November 2, 2009 marks a date in Toyota’s history that the proud organization would gladly forget. Toyota Motor Corporation, the founder of the lean production system and leader in the development of principles in total quality management, came under fire with a major recall of vehicles which exhibited problems with a driver’s side floor mat and its interference with the accelerator foot pedal. Just a few months later, Toyota issued a second related recall when problems recurred with the accelerator foot pedal, and it was determined that the floor mats were not likely the root cause of the issue. Instead, Toyota embarrassingly announced that the accelerator issues were related to a sticking mechanism contained within the pedal assembly. This recall came at significant cost to Toyota. Toyota recalled 9 million cars worldwide. Toyota was forced to suspend sales of the related vehicles for several weeks. A total of 37 Toyota customers have been reported to be victims of fatal accidents. Vehicles which were supposed to have been corrected as a result of the recall efforts, had their owners report recurring problems. Finally, after 4 years of extremely bad press, global awareness, and political pressure related to their quality and management problems, Toyota was found guilty in its first of 70+ lawsuits. On March 19, 2014, Toyota announced a settlement with the US Department of Justice and it promised to pay $1.2 billion in criminal penalty charges related to deceitful practices and malicious attempts to cover up its wrong-doing. As of March 2014, several wrongful death suits are reported to still be pending.
Wow, what a substantial price to pay for a company that was once the billboard representation of what it meant to be a quality centric organization. In 2007, Toyota would become crowned as the world’s largest automaker, over-taking the 76 year reign of General Motors Corporation. Let’s turn back the clock. In 1937, American made automobiles commanded 90% of the Japanese marketplace. In 1937, Sakichi Toyoda sold his patents for a power loom invention in order to fund his automobile manufacturing operations. In the decades that followed Toyoda’s investment, the founding family of Toyota would study the management philosophies of American automobile manufacturers and would conclude that there was significant waste and lack of productivity in the American management practices. The Toyoda family would pioneer new management philosophies for quality management and these new practices would come to be known as the Toyota Production System or lean production.
Lean Production contains seven major elements. These include waste reduction, lean supply chain relationships, lean layouts, inventory and setup time reduction, small batch scheduling, continuous improvement, and workforce empowerment. A complete definition of all of these elements is enough for a novel, but lean production can be summarized to be a management philosophy that reduces waste, reduces work-in-process inventories, reduces down-time, increases production line flexibility; and, further, engages the production line employees in decisions that make their workspace more productive and more enjoyable. The lean production system identifies seven wastes: overproduction, waiting, transportation, over-processing, excess inventory, excess movement, and scrap and rework. The reduction of waste we can see focuses on the reduction of inventories, transportation, and unnecessary movement of work-in-process within the factory workplace. Unnecessary movement on a factory floor is achieved through Lean Layouts and well organized Manufacturing Cells.
An effective lean production system is extended outside the workplace and into the supply chain with what we term lean relationships. Lean supply chain relationships reduce stored inventories normally required for safety stock. Lean relationships are normally held with first-tier suppliers or with those that are considered to be of utmost importance to your ongoing operation. Critical to any lean relationship is communication. Today, lean partners will be given access to ongoing production plans via electronic means and the supplier is charged with the responsibility to satisfy the needs of your organization on time and on budget. When managed well, a lean relationship focuses less on the cost factor as a measure of performance and more on the timely delivery and the quality of the incoming work.
So how has the founder of lean production practices come under fire in the past 7 years? Recall problems have not stopped for Toyota Motor Corporation. It has been reported in the New York Times that Toyota has recalled another 3 million RAV4 sport utility vehicles for issues related to rear seat belts determined to be cutting themselves loose on a sharp frame during a collision. What has really happened at Toyoto? An article written in the MIT Sloan Management Review by Robert E. Cole, seems to suggest that a shift in a conservative quality-centric corporate philosophy to one focused in sales growth likely contributed to Toyota’s recall barrage. In 1995, Toyota appointed Hiroshi Okuda as the company’s new president and Okuda set corporate growth projections at rates never before achieved by Toyota. With this shift in focus toward growth, Okuda falsely believed that Toyota’s quality management philosophies and reputation could be put on auto-pilot. Okuda underestimated the impact of setting double digit growth objectives. To grow at the rate that was proposed by Okuda, considerable expansion in new facilities, new equipment, and human resources was necessary across the world. A rapid growth rate also sends significant shock waves throughout a supply chain. A bull-whip effect within the supply chain often results and quality oversight with even the most insignificant components can produce unforeseeable results.
Statistical research within this MIT Sloan Management Review article, demonstrates that in reality, Toyota’s quality did not shift significantly by the pure numbers. Instead, it concludes that only a small shift in the statistical output is necessary to yield a major shift in public opinion of a brand. Prior to the 2009 recall, Toyota was experiencing a positive halo effect with its brand meaning that minor quality defects with Toyota problems were typically ignored due to a high degree of consumer confidence. But, in 2009, when Toyota’s quality issues became public in the media, consumer complaints sky-rocketed. Future managers be warned here, even the slightest shift in focus on quality management objectives can yield catastrophic results. In 2003, Toyota Motor Corporation named Akio Toyoda, the grandson of the company’s founder as their new president. Toyota has now returned to be focused on its quality management philosophies and is now driven to return a high degree of consumer confidence in its brand.
1. Wisner, Joel D., PhD; Tan, Keah-Choon, PhD; and Leong, G. Keong, PhD. (2014). Chapter 8: Process Management-Lean and Six Sigma in the Supply Chain. In Principles of Supply Chain Management, A Balanced Approach, 4th Edition. Boston: Cengage Learning.
2. 2009 – 11 Toyota Vehicle Recalls. (n.d.). In Wikipedia online. Retrieved from https://en.wikipedia.org/wiki/2009%E2%80%9311_Toyota_vehicle_recalls on April 18, 2106.
3. Soble, Jonathan. (February 18, 2016). Toyota Recalls Nearly 3 Million RAV4s Over Seatbelt Separation. New York Times. Retrieved from http://www.nytimes.com/2016/02/19/business/international/toyota-recall-rav4-seat-belt-separation.html on April 18, 2016.
4. Cole, Robert E. (June 22, 2011). What Really Happened to Toyota? MIT Sloan Management Review. Retrieved from http://sloanreview.mit.edu/article/what-really-happened-to-toyota/ on April 18, 2016.