Quality And Systems Management In Toyota Group Accounting Essay

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Operations management may be defined as a function of a business entity concerned with the production of its goods and/ or rendering of a service it provides; entrusted with the responsibility to ensure that its functioning is efficient, as in it uses as little resources as possible to achieve a task and effective, as in it meets the required customer standards and organization's reputation. It is concerned with all the aspects of a firm relating primarily to research, manufacturing, development and maintenance. To put it simply, Operations Management is a business wing concerned with turning inputs to outputs (US Department of Education, 1997).

Having said, it goes without saying that Operations is one of the most important utilities within a business and its effective, efficient and improving management is of utmost importance. Operations is the engine of a business, it's the heart of the system. It co ordinates the activities of labor, machinery, capital and the final product. Managing the quality of operations has gained importance among business houses over the past century. It is this important function that is explored in the following paragraphs within the most robust, sophisticated and respected of the Operations Utility, the Toyota Corporation's Operations function.

The Toyota Group is one of the largest conglomerates in the world. Founded in 1926 as Toyota Industries Corporation, the group is now a well diversified company having its business across the world and operating in the Vehicle Manufacture, Robotics, Financial Services, Steel, Communication System development, Research, Heavy Machinery production and Energy administration to name a few. With its headquarters in Japan, Toyota is often regarded as one of the pioneering initiative which brought the power of Japanese manufacturing and superior technical intellect to the world. With 18 different Strategic Business Units and eight subsidiaries, it is amongst the most respected conglomerates in the world, often compared with the likes of GE and Sony. The Toyota Industries Corporation, its flagship venture, along with Toyota Motor Corporation forms the major chunk of the group's business. Toyota's innovative production techniques have long been hauled as one of the most successful in recent history. Its operations are considered to be as one of the most efficient in the world having pioneered the concepts of Just-in- Time production Inventory management, Genchi Genbutsu and Kaizen (Toyota Motor Corporation, 2008).

Ever since its inception, Toyota has always been striving to make its operations as lean as possible. Quality management is amongst the prime agenda of Toyota's Operations department. It pioneered the concept of Business Process Management systems. In more specific terms, Toyota employs Business Process Mapping, FMEA, KPI and BPR as tools and systems in place to manage quality in its operations. Discussed below are what these concepts actually mean at Toyota, the way they are organized and how they contribute to its effective and efficient Operations function.

Hammer and Champy (1993) define Business Process Reengineering as "The Fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service and speed". Davenport and Short (1990) define the concept as "The analysis and design of workflows and processes within and between organizations". At Toyota, BPR is a management approach aiming to improve organizational performance by elevating the degree of efficiency and effectiveness in Business Processes across the organization. The key thinking behind BPR at Toyota is to look at the present business processes from a 'clean state' and to determine how best these processes could be aligned so as to optimize business performance. By cutting across functional divisions, re-engineering promises to make businesses more responsive, improve service and increase quality.

Davenport (1993), referring to Toyota states that BPR initiates a significant structural change in the enterprise. The enterprise progresses from the traditional hierarchical view of the organization towards a process view of the organization. Work is now carried out as a set of processes rather than tasks limited to the functional boundaries in which they exist. Reasons for this shift have been attributed to changing business goals. However, a degree of risk also accompanies these changes. The way that BPR is organized within Toyota, more so within the Toyota Motors redefines jobs. Employees are required to work as part of a team and some are empowered to make decisions. Process working requires the use of teams, since it is unlikely that one employee will be able to meet all of the multi-functional requirements. Moreover, the team approach improves team members' work satisfaction through social interaction, which in turn increases productivity and employee loyalty.

Strategic Objectives:

The following are Toyota's Organizational and Operational Objectives:

Achieving Market Leadership by Delivering Value to Customers.

Following our "Customer First" philosophy in manufacturing and providing high quality vehicles and services that meet the needs of customers.

Enhancing the quality and reach of our 3S Dealership Network.

Employing customer insight and feedback for continuous corporate renewal, including product development, improving service and customer care.

Maximizing QRD (Quality, Reliability and Durability) by built-in engineering.

Transferring technology and promoting indigenization at IMC and Vendors.

Raising the bar in all support functions to meet Toyota Global Standards.

Optimizing Cost by Kaizen

Fostering a Kaizen culture and mindset at IMC, its Dealers and Vendors.

Implementing Toyota Production System.

Removing waste in all areas and operating in the lowest cost quartile of the industry.

Respecting our People.

Treating employees as the most important sustainable competitive resource.

Providing a continuous learning environment that promotes individual creativity and teamwork.

Supporting equal employment opportunities, diversity and inclusion without discrimination.

Building competitive value through mutual trust and mutual responsibility between the Indus Team and the Company.

Becoming a Good Corporate Citizen

Following ethical business practices and the laws of the land.

Engaging in philanthropic and social activities that contribute to the enrichment of society, especially in areas that are strategic to both societal and business needs e.g. Road Safety, Technical Education, Environment Protection, etc.

Enhancing corporate value and respect while achieving a stable and long-term growth for the benefit of our shareholders.

Tools and Systems of Quality Management:

Toyota employs a variety of process modeling techniques in managing its quality and operations.

IDEF Diagrams:

IDEF is a process modeling tool that combines graphics and text and presents a business function in an organized and systematic visual so as to provide a means for easy interpretation and analysis. Three levels of this methodology are employed:

IDEF0 used to produce a "functional model"- a structured representation of functions, activities and processes within the simulated system of interest.

IDEF1 used to produce an "information model"- the structure and semantics of information within the simulated system.

IDEF2 used to produce a "dynamics model" - the time varying behavioral characteristics of the simulated system.

Basic Building block

Flowcharts:

Flowcharts are amongst the most widely used and simplest of the tools in practice in the company. They provide a cost effective, efficient and easy to design visuals of a business process and help to identify the most apparent loopholes in the business functioning. Although, quite useful, they are not apt for dramatic improvement initiatives. Although this diagramming style may be familiar it is not particularly useful except to convey the order of activities. It is not uncommon for a process map based on a flow chart to cover several walls when printed out. Given the size of the diagrams people usually find it difficult to decide whether or not the diagram represents a good process because the evidence is simply a process map. The following diagram illustrates a typical flow chart.

A Typical Process Flowchart

Action Workflow diagrams:

This method focuses on modeling roles and their interactions and was formulated following research into linguistics and the network of commitments that people make with one another. The things people talk about are represented within an elliptical loop.

Action Work-Flow Loop

Each quadrant within the loop represents one of the four phases of activity in any human interaction. The role of the "Customer" (either internal or external, is always shown on the left and the role of the "performer" is on the right.

Role Activity Diagrams (RAD):

This method of modeling processes observes the process from the point of view of the roles capturing the interactions. Roles carry out actions (activities) and make decisions about what to do and when, according to the business rules. Roles may carry out activities in parallel, interacting with each other to progress the work and achieve the goals of the process. Actions may involve the use or production of information or documents.

RAD Showing part of an Insurance Process with Toyota's Financial Services

Business Process Dynamics Diagrams:

Business Process Dynamics is a technique used in business analysis, detailed analysis and information systems design. In business analysis and detailed analysis it is used as a feedback tool for end users. Different ways of dealing with the same process can be easily generated and discussed. In detailed analysis and information systems design, Dynamic models are used to produce the system specification for program coding.

Diagrams are often exploded or decomposed. Drilling down or decomposing an object shown at one level on a Process Dynamics diagram leads to the creation of a diagram at a lower level, representing the decomposed process. There is no practical limit to the number of levels that a Process Dynamics diagram can be decomposed.

Process dynamics diagrams may also be used to map organizations and locations; organizations and locations can be shown as process rows (swim lanes), creating the effect of a striated map, onto which the process steps can be placed.

A Business Process Dynamics Diagram

Process Mapping:

Process Mapping is usually done using Microsoft Visio, though the Casewise Corporate Modeler Suite is used sparingly. As in most of the manufacturing firms, the process maps consist of five levels (L0-L4). The L0 consists of the SBU wide process map, briefly outlining the business as a whole. As we moov further down the levels, the maps become more deductive in the means that they start to explore each business activity. The L4 is the last stage and it visualizes the operation of a specific product. A written Standard Operating Procedure (SOP) is the next level which explains the functioning at a 'key stroke' level. The process flow is activity oriented, rather than object oriented, a technique which suits the manufacturing industry more aptly. The four dimensions which are given importance to are the inputs, outputs, systems involved and the control mechanisms/ escalation points.

Failure Mode and Effects Analysis:

FMEA is done on Microsoft Excel. These are based on the process maps created. Each and every activity box in the process maps are analyzed for possible failure modes. These failure modes are studied on their business impact by three parameters: Financial Impact, Reputational Impact and Regulatory Impact. These are further rated, on a scale of 0-6, on how easily could the failure be detected (Dectability), how often does it occur (Occurrence) and the severity of its occurrence (severity). The rated impacts are multiplied to obtain the Risk Priority Number (RPN). If an RPN breaches the pre specified tolerance limit, a control mechanism is put in place for preventing the failure from happening. The ratings for Detectability, Severity and Occurrence are reviewed each year and based on the average of the last quarter's data. The following tables present the risk metrics employed:

FMEA Likelihood Scale

Scale

Definition

6

More than once a day

5

Daily

4

Weekly

3

Monthly

2

quarterly or half yearly

1

yearly or less

Detectability Scale:

Scale

Detection

6

- Not detected till external audit or detected by regulators

5

- Not detected till internal audit

4

- Detected by or visible to client or by counterparty

- Picked up by designated reconciliation (manually or automatically)

at a time for that good settlement is NOT possible to meet

- Information by internal/external source outside Operations Line to enable the detection of a failure at a time for that good settlement is NOT possible to meet

3

- Information by internal/external source outside Operations Line to enable the detection of a failure at a time for that good settlement is still possible to meet

2

- Picked up by designated reconciliation (manually or automatically) at a time for that good settlement is still possible to meet

1

- Picked up immediately by the system

Severity Scale:

Materiality

Scale

Operational Risk Categories

Financial Loss

Reputation / Client Franchise

Major

6

> 10 mio USD

- One of Top 100 client leaves

Significant

5

1mio - 10mio USD

- Unpleasant coverage in the press with moderate damage

and/or

- One of Top 100 client threatens to leave

Moderate

4

500k - 1mio USD

- Possible coverage in the press or market rumour that cannot easily used by competiors to impact on client relationships

and/or

- More than one of Top 100 client complains severly

3

100k- 500k USD

- One of Top 100 client complains severly

Minor

2

10k - 100k USD

- Minimal reputational impact

and/or

- Random clients complaints

Non-Significant

1

< 10k USD

- No reputational impact

Service Level Agreements:

The SLAs are both forward and reverse. They are based on multiple risk metrics: Cumulative Input and Output Volumes, The Turnaround Time (TAT) and the Error Rate, among others. The designed SLAs are formally signed off by the concerned departmental manger.

Lean management:

Lean management is integral to Toyota's quality culture. There is a rigorous quality audit mechanism in place to release any non value adds with the production facilities.

Kaizen:

Kaizen is a Japanese word meaning good (Zen) change (Kai). It is firmly rooted within Toyota's Quality Culture, motivating all its employees to continually strive for and to achieve incremental process improvements (The Toyota System, 2009).

Toyota's Quality Culture:

Another striking feature of Toyota's Operations is the quality culture. Quality culture is basically an organization wide perfection phenomenon which strives to incorporate quality across the length and breadth of it operations (Hawkins, 2004). Toyota's quality culture stresses on continuous improvement and lean management. Quality circles are amongst the most sophisticated in its class. But to be effective at a global scale, another important strategy which needs to be incorporated is the behavioral management. Toyota's over emphasis on quality has over the years paralleled with a total neglect on the human factor. Quality comes at a cost. Straight through processing, automation and cost cutting techniques tend to come strong on employees who more often than not loose their jobs owing to total automation. This puts a strong resistance on the true potential which could have been unlocked. This is also the primary reason for Toyota's high attrition rates which compare rather dismally with its competitors, especially within the automobile division which has had to face an employee turn over rate of over 15 % over the past decade (FT, 2007).

Quality Audit System:

Peter Drucker defines Quality Audit as "A set of co-coordinated activities to direct and control an organization in order to continually improve the effectiveness and efficiency of its performance".

Quality is at the heart of Toyota's functioning. It is encompassed in every aspect of its operations and is amongst the core competencies of the company. Designing an audit system for such an important function needs to be carefully done.

A good quality audit system should:

Set direction and meet customers' expectations

Improve process control

Reduce wastage

Lower costs

Increase market share

Facilitate training

Involve staff

Raise morale

Setting up the Quality Audit System:

The adoption of a QAS needs to be a strategic decision of an organization, and is influenced by varying needs, objectives, the products/services provided, the processes employed and the size and structure of the organization. The QAS must ensure that the products/services conform to customer needs and expectations, and the objectives of the organization. I suggest the following steps to implement the control system.

Design

Build

Control

Deployment

Measurement

Review

Improvement

Design and build includes the structure of the quality control system, the process and its implementation. It's design must be led by senior managers to suit the needs of the organization, and this is ideally done using a framework to lead the thinking. Design of the QAS should come from determining the organization's core processes and well-defined goals and strategies, and be linked to the needs of one or more stakeholders.

The process for designing and building the QAS must also be clear, with the quality function playing a key role, but involvement and buy-in to the system must also come from all other functions.

Deployment and implementation is best achieved using process packages, where each core process is broken down into sub-processes, and described by a combination of documentation, education, training, tools, systems and metrics. Electronic deployment via Intranets is increasingly being used.

Control of the QAS will depend on the size and complexity of the organization. ISO is a site-based system, and local audits and reviews are essential even if these are supplemented by central reviews. Local control, where possible, is effective, and good practice is found where key stakeholders are documented within the process and where the process owner is allowed to control all of the process.

Ideally, process owners/operators are involved in writing procedures. Measurement is carried out to determine the effectiveness and efficiency of each process towards attaining its objectives. It should include the contribution of the QAS to the organization's goals; this could be achieved by measuring the following:

Policy definition completeness

Coverage of business

Reflection of policies

Deployment

Usage

Whether staff finds the QAS helpful in their work

Speed of change of the QAS

Relevance of QAS architecture to the job in hand

A form of scorecard deployed through the organization down to individual objective level can be employed, and the setting of targets at all levels is vital.

Review of the effectiveness, efficiency and capability of a QAS is vital, and the outcome of these reviews should be communicated to all employees. Reviewing and monitoring should be conducted whether or not improvement activities have achieved their expected outcomes.

Improvement should follow as a result of the review process, with the aim of seeking internal best practice. It is part of the overall improvement activities and an integral part of managing change within the organization.

Improving Organizational Performance:

At Toyota, Kaizen is over emphasized. An equal weight given to BPR will lead to drastic improvements and which align with the organization's objectives and goals and which result in a reduction in the problems and increment in the efficiency of the systems. This is especially relevant owing to Toyota's dismal performance over the last two financial years. Despite being the largest automobile manufacturer by toplines, its bottomlines have been in red. The fundamental idea underpinning BPR is that it is about 'revolutionary' rather than 'evolutionary' change, that is a 'radical re-design' rather than an incremental improvement to the current processes. As such, though the concept shares a lot of the Kaizen philosophies, it is not to be confused with Continuous Improvement. Davenport (1993) provides a useful comparison between the two:

Continuous Improvement

BPR

Level Of Change

Incremental

Radical

Starting Point

Existing Process

Clean State

Frequency of Change

Continuous

One Time

Transition Timeframe

Short

Long

Decision Making

Bottom-UP

Top-Down

Typical Scope

Within Functions- Narrow

Cross Functional- Broad

Type of Change

Cultural

Structural

Primary Enabler

Statistical Control

IT

Risk

Minimal

High

As can be seen from the above differences, a radical redesign of Toyota's operations is required to ensure that it returns to its earlier days of being the most process efficient manufacturer in the world.

Furthermore, Toyota's process models need to be realigned to industry standards. Toyota has been innovative over the years and quite successful in doing so. But, the present economic turmoil has raised many eyebrows. Risk management is of firm importance, as such, there is a need to revert to generally accepted industry norms.

Pearman (2006) has suggested a few possible improvements which need to be made within this direction. Process Modeling is integral to the idea, evaluation and execution of BPR. He states that the essential component of s Business Process Re- engineering initiative is a team of mutually focused and goal oriented people; possessing enquiring and creative minds that collectively represent the process function under scrutiny. The fundamental strategy behind BPR is to evaluate the ways people work together to achieve business objectives and to find the optimal allocation, structure and execution of such activities. Nevertheless, Processing Modeling is ideal under such circumstances.

Curtis et al. (1992) state that the models should be an efficient and effective means to show the essentials of complex problems. Efficiently simulated models provide us an abstract of the real processes, enabling us to highlight the variables and relationships that are of interest, while ignoring the in efficiencies.

Having designed the necessary audit and control mechanisms as discussed above, audits are to be carried out to ensure that actual methods are adhering to the documented procedures, whilst system reviews should be carried out periodically and systematically, to ensure the system achieves the required effect. There should be a schedule for carrying out audits, with different activities possibly requiring different frequencies. An audit should not be conducted just with the aim of revealing defects or irregularities - they are for establishing the facts rather than finding faults. Audits do indicate necessary improvement and corrective actions, but must also determine if processes are effective and that responsibilities have been correctly assigned. The emphasis on process improvement and enhancing customer satisfaction in the revised standard will require a more thoughtful approach to auditing.

The generic steps involved in an audit are:

Initiation

Scope

Frequency

Preparation

Review of documentation

The program

Working documents

Execution

Opening meeting

Examination and evaluation

Collecting evidence

Observations

Close the meeting with the auditee.

Report

Preparation

Content

Distribution

Completion

Report

Submission

Retention

A quality management system review should take place, possibly once a year, which should cover:

Results of audits

Customer feedback

Process and product conformity

Status of preventative and corrective actions

Follow up actions from previous management reviews

Changes that could effect the QMS

Recommendations for improvements

Outputs should include:

Improvements to the QMS and processes

Improvements of a product related to customer requirements

Resource needs

In addition, the procedures for conducting audits and reviews and the results from them should be documented, and also be subject to review. Internal system audits and reviews should be positive and conducted as part of the preventative strategy, and not as a matter of expediency resulting from problems.

To conclude, Toyota is amongst the most efficiently run business operations conglomerate within the manufacturing industry. Its principles and culture are followed by many ventures and are amongst the most sophisticated. 'The Toyota Way', 'The Toyota System' and 'The Toyota Production System' are a few of accolades attributed to its functioning. But change is unavoidable. The current economic recession, coupled with some major operational glitches within Toyota over the last coupled of years has raised a need to revamp its operation function. But this should only be a minor hiccup in the otherwise lauded Toyota's history. There have been tougher challenges before which the company has managed and it should only be a matter of time before the company is back to its glory.

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