What Really Happened to Toyota?
MIT Sloan Management Review has an article (What Really Happened to Toyota?) that adds a bit more color to my post about Toyota from yesterday (Toyota’s quality improvement changes aren’t enough). The article points out two root causes of the problems at Toyota. The first being rapid growth and inability to manage the growth or a culture that could not support growth while maintaining traditional values. However, the most of the root cause analysis is the increased complexity.
Product complexity The other root cause of Toyota’s quality problem can be linked to the growing technical complexity of today’s vehicles.For a variety of reasons — stricter government regulations on safety, emissions and fuel consumption, and rising customer demand for vehicles with “green” and luxury features — cars are becoming increasingly sophisticated both in terms of how they are designed and how they are manufactured. A typical auto sold in the United States or Europe has more than 60 electronic control units and more than 10 million lines of computer code — a fourfold increase over what was common a decade ago.17 In effect, cars have become computers on wheels.
The article does not point out the a key contributor to increased complexity – the asynchronous changes in electronics that control cars and the mechanical elements of the car. The interactions between elements of mechanical systems are much more complex and in many cases indeterminate. Everyone is getting used to the Moore’s law and resulting increase in capacity / features. Consumers start expecting similar improvement in their cars, and that is where the trouble starts.
Lead time between exterior design approval and start of sales was compressed to less than 20 months. Accelerated design cycles strained the company’s development and production systems and pushed human resources to the limit, creating the conditions for quality failures. Although Toyota’s Lexus and Prius models accounted for less than 25% of its sales in 2010, they were among the most technologically complex products and were involved in more than half of the number of recalls.
When new mechanical elements are introduced (such as regenerative breaking), it takes a long time to figure out what impact these elements might have on other elements (such as brake pads). Many times these interactions are unknown and extensive testing is needed before they can be discovered / delineated. Unfortunately, the competitive pressures do not permit companies to have slow product development cycles. If one does not come up with new features, the competitors will. However, the growth targets clearly complicated the problems:
To be sure, other auto companies, not just Toyota, have had to come to grips with the issues of product complexity. The competitive pressures to produce vehicles that are safe, clean, fuel-efficient and comfortable are industrywide. But for Toyota the challenges were even more intense, complicated by the already considerable challenges associated with global growth, including rapid expansion of manufacturing capacity and the proliferation of hybrids and other technologically advanced new models. Between 2000 and 2007, Toyota’s North American sales increased from 1.7 million units to 2.9 million units, and the company’s offerings grew from 18 to 30 models.
Clearly, other companies also have the same problems, but the Toyota culture of long apprenticeship could not absorb this rapid pace. The Toyota culture was embedded in every aspect of company’s product business.
The combination of rapid growth and increased product complexity has had major implications for Toyota’s supplier management system and its overall performance. Around 70% of the value added in Toyota’s vehicles comes from parts and subassemblies produced by its suppliers. So the consequences of the growth and complexity were felt across the company’s supply chain. First, Toyota personnel were stretched increasingly thin as the company’s growth accelerated. In response to the growth, Toyota had to delegate more design work to outside contract engineers and take on new suppliers because the internal engineering resources and existing supplier base couldn’t keep up with the demands.
The company had to move away from the long apprenticeship model:
A high-level Toyota executive publicly acknowledged in 2010 that, facing internal manpower shortages, the company had no choice but to use a large number of new contract engineers to boost engineering capacity. In his view, that contributed to the increases in quality glitches. The company came to use outside engineers for as much as 30% of its development work globally. That meant hiring contract engineers overseas; it also gave rise to a new policy of hiring temporary engineers in Japan, which challenged the company’s established ways of doing business. Toyota engineers had been accustomed to communicating among themselves and with Japanese suppliers with whom they had established long-term relationships that often relied on tacit knowledge built up over the years. The influx of new, mostly non-Japanese-speaking engineers and overseas suppliers during a short period of time led to problems of coordination and miscommunication.
The author fails to point out however, that the traditional model is slow. Long term relationships take a long time to develop and require a lot of communication.
Takahiro Fujimoto, a leading Japanese researcher on Toyota, reports that in the wake of rapid growth, Toyota increasingly failed to properly evaluate and approve components designed by outside overseas suppliers. As a result, Toyota’s relationships with suppliers became less collaborative, thereby weakening the company’s distinctive “relational contracting” system characterized by long-term close OEM relationships with suppliers. Ironically, it was the collaborative practices that had originally distinguished Toyota from its Western competitors.
Whether Toyota chose to grow at a fast pace or not, the traditional R&D model would have had to change. The customer-base expects their new iPhone to sync with their car stereo. So, to me the complexity problem along with the Toyota culture caused the problem. The source of the problem is the slow culture facing a rapid product development cycle. I do not believe that the way to fix that problem is increasing quality control. But somehow, that is the obvious answer and that is what Toyota has chosen to do:
Furthermore, Toyota has reorganized and, in effect, deliberately slowed down the product development process by establishing a new team of about 1,000 quality engineers and by greatly expanding its rapid quality response teams around the globe. Although driver error appears to have been the primary cause of the acceleration problems, user error can be reduced by good design. In today’s environment, that is a corporate imperative. To that end, Toyota has reconfigured the shape of the accelerator pedal in response to its floor mat problems.
I hope somewhere someone is also addressing other problems.
What do the product recalls say about the effectiveness of the company’s legendary production system? Why should other companies try to emulate Toyota if it is struggling with so many serious design and production issues itself? The reality is that Toyota’s problems were not caused by a faulty production system but by poor management decisions.