TOYOTA BUSINESS PRACTICES AN EXAMPLE

These materials are from Jeffrey K. Liker and the book, Developing Lean Leaders at All Levels.

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Gary Convis, formerly with Toyota, faced a warranty reduction problem. We will use this as one example for applying Toyota Business Practices. At the time, Gary was a managing officer in Japan, and he was also the head of North American Operations. While in Japan the head of quality, a member of the Board of Directors, suggested to Gary it might be a good idea if he reduced warranty costs by 60%.

When a member of the Board of Directors suggests something to you, it's not simply a good idea; it’s something that you must take very seriously. Gary's response was to take it as an order rather than a friendly suggestion.

On the way back from Japan, Gary was struggling with angst and wondering how he could possibly do 60%. We are the best in the industry already. They had been Kaizening warranty for decades; how could he possibly get a further 60% reduction in cost?

Well, the good news was that he didn't have to do it in one year. He could spread it over six or seven years. So, 10% a year seemed more manageable than 60%, and he didn't need to worry about 60%. He needed to worry about getting the first 10% in a year, and then he could further divide that into months, and then it becomes even more manageable. 

In sports we often hear that we're not concerned about winning the championship, but we're concerned about the next game, and Gary had to worry about the next game.

What do you do if you're Gary and you are the head of manufacturing?

What you might do is assign this problem to your best engineers.

But you don't do that if you are in Toyota. Gary was personally responsible. He said yes. So he was personally going to lead this activity. It was a big enough challenge and it deserved to be handled at the executive vice president level. 

Gary knew, however, that he couldn't solve the problem within manufacturing. There was no way; he could not do it without moving into design, which automatically meant moving into purchasing because a lot of the design comes from suppliers. Moving into suppliers meant moving into sales because they have the data on the warranty problems, and they run warranty. 

So now he's leading horizontally, which is what Toyota considers the highest level of leadership?that is when you're leading without formal authority.

UNDERSTANDING WHAT IS GOING ON

What is the first step for Gary?

Obviously, he had to define the problem in Toyota Business Practices terms, but before he did that, he had to grasp the situation. He had to understand what was going on so he would know that he was in the ballpark when he defined the problem. 

Grasping the situation meant visiting with the leaders of all the major parties, and all the major stakeholders, that influenced warranty. He met with the head of Toyota Motor Sales, with the head of the Toyota Technical Centre in Michigan, and with some of the heads of different parts of manufacturing, for example the quality group. 

He went to Japan and he met with the head of quality for Japan and the head of engineering in and based on those meetings, he was collecting base information. What he was doing was what we'll talk about later as Nemawashi. He was starting to build a coalition of support, and those people he visited ended up being on his task force; on his team.

Everyone he met was at his level or higher, so he couldn't boss anybody around, but he got them all to agree that the issue was important; people were serious about the issue; they were on board and willing to do everything possible to be part of this team.

The team then met and defined the issue and started working through Toyota Business Practices.

THE IDEAL STATE

The ideal state is when customers are completely happy. They are not completely happy when they must bring in their vehicles for a warranty repair; and, by the way, if they bring it in for recall, that's just another type of warranty. It's a warranty that happens to have safety implications, so they consider that part of their warranty problem.

For the customer bringing in their car it is a nuisance even if it's free; it takes time; it means you might be without your car for a day. You might also need to sit and wait; and ultimately your impression of your Toyota vehicle is lowered. This is reason for some concern. If three or four warranty issues come up, you wonder if you can trust this car and by extension, this company.

THE CURRENT STATE

The present situation was; even with Toyota being better than others in the industry; that they were still not good enough. Too many customers were bringing in their cars for warranty work, and that led to high costs for Toyota. 

BREAKING DOWN THE PROBLEM

The breakdown of the problem starts with restraining the problem. The team identified two areas where the problems occurred, one area was in manufacturing and the other was in product development.

Product development designs the product in a way that can be easily manufactured.

So, for example, product development is doing things like error-proofing the product so you can't, for example, confuse a left-hand with a right-hand side view mirror. 

If you're not doing this well, then you may see manufacturing problems caused by design during the effort of error proofing.

Mistakes are also made in manufacturing. And mistakes are also made in the final inspection process where they may be allowing some defects to slip through and eventually make their way to the customer.

They decided to bound this problem. The immediate focus would not start in design, with the brand new vehicles, because doing so would take years to produce results. 

Instead, it was decided to look at existing vehicles that were currently in manufacturing. The starting point was with customer feedback about problems and how that feedback worked its way through to the point of origin, whether this was quality, manufacturing or engineering. Then the focus was going to be what actions were taken as a result of this feedback.

SETTING THE TARGET

The target had already been set at 60%; they broke that down to be 10% per year.

 PERCEPTION OF THE PROBLEM

The next step is to analyse the underlying causes; this was done as they were narrowing down where the problem was becoming more prevalent. As they measured and learned where the problems occurred, they learned that the biggest problems were in engineering and not manufacturing. 

By now they had been adding to the team; there were several hundred people involved at this point. They found that, in fact, within manufacturing, defects were slipping through and therefore they needed to work on understanding the root causes in manufacturing.

One interesting thing they learned was that in the final testing station which tests all vehicles going through the plant, there was a lot of noise and sometimes the inspector would not hear a shake or rattle. 

The solution was relatively straightforward. They could install soundproof booths specifically for these shake and rattle tests. 

For engineering, it was not as easy as that; there were so many problems, and furthermore finding the root cause of a given problem was very difficult. The standard process, which we are all familiar with works this way; if you have a problem or perhaps a recall, you bring your vehicle to the shop – they keep it for some amount of time - and the car is repaired and returned. Common practice is that the shop leaves the defective part – that they replaced - in the floor on the passenger side so that can prove to you that they replaced something.

From the point of view of the dealer who is doing the maintenance (or whoever does the maintenance) they must turn in paperwork to Toyota; they must a make note in a computer of what happened, the cause, and they must justify the warranty repairs so reimbursement can be made. 

The dealers description of the problem is usually very vague. There are many categories on the computer, and the worker could select one that suggests there was a failure in the electronics system and they could tell where the failure occurred. Perhaps there was a short circuit some place, but you don't know why the short circuit happened, and you don't know the root cause. You just know that some part failed.

That kind of information was not very useful to Japan and the Toyota Technical Centre, where they were making engineering changes. In addition, there was so much of this kind of vague information that they could not deal with it.

When a common problem occurred, they would investigate when they had time. In addition--in every part of Toyota, every plant, sales, people in the field who were checking cars in the field warranty group, Quality from all over North America--workers were feeding a request for engineering changes. The requests were not prioritized, and engineering was overwhelmed. 

So the problem became how to get a root cause diagnosis of some of the more common warranty problems and how to prioritize so that engineering or manufacturing would know what to work on next. 

So the countermeasure in manufacturing was what Toyota calls built-in quality with ownership in which they return to the original principle of Sakichi Toyoda, which is to never let a problem pass beyond the original place that the problem occurred.

Never pass on a defect or let it get out of your station; ownership means that once a problem occurs or once I see a problem, I now own it; I'm responsible for it. You can't let it slip through and let inspection worry about it.

The result of this is that it’s a lot of activity that gets all the way down to group leaders and team leaders and team members, and every day they must diagnose. That program was launched--it was not new for Toyota--and that idea of building in quality had been there for decades, since the beginning of the company, but this was a new, higher level initiative. Again, raise the awareness. You always have to go back to basics because people start to slip, and there is a need to come up with new tools for analyzing the causes of quality problems.

For engineering, it was a lot more complicated, even to identify the root causes of problems, because dealers all over North America were providing Toyota with data that wasn't useful. When you would bring in a car for warranty repair they would fix it. The dealer usually gives the customer the part back because they want to prove to them that they repaired the part (or replaced the part), and they will also complete a checklist which goes into the computer that says we had a problem with the radio and the knob was loose and we had to replace the knob.

Back in engineering, I would ask, why was the knob loose?, but I would not have the knob, it was given back to the customer. My ability to root cause becomes very difficult at this point.

The other problem was that there were many locations throughout North America involved in feeding requests for engineering changes. Engineering was overwhelmed with thousands of requests, and there was no way they could priorities unless problems occurred many times; and then they would work on that problem.

So the problem at this point is, too many big problems without root cause analysisoverwhelming engineering, and no way to prioritize these problems; except this happened a few times, so we will look at this. Also, they found that engineering was starting to push those problems into the next model launch, effectively delaying the fixing of those problems. This gave them an excuse not to fix the model currently in production.

With that analysis, they could develop countermeasures; I mentioned the countermeasure of the noise isolation booths; that would have been one among tens of thousands of changes made in various manufacturing plants over the six-year period to prevent known defects from escaping from the plant. 

In engineering they had to think about how they could get to the root cause of warranty problems. From this came countermeasures. For example, they could go to the dealers and ask them to show the customer the parts and ship the parts to Toyota Motor Sales, which wasn’t a great idea. They could develop a more refined checklist for the maintenance person to be more accurate by selecting something close to the root cause.

Ultimately, they came up with a better idea. They recognized that they had a captive group of customers in the company?employees who got good deals on leases; they could be asked to bring in the part and the car into the shop so that the root cause of the problem could be diagnosed. How did they do that? They picked Toyota Motor Sales where there were several thousand employees. They asked the employees to participate and the employees brought their cars to Toyota Motor Sales, where they could do the repairs while the employees were at work. They also set up a customer satisfaction center within Toyota Motor Sales, and one by one they diagnosed the actual root cause of each problem.

Tey also talked to other parts of Toyota – since they had all of the leaders of all the parts of Toyota on a team - and they said any request for engineering changes must go through this customer satisfaction center. 

They decided to filter the request for changes and prioritize them before they got back to the Toyota Technical Centre or to engineering in Japan or to suppliers. These request for changes were going to be root caused as much as possible, and they were going to be prioritized. And this was an ongoing process; refining and proving it, that’s why it took, as it turned out, seven years to get the desired 60% that they wanted.

  They saw it through; they continually adjusted the process.

By year 4 of this initiative Gary retired from the company and became a senior advisor to a different company called Dana; we talked about that in previous sections of this series of books. Toyota had then begun standardize these processes within manufacturing, engineer and sales and made further progress on the root causes. Again, this is an ongoing process, but this new process needed to become a new routine, a new way that we do business in North America. 

NORTH AMERICAN PLANTS

So you might wonder how it went. The answer is it went really well. Red represents targets; as you can see, it was 10% a year from the base year 2002. 

You'll see that blue represents what actually happened, and while Gary was there, it got to 40% after four years, and then he left, and we've checked up on the process, and they did get to 60%. They continued to make progress. 

You can see the blue line is not a straight line that perfectly matches 10% a year; you can see that sometimes, they were below the target; sometimes they were above the target. 

Think about that in terms of PDCA cycles. Trying things, and some things work; some things seem to work, and they were ahead of schedule; then we slip back and have a big problem with some part of the car, and then we must solve that problem. And on and on it goes.

This process was not a matter of Gary ordering everybody to reduce warranty by 10% as would sometimes happen in companies. This process was about Gary, as an executive, actively leading a team of executives who had expanded the team to included several hundred people, all working for that team.

Through PDCA, PDCA, PDCA they achieved this remarkable objective. So again, I would call this continuously improving your way to a breakthrough objective. This is sometimes referred to as Kaikaku (a big change) done through much Kaizen (little improvements).

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