The Toyota Way of Managing Supply Chains

The Toyota Way is made up of four major elements: long-term philosophy, right process, development of people, and continuous solving of root problems. Taken together, they are the secret recipe for continuous improvement, for creating value, and for developing people that will continue the mission of creating value into the future. In the paragraphs that follow, we will describe how these ideas are applied to supply chain management and how they manifest themselves in all chapters in this book. You might already be familiar with the components of the Toyota Production System. Writers such as Monden, Liker, and Suzaki, as well as Toyota’s own internal training documents, have explained in detail how the principles form a whole and consistent approach for running a manufacturing system. Moreover, they emphasize that the Toyota Way is not a collection of rules but a method for thinking about how systems work and evolve.

Our goal is not to restate these findings but to take them as given and explain how the Toyota Way applies to supply chain design and management. The focus is not limited to the production system; it also extends to the supply chain. One word of caution: when the authors initially inquired how Toyota manages its supply chain, we were greeted with bemused expressions. As we spoke with several people within and outside Toyota, the reason for that reaction became clear—Toyota considers itself part of the value chain. Therefore, asking company representatives how they manage the company’s supply chain is like asking people how they manage the circulation to their feet.

As many people have said in the past, grand ideas by themselves do not make a Toyota. Even a casual observer will agree that Toyota did not arrive at the world markets all of a sudden but, as is common to many things that Toyota does, they arrived continuously over time. You only have to visit Toyota’s Web site that describes its mission and also includes numerous statements over time to obtain a sense of the continuous developments. Considering the fact that 30 million Corollas have been sold in more than 140 countries, it is still easy to identify the Corolla on the road in any part of the globe; however, it’s hard to visualize all the design changes, supply chain reconfigurations, and channel changes that have accompanied the global expansion of the production of that sophisticated car since its introduction in Japan in 1966. On its Web site, Toyota attributes the success to “the evolving elements of the ‘Corolla DNA,’ which has been passed down from generation to generation within the Toyota Motor Corporation.” The Corolla has indeed arrived over time.

As Toyota has globalized, the organization has felt it necessary to document the philosophy and goals that have enabled it to develop into the leader in manufacturing and supply chain management. The Toyota Way document (2001) was produced to keep the “Toyota DNA” strong as Toyota expanded globally. Similar documents were produced at Toyota Sales to record the history of the sales organization as well as to state the current understanding of the Toyota Way. Introducing the Toyota Way, Fujio Cho, president of Toyota Motor Corporation, said that Toyota is “preparing to operate as a truly global company guided by a common corporate culture.” The booklet identifies the “company’s fundamental DNA.” Cho urges every Toyota team member to “take professional and personal responsibility for advancing the understanding and acceptance of the Toyota Way.”

After we wrote several chapters and conducted interviews with managers who were familiar with the Toyota system and Toyota’s supply chain, we saw that over and above simply using the ingredients of the Toyota Way the supply chain seemed to be capable of evolving and developing as challenges arose. Toyota manages to keep the supply chain focused on the tasks ahead, and they do so over a long period of time. We recapitulate the ideas used by Toyota in this regard from previous chapters. We also describe Yokoten—a method used to propagate best practices across the supply chain. We also compare the methods embedded in the Toyota Way to other planning, control, and process improvement methods that have been proposed and adopted by manufacturing and service organizations worldwide.

The ability to quickly identify problem patterns and solutions reminds us of a study by Herbert Simon and Jonathan Schaeffer5 of ordinary chess players and grand masters. In their study, a feasible set of positions of 25 pieces on a chessboard were shown to ordinary chess players and grand masters for 5 to 10 seconds. Grand masters could replace more than 90 percent of the pieces correctly, while ordinary chess players replaced fewer than 30 percent. However, if the 25 pieces were placed randomly on the board, both groups could replace about 30 percent. In other words, when problems evolve following a pattern of moves, seasoned managers can identify issues rapidly and thus evolve solutions quickly. The Toyota Way, by emphasizing the use of specific problem-solving approaches, is designed to enable such pattern recognition and problem solving. One of the authors of this book, Roy Vasher, described a visit by a senior Toyota executive to a facility in Kentucky he had never visited before. Despite a long plane ride that preceded his trip, the man walked through the plant soon after his arrival and identified problems based on his prior experience. The ability to recognize patterns of evolution enabled him to get to the root causes of the problem rapidly.