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Student Number: K1067538

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Renewable Energy Engineering Level ( 7)

Module Name: Industrial System & management

Module Code: MNM101

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Assignment Title: Operation Management, Toyota Production System

Module Leader: A. Lung

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Industrial System & Managements, MNM101

KINGSTON UNIVERSITY LONDON

December 19, 2011

Authored by: Omar S. Hamdan, K1067538

1

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“I, Omar S. Hamdan, K1067538, certify that I fully understood the faculty of science engineering and computing definition on Cheating and Plagiarism and that all material in this assignment is my own work, other people’s work which been used in this assignment has been properly acknowledged and referenced”

Table of contents:

1.0 Introduction 2

2.0 O���*�perations Management 2

3.0 Toyot���������a Production System (TPS�c�)� � � � � 3� �

4.0 Just in Time Inventory Management 6

5.0 Lean Manufacturing 8

6.0 Supply Chain Management 10

7.0 Conclusion 12

References 14

2

1.0 Introduction

The success of Toyota Motor Company is due to the unique reduction systems that

focus on continuous improvement and just in time management. Toyota has created a

decentralised structure that encourages employee participation and team working. Toyota

incorporated concepts just as supply chain management and inventory management to

create high quality automobiles and gain a competitive edge in the highly competitive global

automobile market. Toyota’s success and its lean manufacturing philosophy have been

widely studied. The Toyota manufacturing system is centred on achieving a high level of

productivity. The company has a unique approach to problem solving and it continuously

trains its employees.

The Toyota Production Systems is based on the lean manufacturing philosophy that

seeks to minimize wastages and centres on cost reduction. The Toyota manufacturing

philosophy emphasises on quality management through a process of continuous

improvement. This report looks at how Toyota created its manufacturing system and the

role of operation management techniques to enhance efficiency. This report examines the

production processes and philosophy and Toyota to assess how the company has achieved a

competitive advantage globally. The lean manufacturing philosophy pioneered by Toyota

has become a benchmark for all manufacturing companies around the world. The lean

manufacturing philosophy includes concepts such as customer relations, product design,

supplier networks and operations. The lean manufacturing practices have made Toyota

achieve low cost production and allowed them to manufacture high quality cars at lowered

costs. This report looks at how operations management techniques such as supply chain

management and inventory management have led to efficiency and profitability at the

Toyota Motor Company.

2.0 Operations Management

The study of operations management looks at the production of quality goods and

service. The aim of this discipline is to create efficient and effective business operations.

Operation management seeks to ensure the efficient management of resources along with

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the distribution of goods and services. Operation management seeks to enhance

manufacturing performance and this study has proposed various techniques and a

theoretical framework to achieve this goals. These techniques include quality management

(TQM), just in time (JIT) or Leaning manufacturing. Other concepts in the field of operations

management include six sigma and supply chain management. All these techniques require

a flat organizational structure coupled with functional integration in the organization (Gupta

& Boyd, 2008).

The competitive pressure for improved product quality has led to numerous

operations paradigms emerging/ the most significant ones include Just in Time, Total Quality

Management (TQM) AND Supply chain management (SCM). JIT seeks to eliminate waste and

recue setup times, it also controls the material flows and focuses on effective resource

utilisation. The TQM philosophy looks at developing a corporate culture that is customer

focused empowers employees and seeks continuous improvement. The supply chain

management integrates buyers and suppliers decision-making to improve the flow of

materials in the supply chain. The JIT, TQM and SCM approaches improve the effectiveness

and efficiency of the operations function (Kannan & Tan, 2005).

3.0 Toyota Production System (TPS)

The TPS lead to the lean production movement that emphasises on eliminating

waste from value streams. This production system is highly standardised. The production

systems have buffers that are controlled through various pull signals. The lean production is

very efficient and greatly improves quality that has given Toyota an edge in the global

automobile markets. TPS should be viewed as a philosophy that is described by a set of

general principles of organising and managing an enterprise (Lander & Liker, 2007).

Toyota’s success as an automaker in the world is based on its expertise in creating a

unique production system. This TPS is based on the principles of continuous improvement

also known as Kaizen. The Toyota company has a highly decentralised workforce which is

highly trained and takes part in the decision making process. The TPS consists of most

successful Japanese production and work practices. This approach was developed by Sakichi

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Toyoda the founder of Toyota who pioneered the TPS. It was Taciichi Ohno that created the

Just in Time (JIT) production systems. The JIT approach made Toyota more efficient and

these techniques also incorporated total quality control, statistical process control and

quality circles. Toyota introduced a new system of employee relation with one trade union

and created flexible work to respond to the demand based production (Winfield & Kerrin,

1994).

The Toyota manufacturing system is characterised by a continuous flow of

production that allows the company to be flexible enough to adapt to the demand

conditions. The JIT ensures that only the required materials for the production are acquired

at the right time. This minimises the excess inventories which leads to cost reductions. Also

the JIT emphasis on quality control and the production system is made adaptable to the

daily and monthly fluctuations in demand and quantities. The quality assurance processes in

the JIT ensures that each process supplies good units to the next process in the production.

The JIT systems also include human resources in the cost and production systems .Toyota

has also streamlined its production processes through implementing Total Quality

Management (TQM) process to lower costs and enhance quality (Amasaka, 2002).

The TPS is a highly specialised and flexible system that is aligned with the market. In

thus system the Kanban systems play a vital role as the system provides instructions as part

move along the production line. This system works with production line to deliver the

required material for production. The Kanban synchronises the production quantities at

each production stage. The Kanban Systems provide the precise information of the required

materials for the production process, this makes the production at Toyota more efficient

(Balakrishnan, 2003). The Kanban systems uses IT systems for planning and control including

enterprise resource planning (ERP). The modern computer aided production management

systems includes applications such as MPS, MRP and CRP, inventory control, shop floor and

vendor measurement systems (Riezebos et al, 2009).

Toyota production systems use less material and fewer employees that bring down

the costs making the company more efficient. The operations management systems at the

company efficiently allocate resources and employees for each project. This makes the

company more flexible and responsive to the needs of the market. The continuous flow

5

production at the company allows it to customise its cars to meet the changing customer

needs. Also the management introduced quality assurance teams to ensure that each unit

of production meet the set quality standards. This defect prevention technique is referred

to as “Jidoka” which in actual terms means to control defects. The Japanese culture heavily

influences the work culture at Toyota; the flexible workforce concept “Shonjinka” enables

the management to hire employees based on the fluctuating demand. This makes the

company more flexible and minimising costs (Balakrishnan, 2003).

The TPS is linked externally and to the entire production system, the main TPS

practices are focused on detecting, assessing and eliminating sources of the entire

production system. The sequential relationship amongst the external and internal links

includes three types of interaction; the first is upstream integration which is between the

external suppliers and internal suppliers within the firm. The internal integration is between

the firm actors that own successive process stages as either internal suppliers and internal

customers. The downward integration is between the internal suppliers that own the last

process stage and firm’s external customers (Jayaram et al, 2010).

Figure 1 Structural links internal and external to the organization Source Jayaram et al (2010)

The problem solving framework at Toyota constantly evaluates the performance of

the TPS by detecting any variance on the production process. The variance assessment

includes part of product, people or personnel, procedure or method and equipment or

machine. The system variation can result from product variation, poor quality or inputs,

flawed design or misaligned processes (Jayaram et al, 2010).

6

Figure 2 Toyota’s problem solving framework. Source Jayaram et al (2010)

The employees can also lead to variations in the systems and performance owing to

lack of proper training or motivation. Toyota has implemented a decentralised problem

solving approach that empowers the works to make decisions. The principle of Kaizen is

made possible with standardisation in the company. Toyota has standardised technical skills

to ensure a flexible staff in the company (Jayaram et al, 2010).

4.0 Just in Time Inventory Management

The Japanese automakers have been very successful in improving their productivity

and efficiency by focusing on continuous improvement. JIT has evolved from continuous

improvement paradigm. The JIT creates a flexible environment in which the whole

organisation is responsible for eliminating waste. The JIT manufacturer seeks to acquire

materials that are needed to satisfy the actual demand. The JIT philosophy creates a

customer focused production process. The JIT processes eliminate inventories through

7

interdependent relationships in the operations.to create a customer oriented strategy the

marketing activities are also integrated in the system. The JIT links the supplier to shop floor

by pulling the required materials form the suppliers. At Toyota the JIT controls delivery and

necessary quantities for the operations. The Kanban Systems create the pull for getting the

parts in the operations, the customer demands creates the initial pull of the system (White

& Pearson, 2001).

Toyota Motor Company pioneered the just in time (JIT) production system during the

mid-1970s the JIT production system is also known as the zero inventory production system.

JIT manufacturing is a production philosophy that is based on three fundamental principles

that include elimination of waste, continuous quality improvement, and a participative work

culture. Companies that implement the JIT methods minimize the need for raw materials,

work in process and inventory of finished goods. This method reduces the setup times and

all deliveries are coordinated from suppliers to meet the production needs. The main aim of

the JIT methods is to eliminate waste; waste is anything does not add value to the

production process (Biggart & Gargeya, 2002).

The JIT systems become more efficient and used the Kanban as an information

exchange tool for different production lines. Through using the JIT the wastages in the

production process are minimised and the defect prevention system enhance the quality of

the products. The culture at Toyota ensures that the entire production team focus on

preventing any defects and reducing wastages from the production process. In 1959 Toyota

dramatically increased its productivity and produced 100,000 cars for the first time. To

improve quality and automobile exports Toyota implemented Total quality controls in the

company (Dahlgaard & Dahlgaard-Park, 2006).

The JIT and respect for human systems are central doctrines of the TPS. To

implement JIT various practices such as Kanban, short setup times, multi skilled workers are

required JIT production is a means to achieve total elimination of waste and implement lean

production. The respect for human systems looks at the physical movements of the

employees that should add value to the product. The employees at Toyota are empowered

and are responsible for quality issues and monitoring the assembly line. JIT is a critical

aspect of TPS; JIT allows for low inventories and ensure better quality and faster response to

8

engineering changes. JIT is an overall organisational phenomenon. The Kanban systems

implement the control in JIT systems. The Kanban systems provide customers with the right

product at the right time. The Kanban is a flexible system that allows Toyota to implement

JIT manufacturing. To successful they implement Kanban systems it is important to improve

the production systems and eliminate wastages for efficient work. The Kanban systems

ensure that there is no late or early production. The TPS is a decentralised production

system that allows for a control systems to flow smoothly through the lean manufacturing

production facility. The Kanban systems is characterised by a pull principle that ensures that

parts are sourced when needed and there are no wastages. The Kanban system ensues that

there is no waste of overproduction and the inventory costs are reduced. The

implementation of Kanban entails the support of other TPS practices. The success of Kanban

systems is dependent on an integrated infrastructure of supporting practices (Thun et al,

2010).

5.0 Lean Manufacturing

The lean production techniques have also be termed as the post Fordism system of

work that is more efficient, humane and democratic. A central tenet of lean production is

the concept of kaizen that is continuous improvement in the production process. The lean

production philosophy seeks to combine efficiency with quality of work life. The concept of

Kaizen seeks to remove all activities that do not add value, referred to as waste or muda in

Japanese. This looked at excessive setup time, excessive size inventory and work in

progress. The Kaizen process also eliminates errors in the production process and locates

the source of the problems. This entails worker participation that can monitor and detect

any variations in processes or products. The workers also contribute to the organisation and

improvement of production. The productivity improvements are achieved through

incremental innovation. The participatory nature of lean production is different from the

Taylorist and Fordist production approaches (Hampson, 1999).

Kaizen emphasises on quality assurance, this entails team work and collective responsibility

for quality improvement in the company. The Toyota management systems included the

concept of zero defects which comprised of quality circles to emphasis on all quality related

9

issues. The concept of Kaizen ensures that all employees are quality conscious and focuses

on quick problem solving. The team leaders in the organisation encourage their members to

constantly focus on quality improvements in the production process. All employees have are

trained to develop the knowledge and skills needed for quality production (Elsey & Fujiwara,

2000). The TPS is an action oriented approach that favours a problem solving approach, the

employees work as project teams. Toyota introduced a flat structure in the organisation that

allowed for open communications in the organisation and facilitated experiments and

learning. The Kaizen empowers the employees and seeks new methods of work. The

company emphasises on high product quality and customer services to gain a competitive

edge in the automobile market. The Kaizen work culture is egalitarian and allows for the

involvement of employees and management in the production process. Such a management

style made Toyota highly productive and the consensual decision making made the

company very productive and allowed it to ensure a high level of quality (Fang & Kleiner,

2003).

The concept of lean manufacturing originates in the Toyota Motor Corporations;

resulted from scarcity of resources and intense domestic competition in automobile market

in Japan. The lean philosophy incorporated the JIT production system and the Kanban

method of pull production. Toyota also introduced the concept of respect for employees

and team working (Hines et al, 2004).

Lean manufacturing involves inventory and quality control, industrial relations,

labour management and supply chain management. Studies show that lean manufacturing

reduces human effort by 50% along with the manufacturing space, tool inventory and

improved financial performance. This manufacturing system also includes lean logistics that

is the ability to administer systems to control the movement of materials, work in process

and finished inventories at the lowest cost. To ensure long term competitiveness a

manufacturing firm has to develop capabilities of JIT production and delivery. The suppliers

have to be able to respond to the increasing needs of the customers. The lean production

system requires rapid flows of information along the value chain. Toyota uses the Kanban

system to achieve this along with computerised information that can be exchanged with the

suppliers to reduce lead times (Wu, 2003).

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Taciichi Ohno the head of Toyota crated the Toyota Production System (TPS) that

influenced the production philosophy all over the world. The TPS is a holistic production

system that has standardised procedures in the company. This system enhances the

company’s productivity and labour flexibility allowing the company to efficiently produce

various types of vehicles. This production philosophy emphasises on quality management as

the lean production system is based on assembly design, work organisation and low cost

automation based on an incremental improvement approach. The automation in this

production system is in line complies with the continuous improvement paradigm that

constantly identities and eliminates any problems in the production process. Toyota has

deployed the “Semi Automation” Jidoka that maintains a balance between the machines

and humans. This is more economical and makes the production process, more flexible. The

lean approach for automation includes low cost equipment and tools that are reused for

new models (Muffatto 1999).

6.0 Supply Chain Management

The supply chain management (SCM) is a key strategic factor for enhancing

organisational effectiveness and achieving organisational goals. With the globalisation of the

markets and increase in outsourcing companies use supply chain and logistics techniques to

manage their operations. The contemporary market place is characterised by increased

competition and prevalence of technology. These changes have led to profound changes for

organisations and firms must be able to respond to changing customer needs while

becoming lean at the same time. With this increased globalisation and customer orientation

organisations are more logistics sensitive. Supply chain is a system that is made up of

material supplier’s production facilities, distribution services and customers that are linked

together through flow of materials and feedback flow of information (Gunasekara et al,

2001).

Toyota’s success globally can be attributed to the company philosophy of

continuously reducing costs through waste elimination. Toyota developed the Pull Systems

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and created the Just in Time techniques that made the Toyota Production System more

functional and efficient. Toyota pioneered the value added concept through the lean supply

chain. This allowed the company to detect waste in the value chain which is eliminated

(Wee & Wu, 2009).

The TPS since its inception created a group of first tier suppliers who were part of

the company. During the 1970s the company developed a second tier of suppliers through

kyoryoku Kai which is a supplier association. During the 1980s and 1990s Toyota spread its

chain of overseas part suppliers and distribution system (Jones et al, 1997). The TPS is

vertically integrated the main car parts are purchased from the first tier supplier who

acquire them from smaller suppliers from the second tier of suppliers. The company creates

subcontracting agreements with one supplier for a long term period to ensure quality,

reliability and meeting the delivery standards. Such arrangements allowed Toyota to exert

influence the suppliers and reduce costs (Winfield, 1994). Toyota has created a distinct

competitive advantage on its supplier networks allowing the company to add value to its

products. The competitive advantage stems from the raw material supply derived from 40%

of the components from the first tier component manufacturers and 42% from the lower

tier component suppliers. Toyota effectively integrated its suppliers based on its hoshin

kanri policy (Hines & Rich 1998).

Toyota’s supply chain management approach focuses mainly on resources that were

of critical importance. Toyota created a Keiretsu structure comprising of the dependent

suppliers that worked in close proximity to the Toyota factories. The company outsourced

aspects that were not critical to the ability of maximising the shareholder value. Toyota was

able to create such a supply chain because the supplier was relatively dependent on them in

highly contested markets. Toyota created an assembly based systems that was demand pull

and JIT based, it had dominant power relationships with the suppliers. This allowed the

company to be innovative and create a customised supply chain. Toyota also implements

effective controls over quality, cost and innovation. This allowed the company to maximise

the customer value. The lean production system at the company focused on the highest

level of quality to the customers. Toyota’s lean approach has both strategic and operational

12

practice; the company operates a contested supply chain and market place. For Toyota to

be profitable it has to achieve sustained business success by operating on low margins and

satisfying customer needs. The supply chain at Toyota can be described as entrepreneurial

(Cox 1999).

7.0 Conclusion

The competition in the automobile industry and the resource scarcity lead to Toyota

creating a lean manufacturing system that was flexible and highly efficient. This

manufacturing system leads to cost reductions and makes a company more flexible. The Just

in tome approach in the Toyota production systems allows the company to be more

efficient and responsive to the marketing demand. Toyota’s production system is demand

responsive and customer centric which a major source of competitive advantage is for the

company. The production process at Toyota also emphasises on quality and employee

empowerment. The low inventory and continuous production system has allowed Toyota to

produce high quality vehicles with minimum defects and lowered costs. The Kanban system

at the company is used to provide complete information for the required raw materials. This

system also monitors the quality of all products. To implement lean manufacturing a

company must create an empowered workforce that has the right competencies to ensure

high quality production.

The basic aim of the TPS is to shorten the time taken to convert customer orders into

vehicle deliveries. To achieve the sequences from order to delivery in a single continuous

flow along with shortening the sequence to make the production process more smooth. This

has created a high level of productivity, better quality and a reduction in wastages. This

makes the Toyota automobiles more cost effective. . The TPS is a standard management

approach in supply chain that effectively provides the customers with products in a timelier

manner. The lean manufacturing philosophy seeks to eliminate waste, eliminate defects and

reduce lead times. Toyota has created a culture of efficiency and problem solving. This has

allowed the company to innovate its product and maintain high quality through continuous

improvement.

13

The production system that Toyota has created uses less materials human effort,

manufacturing space and tools than the mass production systems. This production system

has decreased the use of inventory and created a system of zero defects and led to the

production of high quality automobiles. The production at the company maintains a

continuous flow of products allowing the company to adapt to the market needs and

demand patterns. The Toyota production philosophy has evolved from the experiences at

Toyota factories which is why it can be implemented at any location in the world. The

production system has made Toyota highly efficient and profitable.

The JIT systems ensure achieving fault free parts and each production process should

have the right part in the right quantity at the right time. The scheduling of materials is an

important principle of just in time. The aim of the Toyota production systems is to provide

the customers with highest quality products at the lowest possible cost. The production

concepts incorporate quality at each production stage. The Just in Time approach seeks to

get the right information about the market demand and the production is adapted to the

demand. The JIT systems leads to efficient inventory systems and only the required

quantities are procured in the production systems. The Kanban systems enable the working

of the JIT system by providing the information about the raw materials and keep a check on

quality. To ensure that the JIT system works, Toyota has implemented systems to motivate

employees and empower them. The Toyota production system is very efficient that has

made Toyota a competitive and profitable company.

Since the 1950s Toyota created the concept of continuous material flow, process

standardization and a pull system that is market responsive. It took the company decades to

refine the concepts such as JIT and make the production system more functional. The TPS is

characterised by cross organisational planning and long term objectives. This production

system relies on technology and the integration of all manufacturing activities. The focus on

meeting customer needs made the TPS highly successful the creation of the JIT philosophy

allowed the company to eliminate wastages and inventory to make the company more

profitable. Toyota’s supplier network and supply chain is another source of the company’s

competitive advantage. The company has created a close network of suppliers which are all

integrated with the Toyota Company.

14

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