Toyota Loses Focus of Customer Satisfaction

Rivals beware. What happened to Toyota should be a warning to all auto manufacturers. According to an article in the Economist there is not one auto manufacturer who has not patterned its manufacturing and supply-chain management after Toyota. Mr. Toyoda gave testimony to the House oversight committee on February 24th, and acknowledged that Toyota stretched its lean philosophy to the breaking point and lost focus on what made their company great: putting customer satisfaction above everything else and their ability to stop, think, and improve.

James Womack one of the authors of "The Machine that Changed the World", a book about Toyota's innovations in manufacturing believes that the company's misfortunes date back to 2002, when the firm set a goal to expand its market share from 11% to 15%. According to Mr. Womack the rapid expansion was not connected to customer satisfaction and was driven by ego. When customer recalls started mounting in the middle of the decade, Toyota's president asked that there be a renewed focus on quality. However, nothing was allowed to get in the way of another goal which was to overtake GM as the biggest car maker in the world.

The article goes on to say that Toyota's problems were not in their factories, but those of their suppliers. As they adopted an aggressive expansion strategy they started using a lot of unfamiliar suppliers. In the auto manufacturing world you have the car makers referred to as OEM's. Then you have tier-one, tier-two, and tier-three suppliers. Tier-one suppliers are responsible for making the big integrated systems, tier-two suppliers make and ship components to tier-one suppliers, and tier-three suppliers may make a single component for tier-two suppliers. The supplier who made the faulty gas pedals is a tier-two supplier.

Before Toyota's expansion efforts, they had designated certain suppliers as the sole provider of certain components leading to a close and long-term relationship and a sense of mutual benefit. However, as the company rapidly expanded their production capacity they became more dependent on suppliers outside of Japan with whom they did not have years of working experience. Also, Toyota did not have enough senior engineers to keep track of how new suppliers were doing. Toyota continued to trust in its sole-sourcing method, and gained economies of scale not seen before by contracting single suppliers for entire ranges of its cars across multiple markets.

A senior executive at one of the tier-one suppliers stresses that Toyota's single supplier source philosophy was taken to risky extremes especially when mixed with the company's highly centralised decision-making in Japan. There was not close enough monitoring. They didn't have transparency with their supplier base.

So the industry faces a question. Is sole-sourcing the way to go. Should you put all your eggs in one basket. The article suggest that perhaps by having multiple suppliers for big components they could benchmark each other.