@ Supply Chain Management

In a short span of ten minutes, I came across three different articles on Toyota, one more than 5 years old (How Toyota turns workers into problem solvers) and the other two quite recent. The first article is from WSJ (Wall Street Journal) As rivals catch up, Toyota CEO spurs big efficiency drive (Only preview is available except to subscribers).
The central points of the article are summarized below:

• Katsuaki Watanabe, Toyota’s CEO, thinks Toyota is losing its competitive edge as it expands around the world.
• He frets that quality, the foundation of its U.S. success, is slipping.
• He grouses that Toyota’s factories and engineering practices aren’t efficient enough.
• Within the company, he has even questioned a core tenet of Toyota’s corporate culture — kaizen, the relentless focus on incremental improvement.
• Mr. Watanabe wants kakushin, or revolutionary change in how Toyota designs cars and factories.
• He is pushing Toyota to reduce the number of components it uses in a typical vehicle by half — a radical idea that would usher in a new chapter in car design.
• He also wants to create new fast and flexible plants to assemble these simplified cars.

In short, what Toyota’s chief has outlined is revolutionary change and its something that leaders in an industrial segment have to engage in in order to become a moving target for its competitors. Furthermore, the areas of change has also been identified by the chief himself (or in other words, this is not a figrure that someone pulls out of the sky) and they focus on Toyota’s core activities – car desig, flexible manufacturing and plants, engineering practices and Kaizen i.e. its continuous improvement culture.
Will it work or will it fail? Who really knows? However, what you cannot do is think that this is hocus pocus? That it certainly is not. When you have a management that is focused on long term competitive advantage, is cognizant of the challenges ahead and is well nigh paranoid about their relative competitiveness vis a vis their competitors, that is the kind of mission that might very well be put out i.e. seeking long term competitive advantage by focusing on how to build on their core competencies. What you don’t see is announcements along the line of laying off workers, closing down plants and the like – these might very well be needed but they cannot be the method to competitive success.
So how does this translate into financial goals? You might very well be astounded if they can even get half of these aims:

Cut at least a trillion yen ($8.68 billion) in vehicle costs in the next three to four years — the equivalent of about $1,000 a vehicle — and keep slashing costs at similar rates thereafter. That is on top of one trillion yen Toyota squeezed out of its parts purchasing from 2000 through 2004, an effort led by Mr. Watanabe in an earlier role.

Now, that is in tandem with what Toyota announced last week for cars that are to be sold in the US in 2007 as reported here.

The price adjustment for the seven models reflects an average MSRP increase of $136, or 0.7 percent. Toyota models, and their average MSRP increase, include: the Yaris subcompact sedan and hatchback, $100 or 0.8 percent; the Corolla compact sedan, $100 or 0.6 percent; the FJ Cruiser sport utility vehicle (SUV), $200 or 0.9 percent; the Matrix crossover utility vehicle, $150 or 0.9 percent; the Camry mid-size sedan (excluding the hybrid version), $200 or 0.9 percent; the RAV4 compact SUV, $100 or 0.4 percent; and the Tacoma pickup truck, $100 or 0.5 percent.

So, Toyota is not only raising prices but aiming to cut production costs per car by as much as $1000. This method of operating was recounted some time ago here: The blind spot in cost calculation. What’s surprising (or not really surprising) is that they actually operate along those lines.

In the next post, I will take a look into a HBS Working Knowledge – How Toyota turns workers into problem solvers and how one can adopt these techniques into one’s own workplace.

Tags: Lean, Toyota, Katsuaki Watanabe, kakushin, kaizen, Competitive Advantage, Slashing costs