What Is Driving Toyota

By Mel Duvall  |  Posted 2006-09-05

In the heart of Kentucky, amid rolling bluegrass hills and miles of neat white plank fences, sits the machine that threatens the three pillars of Detroit.

Under the roof of Toyota Motor's largest manufacturing facility in North America, the headlights flash and the horn blasts on a new Camry, Avalon or Solara rolling off the assembly line every 55 seconds. Its journey began just 20 hours earlier, when sheets were cut from a 24-ton coil of steel and stamped by giant machines into body parts. Robots weld the stamped parts into the naked frame of car bodies, which are then hung on an overhead conveyor system to begin a Disney-like ride through 7.5 million square feet of factory floor (the equivalent of 156 football fields).

Employees—some 7,000 at this plant alone—have exactly 55 seconds to install engine components, brakes, dashboards, windows, doors or some other piece of the car puzzle before it is transported to the next stage of the assembly line on the overhead conveyor. Driverless carts ferry parts just-in-time to assembly stations so inventory doesn't pile up, and everywhere, overhead signs, plasma screens and musical jingles alert team leaders to production status or problems on the assembly line.

Every organization strives to make its business processes more effective, more efficient and more capable of adapting to an ever-changing environment. In fact, business process management (BPM) was the top business priority expressed by companies in research firm Gartner's ranking of business and technology priorities for 2006. There are a number of definitions for BPM, and a whole category of software products to help companies improve their business processes, but the overriding premise is simple: BPM is about continuously identifying opportunities for improvement in a company's business activities and acting upon those opportunities.

Most companies will claim this goal, yet very few can hope to come close to achieving the same degree of success with BPM as Toyota. Its entire culture—its basic DNA—is built around continuously searching for better ways to improve its manufacturing and business processes, and ultimately achieve customer satisfaction.

Information technology often plays the role of bringing those processes to life, be it using new software to shorten the cycle from accepting a customer order to having that Camry or Corolla roll off the production line, or monitoring equipment on the factory floor to prevent breakdowns and defects. And the payoff is impossible to ignore.

In 2003, Toyota overtook Ford Motor to become the world's second-largest automaker, with sales of 6.8 million vehicles, compared to Ford's 6.7 million. In 2006, Toyota forecasts that as many as 9 million vehicles will roll off its production lines, putting it a few bumpers away from General Motors, which is expected to produce about 9.2 million vehicles in 2006. In July, Toyota reported its best first-half sales in its 49 years in the U.S., selling 678,691 units.

In the wake of recalls and other quality issues, the company last month said that it was looking at possibly delaying some models. Still, what Toyota has accomplished over the years has been widely admired by manufacturing and information-technology experts.

In factories around the globe, from Toyota City, Japan, to this one in Georgetown, Ky., Toyota consistently produces higher-quality cars, with fewer worker-hours, lower inventory and fewer defects, than any other competitor. The engine behind its success, say insiders and outsiders alike, is the Toyota Production System (TPS), a set of principles, philosophies and business processes to enable the leanest manufacturing.

And behind TPS is information technology—supporting and enabling the business processes that help Toyota eliminate waste, operate with virtually no inventory and continually improve production.

Technology does not drive business processes at Toyota. The Toyota Production System does. However, technology plays a critical role by supporting, enabling and bringing to life on a mass scale the processes derived by adhering to TPS.

"What strikes me about Toyota is, if you were to ask them if they have a technology strategy, they would probably say no, we have a business strategy," says Philip Evans, a senior vice president at the Boston Consulting Group who has studied Toyota. "They have a very clear understanding of the role technology plays in supporting the business."

By 2007, Toyota could unseat GM as the world's largest automaker, a title GM has held for almost a century. It long ago unseated Detroit's Big Three as the world's most profitable car maker.

"Many companies have tried to duplicate what Toyota has done with TPS... and most fail," notes Jeffrey Liker, a professor of industrial engineering at the University of Michigan and author of several books on lean manufacturing, including The Toyota Way. Liker has consulted with a number of companies implementing lean manufacturing techniques based on the Toyota model, and by his reckoning, "less than 1%" deserve an A or B+.

"It's hard work," Liker says. "You have to be willing to commit to practicing the concepts behind TPS every day."

Creating the Lean Machine

Unlike the formulas to blend Coca-Cola or the latest blockbuster drug, there is no veil of secrecy behind the Toyota Production System. In fact, Toyota openly invites general visitors and competitors alike into its plants to observe its operations and manufacturing techniques.

In 1992, it opened the Toyota Supplier Support Center in Erlanger, Ky., about an hour's drive north of the Georgetown plant, to teach other companies the principles and concepts behind TPS and to help implement TPS in their own operations. To date, it has worked with more than 100 companies as varied as office furniture maker Herman Miller, seat manufacturer Trim Masters and several hospitals. The supplier center now operates as an independent consulting firm.

It even created a joint venture with GM in 1982, taking a plant that was to be closed in Fremont, Calif., and reengineering it into a lean manufacturing facility based on TPS. That plant, renamed New United Motor Manufacturing Inc. (NUMMI), quickly surpassed all of GM's plants in North America in productivity, quality and inventory turns. NUMMI became a living laboratory for hundreds of GM executives and now manufactures Corollas, Tacoma pickup trucks and the Pontiac Vibe.

Toyota is open with the strategy behind TPS because it wants to raise its North American suppliers up to its own level of efficiency and quality, Liker says. At the same time, it can afford to be open with its competitors because Toyota is constantly raising the bar. By the time they copy its current processes, Toyota will have moved on.

The origins of TPS date to the turn of the last century, and a very different industry. Sakichi Toyoda, founder of the Toyota Group, invented a loom in 1902 that would automatically stop if any threads snapped. It paved the way for automated loom works, where a single operator could handle dozens of looms. Sakichi's invention reduced defects and raised yields since a loom would not continue producing imperfect fabric and use up thread needlessly. This process, of stopping production to prevent defects, became known as Jidoka.

In the 1930s, the Toyoda family became fascinated by Henry Ford's mass production system, and decided to set up an auto manufacturing operation of their own. The problem they faced is that while Ford's system was ideal for a market the size of North America, it could not be easily adapted to serve much smaller production volumes for a market the size of Japan. (A Ford factory line in the 1930s produced about 9,000 units per month, while Toyota was only producing about 900 units).

The solution was to create an assembly line where parts and supplies were purchased in only the quantities required to satisfy production requirements, and to match production as closely as possible with consumer demand. This limited the amount of cash that had to be committed to inventory, and also allowed Toyota to respond quickly to any defects or changes in demand. Production became dependent on a pull system, where inventory was "pulled" from suppliers only when required, instead of the more common "push" mass production system, where parts are produced in large quantities and stored in inventory until required. This pull method became what is now known as a just-in-time (JIT) supply chain system.

Together with the ability to stop production to prevent defects, Jidoka and just-in-time are the central pillars of TPS.

Over the years, Toyota refined a number of other concepts and production methods that support the two central TPS pillars. And behind each of those pillars are information systems, supporting and enabling the processes:

  • Just-in-time: Toyota employs one of the most sophisticated supply chain systems in manufacturing, working closely with suppliers to ensure that parts arrive just when needed. For example, when a car comes out of the paint shop in Georgetown, the system sends seat supplier Johnson Controls an electronic message detailing the exact configuration of the seats required (leather upholstery, bucket seats, etc.); Johnson Controls has four hours to ship those seats to the plant in the exact sequence required. The instructions are provided by Toyota's proprietary Assembly Line Control System (ALCS) software.
  • Jidoka: At every stage of the assembly line, Toyota employs devices allowing workers to stop production to correct defects. Such devices may be as simple as a rope strung above the assembly line, or a button that can be pushed. In other cases, it is sophisticated monitoring software such as Activplant's Performance Management System, which can alert operators to problems with equipment or robots in real time.
  • Kaizen: This is a system for continuous improvement. Toyota constantly looks to improve its business processes by finding ways to take Muda (waste) out of the system. It can be as simple as moving a tool to an assembly station so a worker does not need to waste time walking to get the tool. Or it may involve technology, such as allowing dealerships to swap car inventories using the Dealer Daily, an Internet portal, so customers are not left waiting longer for the vehicle they want.
  • Andons: Wherever possible, Toyota uses visual controls, or Andons, such as overhead displays, plasma screens and electronic dashboards to quickly convey the state of work. On the assembly line floor, for example, overhead Andons tell a supervisor with one glance whether the station is functioning smoothly (a green light), whether there is a problem being investigated (yellow light) or whether the assembly line has stopped (red light). Newer plasma screens, tied into assembly line equipment, provide even more information such as which machine malfunctioned, the operator and the exact conditions (speed, temperature) when it broke down.
  • PokaYokes: Toyota uses a range of these low-cost, highly reliable devices throughout its operations to prevent defects. A PokaYoke may be something as simple as a tool holder with an electronic sensor, or it may be a light curtain, a beam of light that sends a signal to a computer when a hand or some other object interrupts its flow. The curtain can signal a warning if, for instance, a worker fails to pick up a cotter pin, bolt, nut or some other required part.
  • Genchi Genbutsu:The literal translation of this term is, "Go and see for yourself." Rather than hear about a problem, Toyota requires its workers, team leaders and executives to go and see a problem directly and to work collectively on a solution. At least 50% of Toyota's information systems workers are stationed at plant sites to work directly with operations.

    Together, the elements of TPS form the basis for a system of business process management that allows Toyota to continuously look for ways to optimize its operations and put thought into action. Sounds simple, but it requires a basic cultural change in an organization, and that, according to Gary Convis, can be the most difficult challenge. Convis, chairman of Toyota Motor Manufacturing Kentucky, oversees the company's manufacturing plant in Georgetown, Ky.

    "Kaizen defines Toyota's basic approach to doing business," Convis says. "Challenge everything. The true value of continuous improvement is in creating an atmosphere of continuous learning and an environment that not only accepts, but actually embraces change."

    Convis is a former Ford and General Motors executive who joined the NUMMI venture in California, and moved up through Toyota's manufacturing ranks. In 2001, Convis became the first North American to head a Toyota manufacturing plant when he was put in charge of the Georgetown facility. He responded to the promotion by moving his office from the administrative building adjacent to the Georgetown plant to the center of the factory floor. In June, he was promoted again to the role of chairman.

    In a recent interview in Nikkei Business Online, Toyota Motor CIO Yoshikazu Amano noted the importance of information technology in Kaizen activities.

    "At Toyota, the information systems department, and I as the CIO, have an absolute advantage when compared to other departments," he said. "The reason is that we manage all of the data from Toyota's global operations. I have that data at my fingertips.

    "Looking at this data tells me a lot. For instance, in sales I can see that some sales companies are successful at selling new cars while others are good at selling used cars or service. I can also see the difference in profitability between these companies. In the area of logistics, I can see one department over here and another over there processing similar data, and that these departments may need to be reorganized and the transactions streamlined.

    "Part of my job as CIO is to take these companywide issues and use this data to make improvement suggestions when I have an opportunity to meet with the managing executives." (View a translation of the interview provided by Gemba Research.)

    Millie Marshall, vice president of information systems for Toyota Manufacturing North America, concurs. At Toyota, there is a clear understanding of technology's role and its place in the boardroom, she says, and that in turn helps the company in the area of BPM.

    "In I.T., we know what the business changes are and the problems for every single area—whether it's accounting and finance on the administrative side, or whether it's something on the plant floor that requires some type of solution," she says. "Because I.T. can span and look at all of those areas, our top executives look to us to put forward recommendations and help them prioritize business projects."

    Marshall, a Kentucky native, began working with Toyota in 1991, a few years after the automaker began transforming sleepy Scott County with its massive Georgetown plant. Marshall had been working in information systems for Square D, a company that manufactures electrical breakers and associated components. She was happy working for Square D, but couldn't help notice the "amazing" impact Toyota was having on her community. Marshall started at the Georgetown plant working on mainframe database administration, and for some time worked in human resources on its PeopleSoft ERP implementation, but the majority of her time has been spent managing systems for the factory floor.

    Her first impressions of joining Toyota was that it was "overwhelming." The workload was extremely high, with new plants and expansions being brought on-stream every month, and it took time to get used to the Toyota culture. Management at Toyota was much more hands-on; they didn't hand you an assignment and go away, and it was expected that they would get their hands dirty as well. "I can remember sitting down with Japanese coordinators—these were high-ranking people—and we were going over actual data fields," she says. "They were sharing their knowledge and were very patient with me... but what I noticed is that they had intricate knowledge of how the system worked."

Daily Dealings

A prime example of business process management and the Toyota Production System in action is Toyota's Dealer Daily Internet portal initiative. Toyota operates its North American operations under a holding company, Toyota Motor North America, headquartered in New York. Under that umbrella, it divides its operations primarily into sales and service, manufacturing, and design and R&D.

Toyota Motor Sales (TMS), based in Torrance, Calif., is responsible for the sales and marketing of vehicles in the U.S., and the relationship with Toyota car dealerships. In 1998, using the principles of Kaizen and BPM, it undertook a major project to replace a vehicle ordering and communications system for its roughly 1,200 U.S. Toyota and Lexus dealers with an Internet portal.

Under the old system, Toyota Motor Sales interacted with its dealers through the Toyota Dealer Network (TDN), a text-based application that ran on IBM AS/400 computers installed at each dealership. The system in turn accessed other applications running on a centralized mainframe at TMS headquarters in Torrance.

The 25-year-old system had numerous limitations and was expensive to maintain. TDN did not integrate with any of the applications used internally by the dealers to support their daily operations, such as selling, arranging financing and processing warranty claims. Some Toyota dealers also own other brands of vehicles, and use third-party applications from providers such as Automatic Data Processing, Reynolds and Reynolds, and Universal Computer Systems to run their operations. Again, TDN did not integrate with those applications, so information had to be re-keyed constantly.

In addition, whenever TDN needed to be upgraded, to fix a bug or add new features, Toyota Motor Sales had to create tapes and CDs, mail them to all 1,200 dealers and wait for the dealers to find the time to upgrade their systems. Toyota estimates the upgrade process cost more than $1 million a year alone.

The combined result, says Ken Goltara, vice president of automotive systems for TMS, was a whole lot of Muda—waste. Wasted time on re-keying data, wasted time on errors, wasted opportunities from not being able to serve the customer better, and wasted money.

Toyota began the portal initiative by mapping out its business processes, holding Kaizen workshops with its dealers, and systematically looking at all the areas where waste could be removed. And it didn't take the plunge without thinking long and hard about the possible repercussions. For starters, not everyone agreed with dumping the old system. "There's a certain comfort level with a system that's been in place for 25 years," Goltara says.

The Dealer Daily portal initiative took four years to develop, at an undisclosed cost, and was a partnership between Toyota's I.T. division, Microsoft Consulting Services, Dell Computer and WorldCom (now part of Verizon). It was built on top of Microsoft technologies, starting with the Windows Server System infrastructure, and incorporating SQL Server, Site Server and Microsoft Visual Studio development tools.

As with almost all of its technology implementations, Toyota started small, carefully rolling out the portal to its Lexus dealers as a test. While it worked out the bugs, it continually expanded the offering, eventually making it available to all 1,200 of its U.S. Lexus and Toyota dealers.

The key business process improvement is that the portal now allows dealership personnel to perform daily business activities, such as entering new vehicle orders and arranging financing or warranty claims, without keying data into multiple systems. Instead, staffers enter the information once into Dealer Daily, and the system automatically forwards the data for processing against the various applications from Toyota and third-party providers that also require the data. When a customer wants to finance a vehicle, for example, dealerships can submit a loan application to Toyota's financing system (which runs on an Oracle database), and receive a response in as little as 15 seconds. The quick response greatly increases the chances that Toyota will win the customer's financing business.

Dealer Daily also streamlines a number of other business processes, including allowing dealers to perform "virtual swaps"—essentially letting them swap cars being shipped from the plant, so they can meet customer orders faster. In the past, this wasn't possible until after a car actually arrived at the dealer's lot. Now, it can be completed before shipment and sometimes in transit, providing significant savings. Dealer Daily also serves as a storage site for vehicle service information, so customers can take their new Lexus GS Hybrids to any dealership, and know that there is a complete history of work performed in the past.

In all, the Dealer Daily incorporates more than 120 business applications, and like all Toyota initiatives, it is constantly undergoing Kaizen to look for more improvements and opportunities to remove Muda. Case in point: Toyota recently added the capability for dealers to find out which vehicles it has in the production pipeline, and make changes such as switching a cloth interior to leather. (Dealer Daily is integrated into Toyota's mainframe systems through file transfer protocol and System Network Architecture [SNA], IBM's proprietary networking architecture, although Web services are now being explored.) By logging in the next day, the dealer can find out if the changes were received in time and accepted. This allows the dealers to more closely customize orders to actual customer demand.

Using business intelligence tools from Hyperion Solutions, Toyota tracks the status of the more than 35,000 vehicles that may be in transit from ports or plants to dealerships, constantly looking for the most cost-effective transportation routes based on changing circumstances.

While no exact figures are available, Toyota says Dealer Daily saves the company and its dealers tens of millions of dollars. Toyota also surveyed 3,000 of its dealership employees and found that the average person who had been using the text-based system saved 1.8 hours per day by using Dealer Daily.

A Car Every 20 Hours

In the world of lean manufacturing, the real magic takes place on the factory floor in Georgetown, a city of about 20,000 located 13 miles north of Lexington, Ky. Toyota's thrust into the land of the Big Three automakers sits off Cherry Blossom Way, just a few miles past a Wal-Mart, McDonald's and Applebee's.

One of the first things that strike you about the plant is how open, bright and airy it feels. There are no floor-to-ceiling shelves stocked with parts for the assembly line, but there is a constant buzz of vehicles and self-guided robotic carts shifting parts directly from loading docks or staging areas to the line. Little musical jingles are heard everywhere—they all seem to sound the same to visitors, but assembly line workers can tell just by the jingle if there's a problem at their workstation and what might be the cause.

One of the key ways Toyota transformed the world of automotive manufacturing, says the University of Michigan's Liker, is by introducing the concept of one-piece flow—a production technique competitors are still struggling to adopt.

In Henry Ford's world of mass production, processes are designed to produce components or parts in large quantities. In other words, bolts, gears, transmissions or seats are made in large quantities and pushed to the next stage of production, where they sit in inventory until needed. Mass production has significant benefits, as Ford proved. It can greatly lower the cost of producing individual parts or pieces, and workers become extremely proficient in a certain trade or skill.

But it also has its drawbacks. The first is the need to store and constantly shift inventory. The second is waste. If consumer demand suddenly shifts and there is no longer a demand for a certain vehicle or option, there may be thousands of units in the supply chain that are no longer needed. Also, if a part or component has a defect, that defect may not be discovered until some later point in production or after delivery, at which time thousands of units may have been produced.

The Georgetown facility was designed from the ground up to produce vehicles in a continuous flow. Once the body frame comes out of welding, it is loaded onto the overhead conveyor system to begin its journey through the plant. Each job on the assembly line is designed to be completed in exactly 55 seconds, the amount of time before the conveyor moves the vehicle to the next stage of the line. At one station, a worker sits on a floating chair that moves inside the car frame, allowing him to stuff in insulation, then moves him out again to wait for the next vehicle. At another station, the entire engine is lifted up into the car chassis and bolted into place by two workers who hardly break a sweat.

Everywhere in the facility, parts arrive from loading docks or staging areas, just-in-time to be installed in the exact car they have been configured for, from a red spoiler to power windows. Perhaps the most remarkable example of just-in-time, however, is the seat installation area. Here, seats arrive from a nearby Johnson Controls plant every four hours, in exactly the right sequence and format to match the car on the assembly line—be it beige leather bucket seats, or a fabric three-seater bench.

Coordinating this incredibly complex scheduling ballet is software, proprietarily developed by Toyota, which it refers to as its Assembly Line Control System (ALCS). The software went through a major redevelopment about five years ago, and was ported from a mainframe to a client/server system. Marshall says the reason for the refresh was to make the software more flexible so that it could run at a global-scale plant like Georgetown, or at a smaller-scale plant like the one it operates in Thailand. Georgetown now uses a combination of Hewlett-Packard and Windows 2000 servers to host the application. The software essentially controls the sequencing of parts with the assembly process, ensuring that the exact components, such as black leather seats or power windows, meet up with exactly the right vehicle on the line.

Another major piece of software in use on the factory floor is a monitoring system from Activplant, based in London, Ontario. The software, called Activplant Performance Management System, essentially monitors all of the various machines, robots and computerized devices on the factory floor, keeping track of things such as malfunctions, uptime and reliability. The software collects information via programmable logic controller (PLC) devices, essentially small computers used to program and control factory machines and robots.

The Activplant system can tell Toyota, for example, who the operator of the equipment was at the time it broke down, what the conditions were, speed of operation, temperature and the downstream effects on the assembly line. The advantage, according to Marshall, is that it provides Toyota with live data so the automaker can act faster to prevent assembly line disruptions, and drill down to investigate causes and effects. In terms of business process management, it can provide Toyota with key insights into factors such as which equipment tends to cause the greatest disruption to the assembly line, so it can prioritize new capital investments.

The most time-intensive part of the vehicle assembly process—almost half of the total—is spent in the paint shop. Until recently, this was one area where Toyota was stymied in its attempts to maximize business processes and achieve one-process flow. That's because it had been difficult to paint a white or red car after a black car. Every last drop of black paint had to be removed from the tubes of the paint-spraying robots with solvents. For that reason, Toyota had to paint vehicles in batches—the mass production way, and contrary to the tenets of TPS.

But where other manufacturers might have accepted painting in batches as a fact that could not be altered, Toyota did not. TPS required that it constantly look for ways to overcome Muda. Toyota formed a partnership with ABB Automation Technologies, a Zurich-based maker of manufacturing robots, to pioneer a painting system that uses swappable cartridges. In 1999, it began installing the technology in its plants worldwide.

Now, when a car enters the paint shop, the ALCS tells the painting robot the exact color required; the robot grabs a red cartridge for a red car, or a blue cartridge for a car to be painted blue. Cleaning with solvents is no longer necessary. Toyota estimates the process saves about $29 per vehicle, and takes 2.1 hours off the time needed to produce a vehicle. At Georgetown, it was able to mothball one of three painting booths because of the more efficient process.

Culture Cure

As Convis notes, achieving business process management success in the vein of the Toyota Production System requires cultural change within a company. At Toyota, that is achieved by leading through example.

Marshall recalls a situation when the information services department was responsible for a serious disruption in operations on the plant floor. There was a breakdown in the kanban system, a method of issuing a parts order that is a component of Toyota's "pull" just-in-time inventory system. At one time, parts were pulled using kanban cards—actual cards that were sent to inventory staging areas or faxed to suppliers—but now such pull signals are delivered through various forms of electronic messaging such as eXtensible Markup Language (XML)-based technologies.

When the problem was detected on a Monday morning, team leaders met in a war room, essentially a conference room, to map out exactly what had happened, the various systems involved and the likely cause. In the end, it was determined that a large database that was supposed to have been backed up over the weekend, wasn't. The individual responsible ran the backup, but didn't check to ensure it was completed. Determining the cause might have taken longer, but the individual stepped up and admitted not having checked that the backup had run properly.

Marshall says at other companies, a worker might have been afraid to step forward—shutting down the assembly line is a serious error—but Toyota strives to make sure that workers will not be punished for bringing errors, defects or problems to the surface. As a result, Marshall says the department put more countermeasures in place—the technology version of PokaYokes—to ensure the database backup is run and checked properly.

"Everybody feels bad when you impact the business. But we don't talk about appointing blame or whose fault it is here," Marshall says. "If people think there are going to be consequences when they uncover a problem and pull the Andon cord [a cord that stops production on the assembly line], they won't pull it, and we won't uncover the problem."

It's a philosophy that could serve Toyota well in the years to come.

Roadblock Ahead

Despite its success, Toyota is not immune to some of the problems that plague other auto manufacturers. Auto recall filings in Japan surged to a record in 2004 and were only slightly lower in 2005. Toyota itself has been stung in recent months by a string of embarrassing recalls and a police investigation in Japan that could have deep repercussions.

A Japanese police investigation in July found that Toyota had continued using a steering mechanism in its Hilux Surf vehicle without testing its safety, even though the vehicle was remodeled, placing extra weight on the vehicle's front wheels. Police believe this led to a series of breakdowns, and is suspected in a head-on crash that injured five people.

The investigation, which led the Japanese transportation ministry to issue a "guidance" order requiring Toyota to report steps it is taking to better monitor defects, comes at a time when the company has issued a record number of recalls. In July alone, it issued recalls for 420,000 vehicles globally over faulty engine parts, as well as recalls for 370,000 Toyota Highlander and Lexus SUVs over a defective clip that could cause a console panel to fall, and for 160,000 Tundra pickups to remove a passenger-side airbag shut-off switch. In one month, it issued recalls for almost as many vehicles as it did for all of 2004.

Toyota officials have openly acknowledged that the company's rapid growth, and its increasing reliance on plants around the globe, has strained its ability to maintain a gold-standard quality record. At a news conference in July, Toyota president Katsuaki Watanabe bowed deeply and apologized for the recall troubles.

"I take this seriously and see it as a crisis," Watanabe said at the conference. "I want to apologize deeply for the troubles we have caused."

Toyota may be going through a rough patch, but industry experts say the recall issue has to be viewed in context. Toyota's quality record is still tops in the business; in June, Toyota and Lexus captured 11 of 19 initial-quality awards handed out by industry watchdog J.D. Power & Associates. They just happen to be in the glare of the spotlight.

"They're the guys wearing the yellow jersey, so everyone's watching them," says James Womack, chairman of the Lean Enterprise Institute, a Cambridge, Mass., non-profit think tank dedicated to expanding the principles of lean manufacturing.

Womack believes Toyota officials are losing a lot of sleep over the recall issue and will redouble their efforts to have all employees follow the tenets of TPS. "I've been watching these guys for a long time, and they worry more than any group of people I've ever seen," he says.

"You can bet they're poring over their business processes to look for weaknesses. I'd also be willing to place a pretty high bet that Toyota will be able to come up with answers."

Toyota Motor: Base Case

Headquarters: 1 Toyota-Cho, Toyota City, ACH 471-8571, Japan
Phone: (81) 565-282121
Business: The second-largest automotive manufacturer in the
world by unit output, and largest by market capitalization and
Chairman: Fujio Cho
Chairman, Toyota Motor Manufacturing Kentucky: Gary Convis
Financials in 2005: $180 billion in revenue; $12 billion in profit;
profit margin 19%.
Challenges: Continue global expansion without sacrificing quality
or principles of the Toyota Production System.


  • Unseat General Motors as the world's largest automaker by increasing global production capacity from 8.2 million vehicles in 2005 to 10 million by 2010.
  • Reduce defects and recalls, which hit more than 2 million through July 2006, back to annual norms of less than 1 million.
  • Reduce the time it takes to assemble parts and manufacture a vehicle from 31 hours in 2001 to 28 hours by 2007.
  • Increase global production of hybrid vehicles from about 300,000 in 2006 to 1 million by 2010.