OPERATIONS STRATEGY FORD, GM

AND TOYOTA

SUCCESS STORIESBy

Sambit Kumar Dwivedi

INTRODUCTION

The effects of the automobile placed on the economy of the 1920s were a great impact. It set roads for the future. It was set to change the ways humans live. The research and development that led to the growth of the automobile industry caused many economic changes to the lives of American society of the 1920s. Now referred to as cars, it provides individuals with a source that can be used to travel long distances and interact with individuals across nations. Without cars society would not be able to interact, have mass amounts of international business, trade and would have less of countries GDP (Gross Domestic Product). Areas of business such as, the automotive industry were the base of the start of joint ventures, the stock market’s growth and the lifestyle of American individuals.

First we need to define the process of Operation Strategy before we dive into the success stories of FORD, GM & Toyota.“Operations Strategy is the total pattern of decisions which shape the long-term capabilities of any type of operations and their contribution to the overall strategy, through the reconciliation of market requirements with operations resources.”Operations strategy is the tool that helps to define the methods of producing goods or a service offered to the customer.

“I am going to democratize Automobile”Henry Ford

"The business of business is business"Sloan

“We build cars, not intellectuals”Toyota

Ford’s Model “T”: A synergy of Technology and Operation Management

Born to a farmer father and housewife mother, Henry Ford hails from Dearborn, Michigan. An innovator and inventor from the childhood, Henry was always busy devising some new method or equipment that would help his father in his farming or his mother in her daily household chores. At an age of thirteen, deeply fascinated by the coal-fired steam engine; Henry had decided that he was not going to join his father in the family business. Despite all the discouragement from family, young Henry sent out from home at an age of sixteen to find himself in Detroit working as a mechanic’s apprentice. By the time he was twenty-four, Ford found himself working for Edison Illuminating Company as a Chief Engineer. His obsession with technology and automobile made him build his first car in 1896. From being the vice president in Detroit Automobile Co. in 1898 to establishing Ford Motor Company in 1903; Henry Ford hadn’t looked back since then.

Automobile in those days was a product of luxury. It could be afforded by a few and production was limited as well. Car companies used to purchase most of the components those days. Skilled mechanics worked in individual workstations collecting the parts as required until a car was complete. The process was expensive and time consuming hence mass production was impossible. Occupied by the idea of building “a motor car for the great multitude”; Henry Ford went on to refine and streamline the process in such a way that would not only make his company grow but also make him a pioneer in the field of operations.

In the year 1908, a Ford T took over 12 hours to get built and sold for $825. The year at its end saw a sale of nearly 10,000 pieces of the model, but that was not enough. Henry Ford wanted better efficiency and less time consumption and hence he began to incorporate Taylor’s Scientific Management Theory in his Highland Park factory.

The most important implementation was the “Moving Assembly Line”. Ford realized that, it took significantly less time if the workers remained fixed in their position and the product was moved past them. The concept of “Connect and Develop” is beautifully illustrated in Ford’s learning of assembly line from a beef factory. The assembly line achieved the purpose of reducing “Non Value Added Work”. In the process of assembly line, Ford also observed that certain tasks took more time to complete than other and hence the concept of “Bottleneck” was identified. Ford made sure to make the necessary changes in the tools and machineries associated with the

Bottleneck and tried to “Elevate” the constraint. Ford also implemented

Whitney’s concept of “Interchangeable Parts”. Using interchangeable parts required making the individual pieces of the car the same every time. All pieces would fit with all others. Any valve would fit any engine and any engine would fit any frame. The “standardization” of parts made it possible to break down assembly of the Model T into distinct steps. Each worker was trained to do just one step or a very few steps. This is how the “Division of Labor” concept came to being. Parts were attached to a moving Model T chassis in order, from axles at the beginning to bodies at the end of the line. As vehicles moved past the workers on the line, each worker would do one task. Some components took longer to put together and attach than others. “Subassemblies” were established for these. For example, each radiator with all its hose fittings was put together on a separate line feeding into the main assembly line. The interval between delivery of the car and its components was carefully timed to maintain a continuous flow. This boosted the efficiency and reduced the time consumption. With a simple motto “Make them all alike”; ford had achieved the impossible. Now it took only 93 minutes to assemble a Model T from scratch.

A complex surrounding the Highland Park Plant included a power plant, machine shop, and foundry. Ford was starting to bring together the various stages in the manufacture of automobiles, a strategy called “Vertical Integration”. By the 1920s, Ford had purchased a rubber plantation in Brazil, coal mines in Kentucky, acres of timberland and iron-ore mines in Michigan and Minnesota, a fleet of ships, and a railroad. These efforts to vertically integrate helped Ford make sure his company would have raw materials and parts when they were needed, guaranteeing a continuously operating assembly line. These efforts also enabled the company to profit from more of the processes involved in producing the automobile.

Ford also invested in “Human Capital”. A $5 wage for eight-hour day, English schools for workers’ children, medical facilities, playground were some of the initiatives taken by Ford towards creating a “Happy Workforce”. The result was the production figures in the years 1910,1911 and 1912. The production doubled year after year in these three years.

By the end of 1914, a model T was selling for $99. Ford had definitely achieved his dream of making car for the mass. A worker could drive a “T”, come to work, make a “T” and go back home driving the same car he built.

Success story of GM: Beat one in one’s game

While the shift in focus from product to process was originally useful in redressing the imbalance that had existed in the industry, it has gone too far. In fact, the fortunes of companies are much more clearly tied to their ability to design and market products than to their ability to adopt the latest techniques for controlling production. In case of Ford, the concentration on streamlining the process was so great that, it failed to keep pace with people’s demand. When a it was decided to launch a new product, the plant had become so “single process”, “unchanging T model oriented” that an entire retooling of the plant had to be carried out in 1928. This was the time, specifically the decade, where General Motors snatched the market away from Ford’s hand.

Starting in 1908 with the Buick Motor Company, energetic dealmaker William C. Durant assembled GM through the mergers and acquisitions of numerous automobile manufacturers and parts suppliers such as “Cadillac”, “Chevrolet” and “Delco”. In 1916, Hyatt was acquired by a GM affiliate for $13.5 million, and Sloan eventually became a GM vice president. After Durant lost control of GM in 1920, Pierre du Pont made Sloan GM's president in 1923.

Sloan systematically organized a chaotic early GM into a smooth-running, industrial behemoth of such scope and profit that it was seen as a proxy for American economic might at large. During Sloan's tenure, GM's US market share rose from 12 % in 1920, overtook Ford by 1930, and had reached 52 % when he retired as GM's chief executive in 1956.

Unlike Ford, a farmer's son who wanted to produce an inexpensive, functional vehicle with few frills (he said that his customers could have any colour that they wanted as long as it was black), Sloan was convinced that Americans were willing to pay extra for luxury and prestige. He advertised his cars as symbols of wealth and status, and in 1927 he introduced the yearly model change, to convince motorists to trade in old models for newer ones with flashier styling. He also developed a series of divisions, differentiated by status, price, and level of luxury. To make his cars affordable, he set up the nation's first national consumer credit agency in 1919. If Henry Ford demonstrated the efficacy of mass production, Sloan revealed the importance of merchandising in a modern consumer society.

Among many things, Sloan instituted new “Production and Inventory Controls”. The division managers were stripped of their authority to make any purchase without the approval from senior executives. “The old master had failed to master change”- was the statement from Alfred P. Sloan Jr, referring Henry Ford as the old master. Sloan invested a good amount of money in “continuously changing” his product offerings. Hence having something to offer to consumer of every section and class.

The essence of Sloan’s accomplishment, briefly, was his creative approach to the problem of how to combine a degree of “decentralized responsibility” with “centralized control”. The company was separated and differentiated according to the strategy of serving different markets. But, individual interdivisional committees were also created to coordinate functions like purchasing, engineering and research. A lot of emphasis was given to “Marketing” and “Branding”. The idea that was carried forward was “The car for every Purse and Purpose”. As the low price market was nearly occupied by Ford, GM attacked the medium and high price range market and hence slowly and steadily established itself in the market. To help people with financing needs GM introduced General Motors Acceptance Corporation (GMAC). “Dealer Relations” was a made a priority at GM. Dealers were asked for suggestions and their views would be taken into account while making corporate policies.

Sloan's organizational innovations, like Ford's, could be considered intangible because they did not directly address the balance sheet or income statement. They were improvements in the processes, managerial decision-making, brand extension, and compensation policies that contributed to improvements in productivity, profitability, and return on investment.

Toyota: Do it the “Toyota Way”

By the beginning of 1970, GM was into its 39 th year of total dominance of global automobile sales and Toyota was just recovering from the cash flow problem it faced during 1950s. The cash problem was so intense that Toyota had to request voluntary retirements from its employees, which gave rise to a labour crisis. It settled only after the chairman resigned, accepting responsibility. It was during this time that the reins of company was passed on to the dynamic duo of Eiji Toyoda and Taiichi Ohno. In the late 50s, Toyoda visited the manufacturing units of Ford and GM in America. Although awed by the scale of operations in those factories, Toyoda was appalled by the huge amounts of inventory stored and inefficiencies in the system. The 1950s also

was a time when Japan was fighting its way back into prominence after the WWII disaster. During this time a huge number of Japanese engineers and executives were trained by W. Edward Deming, the creator of PDCA (Plan Do Check Act) system and one of the biggest proponents of Statistical Quality Control. This philosophy greatly influenced Toyoda and Ohno in their approach towards manufacturing.

The 1970s saw Toyota advancing in both sales and quality. As the Toyota Production System (TPS) became more and more refined, Toyota was able to ramp up production yet not at the expense of the quality and reliability of its vehicles. Having already won the Deming Prize in 1965, Toyota became the first company to be awarded the Japan Quality Control Medal.

By maintaining a standard work sheet efficiently Toyota to a great extent could keep a track on its production system and was able to eliminate any type of wastages or obstructions. A standard work sheet competently combines materials, workers and machines to manufacture effectively. In Toyota, this process is known as work combination, which is a result of standard work procedure. The list clearly enlists three aspects of the standard work procedure as, “Cycle Time”, “Work Sequence” and “Standard Inventory”.

Cycle time is the time, which is allotted to manufacture one piece or unit. This is determined by the production quantity, which means the quantity required and the operating time. Quantity required per day can be calculated by quantity required in a month divided by the month's number of operating days. In majority of the cases, delay takes place due to the differences in the operator motion and sequence. The job of the field supervisor, section chief is to effectively train workers, which is possible through clear instruction sequence.

Standard inventory refers to the minimum intra-process work-in-progress required for operations to take place. In Toyota production system, the condition that parts have to reach Just In Time (JIT) implies that standard inventories need to meet more meticulously. With the inclusion of "just" in "just-in-time" it means that if the parts arrive any time earlier to their requirement and not at the time when it is needed actually, then wastage cannot be eliminated. In Toyota production system, overproduction is entirely prevented by “Kanban”. Consequently, there is no requirement for additional inventory and thus no requirement for warehouse and its manager.

Kanban is a technique to achieve JIT; its aim is as the name suggests just-in-time. Kanban, in true sense becomes the autonomic nerve of the production

line. In this, production workers begin to work themselves and make their individual decisions regarding overtime work. The kanban system also clarifies what managers and supervisors should execute. Thus, it promotes improvement in both work and equipment. The objective of elimination of wastage is too highlighted by kanban. Its implementation demonstrated what is waste, allowing creative study and enhancement proposal.

Within a production plant, kanban is a powerful force to decrease manpower and inventory, elimination of defective products and preventing recurrence of breakdowns. Market diversification in Toyota can be seen through the variety of cars, SUVs and commercial vehicles it manufactures.

To illustrate, considering Corolla, the world's largest mass-produced car during the late 70's, a definite production plan can be set up on a monthly basis. The total number of cars needed, can be divided by the number of working days (which is the number of days on which actual production could be carried out) to the level the number of cars to be manufactured in a day. By studying each process like this, we could keep diversification and production level in harmony and still respond to customer orders in a periodic manner. Kanban enhances productivity and always moves with the required goods and thus becomes a work order for every process. In this manner, a kanban can easily stop any kind of overproduction, which is the largest loss in production for any company including Toyota.

During 1950, labor dispute over manpower reduction and the ensuing business boom of the Korean War, Toyota struggled with a problem of how to scale up its production without increasing its manpower. The product manager came up with an idea and following means. For instance, one production line consists of 10 workers and manufactures 100 products yearly. This implies the line capacity is 100 pieces every day and the productivity per individual is 10 pieces a day. Examining the line and workers more in detail, one notices overproduction, workers waiting and other unnecessary movements depending upon the time of the day. If this situation could be exploited, manpower could be reduced by two numbers. The fact that 8 workers could produce 100 pieces every day suggests that Toyota could easily grab up to 125 pieces every day, increasing efficiency with no need of decreasing manpower. However, even earlier the company could manage the same efficiency but it was getting wasted due to unnecessary work and overproduction. This implies that if Toyota regards only work which is required as real work and defines rest as wastage, the equation given below holds true for both individual as well as the entire product line:

Present Capacity= Work + Waste

As in the case of Toyota production system, they must manufacture only the quantity required, manpower should be reduced to trim excess capacity and the match needed quantity.Toyota identified three types of wastes; “muda”, “muri” and “mura”. For most of the “lean manufacturing” implementations, all three of them fall broadly under the first type of waste, muda. The original seven muda were as follows:.

1. Waste of overproduction

2. Waste of time on hand (waiting)

3. Waste of transportation

4. Waste of processing

5. Waste of stock in hand (inventory)

6. Waste of movement

7. Waste of manufacturing defective products

The term “jidoka” used in the TPS (Toyota Production System) can be defined as "automation with a human touch." The word jidoka traces its roots to the invention of the automatic loom by Sakichi Toyoda, Founder of the Toyota Group. The automatic loom is a machine that spins thread for cloth and weaves textiles automatically.Before automated devices were commonplace, back-strap looms, ground looms, and high-warp looms were used to manually weave cloth. In 1896, Sakichi Toyoda invented Japan's first self-powered loom called the "Toyoda Power Loom." Subsequently, he incorporated numerous revolutionary inventions into his looms, including the weft-breakage automatic stopping device (which automatically stopped the loom when a thread breakage was detected), the warp supply device and the automatic shuttle changer. Then, in 1924, Sakichi invented the world's first automatic loom, called the "Type-G Toyoda Automatic Loom (with non-stop shuttle-change motion)" which could change shuttles without stopping operation.The Toyota term "jido" is applied to a machine with a built-in device for making judgments, whereas the regular Japanese term "jido" (automation) is simply applied to a machine that moves on its own. Jidoka refers to "automation with a human touch," as opposed to a machine that simply moves under the monitoring and supervision of an operator.Since the loom stopped when a problem arose, no defective products were produced. This meant that a single operator could be put in charge of numerous looms, resulting in a tremendous improvement in productivity.

Ohno predicted that constant quality improvement, as mentioned in the Kaizen principle will, in the long run, drive the costs low.Toyota successfully retained its number one ranking in the car market because of adapting to the practice of "lean thinking" which is not just limited to products and manufacturing processes but also to relationships with its customers and work force. Toyota has successfully marketed itself and through its activities which need product design, customer relationship building, technical service support for vehicles, brand development, and advertising and sales promotion capabilities.

All this has led to a large customer base for the company which has helped it achieve its ranking in the market. Quality has been its key aim and it has already been studied earlier in the paper. Customers wish to get good quality products and Toyota successfully accomplishes its objective.

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