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For the exclusive use ofT.Pham,2016.1ThisdocumentisauthorizedforuseonlybyThuThaoPhaminMKT364taughtbyJackson(Linda)Li,MissouriStateUniversityfromSeptember2016toDecember2016.Harvard Business School9-693-019Rev. September 5, 1995Toyota Motor Manufacturing, U.S.A., Inc.On the Friday before the running of the 118th Kentucky Derby, Doug Friesen,manager of assembly for Toyota’s Georgetown, Kentucky, Plant, was approaching thefinal assembly lines, where shiny Camrys took shape. He heard a cheer go up. Teammembers on the lines were waving their hand tools towards a signboard that read “noovertime for the shift.” Smiling broadly, Friesen agreed: everyone in the plant surelydeserved a relaxed Derbyweekend.The plant had been hectic lately, as it was both supplying brisk sales of the all-new Camry sedan and ramping up station wagon versions for the European as well asNorth American markets. Overtime also had been necessary early in the week to makeup lost production because the line utilization rate was below the projected target. Inaddition to these immediate problems, a growing number of cars were sitting off the linewith defective seats or with no seats at all.The seat problem had been the subject of an urgent meeting called by MikeDaPrile, general manager of the assembly plant, that morning, May 1, 1992. At themeeting, Friesen learned of the situation firsthand from key people in both the plant andthe seat supplier. He then spent the afternoon on the shop floor to learn more about theproblem while the issues discussed were fresh in his mind. By the end of the day, itbecame clear to Friesen that the seat problem needed solving once and for all; thetrouble was that trying to do so could hurt line utilization. This was not the first toughquestion Toyota’s famous production system had encountered, nor would it be the last.But this seat problem was especially delicate and undoubtedly would demand Friesen’sattention in the following week.BackgroundIn the early 1980s, Japanese auto makers contemplated building cars in NorthAmerica. Japan’s huge trade imbalance had caused political pressure to mount, while theeconomic feasibility of such investment had improved with a rapidly rising yen. At thattime, however, it was unclear whether cars produced outside Japan could live up to theirhard-earned reputation of high quality at low cost. This issue was far from settled in 1985when Toyota Motor Corporation (TMC) unveiled its plan to open an $800 milliongreenfield plant in Kentucky. (SeeExhibit 1.) Thus, the company’s endeavor totransplant its unique production system to Bluegrass Country effectively became a liveexperiment for the world towatch.Professor Kazuhiro Mishina prepared this case with the assistance of Kazunori Takeda, MBA ’93, asthe basis for class discussion rather than to illustrate either effective or ineffective handling of anadministrative situation.Copyright © 1992 by the President and Fellows of Harvard College. To order copies or requestpermission to reproduce materials, call 1-800-545-7685 or write Harvard Business SchoolPublishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval
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ThisdocumentisauthorizedforuseonlybyThuThaoPhaminMKT364taughtbyJackson(Linda)Li,MissouriStateUniversityfromSeptember2016toDecember2016.693-019Toyota Motor Manufacturing, U.S.A.,Inc.In July 1988, Toyota Motor Manufacturing, U.S.A. (TMM) began volume productionon a 1,300 acre site in Georgetown, near Lexington. The plant had an annual capacity of200,000 Toyota Camry sedans, which would replace the bulk of Japanese imports of thesame model. In 1992, TMM was expected to supply 240,000 of the all-new Camrys,whose sales were up by more than 20% since the model change in fall 1991. The newCamry joined the ranks of midsize family sedans, which constituted one-third of the totalAmerican car market and returned an average 17% pretax profit margin1on a stickerprice averaging $18,500. For the first time, in March 1992, TMM started producing wagonversions of the new Camry exclusively within Toyota’s worldwide plant network.Toyota Production System2Since its inception, Toyota had always striven for “better cars for more people.”This meant producing cars meeting diverse customer preferences with flawless quality. Itfurther meant delivering cars at an affordable price with perfect timing. This ambitiousgoal had seemed nearly elusive after the Second World War, since most people in Japancould not afford a car even at cost. In addition, the country’s labor productivity was onlyone-eighth of that of the United States. In essence, Toyota was challenged to cut costdramatically, but without the scale economies that American firms enjoyed. It needed anentirely new source of economies to satisfy customers with variety, quality, andtimeliness, all at a reasonable price. The Toyota Production System (TPS) evolved asToyota’s answer to this challenge, and served as a common frame of reference among allitsemployees.TPS aimed at cost reduction by thoroughly eliminating waste, which, in productionenvironments tended to snowball unnoticeably. Waste of overproduction, for example,not only tied up working capital in inventory, but it necessitated warehouse storagespace, forklift trucks to move goods about, material handlers to operate trucks,computers to keep track of inventory locations, a staff to maintain the computerizedsystem, and so on. Furthermore, overproduction often concealed the location of the truebottleneck and thereby invited investment in the wrong equipment, resulting in excesscapacity.Identifying what was waste in reality, however, was no simple matter. Thus, TPSprovided two guiding principles to facilitate this critical process. The first was theprinciple of Just-In-Time (JIT) production: produce only what was needed, only how muchwas needed, and only when it was needed. Any deviation from true productionneedswas condemned as waste. The second was the principle ofjidoka: make any productionproblems instantly self-evident and stop producing whenever problems were detected. Inother words,jidokainsisted on building in quality in the production process andcondemned any deviation fromvalue-additionas waste. TPS defined “needs” and“value” from the viewpoint of the next station down the line, that is, the immediatecustomer.These TPS principles reflected two assumptions about production environments.First, true needs would deviate from a production plan unpredictably, no matter howmeticulously that plan was prepared: hence the virtue of JIT production. Second,problems would crop up constantly on the shop floor, making deviations from plannedoperating conditions inevitable: hence the virtue ofjidoka. TPS, of course, encouragedcontinually improving the planning process, but it also strongly emphasized alerting plantpeople to deviations fromanyplans about how production was toproceed.To implement the TPS principles, Toyota employed a variety of tools, manydescribed later in this case. For JIT production, these tools were used to keep informationflow as close to the physical1Business Week(May 18, 1992) p. 50.
ThisdocumentisauthorizedforuseonlybyThuThaoPhaminMKT364taughtbyJackson(Linda)Li,MissouriStateUniversityfromSeptember2016toDecember2016.2The glossary at the end of the case supplements the explanation of Japanese and Toyota production concepts.2
Toyota Motor Manufacturing, U.S.A., Inc.693-019flow of parts as possible. Parts were thus pulled from downstream based on actualusage, rather than pushed from upstream based on a planned schedule remote from theshop floor. This arrangement required upstream stations to be capable of changing overamong parts with minimal setup time. Hence, creating a flowing production process wasa prerequisite for TPS.The purposes ofjidokatools were to aid immediate problem detection andfacilitate visual control. For them to work properly, the normal state of operations had tobe well characterized and understood. Therefore, another prerequisite of TPS wasstandardizing the process and documenting the standard plainly.Finally, TPS depended on human infrastructure, symbolized by Toyota’s corporateslogan: “Good Thinking, Good Products.” Plants practicing JIT andjidokaprinciples wereextremely prone to shutdowns, and would be paralyzed without people capable ofsolving exposed problems promptly, completely, and systematically. Toyota thus instilled“good thinking” in all its employees through senior management coaching and internaltraining programs. These efforts cultivated two strong attitudes that permeated theorganization: stick to the facts, and get down to the root cause of the problem. A typicaldiscussion of a problem would start with “let’s go see it” and then converge on the “FiveWhys” exercise. This exercise consisted of asking a chain of “why” questions until theroot cause was identified and countermeasures determined (seeExhibit2).Methodical thinking extended beyond solving problems after the fact. It enabledpeople to seekkaizen: change for the better. At Toyota, as soon as anyone established astandard way of doing a job, that person set out to demolish it proactively, to install aneven better way.Kaizenwas indispensable in pursuing TPS goals continuously andindefinitely.The Georgetown Ramp UpDeveloping human infrastructure was TMC’s foremost priority in transplanting TPSto Georgetown, as evidenced by several decisions made early on. First, TMC assigned toTMM the 1987 Camry that was already being mass-produced in its Tsutsumi plant inJapan. Second, it replicated the Tsutsumi line as closely as possible at TMM. And third, itset a deliberately slow ramp up schedule. As a result, TMC could find people in Tsutsumiwho, based on their own experience, were able to demonstrate to TMM how to solve theproblems encountered in that plant.While construction was underway at Georgetown in early 1986, TMM initiated ahiring and training program (run out of a trailer office). It began with top managers andproceeded to core operations personnel; these people primarily came from within theindustry and formed the nucleus of TMM operations. Their first encounter with TPSoccurred during a month-long trip to Tsutsumi, to which Doug Friesen’s reaction wasquite typical:I built cars at Tsutsumi, and couldn’t believe 60% of what I sawthere. The line was unbelievably fast-paced, the plant was kind of rundown, and the American company I left had more automation. The goodthings I saw were just common sense and no big deal at all. My eyesweren’t open back then.Next, TMC sent Tsutsumi people to Georgetown, hundreds of them in all. Thesetrainers-on- loan coached TMM supervisory personnel one-on-one and reinforced TPSbasics. Every TMM manager was also paired with a coordinator from TMC, who remainedin Kentucky for a few years.ThesecoordinatorswerechargedtodeveloptheircounterpartsonlybypersuasionCnottodothingsthemselves. This intensely personalapproach brought an “eye-opening” moment to most TMM people. As TMC’s plan
unfolded in front of them, they could witness actions in the context around them,appreciate unexpectedly positive results, and have their coaches make sense of what laybehind these results. Although everyone had a unique episode that marked a turningpoint, they converged3
693-019Toyota Motor Manufacturing, U.S.A.,Inc.on one point: “TPS isolates problems from people and thereby enables people to focus onsolving problems.”Fujio Cho, president of TMM and TPS evangelist, described his vision:We fortunately have not seen any surprises so far. I believe in theuniversality of TPS and its ability to deliver high quality. To develop TMM,we put safety above all else and began with quality. We then addedproductivity to our target. Right now, our cars are as good as Tsutsumi’s inquality and we are onlyslightlybehindinproductivity.WearecurrentlymovingtothenextstepCworryingabout cost and spreading TPS to localsuppliers. I am hopeful that we can make TMM a truly American companythat contributes to thecommunity.In early 1992, Georgetown’s huge complex employed over 4,000 people, representing$150 million in annual payroll. In the plant’s backyard, construction was underway todouble TMM’s capacity.OperationsIn Georgetown, the power train plant supplied engines and axles to the assemblyplant, which performed sheet-metal stamping, plastic molding, body welding, painting,and assembly operations. In these direct operations as well as in their support functions(seeExhibit 3), TPS was deployed as a set of management tools to be practiced daily.Mike DaPrilecommented:TPS highlights problems so that people can see them easily. Thehard part is teaching it so that people practice it because they want to,rather than because they have to. To teach it well, you have to get toknow people very deeply and over time. In the process, we all becomestudents here. In fact, I have learned more in the last five years than I didin the 25 years I spent with another auto company.AssemblyAssembly operations were performed along 353 stations on a conveyor line, overfive miles in length and consisting of several connected line segments: the trim lines,chassis lines, and final assembly lines. Adjacent line segments were decoupled by a fewcars, and the entire assembly line was buffered from the power train plant and the paintline with about half an hour’s production. The line currently operated on a line cycle timeof 57 seconds, down from 60 at the startup.Assembly and part handling required 769 team members, who were paid anaverage of $17 an hour (not including benefits), plus a 50% premium for overtime. Ateam usually had four members and one team leader, who received a premium of 5% to8%. To supervise these team leaders and team members in two shifts, Doug Friesenworked closely with 10 assistant managersand 46 group leaders (seeExhibit 3). Aregular shift lasted 525 minutes, including 45 minutes of unpaid lunch time and two paid15-minute breaks. When a team member had to leave the moving line, the team leaderfilled in that position as a linerover.Every station on the assembly line embodiedjidokaandkaizentools. Astandardized work chart was posted adjacent to each work station on the line, showingthe cycle time of that station, the sequence of work tasks, and the timing to performthem within one cycle. Colored tape marked out areas of the floor to specify where justabout everything in sight belonged, and promoted the “4Ss (sift, sort, sweep, spic-and-
span).” In the resulting work environment, any deviations from normal conditions stoodout visually.4