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Toyota is a company that gained customers based, in large measure, on the good will they created over many years. According to a Gartner report published by Debra Hofman and Kevin O'Marah, Toyota was ranked at No. 49 for "The 2010 Supply Chain Top 25 Ranking: The Next 25," long a top-ranked automotive manufacturer known for its Toyota Production System (TPS) and new product introduction process, has been hit by a set of highly visible recalls that have rocked its position in the ranking.
The 2009-2011 Toyota vehicle recalls (also referred to as pedalgate) involved three major but related recalls of automobiles, including November 02, 2009 of 3.8 million Toyota and Lexus vehicles due to floor mat problem in U.S., January 21, 2010 of 2.3 million Toyota vehicles due to faulty accelerator pedals in U.S. as well as February 08, 2010 of 436,000 hybrid vehicles worldwide due to anti-lock software. Overall, the total number of cars recalled by Toyota was over 10Â million, mainly involving 7.5Â million vehicles in U.S., 1.8Â million in Europe, and some in Asia. Furthermore, 37 deaths were alleged due to the pedal problem along with multiple lawsuits. The number of alleged victims and reported problems sharply increased following the recall announcements, which were heavily covered by U.S. media. The House Oversight and Government Reform Committee and the House Energy and Commerce Committee held hearings in February 23, 2010.
On its own, Toyota produces just 30% of the parts that go into its cars, compared with 65% for General Motors. Reasons cited for the quality lapse include rapid expansion of production requiring use of suppliers who do not meet the high production standards of Toyota, and high-cost reduction pressure on components supplied by suppliers, thus impacting product quality. "Toyota has been using more common parts in its vehicles" in order to cut costs, said Koji Endo, an auto analyst at Tokyo-â€‹â€‹based independent auto industry boutique Advanced Research of Japan. What has gone wrong in the case of Toyota? Â It's often a problem of not integrating the value throughout every aspect of the company. It's also about not aligning all practices with the core principle and philosophy.
Cost of Quality and Business Impact
How costly is the recall to Toyota? One of the inevitable facts for Toyota is an erosion of any potential operating income from its business owing to the additional cost of recalling the defected vehicles. Initial cost for the accelerator fix is estimated to be about $20 per vehicle, taking 30-45 minutes to repair. At an hourly wage of $45-$50 per hour in the U.S., this is calculated to roughly half a billion dollars for Toyota. The biggest expense, however, is expected to be in legal fees with already more than 40 class-action suits filed against Toyota in the U.S. and 13 lawsuits alleging death or injury due to unwarranted acceleration.
The sales of Toyota in the U.S. automobile market was significantly hampered and suspended during the period of recall. Ford and Hyundai were quick to react with incentive schemes to dig into the Toyota customer base, with GM offering incentives of $1,000 and 0 percentÂ financing when customers trade in a Toyota for a GM vehicle. One of the key concerns for Toyota is the loss in sales of its flagship hybrid Prius to other market substitutes. In short, Toyota sales dropped more than 16%Â in January 2010 year-on-year as compared to the same period in 2009. It was estimated that Toyota's massive vehicle recall could cost it up to US$2 billion (£1.25 billion) in lost output and sales. Moreover, its stock prices ever since news of the recalls hit the stands, was almost one-fifth of the company's value wiped off the board on the Tokyo stock exchange.
Toyota is renowned for the quality of its products. One misstep in 50 years has brought tremendous publicity damage on Toyota's brand image and equity. The media storm and customer dissatisfaction have put the company in a very tight spot to respond to its trouble. A public apology by Akio Toyoda, the president and CEO of Toyota, at a congressional hearing included his explanation for Toyota's surging gas pedals and faulty brakes as well as the claim of Toyota's priority traditionally being the following: first, safety; second, quality; and third, volume. However, the company put growth ahead of safety and profits before consumers. That is why many customers feel so betrayed and also lose confidence in the brand association of Toyota to be safe and reliable cars. As a result, it will take more time for Toyota to regain the trust and loyalty of its consumers.
Competitive Strategy and Recovery Plan
A competency-based approach of an organization to achieve quality is through continual improvement. Total quality management (TQA) is defined as the continuous process of ensuring every aspect of production builds in product quality. Every aspect of the company's internal practices from how the organization is structured, how work is designed, systems for doing one's work, hiring practices, orientation, training, performance management, internal communications and technology must reinforce the focus on quality. And every aspect of the company's external practices including its suppliers, vendors and partners must be screened to set quality as the number one requirement. The focus is on corrective control that is, making the product right the first time rather than fixing mistakes after the fact.
Aftermath of the recall, Toyota was working hard to improve its image in America while other brands were enjoying the rise of the market. Dealerships are open for longer hours, television campaigns that re-iterate the strong quality record of the company, and an outright apology combined with commitment to fix things are some of the damage control steps being taken by Toyota. It also tried to fix all affected models for both the accelerator pedal and the software issue on the Prius. Furthermore, the company has been conducting better reporting systems of safety issues, assigning engineers to focus on quality issues, and spot-â€‹â€‹checking vehicles for potential problems before launch. The suppliers they use and the materials they buy must meet their high standards for quality. Anything less should not be qualified to be in a Toyota product-from the car to the keyÂ chain.
A week before the close of 2010, Toyota is still No. 1 in the world compared to its rival, GM. The spokesman for GM comments that "We do not focus on who is occupying the No. 1 position," and refused the importance of Toyota's sales which were greater than his company. Meanwhile, Toyota spokesman also insisted on not thinking about the size of unit sales. "Our main focus became the number one together with the consumer. We want to be their (customers) favorite car manufacturers."
The early development of quality management was established in U.S. Ironically, the quality concept and its practices were embraced and executed by Japanese manufacturers which were taught by Americans. For example, Toyota sets the standard in efficiency, productivity, and quality. Its production system applies not only to manufacturing but to almost everything Toyota does, from product development to supplier relations and distribution. General Motors officials once said that Toyota is the benchmark in manufacturing and product development. Toyota slipped past GM just under two years ago to become the world's biggest carmaker. Toyota eased ahead of its competitors largely because of reputation for producing good quality, reliable cars at reasonable prices.
However, Toyota's dash to become the biggest carmaker may have had unfortunate consequences. The pursuit of volume seems to have dented the company's enviable record for reliability. The latest troubles due to a massive recall can only make customers more wary of buying a Toyota's car. Even Toyota's leadership in electric and hybrid vehicles is under threat as other big carmakers prepare to launch their own green models soon.Â Regarding to the competence between Toyota and its major rival (i.e., GM), their strength, weakness, opportunities, and threats are illustrated as shown in Table 1.
Every company makes mistakes, including Toyota. Definitively, Toyota is the leader of one of the largest and (once-) most trusted automobile brands in the world. But can Toyota study its mistakes, learn from them, and improve itself? It all goes back to know what's core to the corporation's culture. Every organization must define what values must be shared by everyone in the organization. These are the values that are never compromised. These are the values that each employee takes pride in and wants to live more effectively each and every day. More importantly, these are values that top managements are committed and so that there's no excuses. For example with Toyota, the focus should always be about quality. Quality should be the blood that runs through the veins of all who work for the company. Nothing moves quality second to anything.
Outstanding Toyota Motor Corp., the world's largest carmaker, is really getting hit hard. When Toyota is struggling to rise after falling due to the crisis of recall, an earthquake and the triggered tsunami happened on March 11 of this year (2011) stuck east Japan. This severe disaster has seriously damaged several of their main production facilities of Toyota in Japan. Its production and assembly lines are forced to stop and employees in the factory are evacuated because of the nuclear leak in Fukushima. As a result of suspension, the production activities are "paralyzed" due to the earthquake incident. Toyota's massive production is reduced at least 40,000 units. In terms of disaster management, truly, this is a prime challenge and maybe opportunities for Toyota to right the ship and to keep its competence in the automobile market.