Toyota is well known for its approach to problem solving and continuous improvement. Articles by practitioners, researchers, and participants have made the tools and techniques of continuous improvement familiar to every business executive. For example, phrases such as andon, heijunka, and kanban have become part of the day-to-day vocabulary of managers. In an insightful commentary on these tools and techniques, Jeffrey Liker writes that Toyota’s success goes beyond these tools and techniques to what he calls “The Toyota Way.”
Liker presents the Toyota Way as an all-encompassing method for designing and managing processes. Every student of Toyota also knows that the Toyota Way is unique, not only in its approach to problem solving but also in perpetu-ating its way of thinking across different types of operations, organizations (including suppliers, logistics providers, and dealers), and worldwide locations.
Underlying the success of Toyota is the company’s approach to scientifically examining problems, solving them, learning from the experience, and passing
on that knowledge to others.
Toyota is a global auto company with many products and markets. The company encompasses markets across the globe with different characteristics (e.g., the United States, Europe, and Japan) that warrant different supply chain configurations. In addition, differences among the Toyota, Lexus, and Scion vehicles warrant different supply chain processes. Although common processes underpin these supply chains, variations across these supply chains provide additional insights. We believe that an understanding of how all these supply chains coexist in one company provides an excellent learning opportunity for a practic-ing supply chain manager to apply the v4L framework to his or her work.
v4L Framework
Performance at Toyota is evaluated with equal weight given to both the process used to derive performance and the results achieved. This process focus aims to generate a balance of key supply chain parameters—variety of products offered, velocity of product flow, variability of outcomes against forecast, and visibility of processes to enable learning. The learning follows a carefully documented process that promotes continuous improvement. At the end of every chapter a reflection section will be included that links the chapter to the v4L framework: balancing variety, velocity, variability, and visibility across the supply chain. One way for managers to understand Toyota’s concepts is to first ask how their company’s supply chain achieves this balance. Often, variety is chosen with a focus on marketing benefits with scant attention to supply chain implications, velocity, variability, and the like. This off-optimal choice of variety can have severe repercussions across the supply chain, which is often difficult to untangle. A careful choice of v4L parameters enables superior supply chain performance at Toyota.
Learning (L) Principles
Toyota has mastered the art of learning and believes that the principles to attain mastery are universal. Moreover, Toyota has spread these ideas throughout its supply chain in its leadership role. We shall review these ideas in later chapters and provide a summary of methods that makes learning a practical and ongoing process at every level and every task in Toyota. Toyota’s way of making learn-ing happen not only conforms to the theory of learning (as we mention in The Toyota Way of Managing Supply Chains) but can be simply explained (as is often the case with things that are very hard to accomplish!). The following are the main principles:
- Create awareness. Unless problems are seen, they will not be solved. Systems need to be in place to report ideas, problems, deviations, and potential issues to a direct team leader with no delay.
- Establish capability. Unless someone is capable of solving a problem that might arise within the system boundaries set for him or her, that person will be unable to contribute to the problem-solving process and will be unable to recognize the need for specialized help.
- Make action protocols. Actions have to be taken within a set of constraints, and they must conform to certain standards. Doing so will help in the identification of the relation between action and results. It will aid in the codification of the knowledge for future use, with the same language and format used as well as similar content.
- Generate system-level awareness. As experience with solving problems is obtained, greater awareness of other areas that might be affected by actions or that might impact one’s own performance needs to be created.
- Produce the ability to teach. As system-level awareness and experience accumulate, the capability to teach others about these methods needs to be in place.
v4L Principles
The v4L learning principles are combined across all Toyota supply chain management processes to systematically focus on the v4L balance:
- Variety is carefully chosen to balance market demands and operational efficiency. Awareness of the impact of variety on the market demand and on manufacturing and supply chain costs enables all the entities across the supply chain to be considered when decisions regarding variety are being made. In one sense, variety represents a crucial supply chain design choice that has an impact across all supply chain participants. A key issue when variety is being chosen is the need to have feedback loops to ensure that the selected variety represents the best response to current market conditions. As we will discuss in each of the chapters, this is where the learning features of Toyota’s process enable the constant loop of Plan, Do, Check, and Act (PDCA).
- Velocity of supply chain flows is the next key concept, and it manifests itself in all processes across the supply chain. A focus on maintaining a steady flow throughout the system enables capacity planning to be synchronized across the supply chain. The detailed process descriptions in the following chapters will highlight how a rate-based approach serves as a linchpin for the planning processes across the system.
- Variability of orders or deliveries across the supply chain is minimized by how the individual processes are executed. Reducing variability enables all of the supply chain flows to operate with low levels of inventory. It also enables quality improvement processes to operate without interruption, thus enabling continuous cost reductions and quality improvements. Notice that variety, velocity, and variability all interact to stabilize supply chain performance.
- Visibility of all processes is ensured with use of the right metrics and the requirement that a consensus be reached before plans are changed. At Toyota, performance metrics have a 50 percent weight for results and a 50 percent weight for process compliance. In other words, the goal is to reward not only short-term successes but also ensure that the correct processes are followed. Such an approach ensures that bottlenecks are visible and responses immediate, changes are deliberate, velocity is maintained, variety is synchronized to demand, and variability is minimized. Visibility enables continuous learning and feedback, thus guaranteeing that execution of processes remains synchronized with market realities.
We suggest that v4L highlight the intricate balance of all supply chain processes. How each of them is balanced by vehicle type or geography is a business choice that reflects Toyota’s competitiveness in that market. The choice of the v4L and the actions required to implement these choices are guided by the learning principles. All companies should be asking themselves how their cur- rent choices reflect the impact of the v4L. A way to remember this concept is to ask, is the supply chain’s v4L engine at my company appropriately tuned for competitive performance?