Manufacturing strategy can be considered the pattern underlying the sequences of decision made by manufacturing over a long time period. Every company is important to have good product to compete with other company.
A company's business strategy is the sum of the individual strategies of its component functions manufacturing, marketing, finance, research and development (R&D), and so on. In successful company, these strategies interlock to provide the company's maximum competitive advantage .The manufacturing function needs to realize that manufacturing stages struggles to provide what company needs to be successful with competitors in local and global markets. Companies need to meet the market expectations, increase the customer's expectations, competitor's capabilities and change the outdated manufacturing capabilities. Manufacturing is a complex process to deal with large numbers of employees skilled and unskilled, line and staff, flexible, formal and informal systems, good and bad practices, old and new cultures coexists (Miltenburg 2005).
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In the following of topics, concept of manufacturing strategy, revolution of Toyota, just-in-time production (JIT), jodika, importance of Toyota production system, Kanban technology will be discussed.
Concept of Manufacturing Strategy
There are three levels of strategy have been defined. They are Corporate Strategy: defines the businesses the corporation should be in. Business Strategy: which show the ways to compete in a given business and Functional Strategy: the definition of how each function involves in the competitive advantage of the business. Manufacturing strategy is in the category of the third type-functional strategy, and it defines how manufacturing can contribute to the competitive advantage of the business (Charles, Dan 1978).
Manufacturing strategy is the main backbone most companies use to build the resources and the productivities to create competitive advantage, and to guide their competitive priorities with their marketing ambition (Roger, Barbara 2001).
Manufacturing strategy is the fundamental foundation of the corporate entity that could inspire the future development, integration and merger (Bates et al. 1995).
Manufacturing managers must have the ability to coordinate constant improvement of existing manufacturing processes with foresight investment in new processes to maintain the companies' competitive position, by using both human and capital resources (Roger, Barbara 2001).
Manufacturing strategy is used to coordinate manufacturing decision making, which involves selection of supplies, technologies, planning and control systems of production, and manpower (Bates et al., 1995).
Skinner (1969) identified five important manufacturing strategy factors: plant and equipment, production planning and control, manpower, product design, and organization and management.
The key to implementation of manufacturing strategy is how to relate decisions made within factories to business sensible goals (Roger, Barbara 2001). The decision is important for manufacturing industries to reach the expected level of success for the company.
They had found out that plants with high levels of manufacturing strategy implementation always performed better than those that did not have. The production plants that provide support for JIT have a well defined manufacturing strategy and more focused than plants without one (Ahmad et al. 2003).
The Birth of Toyota and Fundamental system
The Toyota Company was founded by Kiichiro Toyoda in 1937 inherited from his father's company Toyota Industries to create automobiles in 1934 Toyota Industries has started create their first product, an engine, and, in 1936, its first passenger car, the Toyota AA was introduced. Toyota Motor Corporation group companies include several automobiles types such as Lexus, Daihatsu and Hino Motors. Toyota Motor Corporation (TMC) is part of the Toyota Group, one of the largest conglomerates in the world (Toyotaland 2010).
The fundamental system of Toyota production is mainly based on Just-in-time system and jidoka system.The relation between JIT, jodika, kanban and manufacturing strategy will be discussed in later part of this project. The purpose of this project is to examine the manufacturing strategy towards the success of Toyota Company. The focus is mainly on Japan and USA to shed more light on manufacturing strategy as a necessary infrastructure for successful implementation.
Sakichi Toyoda, a prolific inventor, founded the Toyoda Automatic Loom Company with his expertise in stunning designs, one of which was eventually licensed by a British concern for 1 million yen. This revenue was used to help established Toyota Motor Company, which was supported by the Japanese government as it was useful for some of the military purposes. Local production would reduce costs, while creating jobs, and help the country move toward independent. After the first Toyoda vehicles were produced successfully in 1936, Japan demanded that any automaker that want to sell in the country must have their majority of stock be held by local stockholders. These rules affect all businesses and stopped nearly all imports (Toyota land 2010).
Always on Time
Marked to Standard
After World War II, Japanese manufacturing practices have received a great attention from western researchers and manufacturing firms. Western people realized that there are many inherent flaws in their production system that generated too many wastes for all the steps of the production process. Japanese firms practices Just in Time (JIT) production method, which eliminate wastes by simplify among production processes, shorter set up times, material flows enhancement, and focus on preventive maintenance. Those practices result in resources being utilized more efficiently (Kannan, Tan 2005).
Ideology of Toyota (Toyotaism)
Toyoda Kiichiro, son of Sakichi, established "Toyotaism". To be able to provide the general public with affordable cars was his dream. He wanted to create the perfect passenger car industry and to sell those cars at reasonable prices. The importance of sales in manufacturing needs to provide good equipment even if the factory was simple. Providing high quality products by using the simple system was the goal.
It has been proven that almost anyone can improve efficiencies by increasing production. During economic downturn recession period, the superior management and superior workers can continue to improve. Toyota continues to focus on reducing waste, lower inventories, and improving techniques that allow for survival in low growth periods (ToyotaLand 2010).
The Principle of Toyota Production System
The main idea behind the Toyota Production System is absolute elimination of waste. Just-in-time and autorotation are two main driving force behind Toyota Production System. In just-in-time (JIT) production, a later process goes to an earlier process in the operation flow and withdraws only the number of parts needed. Autorotation is the automating a process to include inspection. Human attention is necessary only when a defect is detected (the machine will stop and not continue until the problem is solved). JIT is a Japanese management philosophy which has been applied in practice since the early 1970s in many Japanese manufacturing organisations. It was first developed and perfected within the Toyota manufacturing plants by Taiichi Ohno as a means of meeting consumer demands with minimum delays. Taiichi Ohno is frequently referred to as the father of Just in time JIT system (IFM 2010).
The main primary principle of the Toyota Production System is in the way of calculating profit margins. Instead of setting up selling price to actual cost plus profit, Toyota understands that the consumer sets prices, not the manufacturer. Therefore they regard profit as selling price minus the cost. So Toyota tries to reduce the cost rather than increasing selling price.To effectively reduce the costs, production levelling was instituted. If a part is needed at a rate of 1000 per month, they will plan to make 40 parts a day for 25 days. To go further, if there are 480 minutes per workday, one part should be made every 12 minutes, and to produce more would create an overstock. The establishing production flow and a way to maintain a constant supply of raw materials was the way Japanese production should be operated. The flow of carrying parts back and forth were eliminated due to the machines of one process laying around together (i.e. all the lathes together, all the presses together, etc.), by laying out the plant according to the operation flow To improve process flow, by assigning one worker to more than one machine (Japanese unions are not divided by function). Workers disliked being forced to become multi-skilled in the beginning, but later they realized that they must adjust or lose the race against the Western countries. Thus the theory of "one operator, many processes" was born. This system increases production efficiency 2-3 times over "one operator, one process" which mass production required (Abdallah and Matsui 2007).
The evolution of Toyota Production System is centred on a process called the "five whys." By asking why again and again and get the answer each time, the real cause of a problem can be discovered. Often root causes are hidden under more obvious symptoms, and only by unpeeling the layers of the problem can the root be found. "Why can one person at Toyota Motors operate only one machine when one person can operate 40-45 looms at the Toyota textile plant?" The answer was found to be because machines at Toyota Motor didn't stop when machining was done. This is to response came the birth of auto nomination and to constant improve the process, working environment, the scientific basis of the Toyota system is asking why again and again(Ohno 1978).
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The process evolution of Toyota Production
The Toyota Production System regards producing waste as little as possible is the essential key to success. So that, the first step of the Toyota Production System is to identify:
ï¿½ waste of overproduction
ï¿½ waste of time on hand (waiting)
ï¿½ waste of transportation
ï¿½ waste of processing itself
ï¿½ waste of stock on hand (inventory) waste of movement
ï¿½ waste of making defective products
They can improve not only operation efficiency but also profit by a wide margin if they can eliminate these wastes completely. To achieve this Toyota only makes the quantity as per need basis, thereby eliminating waste costs and got extra man-power. The Toyota Production System will clearly show excess manpower that can be put to use elsewhere, effectively. This will also help level manpower needs, so that massive hiring in times of high demand, and large layoffs in times of recession will also be unnecessary. Another step is in creating standard work sheets. These lists the standard methods for each procedure in the plant, and it cannot be done from a desk, they must be done from the shop floor. They list cycle time to complete a process, work sequence (order in which the process is to be completed), and standard inventory (minimum number of work-in-process pieces needed including those mounted in machines, in order for the operation to proceed). To involves workers in the process and detect areas where process improvements can be made, the process involves creating these work sheets and refining them. It is best for workers to create these sheets, because they know the processes best and have the best opportunities to see improvements (Ohno 1978).
Toyota Production System (TPS)
The Toyota Production System (TPS) was established based on two concepts: The first is called "jidoka"(which can be loosely translated as "automation with a human touch") which means that when a problem occurs, the equipment stops immediately, preventing defective products from being produced; The second is the concept of "Just-in-Time," in which each process produces only what is needed by the next process in a continuous flow (Toyota motor corporation 2010).
Executives at Toyota realized that there are many fundamental flaws in the mass production system of the US automakers that created many wastes at all steps of each production process. Also they realized that the mass production system was unsuitable for the then fragile and fragmented Japanese auto market. Taiichi Ohno, who was a Plant Manager at Toyota (later he became the Executive Vice President), was given a manufacturing system development mission that used the assembly line, but was still flexible enough to support low production demands. The result was the ï¿½Toyota Production Systemï¿½, which was also popularly known as the ï¿½Toyota Wayï¿½. This system was one of the main reason behind Toyotaï¿½s extraordinary success, with the company becoming one of the world's largest vehicles maker with a 11% market share by the beginning of 2004 (Strategos 2008).
Figure1. TPS Concept Structure (Hiranabe 2008)
Just- In- Time Production
Just-in-time means that in flow of process, the right parts needed in assembly reach assembly line at the time they are needed and only in the amount needed. With the possibility of acquiring products at the time and in the quantity needed, unwanted and unreasonable problems can be eliminated and efficiency improved (Ohno 1978).
The success of JIT depends on both competitive and financial performances of the firm attract many western companies attention. The operational practices included total quality management, total preventive maintenance, human resource management, supply chain management, information systems, technology and others.
Jidoka is one of main cultures that is created by using of TPS. It encourages the employees to have the authority to stop production lines, by man or machine, in the event of any issues such as equipment malfunction, quality degradation, or late work. Jidoka helps prevent the oversight of defects, identify and correct the problem areas using localization and isolation, and makes it possible to ï¿½buildï¿½ quality at the production process.
Ohno (1978) realized that the address to supply and make TPS successful. This is when the just-in-time theory was developed based on American supermarkets. In a supermarket, a shopper can get what is needed, when it is needed, in the amount needed. Labor is not wasted, as in door to door sales where a seller may carry around products that do not sell. In manufacturing, just-in time means that a later process gets only what it needs from an earlier process. The earlier process immediately produces what was just taken.
The enforcement of the operating way in the Toyota Production System is known as kanban. Kanban is merely a method used to control just-in-time processing. The kanban form can be found mostly as a rectangular piece of paper in an envelope. The information listed on the paper includes pick up information, transfer information, and production information. It basically tells a worker how many of which parts to pick up or which parts to assemble.
All movements in the plant are systematized this way. Overproduction is prevented by kanban, because it starts in final assembly and works backward to create a "pull" of parts through the process.
It is also important to note rule of the Kanban system. Defective parts are not passed on to subsequent processes. To achieve this require 100% inspection of all the production lines, but since capacity on each machine excess, this make up for a defective part to meet the demand. The practice of asking why again and again also make sure that teams perform the root cause analysis of the defect and take preventive measurements (Ohno 1978).
Figure2. Toyota Production System House (Swmas 2010)
Manufacturing-Business Strategy Linkage
The measurement of the consistency between the manufacturing strategy and the business strategy is important in the successful implementation of JIT.
Skinner (1969) stated that manufacturing should not only make products and services, but also provide competitive advantage to the business. All of this can be achieved when manufacturing decisions are well coordinated with the business strategy.
For the Japanese, competitive priorities interpretation is cumulative. First, it starts with quality, then delivery and cost efficiency, and finally, the entire above plus flexibility .In a survey done in 1983 which covered the region of Europe, America and Japan to investigate competitive priorities, the result revealed that The Americans and the European ranked consistent quality as their main priority followed by high performance design, however the Japanese ranked low price as their first followed by rapid design changes (Ferdows, et al., 1989).
- Toyota Data description
The data were methodologically collected by a team of researchers from eight countries including Japan, USA, Italy and Finland, as part of an ongoing High Performance Manufacturing (HPM) project (previously known as world class manufacturing project (WCM)). The HPM database was established since 2003 and consists of randomly selected world-class and traditional manufacturing companies from three main industries such as machinery, electronics and transportation. The comprised data has been established for manufacturing plants around the world including those from Japan, USA, and Italy.The original questionnaire of HPM was translated into those countries native language by linguistic experts and then translated back to English to ensure equivalency. Those selected manufacturing plants were visited in person by at least a member of HPM from those countries. The project member interviewed the plant managers for the project. About 60% of contacted managers were volunteer to be involved in the project and agreed to serve as a coordinator with the team member of the project. HPM team return the favour for participating plants by providing a comprehensive feedback of their managerial and operational practices (Abdallah and Matsui 2007).
To allow respondents to voice out their expertise area, 12 labours and 14 managers were chosen to complete the questionnaire. Furthermore, many different respondents were asked to complete unique question in order to eliminate potential respondent bias and reduce margin of error (Roger,Barbara 2001).
- Measurement of variables
For JIT and manufacturing strategy questionnaire, the respondents were asked to rate using seven point Likert scales where 7 indicates strongly agree and 1 indicates total disagreement. Respondents were asked to evaluate JIT performance compared to their competitors of the same industry for JIT performance measures by using five point Likert scales where 5 means highest in the industry and 1 indicates low end of industry.Many statistical analyses were carried out to eliminate margin of error and to ensure JIT and manufacturing strategy scales are relevant. The items that didn't have a factor loading of at least 0.40 and value of at least 1 were eliminated. Three JIT variables failed to meet this cut-off loading leaving a total of 31 variables constructing the six JIT constructs. Cronbachï¿½s coefficient a was used to determine the scales' reliabilities. Five JIT and manufacturing strategy scales have met the standard of coefficient 0.70 and considered to be relevant (Nunnally 1967).
It is essential in business these days to develop people who can come up with great idea to improve operational success, to implement company fundamental philosophy DNA to all the employees around the globe. Toyota achieves this by exporting their company philosophy under the slogan of Toyota Way. Also theyve established Toyota Institute in Japan to educate their managers and executives from all regions (Toyotageorgetown 2003).
Part of the Toyota production system is generically known as poke yok which means to prevent errors. TPS develop this culture among its employees and encourage them to develop an understanding of that and many new employees are often surprised to learn that if they notice a problem, it is their personal responsibility to stop the assembly line and that no one will criticize them for doing so. The exterior part of the car people can see is just the decoration and don't judge too quickly based on that. The thing that matter most is the underneath the dashboard and the technology that gives one of the safest rides at reasonable price that come from the Toyota production system. (Toyota 2010)
- Recommendation on Research and Development (R & D)
Toyota Industries are involved actively delivered in research and development activities to edge out its competitors as its founding spirit is based on e ahead of the times through endless creativity, inquisitiveness, and pursuit of improvement. Its R&D activities are mainly focused in two areas, (1) each business division product development and improvements, their performances are independent of other division and (2) R&D undertaken mainly by the Research & Development Center, which is not related with the activities of other business divisions and its strategy are being driven mainly by company management and executives. Product development and improvements performed in parallel and so are each internal division and various initiatives. However, the focus is largely on the technical departments which are being tasked to make the advanced development of future goods that will lead the globe in functionality, quality, and cost effectiveness. R&D activities contribute the technology exhibition in every division. Those are also main reason to held company wide annual technology exhibition where the engineers from any division can gather and exchange knowledge, tips, tricks and research method. The Toyota R&D further expectations include increasing efficiency and introduction the cutting edge technologies, managed and collaboration together with universities around the globe, as well as with other industries R&D institutions, and manufacturers (Toyota-industries 2010).
The analysis showed that all the manufacturing strategy elements the positive and significant impact on JIT performance as well as finding additional support to research indicating that Toyota production system to support JIT performance and jodika. The manufacturing strategy for Toyota and important infrastructure for JIT, jodika and kanban has been discussed. It also indicated that the impact of some manufacturing strategy among automobile industry and other manufacturing industries.
The developed countries were included and about half of the sample plants are world-class, therefore the results may show some bias and restriction of range. In addition to that, the performance was measured relative to competitors, not to performance prior to JIT introduction.
The Toyota industry makes larger sample and additional manufacturing industries to be applied for modeling techniques of analysis. Finally, the recommendation from the value customer and investigate how manufacturing strategy affects other operational practice and employee involvement brought to the company's success.