1.0 COMPANY BACKGROUND

Company name : Toyota Jidosha KK

Type : Public (K.K.)

Industry : Automotive

Founded : August 28, 1937 (78 years ago)

Founder : Kiichiro Toyoda

Headquarters : Toyota, Aichi, Japan

Products : Automobiles, luxury vehicles, commercial vehicles, engines

Production output : Increase 9,909,440 units (Year 2012)

Toyota Motor Corporation is a Japanese automotive manufacturer headquartered in

Toyota, Aichi, Japan. In March 2014 the multinational corporation consisted of 338,875

employees worldwide and, as of November 2014, is the eleventh-largest company in the

world by revenue. Toyota was the largest automobile manufacturer in 2012 in terms of

production, ahead of the Volkswagen Group and General Motors. According to Flynn (2012),

in July of that year, the company reported the production of its 200-millionth vehicle.

Toyota is the world's first automobile manufacturer to produce more than 10 million

vehicles per year. It did so in 2012 according to OICA, and in 2013 according to company

data. As of July 2014, Toyota was the largest listed company in Japan by market

capitalization, worth more than twice as much as 2nd ranked Softbank by revenue. Toyota

Motor Corporation produces vehicles under 5 brands, including the Toyota brand, Hino,

Lexus, Ranz, and Scion. In 2008, Toyota's sales surpassed General Motors, making Toyota

number one in the world (Strott, 2009).

1.1 History

The company was founded by Kiichiro Toyoda in 1937 as a spinoff from his father's

company Toyota Industries to create automobiles. Three years earlier, in 1934, while still a

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department of Toyota Industries, it created its first product, the Type A engine, and, in 1936,

its first passenger car, the Toyota AA.

In 1924, Sakichi Toyoda invented the Toyoda Model G Automatic Loom. The

principle of jidoka, which means the machine stops itself when a problem occurs, became

later a part of the Toyota Production System. Looms were built on a small production line. In

1929, the patent for the automatic loom was sold to a British company, generating the starting

capital for the automobile development. Vehicles were originally sold under the name

"Toyoda" (トヨダ ), from the family name of the company's founder, Kiichiro Toyoda. In

April 1936, Toyoda's first passenger car, the Model AA, was completed. The sales price was

3,350 yen, 400 yen cheaper than Ford or GM cars.

Toyota received its first Japanese Quality Control Award at the start of the 1980s and

began participating in a wide variety of motorsports. Due to the 1973 oil crisis, consumers in

the lucrative US market began turning to small cars with better fuel economy. American car

manufacturers had considered small economy cars to be an entry-level product, and their

small vehicles employed a low level of quality to keep the price low.

In 1982, the Toyota Motor Company and Toyota Motor Sales merged into one

company, the Toyota Motor Corporation. In the 1990s, Toyota began to branch out from

producing mostly compact cars by adding many larger and more luxurious vehicles to its

lineup, including a full-sized pickup, the T100 (and later the Tundra); several lines of SUVs;

a sport version of the Camry, known as the Camry Solara; and the Scion brand, a group of

several affordable, yet sporty, automobiles targeted specifically to young adults. Toyota also

began production of the world's best-selling hybrid car, the Prius, in 1997.

However, in 2011, Toyota, along with large parts of the Japanese automotive industry,

suffered from a series of natural disasters. The 2011 Tohoku earthquake and tsunami led to a

severe disruption of the supplier base and a drop in production and exports. Severe flooding

during the 2011 monsoon season in Thailand affected Japanese automakers that had chosen

Thailand as a production base. Toyota is estimated to have lost production of 150,000 units to

the tsunami and production of 240,000 units to the floods.

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Toyota was also involved with several recalls over the past few years. From

November 2009 through 2010, Toyota recalled more than 9 million cars and trucks

worldwide in several recall campaigns, and briefly halted production and sales. Toyota

initiated the recalls, the first two with the assistance of the U.S. National Highway Traffic

Safety Administration (NHTSA), after reports that several vehicles experienced unintended

acceleration.

In October 2012, Toyota announced a recall of 7.43 million vehicles worldwide to fix

malfunctioning power window switches, the largest recall since that of Ford Motor Company

in 1996. The move came after a series of recalls between 2009 and 2011 in which it pulled

back around 10 million cars amidst claims of faulty mechanics. In March 2014, Toyota

agreed to pay a fine of US$1.2 billion for concealing information and misleading the public

about the safety issues behind the recalls on Toyota and Lexus vehicles affected by

unintended acceleration.

1.2 Main Activities

Toyota has long been recognized as an industry leader in manufacturing and

production. The main business activities of Toyota were not confined only to automobile, but

a vast array of different activities and businesses.

a. Material Handling Equipment

The Materials Handling Equipment Segment develops, produces, sells and provides services

for a broad range of products, from industrial vehicles centered around a full line-up of lift

trucks (0.5- to 43-ton capacities) to materials handling systems. Lift trucks, a mainstay

product of this segment, are delivered to customers around the world under the TOYOTA,

BT, RAYMOND and CESAB brands through Toyota Material Handling Group.

b. Automobile

From vehicle assembly to parts production, the Automobile Segment engages in a wide

variety of car-related businesses. Leveraging synergies among its business divisions in

development and production, the Automobile Segment accounts for 54.3% of consolidated

net sales and represents the largest business segment of Toyota Industries. With its strengths

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as an industry leader in quality, cost and delivery, the Vehicle Business produces compact to

midsize automobiles. This includes engines for both electric and bio-fuel.

c. Logistics

The Logistics Segment is composed of three business pillars: planning, design and operation

of distribution centers; land transportation services; and high value-added services such as

cash collection and delivery and cash proceeds management services and data storage and

management services.

d. Textile Machinery

With a history dating back to the invention of an automatic loom by Toyota Industries

founder Sakichi Toyoda, the Textile Machinery Business is a world leader in the textile

industry backed by an integrated structure that encompasses development, production, sales

and service of weaving and spinning machines.

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2.0 INDUSTRY ANALYSIS

Toyota Motor Corporation is a Japanese company founded in 1937, which engages in

the design, manufacturing, assembly and sale of passenger cars, minivans, commercial

vehicles, and related parts and accessories primarily in Japan, North America, Europe, and

Asia. Current brands include Toyota, Lexus, Daihatsu and Hino. Toyota Motor Corporation is

the leading auto manufacturer and the eighth largest company in the world. Toyota Motor

Corporation competes in the automotive industry as for the past five years were tumultuous

for automobile manufactures. During periods of high fuel prices, more fuel-efficient vehicles

are in demand. Over the past five years, the price of fuel has been rising, which has

encouraged the adoption of hybrid and other fuel-efficient models. For example, Japanese

carmakers such as Toyota offering more fuel-efficient vehicles took market share from

manufacturers of large vehicles throughout the latter half of the past decade. Last, product

innovation can spur demand, especially with regard to more fuel- efficient vehicles such as

hybrids and electric models. The more fuel-efficient a model is, the more likely a consumer

will be willing to invest up front in a new car for potential savings on fuel costs down the

road.

2.1 Tools Used To Describe the Industry

The practical expression of Toyota's people and customer-oriented philosophy is

known as the Toyota Production System (TPS). This is not a rigid company-imposed

procedure but a set of principles that have been proven in day-to-day practice over many

years. Many of these ideas have been adopted and imitated all over the world.

TPS has three desired outcomes:

To provide the customer with the highest quality vehicles, at lowest possible cost, in a

timely manner with the shortest possible lead times.

To provide members with work satisfaction, job security and fair treatment.

It gives the company flexibility to respond to the market, achieve profit through cost

reduction activities and long-term prosperity.

TPS strives for the absolute elimination of waste, overburden and unevenness in all areas to

allow members to work smoothly and efficiently. The foundations of TPS are built on

standardization to ensure a safe method of operation and a consistent approach to quality.

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Toyota members seek to continually improve their standard processes and procedures in

order to ensure maximum quality, improve efficiency and eliminate waste.

a. Lean Manufacturing

Lean manufacturing is a management philosophy derived mostly from the Toyota Production

System (TPS). Toyota is renowned for its focus on reduction of the original Toyota seven

wastes to improve overall customer value, but there are varying perspectives on how this is

best achieved. The steady growth of Toyota from a small company to the world’s largest

automaker has focus attention on how it has achieved this success. The second approach to

lean manufacturing, which is promoted by Toyota, called The Toyota Way, in which the

focus is upon improving the "flow" or smoothness of work, thereby steadily eliminating mura

("unevenness") through the system and not upon 'waste reduction' per se. Techniques to

improve flow include production leveling, "pull" production (by means of kanban) and the

Heijunka box. This is a fundamentally different approach from most improvement

methodologies, and requires considerably more persistence than basic application of the

tools, which may partially account for its lack of popularity.

Diagram 1: Lean Manufacturing

b. Kaizen - Continuous Improvement

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Kaizen is the heart of the Toyota Production System. Like all mass-production systems, the

Toyota process requires that all tasks, both human and mechanical, be very precisely defined

and standardized to ensure maximum quality, eliminate waste and improve efficiency. Toyota

Members have a responsibility not only to follow closely these standardized work guidelines

but also to seek their continual improvement. This is simply common sense - since it is clear

that inherent inefficiencies or problems in any procedure will always be most apparent to

those closest to the process. The day-to-day improvements that Members and their team

leaders make to their working practices and equipment are known as kaizen. But the term

also has a wider meeting: it means a continual striving for improvement in every sphere of

the Company's activities - from the most basic manufacturing process to serving the customer

and the wider community beyond.

c. Just in Time

It is perhaps not widely known that the 'just in time' approach to production that has now

gained almost universal acceptance in world manufacturing was actually pioneered by

Toyota. In fact, a Toyota engineer coined the term itself. This, too, is a simple but inspired

application of common sense. Essentially, 'just in time' manufacturing consists of allowing

the entire production process to be regulated by the natural laws of supply and demand.

Customer demand stimulates production of a vehicle. In turn the production of the vehicle

stimulates production and delivery of the necessary parts and so on. The result is that the

right parts and materials are manufactured and provided in the exact amount needed - and

when and where they are needed. Under 'just in time' the ultimate arbiter is always the

customer. This is because activity in the system only occurs in response to customer orders.

Production is 'pulled' by the customer rather than being 'pushed' by the needs or capabilities

of the production system itself.

The linkage between customer demand and production is made by analysing take time, a

device for measuring the pace of sales in the market in relation to the capacity of a

manufacturing plant. Toyota never tries to accommodate changes in demand by making

substantial changes in individuals' workloads. Assigning more members to a line means that

each handles a narrower range of work. Assigning fewer means that each handles a broader

range.

2.2 Key Competitor

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Diagram 2: Major competitors for Toyota

Ford is an American multinational company. Their head office is located in

Dearborn, Michigan. (USA). Incorporated on June 16, 1903. Their major products are Ford

Fiesta, Ford Mustang, Ford Explorer and Ford Mondeo. Volkswagen is a German

Multinational Co. Their head office located at Wolfsburg, Germany. Incorporated in year

1937. Their major products are Passat, Jetta, and Taureg. General Motors is an American

Automobile Co. Their head office located at Detroit, Michigan (USA). Incorporated in 1908.

Their popular brands are Chevrolet and Holden. Major products that produced by them are

Aveo, Optra and Commbador.

2.3 Competitor’s Profile

a. Ford

Henry Ford invented Ford in year 1903. The company started making the Model-T in 1903

and it started in Dearborn, Michigan. Ford Motor Company manufactures cars as well as

tractors, trucks, and school. The company’s core and affiliated automotive brands include

Aston Martin, Ford, Jaguar, Land Rover, Lincoln, Mazda, Mercury and Volvo. Their

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company logo is “built Ford tough” and slogan “Have you driven a Ford lately if not, think

again”.

b. Volkswagen

Volkswagen was founded by Nazi Deutsche Arbeitsfront and established on 28 th May, 1937.

The company is located in Wolfsburg, Germany. Their company slogan is “Das Auto” which

means “The car”. Its production in 62 plants across 21 countries and sales in 153 countries

with the net revenue of euro 126.9 billon.

c. General Motors

General Motors is one of the world’s largest car and truck manufactures, founded in 1908 as

a Holding Company for McLaughlin and Buick Stocks and allied in 1919 in Flint, Michigan.

The GM automotive brands today are Vauxhall, Buick, Cadillac, Chevrolet, GMC, Holden,

Opel, and Wuling. Former GM automotive brands include McLaughlin, Oakland,

Oldsmobile, Pontiac, Hummer, Saab, and Saturn.

2.4 Competitor’s Competitive Offering

a. Ford

Ford has cost advantages and competitive advantages. Ford offer low production cost,

because they cut down of huge expenditure on raw materials with the online manufacturing

process. Ford offer different product such as production of smart cars with fuel efficiency

with centralized decision making system.

b. Volkswagen

VW has an iconic brand portfolio by giving customers ample choice. They also have self-

substitutes because brands compete amongst themselves. VW also has technological

leadership and innovative designs and concept cars to satisfy tomorrow’s needs.

c. General Motors

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General Motors has a strong brand portfolio with its strong vision and strategy that allows

them to does more than just autos. General Motors also happen to be a leader in innovation as

they continuously improve their products. Other than that, General Motors also lack of capital

constraints.

2.5 Competitors’ Strategies

a. Ford

Ford implemented the centralized decision making system. This allowed the company to

concentrate on the available market opportunities both locally and internationally. With the

implementation of centralized decision making system, the top management becomes more

engaged in the development of products to satisfy the customer expectation in various

markets (porter, 1986). This strategy allowed the company to improve the communication

system from top to bottom.

Ford motors adopted the strategy that allowed it low production cost by cutting all the

excessive cost involved in these operations. The huge expenditure on raw materials was cut

down and the online manufacturing process was introduced that focus on the development of

cars on one process rather than having different segments of engineering and production.

These strategies was established cost advantage and give the company advantage over its

competitors in terms of lower cost (porter, 1983), in the mean while company focused on

producing smart cars that were not price sensitive and offered the functionality of traditional

ford cars.

b. Volkswagen

Volkswagen Group has an attractive product portfolio and it is made up of twelve successful

brands that excite millions of customer worldwide year in and year out. In year 2014, they

manage to reinforce the distinct and individual image of each brand and optimized their

marketing positioning. The strategy used by Volkswagen is brand diversity. This brand

profile, which creates trust in their customers, is the reason the Volkswagen brand is the first

choice for millions of customers when buying a car. Global brand management focuses on

the wishes and preferences of customers, today and in the future. They are the starting point

for developing innovations that are driven by demand, while remaining affordable. Based on

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this, the Volkswagen brand aims to become the most innovative volume manufacturer with

the best quality in each class in the medium to long term.

c. General Motors

General Motors implemented lead in product and technology as well as delivering core

operating efficiencies. In year 2015, it was said that about 27% of GM’s global sales volume

is expected to come from products new or refreshed within 18 months and that figure is

expected to rise in the near future. GM developed an innovative Mixed Material Body

Structure that uses GM-patented welding technology and a combination of steel and

aluminium stampings, castings and extrusions to deliver designs that are lightweight, use

20 percent fewer parts, have class-leading torsional stiffness and exhibit superior noise and

vibration characteristics. As for delivering core operating efficiencies, GM try to improve

their relationships with suppliers, derive more global volume from fewer vehicle architectures

and lower enterprise costs for material and logistics is expected to deliver significantly better

variable margins on upcoming high-volume product launches.

2.6 Competitors’ Future Strategies and Goals

a. Ford

When talks about future strategies, Ford has come out with three tools to stimulate future

thinking which are wild-card analysis, spending time thinking of global consumer trends and

scenario planning. Wild-card analysis means looking at things that have a low probability of

occurring because if they do happen, they have a high probability of changing human

conditions. Secondly, by thinking of global consumer trends, Ford will study about lens of

society, technology, economics, environment and politics. Lastly, scenario planning is where

all the trends add with some other qualities and scenario, and then Ford can produce

something better. Ford’s future goals are to design and manufacture vehicles with safety

excellence focused on real world safety and offer innovative safety and driver assist

technologies. Ford also wants to play a leadership role in vehicle safety and driver assist

research and innovation. Other than that, Ford also targeting to reduce waste sent to landfill

by 40 percent on a per-vehicle basis from 2011 to 2016 globally.

b. Volkswagen

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The main goal of Volkswagen is to become the economic and ecological leader of the global

automotive industry. Volkswagen wants to gain a position of the world's leading

manufacturer by using intelligent innovations and technologies to shape customers'

satisfaction and quality. As for the sales, Volkswagen expecting their sales to exceed 10

million vehicles per year; and Volkswagen wants to rely upon development of large growth

markets. Other than that, the profitability of sales before taxation is expected to reach at least

8% thus guaranteeing financial safety and ability of the group to function in the periods of

economic downturn. Volkswagen also wishes to be an excellent employer on all markets,

among different communities and in all regions; this is the prerequisite for creation of great

teams of employees.

Volkswagen pays particular attention to the question of the environmental protection and

profitability of its vehicle-related projects so that the right products contribute to success in

challenging market conditions. Volkswagen efforts are focused on determining new

ecological criteria in such fields as: production of vehicles, aggregates and light

constructions.

Moreover, Volkswagen seeks to broaden a group of regular customers of them by acquiring

new recipients of their services worldwide. Daily activities, aimed at improving productivity

and quality are carried out without time limit, regardless of the overall economic situation.

These strategies, together with consistent cost and investment discipline, will aid in reaching

Volkswagen’s long-term objectives concerning profitability and ensuring financial solvency.

c. General Motors

General Motors’ future goals are to increase U.S market share to 33%, improve customer’s

satisfaction as evidenced by points of market share, not fractions. That is the reason why GM

spending billions in advertising and incentives in the name of marketing every year.

However, there exist far less expensive and far more productive methods of acquiring and

retaining customers, and the plan calls no capital investment and it offers the opportunity for

large reductions in marketing expense. The strategies used for General Motors are to

implement both innovative and proven marketing techniques, raise market share 1 percentage

point in each of five key areas. They also plan to remake corporate image as a leader by

acting rather than re-acting. Other than that, GM also changes their focus of advertising from

distress to aspiration.

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3.0 FIRM’S PRODUCTION AND OPERATIONS MANAGEMENT SITUATIONS

3.1 Internal Analysis of Firm’s Strength and Weakness

a. Strength

Toyota’s strengths indicate that the firm is capable of keeping its position as one of the top

auto manufacturers in the world. Toyota is considered to be the world’s largest automobile

producer. Toyota has been operating 51 manufacturing companies in 26 countries including

12 in Japan. Toyota has one of the strongest brands in the global automotive industry. The

company’s global supply chain is also a strength that enables resilience and market-based risk

minimization. Toyota possess a powerful market position by promoting innovative

production techniques that emphasize on eliminating wastes and overall improvement in the

manufacturing side has made Toyota, the true technological market leader. Furthermore,

Toyota has an organizational culture that facilitates rapid innovation, which is crucial for

long-term competitive advantage. Toyota has been known all over the world for its product’s

quality, durability and reliability. Innovation is the key success factor through massive

production in hybrid vehicles all over the world that has been increasing Toyota’s sales.

Toyota’s investment in R &D Department is the reason for the recent improvement in the

design and research centers in the whole world and the availability of production facilities is

high globally.

b. Weakness

Toyota’s weaknesses point to possible inefficiencies in the organization. Toyota’s global

hierarchical organizational structure prevents maximum flexibility of regional operations.

Also, the company’s culture of secrecy is a weakness that reduces response times in

addressing emerging problems. In addition, Toyota implemented massive product recalls

starting in 2009. These recalls weaken the firm because the recall processes consume

business capacity that could be used for product distribution instead. Because of this, Toyota

is often being criticized as the foreign importer.

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3.2 The Industry’s Strength and Weakness (Automobile Industry)

a. Strength

Automobiles represent freedom and economic growth. Automobiles allow people to live,

work and travel in ways that were unimaginable a century ago. Automobiles provide access

to markets, to jobs. Nearly every automobile trip ends with either an economic transaction or

some other benefit to the quality of life. Intense competition in the matured/developed

markets has forced automobile manufacturers to target developing economies. But these

developing economies have high demand for VFM products (value for money). In the

automobile industry, VFM products would be fuel efficient, high mileage vehicles because

majority of customers in these nations prefer vehicles for commuting. On the other hand,

developed nations need is of vehicles for interstate travelling and high speed vehicles suitable

for long route with high engine power.

b. Weakness

Controversies relating to recalling vehicles on account of some technical dis-functionality or

non-abidance cars are very common in the industry. Over the last 3-4 decades the automobile

market has shifted from demand to supply market. Availability of large number of variants,

Stiff competition between them, and long list of alternatives to choose from has given power

to customers to choose whatever they like.

3.3 Toyota’s Strength and Weakness against the Industry’s Strength and Weakness

Strength Weakness

Toyota

1. Strong brand image.2. Global supply chain.3. Rapid innovation capabilities.

1. Hierarchical organizational structure.

2. Secrecy in organizational culture.

3. Effects of product recalls in recent years.

Automobile Industry

1. Evolving industry.2. Continuous product innovation

& technological advancement.3. Increasing demand of VFM

vehicles.

1. Cars recalled2. Bargaining power of consumers.

Table 1: The comparison of strength and weakness the automobile industry

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3.4 The Advantage and Disadvantage of Toyota against Automobile Industry

Toyota has a strong brand image, with this advantage, Toyota can expand their market

to countries like Brazil, India, China that is not been explored by Toyota can be a profitable

advantage for the organization to make large investments. Toyota emphasis on R&D

development, Toyota can produce more cars that are more fuel efficient and is less harmful to

the environment. The disadvantage of Toyota is as Toyota basically originates in Japan so

with a continuous appreciation of Yen can create difficulties while exporting cars in other

countries. Because of the automobile industry has a strong bargaining power of consumers,

Toyota has severe competition against rivals. Because of severe rivals in the automobile

industry, many car manufacturers who sell cars in cheaper rate has forced Toyota to put it

prices down which can be a risk to its organization’s financial position. Toyota faces the

threat of competition with low-cost automobiles from Korean, Chinese and Indian

manufacturers, which have been increasing their presence in foreign markets. Toyota also

experiences the threat of rapid innovation of competitors like GM, Honda, and Ford.

3.5 Current Production, Operations and Supply Chain Problems

3.5.1 Production

The Toyota Production System (TPS) is an integrated socio-technical system,

developed by Toyota, which comprises its management philosophy and practices. The TPS

organizes manufacturing and logistics for the automobile manufacturer, including interaction

with suppliers and customers. Kaizen is the heart of the Toyota Production System. Like all

mass-production systems, the Toyota process requires that all tasks, both human and

mechanical, be very precisely defined and standardized to ensure maximum quality, eliminate

waste and improve efficiency. Toyota Members have a responsibility not only to follow

closely these standardized work guidelines but also to seek their continual improvement. This

is simply common sense - since it is clear that inherent inefficiencies or problems in any

procedure will always be most apparent to those closest to the process. The day-to-day

improvements that Members and their Team Leaders make to their working practices and

equipment are known as kaizen. But the term also has a wider meeting: it means a continual

striving for improvement in every sphere of the Company's activities - from the most basic

manufacturing process to serving the customer and the wider community beyond.

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3.5.2 Operation

Toyota Motor Corporation has long been recognized as one of the leading companies

in the automobile manufacturing industry (Womack et al, 1990). Lynch (2009) states that

Toyota Motor Corporation's rapid rise to success can be pinned down to its operations and

marketing strategies. Its management philosophy has evolved right from the time of its origin

and has been reflected in the way in which the organization operates. Some of the key

features of the organization's operations have involved Lean Manufacturing techniques, as

well as the Just in Time supply chain management processes, which the organization was

very instrumental in developing. Toyota Motor Corporation (2010) states that Toyota's

production system is fully immersed in the philosophy of the complete elimination of all

waste in every aspect of production, in the pursuit of the most efficient methods to be used by

the organization. The company's vehicle manufacturing process, which is often referred to as

the Toyota productions system (a combination of Lean Manufacturing System and Just in

Time system), has been built over several years of continuous improvements as a way of

manufacturing and delivering the kind of cars demanded by customers in the quickest and

most efficient way. Toyota is facing major quality problems and recalls. At that time, some

critics of Toyota pointed to the Toyota Way or lean manufacturing principles as causes of the

problem. In other words, being too lean caused Toyota to somehow create a defective product

design or to miss or ignore the problem.

3.5.3 Supply Chain Management

Supply-chain management at Toyota is an element of company’s operations strategy

which is thoroughly based on the Toyota Production System (TPS). It was developed in the

1940’s by Shigeo Shingo and Taiichi Ohno. As Toyota’s success gained world-wide

coverage, at was followed by interest by other companies in TPS, the principles of which is

expressed by the term of “lean manufacturing” Liker (2005, p.16) lists following components

of Toyota Supplier Partnering Hierarchy: mutual understanding and trust, interlocking

structures, control systems, compatible capabilities, information sharing, joint improvement

activities, and Kaizen and learning. The quality problems and recalls were mounting, the

majority of those problems almost certainly originated not in Toyota's own factories but in

those of its suppliers. The automotive industry operates as a complex web. The carmakers

(known as original equipment manufacturer or OEMs) sit at its center. Fanning out from

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these are the tier-two suppliers who provide individual parts or assembled components either

directly to the OEM or to a tier-one supplier. Toyota has identified as one of the causes of

“unintended acceleration” in some of its vehicles, is a tier-two supplier whose automotive

business accounts for about a third of its sales. On the outer ring of the web are the tier-three

suppliers who often make just a single component for several tier-two suppliers. Although

there are thousands of tier-two and tier-three suppliers around the world, their numbers have

been culled over the past decade as the OEMs and the tier-ones have worked to consolidate

their supply chains by concentrating business with a smaller number of stronger companies.

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4.0 STRATEGY ANALYSIS

4.1 Evaluation of Current Position and Selection of Strategic Options

The current situation has to be analysed and assessed in order to formulate a new

strategy. SWOT analysis shows Toyota’s current position, as shown in Table 1.

4. Management skills5. Innovation processes6. Product quality

1. Products not highly differentiated2. High fixed costs

3. New markets exploration

1. Market dominance2. Economies of scale3. Core strengths

Opportunity

Strengths

Threats

Weaknesses

1. Economic cycle downturn2. Increased pressure from competitors

1. New product development2. Market penetration

Table 1: SWOT Analysis, Source: Pearce II et. al. (2007)

As seen from SWOT analysis, Toyota faces very serious threats from the external

environment but it has good internal strengths. By using this information to plot a Pearce’s

SWOT Analysis Matrix, Toyota would be in Cell 2, which it supports a diversification

strategy, as shown in Table 2.

Critical Substantialinternal internalweaknesses strengths

Numerous environmental opportunities

Major environmental threats

Cell 3 Cell 1

Cell 4 Cell 2 ToyotaSupports a turnaround-oriented strategy Supports an aggressive strategy

Supports a defensive strategy Supports a diversification strategy

Table 2: SWOT Analysis Matrix, Source: Pearce II et. al. (2007)

To draw more strategic options and to test the suitability of the diversification strategy

for Toyota, the Grand Strategy Matrix is used. As the market growth is slow in the

automobile industry and Toyota has a strong competitive position, therefore Toyota is placed

in Quadrant 4. As shown in Table 3, diversification or a joint venture could be a good

strategy for Toyota.

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Weak Strongcompetitive competitiveposition position

4. Conglomerate diversification5. Divesture6. Liquidation

1. Concentric diversification2. Horizontal diversification3. Conglomerate diversification4. Joint venture

6. Horizontal integration7. Concentric diversification

1. Retrenchment2. Concentric diversification3. Horizontal diversification

2. Market penetration3. Product development4. Forward integration5. Backward integration

Rapid Market Growth

Slow market growth

Quadrant 2 Quadrant 1

Quadrant 3 Quadrant 4 Toyota

1. Market development2. Market penetration3. Product development4. Horizontal integration5. Divesture6. Liquidation

1. Market development

Table 3: The Grand Strategy Matrix, Source: Glukhova (2009)

Quadrant 4 provides four options for Toyota:

1. Concentric Diversification

Toyota has already diversified its product mix, which were: SUV, MPV, minivans, sedans,

trucks and heavy machinery. Toyota has also covering other customer segment, with using

Lexus line for high income group. Toyota has taken care of the concentric diversification

strategy.

2. Conglomerate Diversification

Toyota has already diversified its business portfolio into housing, financing, communication

and other business. Toyota has also taken conglomerate diversification as an option

previously.

3. Horizontal Diversification

Horizontal diversification includes sewing machines, financial services and etc.

4. Joint Venture

The last two options offer will help to a fast increase in market share. Toyota can really

consider both options for its further growth.

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4.2 Evaluation of Strategic Options

The two suggested options which are horizontal diversification and joint venture need

to be tested on their suitability, feasibility, acceptability, consistency, business risk and

attractiveness to stakeholders. Table 4 analyses and provides conclusion that Joint Venture is

a better strategic option for Toyota.

Strategicoption Suitability Feasibility Acceptability Consistency Business risk Attractiveness

to stakeholdersNo Yes No No No NoRequire allocation Toyota has Diversification To sustain High risk, new A new directionof resources to the resources and may cause competitiveness, diversification of businessthe new business innovative Toyota lose its Toyota needs strategy may requires capitalwhich is risky in technology to competitiveness to compete on not work and and then takescurrent economic pursue a new in its core its core business allocated time to gainsituation. business. automobile rather than try resources will profits.

business due to a new business. be wasted.a lack of focus.

Yes Yes Yes Yes Yes YesFaster penetration As a market Opportunity Surrounding Low risk, joint Joint ventureinto new markets. leader, Toyota with small circumstances venture is a is a way ofIncrease in is an attractive amount of risk. are favourable revocable expandingresources and partner for a for moving into alliance and businesspower through joint venture. new growing therefore opportunitycollaboration markets. imposes low and increasewithout capital Toyota can raise business risk. business volumeinvestment, market share If not and profits.providing flexibility. when joint successful,

venture with an it can beestablished firm. separated back

without loses.

Diversification

Joint venture

Criteria for evaluation

Table 4: Evaluation of Strategic Option, Source: Glukhova (2009)

4.3 Analysis of Current Strategy and Proposed Strategy

Based on the evaluation as presented in Table 4, Joint Venture is less costly and

therefore it is a better option in current economic situation. Joint Venture is the suggested

new strategy for Toyota to ensure support from the firm’s stakeholders. Joint Venture can be

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later converted into Merger or Acquisition if it is very successful. Using McKinsey’s 7S

framework, Table 5 highlights differences between current and new strategy and actions that

need to be taken for successful implementation.

McKinsey's Present Proposed Fit/Misfit Actions to Resources7S strategy strategy be taken neededStrategy Cost leadership Cost leadership Misfit Require Financial,

through through selection, peoplewholly owned joint venture evaluationbusiness overseas and choice of

strategicpartner,follow byintegration oftwo firms

System TPS Adopted TPS Misfit Required Financial,technology people,installation technologyand stafftraining

Structure Lean Lean Fit None Noneorganization organization

Staff Highly skilled Skills and Misfit Required Financial,and knowledge training peopleknowledgeable is lower

Style Teamwork Teamwork Fit None NoneShared values

Task culture Task culture Fit None None

Skills High and Not hi-tech Misfit Required Financial,technology training peopleadvances

Table 5: McKinsey’s 7S Framework Analysis, Source: Lynch (2006)

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5.0 RECOMMENDATION

In general perspective, in order for Toyota’s to grow within this dynamic and highly

competitive company, Toyota should have instead joint venture with other Chinese

automobile manufacturers. Nowadays, the fast growing market in China is an attractive

opportunity. Toyota needs to choose an established China domestic partner to introduce its

products to the mass market. Japanese technology is more sophisticated than China and

therefore would require training and the upgrading of employees’ skills and knowledge as

well as introduction of technologies and training on its usage.

5.1 Flow of Implementation

Toyota should first review the firm’s business and corporate strategies to determine

synergy with the objectives of a joint venture. In this process, managers can apply a range of

strategy methodologies such as SWOT Porter’s Five Forces, stakeholder analysis, and the

value chain to assess the firm’s strategy and future vision. Top management may then

determine that the joint venture is not the most optimal organizational form for achieving the

firm’s objectives, and that another form, such as a long-term contract, may offer a better

strategic fit. One of the good examples is Chery Motors from China.

The second step involving Toyota assessing the suitability of the potential joint

venture partner for fit with the firm’s strategy and compatibility during the life of the joint

venture. Identifying the key problems of Chery Motor overall mission would help ease the

selection process.

If Toyota agrees with the terms of Chery Motors, the parties will set out joint venture

terms in a written agreement which addresses structure objectives, financial and other

resource contributions. Understanding these agreements help Toyota optimize their resources

as to which production would be outsourced or what new projects should be handled by

either company. Through this implementation, Toyota will be able to produce their own

goods within their own time frame, while also capable of effectively uses idled employee to

help out with the new projects.

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Through this strategy, Toyota is likely to expand their market share to a bigger scale

to the Asian market. Idled resources will be put to use effectively, while maintaining the

normal production of the automobiles. Cost of production for the new projects will also

remain minimal, as the amount of investment required is shared among companies. If the

project turns out to be not beneficial in the future, Toyota would only suffer minimal loss or

no loss in shares and brand equity.

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REFERENCES

Flynn, M. (2012). Toyota: 77 Years, 200 Million Vehicles. Retrieved October 29, 2015, from

http://www.themotorreport.com.au/54659/toyota-77-years-200-million-vehicles.

Glukhova, O. (2009). Toyota Motor Company (Japan). University of Bradford.

Hill, T., & Westbrook, R. (1997). SWOT analysis: it’s time for a product recall. Long Range

Planning, 30(1), 46-52.

Liker, JK. (2005), “The Toyota Way and Supply Chain Management”, Presentation for OESA

Lean to Survive Program, The University of Michigan.

Lynch, R. (2006), Corporate Strategy, 4th edition, England: Prentice Hall Pearson

Education.

Magee, D. (2007), How Toyota Became #1 - Leadership Lessons from the World's Greatest

Car Company, Portfolio Hardcover, ISBN 978-1-59184-179-1.

Pearce, II J.A. & Robinson, R. B. Jr. (2007), Strategic Management –

Formulation, Implementation and Control, 10th edition, New York: McGraw-

Hill Iiwhi.

Strott, E. (2009). "Toyota Takes Sales Crown from GM". MSN Money. Retrieved October 29,

2015, from http://articles.moneycentral.msn.com/Investing/Dispatch/Toyota-takes-

sales-crown-from-GM.

Toyota Motor Corporation Annual Report 2015.

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APPENDIX

TABLE OF CONTENTS

1.0 COMPANY BACKGROUND........................................................................................1

1.1 History.........................................................................................................................1

1.2 Main Activities............................................................................................................3

2.0 INDUSTRY ANALYSIS................................................................................................5

2.1 Tools Used To Describe the Industry..........................................................................5

2.2 Key Competitor...........................................................................................................8

2.3 Competitor’s Profile....................................................................................................8

2.4 Competitor’s Competitive Offering............................................................................9

2.5 Competitors’ Strategies.............................................................................................10

2.6 Competitors’ Future Strategies and Goals.................................................................11

3.0 FIRM’S PRODUCTION AND OPERATIONS MANAGEMENT SITUATIONS.....13

3.1 Internal Analysis of Firm’s Strength and Weakness.................................................13

3.2 The Industry’s Strength and Weakness (Automobile Industry)................................14

3.3 Toyota’s Strength and Weakness against the Industry’s Strength and Weakness....14

3.4 The Advantage and Disadvantage of Toyota against Automobile Industry..............15

3.5 Current Production, Operations and Supply Chain Problems...................................15

3.5.1 Production..........................................................................................................15

3.5.2 Operation............................................................................................................16

3.5.3 Supply Chain Management................................................................................16

4.0 STRATEGY ANALYSIS.............................................................................................18

4.1 Evaluation of Current Position and Selection of Strategic Options..........................18

4.2 Evaluation of Strategic Options.................................................................................20

4.3 Analysis of Current Strategy and Proposed Strategy................................................20

5.0 RECOMMENDATION................................................................................................22

5.1 Flow of Implementation............................................................................................22

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