1.

0 Introduction to Supply Chain Management:

A supply chain is a network of facilities and distribution options that performs the functions of
procurement of materials, transformation of these materials into intermediate and finished products,
and the distribution of these finished products to customers. Supply chains exist in both service and
manufacturing organizations, although the complexity of the chain may vary greatly from industry to
industry and firm to firm.

Below is an example of a very simple supply chain for a single product, where raw material is
procured from vendors, transformed into finished goods in a single step, and then transported to
distribution canters, and ultimately, customers. Realistic supply chains have multiple end products
with shared components, facilities and capacities. The flow of materials is not always along an
arbores cent network, various modes of transportation may be considered, and the bill of materials
for the end items may be both deep and large.

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organizations

along the supply chain operated independently. These organizations have their own objectives and
these are often conflicting. Marketing's objective of high customer service and maximum sales
dollars conflict with manufacturing and distribution goals. Many manufacturing operations are
designed to maximize throughput and lower costs with little consideration for the impact on
inventory levels and distribution capabilities. Purchasing contracts are often negotiated with very
little information beyond historical buying patterns. The result of these factors is that there is not a
single, integrated plan for the organization---there were as many plans as businesses. Clearly, there is
a need for a mechanism through which these different functions can be integrated together. Supply
chain management is a strategy through which such integration can be achieved.

Supply chain management is typically viewed to lie between fully vertically integrated firms, where
the entire material flow is owned by a single firm and those where each channel member operates
independently. Therefore coordination between the various players in the chain is key in its effective
management. Cooper and Ellram [1993] compare supply chain management to a well-balanced and
well-practiced relay team. Such a team is more competitive when each player knows how to be

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 positioned for the hand-off. The relationships are the strongest between players who directly pass the
baton, but the entire team needs to make a coordinated effort to win the race.

1.1 Elements of the Supply Chain:

A simple supply chain is made up of several elements that are linked by the movement of products
along it. The supply chain starts and ends with the customer.

 Customer: The customer starts the chain of events when they decide to purchase a product that has
been offered for sale by a company. The customer contacts the sales department of the company,
which enters the sales order for a specific quantity to be delivered on a specific date. If the product
has to be manufactured, the sales order will include a requirement that needs to be fulfilled by the
production facility.

 Planning: The requirement triggered by the customer’s sales order will be combined with other
orders. The planning department will create a production plan to produce the products to fulfil the
customer’s orders. To manufacture the products the company will then have to purchase the raw
materials needed.

 Purchasing: The purchasing department receives a list of raw materials and services required by the
production department to complete the customer’s orders. The purchasing department sends purchase
orders to selected suppliers to deliver the necessary raw materials to the manufacturing site on the
required date

 Inventory: The raw materials are received from the suppliers, checked for quality and accuracy and
moved into the warehouse. The supplier will then send an invoice to the company for the items they
delivered. The raw materials are stored until they are required by the production department.

 Production: Based on a production plan, the raw materials are moved inventory to the production
area. The finished products ordered by the customer are manufactured using the raw materials
purchased from suppliers. After the items have been completed and tested, they are stored back in the
warehouse prior to delivery to the customer.

 Transportation: When the finished product arrives in the warehouse, the shipping department
determines the most efficient method to ship the products so that they are delivered on or before the
date specified by the customer. When the goods are received by the customer, the company will send
an invoice for the delivered products.

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 TOYOTA COMPANY PROFILE

2.0 Introduction:
Ever since the company was founded in 1937, The TOYOTA MOTOR CORPORATION and their
subsidiaries (“TOYOTA”), have continuously strived to contribute to the sustainable
development of society and the earth through the manufacturing and provision of high-quality and
innovative products and services. Through these continuous efforts, they have established a corporate
philosophy that has been passed down from generation to generation throughout the company and
which has come to be known as the “Guiding Principles at Toyota” (originally issued in 1992, revised
in 1997; the “Guiding Principles”. they have also put TOYOTA’s values and methods in written form,
in the “Toyota Way” (issued in 2001). Such values and methods must be shared globally among us to
realize the “Guiding Principles” and they are seeking to pass these on to future generations.
Through these efforts and by Passing down corporate philosophy and values and methods, they are
steadfastly striving to realize the “creation of a prosperous society by making things”.
TOYOTA has long-demonstrated its dedication to contributing to sustainable development. As
their business operations have become increasingly global, they need to reconfirm their corporate
philosophy and have issued an explanatory paper in January 2005 entitled “Contribution towards
Sustainable Development”. This paper interprets the Guiding Principles from the stand point of
how TOYOTA can work toward sustainable development in its interactions with its stakeholders.
They believe that by implementing the Guiding Principles in operation, TOYOTA will successfully
fulfill its expected contribution towards sustainable development. Therefore, as stated in the Guiding
Principles and explanatory paper, we must comply with local, national and international laws and
regulations, including the spirit thereof, and act with humility, honesty and integrity. Compared to
when the “Code of Conduct for Toyota Employees” was first issued in 1998, TOYOTA’s presence
in society has greatly increased and also new laws and regulations have been established, such
as for the protection of personal data. With this background in mind, we have revised the existing
code of conduct and created the “Toyota Code of Conduct” in order to communicate the fundamental
approach necessary to inspire continued confidence in TOYOTA, to respect and comply with the
laws, and to maintain our honesty and integrity. I would particularly like to ask each one of you, as a
person working for TOYOTA, to be aware that you are an essential contributor to the success of
TOYOTA. In this era of global competition, borderless trade, and diversification, TOYOTA wishes to
conduct business in an open and fair way. TOYOTA aims to become the most valued, respected
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and trusted company in the world by its customers and society. Accomplishing this
goal requires that each one of us is aware of TOYOTA’s respected reputation and
standing in the community, the gratitude their owe to customers and society, and the necessary respect
of laws and regulations. Therefore, they must each act in a “steadfast, sure-footed, and thorough” way,
and in accordance with common sense and good judgment. I expect and ask you to carefully read this
“Toyota Code of Conduct” and to implement the spirit within March, 2006.
After the Second World War, the distribution of World economic power was totally rearranged.
Before the war, Europe and the USA ruled the world market. The management of Western
companies was based on the "Scientific Management" by Frederick Winslow Taylor (1856-1915)
and on "Modern Sociology" by Max Weber (1864-1920). This intellectual basis
characterizes the begin of industrialization, led to mass production and to tremendous
productivity increases. Yet after the war, new players appeared on the playground, whose work was
based on a philosophy, on methods and rules unknown before. Whilst Western managers turned to
short-term thinking to satisfy shareholders and to endless restructuring, the new actors concentrated
on continual improvement in the quality of products, uniformity of processes and qualification of
employees. Toyota is one of these new players, which despite the fierce competition due
to excess production capacity in the automobile industry of around 25 %outperforms Western
competition in every aspect, in technological innovation, in customer satisfaction, in continuous
growth and in profit. In 2004 Toyota passed Ford to become he second largest automobile
producer. Before long, Toyota will overtake General Motors becoming the biggest car
company in the world probably having no less than 15% of the world market. Toyota will prevail.
Most others will have the choice between shrinking or sinking. This paper tries to shed light on the
root causes of the Toyota Phenomenon, which for some reason or another Western companies find so
hard to understand and much less on how to apply, despite their struggle for its survival.

2.1 COMPANY’S MISSION STATEMENT:

“To be the most respected and successful enterprise, delighting customers with a wide range of
products and solutions in the automobile industry with the best people and the best technology.”
In a nutshell the company’s objective is to have:“Action Commitment Teamwork for becoming #1 in
the world”.

2.2 Guiding Principles at Toyota:

 Honour the language and spirit of the law of every nation and undertake open and fair

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 corporate activities to be a good corporate citizen of the world.
 Respect the culture and customs of every nation and contribute to economic and social
development through corporate activities in the communities.
 Dedicate ourselves to providing clean and safe products and to enhancing the quality of life
everywhere through all our activities.
 Create and develop advanced technologies and provide outstanding products and services that
fulfil the needs of customers worldwide.
 Foster a corporate culture that enhances individual creativity and teamwork value, while
Honouring mutual trust and respect between labour and management.

 Honouring mutual trust and respect between labour and management.

 Pursue growth in harmony with the global community through innovative management.
 The Toyota Way includes a set of tools that are designed to support people continuously
improving and continuously developing. For example, one-piece flow is a very
demanding process that quickly surfaces problems that demand fast solutions, or else
production will stop. This suits Toyota’s employee development goals perfectly because it
gives people the sense of urgency needed to confront business problems. The view of
management at Toyota is that they build people, not just cars.

2.3Toyota Production System (TPS):

First, of course, it taught the modern car industry how to make cars properly. Few had heard of the
Toyota Production System (TPS) until three academics in the car industry study programme run by
Massachusetts Institute of Technology (MIT) wrote a book in 1991 called “The Machine that
Changed the World”. It described the principles and practices behind the “just-in-time
“manufacturing system developed at Toyota by Taiichi Ohno. He in turn had drawn inspiration from
W. Edwards Deming, an influential statistician and quality-control expert who had played a big part
in developing the rapid-manufacturing processes used by America during the Second World War. At
the core of TPS is elimination of waste and absolute concentration on consistent high quality by a
process of continuous improvement (kaizen). The catchy just-in time aspect of bringing parts
together just as they are needed on the line is only the clearest manifestation of the relentless drive to
eliminate mud waste) from the manufacturing process. The world's motor Industry, and many other
branches of manufacturing, rushed to embrace and adopt the principles of TPS. Toyota’s success
starts with its brilliant production engineering, which puts quality control in the hands of the line
workers who have the power to stop the line or summon help the moment something goes wrong.
Walk into a Toyota factory in Japan or America, Derby in Britain or Valentines in France and you
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will see the same visual displays telling you everything that is going on. You will also hear the same
jingles at the various work stations telling you a model is being changed, an operation have been
completed or a brief halt called. Everything is minutely synchronized; the work goes at the same
steady cadence of one car a minute rolling off the final assembly line. Each operation along the way
takes that time. No one ushers and there are cute slings and swiveling loaders to take the heavy
lifting out of the work. But there is much more to the soul of the Toyota machine than a dour,
relentless pursuit of perfection in its car factories. Another triumph is the slick product-development
process that can roll out new models in barely two years. As rival Carlos Ghosn, chief executive of
Nissan, notes in his book “Shift”(about how he turned around the weakest of Japan’s big three), as
soon as Toyota bosses spot agap in the market or a smart new product from a rival, they swiftly
move in with their own version. The result is a bewildering array of over 60 models in Japan and
loads of different versions in big overseas markets such as Europe and America. Of course, under the
skin, these share many common parts. Toyota has long been the champion of putting old wine in new
bottles: over two-thirds of a new vehicle will contain the unseen parts of a previous model. But TPS
alone would not justify the extraordinary success of the company in the world market.

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7
 2.4 OBJECTIVE OF STUDY:

 To analyse the concept of jit manufacturing and its role in scm.

 To analyse the jit manufacturing process adopted in Toyota.

2.5DATA COLLECTION:

All the data is secondary data, collected from various sources, articles, journals over the internet.

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3.0 JUST IN TIME:

Just in time is a  strategy  for  inventory management  in which  raw materials and  components are
delivered from the vendor or supplier immediately before they are needed in the manufacturing
process. The just in time technique is used to increase efficiency and decrease waste
by receiving goods only as they are needed in the production process, thereby reducing inventory
costs. For this method to be successful proper demand forecasting of the producer is necessary

3.1 Introduction

Just in Time (JIT) is a production and inventory control system in which materials are purchased and
units are produced only as needed to meet actual customer demand.

When Companies use Just in Time (JIT) manufacturing and inventory control system, they purchase
materials and produce units only as needed to meet actual customers demand. In just in time
manufacturing system inventories are reduced to the minimum and in some cases is zero. JIT
approach can be used in both manufacturing and merchandising companies. It has the most profound
effects, however, on the operations of manufacturing companies which maintain three class of
inventories-raw material, Work in process, and finished goods.

Traditionally, manufacturing companies have maintained large amounts of all three types of
inventories to act as buffers so that operations can proceed smoothly even if there are unanticipated
disruptions. Raw materials inventories provide insurance in case suppliers are late with
deliveries. Work in process inventories are maintained in case a work station is unable to operate due
to a breakdown or other reason. Finished goods inventories are maintained to accommodate
unanticipated fluctuations in demand. While these inventories provide buffers against unforeseen
events, they have a cost. In addition to the money tied up in the inventories, expert argue that the
presence of inventories encourages inefficient and sloppy work, results in too many defects, and
dramatically increase the amount of time required to complete a product.

3.2 Just-In-Time Concept:

Under ideal conditions a company operating at JIT manufacturing system would purchase only
enough materials each day to meet that days needs. Moreover, the company would have no goods
still in process at the end of the day, and all goods completed during the day would have been
shipped immediately to customers. As this sequence suggests, "just-in-time" means that raw
materials are received just in time to go into production, manufacturing parts are completed just in

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 time to be assembled into products, and products are completed just in time to be shipped
to customers.

Although few companies have been able to reach this ideal, many companies have been able to
reduce inventories only to a fraction of their previous level. The result has been a substantial
reduction in ordering and warehousing costs, and much more efficient and effective operations. In a
just in time environment, the flow of goods is controlled by a pull approach. The pull approach can
be explained as follows. At the final assembly stage a signal is sent to the preceding work station as
to the exact amount of parts and materials that would be needed over the next few hours to assemble
products to fill customer orders, and only that amount of materials and parts is provided. The same
signal is sent back to each preceding workstation so a smooth flow of parts and materials is
maintained with no appreciable inventory buildup at any point. Thus all workstations respond to the
pull exerted by the final assembly stage, which in turn respond to customer orders. As one worker
explained, "Under just in time system you don't produce anything, anywhere, for anybody unless
they ask for it somewhere downstream. Inventories are evil that we are taught to avoid".

The pull approach described above can be contrasted to the push approach used in conventional

manufacturing system. In conventional system, when a workstation completes its work, the partially
completed goods are pushed forward to the next work station regardless of whether that workstation
is ready to receive them. The result is an unintentional stockpiling of partially completed goods that
may not be completed for days or even weeks. This ties up funds and also results in operating
inefficiencies. For one thing, it becomes very difficult to keep track of where every thing is when so
much is scattered all over the factory floor.

Another characteristics of conventional manufacturing system is emphasizes on "keeping every one

busy" as an end on itself. This inevitably leads to excess inventories particularly work in
process inventories. In Just in time manufacturing, the traditional emphasize of keeping everyone
busy is abandoned in favor of producing only what customers actually want. Even if that means some
workers are idle.

3.3 Advantages of Just in Time Manufacturing System:

The main benefits of just in time manufacturing system are the following:

 Funds that were tied up in inventories can be used elsewhere.

 Areas previously used, to store inventories can be used for other more productive uses.
 Throughput time is reduced, resulting in greater potential output and quicker response to customers.

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 Defect rates are reduced, resulting in less waste and greater customer satisfaction.
 Reduced levels of in-process inventories, purchased goods, and finished goods.
 Reduced space requirements.
 Increased product quality and reduced scrap and rework.
 Reduced manufacturing lead times.
 Greater flexibility in changing the production mix.
 Smoother production flow with fewer disruptions.
 Worker participation in problem solving.
 Pressure to build good relationships with vendors.
 Increased productivity levels and utilization of equipment
 Reduction in the need for certain indirect labour.

As a result of advantages such as those cited above, more companies are embracing just in time
manufacturing system each year. Most companies find, however, that simply reducing inventories is
not enough. To remain competitive in an ever changing and ever competitive business environment,
must strive for continuous improvement.

3.4 Disadvantages of Just in Time Manufacturing System:

Implementing thorough JIT procedures can involve a major overhaul of your business systems - it
may be difficult and expensive to introduce. JIT manufacturing also opens businesses to a number
of risks, notably those associated with your supply chain. With no stocks to fall back on, a minor
disruption in supplies to your business from just one supplier could force production to cease at very
short notice.

 Culture Differences The organizational cultures vary from firm to firm. There are some cultures
that tie to JIT success but it is difficult for an organization to change its cultures within a short time.
 Loss of individual autonomy. This is mainly due to the shorter cycle time which adds pressures and
stress on the workers.
 Loss of team autonomy. This is the result of decreasing buffer inventories which lead to a lower
flexibility of the workers to solve problem individually
 Loss of method autonomy. It means the workers must act some way when problems occur, this does
not allow them to have their own method to solve a problem.
 Employee skill JIT requires workers to be multi-skilled and flexible to change.
 Resistance to change JIT involves a change throughout the whole organization, but human nature
resists to changes. The most common resistances are emotional resistance and rational resistance.
Emotional resistance are those psychological feeling which hinder performance such as anxiety.
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 Rational resistance is the deficient of the needed information for the workers to perform the job
well.
 JIT success is varied from industry to industry. Some industries are benefit more from JIT while
others do no

3.5 List of Companies that use just in time (JIT):

 Toyota Motor Company

 General Motors
 Ford Motor Company
 Manufacturing Magic
 Hawthorne Management Consulting
 Strategy Manufacturing Inc.

3.6 Principles of jit

JIT Elimination of Waste:

The core principle objective of Just in Time (JIT) is to improve process efficiency by eliminating
waste. Toyota's Fuji Cho defines waste as "anything other than the minimum amount of equipment,
materials, parts, and workers, which are absolutely essential to production"

The seven common types of waste identified by JIT include:

 Processing waste.
 Waste due to idling time of machinery.
 Waste due to product defects.
 Waste of motion or faulty working techniques.
 Waste related to transportation.
 Waste from overproduction.
 Inventory waste.

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JIT elimination of waste deploys tools such as total quality management, continuous quality
improvement, focused factory, reducing setup times, flexible resources, group technology layout, and
pull production system to eliminate waste.

a) Quality at the Source (Jidoka):

Jidoka or ensuring quality at the source ranks amongst the major JIT principles. This principle entails
identification and correction of problems at the manufacturing stage itself, as soon as it occurs. JIT
provides for Jidoka through automation that caters to the automatic working of the assembly line and
complete shut down upon detection of error. The production line resumes only after rectification of
the error. Jidoka makes inspection and quality control a part of the production process rather than a
separate activity, and places the responsibility for quality on everyone in the company rather than the
quality team alone.

b) Simplification:

The third of the major JIT principles is simplification or using minimum resources to attain process
efficiency. The JIT principle holds that excess of any kind masks problems such as low quality raw
materials, unreliable vendors, defects in machinery, and the like. Removing the excess makes
problems apparent. JIT systems strive to attain zero work in process inventory buffers and zero
ending finished goods inventory to ensure smooth process flow, elimination of storage space, and
cost savings. JIT promotes a demand driven “pull” system where the process starts when the
customer places an order that triggers the production, which in turn triggers a call for resources. Each
stage in the production process manufactures only what is required for the next stage. “Kanbans” or
instructions, usually by cards, provide each worker with specific instructions on what to do and what
to use.

c) Cellular Manufacturing System:

Group technology or Cellular manufacturing is another major JIT principle. The Cellular
manufacturing system advocates that segmented and product focused manufacturing is much simpler
than a linear process oriented manufacturing. JIT institutes strategic capacity management techniques
such as multiple small machines instead of a large bulky machine that requires constant production
for profitability and others towards this end.

d) Respect for People:

Among the major JIT principles is respect for people at all levels, be it employees, customers,
suppliers or management. Success of JIT depends on identification of what the customer needs and
fulfilling the request in the best possible manner.
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 Success of JIT depends on

 clear and effective communication among all the stakeholders

 employees empowered to make decisions and cross-trained to handle many machinery to ensure
smooth flow of the product
 suppliers understanding and fulfilling demand for specific components at the right time
 The management that respects people and works towards such people related critical success factors
succeeds in reaping the benefits of JIT.

3.7 Reasons for using JIT

a) JIT Improves Organizational Efficiency

JIT improves organizational efficiency in five major ways:

 The Just in Time method entails sourcing the required raw material or item for processing on
demand, and scheduling the work based on order or demand for the product. This synchronization of
supply with production, and production with demand improves the flow of goods and reduces the
need for storage facilities.
 JIT’s focus on eliminating waste from the production process lead to redesign of the workspace to
ensure a smooth flow of goods or processes, eliminating redundant tasks and minimizing
transportation of the product across the workspace.
 The traditional manufacturing process call for “batch” manufacturing or manufacturing of a
particular component or model in a “lot” before moving on to another “batch” or “lot.” JIT makes it
possible to manufacture even single pieces or components without any delays.
 JIT’s system of Kanbans or specific instructions for each worker eliminates all scope for mistakes in
the work floor.
 The relentless effort to eliminate waste and achieve zero-defects improves productivity, cuts down
manufacturing time, and improves product quality

b) JIT Reduce Costs

Among the major benefits of JIT system is the elimination of raw material, inventory and product
storage costs.

 The traditional notion is to consider raw materials or inventory of finished goods as an asset. The JIT
method turns this concept upside down and considers stock as waste or dead investment incurring
opportunity costs.
 The JIT system sources raw materials close to the manufacturing time, and ships out the product to
the customer immediately without storage, leading to substantial savings resultant from not storing
raw materials or stocking up finished goods. Deploying funds tied up in raw materials and
inventories to generate additional revenue do wonders to the finances of the organization.

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 JIT’s thrust on elimination of waste from the production process and improving product quality
reduces damaged goods and saves on Human Resources costs considerably.

c) JIT Improves Supplier Relationships

The success of JIT depends on the ability of the supplier to produce raw materials on demand. The
benefits of JIT extend to improved relationship with the suppliers on many counts:

 JIT develops a system of effective communication with the supplier, specifying the exact product
required in exact quantity and the specific time of delivery. This eliminates all scope of
misunderstandings or miscommunication.
 The success of JIT requires reliable suppliers and organizations takes the initiative to upgrade
supplier competencies and establish a long-term relationship with the supplier to ensure
compatibility and standardized products
 The exact nature of order and the long-term proactive relationship with suppliers eliminate the need
for inspection of received goods.

d) JIT Allows Customization and Increase Customer Satisfaction

Just in Time Inventory adjusts production to demand, making possible fulfilment of custom orders
without any extra effort or extra time, and leading to increased customer satisfaction.

e) JIT Develops Human Resources

Implementation of JIT requires workforce flexibility and a highly skilled and committed workforce.
The advantages of Just in Time Inventory extend to the company’s Human Resources in the
following ways:

 Investment in training to develop existing skill and broaden skill sets

 More effective usage of employees with multiple skills
 Increased motivation through job rotation
 Better productivity

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4.1 World Class Manufacturing:

Many firms have tried to install the Toyota Production system TPS. They set up the Kanban system,
which is a tool for managing the flow and production of materials in a Toyota-style “pull”
production system. They plug in the andon, which is a visual control device in a production
area that alerts workers to defects, equipment abnormalities or other problems using signals such as
lights, audible alarms, etc. Finally, with all these devices the workplace looks like Toyota plant. Yet
over time the workplace reverts to operating like it did before. And this is exactly what many
Western organizations have experienced. With the set up of TPS, the real work of implementing TPS
has just begun. In the Toyota Way, it’s the people who bring the system to life by working,
communicating, resolving issues and growing together. The Toyota Way encourages, supports and in
fact demands employee involvement. The Toyota Way is much more than a set of improvement and
efficiency techniques. It’s a culture depending on worker attitude to reduce inventory, identify
hidden problems and to fix them with a sense of urgency, purpose and team work. The Toyota
Production System can be copied, the Toyota Way cannot. It has to be built, maintained and refined
over decades. The roots of the Toyota Way go back to1926, when Sakichi Toyoda (1867 – 1930), a
brilliant engineer, later referred to as Japan’s “Kingof Inventors”, founded Toyoda Automatic Loom
Works. His work ethics was significantly influenced by the book of Samuel Smiles, “Self- Help”,
first published in England in 1859. The book grew out of the devotion, to help young man in
difficult economic circumstances byimproving themselves. The book chronicles inventors whose
natural drive and inquisitiveness ledto great inventions that changed the course of humanity. When
looking for instance at the success and impact of James Watt, Smiles concluded, that both were not
the result of natural endowment but rather trough hard work, perseverance and discipline.
These few words summarize the spirit, which Sakichi Toyoda handed over to his son Kiichiro
Toyoda (1894-1952), the founder of Toyota Motor Company, his son Shoichiro Toyoda, Honorary
Chairman and director of Toyota Motor Corp., and on to his nephew Eiji Toyoda (*1913),
President of Toyota from 1967 to 1994. Spend some time with Toyota people and after a time you
realize there is something different about them. The rest of the car industry raves about engines,
gearboxes, acceleration, fuel economy, handling, ride quality and sexy design. Toyota's people talk
about “The Toyota Way” and about customers. In truth, when it is written down the Toyota creed
reads much like any corporate mission statement. But it seems to have been absorbed by Japanese,
European and American employees alike. Mr. Cho thinks that something of the unique Toyota
culture comes from the fact that the company grew up in one place, Toyota City, 30minutes drive
from Nagoya in central Japan, where the company has four assembly plants surrounded by
the factories of suppliers.

16
In this provincial, originally rural setting, Toyota workers in the early days would often have
small plots of land that they tended after their shift. Mr.Cho, who made his career in the company by
being a pupil of Mr. Ohno and becoming a master of production control, thinks that the fact that
Toyota managers and their suppliers see each other every day makes for a sort of hothouse culture
— rather like Silicon Valley in its early days. Jim Press is boss of Toyota’s sales in North America.
He left Ford in frustration 35 years ago, because he did not think it handled customer relations
properly and he suspected that the upstart Japanese company making its way in the American market
might do better. He was right. Toyota shares a production plant in California with GM. Identical
cars come off the line, some badged as GM, the rest atlas: after five years, according to one study
by Boston Consulting Group, the trade- in value of the Toyota was much higher than that of the
American model, thanks to the greater confidence people had in the Toyota dealer and service
network. Mr. Press talks with a quiet, almost religious, fervour about Toyota, without mentioning
cars as such. “The Toyota culture is inside all of us. Toyota is a customer's company,” he says. “Mrs.
Jones is our customer; she is my boss. Everything is done to make Mrs. Jones's life better. We all
work for Mrs. Jones.” But not even the combination of its world leading manufacturing, rapid
product development and obsessional devotion to customer satisfaction is enough to explain
Toyota’s enduring success. There is one more ingredient that adds zest to all these. Tetsuo Agata
doubles as general manager of Toyota's Honsha plant in Toyota City and as the company's
overall manufacturing guru. The magic of Toyota's winning culture was summed up for him by
an American friend who observed that Toyota people always put themselves “outside the comfort
zone”: whenever they hit one target, they set another, more demanding one. That relentless
pursuit of excellence certainly explains much of what has been happening to the company in recent
years, at home and abroad.

4.2 Methods Used In Controlling Waste:

The purpose of TPS is to minimize time spent on non-value adding activities by positioning the
materials and tools as close as possible to the point of assembly. The major types of non-value
adding waste in business or production process are overproduction, waiting or time on hand,
unnecessary transport or conveyance, over processing or incorrect processing, excess inventory,
unnecessary movement, defects and unused employee creativity. The driving force behind the
Japanese system of production is eliminating waste, thereby maximizing process efficiency and the
returns on resources. A wide number of principles and practices can be employed to achieve this
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goal. As Shingo once noted, people instinctively know to eliminate waste once it is
identified as such, so the task of reducing waste often centres first around identifying
unnecessary uses of human, capital, or physical resources. After waste is targeted, new processes or
practices can be devised to deal with it.
Just-In-Time (Jit):
Just-in-time (JIT) production or so-called lean manufacturing. The pioneers of these methods were
Taiichi Ohno, a former Toyota executive, and Shigeo Shingo, an eminent engineer and consultant. In
his 1989 book the Study of the Toyota Production System from an Industrial Engineering
Perspective, Shingo identified these basic features of TPS:

1. It achieves cost reductions by eliminating waste, be it staff time, materials, or other

resources.

2. It reduces the likelihood of overproduction by maintaining low inventories ("nonstock") and keeps
labour costs low by using minimal manpower.

3. It reduces production cycle time drastically with innovations like the Single-Minute Exchange
of Die (SMED) system, which cuts downtime and enables small-lot Production.

4. It emphasizes that product orders should guide production decisions and processes, a Practice
known as order-based production.

Process Improvement:

An important aspect of eliminating waste is designing efficiency into production processes and
methods. For example, in the Toyota system heavy emphasis was placed on lowering the time and
complexity required to change a die in a manufacturing process. A time-consuming die-changing
process is wasteful in two ways. First, while it is happening production is often at a standstill,
increasing cycle times and all the costs associated with longer cycle times. (However, it is important
to note that idle time for individual machines in a system is not always viewed as wasteful under the
TPS philosophy.) Second, workers' time and effort are spent on activities that aren’t directly related to
production (i.e., no value is being added by changing a die). As a result of such concerns, the push at
Toyota was to reduce significantly the time it took to change dies.

VALUE ADDED:
TPS and similar Japanese manufacturing techniques distinguish between activities that add value to a
product and those that are logistical but add no value. The primary even the sole value-added activity
in manufacturing is the production process itself, where materials are being transformed into

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progressively functional work pieces. Most other activities, such as transporting materials, inspecting
finished work, and most of all, idle time and delays, add no value and must be minimized. When
processes are examined for potential improvements and cost cutting, reducing non-value-added
activities is often the highest priority. Conversely, processes that add the most value, even if they are
expensive, will usually not be compromised to achieve lower costs at the expense of quality.

Quality by Design:
Another feature thought to be defining in Japanese manufacturing is a marked attention to quality
throughout the production process. Specifically, under the influence of such luminaries as W.Edwards
Deming and Joseph M. Juran, Japanese manufacturers have sought to achieve quality by designing it
into the production process rather than simply trying to catch all the errors at the end. As noted, poka-
yokes can serve this function either by halting/correcting a faulty process or by alerting a worker to a
problem as it occurs. While plenty of traditional, defect- monitoring sorts of quality controls are still
used, philosophies such as TPS hold that the results of quality inspections should be used to inform
—and improve—the manufacturing process, not just to describe it. This means the feedback from a
quality inspection is expected to be immediate and, often, to result in some change in the process so
that the likelihood of similar problems in the future is reduced.

Order-Based Production:
A natural and necessary extension of the non-stock goal is that manufacturers need specific customer
information to drive their production decisions. Obtaining this information necessitates effective
market research/forecasting and communication with customers. As much as possible, production
under the Japanese system is guided by actual orders, rather than anticipated demand based on less
reliable information such as past sales. The order-based system is said to provide production “pull"
from the actual market, as opposed to "push” that stems only from the manufacturer's
conjecture.

Transportation:
The Toyota Production System also recognizes waste in the excess movement of items or
materials. In general, the more transportation required, the less efficient the process, since
moving goods back and forth is normally not a value-adding procedure. Transport waste is
usually addressed by changing the layout of a factory, its geographic location relative to its
customers, and so forth. While sometimes transportation problems can be mitigated
throughautomation, the ideal under the Japanese system is to minimize it altogether. Cell and flexible

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Manufacturing layouts are one approach to controlling transport waste.

Market-Driven Pricing
In contrast to the traditional practice of setting prices by marking up some percentage over the cost of
manufacturing, the Japanese system attempts to identify the market-determined price fora good and
then engineer the manufacturing process to produce at this price profitably. Under this principle,
increases in costs are not passed on to the consumer in the form of higher prices. As a corollary, the
only way for a firm to increase profitability is by lowering costs; lower costs may also allow the
company to be profitable yet deliver products at the low end of the pricing spectrum, a practice central
to the rise of the Japanese auto manufacturers in the U.S. market.

Worker Flexibility:
Maximizing returns on human capital is another goal of Japanese manufacturing practices.
Driven by the theory that human time is more valuable than machine time, the Japanese system
attempts to optimize labour efficiency by deploying workers in different ways as order-based
production requirements fluctuate. The main two dimensions of this flexibility are skills and
Scheduling.

Lean Principles:

 Precisely define value by specific product.

 Identify the value stream for each product.

 Make the value flow without interruptions.

 Let the customer pull value from the producer.

 Pursue perfection.

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4.3 Principles Adopted By Toyota To Achieve Their Goals:

 Toyota’s business practices differ from those of Western automobile manufacturers in a

number of aspects:

 Operations are strictly governed by a sustainable business policy, which is passed on from
one generation to the other and not by short-term decision making or by the
Attitudes of changing management teams and variable customer tastes.

 Growth comes from the inside out and not through mergers and acquisitions, in other words,
growth through continual improvement of products and services and not through continued
restructuring.

 Production is controlled by customer demand (“pull” system) not by production capacity

(“push” system).

 Qualified employees are attracted with the possibility to participate in the company’s
striving to meet and exceed customer expectations with products of unparalleled quality and
not with compensation schemes. Toyota employees work for a winner. Who wants to work
for an employer, whose products have to be forced onto the customers with discounts
and incentives? Who wants to work for a looser?
 No unions are admitted which force both management and employees to defend their own
interests and by so doing distract from the shared responsibility to satisfy customers.

 For more than 50 years, Toyota experienced an extraordinary history of continuous

growth without major layoffs

 Base your management decisions on a long-term philosophy, even at the expense of Short-
term financial goals.

 Create continuous process flow to bring problems to the surface.

 Build a culture of stopping to fix problems, to get the quality right the first time.

 Standardised tasks are the foundation for continuous improvement and employee

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 Empowerment.

 Use visual control so no problems are hidden.

 Use only a reliable, thoroughly tested technology that serves your people and Processes.

 Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others.

 Develop exceptional people and teams who follow your company’s philosophy.

 Respect your extended network of partners and suppliers by challenging them and helping
them improve.
 Go and see for yourself to thoroughly understand the situation (genchi genbutsu)

 Make decisions slowly by consensus, thoroughly considering all options; implement decisions
rapidly.

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5. Conclusion:
As one of the leading automobile manufacturers in the world, Toyota ranks within the top three
worldwide. Due to their unique business model, they are now having a market share of 14% in the
first four months of this year. That is an astonishing 2.3% jump from the previous year. According to
Autodata.com, the Toyota City based automaker ranks fourth in United States sales. We have
determined that their business model is an Integrated Low Cost? Differentiated Strategy. It
involves finding the lowest operational cost along with a unique niche or strategy that separates them
from the competition. Toyota’s new statement? Moving Forward? Reflects theirplans and
expectations for the future. This includes the known and the unknown factors that a business must
face. In 2000, Toyota launched a new cost effective strategy called CCC21 (Construction of Cost
Competitiveness for the 21st century), for Low Cost operational expenses. With this aspect Toyota
plans to advance such initiatives globally, based on its policy of purchasing the world’s best
parts at the lowest cost with the shortest lead times.

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 6. References
 www.toyota.co.uk
 http://www.enotes.com/biz-encyclopedia/japanese-manufacturing-
 techniques eliminating-waste
 http://www.strategosinc.com/just_in_time.htm
 http://en.wikipedia.org/wiki/The_Toyota_Way

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