Toyota Motor Manufacturing Case Study

This Harvard Business School case study (9-693-019) details the challenges faced by Toyota Motor Manufacturing, U.S.A., Inc. (TMM) in its Georgetown, Kentucky plant. The case focuses on a significant problem with seat installations, highlighting the complexities of implementing the Toyota Production System (TPS) principles of Just-In-Time (JIT) production and Jidoka (automation with a human element) in a real-world setting. The case explores the relationship between TMM and its seat supplier, Kentucky Framed Seat (KFS), examining the sequential pull system used for seat delivery and the impact of product proliferation on the efficiency of the assembly line. The analysis includes discussions of quality control, production control, purchasing strategies, and the importance of kaizen (continuous improvement) within the TPS framework. The case concludes with Doug Friesen, assembly manager, reflecting on the need to resolve the seat problem and questioning the effectiveness of current procedures for handling defects, prompting a deeper examination of TPS principles and their application in addressing production challenges.

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2016.
Harvard Business School 9-693-019
Rev. September 5, 1995
Toyota 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 the
final assembly lines, where shiny Camrys took shape. He heard a cheer go up. Team
members on the lines were waving their hand tools towards a signboard that read “no
overtime for the shift.” Smiling broadly, Friesen agreed: everyone in the plant surely
deserved a relaxed Derby weekend.
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 as
North American markets. Overtime also had been necessary early in the week to make
up lost production because the line utilization rate was below the projected target. In
addition to these immediate problems, a growing number of cars were sitting off the line
with defective seats or with no seats at all.
The seat problem had been the subject of an urgent meeting called by Mike
DaPrile, general manager of the assembly plant, that morning, May 1, 1992. At the
meeting, Friesen learned of the situation firsthand from key people in both the plant and
the seat supplier. He then spent the afternoon on the shop floor to learn more about the
problem while the issues discussed were fresh in his mind. By the end of the day, it
became clear to Friesen that the seat problem needed solving once and for all; the
trouble was that trying to do so could hurt line utilization. This was not the first tough
question 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’s
attention in the following week.
Background
In the early 1980s, Japanese auto makers contemplated building cars in North
America. Japan’s huge trade imbalance had caused political pressure to mount, while the
economic feasibility of such investment had improved with a rapidly rising yen. At that
time, however, it was unclear whether cars produced outside Japan could live up to their
hard-earned reputation of high quality at low cost. This issue was far from settled in 1985
when Toyota Motor Corporation (TMC) unveiled its plan to open an $800 million
greenfield plant in Kentucky. (See Exhibit 1.) Thus, the company’s endeavor to
transplant its unique production system to Bluegrass Country effectively became a live
experiment for the world to watch.
Professor Kazuhiro Mishina prepared this case with the assistance of Kazunori Takeda, MBA ’93, as
the basis for class discussion rather than to illustrate either effective or ineffective handling of an
administrative situation.
Copyright © 1992 by the President and Fellows of Harvard College. To order copies or request
permission to reproduce materials, call 1-800-545-7685 or write Harvard Business School

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Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval
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2016.693-019 Toyota Motor Manufacturing, U.S.A., Inc.
In July 1988, Toyota Motor Manufacturing, U.S.A. (TMM) began volume production
on a 1,300 acre site in Georgetown, near Lexington. The plant had an annual capacity of
200,000 Toyota Camry sedans, which would replace the bulk of Japanese imports of the
same 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 new
Camry joined the ranks of midsize family sedans, which constituted one-third of the total
American car market and returned an average 17% pretax profit margin1 on a sticker
price averaging $18,500. For the first time, in March 1992, TMM started producing wagon
versions of the new Camry exclusively within Toyota’s worldwide plant network.
Toyota Production System2
Since its inception, Toyota had always striven for “better cars for more people.”
This meant producing cars meeting diverse customer preferences with flawless quality. It
further meant delivering cars at an affordable price with perfect timing. This ambitious
goal had seemed nearly elusive after the Second World War, since most people in Japan
could not afford a car even at cost. In addition, the country’s labor productivity was only
one-eighth of that of the United States. In essence, Toyota was challenged to cut cost
dramatically, but without the scale economies that American firms enjoyed. It needed an
entirely new source of economies to satisfy customers with variety, quality, and
timeliness, all at a reasonable price. The Toyota Production System (TPS) evolved as
Toyota’s answer to this challenge, and served as a common frame of reference among all
its employees.
TPS aimed at cost reduction by thoroughly eliminating waste, which, in production
environments tended to snowball unnoticeably. Waste of overproduction, for example,
not only tied up working capital in inventory, but it necessitated warehouse storage
space, forklift trucks to move goods about, material handlers to operate trucks,
computers to keep track of inventory locations, a staff to maintain the computerized
system, and so on. Furthermore, overproduction often concealed the location of the true
bottleneck and thereby invited investment in the wrong equipment, resulting in excess
capacity.
Identifying what was waste in reality, however, was no simple matter. Thus, TPS
provided two guiding principles to facilitate this critical process. The first was the
principle of Just-In-Time (JIT) production: produce only what was needed, only how much
was needed, and only when it was needed. Any deviation from true production needs
was condemned as waste. The second was the principle of jidoka: make any production
problems instantly self-evident and stop producing whenever problems were detected. In
other words, jidoka insisted on building in quality in the production process and
condemned any deviation from value-addition as waste. TPS defined “needs” and
“value” from the viewpoint of the next station down the line, that is, the immediate
customer.
These TPS principles reflected two assumptions about production environments.
First, true needs would deviate from a production plan unpredictably, no matter how
meticulously that plan was prepared: hence the virtue of JIT production. Second,
problems would crop up constantly on the shop floor, making deviations from planned
operating conditions inevitable: hence the virtue of jidoka. TPS, of course, encouraged
continually improving the planning process, but it also strongly emphasized alerting plant
people to deviations from any plans about how production was to proceed.
To implement the TPS principles, Toyota employed a variety of tools, many
described later in this case. For JIT production, these tools were used to keep information
flow as close to the physical

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2016.
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2016.1Business Week (May 18, 1992) p. 50.
2The glossary at the end of the case supplements the explanation of Japanese and Toyota production concepts.
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Toyota Motor Manufacturing, U.S.A., Inc. 693-019
flow of parts as possible. Parts were thus pulled from downstream based on actual
usage, rather than pushed from upstream based on a planned schedule remote from the
shop floor. This arrangement required upstream stations to be capable of changing over
among parts with minimal setup time. Hence, creating a flowing production process was
a prerequisite for TPS.
The purposes of jidoka tools were to aid immediate problem detection and
facilitate visual control. For them to work properly, the normal state of operations had to
be well characterized and understood. Therefore, another prerequisite of TPS was
standardizing the process and documenting the standard plainly.
Finally, TPS depended on human infrastructure, symbolized by Toyota’s corporate
slogan: “Good Thinking, Good Products.” Plants practicing JIT and jidoka principles were
extremely prone to shutdowns, and would be paralyzed without people capable of
solving exposed problems promptly, completely, and systematically. Toyota thus instilled
“good thinking” in all its employees through senior management coaching and internal
training programs. These efforts cultivated two strong attitudes that permeated the
organization: stick to the facts, and get down to the root cause of the problem. A typical
discussion of a problem would start with “let’s go see it” and then converge on the “Five
Whys” exercise. This exercise consisted of asking a chain of “why” questions until the
root cause was identified and countermeasures determined (see Exhibit 2).
Methodical thinking extended beyond solving problems after the fact. It enabled
people to seek kaizen: change for the better. At Toyota, as soon as anyone established a
standard way of doing a job, that person set out to demolish it proactively, to install an
even better way. Kaizen was indispensable in pursuing TPS goals continuously and
indefinitely.
The Georgetown Ramp Up
Developing human infrastructure was TMC’s foremost priority in transplanting TPS
to Georgetown, as evidenced by several decisions made early on. First, TMC assigned to
TMM the 1987 Camry that was already being mass-produced in its Tsutsumi plant in
Japan. Second, it replicated the Tsutsumi line as closely as possible at TMM. And third, it
set a deliberately slow ramp up schedule. As a result, TMC could find people in Tsutsumi
who, based on their own experience, were able to demonstrate to TMM how to solve the
problems encountered in that plant.
While construction was underway at Georgetown in early 1986, TMM initiated a
hiring and training program (run out of a trailer office). It began with top managers and
proceeded to core operations personnel; these people primarily came from within the
industry and formed the nucleus of TMM operations. Their first encounter with TPS
occurred during a month-long trip to Tsutsumi, to which Doug Friesen’s reaction was
quite typical:
I built cars at Tsutsumi, and couldn’t believe 60% of what I saw
there. The line was unbelievably fast-paced, the plant was kind of run
down, and the American company I left had more automation. The good
things I saw were just common sense and no big deal at all. My eyes
weren’t open back then.
Next, TMC sent Tsutsumi people to Georgetown, hundreds of them in all. These
trainers-on- loan coached TMM supervisory personnel one-on-one and reinforced TPS
basics. Every TMM manager was also paired with a coordinator from TMC, who remained
in Kentucky for a few years. These coordinators were charged to develop their
counterparts only by persuasion C not to do things themselves. This intensely personal
approach brought an “eye-opening” moment to most TMM people. As TMC’s plan

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2016.
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 lay
behind these results. Although everyone had a unique episode that marked a turning
point, they converged
3

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693-019 Toyota Motor Manufacturing, U.S.A., Inc.
on one point: “TPS isolates problems from people and thereby enables people to focus on
solving problems.”
Fujio Cho, president of TMM and TPS evangelist, described his vision:
We fortunately have not seen any surprises so far. I believe in the
universality of TPS and its ability to deliver high quality. To develop TMM,
we put safety above all else and began with quality. We then added
productivity to our target. Right now, our cars are as good as Tsutsumi’s in
quality and we are only slightly behind in productivity. We are currently
moving to the next step C worrying about cost and spreading TPS to local
suppliers. I am hopeful that we can make TMM a truly American company
that contributes to the community.
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 to
double TMM’s capacity.
Operations
In Georgetown, the power train plant supplied engines and axles to the assembly
plant, which performed sheet-metal stamping, plastic molding, body welding, painting,
and assembly operations. In these direct operations as well as in their support functions
(see Exhibit 3), TPS was deployed as a set of management tools to be practiced daily.
Mike DaPrile commented:
TPS highlights problems so that people can see them easily. The
hard 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 to
know people very deeply and over time. In the process, we all become
students here. In fact, I have learned more in the last five years than I did
in the 25 years I spent with another auto company.
Assembly
Assembly operations were performed along 353 stations on a conveyor line, over
five 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 few
cars, and the entire assembly line was buffered from the power train plant and the paint
line with about half an hour’s production. The line currently operated on a line cycle time
of 57 seconds, down from 60 at the startup.
Assembly and part handling required 769 team members, who were paid an
average of $17 an hour (not including benefits), plus a 50% premium for overtime. A
team usually had four members and one team leader, who received a premium of 5% to
8%. To supervise these team leaders and team members in two shifts, Doug Friesen
worked closely with 10 assistant managers and 46 group leaders (see Exhibit 3). A
regular shift lasted 525 minutes, including 45 minutes of unpaid lunch time and two paid
15-minute breaks. When a team member had to leave the moving line, the team leader
filled in that position as a line rover.
Every station on the assembly line embodied jidoka and kaizen tools. A
standardized work chart was posted adjacent to each work station on the line, showing
the cycle time of that station, the sequence of work tasks, and the timing to perform
them within one cycle. Colored tape marked out areas of the floor to specify where just
about everything in sight belonged, and promoted the “4Ss (sift, sort, sweep, spic-and-

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span).” In the resulting work environment, any deviations from normal conditions stood
out visually.
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Toyota Motor Manufacturing, U.S.A., Inc. 693-019
A green line and a red line drawn at right angles to the assembly line marked the
beginning and the end of each work station. A team member would start the work for
one cycle when a car reached the green line and finish all tasks by the red line. A yellow
line in between marked a point by which 70% of the work had to be completed. If the
team member was behind at this yellow line or found any other problem, he or she pulled
the andon cord: a rope running along the assembly line over the work area. An andon
pull turned on a flashing light, triggered loud music, and lit up the work station’s
“address number” on the andon board (see Exhibit 4). The team leader then rushed to
that work station to ask what the problem was and, if it was correctable, turned off the
lights and music by pulling the andon cord again. If, however, the team leader could not
resolve the problem immediately, he or she left the andon on and allowed the line
segment to stop at the red line, that is, when the other work stations completed their
cycles. This stoppage instantly attracted the group leader’s attention. A team member,
on average, pulled the andon cord nearly one dozen times per shift, and typically, one of
these andon pulls resulted in an actual line stoppage. Doug Friesen explained:
In our system, every team member is focused on building quality in
through andon pulls. We then call on team leaders to respond quickly, and
group leaders to take countermeasures to prevent the recurrence of the
problem. Our job as managers is to keep the line going, and that means
developing people. It’s easy to say “do this and do that,” but nothing
happens unless we follow through because people fall back into old habits.
Leadership means standing by people for hours to help them acquire the
new way. It takes patience.
Production Control
The mission of the production control (PC) department was to feed necessary
parts into TMM operations so that the right number of cars in the right mix could be
delivered to the sales company just-in-time. PC’s task thus involved coordination with
TMC, the sales company, and local suppliers. Although TMM made only Camrys whose
destinations were limited to North America and Europe, in May of 1992 there were 23
sedan and wagon models, 11 exterior colors, 29 interior variations, and 30 other options
like a moonroof. Thus, the number of combinations actually produced reached several
thousand.
To meet the challenge of such variety, PC relied on the extensive forecasting
and planning that TMC performed for worldwide markets. To prepare for May
production, for example, PC first received, in January, a Production Planning Order
(PPO) for key specifications from the sales company. This PPO was revised in
February and, after one more update, was fixed as a Total Vehicle Order (TVO) by
the end of March. While total volume was fixed in late March, the PPO was
generally accurate only within “ 20% of the TVO for most specification categories at that
point. Next, the TVO was broken down weekly: by the end of the second week of
April it was done for the first week of May. During the third week of April, the initial
May week’s information was translated into final part orders for local suppliers as
well as a daily production sequence for TMM operations. This procedure left one full
week for production preparation.
The planning process reflected JIT principles in two major ways. First, the practice
of heijunka called for evening out (balancing) the total order in the daily production
sequence. Suppose, for example, a monthly order for 20 working days comprised 20,000
sedans, equally divided between a base model and a luxury model. In conventional auto
manufacturing operations, the order would be broken into several production runs, each
dedicated to just one model. Daily volume would vary with line changeovers between
runs, and a learning effect would occur within one batched run. The heijunka practice,
however, would call for 500 base models and 500 luxury models every single day and
also demand that a base model and a luxury model be made alternately. Likewise, if 25%

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of the order specified a moonroof option, one out of every four consecutive cars on the
assembly line had to
5

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693-019 Toyota Motor Manufacturing, U.S.A., Inc.
contain that option. Thus, TMM’s assembly line exhibited a variety of shapes and colors,
with every car displaying a printout (manifest) that informed team members of the
vehicle’s full specifications.
The heijunka practice achieved two purposes. Spreading out the demand for
parts as evenly as possible relieved suppliers of a surge of workload and facilitated their
JIT production. Without heijunka, a moonroof supplier, for instance, would either become
busy just one week every month or engage in level production and live with the risk of
order cancellation and inventory obsolescence. With heijunka, the same supplier could
stick to a uniform cycle time throughout the month (say, one moonroof every 4 x 57 =
228 seconds) without creating the waste of inventory. Similarly, offsetting cars that
required a particular operation against those that did not prevented any particular work
station from becoming a severe bottleneck or remaining unreasonably idle. Heijunka
also synchronized the assembly line with the ultimate sales of the cars.
The second JIT principle was reflected in the use of kanban cards. Although all
production plans were shared with suppliers to ease their planning, only kanbans
triggered part production. A kanban card included a part code number, its batch size, its
delivery “address,” and other related information. Every part container sitting on the flow
rack along the assembly line held one batch and had its own card. The card would
physically travel between this part-use point and the supplier, whether in-house or
outside, to signal the actual parts needed. When (and only when) the supplier received a
kanban, it began making that part in the stated quantity, and shipped a container full of
that part to the proper “address” on the assembly line. Assembly group leaders adjusted
the number of circulating kanbans for each part within a set range, determined by the PC
department, to avoid having teams run out of parts or containers overflowing onto the
plant floor. The PC department monitored the circulation of kanbans closely both to
determine the appropriate kanban range and to feed information back to parts ordering
for even better inventory control.
Quality Control
TMM’s quality control (QC) department pursued a mandatory routine of setting
tough quality standards, inspecting every vehicle against those, and following through
on the customer’s experience with shipped vehicles. In addition, QC engineers were
called on by assembly group leaders to help them solve assembly quality problems and
work out part quality problems with suppliers. Twenty patrol inspectors on each shift also
observed problematic items that they had been notified about among the thousands of
different parts arriving at the receiving dock.
QC served two other functions as well. The first was providing instant feedback to
direct operations including final assembly. On the last stretch of the final assembly line,
QC checked assembly quality before cars went off to elaborate shipping inspection, and
it “returned” problematic cars immediately to an assembly group. This group then
diagnosed the causes of the problems with QC and, while repairing the cars in the clinic
area, fed the information back to the appropriate teams. When eight cars filled up this
limited clinic space, the assembly line was shut down under a “Code 1” status and
Friesen and his assistant managers gathered to discuss countermeasures. This
procedure worked as an equivalent of andon pulls for the managers. Mike DaPrile, being
used to a much larger repair yard in his previous job, had protested before the ramp up
that this clinic area was “way too small” C only to find out that TMC really wanted him to
stop production as soon as four cars occupied the area.
QC’s second unique function was proactive: preventing problems from occurring
in the first place. As Rodger Lewis, assistant general manager of QC, explained:
We’ve got to go back to the source of the problems because our

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2016.
target moves every year. In the J. D. Power Initial Quality Survey, our
Camry was third, with .72 defects per vehicle in 1990, and eighth, with .79
in 1991. The top runner went down from .63 to .47, but it’s O.K. We are
trying to build in quality before cars come to the factory. Oh, it’s a joy to
work with design people! They want to know any problems
6