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From the Desk of Jack Healy

Toyota Named Number One and Stumbles…?

By Jack Healy, Director, MassMEP

Toyota was just crowned the largest auto manufacturer in the world. And now they are dealing with a myriad of problems, specifically, quality problems. And they are big problems. Last year in the US, Toyota recalled 2.38 million vehicles; that's more than the 2.26 million vehicles the company sold.

"It is time for us to strengthen the fundamentals in all areas in the US," stated Toyota President Katsuaki Watanabe. He cited problems including rising manufacturing costs, excess capacity, and quality problems. These are the kinds of problems that most CEO's would understandably attribute to the rapid growth and worldwide expansion that Toyota has experienced in the last five years, increasing production by more than 3 million vehicles.

However, Mr. Watanabe, like any Toyota employee who notices a problem, has pulled the Andon Cord that stops a production line in order to ensure that the problems are fixed before restarting. The result of this is that Toyota will slow its plant construction and reduce the pace of product launches. Expect to see the launch of more product prototype vehicles, the addition of more engineers, and whatever else it takes to ensure that product quality does not slip. The planned changes are not expected to cause any missed product introductions because the product development process, while extended, will be started earlier. 

Toyota's Commitment to Being the Best
Toyota's commitment to quality is best described in a statement made by President Watanabe in a recent article in the Harvard Business Review when he responded to the question, "What does becoming number one in the global automobile industry mean to you?" 

Mr. Watanabe stated, "To me, becoming number one isn't about being the world leader in terms of how many automobiles we manufacture or sell in a year or about generating the most sales revenues or profits.  Being number one is about being the best in the world in terms of quality on a sustained basis.  I attach the greatest value and importance to quality; that lies at the root of my management style.  It's critical for Toyota to keep making the highest-quality vehicles in the world – the best products in every way, manufactured without any defects.  Unless we enhance quality today, we can't hope for growth in the future.  That is why we are investing in the development of new technologies, new processes, and human resources."

The Push for Automated Quality Systems
Toyota's singular focus on quality and its continual improvement is being driven through the new processes and technologies that are being developed at the company's Takaota assembly plant where Toyota is undertaking all of this in order to ease it's dependence on skilled labor which they now finding hard to replicate.

The processes at the Takota plant will include more reliance on automated quality systems as well as installation of systems in its vehicle assembly that make decisions about quality.  This is all a result of the fact that it is increasingly difficult to train workers in today's complex production environment and insure the necessary quality levels. 

Toyota's Predicament
In the same Harvard Business Review article, Mr. Watanabe explained the Toyota training predicament. "We use to transmit the Toyota Way through the mother plant system, whereby a Japanese plant served as the parent of each overseas plant that we set up. That Japanese plant was responsible for training people in the overseas plant and instilling the Toyota Way in them. Because of the rate that we are growing overseas, we have done away with that system.  We now send people from Japan, coordinators, to instill our philosophy and concepts in our overseas companies. When a new company is established, the coordinator will serve as the teacher, or sensei, for its employees. After some years, a second-generation coordinator will serve as a coach rather than a mentor. After several more years a third generation coordinator will act as an adviser rather than a coach. The coordinators are critical to training people in the Toyota Way, but we have only about 2,000 coordinators. Given the size of our business, we need three times as many coordinators as we have at present."  

Given the fact that it has taken approximately 20 years to create the existing 2,000 coordinators, Toyota has no other recourse except for automation. Despite this move, the company has continued to reinforce that it continues to manage through the two pillars of the Toyota Way – "Continuous Improvement" and  "Respect for People."

How Do We Encourage Respect for People?
While the majority of US manufacturers recognizing the achievements of Toyota have instituted the Continuous Improvement methodologies along with Lean Manufacturing, they have yet to embrace the "Respect for People" practice. This, with the exception of a few companies, will probably never change unless something happens where we are forced to value people. It is a shame that with all of the accounting changes wrought by Sarbanes-Oxley, that FASB gave no consideration to the capitalization of training costs as part of the new business accounting principles.

If companies capitalized their training costs, they would be forced to recognize the expense when someone leaves the company, regardless of the reason. This would provide a better perspective of the value of their company's Human Resources. It would also provide an internal push to measure the return on invested capital for training. There certainly would be more of a willingness to measure how much of the bottom line was attributable to employee suggestions or improvements than there is now. It is quite unfortunate that we ignore such issues, as Toyota has shown what can be achieved by instituting teamwork and a respect for people.

To end with a quote from the President of Toyota, "There is no genius in our company. We just do whatever we believe is right, trying every day to improve every little bit and piece, but when 70 years of very small improvements accumulate, they become a revolution."

This is not a bad way forward.

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