Toyotas expansion challenge

Toyotas expansion challenge Introduction Toyota’s massive recalls occurred towards the end of 2009, and the beginning of 2010. Monden (253) claims that 8 million cars were recalled because of sticky accelerator pedals, and floor mats that could trap accelerators. Another defect was anti-lock braking system software found in hybrid cars. Toyota’s tradition has been to pursue safety as the first priority. It is followed by quality, and volume. The pursuit to capture the largest market share did not match available resources.Advertising We will write a custom case study sample on Toyota’s expansion challenge specifically for you for only $16.05 $11/page Learn More Toyota’s success is attributed to the efficiency of its JIT (Just-in-Time) system and TPS (Toyota Production System) which rivals have found difficult to copy. Toyota responded in time to an emerging trend in the global market where people sought cars with efficient fuel consumption. Toyota’s q uality challenge emerged from its expansion into new locations where TPS may not have been fully understood. The strength created by TPS became a challenge to its own new regions. TPS requires many years to understand. According to the article, its strength includes the ability to capture a larger market share by its wide variety of products. They target each social class from low cost Scions to luxury Lexus. It is a good strategy to capture all market segments. However, it lays challenges to developing modifications because engineers have a wide area to cover. It may result to very few engineers being committed to a design. Reasons for higher growth rate than competitors According to the article, Toyota gives customers a wide range of choices. Ability to choose components that a customer would like to be added to his/her car. It captures almost every customer’s taste. The company gains competitiveness by offering over 40 customization elements. Toyota’s continuous inn ovation has been able to increase its competitiveness in the global market. Toyota integrates new designs and the latest software at lower costs which provide the capability to offer competitive prices that rivals fail to match. Toyota is also able to shift products and production where they are mostly needed. Toyota has a history of producing reliable and high quality cars. All these factors have contributed to its fast expansion. Standardization of processes is considered essential in the accumulation of knowledge. Toyota has a system of technical standard registration guidelines which enables the company to develop its own institutionalized knowledge (Hino 179). The company is able to develop unique standards through practice. Toyota’s efficient system has been working on a continuous improvement basis. Harvard Business Review (61) discusses that many companies have been unable to copy the TPS. The main reason is that Toyota’s production method has been developed ov er a long period of institutionalized knowledge.Advertising Looking for case study on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Other companies cannot adapt them in a short period of time. It takes the company about 20 years to train a T-type manager (Harvard Business Review 26). New managers learn gradually by working at the company over a long period. The company has managed to beat competitors on â€Å"reliability, quality, cost reduction, and even sales and marketing† (Harvard Business Review 60). Its system of ongoing improvements makes it difficult to be copied. The system is learnt only through practice (Harvard Business Review 63). Toyota expanded through managing production costs. Shimokawa (207) explains that legacy costs are not the only causes of North American automotive companies’ failure. Legacy costs include items such as insurance, and retirement benefits. The companies faile d to respond to global trends such as energy efficient vehicles. The companies did not see the need to modify their engine technology to match consumer needs against rising fuel costs, and environmental concerns. Ford and GM relied on mass production for efficiency for a long period without seeing the need for modification. One model is manufactured for a long period to make inventories before shifting to another model (Shimokawa 207). According to the article, Toyota’s system allows for several models to be manufactured simultaneously. Toyota invented the Just-in-Time lean system. It reduces inventories by producing only what is needed, and when it is needed. Part of Ford and GM higher costs were associated with maintaining high inventories. Manufacturing a car brand for everyone Hino (176) discusses that Toyota was able to expand by adapting a product mix policy developed by Sloan who was the GM manager. The policies include a strategy to arrange products by price from low- priced cars to luxury cars. It also requires the automobile to avoid ultra-luxury cars that could not be produced in large volumes. The company was to maintain small gaps between product prices. The company was also to avoid manufacturing products with similar prices (Hino 176). Toyota was able to succeed mainly by applying these ideas more accurately than GM, the company for which they were developed. By producing a brand for each group, Toyota is able to compete with GM. It could not have made the same growth without applying Sloan’s theory. By reducing gaps between products arranged by price, Toyota hinders rivals from placing a product in between. When a rival launches a product in between the prices, it may be able to cut the upper and lower segments into halves.Advertising We will write a custom case study sample on Toyota’s expansion challenge specifically for you for only $16.05 $11/page Learn More However, by developing a car for each group, its engineers are spread over a wide range of products. It reduces attention to detail. Teamwork is also reduced to a few individuals working disjointedly to modify or design parts. Toyota on Porter’s five forces Toyota appears to be more competitive than rivals using Porter’s Five Forces. Using Porter’s Five Forces for analysis (Hill Jones 43), Toyota appears to have a close partnership with suppliers. Pressurizing them to reduce costs, and maintain high quality standards. Suppliers have weak bargaining power if the customer is large such as Toyota (Hill Jones 55). Customers’ strong bargaining power is reduced by Toyota’s ability to develop cars at the lowest cost possible, and applying the latest technology. Efficiency in fuel consumption came at the right time, when the world was facing high fuel costs, and a recession. By creating a car for each group, Toyota has reduced the effect of substitutes. Entry into the automobile industry is barred by the high cost of entry. TPS requires many years before it is understood. It has limited the ability of other firms to adapt to TPS. It provides Toyota with a competitive advantage. Toyota recognizes that its engineers are trained for many years to adapt to TPS. When competitors were trying to stick to economies of scale, Toyota was developing a system with absolute cost advantages (Hill Jones 44). Firms find it difficult to put into practice Toyota’s low cost structure. Moreover, Toyota is able to weaken competitive forces by its continuous improvement program. It responded to customer needs in a timely manner when competitors were rigid about the type of models they had designed. Toyota’s expansion rate higher than resources Toyota’s engineers sought to design compatible parts for multiple models. Cole (par. 3) analyzes that Toyota sought expansion at the same time pressurized engineers to reduce costs. One part design is used in many models. The ex pansion was also associated with a lot of new software integration. Monden (263) explains that developing software simultaneously with auto components makes it difficult to identify defects. The cause of quality failure can be associated with pursuing too many objectives in a short time. Toyota expanded production spreading its engineers over a wide range of products. Cole (par. 4) discusses that insufficient skilled labor in the engineering section was also a cause of quality failure. Fewer engineers were available to design and test models. The company was losing on the teamwork design. The company was also unable to recruit more engineers because of the amount of time it takes for an engineer to be fully capable of designing products in the automobile industry. Monden explains that â€Å"quick growth resulted in insufficient time for developing quality people† (246). It is estimated that an engineer might need to work for about 10 years to be fully integrated with the syst em. The expertise needed is gained through an accumulation of experience working in the industry or with the company. Toyota’s quality failure can be attributed to insufficient number of engineers to match the expansion.Advertising Looking for case study on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The integration of software components to help run and drive vehicles also caused the quality failure. Cole states that â€Å"software specialists have low status compared to hardware engineers† (par. 4). As a result of this, automobile industries do not accumulate the high technical skills in the software section. Software engineers would rather work in other industries than in the automobile industry. Toyota’s quality failure can be associated with a high speed to integrate multiple software applications without attracting the technical skills required for the job. It needs plenty of time to integrate a new workforce in a new location into the TPS. Monden (24) discusses that Toyota Productions System (TPS) is unique in its operations. It would take a long period for the management to develop a workforce that can meet the requirements of the system outside Japan. Toyota’s expansion involves setting manufacturing plants outside Japan. Hino (7) describes that the tradition of the company is to give customers free repair in case a model develops problems. In the 1930s, the GI truck developed mechanical problems. Toyota offered free repairs which reduced the mechanical failures that were being reported frequently. Toyota has used the same solution again. Conclusion Toyota appears to have recovered from the negative publicity it experienced between 2009 and 2010 (see appendices). Production and sales are almost to the same level they were before the quality challenges were reported. Japan, North America, and Asia are the key producing areas (â€Å"Figures: Vehicle Production, Sales and Exports by Region† table). In 2012, Japan had resumed production of 8.7 million cars. It is higher than what it produced it 2008 which was at 8.2 million cars. In North America, it produced 1.7 million cars in 2012. It is higher than 1.4 million cars produced in 2008. Asia also shows an increase in production (see appendix 1). When it comes to sales, they have increased as well. In 2008, sales in Japan totaled 1.47 million cars. In 2012, the company sold 1.69 million cars in Japan. In North America sales were 2.44 million cars in 2008, and 2.27 million in 2012. The North American segment has not fully recovered but it has shown signs of recovery compared to 2009, 2010, and 2011 (â€Å"State of the U.S. Motor Vehicle Industry† table). Asia shows signs of complete recovery, from 1.44 million cars in 2008 to 2.34 million cars in 2012 (see appendix 2). From these figures, it appears the response through free repairs, acceptance of blame, and recalls have been effective in keeping the company back on track. Much of the speedy recovery can also be attributed to the company longstanding reputation of producing low cost and high quality cars. Customers find it easier to trust its products once again. The main challenge to Toyota’s expansion rate was the rate at which it could train and integrate engineers. Recommendations Toyo ta is doing well by providing a free repair scheme. It adheres to the lean philosophy of continuous flow of value addition (Sayer Williams 30). Breaking down is a stoppage which is mended by the repair. Sayer Williams recognize that after-sale service is a â€Å"function that creates long-term customer relationship† (286). It creates value for customers. Evans (8) describes quality in manufacturing perspectives as one which meets specifications. By meeting specifications, it means performing the functions it is designed to do without any problem. Toyota should slow down the pace of expansion unless it trains the right size of personnel to handle expansion in multiple dimensions. Toyota has failed to meet quality in the consumers’ perspective. Evans describes quality in consumer perspective as â€Å"meeting or exceeding consumer expectations† (9). Toyota had succeeded because it met and exceeded consumer expectation before the rapid expansion. Toyota should sti ck to its tradition of ensuring safety and quality before volume. Evans describes the situation as â€Å"no quality, no sales† (4). Maintaining high quality has the ability of attracting new customers, and maintaining a group of loyal customers. Toyota faces the challenge of exporting TPS to its new locations. TPS is also considered to be learnt through practice. For it to maintain the same standards, it requires Toyota to transfer part of the experienced personnel to its new location to integrate with new recruits. Cole, Robert 2010. Toyota’s Hyper Growth and Complexity Trap. Web. Evans, James. Managing for Quality and Performance Excellence, Mason: South Western Publications, 2013. Print. Figures: Vehicle Production, Sales and Exports by Region 2013. Web. Harvard Business Review. Harvard Business Review on Manufacturing Excellence at Toyota, Boston: Harvard Business Press, 2008. Print. Hill, Charles G. Jones. Strategic Management Theory: An Integrated Approach, Bos ton: Houghton Mifflin, 2010. Print. Hino, Satoshi. Inside the Mind of Toyota: Management Principles for Enduring Growth, New York: Productivity Press, 2006. Print. Monden, Yasuhiro. Toyota Productions System: An Integrated Approach to Just-in- Time, Boca Raton: CRC Press, 2012. Print. Sayer, Natalie, B. Williams. Lean for Dummies, Hoboken: John Wiley Sons, 2012. Print. Shimokawa, Koichi. Japan and the Global Automotive Industry, Cambridge: Cambridge University Press, 2010. Print. State of the U.S. Motor Vehicle Industry 2012. PDF file. Web.