Toyota rethinks the assembly line

It is hard to feel sorry for Toyota. It is a mammoth corporation and a force in its industry. Still the Japanese automaker has been going through a rough stretch. Some of its problems are surely of its own making (e.g., quality issues and recalls), but others are largely beyond its control (e.g., turmoil in the world economy). One item in the latter category is the appreciation in the yen (see the graph at right).

As the Wall Street Journal reports (For Toyota, Patriotism and Profits May Not Mix, Nov 29), Toyota despite years of building factories in the US and elsewhere still has a larger share of its production capacity in Japan than its main domestic rivals. Given a weak Japanese market for new cars, Toyota would have to export heavily from Japan in order to make good use of that capacity.

How has Toyota responded to this challenge? In part they have been using innovative ways to decrease the size and cost of assembly plants. Check out this spiffy graphic:

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Postponement and importing cars

If you buy a Japanese built Toyota, where would you expect the final bit of assembly to be done? Would you believe Newark?

The New York Times had an article on the process of receiving imported cars (Far From the Factory, Adding Final Touches, Sep 25). What is unsurprising is that car makers have processes in place to check for and repair any damage that occurred during shipment. What is a little unexpected is that they do some additional work to customize cars such as installing Bluetooth systems or putting on roof racks (see the picture at left).

Toyota’s 98-acre operation at Newark’s port is something of a scaled-down assembly plant, though the work — adding a range of so-called port-installed options into 21 different models — is done largely by hand using simple tools, not by industrial robots controlled by computers. About 185 employees work in Toyota’s car wash, quality control center and five production shops here.

By adding items like floormats and GPS systems at its distribution centers instead of at its factories, Toyota gives customers a chance to tinker with their orders until just two days before the vehicles dock in Newark. And it gives dealers a way to stand apart from their competitors.

“We want to tailor the vehicle to what the customer wants,” said Bill Barrett, the national logistics manager at the Newark location. “We build the car they want.” …

The work would grind to a halt without Rui Sousa, whose job it is to order accessories daily from suppliers, based on expected needs in two days’ time. The key, he said, is limiting the volume of accessories for unpopular cars or those that are undergoing model changes, while keeping enough on hand for more popular cars.

“We’re trying to find the right balance,” said Mr. Sousa, who has honed his orders so finely that the amount of just-in-time inventory has been cut by about two-thirds during the last four years.

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How the Japanese earthquake is shaking up an auto supplier

A few weeks ago we had a post on how Toyota is revamping its supply chain in anticipation of the next natural disaster. Now the Wall Street Journal has a story on how an auto supplier is trying to recover from March’s earthquake (Quake Still Rattles Suppliers, Sep 29).

Take, for example, the tussle over a pearl-luster pigment called Xirallic that makes car paint sparkle. Merck KGaA produces 100% of the global supply at a factory in an area of northeastern Japan that was hit hard by the quake, forcing a temporary suspension of operations. The German company said it caught up on back orders Sept. 1, after reopening the factory in May, and remains committed to manufacturing in Japan. …

The closure of Merck’s Onahama, Japan, plant for two months after the March 11 quake set off a search for scarce stockpiles or substitutes. Many of the world’s auto makers, including Toyota, Nissan Motor Co., Ford Motor Co., Chrysler Group LLC, Volkswagen AG and General Motors Co., used metallic paints made with Xirallic, an aluminum-oxide-crystal compound, for at least some vehicles in their product lineups.

The acute Xirallic shortage nevertheless illustrates how much the global auto industry came to rely on just a handful of producers for key components and materials, many of which are made in Japan. The post-quake crisis has prompted auto makers to seek ways to diversify their supply chains for critical components, which ranged from humdrum rubber O-rings to advanced semiconductors. …

Many auto makers had been surprised to find their standard two-supplier rule for critical parts had been circumvented further down the supply chain. As a result, “traceability” of lower-tier suppliers has become an industry watchword following the earthquake, a senior Toyota executive said.

So Merck is effectively now being vilified for being really good. They had  a great product and delivered reliability. As long as they did that, no one cared that everything came from one factory. Indeed, it may have had some advantages in having just one production location since this would allow for economies of scale and assured consistent production processes.

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Toyota gets ready for the next earthquake

Virtually every automaker took a significant hit when an earthquake and tsunami hit Japan back in March. (We have several posts on this.) What surprised many people — even to some in the auto industry — was that even non-Japanese firms suffered. Several firms did not find out until too late that a supplier to a supplier was dependent on components that could only made in one plant and that plant was unfortunately in the affected area. One would obviously hope that firms would learn from the Japanese crisis and try to keep such disruptions from happening again.

Toyota has been working on a plan to reduce their exposure to such disasters with the aim of being able to recover to full production in two weeks instead of the six month slog they went through this time (Toyota aims for quake-proof supply chain, Sep 6, Reuters). Toyota’s is focusing on three steps to reduce their exposure.

The first is to further standardize parts across Japanese automakers so they could share common components that could be manufactured in several locations, he said.

The second step is to ask suppliers further down the chain to hold enough inventory — perhaps a few months’ worth — for specialized components that cannot be built in more than one location, or take anti-quake measures that guarantee safety against any tremor or tsunami, he said.

This was to prevent a repeat of what happened this time with Renesas Electronics Corp, whose production of certain microchip controller units (MCUs) is still seen a few weeks away from full restoration.

Part of the second step would involve developing technology that would provide more options for parts and materials, such as substituting rare earths found mostly in China.

The third step to becoming more resilient was to make each region independent in its parts procurement so that a disaster in Japan would not affect production overseas.

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Toyota’s next move

This week brought some possible good news for Toyota. The Wall Street Journal reports that the Transportation Department has studied data from a number of Toyota’s involved in crashes that supposedly were caused by sudden acceleration and found that “throttles were wide open and the brakes weren’t engaged at the time of  the crash” (Early Tests Pin Toyota Accidents on Drivers, Jul 14). That suggests that these crash were due to human error and not faulty product. The appropriate question then is not “what did Toyota screw up?” but “should dad still be driving?”.

Driver error has been the industry’s default answer to all sudden acceleration complaints for over two decades. The data that the Transportation Department is looking at comes from “black box” recorders in Toyotas that record the state of the vehicle at the time of the crash. As a lawyer who is suing Toyota in cases related to sudden acceleration points out that Toyota has consistently claimed that these black boxes are not reliable and just prototypes so the Feds’ findings are likely not the end of the story here.

Which brings us to another piece of news. Toyota has announced that it is stretching out and tweaking its development process (Toyota Is Changing How It Develops Cars, Jul 5, WSJ). The time component here is the easiest to focus on but I am not sure it is where the meaningful changes are. The Journal reports that they are going to take a whole four — count ‘em 4! — weeks on the revised Avalon. I think what is more important is that Toyota is going to do more of the design work themselves.

The company is also working to bring development work that had been sourced to outside engineers back inside. Some outside engineers actually work side by side with Toyota’s engineers inside Toyota research and development centers. But using contractors has led to a breakdown in communication and potential misunderstandings, Mr. Stephens said.

A senior Toyota engineer said the company uses outside engineers to do about 30% of its development work globally and seeks to reduce the ratio to 10%. Toyota spokeswoman Cynthia Mahalak, of the Toyota Technical Center, said she couldn’t confirm the ratios.

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Toyota by the numbers

Lots has been happening with Toyota and we have had trouble keeping up. However there are couple of numbers and graphs that are worth noting.  The first is from the Wall Street Journal (Cause of Sudden Acceleration Proves Hard to Pinpoint, Feb 25). Click on the graphic for a better view:

Gady had posted an earlier version of the same data all plastered onto one graph but having it broken out makes the scope of Toyota’s issues a little bit clearer. Ford obviously has had some issues but they have an explanation:

Ford spokesman Said Deep said, “When you analyze NHTSA data and remove the complaints due to the speed control deactivation switch, which we recalled in 2005, Ford’s performance in this category has improved each year and our complaints have been significantly lower than Toyota’s each year since 2005.” Still, Mr. Deep said Ford’s speed deactivation switch—which shuts off the cruise control when the driver hits the brakes firmly—had no connection to sudden acceleration, and that about 14 million vehicles were recalled due to the potential of the switch causing fires while vehicles were parked.

For those keeping score at home, that 14 million vehicle recall still stands as the biggest in US history.

What these numbers obscure is that all else being equal the number of complaints should go up with the number of vehicles on the road. So Nissan’s low numbers might reflect that there are fewer Maximas out there than Camries. Edmunds thus did a study comparing how many complaints (that is, total complaints not just for acceleration issues) were filed with the National Highway Traffic Safety Administration relative to market share. The short summary amounted to Toyota was one of the best performers. Also, don’t buy a Land Rover. Now Edmunds has released a new bit of research looking specifically at complaints about unintended acceleration (Industry’s Unintended Acceleration Issue Requires Attention, Edmunds.com Comments, Feb 26).  Here is the punchline from that:

Manufacturer	Complaints	Complaints per 100,000 Vehicles Sold
Chrysler Group (Chrysler, Dodge, Jeep)	156	1.72
Ford Motor Corporation (Ford, Lincoln, Mercury, Volvo)	339	3.12
General Motors (Buick, Chevrolet, Cadillac, GMC, Hummer, Pontiac, Saab, Saturn)	134	0.81
Honda (Honda, Acura)	89	1.26
Nissan (Infiniti, Nissan)	50	1.07
Toyota Motor Corporation (Lexus, Scion, Toyota)	532	4.81

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Toyota, AT&T and other odds and ends of the week

Here’s  few quick items we didn’t get around to writing full posts on. To begin it’s hard to say too much about Toyota this week.

• The Wall Street Journal had an interesting story today (Feb 6) on Toyota’s response to the crisis (A Crisis Made in Japan ).  The gist of its argument is that Toyota’s reaction is pretty much standard for how Japanese corporations handle these kinds of crises:

It is not surprising that Toyota’s response has been dilatory and inept, because crisis management in Japan is grossly undeveloped. Over the past two decades, I cannot think of one instance where a Japanese company has done a good job managing a crisis. The pattern is all too familiar, typically involving slow initial response, minimizing the problem, foot dragging on the product recall, poor communication with the public about the problem and too little compassion and concern for consumers adversely affected by the product. Whether it’s exploding televisions, fire-prone appliances, tainted milk or false labeling, in case after case companies have shortchanged their customers by shirking responsibility until the accumulated evidence forces belated disclosure and recognition of culpability. The costs of such negligence are low in Japan where compensation for product liability claims is mostly derisory or non-existent.

• NPR had an interesting report on how this is all playing in Japan (Recall Shakes Japan’s Confidence In Toyota, Feb 5).  It mentions in passing that some in Japan seem awfully suspicious that this happening to Toyota after teh US government acquired an interest in GM’s long term success.  I am not sufficiently into conspiracy theories to chalk this all up to a government plot but I do think it is fair to say that Ray LaHood would not be shooting off his mouth telling everyone to stop driving their Chevy or Ford.

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The Andon Cord that wasn’t pulled (and the Toyota recall)

Very few events can send an ops professor to a long soul search. A Toyota mega recall is one of them. Marty already posted on a Wall Street Journal article, which discussed the relationship between lean operations and the recall. The New York Times has an excellent article on the issue (“Toyota’s Slow Awakening to a Deadly Problem“).

Lean operations (or lean manufacturing) is a management philosophy that calls for the elimination of wasteful activities and handling of quality issues through continuous improvement by making the people that closer to the line responsible for the process and its improvement. In our core Operations Management course we teach the principles of lean operations and use the Toyota Production System as an example of the implementations of these concepts. With such a colossal event, we must ask ourselves whether the adoption of these principles contributed to these issues or whether these quality issues happed despite the method by disregarding it. We must say that we don’t have yet all the information, but even with this limited information, I like the explanation provided by the NY Times:

Toyota’s handling of the problem is a story of how a long-trusted carmaker lost sight of one of its bedrock principles.  In Toyota lore, the ultimate symbol of the company’s attention to detail is the “andon cord,” a rope that workers on the assembly line can pull if something is wrong, immediately shutting down the entire line. The point is to fix a small problem before it becomes a larger one. But in the broadest sense, Toyota itself failed to pull the Andon cord on this issue, and treated a growing safety issue as a minor glitch — a point the company’s executives are now acknowledging in a series of humbling apologies.

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The Rise and Fall of the Toyotan Empire

Are we observing rise and (quick) fall of the of the Toyota?  The Economist had an interesting article about the recent issues at Toyota, saying that unless they can find a solution to their problems, their stint as the world biggest car maker may be short. (“Losing its shine”, December 2010).

The article makes several interesting points on the reason for the decline.  First, the competition is catching up:

For years Toyota has been the quality benchmark for every carmaker, but at the very moment it faltered, others were finally catching up. The truth is that although a few fail to make the grade—Chrysler still has a lot of catching-up to do—most cars these days are extraordinarily well-made. The quality surveys by which buyers used to set such store are now based on minute differences. This is the main reason why the manufacturers’ positions in the league tables have become increasingly volatile.

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