Operations Management

                     COURSE NAME : OPERATIONS MANAGEMENT

                     COURSE CODE : EPPM3014 

                     LECTURER : DR.SHAZILINDA BINTI MD YUSOF 

                     MEMBERS:   WANG LEI            A126531

                                            LIU LI FU               A 126523
                                           SHA JINKAI          A 126531
                                          LI JINGYUAN      A  126533 

                                            LAN YU                 A 126499 

                                            HE JING JING       A 126486  

                                           ZHOU CHANG     A 126520  

                                            LI MENG SHI        A 126510 

OPERATIONS OF TOYOTA COMPANY FROM THE PERSPECTIVES OF  INDUSTRY MANAGEMENT, SOURCE PLANNING  AND LEAN PRODUCTION MANAGEMENT.

As Toyota is becoming a more and more powerful not only in Asia Pacific Market but US market as well , see the following figure.

 

So today we’ll analysis why Toyota has a such successful complexion in the world market. And we’ll analysis the company through operations management way. We choose three parts to analysis. They are: inventory management, resource planning, lean method. 
Inventory management

As one of biggest automobile manufacturers, TOYOTA has established a very effective and efficient inventory management system in order to keep enough inventories to meet customer demand and also be cost effective. Therefore the inventory management of TOYOTA becomes the key to TOYOTA’s success. The basis of the Toyota Production System is absolute elimination of waste. That this is based on are just-in-time and autorotation. Autorotation refers to automating a process to include inspection. Human attention is necessary only when a defect is detected (the machine will stop and not continue until the problem is solved).

In just-in-time production, each process produces only what is needed by the next process in a continuous flow, therefore that needs effective management on its inventory, however for the organization like Toyota, it has all kinds of inventories such as finished goods, raw materials, purchased parts and supplies, work-in-process products, items being transported, tools and equipment. So many kinds of inventory will incur costs associated with carrying, holding , ordering and shortage. In order to minimize these costs, Toyota has its unique inventory control system for their JIT, they use the “kanban” to minimize all these costs

The following we will focus more on Kanban and JIT.

Firstly let’s take a close look at Kanban, Toyota’s Taichi Ohno introduced kanban as a tool in the development of Just In Time manufacturing.

Kanban, meaning “billboard” or “sign”, is a scheduling system that pulls production based on actual demand. Kanban controls the timing and quantity, as well as the precise item to be produced.

The concept came from observing the way a grocery store keeps its shelves stocked with an item:

This process works well in grocery stores and can be valuable in a manufacturing environment also. It is easy to imagine the final assembly point or final storage area for finished goods as the “display shelf”. As customer orders deplete the supply of finished goods, a point is reached that triggers a production order. Likewise, when a production order depletes raw material to below its trigger point, a purchase order is sent to the external supplier.

Depending on the complexity of the manufacturing operation, there may be many locations for kanban cards. The same size of bolt, used in many places in the factory, might all point to one internal storage area from which the purchase order is sent to the supplier. A complex sub-assembly’s kanban card might send production orders to several areas in the factory.

Regardless of the complexity or the number of processing steps in a factory that pass kanban requests internally, each process should be considered a “shelf” awaiting a demand from its “customer”, the downstream process.

Kanban Cards

 

The first physical implementation of kanban used actual cards such as one might see in stores. The card contains this information:

• The identity of the item that should be stocked “on this shelf”
• The reorder quantity
• “To whom” to send the order
• Any other information that that may be needed by the person making that order

“Electronic kanban” describes a computer system that triggers the orders when inventory is depleted. This performs the same function; there are trade-offs among ease of implementation, ease of change, employee training, and perhaps reliability.

Depending on historic demand for an item, and the lead time required, the kanban process need not wait until the stock is entirely depleted. For example, one may decide to order when the quantity drops to 10. An obvious approach is to place the kanban card where it would be visible when the quantity in stock reaches 10. It is a simpler concept, however, if it is implemented in this fashion:

• Set the final storage bin to hold ten items; replenish it when it drops to zero
• Set a secondary storage bin to hold some multiple of ten items; replenish it at zero, also

So when the final storage bin requests the last ten items from the secondary bin, the secondary bin sends the order to replenish itself back to the factory or supplier.

Here is a series of images from a video made over 20 years ago…it shows part of a typical Toyota final assembly to supplier information flow
1. employees pulling a kanban card upon usage of first item from a container. IT was involved in the creation of this card though and it contains bar coded information.

2. After some time the kanban cards would be collected on a time basis. IT was in the background as an automated information signal from the Andon board signaled that it was time to collect these cards.

3. The collected kanban cards were fed into an automatic sorting machine that read the card information relieved it from inventory (at least in some cases). Other times the car exiting the line “backflushed” inventory at that final transaction point…

4. The scanned information also was used to trigger payment to the correct supplier. Scanning was evidence of usage.

5. The information for consumed parts was tabulated by the computer system and evaluated by Production Control.

6. The information for consumed parts triggered confirmation of demand and transfer of information to a supplier. This printer is located in a supplier facility and is printing out the supplier kanban i.e. authorization to make another set of parts.

7. The new kanban was put into a Heijunka box for scheduling purposes at the supplier and replenishment of the material commenced for shipment to Toyota.

Toyota’s Six Kanban Practices

Toyota implemented six important practices to enable kanban to serve its needs:

• Never send defective products downstream to the next process
• Each process only orders what it currently needs from the upstream process
• Each process only produces the quantity ordered by the downstream process
• Maintain a level rate of production
• Use kanban to fine-tune the rate of production
• Work to reach a stable rate of production

Production leveling is a separate topic, and may be difficult to achieve; that may be why the final three practices refer to it. To over-simplify, level production means that each process works at a steady pace rather than racing in reaction to crises, with idle periods between orders.

With a well-researched and well-implemented kanban system Toyota is capable of delivering cost savings by reducing inventory, warehousing and deferring manufacturing expenses until production is required.

When Toyota uses Just in Time (JIT) manufacturing and inventory control system, they purchase materials and produce units only as needed to meet actual customers demand. In just in time manufacturing system inventories are reduced to the minimum and in some cases are zero.

When Toyota combines JIT with kanban

1) eliminate unnecessary steps or details that do not add value to the customer,

2) combine steps or operations when step one can not be achieved,

 3) rearrange things for improvement when one and two are not feasible,

 4) simplify the process if and when items one through three can not be accomplished. Standardization and synchronization are thrown in for good measure some times.

                                                                The resource planning

One of the most important resource planning that Toyota using now is MRP (Material Requirement Planning). First of all, MRP is a computerized inventory control and production planning system. One of the goals of MRP is maintain the lowest possible level of inventory. MRP introduced the concept that inventories are different to each other , so they should be handled differently, such as raw materials, components, and finished goods. MRP also planned purchasing activities, manufacturing activities and delivery schedules. As we all know, things are always changing, so what is happening may not go as same as what we planned. However, with the computerized database, MRP can keep track of the relationship of job orders so that if a delay in one part of production, other related ones can be rescheduled. MRP systems have the ability to keep schedules up to date and suitable to all kind of accidents.

So what is the process to use MRP, the steps of MRP process are:

Exploding the bill of material

Netting out inventory

Lot sizing

Time-phasing requirements

The other one that Toyota often use is CRM, CRM is software that plans and executes business process involving customer interaction, such as sales, marketing , fulfillment and customer service. Let’s see how Toyota did in the past.

Customer DNA

The heart of Toyota's Lean CRM is "Customer DNA." Just as real DNA influences how each individual develops, looks and responds to his or her environment, Customer DNA controls how each touch-point between the customer and Toyota during the customer lifecycle is carried out. It defines each touch-point—most likely a contact or a campaign—that a customer is likely to have with Toyota, whether initiated by the customer or by Toyota. The touch-point trigger, the touch-point delivery process, previous or subsequent touch-points, the roles and responsibilities involved and the business rules that control how the touch-point is executed are all contained within the touch-point definition. The touch-points appropriate to each customer—which make up that person's Customer DNA—are assigned to them as soon as the customer is identified.

Toyota implements the touch-points through the Unica Affinium campaign management system (CMS). Using an industrial-strength CMS like Affinium is the only way to manage the variability of customers, the different touch-points and their implementation.

A regular process automatically reviews what is known about each customer and decides whether a touch-point should be triggered. If more than one touch-point is appropriate at the same time, it also decides which one has priority and what happens to the other. For example, an update of customers who have had recent service from a dealer will trigger the review process. For those who were due to be sent an inspection reminder but had the inspection recently, the reminder will be cancelled. And the mileage at the last inspection will be used to calculate when the next reminder

Similarly, if the customer requests information about a new model, the request will automatically trigger a review process to identify the best touch-point and which touch-points should be triggered as a follow-up.

As Toyota introduces brand new touch-points, such as a new Customer Driver Club, all Toyota has to do to update the Customer DNA is to define the touch-points associated with the Club, how they interact with existing touch-points and the membership rules for the club and then enter that data into Affinium. The next time a review is triggered, the new touch-points will be there along with the pre-existing touch-points.

More sales, more often, at lower cost
The Lean CRM approach outlined here has been developed in close cooperation with one of Toyota's European sales companies and its dealers. It has been piloted in touch-points during the customer lifecycle. It has enabled Toyota to sell significantly more vehicles, with a shorter trade cycle and higher repurchase rate, at significantly lower cost. A comparison of a recent before and after marketing campaign showed a 70 percent reduction of non-target customers being mailed, an 80 percent reduction in campaign costs, a 50 percent reduction in campaign development time and a 60 percent increase in campaign ROI. Over the next few years, Toyota's Lean CRM will contribute between $5 million and $10 million (in U.S. dollars) of additional contribution each year to the sales company.

Despite the reservations that some have about applying lean principles developed in manufacturing to sales and marketing, Toyota has shown clearly that Lean CRM does deliver significant benefits for customers and for itself. For Toyota, it is an inextricable part of its long-term drive toward total customer satisfaction.

                                                                           Lean method:

Through the history of Toyota Company, it has made a lot contribution to the development of operation management. Among all of them, one is still shining in the sky of operation management. It is the JIT system. JIT, which is short for “just-in-time”, means that Toyota minimize inventory and smooth the flow of materials in order that material arrived just as it was needed. These days this method is renamed as the lean manufacturing system. 

To be more specific, there are five zeros in this JIT method. They are: zero paper, zero inventories, zero downtime, zero defects and zero delay. According to the spirit of these 5 zeros, it focus on keep the plans and inventory of Toyota to a minimum but still easy and visible, using reliable and flexible processes, keeping within the chain of quality and the speeding up of actual design times and manufacturing time from the start of a project to the finished product. So in this way, it can reduce the muda, which means the waste and anything other than adds value to the product or service, as well as the complexity from the company’s operations.

First, we introduce TPS, Toyota Production System.

 Some Basics Concepts of TPS:

Smooth Flow and Produce to Takt Time

Produce to Order

Make system “observable” and correct problems as they occur

Integrate Worker Skills

Institutionalize change

 Two examples; Takt time and pull system

                Available Time

                Product Demand

Calculate Takt Time per month, day, year etc. Available time includes all shifts, and excludes all non-productive time (e.g. lunch, clean-up etc). Product demand includes over- production for low yields etc.

For instant:

Automobile Assembly Line;

Available time = 7.5 hr X 3shifts = 22.5 hrs or 135 minutes per day.

Demand =1600 cars per day. Takt Time = 51 sec

Aircraft Engine Assembly Line;

500 engines per year. 2 shifts X 7 hrs => 14 hrs/day X 250 day/year = 3500hrs.

Takt time = 7 hrs.

Comparison between Push and Pull Systems

Push system characteristics: Central decision making, local optimization of equipment utilization leads to large batches, large inventories and a sluggish system.

Pull system characteristics: Local decision making, emphasis on smooth flow, cooperative problem solving.

Advantages of pull system:

•    quick response

•    low inventories

•   observable problems  (if stopped = problem)

•   sensitive to state of the factory  (if no part = problem)

•    possible cooperative problem solving

In order to achieve the goals of reducing waste and complexity, some other components should be come down to. They are quality planning, quality control and quality improvement. As we all know, because of the manageable size, workflow, and flexibility of lean production, Toyota will use the pull system.  In these pull systems, Toyota choose Kanbans. Kanban means card in Japanese. Every kanban is equal to a standard quantity of production or size of container. In the Kanban, it includes some information such as the product name, and quantity. The detailed information contains unit number, name, type of container, preceding station and subsequent station. So within Kanban, Toyota can control the production stage and reduce the information process in the pull system in order to smooth the logistics in the production. Kanban can be divided into 2 parts, which are withdrawal Kanban and production kanban. The former one is a kanban used to signal the movement of parts between cells. It contains just the basic information about the batch such as the number of pieces and weight.  The latter one is a kanban that contains all of the basic information about a batch, such as number and weight, plus details about what type of work should be accomplished within the cell. Each Kanban is physically attached to a container or cart. 

Also by reducing the number of kanbans used, the amount of inventory used between workstations is also cut. This allowed Toyota to make a metaphorical war on waste, its causes and eliminating these causes from their operations totally. It was another important process implemented by the Japanese that the change from using more skilled operators who will cut the chances of breakdown happening through automaton bottle necking the production system. Carefully organizing these skilled operator teams through careful analytical processes was also employed. Although Toyota of course used this on a much wider scale, progress is still easier to achieve if the operator is involved as much in planning the production processes as well as improvement schedules as goes more hands make lighter work when dealing with a problem.