Toyota in crisis: what now for Continuous Improvement?

by Matthew Moore on 9th February 2010

Toyota, for so long lauded as the standard-bearer for quality in production, is in the midst of an unprecedented crisis with both its reputation and stock price reeling from the effects of recalling over 10 million of its vehicles worldwide.

The latest recall refers to its flagship hybrid model, the Prius, with 436,000 being recalled worldwide due to a brake problem. This follows the recall late last year of over 8 million vehicles due to a problem with floor mats, before accelerator pedal problems resulted in another 2 million cars being sent back to the manufacturer in January this year.

Whilst recalls are not uncommon within the car industry, the sheer volume involved has resulted in substantial damage to the car maker's previously enviable reputation for quality and reliability. In addition, Toyota's decision on January 26th to temporarily halt production and sales in the United States of eight of its most popular models has resulted in a 16% drop in sales last month compared to a year earlier, while it's competitors have seen healthy increases.

But how has this been allowed to happen in a company whose production methods - the basis for Lean - are held by the Operational Excellence (OE) community as best practice throughout manufacturing, and have even been transferred to the service sector? Can Toyota's reputation recover? And how will this effect OE and Continuous Improvement programmes that are based upon these methods and aspire to the car maker's philosophy and standing?

"A moments of crisis"Toyota president Akio Toyoda has apologised for the recalls and admitted that Toyota faces "a moment of crisis". The carmaker has estimated that the recall and suspension of production could cost it up to $2billion in lost output and sales.

Toyota's troubles could have a negative effect for OE and CI professionals trying to improve the profile of their programmes. Getting engagement from leadership is much easier when an improvement programme is based on the principles of a company that has become the biggest of its kind - as Toyota did in 2008 - particularly when those principles were lauded as in integral part of that success. Now though, those very production methods have been seriously called into question.

The halting of production, which on the face of it would seem disastrous, is conversely an indication that Toyota is sticking to - perhaps even re-invigorating - those principles. One of the two main pillars of the Toyota Production System is Jidoka, the highlighting and visualisation of problems, which involves stopping any machine involved in the production process as soon as a malfunction is discovered, and stopping work until the fault is repaired. By halting production and suspending sales, Toyota are simply adhering to Jidoka, albeit on a massive scale.

This confirms Akio Toyoda's statement in January that the car maker "will redouble our commitment to quality as a lifeline of our company, with myself taking the lead, and by keeping to the 'genchi genbutsu' principle all of us at Toyota will tackle the issue in close cooperation with dealers and suppliers together. We will do everything in our power to regain the confidence of our customers".

Genchi genbutsu, which involves going to the source of any problem and clarifying with one's own eyes, is also a part of Jidoka, and intrinsic to Lean methods based upon the Toyota Production System. Taiichi Ohno, who pioneered the system in the 1950s, constantly emphasised the importance of genchi genbutsu, famously saying: "data is of course important in manufacturing, but I place greater emphasis on facts."

Growth above qualityMany believe that in recent years, the leaders at Toyota became too fixated on growth instead of maintaining quality and reliability as their primary concern. Writing in the Harvard Business Review, Steven Spear, a senior lecturer at MIT in the US, makes the point that Toyota's very success has caused it's own downfall. "The flush of catching up to Ford and General Motors, coupled with a boom in demand, led Toyota's leaders to put sales growth above quality. Senior leaders became focused on becoming first in sales with a 15% share of global sales. This meant that new products had to be introduced more quickly, new plants had to be opened more rapidly, and supply networks had to be expanded more aggressively. We're now seeing the consequences of those decisions."