[Viewpoint] Much to learn from the ‘Toyota Way’

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[Viewpoint] Much to learn from the ‘Toyota Way’

It seems that even leading international enterprises equipped with world-class technology and productivity cannot easily cope with the global economic recession. Toyota Motor of Japan, which had been at the helm of the international automobile industry until last year, is crashing rapidly.

The world’s largest automaker, which recorded its highest surplus of $27.86 billion in 2007, suffered a record-high deficit of $4.75 billion in less than a year.

That’s not all. The credibility of Toyota has moved down one notch because its performance has deteriorated along with that of the entire auto industry.

According to the list of the most desirable places to work in Japan announced last month, Toyota’s popularity plummeted to 96th place from 6th place the year before. What has happened to Toyota? Is there a problem in the “Toyota Way,” which was competitively imitated even by businesses in different trades?

The Toyota Way is a production management system developed by Toyota after 1950s. The most representative part of the Toyota Way is the so-called “lean production method” - the dumping of all unnecessary elements from the production process.

By eliminating waste in time and material throughout the production process - starting from purchase of raw materials to the delivery of end products - Toyota delivers the highest quality products at low prices to meet current customer demand.

The so-called “Just in Time” method is an innovative production management technique invented by Toyota, one of several innovative production management techniques created by the company. It is a management system that minimizes inventories by adjusting the amount of work according to production stages. It was named so that workers moved with a sign showing the names of parts, their serial numbers and quantity required as they followed a production line.

There is no reason to think that the Toyota Way created problems for the company or that they should be changed because of the bad economy. To the contrary, raising the efficiency of the production process is needed even more urgently when the economy is in a crisis or in recession. Toyota’s methods are still followed at Toyota factories, and many companies in the world try to emulate them.

The slide of Toyota was not caused by sudden deterioration of production efficiency. It was rather misjudgment by its management that played the decisive role. Expanding overseas production facilities when the international automobile market was already overflowing was the root cause of its downturn.

Toyota expanded overseas production capacity, which was 1 million in 1994, to 5 million by end of last year. By selling 9.3 million cars in Japan and overseas markets, Toyota beat its rival GM and last year became the world’s largest automaker.

But its moment of glory did not last long. The painful crash came right after that. While the demand for automobiles fell rapidly due to the economic recession, the value of the Japanese yen climbed sharply. Inventories of unsold cars piled up.

There was no way out, because Toyota was losing money even if the cars were sold. Around that time, word started to spread that there were problems in Toyota’s personnel management at its overseas factories. And among customers, the reputation of its high quality, the pride of Toyota, started to deteriorate.

This provided a good chance for Korean automakers, Hyundai and Kia. While sales of not only the “Big 3” American automakers, but also other major manufacturers - including Toyota - in the American market are plummeting, Hyundai-Kia sold more cars and raised its market share.

There was even a news report that there was a good chance for Korean automakers to overtake Toyota. But it is too early to expect Korean automakers to actually do so.

The reason Hyundai and Kia fared well in overseas markets was because, contrary to the case with Toyota, they benefitted from the devaluation of the Korean won. It is highly likely that the position of Korean and Japanese automakers will change when the value of the Japanese yen goes down and that of the Korean won rises.

If things follow that path, Hyundai, which competitively expanded production facilities at home and abroad, cannot assure its safety. In less than seven years, Hyundai and Kia expanded production capacity to 6 million. There is no knowing when such aggressive management tactics of the two will boomerang against them.

It is true that the competitiveness of Hyundai and Kia lags behind that of Toyota. Except for the advantage Korean automakers enjoy from favorable foreign exchange rates, there is nothing in their favor in the international market. Although Toyota is in trouble now, it is still the most competitive automaker in the world and there are still many things that we should learn from the Toyota Way.

*The writer is an editorial writer of the JoongAng Ilbo.

by Kim Jong-soo
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