Running Head: Implementing Just-In-Time Production at Toyota

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2 Running Head: Implementing Just-In-Time Production at Toyota Implementing Just-In-Time Production at Toyota: The Effects on Productivity Growth Kevin Browning November 15, 2012

3 Implementing Just-In-Time Production at Toyota: The Effects on Productivity Growth Abstract This paper examines the effects on productivity growth at Toyota under a Just-In-Time production process. Just-In-Time production is the process of relying on finely tuned processes in the assembly line to produce only the amount of products needed at the exact time it is needed. The main objective of a Just-In-Time production process is to create production smoothing techniques and use autonomation. Production smoothing is a process where parts, components, and products are produced at a smooth constant rate with little or no interruptions in the process. Toyota Production Systems (TPS) uses production smoothing to ensure good quality, low inventories, trained personnel, high efficiency, and low setup times and costs. This paper reveals the effective use of Just-In-Time in production. Just-In- Time must be used correctly in order to be effective in any organization. Mainly we will focus on Toyota s Production Systems and how look at the integrations and applications of Just-In-Time processes and effects on Productivity growth. Just-In-Time and productivity growth have a positive relationship with one another. Meaning that when all processes are integrating together, then the productivity growth will increase. Inversely, if one process or application of Just-In-Time fails to perform satisfactorily, productivity will decline. This paper will examine the processes of Just-In- Time and conclude on the effects on productivity growth at Toyota. Toyota Production Systems is a highly efficient, cost-effective production system which is regarded as one of the best systems in the world. Toyota has positively affected many other companies and production facilities to become the front-runner of the introduction of Just-In-Time to the world.

4 Introduction Toyota, the largest automobile manufacturer in Japan and the second largest in the world sold its first passenger car in 1955 (Udagawa, 1995). At the time, the biggest threat to Toyota was the safety standards that were issued to the company from the US Army Procurement Agency (APA) (Ugagawa, 1995). The company had troubles developing quality control systems and demand was so high that Toyota was unable to accommodate to the high stress of demand and also to create such a safety protocol for their operations (Udagawa, 1995). Eiji Toyoda, the executive vicepresident and founder of Toyota had the ability to generate the decisions that leads to the huge success of the company. Toyoda and Ohno created two systems for the production system; total quality control and Kanban (Udawaga, 1995). Total quality control at Toyota consisted of creating technologically advanced equipment that would allow workers to not have to inspect the raw materials before production. The use of this type of machinery is known as autonomation. The machinery itself was created to inspect as it produced the products. Toyoda once said, The ideal inspection is no inspection (Udawaga, 1995). Kanban system developed the production process known as Just-In-Time (Hopp & Spearman, 2004). With the use of the Kanban system and total quality control, production smoothing is allowed to freely flow producing great number of output thus increasing productivity within Toyota (Kotani, Ito, & Ohno, 2004). Productivity increases due to implementations of Just-In-Time production at Toyota (Maiga & Jacobs, 2008). The positive effects include quality control, autonomation, production smoothing, Kanban, skilled workers, highly trained workers, low inventories, and continuous improvement (Low Sui & Gao, 2011). Literature Review Toyota in the past years has shifted from mass production to lean production processes. Thus, changing the core operations of the factories across the globe. All sub-assemblies lines were all put together in one flow of assembly lines which constructed the ideas of production smoothing (Black, 2007). With the use of production smoothing and Kanban the systems used by Toyota can be controlled by inventory production systems (Black, 2007). Toyota Production

5 Systems (TPS) believes in enforcing quality control throughout the company to ensure a minimization of problems during the production process (Swamidass, 2007; Maiga & Jacobs, 2008). Toyota depends heavily on their supply chain to ensure those suppliers are not providing non-usable materials. Non-useable materials result in problems, delays, or waste in the production process which then result in time lost and a loss of profits decreasing Toyota s productivity (Yavuz & Akcali, 2007). Just-In-Time production expresses the fact of producing products, parts, components at the right time, which has very little excuses for products arriving late. The lean systems require a quality check after each production stage (Black, 2007). This is stressed for each manager and worker on the line to inspect for damages, errors, or problems during and after the production process. All variations in the process are minimized to such that all materials are used, production time is reduced, waste is almost a zero percentage, and output is maximized (Maiga 7 Jacobs, 2008; Kotani, Ito, & Ohno, 2004; Black, 2007). The previous aspects of the process are designed to increase productivity growth and continuous improvement. The second support of Toyota Production Systems is autonomation, which is automating the productions system to create the machinery that ensures quality where no human eye is necessary (Gong, Wang, & Lai, 2009). The only times when the human eye is necessary is when there is a machine malfunction that has detect a defect in the production process (Gong, Wang, & Lai, 2009). At this time, the machine will shut down and will not resume production until the problem is resolved by the workers. This process created an easier flow of production for the company ion such wasy that the workers were not held responsible for examing each product that passed down the assembly line. The workers involved in resolving the problems at hand are highly trained workers who have mastered the skills necessary to fix the problems within the machinery (Sakai & Amasaka, 2007). Protocols are used to find the source of problems quickly for quick repairs for the continuation of production (Savsar, Mehmet, Choveiki, & Hisham, 2000). The use of high technological advanced robots and machines have improved the productivity greatly by speeding the process and progress of production (Gong, Wang, & Lai, 2009). Within the model of the mixed-assembly production, Just-In-Time production is expressed as a positive factor in the model for growth of productivity at Toyota (Thun, Druke, &Grubner, 2010). Just-In-Time production does not mean to minimize the time of stopping or delaying the assembly line, but to minimize the risks associated with stopping

6 the line (Kotami, Ito, & Ohno, 2004). Stopping the line of production results in lost profits anmd the process for the entire day is delayed. Every component or part is to be produced exactly Just-In-Time (Thun, Druke, & Grubner, 2010). Much research has been conducted by Xiaobo and Ohno (1997), on mixed-assembly lines in a Just-In-Time production facilities. Ohno is the chief developer of the Toyota Production Systems which provided the framework for Just-In-Time (Low Sui & Gao, 2011). Their research was conducted on workers not able to complete their tasks on time. When workers are not able to complete their tasks on time, the manager is able to send another worker from another line, only if they have completed their processes, to help assist that worker complete the assignments at hand (Kotani, Ito, & Ohno). Creating the plans and making adjustments throughout the production process at Toyota is a vital part of their operation. Thus being stated, Toyota Production Systems has continuously improved the performance and increased productivity growth by planning for the unexpected occurrences in production. The main concept or goal of Just-In-Time production is to smooth the production process through the efficient handling of materials, and providing the materials at the Just-In-Time for production or delivery (Low Sui & Gao, 2011). There are many positive aspects or attributes of Just-In-Time production which include: short setup times, low inventories, multi-skilled workers, good quality, and reduction of waste. These attributes are perfected by the individuals and machinery in the production process as well as employee motivation, improved workers involvement, and commitment to the organization by workers and managers (Low Sui & Gao, 2011). These different attributes positively relates to one another which has impacted the success of the company to continue to grow. Just-In-Time has a positive relationshsip to productivity growth (Yavuz & Akcali, 2007). By implementing Just-In-Time production processes with a company, workers work faster and harder to keep up with the demand. Consumer demand is what triggers the operation of a factory in the Just-In-Time production process (Modaress & Willis, 2000; Sakai & Amasaka, 2007). For companies and organization to become successful the overall productivity needs to rank high and remain at the top. With the commitment of management and employee motivation, productivity is almost easy to stimulate in Toyota Production Systems using Just-In-Time processes. As Just-In-Time positively relates to production, another concept in Just-In-Time also increases productivity growth, a process called production smoothing (Yavuz & Akcali, 2007). Production smoothing creates a synchronized multi-assembly line of parts, components, and products before the final assembly stage of the process (Yavuz & Akcali, 2007). All assembly lines

7 are separate but work together to create the final product on one assembly line. An advantage of implementing production smoothing in a Just-In-Time production process is the use of highly skilled employees (Savsar, Mehmet, Choveiki, & Hisham, 2000). Each worker works together in the production of the final product, but works independently at separate locations or stages on the multi-assembly line. All employees are trained to operate every station in order to have multi-skilled workers working the assembly line. The workers have the knowledge and skills to know each station in order to make the process flow smoother. Also, because of the cross-training methods at Toyota Production Systems, if a particular worker needs the help to finish the assignment, an extra worker who may be finished can assist to get the assignment completed (Kotani, Ito, & Ohno, 2004). The employees are trained well enough to be effectively able to handle the workload set forth by the demand at Toyota Production Systems (Alles, Amershi, Datar, & Sarkar, 2000). The effects on productivity growth are positive effects with the use of Just-In-Time production at Toyota. Toyota Production Systems (TPS) has made it clear with the use of Just-In-Time production and it has been nearly duplicated throughout other companies such as Hyundai, General Motors, and Ford (Hopp & Spearman, 2004). There are many factors that have lead to the success of Toyota and the increased productivity growth. Much research has been compiled and tested by Xiaobo and Ohno (1994). Their findings have resulted in the following positive effects on productivity growth; low inventories, low scrap cost, better quality, low setup time and costs, quick responses to machine malfunctions, autonomation (Ohno, 1997), high efficiency, production smoothing, pull systems, employee motivation, worker involvement, and general operations (Xiaobo & Ohno, 1994; Kotani, Ito, & Ohno, 2004; Alles, Amershi, Datar & Sarkar, 2000; Lieberman & Demester, 1999). These factors that promote productivity growth stimulated by a Just-In-Time production process at Toyota are explained in the following sections. Inventory reduction at Toyota is one of the reasons why Toyota Production Systems (TPS) ranks amongst the highest in productivity growth (Yavuz & Akcali, 2007). Costs such as storage, handling, and cost of capital of having a large amounts of inventory grow with the increased inventory levels (Maiga & Jacobs, 2008). Just-In-Time promotes having low inventory levels to reduce those costs. Toyota Production Systems uses only the amount of resources necessary for the projected production run (Hopp & Spearman, 2004). A Just-In-Time production process is producing goods or products with just the right amount of materials needed for the runs (Modaress & Willis, 2000). This idea

8 reflects on that inventory consists of raw materials. These raw materials have been shipped through the supplier to Toyota under Just-In-Time system practice. Inventory is reduced from the very start of the process because the inventory that is accrued before the production process is labeled as raw materials, and when the production begins, that inventory is then called work in progress (WIP) (Alles, Amershi, Datar, & Sarkar, 2000). In order to reduce the amounts of inventory at Toyota, Toyota Production Systems needs to have excellent management to evaluate finished products, work in progress and the raw materials to increase productivity growth (Swamidass, 2007). Management also relies on the workers to check for errors in the process while working (Lieberman & Demester, 1999). Inventory is a function of many variables which require management skills to reduce inventory constantly (Swamidass, 2007). The benefits associated with low inventory levels result in reductions in costs. The money saved from having low inventory levels can be used in other sectors of the company such as research and development, new machinery, and expansion of facilities to other parts of the world or increasing the size of a current production facility (Swamidass, 2007). Reducing inventory levels is a key concept in Just-In-Time productions and Toyota Production Systems has nearly mastered this objective. Continuous improvement is linked to production smoothing in such ways that is adds to the growth of productivity (Yavuz & Akcali, 2007). Just-In-Time at Toyota Production Systems depends on the planned controlled production at the production facilities, the small order quantities, quality and demand contribute to continuous improvement (Maiga & Jacobs, 2008). The three attributes previously mentioned are all controlled by management and the worker of the production team. Small orders are processed through the system and good are delivered to Toyota production Systems to be used in production. As materials are transferred from the supplier to Toyota, quality is assured from the supplier (Savsar, Mehmet, Choveiki, & Hisham, 2000). The need for trust from the suppliers in Toyota s supply chain is very high. Much of Toyota s success stems from the highly valued supply chain that has been established by Toyota (Xiaobo & Ohno, 1994). Demand also contributes to the success of controlled production building the improvement of the operation. Demand is not controlled by managers but by the consumers and customers demand (Hopp & Spearman, 2004). Demand is known to fluctuate and previous research conducted has concluded that Just-In-Time is effectively able to control fluctuations of up to 10% (Modaress & Willis, 2000).

9 Production smoothing, or Heijunka, is a tactical planning decision that reduces the variations of the production rate (Yavuz, & Akcali, 2007). Production smoothing creates a synchronized assembly line after production of parts and components (Yavuz & Akcali, 2007). The synchronized portion of the line contributes to the smoothing part in production. The production process is operating in a smooth sense which then creates an easy flow. Production smoothing is the cornerstone at Toyota Production Systems (Yavus & Akcali, 2007). Toyota Production Systems (TPS) uses technologically advanced equipment, machines, tools, people, and software that are operated automatically (Black, 2007). The technology that Toyota Production Systems use improves the productivity growth by allowing machines to run with few delays in the process. The more downtime experienced by a machine results in an increase in cost and an increase in time lost. All of which contribute to the well-being of production smoothing. With the concept of production is the low setup time for the production process. Setup times are a function of Just-In-Time production processes at Toyota Production Systems (Black, 2007). The machinery is advanced giving way to the ease of setup for the workers when preparing for another production run. The concept of Just-In-Time and the concept of production smoothing create the synchronized flow of good through the production process at Toyota Production Systems (Hopp & Spearman, 2004). Production smoothing reflects the technique of pull production in its operating sense. Pull production or originally known as Kanban, became the methods used at Toyota production Systems evolved into what is called Just-In-Time production (Hopp & Spearman, 2004). The vision was created by Taiichi Ohno, who built the operations of Toyota production Systems. There are four main advantages of a pull system; reduced cycle time and waste, smoother production, improved quality, and overall reduced cost (Hopp & Spearman, 2004). The four advantages of a pull system stimulate productivity growth with the use of Just-In-Time production processes will be explained in the next sections. Kanban or pull production is powered by factory layout, setup times, and quality (Thun, Druke, & Grubner, 2010). Each power factor is fully enhanced by the managers experience in Just- In-Time productions operations, as well as the workers skills, and worker involvement (Kotani, Ito, & Ohno, 2004). When all attributes of the Kanban system effectively work interactively with one another, the production is increased resulting in positive growth by Toyota (Xiaobo & Ohno, 1994). At Toyota, Toyota Production Systems thrives on reducing cycle time and waste (Thun, Druke, & Grubner, 2010). Having a high waste percentage of your overall total production results in higher costs. Wasting materials is not

10 acceptable in a Just-In-Time production facility. Reducing cycle time can be difficult to start with but is improved after repetitions, observations, and trials. Toyota has mastered the objective of reducing cycle time in order to obtain the most efficient amount of output in the least amount of time (Alles, Amershi, Datar, & Sarker, 2000), thus resulting in lower lead times for the company. The improvements must be effectively performed in to produce the best output and increase the growth of the organization. A function of pull production is to improve the overall quality of the products being produced (Sakai & Amasaka, 2007). With the highly skilled employees, concerned managers, and an established supply chain, the quality of the products produced at Toyota Production Systems is at its highest (Sakai & Amasaka, 2007). All materials are inspected before, during, and after the production process to ensure that the machines produced a good quality product. Toyota Production Systems has integrated some of the best technologically advanced machinery to check for variations during the production process (Thun, Druke, & Grubner, 2010). The human element and the machines both check for errors, damage, and all variations in the product being produced. Machinery malfunctions are guaranteed to occur in any production process. Toyota Production Systems has implemented some of the best technology and workers to minimize the chances of this occurring in the Toyota facilities (New, 2007). Toyota s practices include preventative maintenance actions to reduce the chances of machine malfunctions. If such an occurrence was to take place, Toyota has the some of the best equipment operators and technicians to quickly fix the problem in order to continue production once again (Maiga & Jacobs, 2008). Just-In- Time and total quality control are positively correlated with one another in terms of productivity (Maiga & Jacobs, 2008). When operating at Toyota, all materials and products are produced in a Just-In-Time manner to allow the delivery of goods to be delivered shortly after production. If the total quality control team fails to inspect materials, this can result in a loss of profits and loss of time. Total quality control enforces the checks of materials to ensure the production process is able to perform assignments for Just-In-Time manners. The effect of total quality control at Toyota s Just-In-Time production center influences productivity growth when effectively applied (Sausar, Mehmet, Choveiki, & Hisham, 2000). Conclusion

11 Implementing Just-In-Time production at Toyota has a positive impact and positive effects on productivity growth. Toyota makes great use of the Kanban Just-In-Time production process to gain the goals and values in which Toyota has achieved. With the utilization of Just-In-Time, many sectors are explored and all aspects are integrated with one another to produce an output that contributes to the growth and well-being of the company. To this day, Toyota is recognized as the second largest automobile manufacturer in the world behind General Motors (Udagawa, 1995). The functions used in a Just-In-Time production process at Toyota Production Systems interact with each other to build the productivity within the company to promote productivity growth (Alles, Amershi, Datar, & Sarkar, 2000). The functions include quality control, autonomation, production smoothing, Kanban, skilled workers, highly trained workers, low inventories, and continuous improvement (Low Sui & Gao, 2011). Throughout this paper all functions have been explained and shown the relationship between each one and its effect on productivity growth. Productivity growth is anything that provides to the overall well-being status of the company on terms of production as a percentage of inputs, machinery, labor, workers, skills, and processes (Low Sui & Gao, 2011).

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