Toyota is one of the world’s largest automobile companies, but it faced a long road to get to this place in history. It wasn’t until the company developed its original manufacturing philosophy, the Toyota Production System (TPS), that the carmaker began to thrive. This lean manufacturing approach combined with a culture built on continuously working to improve quality propelled the company to the front of the pack.

Kiichiro Toyoda founded the motor company in 1937 just two years before World War II. After the war, resources including steel and other metals were in low supply. These shortages often forced the company to modify both the product and its production process. For example, Toyota removed one of the headlamps from its Model K truck because of limited amounts of this important component. During this time, Toyota cars were low-cost vehicles with few options or accessories common in today’s automobiles.

Toyota’s production system, often referred to as just TPS in the automotive world, wasn’t conceived until the late 1940s. The company envied the way Ford produced cars in its River Rouge plant in Michigan. One of the main differences between the two companies was that Ford stockpiled large inventories of resources and component parts for future production needs. At the time, Toyota could not afford to have so much inventory on-hand tying up its capital. Instead, Toyota began to look for ways to work around this problem.

After studying the methods that American supermarkets used to control inventory, Toyota began to craft a solution based on the concepts of ordering fewer parts, but ordering more often. Using inventory practices common in U.S. supermarkets, Toyota ordered or made only enough parts to replace the ones that were used in the previous production phase.

This method later became known as the just-in-time (JIT)

inventory system. JIT ensures that materials arrive exactly when they are needed in order to reduce storage and holding costs. To support the JIT inventory system, the company also developed a sign-based tracking method called Kanban to track the flow of goods. Today, many experts consider Kanban to be the precursor to modern bar codes used by businesses to track parts and materials in manufacturing facilities.

TPS, JIT, and Kanban weren’t Toyota’s only innovations.

Ford had set the standard for assembly lines, but Toyota saw room for improvement. With Ford’s early production techniques, assembly lines moved continuously, which maximized efficiencies of scale but also allowed room for errors that had to be corrected later. Toyota introduced the Andon Cord, a physical rope that employees could pull to stop the assembly line and allowed workers to fix problems on the spot. The fact that employees had the power to stop the manufacturing line led to increased employee motivation to eliminate the same types of mistakes in the future. The result was a dramatic decline in the number of errors and improved quality of finished cars.

Thanks to TPS, JIT, Kanban, and the Andon Cord, Toyota built a reputation for making affordable, quality vehicles. At the same time, they were also able to produce cars quickly.

Because of increased productivity, it takes only 1.6 workerhours to produce a car, much lower than competitors. And as gas prices increased, Toyota’s cheap-to-run vehicles became more appealing to U.S. consumers. By 1962, the company had produced one million cars. A decade later, that number grew to ten million.

Today, one of the secrets of Toyota’s continued success is its ability to adapt the methods it has used to become one of the largest car manufacturers in order to compete in today’s ever-changing business environment. For example, in some cases, it has increased inventory levels for some essential resources like microchips and electronic components needed to produce cars with the latest technological advancements.

While stockpiling of some needed parts is not consistent with JIT inventory control, it was a decision that was driven by shortages of some critical parts in the last 15 to 20 years. To combat the problem of shortages, executives and managers also use a contingency planning system called RESCUE

(REinforce Supply Chain Under Emergency) to provide information about potential shortages of thousands of parts supplied by a wide range of diversified suppliers. Toyota’s agility in managing its inventory is a definite advantage because it prevents costly production slowdowns or temporary plant closures.

Today, Toyota has manufactured more than 250 million vehicles and shows no signs of slowing down. Because Toyota has set the benchmark for others in waste reduction, efficiency, and incremental quality improvement, companies including Caterpillar, Intel, General Motors, and a multitude of others have followed in their footsteps to increase productivity and improve quality.

Discussion Questions

1. Through the years, Toyota has used TPS, JIT, Kanban, and the Andon Cord in its production plants. How have these methods enabled Toyota to improve the quality of its cars and increase the productivity of its workers?

2. Historically, Toyota has used JIT to control inventory costs, but in the last 15 to 20 years, it has begun stockpiling essential parts needed to produce cars. What factors led to this change in inventory control?

3. Today, Toyota is a recognized leader in efforts to improve product quality and increase employee productivity in the automobile industry. Do you think the same methods that Toyota uses to manufacture cars would work in other types of businesses? Explain your answer.