumer demand and available sources for manufacturing and distribution. Operations management does approach the acquisition of manufacturing materials and labours from the market and eventually, manufacturing operations like the automobile sector releases finished products such as commercial and personal-use vehicles.

In the operations management, a few general challenges can be recognised that mainly affect the manufacturing operations. One of the major challenges in operations management is in balancing tactical and strategic concerns. It is based on the movement of the practices away from different tactical concerns, towards strategic, societal, financial and global concerns. For instance, when manufacturing industries have to deal with mega-projects, dozens of business operations, varieties of stakeholders like regulators, multiple agencies, public and other profit-making operations are involved (Meredith and Pilkington, 2018). Therefore, challenges can be seen in the communication and coordination between those stakeholders and organizations. As the operations management consists of the engagement of several organisational departments, consistency in communication has become a major challenge which reduces efficiency in areas like demand planning and forecasting, developing and implementing production plans, and monitoring the manufacturing activities. Apart from that, globalization has become a massive external challenge for the operations management where trade barriers, social and cultural barriers and inaccurate understanding of technological advancement in different areas can pose adverse effects in manufacturing and distributional operations, within an automobile operation. In several cases, it is recognised that operations managers find themselves struggling with high-extent market competition not only from the county of origin, but from countries all around the world.

Operations management strategies to prosper in production facility within automobile manufacturing operations

Operations management within an organisation refers to an area of management that is concerned with designing and controlling the manufacturing and redesigning processes in the production of products and services. In simple words, operations develop products, manage quality and generate effective services (Walker  et al . 2015). Thus, operational departments in business management consist of production or manufacturing, supply and logistics support, marketing and finance, sales and service. Operations are considered as the current chain of business activities, which eventually leads to efficient delivery of operational objectives and missions. The global manufacturing sector is under a critical juncture where multinational manufacturers are facing tough competition in their markets. In order to deal with the competitive challenges, manufacturers are continuously working on developing manufacturing capabilities as well as quality standards by introducing latest software and technologies and applying new innovative business tools. The automobile industry falls under the global manufacturing sector which is holding a massive market share, even if the current Covid-19 pandemic has disrupted the overall production. In the contemporary market, demands for vehicles with innovative features and technologies are being acknowledged and demanded by most of the customers. Manufacturers like Toyota are facing issues in developing their production facilities and units during this pandemic period, to achieve the market demand all over the world.

To prosper at automobile production level, “Total Productive Maintenance (TPM)” is a methodological framework which can help a manufacturing operations management enhance productivity and quality and reduce manufacturing costs (Gupta and Vardhan, 2016). The TPM method is being executed within manufacturing industries as a team activity by which an operation can reduce equipment maintenance, enhance production quality and develop profit margins. With this method, operations management increases production efficiency by involving all workers from top management to operatives for carrying out the maintenance tasks. An operations management can reduce the production costs through the TPM initiatives. Product costs usually include material costs, manufacturing costs and profits where manufacturing costs incorporate machinery or processing costs and costs regarding production losses. With the TPM methods, production losses within an automobile operation can be controlled and decreased to a large extent and it can help the management reduce the overall costs of production. To generate an action plan for reducing production loss, the Loss-cost Matrix” can be prepared as it delivers a clear understanding of the cost effects associated with several major losses. A production loss register can be maintained by the production team and manager of an automobile operation in order to record the overall losses gained during the production cycle of each vehicle (Gupta and Vardhan, 2016). For instance, if a production unit is having the loss type of measurement adjustment, an action plan must be made to rectify the machine failure, and resolve quality issues. On the other hand, when there is a loss-type of high set-up time, the action plan should be developed for reducing set-up facilities and activities. Therefore, it can be stated that the automobile manufacturing sector with production issues can initiate the TPM method by which the concerned operations management can look after the technical activities in vehicle production and quality adjustment.

Operation management is one of the essential criteria for the automobile industries like Toyota to enhance their productivity level to the desired level which will help the firm to meet the growing demand. Moreover, operation management is quite effective for the organisation to control their operating cost to a great extent that is essential in order to achieve better profitability which will help business to grow further (Dubey  et al.  2020). The concept of operation management might be greatly helpful for Toyota to improve their operational planning which enables the organisation to maintain their consistency in the manufacturing process during the restrictions of pandemic. Operation management makes organisations more stable and flexible in the changing business environment which is useful for business to maintain its competitiveness. As commented by Ivančić et al. (2019), the operation management process ensures proper resource handling. It also contributes towards the betterment of operational efficiency which is a key success criterion for business. Organisations need to be concerned about numerous factors for successive operation management. According to Dalenogare et al.  (2018), technological integration is one of those factors in which operation management is heavily dependent on. For instance, automation in manufacturing facilities, utilisation of AI-based machineries not only improve working efficiency but also improve operational accuracy & safety which are primary goals of operation management. Moreover, management information systems help to streamline the business process through accurate operational planning by analysing all the business aspects. It also widened the scope of successive operation management at automobile manufacturing organisations like Toyota to a great extent.

Automobile industry is more prone to the integration of modern services with maximum accuracy. Therefore, skills and experience of the staff plays a crucial role in the operation management of automobile industries. Therefore, it is highly essential for the management of authorities to emphasize more on the training & development programs, workshops etc. to enhance the practical knowledge of the employees and keep them up to date. It can facilitate the operation management at Toyota to a great extent. Operation management enables the organisations to extract best possible output from their operational process. It is essential for organisations to serve their consumers efficiently which can also enhance the revenue generation. As outlined by Kurilova-Palisaitiene et al.  (2018), operation management can help the automobile manufacturing industries to identify and make possible improvements in the key activities that can enhance the productive efficiency to a great extent. Hence, it might be useful for Toyota to deal with their issue of surplus production in the pandemic situation when the demand of automobile products continuously rises. The concept operation management is very good and effective for organisations. However, organisations need to be completely prepared for the change for successive execution of the operation management. As mentioned by Agrifoglio  et al. (2017), operation management changes the operational process, used technology, activity schedules etc. Therefore, organisation must be capable to handle those changes otherwise the productivity of the firm will be disrupted for a longer time. In addition to that, for effective execution of operation management plans organisations also need to adopt suitable theoretical principles such as Six sigma, Just-In-Time, 4Vs of operation management, Scientific management theories etc. it will help to execute the operational management process by applying properly guided strategies which can enhance the productive efficiency of the organisations easily.

Operational management process plans, executes, supervises and controls all the production or manufacturing related activities in the manufacturing sector. Therefore, it can be said that incorporation of suitable changes can be only possible through the operation management process. As per the knowledge of Wamba-Taguimdje  et al.  (2020), the operation management process ensures better conversion of business resources and labour into assets that will make business more responsive in meeting the market requirements or demands. Thus, it might be very helpful for the organisation.

Managing large projects becomes easier for the operation management process. It basically enables the organisations to establish balance between all the business attributes that is crucial in order to achieve the desired success level in projects. As stated by Hong  et al.  (2018), the automobile manufacturing industry can be also benefited through operation management for its capability of supply chain management. It basically, helps organisations to stem line their supply chain related activities and optimise inventory operations also which is essential for the consistency in the manufacturing process. Hence, it might be also useful for Toyota to overcome their productivity crisis related business problems. Operation management greatly helps to control operating costs which might be useful for the procurement process in business. Thus, it might be useful for Toyota to offer low-cost products or services which can further increase their demand for the offerings. It might be a great opportunity of success for the firm if it is able to capitalise the opportunity of high demand through effective operation management.

From the entire discussion it can be said that operation management is basically a key emulator for the business which steps up the business performance by making possible changes in business. It makes business contemporary, table and flexible as per the competitive business environment and market conditions. Therefore, it can be said that multinational organisations like Toyota need to concentrate on operation management to a great level as it will help those organisations to retain their business position successfully. Moreover, operation management can deliver better control to the business attributes which might be useful for the achievement of corporate goals smoothly. Operation management process also ensures proper distribution of products through regulating the logistic operations. It also ensures better availability of products in the market. It also helps to reduce the load of inventory that is crucial for the automobile industries like Toyota. Moreover, operation management process greatly facilitates the R&D of products which can enhance the product design. It might be also useful for the automobile manufacturers to serve their customers as per the market trends. It will also helpful to offer most innovative offerings to the customers which is essential to attract more customers easily towards the brand.

This research study has addressed the significance of operation management in the manufacturing sector. To support this statement, a case study of Toyota Company has been considered. It has been observed that in 2021, the sales volume increased by 71 million units. The reason was that the majority of people prefer personal vehicles to prevent the spread of Covid infection. Health crisis due to Covid pandemic was the key reason for high customer demand. Therefore, Toyota struggled to accomplish the customer demand even though there was a lack of productivity. Considering this crisis situation, the study has demonstrated the significance of operation management in Toyota for bringing success in the manufacturing sector. The key aim is to understand the operational management and identify challenges and issues. Based on the challenges identified, the researcher will be determining a prospective method to mitigate those challenges. In the next section of the study, the problem in the business context of Toyota has been identified. Here it has been observed that Toyota is unable to sustain consistency in their business process because of restrictions imposed by the government especially on the workplace such as manufacturing units and production units. As a result, the role of operation management within the business is explained in the study as the vast area that covers up optimization or regulations of the whole business to make the business more goal oriented and more responsive. In the next section of methodology as illustrated relevant methods and approaches that are suitable to derive reliable data and optimum results. Secondary data collection was used to derive data from the available sources. Based on the collected data, themes were framed.

Objective linking

Objective 1:  This objective is linked to a literature review section where the concept of operation management and its importance in the business sector is explained.

Objective 2:  This objective is linked with factors associated with operation management that is elaborated in the literature review section. Elaboration has allowed the researcher to meet the objectives.

Objective 3:  This objective is linked to a literature review section where different approaches to mitigate the challenges of operation management are identified.

Objective 4:  This objective is linked with theories and models related to operation management.

Research limitations

While conducting this research study, the researcher had faced a lot of limitations of time restriction. In order to derive reliable and relevant data related to operation management, the researcher consumed a lot of time, due to this reason, other activities were delayed. Moreover, collected data was analysed and arranged. In spite of framing, it properly, plagiarism occurred; researchers again reframed the context and then considered it as final data.

Recommendation

There are many issues and challenges identified in the operation management in Toyota. Considering these, it is highly recommended to team up with the customers and try to comprehend their taste and preference. Later organize product families accordingly. Moreover, it is also recommended to aim for non-stop advancement to deliver superior quality. Engage the frontline employees to make strategic decisions and ensure the organizational goal is accomplished. Acknowledging the core customers, their best practices and their competitive edges is relevant and recommended to make proper business decisions and alter as per the customer demand.

Future scope

This study was prepared with utmost care and perfection. Concept of operation management and its issues and challenges in Toyota are elaborated in detail. Hence, this study can be used as a secondary source in future events. Moreover, a comparative study can also be conducted for any other automobile manufacturing organization.

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• Toyota Company External Environment

Toyota Company External Environment - Case Study Example

• Subject: Business
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• Level: Undergraduate
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