OPERATIONS STRATEGY

FORD, GM
AND
TOYOTA
SUCCESS STORIES
By

Sambit Kumar Dwivedi





























INTRODUCTION


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

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














































I am going to democratize Automobile
Henry Ford

"The business of business is business"
Sloan

We build cars, not intellectuals
Toyota























Fords Model T: A synergy of Technology and Operation Management

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

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

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

The most important implementation was the Moving Assembly Line. Ford
realized that, it took significantly less time if the workers remained fixed in
their position and the product was moved past them. The concept of
Connect and Develop is beautifully illustrated in Fords learning of
assembly line from a beef factory. The assembly line achieved the purpose of
reducing Non Value Added Work. In the process of assembly line, Ford
also observed that certain tasks took more time to complete than other and
hence the concept of Bottleneck was identified. Ford made sure to make
the necessary changes in the tools and machineries associated with the
Bottleneck and tried to Elevate the constraint. Ford also implemented
Whitneys concept of Interchangeable Parts. Using interchangeable parts
required making the individual pieces of the car the same every time. All
pieces would fit with all others. Any valve would fit any engine and any engine
would fit any frame. The standardization of parts made it possible to break
down assembly of the Model T into distinct steps. Each worker was trained to
do just one step or a very few steps. This is how the Division of Labor
concept came to being. Parts were attached to a moving Model T chassis in
order, from axles at the beginning to bodies at the end of the line. As vehicles
moved past the workers on the line, each worker would do one task. Some
components took longer to put together and attach than others.
Subassemblies were established for these. For example, each radiator with
all its hose fittings was put together on a separate line feeding into the main
assembly line. The interval between delivery of the car and its components
was carefully timed to maintain a continuous flow. This boosted the efficiency
and reduced the time consumption. With a simple motto Make them all
alike; ford had achieved the impossible. Now it took only 93 minutes to
assemble a Model T from scratch.

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

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

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


Success story of GM: Beat one in ones game

While the shift in focus from product to process was originally useful in
redressing the imbalance that had existed in the industry, it has gone too far.
In fact, the fortunes of companies are much more clearly tied to their ability to
design and market products than to their ability to adopt the latest techniques
for controlling production. In case of Ford, the concentration on streamlining
the process was so great that, it failed to keep pace with peoples demand.
When a it was decided to launch a new product, the plant had become so
single process, unchanging T model oriented that an entire retooling of the
plant had to be carried out in 1928. This was the time, specifically the decade,
where General Motors snatched the market away from Fords hand.


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

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

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


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

The essence of Sloans accomplishment, briefly, was his creative approach to
the problem of how to combine a degree of decentralized responsibility
with centralized control. The company was separated and differentiated
according to the strategy of serving different markets. But, individual
interdivisional committees were also created to coordinate functions like
purchasing, engineering and research. A lot of emphasis was given to
Marketing and Branding. The idea that was carried forward was The
car for every Purse and Purpose. As the low price market was nearly
occupied by Ford, GM attacked the medium and high price range market and
hence slowly and steadily established itself in the market. To help people with
financing needs GM introduced General Motors Acceptance Corporation
(GMAC). Dealer Relations was a made a priority at GM. Dealers were
asked for suggestions and their views would be taken into account while
making corporate policies.
Sloan's organizational innovations, like Ford's, could be considered intangible
because they did not directly address the balance sheet or income statement.
They were improvements in the processes, managerial decision-making,
brand extension, and compensation policies that contributed to improvements
in productivity, profitability, and return on investment.

Toyota: Do it the Toyota Way

By the beginning of 1970, GM was into its 39
th
year of total dominance of
global automobile sales and Toyota was just recovering from the cash flow
problem it faced during 1950s. The cash problem was so intense that Toyota
had to request voluntary retirements from its employees, which gave rise to a
labour crisis. It settled only after the chairman resigned, accepting
responsibility. It was during this time that the reins of company was passed on
to the dynamic duo of Eiji Toyoda and Taiichi Ohno. In the late 50s, Toyoda
visited the manufacturing units of Ford and GM in America. Although awed by
the scale of operations in those factories, Toyoda was appalled by the huge
amounts of inventory stored and inefficiencies in the system. The 1950s also
was a time when Japan was fighting its way back into prominence after the
WWII disaster. During this time a huge number of Japanese engineers and
executives were trained by W. Edward Deming, the creator of PDCA (Plan Do
Check Act) system and one of the biggest proponents of Statistical Quality
Control. This philosophy greatly influenced Toyoda and Ohno in their
approach towards manufacturing.

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

By maintaining a standard work sheet efficiently Toyota to a great extent
could keep a track on its production system and was able to eliminate any
type of wastages or obstructions. A standard work sheet competently
combines materials, workers and machines to manufacture effectively. In
Toyota, this process is known as work combination, which is a result of
standard work procedure. The list clearly enlists three aspects of the standard
work procedure as, Cycle Time, Work Sequence and Standard
Inventory.
Cycle time is the time, which is allotted to manufacture one piece or
unit. This is determined by the production quantity, which means the quantity
required and the operating time. Quantity required per day can be calculated
by quantity required in a month divided by the month's number of operating
days. In majority of the cases, delay takes place due to the differences in the
operator motion and sequence. The job of the field supervisor, section chief is
to effectively train workers, which is possible through clear instruction
sequence.
Standard inventory refers to the minimum intra-process work-in-
progress required for operations to take place. In Toyota production
system, the condition that parts have to reach Just In Time (JIT) implies that
standard inventories need to meet more meticulously. With the inclusion of
"just" in "just-in-time" it means that if the parts arrive any time earlier to their
requirement and not at the time when it is needed actually, then wastage
cannot be eliminated. In Toyota production system, overproduction is entirely
prevented by Kanban. Consequently, there is no requirement for additional
inventory and thus no requirement for warehouse and its manager.
Kanban is a technique to achieve JIT; its aim is as the name suggests just-in-
time. Kanban, in true sense becomes the autonomic nerve of the production
line. In this, production workers begin to work themselves and make their
individual decisions regarding overtime work. The kanban system also
clarifies what managers and supervisors should execute. Thus, it promotes
improvement in both work and equipment. The objective of elimination of
wastage is too highlighted by kanban. Its implementation demonstrated what
is waste, allowing creative study and enhancement proposal.
Within a production plant, kanban is a powerful force to decrease manpower
and inventory, elimination of defective products and preventing recurrence of
breakdowns. Market diversification in Toyota can be seen through the variety
of cars, SUVs and commercial vehicles it manufactures.
To illustrate, considering Corolla, the world's largest mass-produced car
during the late 70's, a definite production plan can be set up on a monthly
basis. The total number of cars needed, can be divided by the number of
working days (which is the number of days on which actual production could
be carried out) to the level the number of cars to be manufactured in a day. By
studying each process like this, we could keep diversification and production
level in harmony and still respond to customer orders in a periodic manner.
Kanban enhances productivity and always moves with the required goods and
thus becomes a work order for every process. In this manner, a kanban can
easily stop any kind of overproduction, which is the largest loss in production
for any company including Toyota.
During 1950, labor dispute over manpower reduction and the ensuing
business boom of the Korean War, Toyota struggled with a problem of how to
scale up its production without increasing its manpower. The product manager
came up with an idea and following means. For instance, one production line
consists of 10 workers and manufactures 100 products yearly. This implies
the line capacity is 100 pieces every day and the productivity per individual is
10 pieces a day. Examining the line and workers more in detail, one notices
overproduction, workers waiting and other unnecessary movements
depending upon the time of the day. If this situation could be exploited,
manpower could be reduced by two numbers. The fact that 8 workers could
produce 100 pieces every day suggests that Toyota could easily grab up to
125 pieces every day, increasing efficiency with no need of decreasing
manpower. However, even earlier the company could manage the same
efficiency but it was getting wasted due to unnecessary work and
overproduction. This implies that if Toyota regards only work which is required
as real work and defines rest as wastage, the equation given below holds true
for both individual as well as the entire product line:
Present Capacity= Work + Waste
As in the case of Toyota production system, they must manufacture only the
quantity required, manpower should be reduced to trim excess capacity and
the match needed quantity.
Toyota identified three types of wastes; muda, muri and mura. For most
of the lean manufacturing implementations, all three of them fall broadly
under the first type of waste, muda. The original seven muda were as follows:.
1. Waste of overproduction
2. Waste of time on hand (waiting)
3. Waste of transportation
4. Waste of processing
5. Waste of stock in hand (inventory)
6. Waste of movement
7. Waste of manufacturing defective products
The term jidoka used in the TPS (Toyota Production System) can be
defined as "automation with a human touch." The word jidoka traces its roots
to the invention of the automatic loom by Sakichi Toyoda, Founder of the
Toyota Group. The automatic loom is a machine that spins thread for cloth
and weaves textiles automatically. Before automated devices were
commonplace, back-strap looms, ground looms, and high-warp looms were
used to manually weave cloth. In 1896, Sakichi Toyoda invented Japan's first
self-powered loom called the "Toyoda Power Loom." Subsequently, he
incorporated numerous revolutionary inventions into his looms, including the
weft-breakage automatic stopping device (which automatically stopped the
loom when a thread breakage was detected), the warp supply device and the
automatic shuttle changer. Then, in 1924, Sakichi invented the world's first
automatic loom, called the "Type-G Toyoda Automatic Loom (with non-stop
shuttle-change motion)" which could change shuttles without stopping
operation. The Toyota term "jido" is applied to a machine with a built-in
device for making judgments, whereas the regular Japanese term "jido"
(automation) is simply applied to a machine that moves on its own. Jidoka
refers to "automation with a human touch," as opposed to a machine that
simply moves under the monitoring and supervision of an operator. Since the
loom stopped when a problem arose, no defective products were produced.
This meant that a single operator could be put in charge of numerous looms,
resulting in a tremendous improvement in productivity.

Ohno predicted that constant quality improvement, as mentioned in the
Kaizen principle will, in the long run, drive the costs low.Toyota successfully
retained its number one ranking in the car market because of adapting to the
practice of "lean thinking" which is not just limited to products and
manufacturing processes but also to relationships with its customers and work
force. Toyota has successfully marketed itself and through its activities which
need product design, customer relationship building, technical service support
for vehicles, brand development, and advertising and sales promotion
capabilities.
All this has led to a large customer base for the company which has helped it
achieve its ranking in the market. Quality has been its key aim and it has
already been studied earlier in the paper. Customers wish to get good quality
products and Toyota successfully accomplishes its objective.












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