Assessment Decisions

Question:

 With regard to the recall crisis Michael Cusumano (2011: 35) observes: “It may well be that Toyota managers as well as staff engineers believed their company had already reached such a high level of perfection that there was nothing much to worry about”. To what extent do you agree with this assessment? Include in your analysis an assessment of the decisions made by management. Did any decision making breach the company’s own ethical standards? 

Answer:

Introduction:

Toyota first started its passenger car marketing business in the year 1936. The company first started its first model AA and emphasize on the new product line. Toyota is known as one of the leading Japanese automobile manufacturer. It is one of the 13th largest organizations globally in terms of revenue and has a reputation of producing more than 10 million vehicles every year in a short span of 12 years. In the year 2014 the company held a prime position of second rank in the market capitalization list. The company lays an augmented effort in terms of automobile engineering, research and improving strategy. Toyota’s traditional approach has always been to adopt a lean manufacturing strategy which focused on product quality and laid emphasis on lowering the price, improved aerodynamics and increased fuel efficiency in its vehicles.   The efficiency of the application of the lean manufacturing principle of Toyota lies in Toyota Production System (TPS). Company has shown stark improvement by undertaking the philosophy of lean production and Kaizen. The implementation of six sigma technique in the company ensured an improved quality of the manufactured parts of the products. It also ensured the company is able to significantly reduce the wastage of its products. (TM Profile | Toyota Motor Corporation Common Stock – Yahoo! India Finance In.finance.yahoo.com 2016). 

According to Poppendieck and Cusumano (2012), the company has focused on continuous improvement through total quality management and aiming for sustainability through learning the market environment characterized by the activities related to collaboration and cooperation which requires a high level of the loyalty. The company has able to achieve social learning through high level of trust. With regard to Michael Cusumanoi and his assumption on the high level of quality of Toyota, it cannot be said that Toyota has nothing to worry about the present situation of crisis. The quality circles led by the company was limited by de-contextualization as the western managers did not appreciate the fact that the quality circle  were focus to greater improvement, of the various learning process and its implication on the social learning. The strategies adopted by the company in order to reduce the waste and increasing the value proved to be further challenging. The managers were on appreciative of the fact to agree the sustainability solutions   and predict an incremental change in the overall development of the company (The Crisis Management Lesson from Toyota and GM: “It’s Our Problem the Moment We Hear About It” Harvard Business Review. 2014).

In the year 1990, the company had been compelled to recall its pickup trucks of its American buyers as the cars had a potential dangers to concerning corrosion in the frames of the vehicle.  The company faced its first setback in the year 2009 falling into bankruptcy. In the year 2010 the company further faced major issue due to its quality crisis. More than ten million automobiles had to be recalled. The problems related to several dimension of the quality aspect included technical faults such as loose suspension, floor mat and brake shoes. The company has been responsible for having a reputation for a series of fatal accidents in the year 2010 (CORPORATION 2016).

The ethical issue concerning this has further escalated the situation as the company decided to keep this issue as a secret in the eyes of the media. In an endeavor to cover up the various attempts of the issues concerning the quality across the globe, on February in the same year the company’s chief executive officer Akio Toyoda made an appointment with the US congressional hearing which was responsible in solving the issues related to recall crisis. The company further misled the US regulators by not disclosing technical issues related to car mats. A week after this incident the senior personnel of the company faced lot of embarrassment for leaking of the information on how the management of the notified the management of Toyota on how the safety standards had been compromised in the company with regards to the lowering cost in the devices and instruments use for the purpose of the production. In the year 2011 the US Government imposed a fine of $ 32.4 million as the company considerably failed to recall its cars. Several issues concerning the crisis raised further issues on the decision making process of the company, checking and verifying the materials before shipment, and several questions on the traditional commitment of delivering superior service to its customers raised further issues for the company. According to various theorists the problem dealt with poor implementation of the strategies than adopting poor the strategies. The root cause to the problem was revealed after several investigations which suggested that the technical problems related to poor accelerator pedal and a software anomaly which was caused due to sub-standard product design and testing process of the cars. The primal cause for the various issues was however not recognized for the poor software but it was caused due to relocation of the production bases of the company overseas (Nytimes.com 2016).

Hence, it would be difficult to say that the company would be able to completely suffice its lost crisis. The main reason for the lost reputation of the company has been observed in the sudden recalls in the acceleration. The company has spent a huge portion on its income in Government law suites and settlements. The most detrimental issue faced by the company is related to its traditional set of modeling of the cars. Study revealed former assembly worker of Toyota named Wakatsuki, tested the safety and quality aspects of only 60% if the total cars produced, whereas in the past the cars were tested more in numbers. The rapid growth policies adopted by the company of establishing 17 new production facilities has led to the imbalance in quality checking aspect due increasing number of the vehicles. The following incidents of faulty vehicles have led to the decline in the company sales and confidence among the customers.  The net impact of this was further detrimental to the company as the company closed down its operations in six such facilities.   Another instance of the ethical issue surrounding the company was observed when it ignored the customer complaints related to brakes and accelerator problem in its car models. However the company was fully aware of its flaws in early 2010 at January (Fujimoto 2012).

The company suffered heavily from the damages led to tsunami disaster. The incidence heavily impacted on the profits of the company as the profit reduced by 18.5 percent. The company also suffered from part shortages, the essential component of the supply chain got impacted and many suppliers got badly affected after this impact. The company relied on the lean production for its stability and maintenance of routine. Similar processes were maintained in the day in, day out operations. The stability of the routine was severely affected by the impact of tsunami. The recovery process was involved with the rebuilding process reducing the redundancies in countries such as Japan and Australia (Reuters. 2016).

According to FCILT (2013), the instruments to improve the affected situation of the company was improved though various initiatives of training and employee development program. These were directly in line with the company’s principles. The company’s systematic approach to the human development ensured a robust management of the resources. The several initiatives included the induction of the new employees in five week orientation program, its program mainly aimed at improved HR practices and Co-operational activities of the personnel management from other department to provide further help. This program also took several initiatives for socialization process. In this system the employee are responsible for daily feedback on their process of recovery of the crisis faced by the impact of tsunami. Some other initiative included presentation on series of issues concerning the health and safety of the affected personnel. These activities were promoted by the senior executives of the company who were responsible for explaining the vision and princip[les of the company known as Toyota Way. The induction process of the company often included some physical and mental conditioning such as use of calisthenics. The program is followed by the ongoing training and developmental activities emphasizing on the importance of on the job training and job rotation policies. This approach has led the company to make the recovery fast enough after the incident of tsunami. In the recent times there has been an increase in the facilitation of the classroom teaching which has laid a globalization influence on the company’s approach for improvement and lean manufacturing. Despite of the mentioned initiatives the company has faced several challenges of the on the job training regime for the production activities continuing at normal pace. Hence it can be said that slowing down in a particular stage has a detrimental effect on the entire system (How the Japanese tsunami changed the auto industry Cbsnews.com. 2016).

According to a survey done by the Bloomberg, the reduction in the inventory of the company was backed by newer models introduced by the company. The newer model like Prius line of hybrid vehicles and Camry sedan led to 93% increase in the distribution of the cars and light trucks. The Boch group of Toyota sold more than 400 new vehicles of the above discussed line of vehicles. Some of the other line of cars included Sequoia and Land Cruiser and sport5 compact series of the cars. Toyota along with Honda motor co. were reported to be second largest in terms of  sales, despite of loss of production of numerous vehicles which was a result of the flood in Thailand and Tsunami in the areas of Japan. The company has been further been able to made the recovery globally by maintenance operations in several plants of the Toyota motor Hokkaido Plan, Tohoku Plant, Kanto Auto works responsible and central motor corporation Miyagi plant responsible for the production of Yaris model (Bloomberg.com. 2016).

Due to the impact of tsunami Toyota lost many 500 Tier 1 suppliers in Japan. The Tier 1 supplier are related furnish the major car components such as chassis and vehicle engines. The Tier 2 suppliers of Toyota supply the parts which are needed to furnish the Tier 1 parts like the spark plugs, pistons, valve, sump and crankshaft which are required while assembling of engine. The Japan plant of Toyota was able to regain its both the suppliers after the disaster brought by the Tsunami in all the plant of the company (Greimel 2016). 

Despite of this loss, the company was able to compensate the loss by asking the suppliers to manufacture the same parts in different locations. Toyota has been able to restore its inventory and regain its 13.9% of market share which it had before the disaster. As the carmaker follows the principles of lean manufacturing and maintains inventory according to just in time inventory, this mainly focuses on operating of the company with lesser inventory and optimum selection of the suppliers. The tsunami crisis has further degraded the situation by put a hold on all the major suppliers of the company. The suppliers were unable to produce adequate stock of materials because of the limited sourcing of the suppliers. The original equipment manufacturer (OEM) supplier has led to limited number of selection during such natural calamity. The damage caused in the sea ports of Japan after the Tsunami has further led to disruption in the supply of the automotive parts to the company’s manufacturing facilities located in other regions (How the Japanese tsunami changed the auto industry Cbsnews.com. 2016).

According to Barney (2012) the lesson identified from the crisis of the company has laid a global impact on the operations of the company. The company had taken several policies to overcome its losses in the affected departments. Toyota agreed to pay an amount of $ 1.2 billion for the prosecution led by the several quality issues faced by the company. The safety monitor for failing to disclose and misleading information about the floor mats and accelerators had caused several issues leading to uncontrollable speed and deadly crashes for the carmaker. Although the company recalled millions of its faulty cars the suits filed against the company are still going on. At first instance when the company was asked to justify the reason for self acceleration, the company had no idea on how to handle the issue. The company later realized that the issues were deep rooted from the manufacturing process itself (Shim and Steers 2012).

A joint study conducted by National Highway Safety Administration and NASA did not notice any electronic flaw, according to an article launched by business week in the year 2010. There was no definitive data to report the problems in the first instance.  The company should have searched for the definitive causes in the very first instance of occurrence of such issue.  Moreover the company should have taken the initiative to provide supportive proofing of notion that the vehicles were complied with the highest safety rules like the other carmakers (Settlement 2016).

According to Flintermann (2014), in order to address to the present problems, the company should take several measures to assure that reoccurrence of such events does not take place in the future. The preventive measure taken by the company should go through testing process which will reduce the issues to minimum. The CEO of the company should appoint a person to receive the incidence linked to the accidents and property damage. The ombudsmen reporting system of the company affects Toyota in terms of commercial, ethical and legal issues. In order to address to this problem the company should appoint a rapid response team to take appropriate action for the consequences faced by the CEO and other personnel designated in top positions of the company (Evans et al.2010)

According to Baldwin and Lopez‐Gonzalez (2015), the top business associates of the company should form appropriate multi-functional teams related to designing of the problems and providing solutions for inter processes and several duties to the regulators of the company. The busine4ss leaders should have a prompt, regular reporting of the incidences of the interrelated issues. The decisions should be made in accordance with the important safety factors and the CEO should give real time updating of the information to the board of directors of the company. During the formulation of the plans and policies of the company, it should ensure that the communication related to the policies is direct and accurate so that cases with deceptive and incomplete issues do not arrive in the first place (Lengnick-Hall et al. 2013).

According to Chopra and Sodhi (2014), the business of the company should further ensure the decisions and strategy are implemented meticulously with respect to the present crisis related to the quality issue faced by the company.  The company should incorporate changing system with respect to specific issues dealing with people affected to solve their issues with the regulators, press and other constituents incorporating the issue. The fundamental initiative should pass the stress test and ensure that such incidence does not take place on future. Various researchers on this matter have suggested that the company should look to solve the discrepancies with the justice department and prevent escalations in future. The most important issue for the company is to avoid the unconscionable delay in the proceedings of the remedial actions and search for other alternative at the same time. (Avnet and Laufer 2015). 

Conclusion

The study shows the various factors that led to the downfall of the company for critical quality issues in its manufactured parts. The later part of the study reveals the impact of the tsunami in Japan on the Tier 1 and Tier 2 suppliers of the company. The various findings of the report suggest that in order for reincarnation the company needs to go back to its roots of six sigma technique for reducing the error in the manufactured products. The adaptation of this technique will also ensure that the company is able to achieve the highest amount of quality and lowest amount of wastage in the manufactured components of the materials. The improvement measures stated in the study are related to reporting and communication issues related to the top management. The problem related to the quality issues exists in the manufacturing level and the people designated for the supply of the faulty parts are aware of the flaws in the components. The prompt reporting of the various issues should ensure that the issues are resolved before being raised in media and stakeholders of the company (Maiorescu 2016). 

Reference List

Avnet, T. and Laufer, D., 2015. Exploring the effectiveness of creating regulatory fit in crisis communications: Can it change perceptions of media coverage during a crisis?. Business Horizons, 58(2), pp.149-156.

Baldwin, R. and Lopez‐Gonzalez, J., 2015. Supply‐chain Trade: A Portrait of Global Patterns and Several Testable Hypotheses. The World Economy, 38(11), pp.1682-1721.

Barney, J.B., 2012. Purchasing, supply chain management and sustained competitive advantage: The relevance of resource‐based theory. Journal of Supply Chain Management, 48(2), pp.3-6.

Bloomberg.com. (2016). Toyota Tsunami Recovery to Be Seen in 93% U.S. Sales Gain. [online] Available at: http://www.bloomberg.com/news/articles/2012-05-31/toyota-tsunami-recovery-to-be-seen-in-93-u-s-sales-gain [Accessed 11 Jun. 2016].

Chopra, S. and Sodhi, M.S., 2014. Reducing the risk of supply chain disruptions. MIT Sloan management review, 55(3), p.73.

CORPORATION., T. (2016). Toyota Global Site | History of Toyota. [online] Toyota Motor Corporation Global Website. Available at: http://www.toyota-global.com/company/history_of_toyota/ [Accessed 8 Jun. 2016].

Evans, S., MacKenzie, A., Evans, S. and writer, A. (2010). The Toyota Recall Crisis – A chronology of the Toyota pedal, floormat recall – Motor Trend. [online] Motor Trend. Available at: http://www.motortrend.com/news/toyota-recall-crisis/ [Accessed 8 Jun. 2016].

FCILT, R.W.O., 2013. Supply chain temple of resilience. Focus.

Flintermann, B., 2014. The quality of market research reports-The case of Marketline Advantage and the automobile industry.

Fujimoto, T., 2012. The Evolution of Production Systems. Annals of Business Administrative Science, 11(0), pp.25-44.

Greimel, H. (2016). Tsunami: The aftermath. [online] Automotive News. Available at: http://www.autonews.com/article/20120312/OEM01/303129960/tsunami:-the-aftermath [Accessed 8 Jun. 2016].

Harvard Business Review. (2014). The Crisis Management Lesson from Toyota and GM: “It’s Our Problem the Moment We Hear About It”. [online] Available at: https://hbr.org/2014/03/the-crisis-management-lesson-from-toyota-and-gm-its-our-problem-the-moment-we-hear-about-it/ [Accessed 8 Jun. 2016].

How the Japanese tsunami changed the auto industry Cbsnews.com. (2016). How the Japanese tsunami changed the auto industry. [online] Available at: http://www.cbsnews.com/news/how-the-japanese-tsunami-changed-the-auto-industry/ [Accessed 8 Jun. 2016].

Lengnick-Hall, M.L., Lengnick-Hall, C.A. and Rigsbee, C.M., 2013. Strategic human resource management and supply chain orientation. Human Resource Management Review, 23(4), pp.366-377.

Maiorescu, R.D., 2016. Crisis management at General Motors and Toyota: An analysis of gender-specific communication and media coverage. Public Relations Review.

Poppendieck, M. and Cusumano, M.A., 2012. Lean software development: A tutorial. Software, IEEE, 29(5), pp.26-32.

Reuters. (2016). Toyota withdraws outlook on Thai floods, quake, yen. [online] Available at: http://www.reuters.com/article/us-toyota-idUSTRE7A71B420111108 [Accessed 11 Jun. 2016].

Settlement, H. (2016). How Toyota’s Crisis Management Failures Added To The Billion-Dollar Settlement. [online] Business Insider. Available at: http://www.businessinsider.com/toyota-paying-billions-because-of-marketing-failures-2012-12?IR=T [Accessed 11 Jun. 2016].

Shim, W.S. and Steers, R.M., 2012. Symmetric and asymmetric leadership cultures: A comparative study of leadership and organizational culture at Hyundai and Toyota. Journal of World Business, 47(4), pp.581-591.

The Crisis Management Lesson from Toyota and GM: “It’s Our Problem the Moment We Hear About It”

TM Profile | Toyota Motor Corporation Common Stock – Yahoo! India Finance In.finance.yahoo.com. (2016). TM Profile | Toyota Motor Corporation Common Stock – Yahoo! India Finance. [online] Available at: https://in.finance.yahoo.com/q/pr?s=TM [Accessed 8 Jun. 2016].

U.S. to Seek $16.4 Million Fine Against Toyota Nytimes.com. (2016). U.S. to Seek $16.4 Million Fine Against Toyota – NYTimes.com. [online] Available at: http://www.nytimes.com/2010/04/06/business/06toyota.html?_r=0 [Accessed 10 Jun. 2016].

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