STRATEGIC OPERATIONS MANAGEMENT OF TOYOTA
- CRITICAL IMPORTANCE OF STRATEGIC OPERATIONS MANAGEMENT TO A WORLD CLASS COMPANY
In the contemporary world, businesses provide a great of attention to the operations management of operations of activities. It is for the reason that organizations are evaluation by the quality and strength of its operations’ performance and not only by the claims that organizations make. Simply stating operations management is concerned with the activities of transformation of input into output. This three element process includes the role of material, skills, energy, information and capital and so on in best mix which in turn produces output that is valued by the customers and brings to business the competitive advantage. According to Brown, Bessant, & Lamming, (2013), the operations management in the current competitive business world is required to have strong bonding and interconnection with a wider organizational base. Therefore, Brown, Bessant, & Lamming, (2013) have depicted the following picture of operations management in the modern business world:
(Brown, Bessant, & Lamming, 2013)
The pictorial representation of the operations management of the organization reveals that businesses no longer remain the stand-alone entity; instead it is a system that collaborations across vertical and horizontal dimensions in a well defined and directed manner. This brings to focus the importance of the strategic role of operations management.
The strategy guides business of the way of doing things in an effective, efficient and flexible manner. These three parameters are to be reflected in the following five poles:
(Slack, Chambers, & Johnston, 2010)
This in turn implies that the strategic imperative of operations management is concerned with achieving the critical decision in a way that reflects the success of business from these three parameters on each of the five dimensions. The impact of these parameters are gauged in all areas of operations management such as the core of business operations, best capabilities of the firm and their role in fetching competitive edge to the business, making decisions about the activities be retained in-house while outsourcing others, the decisions about strategic collaborations with parties for outsourced activities and decisions about the exploiting opportunities from the external environment while sustaining strengths of an organiza
- CRITICAL REVIEW OF TOYOTA’S STRATEGIC OPERATIONS MANAGEMENT ACTIVITIES FROM MANUFACTURING, PRODUCT/SERVICE AND ADMINISTRATION PERSPECTIVES
Toyota traces its origin in the year 1963 and since then the success story has started. The success of Toyota does not lie in having win-win strategies all the time; instead it lies in the adoption and adaption of the strategy for success. Toyota has been world-class company with operations in the across 28 countries of the world while its products are marketed in around 170 countries.
Anderson (2010) has stated that competitive advantage of Toyota is based on the path dependency and capabilities that are dynamic in nature and have the strength of not being imitable. The production system of Toyota (TPS) is known for the human intelligence oriented automatation and Just-In-Time philosophy (Toyota, 2010) as depicted in the house form below:
With Just in time inventory management, Toyota has arrived with a system that is able to the reduce the waste production from the process, identification of the bottlenecks and issues caused by deviation from the optimal standards and reduced inventory levels by streamlining the production process. As the industries were driven by the mass manufacturing in the industrial era, Toyota maintained focus on mass production with its unique production system designed by the founder of Toyota. The continuous flow system enables the business to generate cost effectiveness by producing output in accordance with the demand of the customers. While Jidoka integrated automation in turn frees the worker for more creative jobs and generation of intelligence than monitoring of the production process.
TPS differentiated itself from the other manufacturing concerns on the basis of quality control, mathematical and statistical process of quality circles. This strategic orientation in manufacturing for the achieving the leadership position among the car manufacturers resulted in directing Toyota for the development of other systems for the continuous improvement. Some of the systems include Total Quality Management (Amasaka 2002), Kanban that also the alignment of the production with market demand while consistently adding value with information technology application such as MPS, CRP, shop floor etc (Riezebos et al, 2009).
The value management across the entire value chain is also considered in the strategic operation management. Toyota has a network of collaborations across the world as depicted in the system of Jayaram et al, (2010) as follows:
(Jayaram, Das, & Nicolae, 2010)
This network of collaborations or outsourcing enable Toyota to maintain due focus on its core operations while generating excellence of capabilities from the other parties. The strategic administration of operations management at Toyota is reflective of well integrated system towards performance. For instance, Jayaram, Das, & Nicolae, (2010) have defined the problem solving at TPS as follows which accounts the effective role of all parts, processes as well as employees:
(Jayaram, Das, & Nicolae, 2010)
Furthermore, noteworthy to mention is that continuous improvement is not only generated from the process improvement but improvement in other contributing elements of the value chain. For example, technological facilitation for the communication using Cisco solutions led to the 18% percent improvement in productivity (CISCO, 2011).
Such strategic orientation of Toyota with consistently improving integrations has fetched success to Toyota in terms of products that are cost efficient, quality effective, offers flexibility, speedy access to market depending on demand from the market. Spear and Bowen (1999) noted that it is this strategic integration of operations at Toyota that has enabled it to achieve success. Many other corporations have copied the tools employed by Toyota and not the systems and principles employed by Toyota and so could not win the edge.
- CRITICAL ASSESSMENT OF TOYOTA’S GLOBAL CAPABILITY AND EVIDENCE OF COMPETITIVE ADVANTAGE
Recently, CNN money reported that Toyota has left behind competitors. According to the reports, Toyota was high on achieving the record of 10 million vehicles worldwide in the year 2013 while the industry leaders including GM and Volkswagen are striving for winning the second position on production. Furthermore, only in the US market the sales for one of the Toyota’s products are high despite limited dealers’ network (Taylor III, 2013).
The success of the Toyota in the international markets can be attributed to its in depth and customer oriented strategy that provides direction to its operations. For instance, in the European market the success of Toyota is attributed to the concrete consideration of Toyota towards innovation, quality orientation and continuously striving for improvement which is its core and basic guiding principle. Similarly, in the success on the USA market is also attributed to the Toyota’s capability of understanding the requirement of the customers. In USA, high fuel efficiency plays an important role in the car selection and Toyota led its continuous improvement in this direction. In the Australian market, Toyota insisted on the production of Hybrid cars. In other markets such as China and Russia Toyota has focused on the low cost vehicles. In the year 2012, the company set objective to generate attractive share in the emerging markets and the reports reveal winning of the nearly half of the market share of emerging markets by Toyota.
Furthermore, in addition to its capability of understanding the demand and want of the customer, the success of Toyota across the world is also attributed to the technological and the financial risk it of gas-electric powertrain (Taylor III, 2013). Toyota while providing customers the product and service in accordance to their demand also exploits the opportunity of generating ideas across the world for improving quality (Funaru, 2010). All these collectively contribute to the success of Toyota and winning in hearts of its customers. The core guiding principles of Toyota being continuous improvement, quality orientation and innovation in the operations has managed to win the second position on the global automakers. The Global market share of Toyota is 14.3 percent where the American Giant Ford has winning edge with 15.7 percent.The continuous improvement in the products and processes result from consistent investment in different dimensions by Toyota. Toyota conducts independent surveys for generating the view of the customers. Also, the state of the art technology, trained employees and most important research teams contributes towards the development of dynamic capabilities. According to the Ichijo and Kohlbacher (2008) the Toyota has been evolved its multinational production system into more tapped and integrated global optimum production as depicted below:
(Ichijo and Kohlbacher, 2008)
Toyota also excels in learning from unfavorable factors such as Annual report of 2013 reports that current improvement in the global financial performance of Toyota is the result of adoption of the strategy to lessons learned from the pressured past five years (Toyota, 2013). Hence, all these success and the competitive wins resulted from the consistent improvement in processes as well as learning from failures.
- CRITICAL REVIEW OF TOYOTA’S USE OF OPERATIONS STRATEGY TO INCREASE THEIR OVERALL EFFECTIVENESS AND COMPETITIVENESS
Strategic Operations Management enabled Toyota to utilize the competencies of the Toyota and its effective utilization. Also the Strategic Operations Management of the Toyota with respect to the production and infrastructure choices such as producing the quantity and quality required by the customers while infrastructure that is able to integrate flexibility and dependability for the product that bring competitive advantage to the business. Strategic imperative inculcated in the operations management and the resulting benefit generated from it is evident in many instances. For instance, the April 2013 Toyota reformed it organizational structure as follows:
This change in the management structure is aimed at integrating further agility while at the same time taking advantage of genbutsu (on-site, hands-on experience). Also, the change is guided by the strategic imperative of innovation attention required in the Lexus and so has been moved under the direct leadership of the president (Toyota, 2013).
Toyota faced the tough time since 2009 and from the lessons taught in these years, Toyota strengthened its relationship with the roots of the organization that have been generating success for years. Toyota formed Toyota New Global Architecture (TNGA) for realigning itself to the original emphasis of making ever better cars (Toyota, 2013). For the purpose, entire manufacturing operations have been transformed to the new model which is as follows:
This transformation points to the strategy that determines the entire processes of the value chain. The above picture depicts the model across the 12 story building of Toyota where set of floors has been assigned tasks separate tasks which are strongly in collaboration of the other departments.
Innovations in the cars are centrally directed by the demands of the customers, and each set of the customer is offered a product that results in customers delight. The image below determines the four different categories of cars that are able to delight to customers with different features:
In addition to the customer traits demanding different types of cars, each country is also served with the type of cars valued and required by the people of that country (Toyota, 2013). All these highlight the strategic imperative in the operations management at Toyota. The contribution of these strategically designed operations result in the market growth at a greater magnitude than past years. For example, the growth of Hybrid car sales has moved to double digit and multiple digits in five years:
Furthermore, effectiveness of the strategy in operation also result in cost effectiveness which is evident in the swelling ROE from 2.7% in 2012 to 8.5% in 2013 (Toyota, 2013). This growth in ROE reflects improvement across the component adding value in the entire process in terms of improved processes, personnel, product and all supporting activities. Furthermore, the efficiencies and competitive positions of strategic operations management are expected to generate the following sales in the year to come:
Also, the environmental compatibility is also integrated across the years for the making better ever cars as follows:
- CONCLUSIONS AND RECOMMENDATIONS
The success story of Toyota is the function of its strategic orientation in the operations management. The strategic designed OM at Toyota has enabled Toyota to compete effective and efficient not only in the local market but also in the global market. From the assessment, it is concluded that success of the Toyota across its journey is based on the criteria of consistent improvement which in turn leads it to develop the vehicle that is expected or demanded by the customers. Also, the aligned integration of the entire value chain elements is also the core of success. With all these aspects, the competitive advantage of Toyota is based on the fact of inimitability of its process in spirit despite implementation efforts by many companies Spear and Bowen (1999).
With these successes at work, the Toyota is ranked on the second stage in many markets (Toyota, 2013). This implies that Toyota still has room for the improvement of its operations. The improvement can result in the development of the products that can further capture the markets that are evolving such as an alternative fuel cars as well as the gap towards the market leadership.
Amasaka, K. (2002). “New JIT”: A new management technology principle at Toyota. International Journal of Production Economics, vol. 80, no. 2, pp. 135-144.
Anderson, E. (2010). Toyota's competitive advantage: path dependency, dynamic capabilities, and sources of inimitability–a contrastive study with Nissan. Advances in Applied Business Strategy, vol. 12, pp. 87-120.
Australian National Audit Office. (2010). Better Practice Guide on the Strategic and Operational Management of Assets by Public Sector Entities. Available from http://www.anao.gov.au/~/media/Uploads/Documents/strategic_and_operational_management_of_assets_by_public_sector_entities.pdf [Accessed 2nd January 2014]
Brown, S., Bessant, J., & Lamming, R. (2013). Strategic operations management. Routledge.
CISCO. (2011). Toyota Streamlines Business Processes, Boosts Productivity by 18 Percent. Available from http://www.cisco.com/web/about/ac79/docs/success/Toyota_Boosts_Productivity_IBSG.pdf [Accessed 2nd January 2014]
Funaru, M. (2010). Toyota’S Business Strategies In International Markets. Annals of University of Craiova-Economic Sciences Series, vol. 3, no. 38, Available from http://feaa.ucv.ro/annals/v3_2010/0038v3-004.pdf [Accessed 2nd January 2014]
Ichijo, K., & Kohlbacher, F. (2008). Tapping tacit local knowledge in emerging markets–the Toyota way. Knowledge Management Research & Practice, vol. 6, no. 3, pp. 173-186.
Jayaram, J., Das, A., & Nicolae, M. (2010). Looking beyond the obvious: unraveling the Toyota production system. International Journal of Production Economics, vol. 128, no. 1, pp. 280-291.
Riezebos, J., Klingenberg, W., & Hicks, C. (2009). Lean Production and information technology: Connection or contradiction?. Computers in Industry, vol. 60, no. 4, pp. 237-247.
Slack, N., Chambers, S., & Johnston, R. (2010). Operations management. Pearson Education.
Spear, S., and Bowen, H.K. (1999). Decoding the DNA of the Toyota Production System. Harvard Business Review, vol. 77, no. 5, pp. 97–106.
Taylor III, A. (2013). Toyota just keeps roaring back. CNN Money, Available from http://money.cnn.com/2013/08/08/autos/toyota-comeback.fortune/ [Accessed 2nd January 2014]
Toyota. (2010). Toyota Production System. Available from http://www.toyota.eu/about/Pages/toyota_production_system.aspx [Accessed 2nd January 2014]
Toyota. (2013). Annual Report. Available from www.toyota-global.com/investors/ir_library/annual/pdf/2013/ar13_e.pdf [Accessed 2nd January 2014]