Toyota, the company that invented the Toyota Production System and brought lean manufacturing techniques to the world’s attention, is one of the most respected names in Supply Chain Management. But over the past few weeks, Toyota has recalled about 9 million vehicles worldwide due to problems related to accelerator pedals, and last week the company decided to halt production and sales of eight models. As a result, Toyota’s reputation for quality has been tarnished and its stock lost $21 billion (14 percent) in value last week, the worst five-day performance since October 2008.
I asked my colleague Ralph Rio what he thought of this whole situation. Ralph heads ARC’s research on operational excellence and continuous improvement, including lean. Ralph is a big fan of lean and has the data and experience to back up his enthusiasm.
Ralph’s reaction was unexpected. “My perspective on quality is the polar opposite of what the journalists are saying. Toyota’s decision to stop production proves that the company is serious about quality and about making it right the first time. Rather than make cars that will need to be recalled, the company is stopping the lines. Other companies would be making the cars to meet short-term revenue goals.”
On a lean assembly line, any worker that detects a quality problem can pull a switch and stop the line until the problem is fixed. Of course, this is hugely expensive – in the short term. In the long term, however, it leads to a manufacturing process with fewer problems and better quality products. In a sense, Toyota’s decision to halt production represents the same philosophy.
Obviously, this recall affects the supply chain. Production will be stopped for at least a week in the United States. Toyota said the 14,000 affected workers will remain employed and work on plant improvements while the assembly lines are shut down. In Europe, different accelerator pedals are already being used in new vehicles, so production will continue as normal. This morning, Toyota announced its “comprehensive plan” to fix the accelerator pedals. According to the press release, parts to reinforce the pedals are already being shipped for use by dealers, and dealer training is under way.
In a lean automotive supply chain, a warehouse is typically located a short driving distance from an assembly plant. Suppliers send their components and subassemblies to the warehouse, which typically keeps only a few days of inventory on hand (much less inventory than warehouses in traditional supply chains). Deliveries are made to the factory every two hours. Components and subassemblies are put on special racks in the order required to support the production sequence.
What this means for Toyota is that the company will not be stuck with a high level of faulty accelerator components. But this problem will ripple back to upstream suppliers quickly—i.e., demand from Toyota will dry up like a faucet being turned off.
Do you agree with Ralph’s perspective? Are Toyota’s actions commendable? Or is this a sign the company has strayed from its roots and has lost its way? Post a comment and share your viewpoint. If you prefer to comment privately, send me an email at sbanker@arcweb.com.
Ralph’s view of Toyota’s actions might be valid if the problem had just been discovered. But reports say they knew about this problem as early as 2007. That makes their current response not about Lean or QA, but rather a desparate attempt to recover from poor management decisions in the past. Certainly they should not be lauded for their actions – past or present.
“Nothing fails like success”
I agree with Ralp’s point to a degree. Once the system understood the seriousness of the issue, it reacted as it should.
But as, jletart asks, why did it take them this long to react? Their sense and respond capability outside their production environment seems to have been severely lacking. I am thinking that it is the sense and not the respond part. I have written a piece on this in my blog http://bit.ly/aQ7TKZ.