Toyota-Analyst Dr. Liker: “Toyoda did not allow reports to the executives”

Dr. Jeffrey K. Liker: By June the United States was up to over 80% of the production plan. (Picture: Liker).

Toyota-Analyst Dr. Jeffrey K. Liker explains in an interview with the german newspaper Produktion, with which new management concept Toyota has managed the aftermath of the tsunami in Japan.

by Gunnar Knüpffer

zur deutschen Version des Interviews

What did Toyota do, to rise the number of cars produced after the crises in Japan?
On the day the earthquake hit last March up North those in Toyota city in the middle of the country literally did not have any idea of the consequences. Telephone communication was cut off. They did not even know most of the suppliers of parts up North since they are basic component suppliers like semiconductors and rubber parts that ship to Toyota suppliers or even the suppers to Toyota suppliers. They were buried deep in the supply chain. Toyota did have a Yaris plant up there and a battery plant for hybrids.

How did Toyota deal with this situation?
Immediately Akio Toyoda called together all of the general managers (one step below vice president) who run the various departments in Toyota and did something unique in Toyota’s history. He said that they manage the people who can help up North and they need to meet every day and manage, but they were not allowed to report anything up to the executives. He explained that was waste and they needed to focus on solving the problems. He also gave them their priorities in this order.
1. Take care of Toyota team members up there in Toyota plants and suppliers.
2. Take care of the community
3. Get parts flowing again.

What was done exactly?
Japan has excellent engineers at auto companies, equipment vendors, suppliers and they work cooperatively. The government helped in organizing. The very day of the earthquake Toyota send engineers up North to investigate the current condition. They also sent tankers of water and trucks full of supplies for the people. They built a map of all the suppliers and their parts up North and found in mid-March that 500 critical parts were not available. In some cases the plants were literally leveled. The teams began to clean up, removing debris, and rebuild. In some cases the equipment had shifted and they needed to recalibrate the equipment and in other cases they had to rebuild the equipment. By April they were down to 250 parts and by May they were down to about 100 parts they could not get and by June about 20 parts.

How was the production increased?
In the meantime every region with manufacturing plants was on the phone daily planning production with the parts they had. Since these suppliers were basic components they produced in large batches and there was typically about 6 weeks of inventory in the pipeline so they had time to operate but needed to prioritize. They Prius got preference because of a back log of orders. By June the United States was up to over 80% of the production plan though it still took time to get cars to dealers and replenish dealer inventory which was mostly complete by the end of August (about half the time expected).

Then the flood in thailand happened…
And then the Thai flood hit. Toyota is the market leader in Thailand and that is their largest base for production in Asia outside Japan, so it hit Toyota hard. Plants were filled with water. Again they had to work plant by plant to solve the problems and get production running again. By November they were close to full production because of the team work with suppliers and equipment vendors, hard work, and excellent technical capabilities. For the first time sales in November in the U.S. were above the level the year before.

What did Toyota change, to avoid product recalls?
Actually Toyota changed to increase product recalls. The initial recalls for all weather floor mats that were not installed correctly by dealers or customers, rare cases of sticky pedals that caused no accidents, and funny feeling Prius brakes at low speed when hitting a pot hole or slick water were arguably not major safety issues. In fact the only confirmed accident by the US government was a case in California where the Lexus dealer put the wrong, oversized all weather floor mat on top of the existing factory installed mat and did not secure it down. In normal times these may not have been recalls. It was common practice in the auto industry to first investigate the problem and find the root cause, and come up with a fix, and then possibly do a recall. That happened recently with Ford with a problem that caused over 80 fires. Ford issued the recall after many months of investigation saying it would be months before the fix was available and the government was fine with it. They were much tougher on Toyota for problems that did not cause accidents and in which the brakes worked fine to stop the car.

In what way?
Toyota concluded that they needed to be even more responsive to customers so they created regional Chief Quality Officers with real power over recall decisions and decided as a company to recall first and investigate second. Often the day a problem was discovered, before they knew if it was a safety risk or even something that could really happen they issued a recall. By being hyper sensitive they increased the number of recalls in 2010 and that has continued. Recalls are a question of how quickly you pull the trigger when you find a theoretically possible safety defect.

Which role does the product policy plays, so that Toyota is becoming strong again?
Akio Toyoda before the recall crisis happened had an agenda. He believed that Toyota had grown rapidly and could not develop people as deeply as they used to. He believed strongly in regional self reliance and wanted to accelerate that. He feared that managers, executives, and engineers were getting to far from the gemba (where it is happening) and needed to spend more time to go and see the actual situation. He promoted all these areas but the recall crisis gave him additional power and a sense of urgency to push through his changes more rapidly. Literally thousands of changes have been made including adding safety executives for each region: reassigning about 2000 engineers to quality, increasing the product development process by 6 weeks in one block of time to focus only on quality and safety, developing a new year long training program for regional quality inspectors, promoting Americans to key executive positions in manufacturing and engineering, and many more changes. All of these policies will strengthen customer responsiveness. In reality I believe Toyota was always strong.

Which was the impact of the product recalls?
The recession strengthened them because they kept people employed and did intensive training and kaizen. The recall crisis weakened their public image but in the United States by every objective measure of quality and safety they were on top in the Fall of 2009 and on top in the Fall of 2010 and that has continued. But there competition was getting closer and they need to work much harder to get a bigger lead.

Dr. Jeffrey K. Liker
Dr. Jeffrey K. Liker is Professor of Industrial and Operations Engineering at the University of Michigan and principle of Optiprise, Inc. Dr. Liker has authored or co-authored over 75 articles and book chapters and nine books. He is author of the international best-seller, The Toyota Way: 14 Management Principles from the World’s Greatest Manufacturer, McGraw-Hill, 2004. His articles and books have won eight Shingo Prizes for Research Excellence and The Toyota Way also won the 2005 Institute of Industrial Engineers Book of the Year Award and 2007 Sloan Industry Studies Book of the Year. He is a frequent keynote speaker and consultant.