Study Case Analysis: Toyota of North America

Contact me at [email protected] for tutorial

1

Planning and Assessing Production for Toyota North America

Member 1

Member 2

Member 3

Member 4

August 11, 2014

University of Maryland University College

AMBA 640 Section 9040 Professor J. Stewart/S. Malone


2

Executive Summary

The foundation behind Toyota’s remarkable distribution and production system is

through its standardization, which ensures the safest method of its distribution and production

operations and guarantees its unswerving method to excellence. Toyota strives to provide its

customers with the best automobiles on the road, while at the same time, providing their

automobiles to its customers at a reasonable price. The main purpose of TPS is to make quality

vehicles free of defects in a rapid and efficient way in order to quickly deliver to the consumer.

The TPS system seeks to eliminate all wasteful events in the vehicle production process and

embraces all aspects of efficiency (TPS, 2013). TPS takes great pride in its quality, costs

management, expedited delivery, environmental sustainability and safety. TPS is extremely

efficient, but it has its limitations in the form of high production costs, complexity of use, and

supply issues. That said, TPS have evolved through the years by trial and error to continuously

improve efficiency (TMC, 2014). TPS expanded globally to a number of overseas plants and

manufacturing facilities which resulted in the company doubling in size from the years 1995 to

2009 (TMM, 2014). Toyota has made a huge investment by constructing the first Lexus

assembly line in Kentucky, which is planned to operate in 2015. Not only the car production in

U.S. will increase, but it also will reduce the logistics transportation costs and protect the car

prices from the effect of foreign exchange of Japanese yen against the U.S. dollar. Toyota is

postured at all times to rapidly react to what’s going on in the global market, because of this --

Toyota exports its vehicles built in the U. S. to over twenty countries. Through this effort, Toyota

is able to adapt and increase its production and distribution volumes.


3

Introduction

In 2014, Toyota Motor Corporation reportedly gained 5% jump in quarterly profit

exceeding the targeted sales goals in North America (Kageyama, 2014). Behind Toyota’s success

story, in 2009, Toyota involved in an “unintended acceleration” scandal that could endanger the

driver’s life. As a result of the scandal, Toyota suffered in auto sales and production drops, but

was able to handle it smoothly by recalling over 8 million vehicles and fixed it with no additional

costs. Toyota’s full commitment to its customers perhaps was the key why this company was

placed in the top-rank position in Consumer Reports’ 2014 Car-Perception survey.

Evaluating this Toyota case study is a great activity to develop business knowledge about

operations management. This paper discusses four main topics: production system, plant location

analysis, plant capacity analysis, and Toyota’s current regional production strategy.

Toyota Production System Terms

Andon

Andon can be defined as a manufacturing process that provides a visual display of a

current job status and serves as a control mechanism. This visual display will alert management

in the event of an abnormalities or errors in the job progress. In a call center environment, andon

may be applied through a dashboard indication system to notify management that incoming calls

are waiting in queue to be answered. Based on an established threshold, andon can alert

management that additional agents are needed to meet the current call volume and satisfy the

targeted objectives for wait times and completed calls.

Genchi Genbutsu

Genchi Genbutsu can be defined as a practical approach to a problem; solving by

identifying and addressing an issue directly. When a problem arises the source specifically


4

identifies and physically visits to examine and correct the problem. In a financial services

industry (banks, credit unions, etc.), which are comprised of several branch locations genchi

genbutsu, can be utilized by management to address specific branch locations that are

experiencing problems to include: customer service issues, loan delinquency and low deposit or

loan growth. An unproductive branch may require significant changes to correct the problems.

By visiting the branch and observing the issues contributing to the problems, management can

develop effective ways to address these problems.

Heijunka

Heijunka can be defined as a technique used to ensure that all elements of production are

efficiently coordinated to achieve the desired results. It involves planning the adequate resources

and time required to meet production specifications. In a sales environment such as auto or

product sales, heijunka can be utilized to prioritize sales leads to guarantee that the most viable

leads are worked first followed by the less viable. Managing time and effort on sales leads based

on their level of opportunity demonstrates a coordinated effort to maximize resources and time

on promising leads and minimize on those that are not. Organizing sales leads in this manner

ensures that they are processed efficiently in order to achieve results.

Hoshin

Hoshi can be defined as a system of developing corporate goals and strategies to

implement for achieving these goals by upper-management. Progress on goals and strategy

implementation it tracked and reviewed on quarterly, semi-annual or annual basis. At the U.S.

Postal Service Federal Credit Union, hoshin can be compared to a strategic management tool

called a corporate balanced scorecard utilized to establish corporate goals for the organization.

The executive management team hosts an annual strategic conference to identify the


5

organization’s strategic focus and develop the corporate balanced scorecard. From the corporate

balanced scorecard each organizational department is assigned expectations, which contribute to

the corporate goals. Each department is responsible for developing strategies to achieve these

goals. For example, the corporate balanced scorecard may target 10% loan growth; the

department expectation will target a specific dollar amount to generate in loans in order to meet

this goal. Accordingly, specific expectations are assigned to each departmental employee and

their performance levels are evaluated quarterly. Management reviews progress on the corporate

goals quarterly to decide if modifications are warranted.

Jishunken

Jishunken can be defined as a process improvement approach led by management. This

approach involves managers continuously looking for ways to improve processes, thereby

inspiring kaizen activities. Kaizen is a system in which all employees implement process

improvements that eliminate waste to minimize costs on a continual basis. In the jishunken

method, management is the driving force behind all kaizen activities. At the U.S. Postal Service

Federal Credit Union recently completed under the direction of management, a loan process

improvement session in support of our strategic focus to become more lending based

organization. Management selected team members from various levels of lending to include loan

processors, loan officers and branch managers within the organization to participate in a week

long process improvement project. The team’s goal was to identify problems in the current

lending practices and suggest ways to improve in this area. This process is comparable to

jishunken as it was management driven and created kaizen activities in the organization. The

changes and improvements implemented as a direct result of this process will continue to

improve lending practices at the organization.


6

Nemawashi

Nemawashi can be defined as a process used to prepare for a new project or

implementing change. It involves gathering information and support for various areas within the

organization in order to prepare for the new endeavor. This process may also involve meetings to

discuss how the new endeavor or change will impact specific areas of the organization and

developing strategies for successful implementation. In the restaurant business industry with a

relatively small staff, nemawashi might be utilized for small staff meetings to discuss new menu

items and/or scheduling changes before implementing these items in order to gain useful

feedback from staff. These preliminary meetings could result in valuable information to assure a

new menu item is presented to the customer effectively and conflicts with schedule changes are

addressed. Meeting to discuss these items in advance prepare for a positive integration and

consider the impact they have on all parties involved.

Pokayoke

Pokayoke can be defined as a preventative measure employed to protect against defects

identified during the production process. Mistakes are avoided by stopping the production of

defective parts by an extremely proficient electronic device. At a toy development company,

pokayoke might be applied to implement safety measures that prevent un-intentional harm to

children. These measures may include various safety mechanisms such as labels, size

requirements and battery protection parts. A test segment should be produced to evaluate

accuracy prior to fully implementing these measures.

Yokoten

Yokoten can be defined as process of disseminating information throughout the entire

organization and its affiliates. The process involves a concentrated effort of sharing information


7

within all areas of the organization including corporate partners. A sales company might utilize

yokoten to share successful sales techniques and strategies to other departments within the

organization to help increase sales for the entire organization versus one specified area. Specific

techniques may develop an explicit sales culture applicable throughout the organization. For

example, Enterprise car rental company strives to meet the needs of their consumers in the rental,

leasing and sales departments through providing service, quality and value. All departments

strive to establish long-term relationships with customers subsequent to providing the initially

requested service.

Toyota Production System: Total Entity Analysis

Purpose

The main purpose of TPS is to make quality vehicles free of defects in a rapid and

efficient way in order to quickly deliver to the consumer. The TPS system seeks to eliminate all

wasteful events in the vehicle production process and embraces all aspects of efficiency (TPS,

2013). TPS is frequently identified as a lean manufacturing system because it targets waste

elimination and producing only the quantity demanded. The TPS system guarantees that a

vehicle will be produced in the shortest time period possible and starting the production process

as soon as a vehicle order is received. The TPS systems ensure the production assembly line is

adequately stocked with the required parts needed to complete a vehicle order for any vehicle

type (TPS, 2013).

Advantages

The TPS offers several advantages to include: quality, costs management, expedited

delivery, environmental sustainability and safety. TPS involves continuous process improvement

that guarantees production of the high quality vehicles. The good return on investment permits


8

costs to be minimized. Vehicles are delivered on time and always meet the quality standard. The

TPS system recognizes the environmental concerns of the consumer and embraces recycling in

the production process. Safety is addressed in TPS with pokayoke as employ measures to avoid

defects in production to ensure vehicle safety (TPS, 2014). Additionally, all production team

members are encouraged to continuously strive for process improvements and eliminated waste

in the production process (TPS, 2014).

Limitations

The TPS is extremely efficient, but has its limitations in the form of high production

costs, complexity of use and supply issues. The safety and kaizen practices involved in the TPS

production imposes significantly increase in operational costs (Mehri, 2006). The production

process is halted when the andon displays an abnormality or a safety issue presents that poses

danger to a production employee. These events result in a loss of time and resources. The safety

issue must be resolved before production can be restored. Quality-control supervisors must

inspect the vehicle when an andon indicates the presence of an error or abnormality (Mehri,

2006). The TPS system is extremely complex with several features, which can take a significant

amount of time to implement and prepare for use (TPS, 2014). The Just-in-Time method of

making vehicles based solely on demand request means that a small amount of inventory is

generally kept on hand (TMM, 2013). This lean manufacturing system requires a reliable

supplier that can meet TPS expectations and provide supplies needed without interruptions or

delays.

Is Toyota Production System evolving?

The TPS have evolved through the years by trial and error to continuously improve

efficiency (TMC, 2014). TPS expanded globally to a number of overseas plants and


9

manufacturing facilities which resulted in the company doubling in size from the years 1995 to

2009 (TMM, 2014). Taylor and Taylor (2008) noted that the automotive industry as the most

globalized sector in the world. TPS recognizes the importance of establishing a position in the

global market.

Have other motor vehicle manufacturers copied TPS?

The Toyota way of production has continuously spread throughout the world as other

manufacturers embrace TPS. Lee and Jo (2007) noted that TPS had a significant influence on the

global reshaping of the automotive industry. Hyundai Motor Company is an example of how

TPS can be implemented by a Korean manufacturing firm (Lee and Jo, 2007). Hyundai Motor

System (HMS) used TPS as a benchmark to evaluate its manufacturing performance levels (Lee

and Jo, 2007). In contrast to TPS, HMS involved reducing the amount of workers in the

production process by implementing more automated techniques (Lee and Jo, 2007). While HMS

initially developed its production model based on TPS the system required specific modifications

to adjust and meet the needs of Hyundai’s distinct situation.

Location Selection Introduction

There are multiple exogenous or endogenous factors that have been considered during the

Nemawashi process for determining the location for the RX 330 North American plant. These

factors will be incorporated during the development of the Ringo Sho presentation to Toyota

leadership. The decision for Toyota leadership is between the Toyota Motor Manufacturing

Canada (TMMC) and the Toyota factory in the USA.

Work Force

Work force is a significant factor for consideration during Nemawashi. During this

process Toyota must gather the relevant information for discussion and the eventual Ringo Sho


10

presentation to leadership. Work force factors include skill levels, labor costs and whether the

workforce is unionized (Gigerick, 2014). The U.S. Department of Labor published International

Comparisons of Hourly Compensation Costs in Manufacturing, which indicated costs are slightly

lower in the U.S. compared to Canada. Most of the southern states in the USA are "Right to

work" states and employees cannot be forced to join trade unions (McDermott, M.C., Luethge,

D., & Byosiere, P., 2011). In 2009 the Toyota plant in California, which was unionized, was shut

down for “economic” reasons (Bunkley, 2009). Therefore it is reasonable to expect that Toyota

plans located in the USA would continue to be non-unionized. However, here is a big push at

TMMC to organize the plant workers by Unifor (Rogers, 2014). This unionizing of employees

could increase the costs associated with the work force at TMMC. Unionization of employees is

a factor that Toyota does not have much influence over. When wages and productivity are

considered, U.S. factories appear to be more cost effective than Canadian factories.

Incentives for Expansion

In 2012 Toyota committed to investing $100 million dollars to expand the TMMC plant.

The decision for this expansion was based in part on Canadian incentives provided to the

company (Area Development Site and Facilities Planning, 2012). However, the amount of the

incentives was not disclosed. The number of reported incentives provided by local governments

in Canada pales in comparison to the incentives provided by communities in southern states in

U.S. In 2013, Ohnsoman reported $146.5 million incentives in Kentucky for expansion of one of

the current plants (2013).

Real Estate

Real estate factors for determining whether to build a new plant are more complex than

the costs of land for which to build. Gigerick (2014) outlined additional determination that must


11

be considered, beyond the availability of sufficient land and costs to acquire the land. During the

land selection process leadership must consider the existing utility infrastructure and the cost

associated with developing utilities and zoning requirements (Gigerick, 2014). Additional

exogenous factor that Toyota leadership will consider related to real estate is supply chain

availability. While suppliers might be spread across North America, the location of the new plan

must be reasonably accessible via interstate highways and rail services (Gigerick, 2014). When

Toyota leadership follows the Ringo Sho process for determining the plant location, the

presentation must include all of these real estate factors and the proposed plans to address the

concerns.

Factory Performance

Factory performance is an important endogenous factor for consideration when

determining whether to expand the Ontario factory or select another location in the U.S. The

Ontario plant has won multiple JD Power & Associates quality awards and vehicle awards for

the RX350. According to the U.S. Department of Labor Bureau of Labor Statistics’ International

Comparisons of Manufacturing Productivity and Unit Labor Costs Trends, in 2011 U.S. output

each hour is slightly higher than in Canada. With the plant quality in the current plant at TMMC,

it would be reasonable to expect similar quality with an expansion.

Regulatory Environment

Rao and Sharma (2006) compared the regulatory environments related to product markets

on multiple factors including barriers related to trade and investment, economic and

administrative regulations, and state control. The report concluded that overall the United

Kingdom was the least restrictive of the seven countries evaluated, with a factor of 0.5, and the

United States came in second place, with a factor of 1.0. Canada had the same score as Japan


12

(1.5) and was directly behind Germany (1.4). The regulatory environment can add time and

increase the resource burden for companies to remain compliant. Canada had one of the lowest

scores related to barriers related to entrepreneurship, however, this is of little help to larger

companies planning to expand (Rao & Sharma, 2006).

Gantt Chart

Work Force

Incentives Real Estate

Factory Performance

Regulations Total

Weight 3 5 3 5 3 TMMC 15 10 20 25 15 85

US Location 20 25 20 20 20 105

Using this weighted grid analysis it would appear that expanding a current factory in the

United States is a better business decision for Toyota.

Recommending Production Capacity Needed at Toyota Motor Manufacturing of Canada

According to www.japantimes.co.jp, Toyota has been able to keep its position as the

world’s top-selling automaker for the first half of the year and reportedly the sales rose sharply in

North America and Europe with a 5 percent jump in quarterly profit. Encouraged to improve

Toyota’s productivity and quality, Simon Nagata, the president of Toyota Motor Engineering and

Manufacturing North America, decided to maximize the existing plant capacity in order to

increase the overall outputs. Furthermore, Simon explained that the plant is now prepared to

pioneer the production of U.S.-assembled Lexus, in which, will be adding more than 50,000

automobiles to the current plant capacity, which is 600,000 (Toyota-U.S. newsroom, 2014).

Toyota Motor Manufacturing of Canada (TMMC)’s new president has prepared a

challenging plan to reach the sales goal 25 percent higher than the previous years by selling

200,000 vehicles. Such an aggressive target can only be met if TMMC-Canada increases its plant

capacity to 30,000 units per day for the maximum level. As a starting point, TMMC-Canada


13

special team is planning to acquire a technique that enables them to identify, classify, and

determine the best option possible from several available choices.

TMMC-Canada: Recommendation for Annual Capacity Production

Facing a complex and multi-stage decision, TMMC-Canada planned to implement the

decision tree technique as guidance in choosing the best option from different possible

alternatives and chance events. According to www.palisade.com, decision trees are formed as

diagrams and consist of chance events that linked sequentially. Further, it explained that decision

tree is an important decision-making technique, and for managers, it relatively easy to

understand with little clarification. The advantage of using decision tree technique is users can

allocate definite values through series of events and it works by reducing the uncertainty of

multi-stage decisions. The problems are clearly laid out and allow users to analyze each

consequence from every decision.

TMMC-Canada has 5 alternatives to be used as the plant capacity: 10,000 units, 15,000

units, 20,000 units, 25,000 units, and 30,000 units. Each alternative has an outcome (state-of-

nature) with probability as follows: low (0.25), moderate (0.5), and high (0.25). Each outcome is

followed by appropriate payoffs.

Refer to the example of decision tree provided, we recommend TMMC expand capacity

to 25,000 units because it offers the highest value or average return with the amount of

$554,000,000. From the following table, it appears that a 25,000-unit capacity plant will results

the highest value.


14

Next we will be evaluating a decision node with the cost of each option along every

decision line. The method is to start from the left to the right, and to subtract the cost of outcome

values in order to get the series of value that represent the benefit of every decision.


15

From the decision tree above, we can clearly see that to build the 25,000-unit capacity

plant with the value of $554,000,000 is the most valuable option.


16

What are analysis weaknesses or limitations and how are they addressed?

Although decision tree technique is relatively easy to use and understand, it also has

some limitations in the implementation to the real life problems. According to

businessmanagementcourse.org, using decision tree technique can be less appropriate for

estimation tasks where users have to make prediction about the value of each alternative. Further,

this technique has a high probability of errors when doing complex problems with many

classifications.

In order to reduce the limitation of decision tree technique during the implementation of

solving the real life problems by reducing the uncertainty of multi stage decisions, users have to

identify the problem clearly and specifically lay out each alternative. Furthermore, providing

certain amount of number in quantitative and its probabilities will help decision maker to make

decisions based on the existing information available on the diagram tree.

How has the RX-330/350 done in the North American market?

Surprising news from came in 2009 and took a major hit on Toyota's luxury division

reputation for their ability to produce the “unbeatable” bulletproof quality products. Toyota had

to conduct safety recalls to several numbers of units including the 2004-2007 Lexus RX 330 and

350 due to the case of unintended acceleration after receiving reports from the car owners

(Kreindler, 2011).

The fact, in 2011 Lexus was in the third position in sales record after BMW and

Mercedes with 138,689 units sold during the period (Team, 2014). Toyota is likely trying to

improve their products consistently after the big downturn that may already be hurting the RX

model when their sales fell by 5.5% in 2010 (Peterson, 2010).


17

This unintended acceleration scandal raised questions about the quality differences

between North American and Japanese made Toyota products. Perhaps the answer is yes, there

are probability some quality differences since Toyota has released a North American-made

Lexus RX model that has had an accelerator-pedal from a different supplier (Autoguide, 2011).

The good news is that the Canadian-made RX 350 model has received no major complaints since

the cars were first produced in 2003.

However, the “Toyota Way” philosophy became the stimulator for Toyota’s plants all

over the world to create products with the same standard of quality. There are no references to

Toyota being made is USA or Japan, instead there is a universal label of made by Toyota

(Toyota-global.com, 2014). Further, one method implemented by Toyota to achieve the same

standard quality assurance is by establishing centers for educating its human resources such as

the Global Production Center (GPC) and the Toyota Institute.

Toyota has made a huge investment by constructing the first Lexus assembly line in

Kentucky, U.S. which is planned to operate in 2015. Not only the car production in U.S. will

increase, but it also will reduce the logistics transportation costs and protect the car prices from

the effect of foreign exchange of Japanese yen against the U.S. dollar.

Assessment of Toyota’s Current Regional Production Strategy: North America

The current Toyota distribution in North America

The foundation behind Toyota’s remarkable distribution and production system is

through its standardization, which ensures the safest method of its distribution and production

operations and guarantees its unswerving method to excellence. Toyota strives to provide its

customers with the best automobiles on the road, while at the same time, providing their

automobiles to its customers at a reasonable price; the goal is no “sticker shock”. That said,


18

Toyota takes great pleasure assembling their efficient and quality vehicles from start to finish in

record time; reducing its overall lead time during production. To take it further, Toyota prides

itself with taking care of their employees, which is evident through its good treatment and

making sure each employee is a valuable member of the team. Toyota is postured at all times to

rapidly react to what is happening in the global market. By being flexible, Toyota is able to

maximize its profits by reducing and/or eliminating useless activities and processes. Business

Week wrote an interesting article on Toyota’s Production System, in which it applauded the

automaker on how it’s utilizing their plants in the United States as the largest source to export

vehicles to counter the effects of the rising yen. In 2013, Toyota shifted its auto production from

its Japan’s plant to North America to offset the yen’s 8.3 percent rise. Toyota is postured at all

times to rapidly react to what’s going on in the global market, because of this -- Toyota exports

its vehicles built in the United States to over twenty countries. Through this effort, Toyota is able

to adapt and increase its production and distribution volumes; totaling 16,700 units (Ohnsman,

2012). In Bloomberg’s article, Yoshimi Inaba Toyota’s Chief Operations Officer (COO) stated,

“From North America, Toyota already exports Camry and Avalon sedans, Tundra and Tacoma

pickups, Sienna minivans and Sequoia sport-utility vehicles to markets including Venezuela,

South Korea and countries in the Middle East. And given the scale of Toyota’s global

distribution network, the company should eventually be able to export more vehicles from North

American plants than even U.S. based automakers” (2012) .

Case in point, the assembly plant in Texas is Toyota’s central hub of its intricate

distribution and production supply chain; this plant extends out for hundreds of miles and has

connections to assembly plants as far as the Far East, to include connections to Mexico and most

of the states located in the southern regions in North America. The Texas assembly plant has


19

technological connections to Japan and states located in the mid-west, which are required to

access product engineering and distribution/production control. The Texas assembly plant is the

central hub of Toyota’s far-reaching vehicle exporting and transportation system.

It should come to no surprise that the Texas assembly plant offers Toyota the shortest

distance to “low-cost south Texas labor market for assembly workers while insuring just-in-time

delivery of cut-rate parts manufactured in the Far East and Mexico and subassemblies from other

southern U.S. plants and providing convenient access to the U.S. auto market” (Vogel, 2008). As

for distribution in Mexico, Toyota’s COO envisioned more cost-saving by attaining parts and/or

producing automobiles from its plant in Mexico. According to Inaba, “using Mexico as an

important base for either parts or production is no doubt, we are always looking at Mexico and

we have a small experience in Baja, but that is not the end of the story” (2012). The plant in

Mexico is located in Baja California. This plant produces over 70,000 Tacoma pick-up trucks on

a year basis. In an article written by Case & Sciaudone, they stated “Mexico’s close proximity to


20

the United States has its advantages, mainly due to the labor costs for automakers, which are

approx. 20 % of the United States levels” (2014).

Why does the team believe Toyota has chosen to produce its cars in the current manner?

As it stands, Mexico is plagued with flawed loose laws and regulations, and most

importantly, Mexico has a meager economic standing in the world compared to Northern

America. Toyota produces vehicles in this manner, mainly due to cost reduction and its emphasis

to identify waste, which is often challenging, follow-up by the use by proven techniques to

eradicate it. In the team’s opinion, Toyota has smartly embodied the right combinations of

attitude, theme and technique into its all-exclusive socio technical system for development.

Instead of importing vehicles abroad, it is more cost effective to import part and material, and

assemble Toyota automobiles in the United States. Toyota is able to maximize its profits by

reducing and/or eliminating useless activities and processes. Toyota’s Production System was

applauded by Business Week on how it’s utilizing their plants in the United States as the largest

source to export vehicles to counter the effects of the rising yen. In 2013, Toyota shifted its auto

production from its Japan’s plant to North America to offset the yen’s 8.3 percent rise. In the

end, Toyota is clearly postured at all times to rapidly react to what’s going on in the global

market, because of this -- Toyota exports its vehicles built in the United States to over twenty

countries. Through this effort, Toyota is able to adapt and increase its production volumes;

totaling 16,700 units (Ohnsman, 2012).

Conclusion

The foundation behind the TPS remarkable distribution and production system is through

standardization and minimizing waste. Toyota strives to provide its customers with the best

automobiles on the road, while at the same time providing these automobiles at a reasonable


21

price. Toyota’s production system is a great case study for analyzing plant location, plant

capacity, and production strategy.

In order to understand TPS it is critical to define the terms used within the system. Andon

is a manufacturing process that provides a visual display of the current job status and serves as a

control mechanism. Genchi Genbutsu is a practical approach to problem–solving, by identifying

and addressing an issue directly. Heijunka is a technique used to ensure that all elements of

production are efficiently coordinated to achieve desired results. Hoshi is a system of developing

corporate goals and strategies to implement for achieving these goals by upper-management.

Jishunken is a process improvement approach led by management. Nemawashi is a process used

to prepare for a new project or implementing change. Pokayoke is a preventative measure

employed to protect against defects identified during the production process. Yokoten is a

process of disseminating information throughout the entire organization and its affiliates. Each of

these terms is integrated within the entire TPS and helps ensure standardization.

TPS offers several advantages including quality, costs management, expedited delivery,

environmental sustainability, and safety. TPS involves continuous process improvement that

guarantees production of the high quality vehicles and all production team members are

encouraged to continuously strive for process improvements. However TPS is not without

limitations, which include high production costs, complexity of use, and supply issues. TPS has

evolved through the years to continuously improve efficiency and expanded globally to a number

of overseas plants and manufacturing facilities. This production system has had a significant

influence on the automotive industry, including Hyundai Motor Company.

There are multiple exogenous or endogenous factors that have been considered during the

Nemawashi process for determining the location for the RX 330 North American plant. These


22

factors will be incorporated during the development of the Ringo Sho presentation to Toyota

leadership. The decision for Toyota leadership is between the Toyota Motor Manufacturing

Canada (TMMC) and the Toyota factory in the USA. Work force is a significant factor for

consideration during Nemawashi. When wages and productivity are considered, US factories

appear to be more cost effective than Canadian factories. Another factor considered during

Nemawashi were the incentives provided to Toyota for expansion of manufacturing facilities and

the incentives provided by US states and local communities are much more desirable than those

provided within Canada. Factory performance is an important endogenous factor for

consideration and considering the experience and quality associated with TMMC, it appears that

Canada is a strong performer. Finally, the exogenous regulatory environments within the United

States appear to provide less of a regulatory burden for companies. Using a grid analysis it would

appear that expanding a current factory in the United States is a better business decision for

Toyota.

Facing a complex and multi-stage decision, TMMC-Canada implemented the decision

tree technique to help decided the best option for plant capacity. Based on the decision tree the

recommendation is for TMMC to build a 25,000-unit capacity plant. This option offers the

highest value or average return with the amount of $554,000,000.

The future plan, Toyota has made a huge investment by constructing the first Lexus

assembly line in Kentucky, U.S., which is scheduled to operate in 2015. Not only will car

production in U.S. increase, but it also will reduce the logistic transportation costs and protect the

car prices from the effect of foreign exchange of Japanese yen against the U.S. dollar.

Toyota is positioned to react to what is happening in the global market. By being flexible,

Toyota is able to maximize its profits by reducing and eliminating useless activities and


23

processes. TPS has been recognized in the United States as the largest source to export vehicles

to counter the effects of the rising yen and Toyota exports its vehicles built in the United States

to over twenty countries.


24

References

Area Development Site and Facilities Planning Online. (2012). Toyota Canada invests $100

million on Cambridge, Ontario, manufacturing plant, with plans to create 400 jobs.

Retrieved from http://www.areadevelopment.com/newsItems/7-27-2012/toyota-canada-

cambridge-ont-investment-262721.shtml

Bunkley, N. (2009). Toyota to close union plant in California. The New York Times. Retrieved

from http://www.nytimes.com/2009/08/28/business/28nummi.html?_r=0&pageewanted

=print

Case, B. & Sciaudone, C. (2014). Why Mexico is speeding past Brazil in cars. Retrieved from

from http://www.businessweek.com/articles/2014-07-10/why-mexico-is-passing-

brazil-in-car-production

Decision analysis. (n.d.) Retrieved from http://businessmanagementcourses.org/Lesson37

DecisionTheory&DecisionTrees.pdf

Decision trees in Microsoft excel. (2014). Retrieved from http://palisade.com.precisiontree/

Gigerich, L. (2014). What’s Driving Today’s Location Decisions in the Auto Industry? Area

Development Site and Facilities Planning Online. Retrieved from http://www.

areadevelopment.com

Globalizing and localizing manufacturing. (2014). Retrieved from http://www.toyota-

global.com/company/vision_philosophy/globalizing_and_localizing_manufacturing/


25

Lee, B. H., & Jo, H. J. (2007). The mutation of the Toyota Production System: adapting the TPS

at Hyundai Motor Company. International Journal of Production Research, 45(16),

3665-3679. doi:10.1080/00207540701223493

McDermott, M.C, Luethge, D.J., Byosiere, P. (2011). Automotive investment and foreign

subsidiary strategy in the Southern states of the United States, The Southern Business

and Economic Journal, 35(3/4) 1-30.

Mehri, D. (2006). The Darker Side of Lean: An insider's perspective on the realities of the

Toyota Production System. Academy Of Management Perspectives, 20(2), 21-42.

doi:10.5465/AMP.2006.20591003

Ohnsman, A. (2012). Toyota Says North America to Become Global Export Base. Retrieved

from http://www.businessweek.com/news/2012-01-11/toyota-says-north-

america-to-become-global-export-base.html

Ohnsman, A. (2013). Toyota offered incentives for Kentucky plant expansion. Bloomberg L.P.

Retrieved from http://www.bloomberg.com/news/2013-04-17/toyota-offered-incentives-

for-kentucky-plant-expansion.html

Peterson, T. (2010). Review: 2010 Lexus RX 350. Retrieved from http://www.businessweek.

com/lifestyle/content/feb2010/bw2010029_724887.htm

Rao, S. & Sharma P. (2006). International competitiveness and regulatory framework: a

Cadadian perspective. Retrieved from http://www.international.gc.ca/economist-

economiste/assets/pdfs/NAFTA_10_Chapter7-en.pdf


26

Rogers, C. (2014). Canada Auto Union President Reports Progress at Toyota Plants. The Wall

Street Journal. Retrieved from http://online.wsj.com/articles/canada-auto-union-unifor-

sees-progress-at-toyota-plants-wants-more-from-fiat-chrysler-1401898964

Taylor, M., & Taylor, A. (2008). Operations management research in the automotive sector.

International Journal of Operations & Production Management. pp. 480-489.

Team, T. (2014). Audi looks to battle Lexus in the U.S. as Volkswagen closes on Toyota's global

sales lead. Retrieved from http://www.forbes.com/sites/greatspeculations/2014/07/31/

audi-looks-to-battle-lexus-in-the-u-s-as-volkswagen-closes-on-toyotas-global-sales-lead/

Toyota profit jumps 5% on sales to North America, Europe. (2014). Retrieved from

http://www.japantimes.co.jp/news/2014/08/05/business/corporate-business/toyota-profit-

jumps-5-sales-north-america-europe/#.U-TnbfldWSo

Toyota Motor Manufacturing, Kentucky, Inc. (2013). Toyota production system terms. Retrieved

from http://www.toyotageorgetown.com/terms.asp

Toyota Motor Corporation. (2014). Toyota production system. Retrieved from http://www.

toyota-global.com/company/vision_philosophy/Toyota_production_system/

Toyota Motor Manufacturing Canada. (n.d.). Awards and Recognition. Retrieved from

http://www.tmmc.ca/en/awards.html

Underwood, R. L. (2012) Automotive foreign direct investment in the United States: economic

and market consequences of globalization. Business Horizons, 55(5) 463-474.


27

US Department of Labor (2011). International Comparisons of Hourly Compensation Costs in

Manufacturing, 2008. Retrieved from http://www/bls.gov/news.release/archives/ichcc_

08262010.odf

US Department of Labor (2012) International Comparisons of Manufacturing Productivity and

Unit Labor Cost Trends, 2011. Retrieved from http://www/bls.gov/news.release/pdf/

prod4.pdf

US Department of Labor. (May 2013). State Occupational Employment and Wage Estimates.

Retrieved from http://www.bls.gov/oes/current/oessrcst.htm

Vogel, R.D. (2008). How Globalization Works. Toyota Motor Manufacturing, Texas. Retrieved

from http://mrzine.monthlyreview.org/2008/vogel200808p.html

.

Study Case Analysis: Toyota of North America

Documents

Transcript of Study Case Analysis: Toyota of North America