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Operations and Supply Chain Management in Automobile Industry

Table of Contents

OBJECTIVE.......................................................................................................................3RESEARCH METHODOLOGY.......................................................................................4

RESEARCH DESIGN....................................................................................................4

SAMPLE DESIGN.........................................................................................................4SCOPE OF STUDY...........................................................................................................5LIMITATION.....................................................................................................................6OPERATIONS IN AN AUTOMOBILE INDUSTRY.......................................................7

INTRODUCTION..........................................................................................................7OVERVIEW OF THE INDIAN AUTOMOBILE INDUSTRY....................................8GROWTH OF THE INDIAN AUTO INDUSTRY.....................................................12

Automobile Export Numbers............................................................................................12MAJOR MANUFACTURERS OF THE AUTOMOBILE INDUSTRY.........................13

EVEN GROWTH.........................................................................................................13REASONS FOR THE UPSWING...............................................................................15

SWOT ANALYSIS OF THE INDIAN AUTOMOBILE INDUSTRY...........................17

STRENGTHS...............................................................................................................17WEAKNESSES............................................................................................................18OPPORTUNITIES.......................................................................................................18THREATS....................................................................................................................18

OPERATIONS FOLLOWED IN AN AUTOMOBILE INDUSTRY..............................18MANUFACTURING PROCESS.....................................................................................19

MACHINE ATTACHEMENTS..................................................................................20 NUMERICALLY CONTROLLED MACHINES........................................................20

AUTOMATED QUALITY CONTROL INSPECTION .............................................20AUTOMATED IDENTIFICATION SYSTEMS.........................................................20AUTOMATED PRODUCTION SYSTEM.................................................................21

TOYOTA PRODUCTION SYSTEM..............................................................................21INTRODUCTION- Richest Automobile Company.....................................................21TOYOTA – The History...............................................................................................23THE TOYOTA PRODUCTION SYSTEM..................................................................25

OHNO’s SEVEN WASTES.....................................................................................25STANDARDISATION OF WORK.............................................................................28TAKT-TIME.................................................................................................................28JUST- IN- TIME...........................................................................................................28

PULL SYSTEM............................................................................................................30PUSH SYSTEM...........................................................................................................30KANBAN.....................................................................................................................31HEIJUNKA...................................................................................................................32KAIZEN.......................................................................................................................33THE HUMAN ELEMENT AND JIDOKA..................................................................35

OPERATIONS AT TOYOTA MOTOR CORPORATION.............................................39BENEFITS OF TPS......................................................................................................40

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IMPLICATIONS..........................................................................................................44CHALLENGES FACED IN ADOPTING TPS...........................................................44

TOTAL QUALITY MANAGEMENT.............................................................................46WHAT IS TOTAL QUALITY MANAGEMENT?.....................................................46WHY LEARN A SIMPLIFIED TQM DIAGNOSTIC MODEL?...............................47

THE GUIDING PRINCIPLE...................................................................................47TWO IMPLEMENTATION APPROACHES.............................................................48THE NEED FOR THREE INTEGRATED and SIMPLIFIED MODELS...................49A SIMPLIFIED TQM MODEL...................................................................................49TQM as LargeSale Systems Change............................................................................51

People's Expectations and Perceptions.....................................................................53Sources of Resistance...............................................................................................54Dealing with Resistance...........................................................................................55

Force Field Analysis ....................................................................................................56INVENTORY CONTROL...............................................................................................59SUPPLY CHAIN MANAGEMENT................................................................................62

INTRODUCTION........................................................................................................62CONCLUSION.................................................................................................................64BIBLIOGRAPHY.............................................................................................................66Certificate.........................................................................................................................70Acknowlegdement............................................................................................................71

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OBJECTIVE

To study the various operation techniques followed by leading automobile

manufacturing industries in India. Also, a comparative study on the supply chain

effectiveness of these selected Indian automobile-manufacturing companies.

Today every organization is facing a fierce competition in the market, because of short

product cycle, rapidly changing technology and economic conditions. Virtually each

major automobile company in the country is trying to make its presence felt in the new

net-centric economy. The dealers are also focusing on getting to know their customer

better, some on making their supply chain neat and transparent and some on creating

electronic presence. Also trying to figure out new ways of increasing the organization

operations effectiveness so as to get and edge over the competitors in the market. This

can be obtained from information sharing, cooperation, risk and reward sharing among

supply chain partners. In this scenario only those organizations can survive who can

compete on the basis of cost and quality. All these can be explained with effective

operations technique and supply chain management. Also there are various tools, whichare adopted by the automobile manufacturing companies nowadays, which enable them

to reduce their cost and enhance their productivity along with increasing the revenues.

These tools are really effective as they are adopted by most of the automobile

manufacturing industries.

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RESEARCH METHODOLOGY

RESEARCH DESIGN

The objective of the project is to find out the best mode of operations and supply chain

management that can be carried out by an automobile company to get the most effective

product outline with the minimum of cost input. Also to study the various forms of

operation techniques that are implemented in and automobile industry. This project will

contain the comparison of the operations of 3 companies. One of them is Toyota Motors

whose operations and supply chain management will be compared with that of two local

auto giants Tata and Honda which have their base in Delhi. Thus, arriving the most

effective operation and production line with the best supply chain.

SAMPLE DESIGN

For the best results the project contains the comparison of the operations of three

companies who have established a strong market presence for their products in this

sector. They have created a brand name for themselves and the customers are willing to

pay any price to attain this brand. They have established themselves in the market for a

long time. The three companies are

1. Tata Motors

2. Toyota Motors

3. Honda Siel Cars

The basis of taking these companies is that two of the companies have been the leading

producers of automobiles in India for a long time. The third is a company, which has

acquired a brand name for itself worldwide. So the operation strategy, which this

company follows, is different from that of the other two companies, thus, it will be a

good basis of comparison and could be implemented for the Indian companies too.

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SCOPE OF STUDY

The study as mentioned earlier is limited to three companies. The study focuses on

conducting a research on the various operations tools that are implemented by the

automobile manufacturing companies so as to get the best output with the minimum cost

input, thus, increasing the revenues and also capturing the most of the market share for

the company so that they get a leading edge over the others. Also, finding out the best

supply chain management all of which could be implemented by Tata motors so as to

increase the market share for their vehicles.

The study attempts to answer the best strategies for operations that the automobile

manufacturing companies can have if they plan to setup a base in India, also the ways of

enhancing their productiveness. This study also answers why the leading auto giants

have attained the position in which they are today and thus what steps could be adopted

by those companies which are new in this field or are planning to diversify their mode of

operations to manufacturing cars.

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LIMITATION

The project topic being vast by nature it is limited to the passenger car segment. It is not

possible to consider the whole automobile sector in India as there are many companies

which fall in this segment and collecting the data for each industry is not possible.

Thus the companies selected are based in Delhi were a personal visit to the

manufacturing unit can be made to have a personal experience of how the operations are

carried on by these companies. The other manufacturing giants are located in different

state so a personal visit to these companies is not possible.

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OPERATIONS IN AN AUTOMOBILE

INDUSTRY

INTRODUCTION

The Indian automobile industry has been on the developing trend. During the past few

years there has been and incredible increase in the growth rate of the automobiles in the

Indian subcontinent. There are many reasons for the growth of this industry. One of the

reasons for this growth could be that there is lot of competition coming up in this

industry. There are many foreign players, which have come into this continent and have

developed their manufacturing base here. The reasons are

1. The Indian market is favorable for the growth of this industry. As there are many

people who are auto crazy in this country. There are people who are willing to

go out of their ways and try different vehicles. Some are so attracted to the cars

and bikes that they are ready to pay any price to get their vehicle of choice.

2. Secondly that the raw materials available here is very cheap and abundant. The

basic requirement for this industry is the availability of the various components,

which are required to make a complete vehicle and of course labour which is

ready to work even at low wages. All these conditions can be met in India. Thus

India is now becoming the favorite manufacturing center for all the foreign

companies.

3. Thirdly the legal environment is very friendly in India. It allows foreign

companies and money to come in and invest so as to develop the Indian

economy. This is indeed fruitful as it not only brings in foreign capital but also

brings in opportunities, by this I mean to say that chance for Indian talent to go

outside and Indian market to expand. For eg Indian companies, which create

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opportunities for them to expand it branches in other countries and expand, it’s

base.

4. Moreover since the last few years there has been a lot of liberalization in trade

especially in the auto industry. Government has removed many legal restrictions

so that components from foreign countries can come in thus help in boosting up

the Indian auto industry.

OVERVIEW OF THE INDIAN AUTOMOBILE

INDUSTRY

Not long ago, India's auto industry was a laughing stock. Its two best-known cars were a

1940s Morris model called the Ambassador and a 1960s Suzuki-derived model called

the Maruti 800. But that was then. Today, for instance, the Mumbai-based Dilip

Chhabria Design Pvt Ltd (DC Design) is seeking to take on Pininfarina and Bertone, the

Italian standard in international car design, by designing and building concept cars,

prototypes and limited-production runs. Nor is DC Design alone.

"There can be few more improbable automotive stories than the yarn about the Indian

designers creating bespoke concept and prototype cars," said the United Kingdom's auto

magazine Autocar in a recent issue. "Yet the hottest ideas in car design are happening

right now in the back streets of Mumbai." India is now the ninth country in the world to

design a vehicle on its own.

In fact, the Indian auto industry is fast becoming an outsourcing hub for automobile

companies worldwide, as zooming automobile exports from the country indicate.

Surinder Kapur, the chairman of Sona Koyo Steering, which exports car steering

assemblies, says, "Car makers over the world have realized that India can design a car on

its own and make it globally acceptable."

Passenger car exports have nearly trebled in four years, from 28,122 units in 1998-99 to

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71,653 vehicles in 2002-3. The industry expects this to gather steam further ahead

because car exports in the first quarter of 2003-4 leapt by 87 percent over the same

period in 2002-3. The two-wheeler segment is booming, too, with exports zooming from

100,004 units last year to 179,000 units in 2002-3. By 2005, the industry expects

400,000 two-wheelers on foreign shores.

The Indian-made sports utility vehicle Scorpio received a singular response in Detroit

early this year, not just for its design but also because of its cheaper price tag. Tata

Motors, the country's second-largest carmaker's small Indica convinced MG Rover of the

UK to sell it to the UK market as the City Rover. Others like Ford's mid-sized car model

Ikon, Maruti's Altos and Toyota's Indian-made multi-utility vehicle have found ready

buyers in a number of American, European and neighboring countries.

And when cars and two wheeler exports are on a roll, can automobile components be far

behind? Pushed to export last year following a two-year domestic slowdown, the auto

component exported $850 million worth of the nuts and bolts that go into making an

automobile by March 2003, up from $578 million in March 2002. "Indian auto

component makers now supply to virtually the best and the biggest in the world," says

Suresh Krishna of Sundaram Fasteners, a leading auto component exporter, adding thathe expects the country to export a targeted $2 billion by 2006.

"Indeed, India is well on its way to become an outsourcing hub for global auto

manufacturers and the country stands a good chance against China," says Sundaram

Mutual Fund managing director T P Raman, although Joginder Singh, vice president of

finance for Ford Motor Company of Canada, thinks that global auto majors can't ignore

either China or India.

Already, 15 global car makers - including GM, Ford, DaimlerChrysler, Mercedes-Benz,

Audi, Isuzu and Nissan – have set up outsourcing offices in the country, with a

combined budget of approximately $1.5 billion, industry sources say. Leading

component makers like Delphi, Visteon and Caterpillar, too, have found India their best

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bet. While according to industry estimates the cost of automotive design in Europe

ranges as high as $800 per hour, and even higher in the US, costs are as low as $60 per

hour in India for equivalent quality.

Whether the next outsourcing wave or simply smart marketing by a local industry,

global auto makers are increasingly turning to India for sourcing a wide range of needs

that even include designing models meant only for global markets. "To begin with," says

Deep Kapuria, of Automobile Components Manufacturers Association of India, "it's

triggered by the overall economic slowdown and large-scale bankruptcies in the global

auto sector. And as global giants continue losing money, cost pressures are forcing them

to opt for sourcing bases in developing countries."

But more importantly, according to industry analysts, the Indian auto industry has finally

come of age, having upgraded itself in the past few years to meet global standards. Dilip

Chhabria, the head of DC Designs, makes no bones about taking on the world's best.

Earlier this year, the Aston Martin AMV8 Vantage starred at the Detroit Auto Show.

Chhabria developed the prototype as part of a Ford contract.

Until the mid 1990s, the Indian auto sector consisted of just a handful of localcompanies. However, after the sector opened to foreign direct investment in 1996, global

majors moved in. By 2002, Hyundai, Honda, Toyota, GM, Ford and Mitsubishi had set

up their manufacturing bases here.

"These companies first had to focus on issues like quality, vendors and marketing before

they could think big," says Arindam Bhattacharya, vice-president, Boston Consulting

Group. Thus, in the past four to five years, these companies have not only fine-tuned

their operations but forced transformation on the rest of the industry as well.

"Consequently," Bhattacharya adds, "India has not only emerged as a low-cost base but

also a source for producing quality products."

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The sector also received an unintended boost from stringent government auto emission

regulations over the past few years. This ensured that vehicles produced in India

conformed to the standards of the developed world. It also drew technology infusion and

investment. "Not surprising then that India is also set to become a preferred research and

development [R&D] center," says Ravi Khanna, president and managing director, Delphi

India, adding that its Indian facilities are "an integral part of its worldwide engineering

and technical footprint".

Nevertheless, according to managing director Jagdish Khattar of Maruti Udyog Ltd.

India's largest car maker and a Suzuki joint venture, India still has a long way to go to

become a global force. "Indian companies need to first grow the Indian market to acquire

economies of scale," he says. China, for instance, consumes four times India's 700,000

annual car sales. Moreover, if Indian companies hope to corner a big chunk of the global

market they need to ramp up global presence considerably, say others.

Still, Joginder Singh of Ford feels that India's auto industry will continue to make its

presence felt, primarily because it is one of the few countries the global auto industry

cannot ignore. "Two-thirds of a car is built from suppliers. That's a big cost item and

companies can cut costs to a large extent in places like India and China," he says. "Wecan't ignore either China or India, which are projected to be so huge that it would be

dangerous to look only at one of them. They are showing the highest growth rate of any

market in the world. Any auto maker would be on a fool's errand if it ignores any of

them."

Small wonder then that Ravi Khanna of Delphi India is "convinced that with the

increasing emphasis on quality, India is fast moving towards becoming a sourcing hub

for global automobile makers".

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GROWTH OF THE INDIAN AUTO INDUSTRY

Following India's growing openness, the arrival of new and existing models, easy

availability of finance at relatively low rate of interest and price discounts offered by the

dealers and manufacturers all have stirred the demand for vehicles and a strong growth

of the Indian automobile industry.

The data obtained from ministry of commerce and industry, shows high growth obtained

since 2001- 02 in automobile production continuing in the first three quarters of the

2004-05. Annual growth was 16.0 per cent in April-December, 2004; the growth rate in

2003-04 was 15.1 per cent The automobile industry grew at a compound annual growth

rate (CAGR) of 22 per cent between 1992 and 1997. With investment exceeding Rs.

50,000 crore, the turnover of the automobile industry exceeded Rs. 59,518 crore in 2002-

03. Including turnover of the auto-component sector, the automotive industry's turnover,

which was above Rs. 84,000 crore in 2002-03, is estimated to have exceeded

Rs.1,00,000 crore ( USD 22. 74 billion) in 2003-04.

Automobile Export Numbers

Category 1998-99 2004-05 (Apr-Dec)

Passenger Car 25468 121478

Multi Utility Vehicles 2654 3892

Commercial Vehicles 10108 19931

Two Wheelers 100002 256765

Three Wheelers 21138 51535

Percentage Growth -16.6 32.8

The industry has adopted the global standards and this was manifested in the increasing

exports of the sector. After a temporary slump during 1998- 99 and 1999-00, suchexports registered robust growth rates of well over 50 per cent in 2002-03 and 2003-04

each to exceed two and- a-half times the export figure for 2001-02.

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MAJOR MANUFACTURERS OF THE

AUTOMOBILE INDUSTRY

Maruti Udyog Ltd.

General Motors India

Ford India Ltd.

Eicher Motors

Bajaj Auto

Daewoo Motors India

Hero Motors

Hindustan Motors

Hyundai Motor India Ltd.

Royal Enfield Motors

Tata motors TVS Motors

DC Designs

Swaraj Mazda Ltd

Force Motors

Honda Siel cars

Honda motors

Skoda

Kanada

EVEN GROWTH

Opposing the belief that the growth in automobile industry has catered only to the top

income-stratum of society, Growth of exports of 32.8 % in the first three quarters of

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2004-05, the fastest growth in volumes has come from commercial vehicles as against

passenger cars.

Between 1998-99 and 2003-04, output of commercial vehicles has grown 2.8 times

compared to the 2.2 times increase in passenger cars. Furthermore, two-wheeler output

continues to dominate the volume statistics of the sector. In 2003-04, for every passenger

car turned out by the sector, there were 7 two-wheelers produced. In the two-wheeler

segment, there is a greater preference for motorcycles followed by scooters, with both

production and domestic sales of motorcycles increasing at faster rates than for scooters

in the current and previous years. However, mopeds have registered low or negative

growth. Export growth rates have been high both for motorcycles and scooters.

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REASONS FOR THE UPSWING

Sales incentives, introduction of new models as well as variants coupled with easy

availability of low cost finance with comfortable repayment options continued to drive

demand and sales of automobiles during the first two quarters of the current year. The

risk of an increase in the interest rates, the impact of delayed monsoons on rural demand,

and increase in the costs of inputs such as steel are the key concerns for the players in the

industry.

As the players continue to introduce new models and variants, the competition may

intensify further. The ability of the players to contain costs and focus on exports will be

critical for the performance of their respective companies.

The Indian automotive industry has flourished like never before in the recent years. This

extra-ordinary growth that the Indian automotive industry has witnessed, is a result of a

two major factors namely, the improvement in the living standards of the middle class,

and an increase in their disposable incomes.

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Moreover, the liberalization steps, such as, relaxation of the foreign exchange and equity

regulations, reduction of tariffs on imports, and refining the banking policies, initiated by

the Government of India, have played an equally important role in bringing the Indian

Automotive industry to great heights. It is estimated that the sale of passenger cars have

tripled compared to their sale in the last five years. Thus, the sale of cars has reached a

figure of 1 million users and is expected to increase further. It's also to be noted that the

demand for luxurious models, SUVs, and mini-cars for family owners, have shot up,

largely due to increase in the consumer's buying capacity.

The increased demand for Indian automobiles has resulted in a large number of multi-

national auto companies, especially from Japan, U. S. A., and Europe, entering the

Indian market and working in collaboration with the Indian firms. Also, the

institutionalization of automobile finance has further paved the way to sustain a long-

term high growth for the industry.

The basic objective of this market research report ""Indian Automobile Industry—

Recent Trends"" is to estimate the demand for automobiles from 2005 till 2012. The

increasing role of auto finance is also scrutinized by proving a series of surveysconducted across the country covering all categories of private and commercial vehicles'

finance. The report also examines the region-wise demand and growth trends for the

selected vehicles, and how they influenced India's GDP growth.

The fastest growth in volumes has come from commercial vehicles. Between 1998-99

and 2003-04, output of such vehicles has grown 2.8 times compared to the 2.2 times

increase in passenger cars. Furthermore, two-wheeler output continues to dominate the

volume statistics of the sector. In 2003-04, for every passenger car turned out by the

sector, there were 7 two-wheelers produced.

Automobile production (Numbers)

Category 2002-03 2003-04 2004-05*

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Passenger Car 608,851 842,437 699,082

Multi Utility Vehicles 114,479 146,103 178,187

Commercial Vehicles 203,697 275,224 247,797

Two Wheelers 5,076,221 5,624,950 4,758,639

Three Wheelers 276,719 340,729 271,983

Total 6,279,967 7,229,443 6,155,688

Percentage Growth 18.1 15.1 16.0

SWOT ANALYSIS OF THE INDIAN

AUTOMOBILE INDUSTRY

STRENGTHS

1. COST EFFECTIVENESS IN TERMS OF LABOUR AND RAW MATERIALS2. ESTABLISHED MANUFACTURING BASE3. ECONOMIES OF SCALE DUE TO DOMESTIC MARKET4. POTENTIAL TO HARNESS THE GLOAL BRAND IMAGE OF THE

DOMESTIC MANUFACTURRS

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5. GLOBAL HUB POLICY FOR SMALL CARS (HYUNDAI, SUZUKI)6. CUSTOMERS WITH VARIED TASTE AND READINESS TO EXPERIMENT

WEAKNESSES

1. PERCEPTION ABOUT QUALITY AND QUALITY CONTRO MEASURES2. INFRASTRUCTURE BOTTLENECKS3. INDIAN ROAD CONDITIONS NOT FAVOURING VEHICLES OF HIGHER

ENGINE CAPACITY AND OTHER VEHICLES WHICH ARE A GREATSUCCESS IN THE OTHER INTERNATIONAL MARKETS

4. VERY HARD TO CHANGE THE PERCEPTION OF THE PEOPLE ONCESET

OPPORTUNITIES

1. HUGE MARKET POTENTIAL OF THE INDIAN CARS IN OTHER MARKETS (EUROPE, AMERICA, AFRICA)

2. MORE AVAILABLITY OF CHOICES IF MORE FOREIGN PLAYERS COMEINTO THE INDIAN SUBCONTINENT

3. POTENTIAL TO INCRESE MORE MARKET BASE FOR INDIVIDUALPLAYERS IN THE AUTO MARKET

4. INCREASE IN TH AUTO COMPONENTS INDUSTRY IF MOREPARTICIPATION IS MADE AVAILIBLE.

THREATS

1. OTHER COMPETITIVE MARKETS LIKE CHINA, MALAYSIA WHCI CANMAKE VEHICLES AND AUTOMOBILES FOR CHEAPER PRICES ANDTHUS PENETRATE THE INDIAN MARKET AND CREATE HUGEOPPORTUNITIES FOR THEMSELVES.

OPERATIONS FOLLOWED IN AN

AUTOMOBILE INDUSTRY

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Generally after the raw material has been purchased from the suppliers then comes the

process of turning the raw material into the finished goods. This is the process which is

actually termed as operations. This is when the actual process of giving the actual shape

to the raw material is done. By raw material I mean to say is that the individual

components required while making the vehicle. It can be from the very small

components of the dashboard till the whole sheet metal that is the outer and the inner

body covering of the vehicle.

The operations start from the process of planning out how many vehicles have to be

produced and what are the requirements of the vehicles that will be produced, by this I

mean is whether it is that what model of the vehicle shall be produced and what color

and what specifications should be provided and then in which quantity should it be

produced so that it reaches the final customer in time. So keeping these in mind there are

certain operation strategies, which are followed by the entire auto manufacturing

industries.

These are as follows:

• Manufacturing process

• Quality control process

• Inventory management

• Materials requirement planning

MANUFACTURING PROCESS

This is the process from where the planning and other techniques are brought into actual

implementation. Manufacturing is the activity that operations are mostly talking about;

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the process of converting the raw material into finished goods. For any company

operations has to be the most important activity

MACHINE ATTACHEMENTS

The manufacturing work which is carried on is generally done by machines attachments

rather than doing the whole work manually because it is a very lengthy process and here

time is the big constraint. These are usually inexpensive add-ons to machines that

basically reduce the amount of human effort and time required to perform an operation.

NUMERICALLY CONTROLLED MACHINES

These are the best type of automatic machines and are generally found in most of the

auto manufacturing companies. Today these machines are programmed through

computers to perform a cycle of operations repeatedly. Machine settings are achieved by

the control system rather than thus human beings reduce the amount of error by a hug

amount. With the advances in computing came computer numerically controlled

machines (CN/C). As computing sophistication continued to increase, direct numerically

controlled machines were developed that placed several machines under the control of

single computer.

AUTOMATED QUALITY CONTROL INSPECTION

These are machines, which have been integrated into inspection of products for quality

control purposes. These systems perform a wide range of tests and inspections and are

found in many industries. They can be used to take physical quality of parts, compare

measurements to standards and determine whether the parts meet the quality standards.

AUTOMATED IDENTIFICATION SYSTEMS

These are machines that read bar codes, radio frequencies, magnetic tapes, and optical

characters. The system reads the identification number of the bar code from the item

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accesses a computer database and sends the price to the item to the cash register. These

are becoming more popular in floors in warehousing where the inventory is stored and

so with the help of a proper track record of the entire inventory is maintained.

AUTOMATED PRODUCTION SYSTEM

As the technology is changing so is the focus of individual machines to a broader

concept. Today whole systems of automated machines to a linked for broader purposes.

A few of these are

• Automated flow lines

• Automated assembly lines

• Flexible manufacturing system

TOYOTA PRODUCTION SYSTEM

INTRODUCTION- Richest Automobile CompanyIn May 2004, Toyota Motor Corporation (Toyota) announced record financial results for

the fiscal year ended march2004. The company’s revenues and operating income had

reached highs of $163bn and $15bn respectively. What was noteworthy, however, was

that the company’s net earnings were more than double the combined net earnings

21




of other automobile majors General Motors (GM), Ford, Daimler Chrysler, and Honda

for the fiscal.

Toyota was firmly entrenched as the most profitable company in the automobile industry

in the early 2000s. At a time, when the giants of the industry were making meager

profits and some were even suffering losses, Toyota showed steady profits. This

profitability gave the company a strong position in the Japanese economy as well as the

global automobile industry, and helped it grow rapidly. Because of its stable cash

position, it was able to invest in the development of new technologies like hybrid

engine systems and develop brands like the youth- focused ‘scion’, which many believed

to be risky.

Analysts said that the foundation of Toyota’s strong performance was its much analyzed

and emulated manufacturing system, which made use of concepts like just-in time(JIT)

and Kaizen or the process of continuous improvement, to reach a high level of

efficiency in production. Through its competitive advantage in manufacturing, Toyota

was not only able to maintain its award winning levels of quality, but was also able to

rapidly capture market share by exercising aggressive cost control and churning out

better car models.

Toyota’s rivals themselves acknowledged the superiority of the Toyota production

system (TPS), which was put in place in the 1950’s-1960s under the direction of the

company’s production chief Taiichi Ohno (Ohno). Officials from GM went on record to

say that Toyota was the benchmark in manufacturing and product development in the

automobile industry. Ford and BMW also openly acknowledged Toyota’s manufacturing

superiority and often borrowed ideas from the TPS. On its part, Toyota encouraged other

companies to study its manufacturing processes and did not deny access to its plants,

even to representatives of rival companies.

Toyota was growing rapidly and had overtaken Ford (the second largest company in the

industry) in the global market share in 2003. Analysts declared that it had a very good

22




chance of achieving its target of 15% market share by 2015, which would help it

displace GM as the biggest automobile company in the world.

TOYOTA – The History

Toyota’s history goes back to 1897, when Sakichi Toyoda (Sakichi) diversifies into the

textile machinery business from the traditional family business of carpentry. He invented

a power loom in 1902 and founded the parent organization of Toyota, the Toyoda group,

in the same year. In 1926, Sakichi invented an automatic loom that stopped operating

when a thread broke. This prevented the manufacture of imperfect cloth. The same year,

Sakichi formed the Toyoda Automatic Loom Works (TALW) to manufacture automatic

looms.

Sakichi’s son Kiichiro, an engineer from Tokyo University, who was interested in

automobiles and engines than the family’s textile business traveled to the US and Europe

to study the manufacturing process in car factories there.

In the early 1930s, Kiichiro convinced his father to launch an automobile business and in

1933, Sakichi established an automobile department within TALW. The first passenger

car prototype was developed in 1935.Kiichiro traveled to the US again in the late 1930’s

to study the manufacturing processes at Ford. He observed that an average US

worker’s productivity was nine times that of a Japanese worker and Japanese

automobile industry has to increase its productivity to compete globally. Armed

with a strong knowledge of the Ford production system, Kiichiro returned to Japan

determined to adapt the system to smaller production quantities, more suitable to Japan.

In addition to adapting the Ford’s model he also developed a system where each process

produced only the exact number of parts required for the next process in the production

line, and at the right time. This system was called Just-in –time, within Toyota.

CARPENTRY

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The automobile venture was formed in the late 1930s and the passenger car production

began in 1947 (during the second world war, the company was involved in building

military vehicles). Toyota faced tough competition from Ford and GM, which were the

top car manufactures in Japan at that time. In 1950, after a major strike by labor unions,

Kiichiro was forced to step down and his cousin Eiji Toyoda was made Managing

Director.

Eiji traveled to the US to study Ford’s River Rouge manufacturing facility. He was

impressed by the scale of production and realized that it was accompanied with several

manufacturing facilities. From here the idea of Kanban system emerged. In 1957, Eiji

renamed Toyota as ‘The Toyota Company’.

Toyota’s first export to the US was the Toyota Crown, which was not successful as it

was too slow for US highways. However, the Corolla, which was exported in 1968, wasa huge success due to its reliability and relatively lower price. Toyota’s car became

popular in US, due to high quality and good resale value.

Toyota received a major boost in the late 1970s, when the oil crisis made many people

shift to Toyota’s cars from fuel thirsty American and European models. The crisis also

sent Japan into recession and most of the automakers suffered losses. But the efficiency

and flexibility of the TPS helped Toyota bounced back. This naturally heightened

interest in the TPS in Japan (the system formally came to be known as TPS in 1977).

Toyota brought TPS to the US in the 1980s, when it set up a joint venture with GM

called New United Motor Manufacturing Inc (NUMMI).

In 1983, the company’s name was changed to Toyota Motor Corporation.

24

TEXTILES

AUTOMOBILES




In the early 1990s, Toyota expanded its overseas operations. By the early 2000s, Toyota

had become one of the top manufactures of cars in the world and was poised to become

the biggest automobile company.

THE TOYOTA PRODUCTION SYSTEM

The TPS tried to overcome the deficiencies of production, while making the most of

the available resources. Japan had few natural resources; however it had an abundance of

hard working labour. Therefore, the TPS tried to increase the efficiency of production

by eliminating waste and lowering costs.

The focus of the TPS was ‘reduction of cost through elimination of waste’ . Waste or

Muda identified as any material or action that did not add value to the final

product. It was assumed that any equipment, materials, parts, and workers (working

time), that exceeded the minimum amount that was absolutely essential to production,

was surplus, and resulted in increased cost. Ohno believed that waste not only raised

cost, but also concealed problems within the system that led to more serious

repercussions at a later stage.

OHNO’s SEVEN WASTES

25




1. Defects- This includes units that do not meet the production specifications or

quality standards.

2. Over Production- This means producing in excess of required quality. It

involves not only wastage of precious resources, but also added inventory

carrying cost and cost of disposing excess inventory.

3. Waiting- Time that is not used effectively is a waste as it involves wages of

workers, as well as all fixed and overhead costs like electricity, rent, heating etc.

4. Transporting- Moving components and goods between places involve costs.

Sometimes cost may be hidden and other times apparent like transporting cost.

Ohno said workers and equipment should lay down plant in such manner as to

minimize movements.

5. Movement- If people spend time moving around the plant; it is wasteful as it

consumes their energy. Therefore an ideal plant should keep all the components

required by workers close at hand.

6. Inappropriate Processing- This refers to processing output in a way that it does

not add any value to the final product.

7. Inventory- Holding inventory in excess of what is required adds to the cost of

production. It also has a hidden cost in a way that it hides problems that would

otherwise have been apparent.

TPS consisted of two aspects:

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• The ‘hard’ or the technical part

• The ‘soft’ or people related part

The ‘hard’ aspect focused on manufacturing systems like JIT and Kanban, and the ‘soft’ part related to ‘respect for humans’, which included workers and suppliers.

Ohno was great believer in the importance of people and values like respect for people,

loyalty, and lifetime employment. He was instrumental in developing the lifetime

employment concept at Toyota, which made workers more committed to the company.

He also initiated the practice of supervisors wearing the same uniforms as the workers,

to create a feeling of a flat non-hierarchical structure. Ohno gave lot of importance to the

suppliers as he realized that the efficiency of the manufacturing process depended on the

timely availability of the raw materials. The TPS stressed flexibility of processes and

cross-utility of resources and there was constant quest to bring about improvements in

work.

Following practices are essential to TPS:

• Standardisation of work

• Takt time

• JIT

• Kanban

• Heijunka

• Kaizen

• Jidoka

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STANDARDISATION OF WORK

The Toyota Production System organizes all jobs around human motion and creates an

efficient production sequence without any "Muda." Work organized in such a way is

called standardized work. It consists of three elements: takt-time, Heijunka and JIT

Work standards at Toyota are designed jointly by team members and engineering

supervisors.

TAKT-TIME

Continuous flow of work at Toyota is possible because the work flows through each part

of the entire system at a uniform ‘pulse rate’ or ‘takt-time’. The rate is specific to an

individual plants condition and maturity.

"Takt-Time" is the time which should be taken to produce a component on one vehicle.

This timing mechanism is based on the monthly production schedule. Daily total

operating time is figured on the basis of all machinery operating at 100% efficiency

during regular working hours. The takt time allows to produce many parts of many

different types for use in vehicles on the production schedule and to supply those parts to

each process on the assembly line at the proper time. This keeps production on schedule

and permits flexible response to change in sales.

JUST- IN- TIME

JIT was the foundation of the TPS. Its aim was to eliminate waste of all kinds by

producing or supplying materials only when they are needed. The principle behind JIT

was to produce “only the necessary products, at the necessary time and in the

necessary quantity”, to keep stock at a minimum.

Adopting JIT allowed Toyota to do away with inventory and stores thereby cutting

out the corresponding costs. JIT was especially important for Toyota as the company

was based in a country where flat industrial land was scarce.

Therefore, there was little scope for Toyota to integrate vertically by ‘making’ its own

components. As a result, Toyota’s component sourcing strategy was governed by buy

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and it was important for the company to be able to gets its components on time . JIT

governed Toyota’s buy strategy.

The aim of JIT was to make production process smoother by avoiding or eliminating

unnatural peaks and gullies in production. Ohno believed that when the production

process was smooth and continuous, then all production and quality problems would

float to the surface. These could be then corrected. His motto was ‘speed without

continuity is meaningless’

If the production line were either too fast or too slow it would create inventory problems.

For Example: high-speed production at one point of the line would result in serious

imbalances in the system. It would suck in supplies too fast, creating shortages in the

preceding stages of production, and spew out products creating excess inventory at the

next point on the line. JIT sought to avoid this by making components only when the

need for them arose.

Ohno was inspired by the functioning of the US supermarkets in his implementation

of JIT. By observing the inventory management systems of these supermarkets, he

understood the importance of adding inventory only when it was needed and not

before that. The added inventory was also equal to the amount that had been used, notmore, not less.

JIT was based on reverse reasoning and the working of the production line started

at the point of customer demand. To simplify, when there was demand for certain

make of car, its assembly began at the factory. When the assembly was ready to begin,

the parts were delivered to it by the previous process in the production line. When the

parts had to be delivered to the assembly, the suppliers supplied their raw materials for

their manufacture. In short, demand pulled the factory’s workflow. This was based on

the pull system of manufacturing as against the push system, where each process

manufactured components to its highest potential and then pushed them down the line,

often creating excess inventory and the blocking of the production line.

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PULL SYSTEM

In the Pull system, demand leads to assembly, which leads to parts supply, which results

in supply of raw materials. The starting point is the customer demand for the product

manufactured by a certain product line.

PUSH SYSTEM

In the Push manufacturing, the work is pushed through the system at each stage. Raw

materials are brought into line to manufacture parts. Once the parts are manufactured,

they are sent to the assembly and the assembly manufactures the final product. The

product is then ready for marketing.

If JIT was achieved throughout the organization, then the inventory would be completely

eliminated and factory would have no need for stores and warehouses. However,

achieving JIT in all processes automatically would be very difficult for companies like

Toyota which required thousands of components to manufacture one car. The very

complexity of the system would make it difficult for preceding processes to correctly

anticipate the exact demand of the subsequent processes. It was to overcome thedifficulty that Toyota developed Kanban system.

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Demand Assembly PartsSupply

Rawmaterials

Rawmaterials

PartsManufacture

Assembly Product




KANBAN

Kanban was the cornerstone of JIT and helped Toyota achieve a high level of

outsourcing. Kanban means ‘signboard’ in Japanese was a tool to effectively control

production quantities. The Kanban system looked at the production flow conversely i.e

people working on the certain process of production line went to the preceding process

on the line to withdraw the necessary units in necessary quantities at the necessary time.

Then the preceding process produced only enough quantities of units to replace those

that were withdrawn from its inventory. To produce the withdrawn units, the second

process sometimes withdrew some other units from its preceding process and so on.

In the Kanban system, workers of a process needing components wrote the details aboutthe kinds of units needed and the quantity in which they are needed on a card called the

Kanban. A worker then took his card to the preceding process and withdrew the amount

required from it.

The system was made up of a fixed number of containers, each holding a certain fixed

quantity of parts. Each container had a set of kanbans attached to it. A set comprised two

types of kanbans- the Withdrawal Kanban and the Production Kanban.

A Withdrawal Kanban detailed the kind and quantity of product that the

subsequent process should withdraw from the preceding process. The Production-

ordering Kanban specified the kind and the quantity of the product that the

preceding process must produce.

The total number of containers and the number of parts of each container would hold

was calculated using Ohno formula, which gave the maximum amount of inventory that

could be present in the system to “hold the process together”. All the process in the

production line were thus connected to each other through Kanban.

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Ohno initially used prices of paper contained in rectangular vinyl envelopes to convey

information. However, by early 2000, Kanban had evolved into sophisticated inventory

management tool that ensured production in the required quantities at the right time in

all manufacturing processes within a factory.

HEIJUNKA

"Heijunka" - which means level production.

Level production is something that can have tremendous benefits to any manufacturer

Heijunka was born out of necessity.In the early 1950's, Toyota needed to increase

production of trucks for the U.S. to use in the Korean War. Unfortunately, though, there

was a shortage of everything from raw materials to parts. Toyota could not get things in

the quantity or time needed. In fact, production could not be done during the first half of

the month. Those two weeks were spent gathering the parts that were arriving in no

particular order. The second half of the month assembling the trucks it was realized that

this system would never work if production levels increased. So, out of this challenge,

the system of Heijunka was developed.

Heijunka means the leveled sequencing of variants in production . It enables the

manufacture of endless varieties at the cost of mass-production of one variety. Heijunka

helps deal with the problem that producing varieties of product on the same line means

that the cycle times of work in individual work stations will differ from variant to

variant.

What production would look like if we were matched exactly to customer orders?

Some day’s production would be very high and some days it would be very low.

But, there would always be a need to have the machinery, manpower and materials

to produce at peak production. Of course, there would be significant idle time duringthe valleys. This is waste - muda. So the solution is to take all the orders for a certain

period - a month... a week... a day... put them in a "pool" and then level out the

production. This is Heijunka.

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To give a simple example, let's say that over the period of a week, Toyota gets 700

orders for Camrys and 300 orders for Avalons. Now, of course, those orders don't come

in at 100 per day of Camry. Some days it may be 175, other days 65. But Toyota pool

together all the Camry and Avalon orders and then produce them in a level way. So, the

production line would look like this: Camry, Camry, Avalon. Camry, Camry, Avalon.

And so on.

This leveling takes place not only for the vehicle itself, but also for various options, such

as engine size, sunroofs, color and more. Each of these is levelized into a pool.

Heijunka requires a company to rethink how they purchase from suppliers... how they

design machines and tooling... how they develop work processes... and how they plan

their staffing. Heijunka uses the pull model rather than the push

Heijunka drives to create flexible processes. Heijunka is production leveling, working to

produce only the parts and products that are needed whilst also keeping all

machines and people as active as possible. This is done by sequencing orders in a

repetitive pattern and smoothing the day-to-day orders to correspond to longer-

term demand. At Toyota, production leveling was done to ensure that the flow was

continuous and unobstructed. Leveling eliminated unevenness in the flow of items. For

instance, if a component which required assembly had an associated requirement of 100

units during a 25-day working month, then four were assembled per day, one every twohours in an 8 hour working day. Leveling was also applied to the flow of finished goods

out of the factory and to the flow of raw materials into the factory.

KAIZEN

Kaizen meant ‘continuous improvement’ and was another important element of TPS.

Kaizen required all employees to participate in eliminating all activities that were

classified as ‘waste’, from the production system . All activities that would improve

productivity and safety, such as improved plant layout, machine design or process flow

fell under the scope of Kaizen. Besides, Kaizen was a continuous process not periodic as

in other companies. Team leaders and supervisors had to be on the constant lookout for

33




problems and solve as many of them as possible on the spot. They also had to look for

ways to improve productivity even when things were working smoothly. Kaizen changes

were usually small and incremental, rather than systemwide and revolutionary.

Kaizen involved a great deal of observation of workers and their work processes.

Sometimes video recordings were made and supervisors often maintained a detailed log

of the movements of workers. Ohno believed that observation was the best way to spot

problems and that constant observation would reveal problems that would otherwise

escape one’s notice.

Therefore, he stressed the importance of people beings in touch with gemba or the place

where action was (in this case the factory). He would urge managers to go to the

factories everyday. He would say, “Go to gemba everyday. And when you go, don’t

wear out the soles of your shoes in vain. You should come back with at least one idea for

Kaizen.”

When teaching a person the methodologies of TPS, Ohno would take the trainee to the

factory, draw a circle on the floor and have him/her stand there for a couple of hours to

observe the work processes. At the end of the stipulated period, the observer was

expected to suggest ways in which the process could be improved.

Ohno realized new thoughts and new technologies do not come out of the blue—they

come from the understanding of the process. The ‘five whys’ were important parts of

Kaizen. Ohno would insist that people ask ‘why’ five times when confronted with any

problem. For example, if a machine broke down, a person had to ask ‘why’ it broke

down. If the reason was a mechanical failure, he had to ask ‘why’ the mechanical failure

had occurred, and so on. This way one would get to the root of the problem, and once

that was corrected, the problem would not recur.

Prerequisites for Kaizen

Discard conventional fixed ideas.Think of how to do it, not why itcannot be done.

Don't make excuses. Start byquestioning current practices

Don't seek perfection.Do it right away even if

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for only 50% of target.

Correct it right away, if you make amistake.

Don't spend money for Kaizen. Useyour wisdom

Wisdom is brought out when faced

with hardship.

Ask 'WHY' five times and seek root

causesSeek the wisdom of ten people rather than the knowledge of one Kaizen ideas are infinite

Source: www.kaizen-institute.com

Considering the persuasive nature of Kaizen activities, the support and commitment of

the management was an important prerequisite for their successful implementation.

Without these, Kaizen would remain a theory. However, at Toyota, continuous

improvement was a corporate philosophy.

Toyota employees were trained to look for possible improvements even in

seemingly efficient processes, and it surprised many to see the improvements that were

possible even in the best systems. Some analysts even felt that Kaizen was the major

contributor to Toyota’s global success.

An important element in Kaizen was poka-yoke or error proofing. Poka-yoke involvedthe creation of processes that moved smoothly from step to step, without giving room for

errors to creep in. At Toyota, processes were often created in such a way as to make it

impossible to assemble a product in any way other than the correct one, to eliminate the

chance of error.

THE HUMAN ELEMENT AND JIDOKA

In most manufacturing organisations, labor is treated like just another factor of

production and no effort is made to develop the creativity of workers or to assign

responsibility to them. However, the human element played an important role in the

TPS. Analyst said that the organisation and structure of the human resource function, in

addition to the corporate culture, played a very important role in Toyota’s success.

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The main considerations in TPS were:

Elimination of wasteful movements by workers

Consideration for workers’ safety; and

Self-display of workers capabilities by entrusting them with greater responsibility

and authority

The TPS emphasized flexibility and teamwork . Most of the workers were cross-

trained and could be shifted between different production lines . This flexibility,

which Toyota called ‘Shijinka’, was extremely useful in that the company could adapt

to demand and did away with the need to recruit new workers when the demand

for a certain type of product increased. People were also organized in teams and each

team was assigned a certain portion of work. Members could change roles within the

team. This offset the monotony of mass production.

The stress was on empowerment and workers were given the responsibility of running

and improving their own workshops. Any employee at any level of the hierarchy had

a right to make improvements in processes. This was called ‘visible control’ and all

workers took positive steps to improve or eliminate any waste that they identified. They

were also informed of the priority order of the parts to be processed and the state of

production advancement. Therefore, the actual authority for decisions of job dispatching

and overtime was delegated to the foreman, and this allowed each shop to conduct

production activities without orders from the control department. This helped improve

production rates and the moral in the factories.

Jidoka was the manifestation of Toyota’s commitment towards empowerment. This

philosophy empowered workers to stop the equipment of operations in a line

whenever an abnormal or defection condition arose in the line. This displayed the

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trust that Toyota placed in the capability of its workers and was also meant to promote

worker participation. The rationale behind Jidoka was that it was men who operated the

conveyor and not the other way round.

Whenever a worker detected an abnormality or problem in the production line, or found

himself unable to keep pace with the line, he could stop the operation by pulling a cord

called the ‘andon’ cord, which would set off an alarm system and illuminate the color

coded andon electric light board. This would alert all the workers and supervisors to the

presence of a problem in the line. If the problem was not rectified within a specified

length of time, then the entire line would stop, either manually or automatically.

Andon- Andon is a Japanese word for lantern; signal that a team member has identified a

problem possibly needing supervisory attention.

Andons are overhead boards located near each work area in the plant. The flashing lights

and musical sounds coming from these overhead boards resemble electronics

scoreboards in a sports arena. These flashing lights and distinctive musical sounds

identify a specific area, the nature of the problem and status of the alert. The lights and

sound are triggered by the “andon sensor system”.

There is an “andon cord” located within the arm’s reach of each team member

throughout every assembly area. A team member knows that it is his or her

responsibility to pull the cord at the first sign of any problem.

Pulling the andon cord merely alerts supervisory personnel-team or group leaders-to be

prepared to assist the team member who has identified an abnormality. While the team

member addresses the problem, the line continues to flow without interruption until it

reaches the end of the standard interval or ‘takt time’.

The line stops only when a team member, team leader, or supervisor is unable to solve a

problem within the remaining current takt-time interval and does not release the andon

alert. Even when stopping becomes necessary, work does not stop in the entire plant. It

ceases only in the segment of workstations immediately surrounding the affected

workstations.

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The andon cord system enables team members promptly to identify and signal the time,

place and condition of abnormality, no matter how slight.

The Jidoka system helped direct attention to the problem as soon as it occurred,

thus preventing further complications. The problems could often be corrected

immediately by directing attention to the part of the line where the problem had occurred

and the worker who had sounded the alert. Identifying the problem as it occurred

prevented the line from producing a complete lot of defective products. This helped

Toyota achieve high levels of quality. It also showed its faith in the workers’ ability as

thinkers.

To ensure that workers spotted deviations easily, Ohno called for work to be

standardized to as great an extent as possible with specific work instruments being given

for every job. It was common for employees to stop a line hundreds of times in each

shift at Toyota’s factories.

Training and development of human resources were integral to the TPS . Toyota’s

commitment to its workers made it invest substantially in developing the full potential of

workers. Training and induction of supervisors and managers often lasted three

months or more and a new recruit was not assigned his designated place of work until

the company was completely satisfied that he was familiar with the Toyota way.

Recruits were posted in different plants to observe and learn the various facets of

the TPS. In the early 2000s, Toyota invested in e-learning to ensure that all employees

were up-to-date on all the manufacturing operations and the latest techniques in

engineering.

Safety and worker well-being were also given a great deal of importance as Toyota and

Ohno believed that a safety conscious work place would improve the morale of the

workers and lead to greater productivity. One employee recollected that at a Kaizen

event, members of a team had devised a method for collecting Kanban cards without

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getting off their tow motors, thus eliminating wasted time and motion. However, when

they described the method to Ohno, he pointed out that if the vehicle was moving all the

time, the driver would have to keep a hold on the accelerator continuously, and this

would not be good for his wrist. Ohno also said that getting off the vehicle for a while

provided exercise and was good for the Kanban collector’s well-being.

OPERATIONS AT TOYOTA MOTOR

CORPORATION

Operations involved following stages:

STAMPING

At the beginning of each vehicle's 20-hour journey through the production process,

gleaming coils of steel — 95 percent of which is provided by domestic suppliers — are

cleaned, straightened and stamped into more than 200 body components and parts. An

in-house Die Manufacturing Shop makes dies for Georgetown and other North American

Toyota Plants.

BODY WELD

A combination of human welders and more than 700 robotic welders make more than

4,200 spot welds per vehicle, transforming the steel parts into the strong body shell that

is the foundation for the finished vehicle.

PAINT

During more than ten hours in Paint, each vehicle shell undergoes a complex series of

prep, priming, sanding sealing and topcoating processes designed to create a finish that

is as durable and corrosion-proof as it is beautiful.

PLASTICS

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For efficiency and the ability to make improvements quickly, instrument panels, glove-

box covers and other plastic components are produced on site.

POWERTRAIN

Kentucky-made engines have powered Camrys since January 1990, and Avalons since

the model was launched. The Georgetown Powertrain Plant produces four and six

cylinder engines, along with axle assemblies. In addition, engines and engine

components are manufactured for export.

ASSEMBLY

In assembly, each body shell is transformed into an operating vehicle, as team members

install everything from the engine and electrical components to operating fluids and the

insignia. This is the largest area of production.

INSPECTION

At the end of assembly, each vehicle receives a quality inspection. From the marshalingyard in Georgetown, vehicles are shipped by rail and truck to distributors, dealers and

customers across America and around the world.

TEST TRACK

Every day, vehicles are chosen randomly to be put through their paces on the two-mile

test-track near the production facilities. Team members from throughout the plant drive

and evaluate the vehicles as if they were new-car buyers.

BENEFITS OF TPS

TPS conferred a great amount of flexibility and productivity enhancing

capabilities on Toyota. By the early 2000s, Toyota had the capability to

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manufacture a car, from raw materials to final assembly in five days. This gave

the company a considerable advantage over competitors, many of whom took

nearly 30 days for the same process.

Flexibilty provided by TPS allowed Toyota to make the best use of its resources

for greater productivity. In the 1990s, two different models of cars were

manufactured at the same assembly line at Toyota, something unheard of at other

car manufacturers.

Concepts like Kaizen and Jidoka ensured that high levels of quality were

maintained, making Toyota one of the best car companies in the world. In a

quality survey conducted in 2000, Toyota captured the top position in 9 out of 13

vehicle segments and won the top three plant awards. Kaizen made people see

how things could change for better. Jidoka and other human resources tools

resulted in high morale among the workers who knew they were valued at the

company and enjoyed a high level of empowerement.

TPS supplanted both the Mass production and Crafts production to became the

standard global production system of the 21st

century. The lean manufacturing

combines the positive aspects of both while eliminating their shortcomings.

LEAN MANUFACTURING

John krafcik, a researcher at the Massachusetts institute of technology, first coined the

term “lean manufacturing’ in the late 1980’s. The concept was based on the philosophy of

Toyota’s production system, which manufactured better quality products with a lower

defect rate and at a greater speed than its competitors. Many analysts considered lean

manufacturing to be the western incarnation of TPS. Lean manufacturing is ‘lean’

because its uses less of everything- half the manufacturing space, half the investment in

tools, half the engineering hours, half the engineering hours, and half the time to produce

goods that have fewer defects- in accordance with customer demand.

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Lean manufacturing is much more flexible than its predecessors, craft production and

mass production, and combines the positive aspects of both, while eliminating their

shortcomings. It also requires minimum levels of inventory and can produce a greater

variety of products with the same resources. it combines teams of multi-skilled workers

at all levels of the organization and uses highly flexible and increasingly automated

machines to produce volumes of products of enormous variety.

CRAFT PRODUCTION

In craft production, the producer uses highly skilled workers and simple, but flexible

tools to make exactly what the customer asks for- one item at a time. Exotic sports cars

are an example of craft manufacturing, where the car is manufactured on order and

according to the customer’s specifications. Craft production has the benefit of being

able to provide exactly what the customer wants: but the obvious disadvantage is that

the products are too expensive. So mass production was developed at the beginning of

the 20th century as an alternative.

MASS PRODUCTION

In mass production, the producer uses narrowly skilled professionals to design productsmade by unskilled or semi-skilled workers operating expensive, single purpose

machines. Products are churned out in a standardized form in very high volumes.

Because the machinery costs so much and is intolerant of disruption, the mass producer

keeps standard designs in production for as long as possible. Therefore, though the

customer gets lower cost products, there is no variety. Employees working in mass

production also tend to find the work monotonous and uninspiring.

THE TOYOTA PRODUCTION SYSTEM

The main principles of lean manufacturing were: no waiting time, minimal inventory,

pull-based manufacturing, line balancing, smaller batch sizes, and lower process time.

Analysts around the world believed that lean manufacturing was the need of the day as

companies were operating in a highly dynamic and competitive environment in which

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lower production costs could make all the difference. The search was also on for the

successor of lean manufacturing, which some people said could be ‘agile’ manufacturing.

Agile manufacturing sought to obtain a competitive advantage by developing agility in

manufacturing processes, which would help the company to react quickly to market

changes. Knowledge was also an important resource in agile manufacturing.

Toyota’s strong relationships with its suppliers also ensured that the company

was able to implement JIT effectively, which allowed achieving a greater degree

of flexibility and considerable low inventory costs. Toyota was very protective of

its suppliers and maintained close relationships with them. This allowed it to

adapt itself quickly to market conditions, giving itself a competitive advantage

over rivals.

The use of TPS makes the Toyota motor manufacturing plant at Kentucky,

markedly different from other plants in North America. TMM plant differs from

other North American auto plants in the following ways:

a. There is reduced noise level and steady pace of work at all parts of the

plant, other than the stamping area. Even the stamping at TMM is quieter

than similar operations in other companies.

b. There is impressive cleanliness and orderliness everywhere.

c. In TMM, rework areas are sparse whereas North American auto plants

often allocate several hundred spaces for cars temporarily parked to await

rework. At TMM only a few dozen rework bays exist.

d. Another difference is the high degree to which TMM fabricates and

assembles automobile major components on one site. Although such high

degree of integration under one roof is not absolutely necessary toachieve continuous flow of work, it is consistent with Toyota’s long

standing strategy to achieve unbroken continuous flow in as many

operations as possible, from component making through final assembly.

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IMPLICATIONS

To promote the TPS, Toyota set up the TSSC, headquartered in Kentucky in the late

1990s. TSC’s objective was to help companies that were genuinely interested in

adopting TPS to implement it. Toyota did not charged any fee for its services only the

consultant’s expenses had to be reimbursed by the client.

By the early 2000s, several companies some in Japan and others in Western countries,

had begun experimenting with the implementation of the TPS.

The TPS was an important part of the turnaround plan of Fujitsu, a major electronicscompany based in Tokyo. Japan Post (the country’s postal service), which was

privatized in 2003, also employed a TPS consultant to help it streamline operations and

recover from losses.

Many organizations in the US and Europe also adopted the TPS. General Mills, a major

US food products company, had a TPS consultant, and Gortan’s, major seafood major in

USA, used TPS to reduce inventory at its fish-processing plant. Hickory chair, a

subsidiary of industry leader Furniture Brands International, also kept prices steady for

three years by adopting the TPS.

CHALLENGES FACED IN ADOPTING TPS

The biggest challenge facing the TPS was the time it took for its implementation. In

Toyota, the system grew out of discrete programs that were implemented over the years.

But for other companies to implement the TPS, it took at least two years and involved a

number of system wide changes:

The client company had to reform its organizational culture to suit the requirements of

TPS and the entire value system had to be changed. This was generally not easily done

and led to complications.

44




When TPS was implemented, things first became worse before they became better. This

demoralized companies and they often abandoned the implementation mid-way. This

system was also prone to regression and if it was not sustained constantly, things could

slip back to what they had been before its implementation and sometimes became even

worse.

Although many manufacturers in Europe and US adopted elements of the TPS in their

production systems, none of them were successful in replicating the model.

This was because of the social, economic, and cultural differences between Japan and

the Western world. Management in western countries did not easily relate to ideals like

empowerment and decentralization. They were more inclined towards command and

control philosophies and vertical organizational structures.

45




TOTAL QUALITY MANAGEMENT

WHAT IS TOTAL QUALITY MANAGEMENT?

In many automobile companies the way to ensure that customers receive quality

products and services is to have a rigorous system of inspection.. the idea is that if there

is enough inspection then the defective products wll be identified and discarded leaving

only the good products to be made available to the customers. In this approach the main

the main decision is to find out how many goods will have to be inspected., the cost of

scrap, rework, and detecting defects increase while the cost of defective products to

customers decline. At some level of inspection and optimal trade off is achieved where

total quality costs are minimized. Operations manager are somehow supposed to manage

these costs. Now the fault in here lies in the view that it implies quality can be inspected

into products. In other words acceptable product quality can be achieved by discarding

defective products that are found in inspection. while continuing to produce shoddy products with sloppy production practices.

The scenario now has changed. Quality managers now know that superior quality

products are not attained only through high and rigorous inspection.

It is that manufacturers must go back to production and make fundamental changes in

the way that they design their products and produce it right the first time. That way

superior quality products will be coming out of production and inspection job shifts from

discarding bad products to preventing defects and providing feedbacks and how

production can continue to improve quality. This is called the Total quality management.

Many companies have now abandoned the traditional approach and have gone into

TQM.

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WHY LEARN A SIMPLIFIED TQM DIAGNOSTICMODEL?

This model can help you gain confidence in making TQM decisions:

• Identify necessary elements for a successful quality management approach.

•Know how they fit together to successfully accomplish quality goals.

• Display the most options, thus helping make the right quality management

choices.

This model can help you integrate daily TQM tasks with strategic TQM goals:

• Learn skills to balance competitive quality strategic planning with daily

operational choices.

• Learn skills to maximize human and organizational resources for daily

productivity demands.This model can help you understand and enjoy team technology in the context of TQM:

• Learn how to avoid strategies that lead to the "program-of-the-month" mentality.

• Learn how to keep management commitment for TQM at its highest level.

• Learn how to avoid employee "end-runs" around management during TQM

implementation.

THE GUIDING PRINCIPLE

• Successful Total Quality Management requires both behavioral and cultural

change.

• A successful TQM System brings two other management systems together with a

behavioral and cultural commitment to customer quality.

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• Thus, TQM becomes a system within itself by default or by choice.

• These three management systems must be aligned in a successful TQM initiative:

o OM (organizational management system),

o HRM (human resource management systems) and

o TQM (total quality management).

TWO IMPLEMENTATION APPROACHES• TRADITIONAL MANAGEMENT APPROACH: This is the most common. A

TQM is overlayed (some say forced) upon the other two systems. This approach

represents the 80% failure of TQM's. In this approach TQM never becomes an

accepted reality by either organizational or human resource management. It is

usually seen as competition, or "something to be tolerated." The TQM system

consumes valuable resources needed by the other systems and rejection begins to

occur.

• INTEGRATED MANAGEMENT APPROACH: This is the least common. A

TQM is blended and balanced with existing cultural initiatives in both

organizational and human resource management systems. This represents the

20% success rate of TQM's. Whether both organizational management and

human resource management systems take on a "quality management

commitment" or "join a quality management team" is not important. The

principles of quality management are attended to as an important third system

that blends, integrates, aligns and maximizes the other two systems to beat

competition in world class quality performance. This approach can often be

divided into two sub-choices, depending upon managerial resources, readiness,acceptance, and competencies. .

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THE NEED FOR THREE INTEGRATED and SIMPLIFIED MODELS• Managers committed to successful implementation of total quality management

(TQM) must have both an HRD Model and an OD Model that work together.

• In simplified terms, HRD + OD = TQM. Even though a TQM is an entity within

itself, it must see its existance as the catalytic blending of the other two systems.

It does not consume the other systems, it empowers them to do what they have

wanted to do - attain world class customer quality!

• This can be tricky politically, and is the reason for this Simplified TQM

Diagnostic Model. You may access simplified HRD and OD models by clicking

on the HRD and OD acrostics.

A SIMPLIFIED TQM MODEL

While Total Quality Management has proven to be an effective process for improving

organizational functioning, its value can only be assured through a comprehensive and

wellthoughtout implementation process. The purpose of this chapter is to outline key

aspects of implementation of largescale organizational change which may enable a

49

http://www.skyenet.net/~leg/hrdev/hrdmenu.htm

http://www.skyenet.net/~leg/orgtrans/odmenu.htm

http://www.skyenet.net/~leg/hrdev/hrdmenu.htm

http://www.skyenet.net/~leg/orgtrans/odmenu.htm




practitioner to more thoughtfully and successfully implement TQM. First, the context

will be set. TQM is, in fact, a largescale systems change, and guiding principles and

considerations regarding this scale of change will be presented. Without attention to

contextual factors, wellintended changes may not be adequately designed. As another

aspect of context, the expectations and perceptions of employees (workers and

managers) will be assessed, so that the implementation plan can address them.

Specifically, sources of resistance to change and ways of dealing with them will be

discussed. This is important to allow a change agent to anticipate resistances and design

for them, so that the process does not bog down or stall. Next, a model of

implementation will be presented, including a discussion of key principles. Visionary

leadership will be offered as an overriding perspective for someone instituting TQM. In

recent years the literature on change management and leadership has grown steadily, and

applications based on research findings will be more likely to succeed. Use of tested

principles will also enable the change agent to avoid reinventing the proverbial wheel.

Implementation principles will be followed by a review of steps in managing the

transition to the new system and ways of helping institutionalize the process as part of

the organization's culture. This section, too, will be informed by current writing in

transition management and institutionalization of change. Finally, some miscellaneous

do's and don't's will be offered.Members of any organization have stories to tell of the introduction of new programs,

techniques, systems, or even, in current terminology, paradigms. Usually the employee,

who can be anywhere from the line worker to the executive level, describes such an

incident with a combination of cynicism and disappointment: some manager went to a

conference or in some other way got a "great idea" (or did it based on threat or

desperation such as an urgent need to cut costs) and came back to work to

enthusiastically present it, usually mandating its implementation. The "program"

probably raised people's expectations that this time things would improve, that

management would listen to their ideas. Such a program usually is introduced with

fanfare, plans are made, and things slowly return to normal. The manager blames

unresponsive employees, line workers blame executives interested only in looking good,

and all complain about the resistant middle managers. Unfortunately, the program itself

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is usually seen as worthless: "we tried team building (or organization development or

quality circles or what have you) and it didn't work; neither will TQM". Planned change

processes often work, if conceptualized and implemented properly; but, unfortunately,

every organization is different, and the processes are often adopted "off the shelf" "the

'appliance model of organizational change': buy a complete program, like a 'quality

circle package,' from a dealer, plug it in, and hope that it runs by itself" (Kanter, 1983,

249). Alternatively, especially in the underfunded public and notforprofit sectors, partial

applications are tried, and in spite of management and employee commitment do not

bear fruit. This chapter will focus on ways of preventing some of these disappointments.

In summary, the purpose here is to review principles of effective planned change

implementation and suggest specific TQM applications. Several assumptions are

proposed: 1. TQM is a viable and effective planned change method, when properly

installed; 2. not all organizations are appropriate or ready for TQM; 3. preconditions

(appropriateness, readiness) for successful TQM can sometimes be created; and 4.

leadership commitment to a largescale, longterm, cultural change is necessary. While

problems in adapting TQM in government and social service organizations have been

identified, TQM can be useful in such organizations if properly modified (Milakovich,

1991; Swiss, 1992).

TQM as LargeSale Systems Change

TQM is at first glance seen primarily as a change in an organization's technology its

way of doing work. In the human services, this means the way clients are processed the

service delivery methods applied to them and ancillary organizational processes such as

paperwork, procurement processes, and other procedures. But TQM is also a change inan organization's culture its norms, values, and belief systems about how organizations

function. And finally, it is a change in an organization's political system: decision

making processes and power bases. For substantive change to occur, changes in these

three dimensions must be aligned: TQM as a technological change will not be successful

unless cultural and political dimensions are attended to as well (Tichey, 1983).

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Many (e.g., Hyde, 1992; Chaudron, 1992) have noted that TQM results in a radical

change in the culture and the way of work in an organization. A fundamental factor is

leadership, including philosophy, style, and behavior. These must be congruent as they

are presented by a leader. Many socalled enlightened leaders of today espouse a

participative style which is not, in fact, practiced to any appreciable degree. Any

manager serious about embarking on a culture change such as TQM should reflect

seriously on how she or he feels and behaves regarding these factors. For many

managers, a personal program of leadership development (e.g., Bennis, 1989) may be a

prerequisite to effective functioning as an internal change agent advocating TQM.

Other key considerations have to do with alignment among various organizational

systems (Chaudron, 1992; Hyde, 1992). For example, human resource systems,

including job design, selection processes, compensation and rewards, performance

appraisal, and training and development must align with and support the new TQM

culture. Less obvious but no less important will be changes required in other systems.

Information systems will need to be redesigned to measure and track new things such as

service quality. Financial management processes may also need attention through the

realignment of budgeting and resource allocation systems. Organizational structure and

design will be different under TQM: layers of management may be reduced and

organizational roles will certainly change. In particular, middle management and firstline supervisors will be operating in new ways. Instead of acting as monitors, order-

givers, and agents of control they will serve as boundary managers, coordinators, and

leaders who assist line workers in getting their jobs done. To deal with fears of layoffs,

all employees should be assured that no one will lose employment as a result of TQM

changes: jobs may change, perhaps radically, but no one will be laid off. Hyde (1992)

has recommended that we "disperse and transform, not replace, midlevel managers."

This no layoff principle has been a common one in joint labormanagement change

processes such as quality of working life projects for many years.

Another systems consideration is that TQM should evolve from the organization's

strategic plan and be based on stakeholder expectations. This type of planning and stance

regarding environmental relations is receiving more attention but still is not common in

the human services. As will be discussed below, TQM is often proposed based on

52




environmental conditions such as the need to cut costs or demands for increased

responsiveness to stakeholders. A manager may also adopt TQM as a way of being seen

at the proverbial cutting edge, because it is currently popular. This is not a good

motivation to use TQM and will be likely to lead to a cosmetic or superficial application,

resulting in failure and disappointment. TQM should be purposeoriented: it should be

used because an organization's leaders feel a need to make the organization more

effective. It should be driven by results and not be seen as an end in itself. If TQM is

introduced without consideration of real organizational needs and conditions, it will be

met by skepticism on the part of both managers and workers. We will now move to a

discussion of the ways in which people may react to TQM.

People's Expectations and Perceptions

Many employees may see TQM as a fad, remembering past "fads" such as quality

circles, management by objectives, and zerobased budgeting. As was noted above, TQM

must be used not just as a fad or new program, but must be related to key organizational

problems, needs, and outcomes. Fortunately, Martin (1993) has noted that TQM as a

"managerial wave" has more in common with social work than have some past ones such

as MBO or ZBB, and its adaptations may therefore be easier.

In another vein, workers may see management as only concerned about the product, not

staff needs. Management initiatives focused on concerns such as budget or cost will not

resonate with beleaguered line workers. Furthermore, staff may see quality as not

needing attention: they may believe that their services are already excellent or that

quality is a peripheral concern in these days of cutbacks and multi problem clients. For a

child protective service worker, just getting through the day and perhaps mitigating the

most severe cases of abuse may be all that one expects. Partly because of heavy service

demands, and partly because of professional training of human service workers, which

places heavy value on direct service activities with clients, there may be a lack of interest

on the part of many line workers in efficiency or even effectiveness and outcomes

(Pruger & Miller, 1991; Ezell, Menefee, & Patti, 1989). This challenge should be

53




addressed by all administrators (Rapp & Poertner, 1992), and in particular any interested

in TQM.

Workers may have needs and concerns, such as lower caseloads and less bureaucracy,

which are different from those of administration. For TQM to work, employees must see

a need (e.g., for improved quality from their perspective) and how TQM may help.

Fortunately, there are winwin ways to present this. TQM is focused on quality,

presumably a concern of both management and workers, and methods improvements

should eliminate wasteful bureaucratic activities, save money, and make more human

resources available for core activities, specifically client service.

Sources of Resistance

Implementation of largescale change such as TQM will inevitably face resistance, which

should be addressed directly by change agents. A key element of TQM is working with

customers, and the notion of soliciting feedback/expectations from customers/clients and

collaborating with them, perhaps with customers defining quality, is a radical one in

many agencies, particularly those serving involuntary clients (e.g., protective services).

Historical worker antipathy to the use of statistics and data in the human services may

carry over into views of TQM, which encourages the gathering and analysis of data on

service quality. At another level, management resistance to employee empowerment is

likely. They may see decision making authority in zerosum terms: if employees have

more involvement in decision making, managers will have less. In fact, one principle in

employee involvement is that each level will be more empowered, and managers lose

none of their fundamental authority. There will undoubtedly be changes in their roles,

however. As was noted above, they will spend less time on control and more on

facilitation. For many traditional managers, this transition will require teaching/training,

self reflection, and time as well as assurances from upper management that they are not

in danger of being displaced.

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Resistance in other parts of the organization will show up if TQM is introduced on a

pilot basis or only in particular programs (Hyde, 1992). Kanter (1983) has referred to

this perspective as segmentalism: each unit or program sees itself as separate and unique,

with nothing to learn from others and no need to collaborate with them. This shows up in

the "not invented here" syndrome: those not involved in the initial development of an

idea feel no ownership for it. On a broader level, there may be employee resistance to

industry examples used in TQM terms like inventory or order backlog (Cohen and

Brand, 1993, 122).

Dealing with Resistance

There are several tactics which can be helpful in dealing with resistance to TQM

implementation. Generally, they have to do with acknowledging legitimate resistance

and changing tactics based on it, using effective leadership to enroll people in the vision

of TQM, and using employee participation.

A useful technique to systematically identify areas of resistance is a force field analysis

(Brager & Holloway, 1992). This technique was originally developed by Kurt Lewin as

an assessment tool for organizational change. It involves creating a force field of driving

forces, which aid the change or make it more likely to occur, and restraining forces,

which are points of resistance or things getting in the way of change. Start by identifying

the change goal, in this case, implementation of TQM. Represent this by drawing a line

down the middle of a piece of paper. Slightly to its left, draw a parallel line which

represents the current state of the organization. The change process involves moving

from the current state to the ideal future state, an organization effectively using TQM.

To the left of the second line (the current state), list all forces (individuals, key groups,

or conditions), which may assist in the implementation of TQM. These may include

environmental pressures leading to reduced funds, staff who may like to be more

involved in agency decision making, and the successful applications of TQM elsewhere.

On the other side, list restraining forces, which will make the change implementation

55




more difficult. Examples may be middle management fear of loss of control, lack of time

for line workers to take for TQM meetings, and skepticism based on the organization's

poor track record regarding change. Arrows from both sides touching the "current state"

line represent the constellation of forces. Each force is then assessed in two ways: its

potency or strength, and its amenability to change. More potent forces, especially

restraining ones, will need greater attention. Those not amenable to change will have to

be counteracted by driving forces. Exhibit I provides an example.

Force Field Analysis

DRIVING FORCES RESTRAINING FORCES

Environmental pressures leading toreduced funds

Middle management fear of loss of control

Staff who may like to be more involvedin agency decision making

Lack of time for line workers to take time for TQM meetings

Successful applications of TQMelsewhere

Skepticism based on the organization's poor performance regarding change

The analysis of the force field involves looking at which driving forces may be

strengthened and which restraining forces may be eliminated, mitigated, or counteracted.

If it appears that, overall, driving forces are strong enough to move back restraining

forces, adoption of TQM would be worth pursuing. The change plan would include

tactics designed to move the relevant forces.

It is also important to note and validate any points of resistance which are, in fact,

legitimate, such as the limited amount of staff time available for TQM meetings. Klein

(cited in Bennis, Benne, & Chin, 1985) encouraged change agents to validate the role of the "defender" of the status quo and respond to legitimate concerns raised. This will

allow appropriate adaptations of the TQM process to account for unique organizational

circumstances. Sell TQM based on the organization's real needs, note legitimate risks

and negatives, and allow improvements in your own procedures. This should enhance

your credibility and show your openness to critically looking at the process.

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Another way to address resistance is to get all employees on the same side, in alignment

towards the same goal. Leadership is the mechanism for this, and specific models known

as transformational or visionary leadership (Bennis & Nanus, 1985) are most effective.

Research on change implementation (Nutt, cited in Robey, 1991) has identified four

methods. The first, "intervention," involves a key executive justifying the need for

change, monitoring the process, defining acceptable performance, and demonstrating

how improvements can be made. This was found to be more successful than

"participation," in which representatives of different interest groups determine the

features of the change. Participation was found to be more successful than "persuasion"

(experts attempting to sell changes they have devised) or "edict," the least successful.

Transformational or visionary leadership, the approach suggested here, is an example of

the intervention approach. This would involve a leader articulating a compelling vision

of an ideal organization and how TQM would help the vision be actualized. These

principles will be discussed in more detail in a later section, as a framework for the

change strategy.

A powerful way to decrease resistance to change is to increase the participation of

employees in making decisions about various aspects of the process. There are actually

two rationales for employee participation (Packard, 1989). The more common reason is

to increase employee commitment to the resultant outcomes, as they will feel a greater stake or sense of ownership in what is decided. A second rationale is that employees

have a great deal of knowledge and skill relevant to the issue at hand (in this case,

increasing quality, identifying problems, and improving work processes), and their input

should lead to higher quality decisions. A manager should consider any decision area as

a possibility for employee participation, with the understanding that participation is not

always appropriate (Vroom and Yetton, 1973). Employees or their representatives may

be involved in decision areas ranging from the scope and overall approach of the TQM

process to teams engaging in quality analysis and suggestions for improvements. They

may also be involved in ancillary areas such as redesign of the organization's structure,

information system, or reward system. Involvement of formal employee groups such as

unions is a special consideration which may also greatly aid TQM implementation.

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A change agent should understand that, overall, change will occur when three factors

(dissatisfaction with the status quo, desirability of the proposed change, the practicality

of the change) added together are greater than the "cost" of changing (time spent in

learning, adapting new roles and procedures, etc.) (Beckhard and Harris, 1987). This is

represented in the formula in Exhibit II. Any key group or individual will need a level of

dissatisfaction with the status quo, must see a desired improved state, and must believe

that the change will have minimal disruption. In other words, the change (TQM) must be

seen as responding to real problems and worth the effort or cost in getting there.

Conditions favoring change may be created by modifying these variables. The change

agent may try to demonstrate how bad things are, or amplify others' feelings of

dissatisfaction; and then present a picture of how TQM could solve current problems.

The final step of modifying the equation is to convince people that the change process,

while it will take time and effort, will not be prohibitively onerous. The organization as a

whole and each person will be judging the prospect of TQM from this perspective. A

variation of this is the WIIFM principle: "What's in it for me?" To embrace TQM,

individuals must be shown how it will be worth it for them.

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INVENTORY CONTROL

Inventory control is concerned with minimizing the total cost of inventory. In the U.K.

the term often used is stock control. The three main factors in inventory control decision

making process are:

The cost of holding the stock (e.g., based on the interest rate).The cost of placing an order (e.g., for row material stocks) or the set-up cost of

production.

The cost of shortage, i.e., what is lost if the stock is insufficient to meet all demand.

The third element is the most difficult to measure and is often handled by establishing a

"service level" policy, e. g, certain percentage of demand will be met from stock without

delay.

The ABC Classification The ABC classification system is to grouping items according

to annual sales volume, in an attempt to identify the small number of items that will

account for most of the sales volume and that are the most important ones to control for

effective inventory management.

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Reorder Point: The inventory level R in which an order is placed where R = D.L, D =

demand rate (demand rate period (day, week, etc), and L = lead time.

Safety Stock: Remaining inventory between the times that an order is placed and when

new stock is received. If there are not enough inventories then a shortage may occur.

Safety stock is a hedge against running out of inventory. It is an extra inventory to take

care on unexpected events. It is often called buffer stock. The absence of inventory is

called a shortage.

Quantity Discount Model Calculation Steps:

Compute EOQ for each quantity discount price.

Is computed EOQ in the discount range?

If not, use lowest cost quantity in the discount range.

Compute Total Cost for EOQ or lowest cost quantity in discount range.

Select quantity with the lowest Total Cost, including the cost of the items purchased.

Inorder to simplify the process of inventory control there is a software made which will

not only quicked the process of inventory control but will also help in doing the whole

process accurately. This software is called Hi – tech software and it is being used ow by

most automobile industry.

HiTech Automobiles Sales, Stock and Accounts Management Program is a very powerful tool for Invoicing, Inventory Control, Sales and Purchase Control and

Accounting. The program has got powerful features to take care of all requirements of a

Automobiles Trading and Business House and serves as a complete Management

Information system (MIS). The design of HiTech Automobiles SSAM (Sales, Stock and

Accounts Manager) is modular. The data from various modules flows in Accounts

module and all your final rep orts are produced at a touch of a button.

The program has above listed modules :

This modular program keeps detailed information about the Supplier, customer and

accounts you deal with. Apart from the preparing and printing the vouchers HiTech F

inancial Accounting keeps your accounts up-to-date without any effort. Numerous

60




reports are available for viewing and printing where you can keep an eye on the vital

indicators about your business.

Being Window based HiTech Financial Accounting is in tune with the latest computer

software technology and will be a long time companion to your profitable business.

The design of HiTech Automobile SSAM is modular. The data from various modules

flows in Accounts module and all your final reports are produced at a touch of a button.

The program has above listed modules.

This application program is designed for use on Windows 98/2000/2003/ME/NT/XP.

This program has much improved functionality and more power under Windows (TM).

It is equipped with context sensitive On Line help to make the whole operation easy for

a new user.

The program uses Microsoft Access databases powered by Microsoft Jet Database

Engine for fast and efficient storage and retrieval of Data. Multitasking (Carrying out

two tasks at a time; i.e. printing reports or vouchers is simultaneously possible while

viewing the reports or making new vouchers. The program uses spreadsheet to display

all your data on the screen at the same time for easy readability.

The program includes built in tools like Information Export Panel Information Export

Panel that allows you to export all reports from to program to Printer with print preview,

email, MS Excel, MS Word, CSV Text and also upload to web using FTP. All reports

can be displayed in grid as well as in list view (sort-able) format. Another tool included

with the program is Communication Control that is linked to party (customer, supplier,

employee etc.) records. You can write a communication using word, excel o r notepad or

send an email to a party. The communication is linked with the party record and can be

re-accessed again. Also telephone numbers can be dialed by click of a button using the

computer modem.The a program has an OCX user interface that make data entry

effortless and editing of all records is possible with ledger and inventory being updated

61




automatically. A number of reports are displayed with graphs. All reports can be

exported in various format as described above.

Place your choice today in HiTech Financial Accounting Software and make your

Business Accounting easy to handle. HiTech Financial Accounting shall be reliable

companion of your successful business with years of bother free operation.

SUPPLY CHAIN MANAGEMENT

INTRODUCTION

Consider how a material might flow from a companies supplier through the companies

operation, and the to it’s customers. An increasingly popular perspective today is to viewthe flow of materials from suppliers all the way to the consumers as a system to be

managed. This perspective is commonly referred to as supply chain management.

In the broader sense it refers to the way that materials flow through different

organizations; Starting with basic raw materials and ending up with products delivered

to the ultimate consumer. Eg consider the steel used in automobile bodies, mining

company first only the iron ore from the dirt. The iron ore is then sent to a steel mill,

where it is processed with other materials to form large steel ingots. These are again sold

to another steel companies, where they are heated rolled into long thin sheets and

annealed. These rolls are then sent to automotive manufacturers that are either

specialized in making doors, and inner and outer body parts of the cars. The automobile

is then sold to some car dealership that performs some final preparation work, such as

62




adding pinstrips to the sides etc. finally the ultimate consumer purchases the vehicle or

car from the dealer who is the last link in the supply chain.

Supply chain can form complex networks involving many companies and materials. A

raw material can be used in many different finished products produced by numerous

companies. Co-ordination of all companies involved in the supply chain, including

effective communication is crucial in providing high quality finished products in a

timely manner and at the lowest cost possible for the company. From an operations

management perspective for a particular company that is in middle of a supply chain,

only a portion of supply chain is of particular interest. So for most of the companies the

most relevant aspect of SCM involve all management functions related to the flow of

materials from the companies direct suppliers to its direct customers; including

purchasing, warehousing, inspection, production, materials handling, shipping and

distribution.

Materials management and logistics management are two alternative names sometimes

used to refer SCM within a single company.

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CONCLUSION

The Indian car industry is going through very interesting phase. Along with a booming

economy has come increased spending patterns and a growing automobile sector. But it

hasn't been this way forever. Initially very few foreign car companies were present in

India, that too with a minor stake. The change in the Indian car industry came during the

early '80s. Many International car companies set up manufacturing units all over the

country. The feather on the cap of the Indian car industry, however, came with the

launch of India's first indgeniously designed and manufactued passenger car - The Tata

Indica. The Indica changed the Indian car industry for ever.The Indian automobile

industry had a revolution taking place in the car segment with the launch of Indica

V2.The car was very well received by the Indian car market. Popularity of the Indica V2

does not end just in the Indian car market and the Indian automobile industry but has

gone way beyond.With the coming years Tata Motors is committed to manufacture

world class products that will be the envy of automobile manufacturers in India and

abroad. Tata Motors is set to be a shining example of a progressive Indian car Industry.

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On the canvas of the Indian Economy, Auto Industry occupies a prominent place. Due to

its deep forward and backward linkages with several key segments of the economy,

automotive industry has a strong multiplier effect and is capable of being the driver of

economic growth. A sound transportation system plays a pivotal role in the country's

rapid economic and industrial development. The well-developed Indian automotive

industry ably fulfils this catalytic role by producing a wide variety of vehicles: passenger

cars, light, medium and heavy commercial vehicles, multi-utility vehicles such as jeeps,

scooters, motorcycles, mopeds, three wheelers, tractors etc.

Although the automotive industry in India is nearly six decades old, until 1982, only

three manufacturers - M/s. Hindustan Motors, M/s. Premier Automobiles & M/s.

Standard Motors tenanted the motorcar sector. Owing to low volumes, it perpetuatedobsolete technologies and was out of sync with the world industry. In 1982, Maruti

Udyog Limited (MUL) came up as a Government initiative in collaboration with Suzuki

of Japan to establish volume production of contemporary models. After the lifting of

licensing in 1993, 17 new ventures have come up, of which 16 are for manufacture of

cars. There are at present 12 manufacturer of passenger cars, 5 manufacturers of MUVs,

9 manufacturers of Commercial Vehicles, 12 of two wheelers, 4 of three wheelers and

14 of tractors besides 5 manufacturers of engine. The industry comprising of the

automobile and the auto component sectors has shown great advances since delicensing

and opening up of the sector to FDI in 1993. The industry has an investment of a sum

exceeding Rs. 50,000 crore. During the year 2003-04 the turnover of the automotive

sector was around Rs. 1,00,000 crore. The industry provides direct employment to 4.5

lakhs and generates indirect employment of 1 crore. The contribution of the automotive

industry to GDP has risen from 2.77% in 1992-93 to 4% in 2003-04.

65




BIBLIOGRAPHY

Case Study, ICFAI Journal of Operations Management, May 2005

Overdrive, vol 7 No.1 , September 2004, Motoring News,Aspi Bathena

Overdrive,vol 7 no. 6, February 2005, Air Borne , Yogendra Pratap

Overdrive , vol 6 no.12 , August 2004, First Drive

Motoring, November 2004

Auto India , October 2004, Driving Impression, Abhijit Hingway

Auto India , October 2004, talking to Mr Ratan Tata , Bhushan Mahapralkar.

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Overdrive , vol 7 no.2 , October 2004

Auto India, December 2004, rear view

Autocar , decemebr 2004 , vol 6.n o.4 , Audi Attack

Autocar ,July 2004, Vol 5 no. 11, Mahindra diversifying

Production & Operations Management, Tata Mcgraw Hill, Nair.

Principle of operations research, second edition, Harvey M Wagner.

Fundamentals of operation Management, Second edition Aquilano chase davis

“Special Applications”, Kevin lane keller, Strategic Brand Management.

“Can anything be branded?”, Kevin Lane Keller, Strategic Brand Management.

Branding Electronics, Jaap B. Kalkman & B. Peters The McKinsey Quarterly,

2002.

Overdrive, vol 7 No.1 , September 2004, Motoring News,Aspi Bathena

Overdrive , vol 6 no.12 , August 2004, First Drive.

Motoring, November 2004

Auto India , October 2004, Driving Impression, Abhijit Hingway

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Overdrive , vol 7 no.2 , October 2004.

Auto India, December 2004, rear view

Autocar , decemebr 2004 , vol 6.n o.4 , Audi Attack

Autocar ,July 2004, Vol 5 no. 11, Mahindra diversifying

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REPORT ON

OPERATIONS AND SUPPLY CHAINMANAGEMENT IN AN AUTOMOBILE

INDUSTRY

(In fulfillment of the requirement of Post – Graduate degree in Masters of Business Administration – International Business)

Submitted To: Submitted By:Debashish Choudhury Anand M. DesaiAssisstant Professor A1200306C02Advisor- Industry Interaction Cell MBAIB

AMITY INTERNATIONAL BUSINESS

SCHOOL,

AMITY UNIVERSITY

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Certificate

This is to certify that the dissertation entitled “Operations and Supply ChainManagement in an Automobile Industry” contains original work done byAnand M. Desai of Amity International Business School, Noida.

It is being submitted in fulfillment of requirement for the award of MBA(IB) awarded by Amity International Business School and is a record of students own work carried user guidance and supervision.

Prof. Debashish Choudhury

Amity Business School Noida

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Acknowlegdement

I would like to take this opportunity to wholeheartedly thank for theunconditional support I received from Dr. Gurinder Singh Ahluwalia, ProVC and DYDG, Amity University, Amity International Business School.

I am indebted to my faculty guide, Professor Debashish Choudhury for giving me an opportunity to complete my dissertation topic under his ableguidance.

Last, but not the least, I would like to thank my friends without whose

support this piece of work would have been very difficult.

Anand M. Desai

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