Bumpy Road: As Toyota Closes In on GM, Quality Concerns Also Grow
Bumpy Road: As Toyota Closes In on GM, Quality Concerns Also Grow
By Norihiko Shirouzu and Sebastian Moffett, The Wall Street Journal, August 4, 2004
TOYOTA CITY, Japan -- Toyota Motor Corp., one of the most successful companies in the world, is
scrambling to overhaul itself.
After nearly doubling its revenue in the past decade and redefining competition in key parts of the auto
business, Toyota suddenly finds itself confronting mushrooming quality problems. Torrid growth has spread
thin the company's famed Japanese quality gurus. This means that, in places like Toyota's Georgetown, Ky.,
plant, the pressure is on to retrain American workers to take up more of the slack. At the same time, Toyota
has launched a world-wide campaign to simplify its production systems.
By many measures, Toyota is still barreling along. The company's net income of
$10.49 billion in yen in the year ended March 31 not only exceeded those of rivals
General Motors Corp. and Ford Motor Co. combined, but set a record for any
Japanese company. Toyota continued the trend yesterday, reporting a 29% rise in net
income for the quarter ended June 30, to $2.59 billion, up from $2.01 billion in the
year-earlier period. Group sales rose 10% to $40.78 billion.
Toyota's next big goal is to expand its share of the global market to 15% over the next
decade, from 10% now. That would make Toyota roughly the same size No. 1 auto
maker GM is today.
But there are signs that the company's ambitious growth agenda is straining human
and technical resources and undercutting quality, one of Toyota's most critical
strategic advantages. It is the kind of paradox many highly successful companies face:
Getting bigger doesn't always mean getting better.
Toyota still tends to outscore most rivals, including Detroit's Big Three auto makers and European brands, on
industry surveys of quality and reliability. But Toyota's lead has narrowed and in certain key segments
disappeared. "Toyota quality isn't improving as fast as it should," Toyota's president, Fujio Cho, concedes in
an interview.
To stop the quality slide, Mr. Cho says Toyota has launched multiple "special task forces" at trouble spots in
places such as North America and China to overhaul shop-floor management. Toyota also has established a
Global Production Center in Toyota City to train midlevel factory managers so they can more effectively run
plants outside Japan. Toyota now is re-evaluating some of its most fundamental operating strategies.
"We are getting back to basics," says Gary Convis, a Toyota managing officer, who is also president of the
Georgetown plant.
An important part of that effort focuses not on machines or high-speed information technology, but on
replicating a special class of people who were instrumental in making Toyota a manufacturing powerhouse
during the past 25 years.
When Toyota first began opening factories in the U.S. in the mid-1980s, kicking off its dramatic global
expansion, some of the most important people in the new plants weren't top executives, but midlevel
Japanese managers commonly known as coordinators.
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Bumpy Road: As Toyota Closes In on GM, Quality Concerns Also Grow
These coordinators were experts in Toyota's lean-manufacturing techniques and philosophies, commonly
known as the Toyota Production System, or TPS. These coordinators, usually with 20 or more years of
experience, generally shunned classrooms. Instead they trained American shop-floor managers and hourly
associates by attacking issues directly on the assembly line.
A central concept was that there is an endless possibility for kaizen, or continuous improvement, in every
process. The Toyota coordinators tried to make each worker a "thinking machine," capable of constant
learning.
The principles behind lean production took shape over five decades, starting with efforts in the 1930s by one
of the company's founding fathers, Kiichiro Toyoda. The Toyota system took its current form during the
1950s with the leadership of Taiichi Ohno, a legendary Toyota engineer who drew inspiration from a trip to
the U.S. during which he watched how a supermarket stocked its shelves using a justin-time delivery of goods.
Mr. Ohno preached there are seven forms of muda, or waste, in any process. When
Mr. Ohno trained recruits to Toyota's elite Operations Management Consulting
Division, he drew a chalk circle on the floor in front of a process on the assembly line
and told the trainee to watch that job until he could identify how it could be improved.
A trainee could stand for nearly a day before he was able to satisfy Mr. Ohno with his
answer.
When Mr. Ohno began applying his production approach full-scale, Toyota factories
achieved huge gains in productivity and efficiency. The marriage of efficient
production to an obsessive concern for quality helped Toyota establish a reputation
for bullet-proof reliability that remains a huge competitive advantage.
By the late 1980s, lean production was a deeply entrenched way of life at Toyota, governing just about every
aspect of its corporate activities.
Hajime Oba, a retired TPS guru who still works for the company in North America on a project-by-project
basis, likens the system to a form of religion. Managers at Detroit's Big Three auto makers, he says, use lean
techniques simply as a way to slash inventory. "What [they] are doing is creating a Buddha image and
forgetting to inject soul in it," Mr. Oba says.
But as years went by, Toyota discovered that its corporate faith was getting watered down as the company
spread its operations world-wide and hired generations of employees ever more distant from Mr. Ohno.
A case in point is Toyota's massive factory in Georgetown, Ky., the first plant the auto maker built in the U.S.
from the ground up.
Georgetown began production in 1986, and throughout the 1990s the plant routinely claimed the top spots in
J.D. Power & Associates' widely watched initial quality survey for cars sold in the U.S.
But after being named North America's second-best plant in 2001 behind Toyota's Canadian plant in
Cambridge, Ontario, Georgetown has slumped. This year, it ranked No. 14, after placing No. 15 in 2003 and
No. 26 in 2002. Two GM plants in Michigan, the Lansing Grand River Cadillac factory and a large car plant
in Hamtramck, and Ford's luxury-car factory in Wixom, Mich., were North America's top three plants this
year.
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Bumpy Road: As Toyota Closes In on GM, Quality Concerns Also Grow
One big problem that Georgetown faced all along has been language. Most of the Toyota-production-system
masters speak fluently only in Japanese. Most of their American employees speak only English. The
linguistic and cultural barriers make deep discussions on lean production almost impossible and can cause
other problems. One executive coordinator on his second tour in the U.S. as a TPS evangelist says he left his
wife and sons back in Japan because his boys were "becoming too Americanized."
Another issue is time -- or the lack of it. As sales of Toyota vehicles in the North American market took off,
Toyota factories had to ramp up quickly to keep up with demand. That meant a plant like Georgetown had to
rapidly promote American shop-floor managers and hourly associates, instead of nurturing them gradually in
the Toyota manufacturing way and deepening their skills and knowledge.
"Demand for ... high volumes saps your energy," says Mr. Convis. "Over a period of time, it eroded our
focus." High turnover among workers and managers on the shop floor also "thinned out the expertise and
knowledge we painstakingly built up over the years."
But by far the biggest headache at Georgetown now stems from a scarcity of TPS coordinators from Japan.
As the auto maker stepped up the pace of factory openings globally, those expansion plans meant fewer
coordinators for older, more established plants like Georgetown.
At Georgetown, one glaring symptom of trouble, its top
executives say, is that some hourly assemblers began ignoring
standardized work processes -- considered one of the biggest sins
inside Toyota plants because of the impact on the consistency
and accuracy of manufacturing.
Georgetown also lost some lean-production masters to age and
competitors. Kazumi Nakada, a TPS master, worked in tandem
with Mr. Cho, the then-Georgetown president, to launch
Georgetown in the mid-1980s. But Mr. Nakada left Toyota in
1995 to join GM, which was intensifying its efforts to catch up
with Toyota in vehicle quality by copying its manufacturing
methods. Mr. Nakada worked at GM overhauling its
manufacturing system in Europe and now works for the big autoparts maker, Delphi Corp., a former GM unit whose leaders are
vigorous Toyota Production System converts.
By the time Mr. Convis arrived at Georgetown in mid-2000 from
the GM-Toyota plant in California, Georgetown was showing
signs of trouble. Yet the plant's management was in charge of
leading Toyota's effort to set up a pickup-truck plant in Tijuana,
Mexico. Mr. Convis asked his superiors in Japan for help, in the form of TPS masters who could work on the
Mexico project. The reply was a "flat no," Mr. Convis says.
That was "a real wakeup call," Mr. Convis says.
To shore up Georgetown's mastery of lean production to a level where it could function without relying so
much on Japanese TPS coordinators, the plant's top management circle launched an emergency 18-month
project in 2000 in order to gradually build back up the core of its front-line managers. The effort has since
continued as a more formalized Organization Development Group.
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Bumpy Road: As Toyota Closes In on GM, Quality Concerns Also Grow
Mr. Convis recruited Mr. Oba, the TPS guru, to help implement the Georgetown project. Among other issues,
Mr. Oba found many shop-floor leaders would spend too much time in their offices, instead of prowling the
factory floor coaching and leading kaizen projects with assembly workers.
To shake things up, Mr. Convis and Mr. Oba dragged about 70 midlevel managers through projects at
various Toyota parts suppliers for "real life" kaizen. The goal was in part to "embarrass the hell out of them"
in front of suppliers whom they had been used to bossing around, says Mr. Oba, to highlight the need for
them to learn more about TPS.
Still, in 2002, Georgetown suffered one of the biggest blows to its track record for quality. The plant began
pumping out the new Camry sedan in the fall of 2001, and soon buyers began griping about the car's spongy
brakes and cup holders that interfered with the shift lever when a tall travel mug was placed in them. Long
skinny plastic strips, called "Mohican molding," that covered up weld marks on the car's roof also sometimes
peeled off, in part because of lack of testing.
Those problems helped to send the number of customer complaints about the quality of the new Camry
soaring in the annual initial quality survey by J.D. Power. In 2002, the car had 117 problems per 100 vehicles
and was the sixth-best vehicle in the survey's "premium midsize car" category. Just two years earlier, in 2000,
the Camry was America's best vehicle in that segment.
Since then, the Camry's initial quality ranking has declined to No. 7 in 2003 and No. 8 in 2004 despite the
fact that the number of customer complaints declined, placing the car well behind rivals such as the Buick
Century and the Chevy Monte Carlo.
Now, with some rivals closing the gap in efficiency and quality, Toyota is scrambling to take lean production
to a new level -- one that is simple enough to function without the constant help of Japanese coordinators
with 20 years of experience or more in lean production.
The company, among other efforts, is trying to augment its traditional hands-on approach to teaching TPS
principles with more systematic and easier-to-understand tools, such as TPS manuals.
In Toyota City, Toyota's Global Production Center aims to train shop-floor leaders for Toyota factories
outside Japan. Inside the center is a mock assembly line where trainees can learn TPS principles by, among
other methods, watching videos of an "ideal" standardized way to handle an assembly process.
Another related effort is the Organization Development Group Mr. Convis helped set up at Georgetown,
which aims to more slowly and extensively nurture American shop-floor managers in TPS and create future
leaders of the plant who won't have to rely on Japanese TPS gurus to run day-to-day operations. A similar
effort is also going on at New United Motor Manufacturing Inc., the plant in Fremont, California, Toyota
owns jointly with GM.
But the most critical part of the effort is on display in a new assembly system at Toyota's Tsutsumi plant in
Toyota City -- a new standard-bearer of the Toyota production way that is now being spread to North
America and China, among other places.
A typical assembly line is lined with makeshift shelves. At most Toyota plants, those racks hold just 80
minutes worth of components. With several different models coming down the same line (Tsutsumi makes
six to seven different models in both of its assembly lines), workers have to be sure to pick the right parts
from the shelves. That can mean sorting through more than two dozen versions of the same basic
components in some cases.
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Bumpy Road: As Toyota Closes In on GM, Quality Concerns Also Grow
Tsutsumi eliminated almost all the parts shelves that used to flank the plant's snaking assembly line and
designed a system where logistics workers synchronize packages of parts according to the order of vehicles
heading down the assembly line and deliver them in foot-long or smaller containers placed inside a welded
vehicle body. Assembly workers simply pick up parts from those containers according to the way they are
laid out, without having to choose the right component from a parts shelf.
Error proofing, or what Toyota calls "poke yoke," (po-kay yo-kay) is increasingly important for the auto
maker, because as the company's plants began sprouting around the world, it has learned it can't count on
having a work force that is as steeped in Toyota's traditions, or as loyal and motivated, as Toyota City factory
workers, whose quality and efficiency amazed rivals in the early 1980s.
At the Fremont, Calif., plant Toyota jointly operates and owns with GM, turnover is as high as 8%, compared
with 2% at Toyota's Japanese plants. Georgetown is the first large-scale Toyota plant outside Japan trying to
take lessons from the new production system devised at the Tsutsumi plant. In one work area on
Georgetown's No. 1 assembly line, where it builds a Camry or Avalon every 58 seconds, an operator used to
have to make multiple decisions in choosing particular visors and seatbelts from the parts bin with 24 kinds
of visors and nine different seatbelts, depending on a vehicle.
Georgetown wanted to limit the number of decisions an hourly worker makes to two or less per vehicle. So
under a new system installed earlier this year after months of preparation, the same operator now receives
parts for each vehicle in a small plastic container. In that container are a set of visors and seatbelts that match
the car in front of the worker at that moment. The result: The operator makes "zero decisions" in picking
parts, says John Stewart, a manager at Georgetown.
"This reduced the mental burden on our team members," says Mr. Stewart. In each work area, Mr. Stewart
and other shop managers work on three areas: "smooth flow, memory simple and motion simple," he says.
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