Toyota's JIT Revolution

In the mid-1990s, more than fifty executives and engineers from major automobile companies worldwide visited Toyota Motor Company's (Toyota) I manufacturing complex at Georgetown, US, to study the Toyota Production System (TPS). The visit also included an intensive question and answer session. Even though the visitors were from competing automakers, including Ford and Chrysler, Toyota did not deny them access to the plant. The TPS aimed to produce world-class, quality automobiles at competitive prices. It was built on two main principles, Just-in-Time (JIT) production and Jidoka.' JIT was used not only in manufacturing but also in product development, supplier relations and distribution. Analysts remarked that despite imitating Toyota's JIT for many years, no other automaker in the world had been able to make their production systems and processes as efficient as Toyota had done. Analysts felt that though other leading automakers like Mercedes-Benz, Honda and DaimlerChrysler excelled in advanced engineering techniques, engine technology and styling, they did not match Toyota in efficiency, productivity and quality. Executives of rival companies also appreciated Toyota's manufacturing and product development systems. Officials at GM commented, "Toyota is the benchmark in manufacturing and product development." A top executive at Ford said, "Toyota is far ahead in developing markets that the real race is for the second place." Some executives at BMW also considered Toyota the best car company ill the world. The early adoption of JIT principles by Toyota seemed to have helped the company achieve significant success. It helped the company respond quickly to changing customer needs and offer high quality products at low costs, thus increasing customer satisfaction.

BACKGROUND NOTE
Toyota's history goes back to 1897, when Sakichi Toyoda (Sakichi) diversified into the handloom machinery business from his family traditional business of carpentry. He founded Toyoda Automatic Loom Works (TAL W) in 1926 for manufacturing automatic looms. Sakichi invented a loom that stopped automatically when any of the
threads snapped. This concept of designing equipment fixed immediately formed the basis of the Toyota on to become a major factor in the company's success. to stop so that Production System defects could be (TPS) that went

In 1933, Sakichi established an automobile department within TALW and the' first passenger car prototype was developed in 1935. Sakichi's son Kiichiro Toyoda (Kiichiro) convinced him to enter the automobile business. After this the production of Model AA began and Toyota Motor Corporation was established in 1937. Kiichiro visited the Ford Motor Company in Detroit to study the US automotive industry. He saw that an average US worker's production was nine times that of a Japanese worker. He realized that the productivity of the Japanese automobile industry had to be increased if it were to compete globally. Back in Japan, he customized the Ford production system to suit Japanese market. He also devised a system wherein each process in the assembly line of production would produce only the number of part s needed at the next step on the production line, which made logistics management easier as material was procured according to consumption. This system was referred to as Just-in-Time (JIT) within the Toyota Group. The JIT production was defined as 'producing only necessary units in a ne cessary

quantity at a necessary time resulting in decreased excess inventories and excess workforce, thereby increasing productivity.' Kiichiro realized that by relying solely on the central planning approach, it would be very difficult to implement JIT in all the processes for an automobile. Hence, TPS followed the production flow conversely. People working in one process went to the preceding one to withdraw the necessary units in the necessary quantities at the necessary time. This resulted in the preceding process producing only quantities of units to replace those that had been withdrawn. Toyota flourished during the Second World War by selling trucks and buses to the army and the company launched its first small car (SA Model) in 1947. After the war, the company faced a series of financial problems. A financial support package from a consortium of banks (after the intervention of the Bank of Japan) helped Toyota tide over its problems. The package consisted of a series of steps that included downsizing and restructuring the company into separate manufacturing and sales divisions. As per the revival package, The Toyota Motor Sales Company Ltd. was formed in 1950. In the same year, Kiichiro resigned. By 1952, Toyota made a turnaround and in 1953, the company appointed distributors in El Salvador and Saudi Arabia and started exports. Meanwhile, Taiichi Ohno (Ohno) took charge of the company. In 1957, Toyota entered the US market through its subsidiary, Toyota Motor Sales, USA. In 1959, the company began its first overseas production in Brazil and over the next few years, developed a vast network of overseas plants. Besides manufacturing, Toyota started a global network of design and Research and Development facilities covering the three major car markets of Japan; North America and Europe. By the early 1970s, Toyota's sales production was behind that of only its efforts to make its production manufacturing systems. It also began 1974 the Toyota Corolla, (launched world. In 1984, Toyota entered into United Motor Manufacturing Inc. (NUMMI). exceeded that of Chrysler and Volkswagen General Motors (GM) and Ford. Toyota system more efficient and also developed to tap the markets in the Middle East in 1965) became the largest selling car a joint venture with GM and established and its continued flexible and by in the the New

By the early 1990s, as Toyota expanded its overseas operations, the excessive capital spending affected its profit margins. Tatsuro Toyoda (Tatsuro), who took over as the company President in 1992, began to control costs by eliminating all unnecessary expenditure. In 1995, after Tatsuro resigned due to health reasons, Hiroshi Okuda (Okuda) became Toyota president. In 1996, Toyota consolidated its production in North American production units into the Cincinnati based Toyota Motor Manufacturing (North America). In 1999, Okuda replaced chairman Shoichiro Toyoda and Fujio Cho (Cho) became the president. In the same year, Toyota listed its shares on both the New York and London stock exchanges. By the end of 200 I, the company's net income had reached US$5 ,447 million and net revenue reached US$ 106,030 million (Refer to Exhibit I for the company's financial performance over the years). According to analysts, Toyota's success in both the local and global markets was mainly because of its state-of-the-art and well-planned operational strategies. The company had continuously focused on gaining a competitive advantage through implementation of innovative and path-breaking ideas on its production floors. TPS worked on the basic idea of maintaining a continuous flow of products in factories in order to flexibly adapt to demand changes. The most important feature of TPS was the way it linked all production activities to real dealer demand through implementation of Kanban, JIT and other quality measures that enabled Toyota to manufacture in low quantities.

JUST-IN-TIME PRODUCTION SYSTEM

Developed by the Japanese, the JIT production system was one of the most significant production management approaches of the post World War II era.: The system comprised a set of activities aimed at increasing production volume through the optimum use of inventories of raw materials, work-in-process, and finished goods. In a JIT production system, a workstation gets a part just in time, completes its work and the part is moved through the system quickly. JIT was based on the principle of producing only what is needed and nothing more than needed. The Japanese believed that anything produced over the quantity required was a waste. Cho defined waste as, "Anything other than the minimum amount of equipment, materials, parts and workers (working time) which are absolutely essential to production." JIT did not allow any surplus as it believed that "effort and material expended for something not needed now cannot be utilized now."

Table I: Just-in-Time Production System

What it is What it does

Management philosophy 'Pull' System through the plant

Attacks waste (time, inventory, scrap) Exposes problems and bottlenecks Achieves streamlined production

What it requires

What it assumes

Employee participation Industrial engineeringlbasics Continuing improvement Total quality control Small lot sizes

Stable environment

JIT could be applied to any manufacturing environment including job shop, batch production or repetitive production. The ideal lot size as per JIT was one. A worker had to complete one task and pass it on to the next workstation for further processing. If workstations were geographically far away, efforts were made to reduce the transit time. The advantages of lIT included price flexibility, reduction in product variation, quick response to customers' demands, high quality products at low cost for consumers, and above all, customer satisfaction. The system also offered the advantages of low inventory investment, shortened lead times, and early detection of quality problems.