Lessons from the Toyota GroupWhat l

Lessons from the Toyota Group

What lessons can be drawn from the Toyota group’s organized effort to recover from the Aisin fire? While the incident underscores the risk of single sourcing in a JIT setting, the chances of such an event recurring are low.24 Furthermore, apart from natural disasters or fires, there is usually little need for coordinated responses of the magnitude we have described here. (Strikes pose different problems because the setting up of alternative sites at other firms would be viewed as interference and would generally be unacceptable to trade unions). More significant for our purposes are the implications of the recovery effort for everyday situations.

We believe that this episode demonstrates the benefits of clustered firm networks of the kind that Toyota and its partners have constructed. The Aisin incident reveals the capacity of these networks not only for self-organized, flexible responses to a crisis but also for routine problem solving that leads to incremental improvements in firm and group performance. In other words, the capabilities that made possible the reopening of Toyota-group plants in a few days instead of months are the same ones that have made Toyota and its suppliers among the most competitive in Japan and the world under normal circumstances.

A variety of institutionalized practices foster these capabilities. For example, JIT has the effect of immediately revealing bottlenecks, forcing workers and managers to continuously strive to detect and rapidly solve emerging problems. During the recovery effort, JIT made it easier to locate bottlenecks and improve the productivity of the emergency P-valve production sites. In a JIT environment, workers and managers gradually acquire capabilities for effective and pragmatic problem solving, enhancing their ability over time to deal with emerging problems. As the Aisin episode reveals, these capabilities are shared not only by Toyota and its group of first-tier suppliers (for example, Denso and Kayaba) but also by many second-tier suppliers.25

These mechanisms also work at the interfirm level and help foster groupwide problem-solving capabilities. Because orders from Toyota would be severely curtailed until P-valve production could be restored, it was impossible for firms such as Denso or even Kayaba to ignore Toyota’s and Aisin’s troubles. Just as Toyota encourages its assembly-line operators to stop the line whenever a serious problem arises to promote rapid problem-solving at the source, so, in this case, Toyota “pulled the cord” and stopped the entire value chain, from raw materials providers to assembly plants, forcing everyone to deal immediately with the problem. The Aisin incident revealed the extent of Toyota-group firms’ capabilities for dealing effectively with such problems, which were the product of years of working in an environment where interfirm coordination and collaboration were crucial to keeping operations running smoothly.

Given the increased competition within Japanese keiretsu, it is likely that Toyota suppliers cooperated to the extent they did in the hopes of being rewarded by increased business opportunities in the future. We believe that such incentives to cooperate were insufficient, however; the necessary capabilities to cooperate effectively had to be in place as well.

Many outside observers believed that the Aisin incident revealed the vulnerability of JIT environments, arguing at the time that any unexpected problem quickly leads to the breakdown of the system. Yet neither Toyota nor any other firm that we interviewed was considering abandoning JIT. With each vehicle containing more than 30,000 parts, it is just too costly to keep security buffers for each component; indeed, any production system is vulnerable to unexpected crises such as a plant fire.

Although crises are impossible to predict, the capabilities required to overcome them effectively and rapidly can be developed in advance. The constraints imposed by JIT ensure that firms gradually make the necessary preparations, since even routine problems can become “minicrises” whose resolution leads to new learning experiences. In other words, because of its inherent fragility, firms value JIT for the role it plays in fostering problem-solving and continuous improvement capabilities, at the individual firm and overall group levels and for both routine and major problems.

Several practices institutionalized within the Toyota group support the firms in their quest to develop these capabilities: information and know-how sharing in the Kyohokai and jishuken, regular transfers of employees among group firms, and other practices involving face-to-face contact.26 These practices facilitate organizational learning, encourage teamwork, and foster a set of common “codes” and understandings among group members regarding technology, management, and the “rules of the game.” Thus they provide the basis for coordination and ease of communication during times of crisis and routine alike, as tacit agreements and understandings ensure that information is transmitted without having to explain everything.27

Although the mutual dependence imposed by JIT, the competition for future contracts, and peer pressure to conform to group norms would seem to compel cooperative behavior, in reality, cooperation comes “naturally” in a network where firms have deep and intimate knowledge of each other. Trust was manifested throughout the recovery effort, as firms simply assumed that compensation for their efforts would be forthcoming and fair and that other firms would not take advantage of the situation to steal proprietary secrets or new contracts.28 Incidents such as the Aisin fire further strengthen these sentiments, as trust and reciprocity are deepened each time a crisis occurs.

Cooperation is also promoted by Toyota; as the recognized leader, it controls the general direction of the group. Toyota’s financial resources and control over the design process make it the natural leader, but in the long run, it is Toyota’s performance record that ensures that suppliers follow its suggestions and initiatives.29 Firms know that it pays to follow this particular leader, as suggested by Toyota suppliers’ consistently above-average profits.30 Moreover, suppliers accept the constant pressure to improve performance because various practices ensure that firms are not left alone to develop capabilities and that Toyota does not demand anything that it could not do itself. Toyota’s demands (e.g., cost-reduction targets) are based on rational calculations and indisputable evidence that Toyota is invariably able to offer.

Toyota’s leadership is undisputed and omnipresent, but at the same time, it is largely decentralized and often invisible. Rather than give direct and detailed orders to its group firms, Toyota disseminates general approaches, or “recipes,” giving firms the tools to self-organize in times of crisis and deal autonomously with emerging problems. These tools are disseminated to first-tier suppliers, which are then responsible for disseminating them to their own network of second- and third-tier suppliers. In this way, similar patterns of behavior are replicated throughout the network without any explicit orders from Toyota (as exemplified by the replication of Toyota’s 1 percent compensatory bonus policy throughout the group). An advantage of this approach is that responses may be differentiated and flexibly adapted to each firm’s particular situation, as the “recipe” leaves considerable room for discretion.

One might wonder, then, why all firms do not adopt Toyota-group practices, if the benefits are so great. The answer is that emulating Toyota’s model is not easy; it is the product of decades of investments in supplier capabilities and in trust and commitment. Even in Japan, many firms are unable to replicate either the structure or the performance of the Toyota group. Nevertheless, we believe that the Toyota model offers an excellent goal for firms to strive toward. Through earnest and persistent efforts to build supplier capabilities and promote horizontal knowledge sharing among suppliers, firms can reap substantial gains in long-term competitive performance. These efforts should be the next step for the many firms that have already begun the work of restructuring supplier relations in the direction of the partnership model. Moreover, Japanese firms currently under pressure to rationalize their supply base and adopt more market-oriented supplier management practices could also learn from Toyota. Its approach toward supply chain management gives it both flexibility and continuous cost reductions and has proved to be effective even in the current domestic recession.

Hasil (Bahasa Indonesia) 1:

Lessons from the Toyota GroupWhat lessons can be drawn from the Toyota group’s organized effort to recover from the Aisin fire? While the incident underscores the risk of single sourcing in a JIT setting, the chances of such an event recurring are low.24 Furthermore, apart from natural disasters or fires, there is usually little need for coordinated responses of the magnitude we have described here. (Strikes pose different problems because the setting up of alternative sites at other firms would be viewed as interference and would generally be unacceptable to trade unions). More significant for our purposes are the implications of the recovery effort for everyday situations.We believe that this episode demonstrates the benefits of clustered firm networks of the kind that Toyota and its partners have constructed. The Aisin incident reveals the capacity of these networks not only for self-organized, flexible responses to a crisis but also for routine problem solving that leads to incremental improvements in firm and group performance. In other words, the capabilities that made possible the reopening of Toyota-group plants in a few days instead of months are the same ones that have made Toyota and its suppliers among the most competitive in Japan and the world under normal circumstances.Berbagai praktek-praktek dilembagakan memupuk kemampuan ini. Sebagai contoh, JIT memiliki efek segera mengungkapkan kemacetan, memaksa para pekerja dan manajer untuk terus berupaya untuk mendeteksi dan cepat menyelesaikan masalah muncul. Selama upaya pemulihan, JIT membuatnya lebih mudah untuk menemukan kemacetan dan meningkatkan produktivitas dari situs produksi P-katup darurat. Dalam lingkungan JIT, pekerja dan manajer secara bertahap memperoleh kemampuan untuk efektif dan pragmatis masalah memecahkan, meningkatkan kemampuan mereka dari waktu ke waktu untuk menangani masalah-masalah yang muncul. Sebagai Aisin episode mengungkapkan, kemampuan ini bersama tidak hanya oleh Toyota dan kelompoknya pemasok tingkat pertama (misalnya, Dell dan Kayaba), tetapi juga oleh banyak suppliers.25 lapis keduaThese mechanisms also work at the interfirm level and help foster groupwide problem-solving capabilities. Because orders from Toyota would be severely curtailed until P-valve production could be restored, it was impossible for firms such as Denso or even Kayaba to ignore Toyota’s and Aisin’s troubles. Just as Toyota encourages its assembly-line operators to stop the line whenever a serious problem arises to promote rapid problem-solving at the source, so, in this case, Toyota “pulled the cord” and stopped the entire value chain, from raw materials providers to assembly plants, forcing everyone to deal immediately with the problem. The Aisin incident revealed the extent of Toyota-group firms’ capabilities for dealing effectively with such problems, which were the product of years of working in an environment where interfirm coordination and collaboration were crucial to keeping operations running smoothly.Given the increased competition within Japanese keiretsu, it is likely that Toyota suppliers cooperated to the extent they did in the hopes of being rewarded by increased business opportunities in the future. We believe that such incentives to cooperate were insufficient, however; the necessary capabilities to cooperate effectively had to be in place as well.Many outside observers believed that the Aisin incident revealed the vulnerability of JIT environments, arguing at the time that any unexpected problem quickly leads to the breakdown of the system. Yet neither Toyota nor any other firm that we interviewed was considering abandoning JIT. With each vehicle containing more than 30,000 parts, it is just too costly to keep security buffers for each component; indeed, any production system is vulnerable to unexpected crises such as a plant fire.Although crises are impossible to predict, the capabilities required to overcome them effectively and rapidly can be developed in advance. The constraints imposed by JIT ensure that firms gradually make the necessary preparations, since even routine problems can become “minicrises” whose resolution leads to new learning experiences. In other words, because of its inherent fragility, firms value JIT for the role it plays in fostering problem-solving and continuous improvement capabilities, at the individual firm and overall group levels and for both routine and major problems.Several practices institutionalized within the Toyota group support the firms in their quest to develop these capabilities: information and know-how sharing in the Kyohokai and jishuken, regular transfers of employees among group firms, and other practices involving face-to-face contact.26 These practices facilitate organizational learning, encourage teamwork, and foster a set of common “codes” and understandings among group members regarding technology, management, and the “rules of the game.” Thus they provide the basis for coordination and ease of communication during times of crisis and routine alike, as tacit agreements and understandings ensure that information is transmitted without having to explain everything.27Although the mutual dependence imposed by JIT, the competition for future contracts, and peer pressure to conform to group norms would seem to compel cooperative behavior, in reality, cooperation comes “naturally” in a network where firms have deep and intimate knowledge of each other. Trust was manifested throughout the recovery effort, as firms simply assumed that compensation for their efforts would be forthcoming and fair and that other firms would not take advantage of the situation to steal proprietary secrets or new contracts.28 Incidents such as the Aisin fire further strengthen these sentiments, as trust and reciprocity are deepened each time a crisis occurs.
Cooperation is also promoted by Toyota; as the recognized leader, it controls the general direction of the group. Toyota’s financial resources and control over the design process make it the natural leader, but in the long run, it is Toyota’s performance record that ensures that suppliers follow its suggestions and initiatives.29 Firms know that it pays to follow this particular leader, as suggested by Toyota suppliers’ consistently above-average profits.30 Moreover, suppliers accept the constant pressure to improve performance because various practices ensure that firms are not left alone to develop capabilities and that Toyota does not demand anything that it could not do itself. Toyota’s demands (e.g., cost-reduction targets) are based on rational calculations and indisputable evidence that Toyota is invariably able to offer.

Toyota’s leadership is undisputed and omnipresent, but at the same time, it is largely decentralized and often invisible. Rather than give direct and detailed orders to its group firms, Toyota disseminates general approaches, or “recipes,” giving firms the tools to self-organize in times of crisis and deal autonomously with emerging problems. These tools are disseminated to first-tier suppliers, which are then responsible for disseminating them to their own network of second- and third-tier suppliers. In this way, similar patterns of behavior are replicated throughout the network without any explicit orders from Toyota (as exemplified by the replication of Toyota’s 1 percent compensatory bonus policy throughout the group). An advantage of this approach is that responses may be differentiated and flexibly adapted to each firm’s particular situation, as the “recipe” leaves considerable room for discretion.

One might wonder, then, why all firms do not adopt Toyota-group practices, if the benefits are so great. The answer is that emulating Toyota’s model is not easy; it is the product of decades of investments in supplier capabilities and in trust and commitment. Even in Japan, many firms are unable to replicate either the structure or the performance of the Toyota group. Nevertheless, we believe that the Toyota model offers an excellent goal for firms to strive toward. Through earnest and persistent efforts to build supplier capabilities and promote horizontal knowledge sharing among suppliers, firms can reap substantial gains in long-term competitive performance. These efforts should be the next step for the many firms that have already begun the work of restructuring supplier relations in the direction of the partnership model. Moreover, Japanese firms currently under pressure to rationalize their supply base and adopt more market-oriented supplier management practices could also learn from Toyota. Its approach toward supply chain management gives it both flexibility and continuous cost reductions and has proved to be effective even in the current domestic recession.