Toyota Motors

INTRODUCTION
The company was incorporated in Pakistan in December 1989 in accordance with the terms of a joint venture agreement concluded amongst the House of Habib, Toyota Motor Corporation and Toyota Tsusho Corporation. It was formed for the purposes of assembling, progressive manufacturing and marketing of Toyota vehicles in Pakistan with effect from 1st July 1990. IMC started operations in 1990 as the sole distributor of Toyota Motor cars in Pakistan. In May 1993, its plant at Port Qasim became operational. Thus started the production of high quality automobiles under the Toyota name in a plant that stands on 105 acres of land and covers an area of 40,000 sq. meters. Its installed capacity is 20,000 cars per annum, which can be raised to 40,000 per annum. The entire plant has been set up with technical assistance from the Japanese joint venture partners who are not only transferring their modern auto manufacturing technology to Pakistan, but are also imparting their management skills at Indus Motors. IMC currently produces the XE, GL, Gli, Gli Automatic and 2.0 Diesel models of the popular car Corolla. It also produces 2×4 and 4×4 versions of the Hilux truck. Employees working at IMC numbered 546 at the end of 1996. Its sales in 1996 amounted to Rs.4.136 billion (representing a sale of 8,125 units) while its after tax profit for the same period was Rs.187.235 million.  The company recently completed its five years in production and sales of more than 25,000 units with a deletion rate of 40% and 33% capacity utilization.
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IMC has adopted not only the Toyota name but also the Toyota standards, its commitment to quality and its guiding principals, which are:
1.    Be a company of the world.
2.    Serve the greater good of the people everywhere by devoting careful attention to safety and to the environment.
3.    Assert leadership in technology and consumer satisfaction.
4.    Becoming a contributing member of the community in every nation.
5.    Foster a corporate culture that honours individuality while promoting teamwork.
6.    Pursue continuing growth through efficient global management.
7.    Build lasting relationships with business partners around the world.

Right from the beginning, IMC implemented the Toyota production system based on Just-in-time (JIT), Built-in-Quality and continuous improvement through Kaizen. IMC is the pioneer of JIT in Pakistan. However the JIT system is not possible in its truest form due to the following reasons:
1.    Suppliers and vendors cannot be relied upon for supplying high quality goods all the time.
2.    Suppliers and vendors are located at considerable distances from the plant.
3.    Lead-time not known for certain.
4.    Law and order situation is not stable in Pakistan.

PRODUCT LINE
IMC initially started with the XE model of the Corolla. However, the GL model with additional specifications and improvements was launched in November 1993. It was about this time that the XE model was also offered with power steering. In November 1994, the GLi model was introduced. Its major attraction was its 1600cc engine, electronic fuel injection and metallic colors. In March 1996, IMC launched the Hilux truck in 2×4 and 4×4 versions. In the following month, the company introduced the diesel version of the Corolla with a 2000 cc engine. The company has also recently launched automatic version of the GLi.

MANAGEMENT
The Indus Motor Company makes an active effort to foster a sense of belonging and a family feeling amongst its employees. It refers to all of them as team members irrespective of their work. IMC constantly motivates its employees through various techniques such as the reward system in Kaizen, recreational activities such as fun fair, melas and conventions.

IMC tries to foster a team spirit and has done away with barriers such as status differences. A practical display is the fact all the people in offices are made to sit in the same hall irrespective of their designations.

IMC strictly implements the Japanese practice of Participative Management. Every worker is allowed to make decisions related to his work and to make suggestions so as to improve it.

EXTERNAL ENVIRONMENT

INDUSTRY SITUATION
Until September 1997, demand for cars at IMC was very smooth. However, in October 1997, there was a sudden drop in sales. This was due to the reviewing of the taxation policy of the government. Sales dropped from a level of around 250 cars per month in September to about 100 cars per month in October and continued at this level till January 1998. As a result, the CKD orders were also reduced. During this time, average production days amounted to only 14 per month. The remaining days were spent in organizing various activities at the plant, such as Kaizen, employer-employee programs, training programs and sports activities.

Around the end of January ‘98, two major changes resulted in a sudden upsurge in demand and sale. These changes were:
1.    CVT was abolished
2.    The duty on the import of CKD units was reduced by 5% which resulted in savings of Rs.80,000 to Rs.90,000.

This sudden increase in demand created a problem because there was almost no reaction time for the company as CKD orders had dropped in the previous months and there was hardly any time to order more from the parent company. From February onwards, the demand had risen to around 250-550 cars per month and this trend is expected to continue till August, assuming no major changes in any policy affecting the industry.

The slump may also be attributed to some other factors such as the suspension of purchase of vehicles by the government in late 1997. Some sources indicate that the purchase of cars by the government has gone down by 75% in an attempt to curtail spending (Areola, M.K., October 13-19, 1997). Private sector firms are also reducing their spending and thus curtailing their expenditure on cars. As a result the assemblers had decided to cut prices of their products in an effort to increase demand. There also seems to be a renewed interest in used cars even though their prices have registered an increase due to a decrease in their imports.

VENDOR RELATIONS AND DEVELOPMENT OF LOCAL PARTS
As per the Government of Pakistan’s directives, every automobile assembler has to follow a deletion program which calls for a decrease in imported parts and development of the local automobile parts industry. IMC has an extensive program of marking out vendors for local parts. At present, 48 vendors are supplying to the company. Only one vendor supplies each part. In this manner, the company is able to instill a feeling of trust and responsibility in the vendor. The company is also actively pursuing its vendors to get ISO 9000 certification. To motivate the vendors to do so, the company has done away with inspection of parts supplied by the ISO 9000 certified vendors. In this manner, IMC has been able to achieve a deletion level of 40%2.

FORECASTING DEMAND
The dealers of Indus Motors develop their demand forecasts independently. These forecast are developed simply on the basis of previous trends and future sales forecasts. These forecasts are then handed over to the marketing department which adds them to reach a total demand figure. On the 20th of every month, a meeting is held between the managers of the Marketing, Finance and Production Planning and Materials Control departments to study these forecasts and decide upon two things:

1. The planned production for the next month. This includes the model mix and the colour. The line in/line off plan is prepared on the basis of this data.

2. CKD orders for the n+2th month where n is the month for which the production plan, referred to in point 1, is being made. Estimated orders are also placed for the n+3 and n+4 months. When the next meeting is held, the CKD order for the n+3 month is finalized and placed while the estimated orders are also placed for the n+4 and n+5 months. For example if the meeting is being held on the 20th of February, then the CKD order for May would be decided and placed. Estimated orders would also placed for June and July. When the next meeting is held on the 20th of March, the CKD order for June would be finalized and placed while estimated CKD orders for July and August would be placed. These estimated orders would be adjustable to a limit of +-10%. In this way the company uses the simple moving average method.

For the supply of local parts, the vendors are given an annual tentative demand figure and the prices are predetermined. Thus, the vendors are bound to supply the predetermined amount of supplies at the prices decided upon beforehand for one complete year. Usually the prices cannot be revised until 6000 units have been supplied or the year ends – whichever comes first. However some price revisions may be allowed if the vendor is being affected by taxes or foreign exchange rate changes.

THE PRODUCTION PROCESS

The IMC uses 3 main shops in its manufacturing process. This means that a CKD (completely knocked down) is converted into a CBU (completely built up) after passing 3 essential departments. These departments are Welding, Painting and Assembly. A CKD includes more than 5000 parts. These parts pass through these three processes to form the complete vehicle. In one lot, there are about ten cars that are distributed in 23 cartons. These CKDs are imported from Japan and can be considered as a raw material for the IMC.

The process starts with the CKD being recovered. The term recovered means that it is brought in the form of parts from the packed form. From this operation, which requires specialized equipment and is partly mechanized, the parts are picked and separated according to the process in which they are supposed to be utilized.

WELDING
The first production process begins with the welding department*. The welding department is semi mechanized and employs around 70 workers. The equipment includes highly technical jigs. It is in this department that the CKDs are given their very first shapes similar to automobiles. The first process in the welding department is the unboxing of the CKD cartons. Each CKD carton contains 10 units of the part that is packed inside. The welding
process then begins.  A Kanban sheet is attached to the car at the beginning of the process. The sheet contains information about the lot number, colour code and line off date and accompanies the car till the end of the process.
The underbody is welded together in three sections.
•    The engine compartment
•    The driver compartment
•    Rear seat and trunk compartment
They are all produced separately and then joined together to form the underbody. This underbody is then moved forward where the main body is attached to it. The main body is also completed in 3 sections. The front fenders are attached to the front door and the rear fenders are attached to the roof while the trunk is independent. These three sections are attached to the underbody one by one. After this is complete, the rear door and front bonnet are also fixed. The complete body of the car is now complete and is known as the Shell body.

The welding department is divided into 18 stations and each station is fitted with state of the art welding equipment. These welding machines provide 150-300 kg air force and the welding is controlled by timer contractors. IMC is also using a new technology to do stud welding for its bolts. This means that the holes for the bolts are made at exactly the right place with exactly the right depth and circumference with the use of machines. All the welding guns and transformers are portable and can be moved freely whenever needed. This not only increases the quality of the product because the welding is strong, but also saves time as the body does not have to be moved continually.

Jigs have been provided to the workers so that they may test the quality of the welding. Any worker is allowed to stop the production if he detects a fault. There is also a provision for recycling a defective unit at any point in line so that the quality doesn’t suffer. Clock monitoring and color signals are also used to ensure that production continues according to schedule.  If any station is lying idle or there is a bottleneck, it signals to the other stations to either speed up or slow down. The whole welding process takes four hours per unit but every 10.5 minutes, a completed shell body is sent to the paint shop.

PAINT SHOP
The process of painting includes the latest technology of using the dip method. In this method, the whole car is submerged in paint and then dried before it is sent to the assembly department. The paint shop employs around 80 employees and is the longest of all the processes. It takes three days for one car to be painted but the department spits out a painted unit every 10.5 minutes.

This department is divided into 8 stations*. First, the shell body is sent in for pretreatment. The first stage of pretreatment is water dipping in which a shell is dipped into a tank full of water. It is then dried in the oven. The next step is phosphating, which again involves dipping the car into a phosphate chemical so that all the steel, dust, and dirt is cleansed off the surface. Once again it is heated and then sent to the Electro-deposition station. Electro-deposition is also a technique used to clean the body of the car and make it resistant to corrosion. Once again heat treatment is applied. Now the car passes into sealer application stage in which all the crevices in the car are closed with sealer to make the car waterproof. Once again the car is heated in the oven to make sure that the sealer has solidified. Until now, the painting process has been ensuring that the body is clean, resistant to corrosion and waterproof. Colouring starts when the primer coat is applied. This primer coat not only shields the car from the ultra violet rays of the sun but also determines the shine and the beauty of the final coat. Once again the car is heated in the oven. The shell body is then sent to the top coating station. The final colour of the car as per the schedule is put on the car. Oven treatment follows to ensure that the colour is solid. After a final inspection the car is sent to the assembly department.

Quality control is again done laboriously in the painting department. After each stage the car is checked and defective units are reworked. At present the paints used by IMC are from ICI. The painting department is the most automated department in the whole plant.

ASSEMBLY
The assembly department performs the next step in the manufacture of the car. This department is also partly mechanized. This process has three basic lines - namely Trim Lines 1, 2, and 3. This department completes 75% of the car. About 5000 parts from the engine to the indicator lights are installed in this department. There are 27 stations and each station has a specific part to install. The whole process takes 1 & 1/2 days but a car is driven of every 10.5 minutes.

As there are so many small parts to be fitted in this department, efficiency becomes extremely important. Also supply is critical because there are about ten different variants of the product and each one of them requires different gadgets - hence all of these gadgets have to be there. Even then, IMC does not have more than half a day’s inventory in the boxes on the production line. This not only reduces the space required but also minimizes theft. One technique used is that only one worker supplies to a specific station, this way he knows when the gadgets are needed and supplies them as soon as they are required. For the convenience of the online workers the shelves are tilted towards them.

QUALITY
The quality of a company’s products greatly influences the customer’s buying decisions. The company has a separate quality assurance department in addition to the three tiered system of quality assurance.

Quality assurance at the IMC consists of the following three stages:
1)    Inspection by the line workers
2)    Inspection by the next department
3)    Random inspection

Besides, the above mentioned techniques which ensure quality of the work done at IMC, the company also makes efforts to control the quality of the parts produced by local vendors through better coordination with them. The vendors are being encouraged to get ISO 9000 certification with the incentive that the materials of such vendors are exempt from inspection.

INSPECTION BY THE LINE WORKERS
Every line operator is responsible not only for the work he does and dispatches but also for the work of the previous team member. He has to ensure that whatever he receives is according to the quality standards of the company and also what he dispatches is of quality. The IMC follows the Japanese system of Pokayoke according to which any worker is allowed to stop the production line if he feels that the work is not upto the quality standards.

INSPECTION BY THE NEXT DEPARTMENT
Whenever a shop receives its share of work the first step is to ensure that all jobs performed in t he previous section are according to the quality standards.

RANDOM INSPECTION
After the end of every shop a random check is conducted on a few units to see if the work done in that particular shop conforms to the quality standards.

The implementation of Toyota Production System based on Just-in-time (JIT), Built-in-Quality and continuous improvement through Kaizen has been further consolidated and this has helped in improving efficiencies of all production activities.

A comprehensive and independent Quality Assurance division of professionally qualified engineers is exercising strict Quality Control in three vital areas namely:
•    Incoming materials including process checks at vendor’s site
•    Component processing and assembly check at plant
•    Final delivery of products at plant

The role of the Quality Assurance department has been expanded to support and train vendors, conduct process audits at vendor premises and also support the Service Department in grasping customers’ quality expectations and taking corrective measures to meet them*.

APPLICATION OF JAPANESE PHILOSOPHIES AT THE IMC

A number of Japanese management techniques are followed at the IMC. These include:

KANBAN
Kanban is the word used to signify the passage of information from one department or individual to the other. The most common application of this is the placement of a metal sheet with the engine number and the chassis number of the car on its body so that it is easy to track. This quick passage of information helps increase the quality and eliminate waste.

KAIZEN
“Continuous search for a better way”. Kaizen is the creative suggestion system aimed at continuous improvement in all departments of the organization. Since it involves recognition, analysis and solution of problems, it is considered as a very effective problem solving process. Kaizen activities are carried individually as well as in the form of groups called Quality Circles. The prime focus of these activities is to bring continuous improvements in terms of quality, productivity, safety and cost effectiveness.

Kaizen works in two ways:
1. At Indus Motors, every worker is referred to as a “team member” so as to foster a feeling of belonging and thus motivate the worker to perform better. The first manner in which Kaizen is implemented is that each team member can give suggestions related to his area of work with regards to
•    Efficiency
•    Productivity
•    Cost effectiveness
•    Work simplification
A committee analyzes every suggestion and if it is found practical and feasible, the team member gets a reward of Rs.200 per suggestion.
2. In the second method, a team studies the problems faced by them and work to solve the problem. The following steps are taken to identify solutions:
•    Identification of the problem
•    Analysis
•    Countermeasures
•    Implementation
•    Final report
•    Evaluate

Every year a Kaizen convention is held where Kaizen teams from the IMC make presentations on the improvement of certain processes and problem solving methods. The team with the most effective presentation wins the right to represent the IMC at the International Kaizen Convention held annually at the Toyota Tsusho Corporation, Japan. An Indus Kaizen Steering Committee oversees the activities of all the Kaizen teams. The MD of the company, Mr. Farhad Zulficar is the chairman of the committee.
POKAYOKE
Pokayoke is another word that illuminates the IMC standard of quality control. It means that workers are not allowed to let any defect pass if detected. At IMC any worker is allowed to stop the production line if he finds that a product is not upto the high standards of quality that IMC follows. IMC uses timer clocks to determine the total duration for which a line was stopped during the day. This helps to keep a check on the delays and their causes.

ANDON
Andon is an offshoot from Pokayoke as it empowers every member of the team to be a quality inspector. At the slightest deviation from quality, colour coded lights are used to alert the foreman.

MARKETING

SALES PROMOTION
IMC uses various tools to carry on its marketing efforts such as direct marketing, promotional campaigns and personal selling. Direct marketing is done through circulating printed materials such as brochures and pamphlets and holding launching ceremonies and functions. Personal selling is done mainly on an institutional level and the sales force is extensively trained for this purpose. Promotional campaigns the most commonly used is the print medium however the electronic medium is used sometimes. The campaigns are conducted by IMC along with the various dealers, however the final approval is from the company itself. A dealer without the approval of IMC cannot even launch an advertisement.

DISTRIBUTION
IMC has a large distribution network keeping in line with its 3S (Sales, Service and Spares) philosophy, IMC has also developed a large base of dealership which presently number 17. These dealers are present in every major city of the country including Karachi, Quetta, Larkana, Lahore, Faisalabad, Multan, Sialkot, Islamabad, Pindi, Peshawar, Dera Ismail Khan and Mirpur.

MATERIALS CONTROL

There are two main functions of the materials control department:

WAREHOUSING
This includes the warehousing of CKD kits, local parts and consumables. CKDs are received once every week and are stored in the CKD warehouse right next to the main plant. The logistics department is responsible for preparing reports on the receipt of these kits. The requisitions for local parts are sent 3 months in advance with a variability of +-10%. Same is the case with the consumables which consist of paints, chemicals and lubricants. The IMC has a policy of keeping as minimum an inventory as possible to be in line with the Japanese philosophy of JIT. However, complete application of JIT is not possible due to the reasons given before. Thus inventories are held for a minimum of 3 days and a maximum of 15 days.

DISTRIBUTION ON LINE
Standard trolleys are used for CKDs and local parts. These trolleys have been designed to contain parts for lots of 10. As soon as the parts for the 8th car are consumed, the operator calls the material control department, which supplies the parts for the requisitioned lot by the time the parts for the 10th car have been consumed. Consumables consist of paints, chemicals and lubricants and are supplied as and when required.
LOT SIZE/SAFETY STOCK
The company does not make any particular use of any particular method to determine order lots, nor does it use the EOQ formula. This is because orders are placed according to the production plan specified y the PPMC department, and so order quantities are not fixed.

The company believes in JIT manufacturing and so carries the minimum safety stock possible. The stock time for large components and parts is approximately 3 days, while the stock time for smaller components is about 15 days.

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