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Dissecting Toyota's woes

By Robert B. Chung and Brian H. Kleiner

Exclusive Summary
Toyota Motor Corp. was in a public relations nightmare at the end of 2009 and beginning of 2010 because of unintended acceleration issues related to various vehicle models. This called into question standard practices that had spawned from Toyota’s process model and rich history. But the problems can be traced to the erosion of the just-in-time and jidoka structural pillars that supported the goals of the Toyota Production System.

The end of 2009 and the beginning of 2010 were disastrous for Toyota Motor Corp. Company officials were adrift in a public relations nightmare related to the unintended acceleration in various Toyota car models that had resulted in accidents and even deaths. As the public, government and corporate blame game elevated from a simmer to a boil, a common question appeared: How did Toyota, father of lean manufacturing and the Toyota Production System, fall so far? Was Toyota’s organizational philosophy, which became an industry standard and spawned legions of imitators, to blame?

The genesis of Toyota

To answer these questions, one must start at the origins of the Toyota Motor Corp. In the late 1800s, Sakichi Toyoda’s inventive curiosities led to the creation of a power loom that reduced the labor required for spinning and weaving cloth. Here, Toyoda began to develop the Toyota way as he sought to create looms that would produce mistake-proof cloth through jidoka, or automation with a human touch. Toyoda also established the tradition of genchi genbutsu, or invention through trial and error without the fear of soiling one’s hands, Jeffrey Liker wrote in The Toyota Way.

In the late 1920s, Toyoda wanted his son to follow his path of inventing something that changed society. Accordingly, Sakichi Toyoda sent Kiichiro Toyoda to the Tokyo Imperial University to study mechanical engineering. Then in 1939, combining the profits from Sakichi Toyoda’s automated loom with Kiichiro Toyoda’s formal education, father and son founded the Toyota Motor Co., which later became the Toyota Motor Corp. The early years of Toyota were not easy, and by 1948 it was facing bankruptcy, according to The Toyota Way. Employees were asked to resign voluntarily or take pay cuts, but this action failed to remedy the problem and exacerbated corporate strife. Kiichiro Toyoda, as Toyota’s president, recognized his failure as a leader and resigned to restore company peace. Eiji Toyoda, Sakichi Toyoda’s cousin, eventually filled Toyota’s presidential position.

TPS origins

Eiji Toyoda controlled Toyota’s helm during its important growth years and solidified the core principles of the Toyota Production System. In the 1950s, Eiji Toyoda was sent to the United States, where he toured Henry Ford’s manufacturing plants to gain an understanding of industry standard manufacturing processes. The hope of Toyoda and his company was to use this understanding to elevate Toyota’s manufacturing standards and processes to global levels. However, during Toyoda’s tour he noted that Ford’s production system created excess waste and an opportunity for Toyota to improve on Ford’s batch processes with one-piece flow, Liker wrote. This set the stage for Toyota to overtake Ford in 2003 as the No. 2 automaker in the world despite Toyota’s significantly less available resources.

Toyoda’s process became known as the Toyota Production System, or TPS. It used waste reduction and continual organizational improvement to drive quality. Toyota symbolized the TPS processes with a house that illustrates the various key components of the system and their relationships. The foundation of the house is made of the Toyota philosophy, visual management, stable and standardized processes, and leveled production. The just-in-time and jidoka pillars are built upon this foundation and support a “roof” of best quality, lowest cost, shortest lead-time, best safety and high morale. Within the house, people and teamwork focus on waste reduction, which creates continuous improvement.

Understanding the TPS house is important because it emphasizes that the Toyota Production System is not a single process but a cultural mindset that requires all elements to work together. The critical components of the TPS house are the just-in-time (even workflow) and jidoka (quality through human-controlled automation) pillars that create the structural integrity and protect continuous learning, Liker wrote.

14 core principles

From the TPS house, the Toyota mindset can be expanded through Toyota’s 14 core principles, which can be divided into four sections. Section one of the 14 core Toyota principles contains only one – that decisions should be based upon long-term goals, not short-term gains. The second section focuses on the understanding that the correct process will produce the correct results. It’s the largest section and comprises seven principles that represent the just-in-time and jidoka pillars of the TPS house. These principles include pull systems, continuous flow, even workloads, fixing problems the first time, continuous improvement through standardization of tasks, ensuring that problems are visual, and only using technologies that have been vetted thoroughly to increase reliability. The third section contains three principles that apply to the human elements of Toyota and its extended network. These principles seek to develop leaders who understand the Toyota way, expand company culture throughout the organization, and leverage understanding of the Toyota way to improve business partners, according to Liker’s The Toyota Way.

The fourth section contains the last three principles that create continuous improvement through exploration of problem sources. Here rests the genchi genbutsu philosophy established by Sakichi Toyoda during Toyota’s infancy, which reduces the chances of making decisions on superficial facts by requiring problem solvers to inspect the sources of problems physically. The last section also establishes group decision making along with hansei and kaizen, which are keys to continuous improvement. Hansei is the analysis of projects to identify and correct faults made during implementation. Kaizen stands for the continuous improvement process of seeking out and eliminating waste.

Within Toyota’s 14 principles and the TPS house lay the answers to Toyota’s 2009/2010 quality and public relations nightmare, which started with the highly publicized crash of a Lexus that resulted in the death of a California Highway Patrol officer on Aug. 28, 2009, according to Reuters news service.

The origin of quality problems

In July 2000, Toyota initiated a program that may have started the erosion of various core principles, including the first principle of stressing long-term focus even at the sacrifice of short-term financial benefits. Katsuaki Watanabe, Toyota’s president in 2004, was overseeing a dramatic cost-cutting program called Construction of Cost Competitiveness for the 21st Century, or CCC21, according to Time magazine. This program sought massive cost reductions throughout the organization with a goal of saving $10 billion within the program’s five-year plan. However, by 2005, CCC21’s lofty short-term goals began to take precedence over Toyota’s long-term quality focus. Toyota itself reported that the cost cuts fell short of its estimates. Watanabe began to squeeze key suppliers even harder and sought additional cost reductions through reducing the number of components, consolidating the production of parts and benchmarking supplier costs against Chinese counterparts. Not only did this action seemingly violate Toyota’s first principle, but it also seemed to violate Toyota’s 11th core principle of respecting key partners and helping them improve.

Watanabe’s and the CCC21 program’s rampant cost cutting and violation of Toyota’s first and 11th core principles may have eroded the just-in-time pillar of the TPS house. No longer was Toyota requiring suppliers to provide the ideal part at the ideal time. Instead, the CCC21 program wanted suppliers to provide the simplest automotive part at a Chinese price, Businessweek wrote. Additionally, the CCC21 program may have burdened Toyota with excess long-term risk at the gain of short-term savings. For example, Toyota’s accelerator pedal recall, issued on Jan. 21, 2010, covered more than 4 million vehicles spanning 18 different models that shared similar accelerator pedals. The cost of the recalls and lost sales of $155 million per week erased more than 10 percent of CCC21’s estimated savings, CBS News reported.

The cause of this recall was a pedal assembly manufactured by CTS Corp. that was shared across model lines. Thus, Toyota was exposed to a large quantity of recalls if a single part failed. Within the CTS pedal housing, a bushing increased friction to improve the feel of the accelerator pedal in Toyota’s drive-by-wire accelerator system. Over time, the friction applied by this bushing could increase and, in rare instances, result in a stuck accelerator pedal, according to The Truth About Cars website.

Akio Toyoda takes control

In June 2009, Toyota’s president Katsuaki Watanabe gave the reigns of the Toyota Motor Corp. to Akio Toyoda, grandson of Kiichiro Toyoda. Much like Eiji Toyoda, Akio Toyoda was challenged to restore the honor of Toyota in a time of peril, with Toyota reporting its biggest annual loss in history, more than $4 billion. Akio Toyoda recognized Katsuaki Watanabe’s departure from Toyota fundamentals and sought to reorganize Toyota and bring the company back to its 14 core principles.

However, restoring profitability through reorganization and restoring focus on the 14 core principles became the least of Toyoda’s problems as more recalls were issued. In November 2009, 4.2 million Toyota vehicles were recalled for floor mat and brake override problems. In January 2010, as previously mentioned, 4.1 million Toyota vehicles were recalled due to faulty CTS accelerator pedals.

Toyota’s and Toyoda’s attempts to address the sudden, unintended acceleration issues in many of its vehicles only worsened the situation. Despite Toyoda’s initial intentions to refocus Toyota, the company continued a departure from core principles while trying to correct the growing problems. The organization and its boss seemingly continued to ignore principle five, which strives to build a culture that is not afraid to stop, address problems and quickly solve them while building countermeasures into the process.Toyota issued many temporary solutions to the unintended acceleration problem as it struggled to discover its root cause. Some of these official solutions included removing the floor mats and using zip-ties to hold the mat in place. However, Toyota did not stop selling the affected vehicles until the National Highway Traffic Safety Administration mandated the stop sale in January 2010. Not acting quickly in response to problems began to erode the jidoka pillar of the TPS house. Toyota’s failure to initiate its own stop sale and recommendation of the zip-tie solution were clear deviations from the four basic principles of jidoka, which state that one should find the problem, stop the process, fix the problem and investigate the root cause. Zip-ties were hardly a fix to the problems. Toyota’s failing to stop the process allowed the problem to increase exponentially.

Fall of the two pillars

With the failure of the TPS house’s just-in-time and jidoka pillars, little was left to support the TPS roof of quality, cost, delivery, safety and morale. For Toyoda and his company, the TPS house began to collapse and negatively affect the people, teamwork, continuous improvement and waste reduction that reside in the TPS house. This resulted in Akio himself failing to honor genchi genbutsu by delaying a formal address regarding the problems with Toyota vehicles until Feb. 9, 2010, two months after the floor mat recall, instead of immediately going to the source of the problem.

The situation continued to worsen for Toyota as the United States government required Toyoda to deliver testimony before the U.S. Congressional Committee on Oversight and Government Reform on Feb. 25, 2010. During his address, Toyoda pointed to the failure of Toyota’s commitment to genchi genbutsu. He stated that Toyota should have required upper management to go to the source of problems to ensure that they did not base decisions on superficial understanding. Toyoda continued, stating that decisions regarding the recalls were flawed because they were not made by regional divisions but by Toyota’s customer quality engineering division in Japan , The Guardian of London reported. Therefore, critical recall decisions lacked a factual understanding of local customs and customer perspectives that surrounded the regional recalls.

Toyota begins to rebuild

However, Toyoda began to rebuild the broken TPS house during his testimony to the Oversight and Government Reform Committee. He recognized the failure of Toyota to honor genchi genbutsu and reaffirmed the company’s commitment to placing the customers and their safety first. His plan called for the creation of an Automotive Center of Quality Excellence, a new executive position to direct product safety, and reorganization of the recall process to enable addressing recall issues in a more timely manner, The Guardian reported. This would reduce the risk of basing decisions on superficial information and streamline information flow between global divisions.

Toyoda also committed to refocusing the management team to genchi genbutsu by ensuring that management would drive affected cars. This would place them at the source and deepen their understanding of problems affecting Toyota products. And in a break from Japanese tradition, he personally apologized for the safety issues surrounding Toyota products. Toyoda assured the public that Toyota would restore quality and safety as its primary goals. This personal apology harkened back to Kiichiro Toyoda accepting personal responsibility for problems related to the company. In a similar fashion, Akio Toyoda’s personal apology began to restore company peace.

Who’s at fault

On July 14, 2010, The Wall Street Journal published an article on the Department of Transportation’s analysis of the data recorders in multiple Toyota automobiles involved in accidents where the suspected cause was a stuck accelerator. The findings of the study showed that almost all of the accidents were caused by driver error, not mechanical malfunction. In many instances, the data recorders showed the accelerator had been pressed and the brakes never had been applied. This suggested that the driver had mistaken the accelerator pedal for the brake pedal, meaning that the accidents were not caused by a failure of the vehicle’s systems. These findings were supported by a similar study of a similar incident involving the Audi 5000 in the late 1980s, in which accidents that were thought to have been caused by stuck accelerators were, in fact, caused by driver error.

However, these findings do not exonerate Toyota for problems related to the CTS accelerator or the floor mats. These issues were mechanical failures that should have been addressed by Toyota and the Toyota Production System. Toyota’s departure from core principles and failure to honor genchi genbutsu negatively altered its corporate culture during the early 2000s. Toyota began to base decisions on superficial information, seek extreme cost-cutting measures and insulate decision makers from problem sources. Therefore, it was Toyota’s own departure from the Toyota way and the Toyota Production System that rests as the root cause of Toyota’s 2009 and 2010 public relations issues.

Violations of only a few of Toyota’s 14 principles were shown within this analysis. However, Toyota and Akio Toyoda’s recommitment to the 14 principles and reconstruction of the TPS house displays their faith in the processes that changed a simple loom manufacturer into the No. 2 automaker in the world. Additionally, Akio Toyoda and Toyota’s ability to recognize their internal faults in an introspective manner serves as confirmation of the validity of the principles that Toyota holds at its core.

Robert B. Chung is a certified prosthetist and project coordinator with Hanger Orthopedic Group Inc. He has overseen the implementation of just-in-time practices in more than 30 medical practices. Chung earned his B.S. in biomedical/mechanical engineering from the University of Southern California, his prosthetic practitioner certification from California State Dominguez Hills and currently is completing his MBA at California State University, Fullerton.

Brian H. Kleiner is a professor of management at California State University, Fullerton. He received both an MBA and a Ph.D. in management from the University of California, Los Angeles (UCLA).

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