1. As Doug Friesen, what would you do to address the seat problem? Where would you focus your attention and solution efforts? What options exist that you would recommend? Why?

The problem that Doug and the leadership team faces is specifically in the area of the rear seat assembly. This area has been a problem for much of the last six months. Figure 1 illustrates the top 5 sources of problems for each of the past seven months. While the defects per vehicle are down from the October 1991 peak, the trend line is disturbing with the largest month-to-month change occurring from March to April.

From October through January, there seemed to be a large number of missing or broken parts appearing among the top five problems. This was likely related to poor design or process steps, which seemed to have been addressed based on the data in the accompanying chart. April’s problems seemed to focus more on missing elements (possible misalignment in the JIT process), manufacturing quality (wrinkles), and apparent manufacturing process errors (gap in rear seat).

Additional data suggests that the number of defects increased on or about the 14th of April. The timing could suggest that the introduction of the new European models, which increased the possible combinations from a low of 12 in early 1992 to 20 at the beginning of the month, to 30 options. There were plans to increase this again by 18 as exports were planned for Japan and the Middle East.

It should be noted that while the trend increased for both shifts, there is a much larger defect rate for the 1st shift.

Toyota also captured the defects by type in a Pareto chart. The shaded elements note the TMS view that the

defects were the responsibility of KFS. Material Flaws and Missing parts (likely incorrect colors or seat configuration) lead the list of defects.

It is our recommendation to work actively to address the problematic trend with the seats on two fronts: (1) quality control with KFS and (2) the discovery of the reason for the differences between the first and second shift.

Figure 1 - TMS USA HBS - Exhibit 7

Figure 2 - TMS USA HBC – Exhibit 10

The recommended actions related to KFS would focus on incoming inspection. It is unclear if the material flaws are directly related to the manufacturing process at KFS, the transport, or the transfer process into the TMS line. This can be easily examined using Jidoka. Addition focus needs to be placed on ensuring that the number of seat options is not contributing to the number of missing parts and that the JIT information exchange is correct. Again, a Jidoka process would uncover quickly the issue and likely result in recommendations to alleviate this problem. If this was an area of continued concern, the focus of a Kaizen team on this problem would be justified. A short-term solution might include placing additional Vendor Managed Inventory “golden” seats on-site at the TMS facility to replace defective parts to ensure that there are fewer parts taken off line.

There must also be a close examination of the two TMS areas. The first take would be to explore the reason for the difference in defect rates between the shifts. If there is a training problem, this should be addressed immediately. Additional emphasis needs to be focused on the reason for the delays in obtaining replacements parts from KFS once the source of the problem is identified in the Clinic or Overflow area.

Figure 3 - TMS USA HBC - Exhibit 8

2. What do you think about stopping the line? What is the cost of a chord pull resulting in a stoppage of 1 minute? 30 minutes? 60 minutes? Do you think the line should be stopped when the station identifies a defective seat?

It is our belief that the line should not be stopped to fix a defective seat. The method of noting the defect and creating a triage to handle the problem does work; however, the company needs to discern the root cause of the exceptionally high volume of defects and implement appropriate remedial measures.

An underlying message from The Goal states that the cost of a line stoppage due to defect costs more than the replacement parts and overtime. Because the Georgetown plant has capacity for only 200,000 cars and market demand is for 240,000 cars, every foregone unit of production costs Toyota the margin they would have made on that car. According to the case, a Camry sells for $18,500 with Toyota making a 17% margin. Thus, every foregone unit of production costs Toyota $3,145. If we assume that they will not operate overtimes, have the demand for the units, the cost for the line stoppages are:

Pricing Stoppage (minutes)Cars LostOP Impact Per

Shift For Lost Car

Cars Per Shift 428 Sale Price 18,500$ 1 1 3,145.00$

Minutes Per Shift 485 Margin 17% 30 26 81,770.00$

Cars per Minute 0.88 OP 3,145$ 60 53 166,685.00$

If we are to assume that the demand still exists and overtime is available to make up for “lost Cars” related to stoppages, then the costs for the stops need to consider the overtime to make up for the lost cycles.

Cars Lost

Additional Cost Impact for Labor

Per CarNumber of Workers Per Shift 385 1 1 163.63$

Overtime Cost Per Worker 25.50$ 30 26 4,908.75$ Cost Per Minute of Overtime 163.63$ 60 53 9,817.50$

Time required to Build One Car (minutes) 0.88

1 02 3853 25.50$

4 -$

Stoppage (minutes)

We will assume there is no additional Variable Materal cost

We will assume Anyone in Management is SalariedWe will assume the Average Shift Size is 769/2We will assume that Overtime cost are ($17 * 1.5)

The costs associated with the line stopages are likely further understated because there is a minimum overtime requirement for the employees.

Shift time (in minutes) 525 Minus lunch & breaks (75)Total time per worker 450 Workers per shift 769 Total man-hour mins / shift 346,050

Total cars per shift 427.5

Cars per man-hour minute 0.001235 Times workers affected 769 Car production lost / minute of stoppage 0.95 Margin per car $ 3,145 Profit lost per minute of stoppage $ 2,987.75

Plus 1 min of overtime for 769 workers 769Overtime hours 12.82Overtime rate $ 25.50 Total overtime for 1 min. of lost production $ 326.83

Total cost for 1 minute delay $ 3,314.58 Total cost for 30 minute delay $ 99,437.25 Total cost for 60 minute delay $ 198,874.50

3. Where, if at all, does the current process of handling defective seats deviate from the principles of Just-In-Time and the Toyota Production System?

The Toyota Production System principle is based on the assumption that true need will deviate from production planning and that problems will crop up. The Just in Time inventory management system was designed to ensure a Pull rather than Push management principle, which reduces inventory costs and ensures the most efficient manufacturing environment. The system functions well when communication is effective and suppliers have completely adopted the principles and practices.

It is not evident that the TMS team deviated from the principle of Just in Time, but rather it had other problems - either supplier issues, process issues, or the JIT information flow was incorrect. It would be our conclusion that there were problems with the TPS process that may not be directly linked to the JIT, but rather failures to implement other elements of the TPS to quickly determine the root cause and fix it.

The Toyota Production system relied on two practices to address problems and drive additional quality and productivity, Jidoka and Kaizen.

Jidoka was a system for immediately identifying and addressing problems in production. According to the case, in order for Jidoka to work properly, “the normal state of operations had to be well characterized and understood” and the processes had to be standardized. In the case of attempting to remedy the seat problem, there was not a normal state of operations, the problem was not understood, and there was no way to address the issue in a standardized manner. Therefore, the principle of Jidoka was not applied effectively.

Finally, kaizen was the idea of constantly seeking change for the better and this was certainly not the case in Toyota’s ad hoc approach to trying to rectify the seat problems.

It is our conclusion that the core principles of TPS were not upheld and the tools of TPS were not utilized with regard to the seat defect problems.

4. What is the real problem facing Doug Friesen?

The real problem facing Doug is that he has no idea where his problem lies. Clearly, he is losing money each shift by missing his production goal, incurring more costs related t fixing the problem, and in some ways has not used Toyota Production System tool, the 5 Ws. He needs to drill down on the problem, determine the root cause, and fix it correctly to ensure he meets his plants commitment to its customers.

As a part of Question 1, we examined three possible issues, two with KFS and one with TMS deltas between shift one and two. If we were to apply the 5Ws to the case,

Situation: We are seeing far more defects than acceptable impacting our top revenue and bottom line profit.Initial Proposal – Add QC checks to incoming inspection, determine if issues exist in JIT system, determine delta’s in 1st to 2nd shift defects.

Why are we seeing so many in Material Flaws defects in the line?

Why is the JIT system providing us bad matches or missing products?

Why is this problem amplified by the introduction of more model combinations?

Why is there a difference in defects between shift 1 and shift 2?

Why are we not effectively clearing inventory from the Clinic?

It has been stated that Doug also may be experiencing the problem of looking at this issue through the prism of a traditional US manufacturer rather than way the Toyota Motor Company would, fix the problem not the source.

He is trying to work within the confines of the TPS, but is not taken advantage of the tools of Jidoka and Kaizen to fully address the problem