How did Toyota beat FORD & GM using its GENIUS Supply Chain Model?

Summary

This script tells the story of Toyota's rise to success despite numerous challenges, including scarce resources, natural disasters, and fierce competition. It highlights Toyota's innovative approach to manufacturing, known as the 'just-in-time' system, which revolutionized supply chain management by eliminating waste and streamlining production. The script also offers insights for entrepreneurs on how to apply Toyota's principles of efficiency and risk management to their own businesses.

Takeaways

• 🌟 Toyota's success is remarkable given the numerous obstacles it faced, including limited natural resources, a small population, frequent natural disasters, and post-WWII economic devastation.
• 🏭 Despite the challenges, Toyota became the world's largest car manufacturer in 2008 and had a market capitalization in 2016 that surpassed Ford, General Motors, and Honda combined.
• 🚀 The key to Toyota's success was its innovative business strategy, particularly the development of the lean manufacturing system, which focused on efficiency.
• 🔍 Toyota identified four major inefficiencies in the traditional manufacturing process: overproduction, excessive inventory, unnecessary capital investment, and wasteful resource allocation.
• 🛠️ The company revolutionized supply chain management by introducing the just-in-time (JIT) system, which eliminated the need for demand forecasting and inventory.
• ⏱️ JIT production allowed Toyota to respond quickly to customer orders, reducing waste and lead times, and increasing profit margins significantly.
• 🌐 The JIT system not only transformed the automobile industry but also became a global standard for supply chain management across various fields.
• 📈 Toyota's growth was exponential, with a 2,000% increase in production from 1955 to 1965, demonstrating the effectiveness of their supply chain strategy.
• 💡 Entrepreneurs can learn from Toyota's approach by understanding that adversity can drive innovation and that copying competitors' systems is not always the best strategy.
• 📚 For deeper insights, the speaker recommends studying Toyota's risk mitigation strategies during crises and exploring additional Toyota principles like Kanban, Kaizen, and Jidoka.

Q & A

What were the significant challenges Toyota faced in its early years?

Toyota faced numerous challenges in its early years, including being based in a small country with limited natural resources and a high cost of raw materials and labor. Japan's susceptibility to natural disasters like earthquakes and tsunamis also posed a threat. Additionally, the company had to navigate the aftermath of World War II, which left Japan's economy in ruins, and compete with established American automotive giants like General Motors and Ford.

How did Toyota's financial situation impact its ability to compete with American manufacturers?

Toyota was in a very poor financial condition, which prevented it from purchasing the latest Western production machinery needed to improve production efficiency and scale up. This financial constraint, coupled with Japan's post-war capital and foreign exchange scarcity, made it impossible for Toyota to compete with American companies on the basis of capital and machinery.

What was the key aspect in which Toyota believed it could outperform American manufacturers?

Despite the financial and machinery disadvantages, Toyota identified efficiency as the key aspect in which it could outperform American manufacturers. This led to the development of the lean manufacturing system, which focused on eliminating waste and optimizing production processes.

What is the lean manufacturing system and how did it help Toyota?

The lean manufacturing system is a method that focuses on minimizing waste within a manufacturing system without sacrificing productivity. It helped Toyota by allowing it to compete with larger, more capital-intensive manufacturers by optimizing its production processes, reducing waste, and increasing efficiency.

How did Toyota's visit to the Ford Rouge plant influence its approach to manufacturing?

After visiting the Ford Rouge plant, Toyota's top managers realized that simply copying and improving the Rouge system would not work for them due to financial constraints and the need for a system that could be implemented with limited resources. This led to the development of the lean manufacturing system.

What were the four major inefficiencies identified by the Toyota team in the traditional manufacturing process?

The four major inefficiencies identified were: 1) Excessive resource allocation due to inaccurate demand forecasting, leading to unnecessary hiring, equipment purchases, and inventory stockpiling. 2) Overproduction, which wasted resources and increased costs. 3) Excessive inventory of final products, leading to high maintenance, labor, and transportation costs. 4) Unnecessary capital investment, which resulted in high interest costs and other administrative expenses without any return on investment.

How did Toyota's just-in-time (JIT) system revolutionize supply chain management?

Toyota's just-in-time system revolutionized supply chain management by eliminating the need for demand forecasting and inventory. It focused on producing goods only as they were needed, which reduced waste, minimized storage costs, and increased efficiency across the entire supply chain.

What were the three superpowers that Toyota gained from implementing the just-in-time production system?

The three superpowers gained from JIT were: 1) Minimal damage from reduced demand or disruptions due to lower component stock and near-zero inventory. 2) Elimination of waste, leading to extreme cost-cutting and increased profit margins. 3) Rapid production growth, with Toyota experiencing a significant increase in the number of vehicles produced over the years.

What lessons can entrepreneurs learn from Toyota's approach to innovation and efficiency?

Entrepreneurs can learn that adversity often breeds innovation, the importance of not simply copying competitors' systems but adapting them to their own constraints, and the value of developing strategies that mitigate risk and enhance efficiency.

What additional strategies did Toyota employ alongside the JIT principle to ensure success?

Besides the JIT principle, Toyota also employed the Kanban system for inventory control, the Kaizen model for continuous improvement, and the Jidoka method for automation with a human touch. These strategies, along with JIT, contributed to Toyota's resilience and success.

How did Toyota's response to the 1997 Aisin Seiki fire and the 2016 Kumamoto earthquake demonstrate its risk mitigation strategies?

Toyota's response to these events showcased its ability to quickly adapt and recover from supply chain disruptions. The company's just-in-time approach, though initially causing some disruption, was complemented by other risk mitigation strategies that allowed it to minimize long-term impacts and maintain operations.

Outlines

00:00

🌟 The Rise of Toyota Against All Odds

The paragraph introduces Toyota as an extraordinary company that overcame numerous challenges to become a global success. Despite Japan's limited natural resources, high costs of raw materials and labor, frequent natural disasters, and the devastation of World War II, Toyota managed to thrive. The company's initial struggles are highlighted by comparing its production of 11,000 vehicles in a year to Ford's over 1 million. This sets the stage for exploring Toyota's innovative business strategies that led to its remarkable turnaround.

05:04

🔧 The Inefficiencies of Traditional Manufacturing and Toyota's Solution

This paragraph delves into the inefficiencies of traditional manufacturing methods used by American companies, which led to overproduction and waste. Toyota identified four major types of waste: excessive resource allocation, overproduction, excessive inventory, and unnecessary capital investment. The company's innovative approach was to eliminate demand forecasting and inventory, pioneering the just-in-time (JIT) system. This system revolutionized supply chain management by producing goods only after receiving customer orders, thus reducing waste and increasing efficiency.

10:06

🚀 Toyota's Just-In-Time System and Its Impact on the Industry

The final paragraph discusses the implementation and impact of Toyota's just-in-time system. It details how Toyota's production process was finely tuned to start only after customer orders were received, leading to a significant reduction in waste and inventory. The paragraph also outlines the benefits of JIT, such as cost reduction, increased profit margins, and the ability to withstand market fluctuations and disasters with minimal damage. The narrative concludes with lessons for entrepreneurs on innovation in the face of adversity, the importance of not blindly copying competitors' systems, and the need to understand and mitigate risks associated with business strategies.

Keywords

💡Toyota

Toyota is a prominent Japanese multinational automotive manufacturer, known for its innovation and efficiency in the automotive industry. In the video, Toyota's success is attributed to its ability to overcome significant challenges, such as limited resources, natural disasters, and post-war economic ruin. The company's story exemplifies resilience and strategic innovation, particularly through the development of the lean manufacturing system.

💡Lean Manufacturing

Lean Manufacturing is a systematic method for waste minimization within a manufacturing system without sacrificing productivity. It is central to the video's narrative as it outlines Toyota's approach to efficiency. The concept is illustrated by Toyota's efforts to eliminate waste and improve processes, which was a key factor in its rise to becoming a leading car manufacturer.

💡Just-in-Time (JIT)

Just-in-Time is a production strategy aimed at reducing inventory costs and improving response to customer demand by producing goods only as they are needed. The video highlights Toyota's implementation of JIT as a revolutionary approach that transformed supply chain management and contributed to the company's competitive edge by reducing waste and inventory costs.

💡World War 2

World War 2 is a significant historical event that had profound effects on global economies and industries, including Toyota. The video references the war as a period of extreme adversity for Toyota, during which the company had to pivot to military production to survive. This context underscores the resilience and adaptability that Toyota demonstrated in the face of overwhelming challenges.

💡Market Capitalization

Market Capitalization refers to the total value of a company's outstanding shares of stock. In the video, Toyota's market capitalization is mentioned as a measure of its financial success, surpassing that of Ford, General Motors, and Honda combined in 2016. This serves to illustrate the company's growth and dominance in the automotive industry.

💡Supply Chain Management

Supply Chain Management is the oversight of materials, information, and finances as they move from supplier to manufacturer to wholesaler to retailer to the final consumer. The video discusses Toyota's innovative supply chain strategies, particularly JIT, which have become a benchmark for efficiency and cost reduction in various industries.

💡Kanban System

Kanban is a scheduling system for lean and just-in-time production. It is mentioned in the video as one of the strategies that Toyota used alongside JIT to manage its supply chain effectively. The Kanban system helps in visualizing the production process and reducing waste by signaling the need for parts or materials.

💡Kaizen

Kaizen is a Japanese business philosophy of continuous improvement of working practices and personal efficiency. The video suggests that Toyota's success is partly due to its commitment to Kaizen, which is reflected in the company's ongoing efforts to refine and optimize its manufacturing processes.

💡Jidoka

Jidoka is a Japanese term that refers to the automation with a human touch, where machines stop themselves when a problem occurs. The video briefly mentions Jidoka as another principle that Toyota employs to enhance quality control and efficiency in its manufacturing processes.

💡Risk Mitigation

Risk Mitigation is the process of identifying potential risks and taking steps to reduce or eliminate their impact. The video refers to Toyota's strategies for risk mitigation during crises, such as the 1997 Aisin Seiki fire and the 2016 Kumamoto earthquake, as examples of the company's ability to adapt and respond to challenges.

💡Adaptability

Adaptability is the ability to adjust and respond effectively to change. The video emphasizes Toyota's adaptability as a key factor in its success, particularly in the context of overcoming the challenges posed by limited resources, natural disasters, and economic hardships.

Highlights

Toyota's success despite numerous obstacles including limited resources, high costs, natural disasters, and post-WW2 economic ruin.

Toyota's emergence as the world's largest car manufacturer in 2008.

In 2016, Toyota's market capitalization exceeded that of Ford, General Motors, and Honda combined.

The question of Toyota's business strategy and what can be learned from its success.

Introduction to Duolingo, a language learning app that gamifies the learning process.

The significant disparity in production between Toyota and Ford in the early years.

Toyota's visit to the Ford Rouge plant to learn manufacturing processes.

Realization that Toyota could not simply copy Ford's system due to financial constraints and post-war recovery.

The concept of lean manufacturing system developed by EG Toyota.

Identification of four major inefficiencies in the traditional manufacturing process.

The revolutionary just-in-time (JIT) system that eliminated inventory and demand forecasting.

How JIT production works in Toyota, with a focus on customer orders driving manufacturing.

The three superpowers JIT gave Toyota: minimal damage in crises, cost reduction, and rapid production growth.

Lessons for entrepreneurs from EG Toyota: innovation in adversity, not copying competitors' systems, and understanding risks.

Recommendations for further study on Toyota's risk mitigation strategies during crises.

Study materials and book recommendations for deeper understanding of Toyota's systems and innovations.

Transcripts

Hi everybody. Toyota is one of the most  extraordinary companies in the world.  

And the attribute that makes it  so incredible is the fact that,  

Toyota is a company that literally had every  possible obstacle for failure. First of all,  

Japan being such a small country had very less  natural resources and very less population.  

Therefore, both raw material and labour were  extremely costly. In addition to that, Japan is  

a land of natural disasters where earthquake and  tsunami are frequent, and could destroy your plant  

within a minute. Thirdly, when Toyota was just  two years into business, WorldWar2 happened where  

bombs were dropping from the sky. And during  such a time, let alone business, even survival  

was a very big deal. On top of that, after the  Hiroshima Nagasaki bombing and the World War 2,  

Japan's economy was in complete ruins. And lastly,  with all these odds against them, they were in  

direct competition with the giants of the United  States, like General Motors and Ford motors.  

And yet, in spite of these obstacles, Toyota has  emerged as one of the most successful automobile  

companies in the world. In fact, in 2008, it even  became the largest car manufacturer in the world.  

In 2016, Toyota's market capitalization was more  than Ford, General Motors and Honda combined.  

Now, this begs the question, how did Toyota  become such a successful company amidst such  

terrible market conditions? What exactly was  their business strategy? And more importantly,  

what can we learn from this incredible case  study? Before we move on, I want to introduce  

you to a wonderful language app called Duolingo.  Duolingo is an app wherein you can learn more than  

40 languages for free. Now, this obviously  includes English but that's not why it is the top  

10 free learning app in the Play Store. Duolingo  is extremely popular because they have gamified  

the entire process of learning any language. For  example, while making this video, I was kind of  

fidgeting around the application to see if I could  learn some Japanese words. And trust me guys,  

it's surprisingly fun and surprisingly easy. So  if you're someone who wants to learn a foreign  

language like German or Japanese for university  purposes, or even for your professional agenda,  

I would highly recommend you to use this  application because it's both fun and free. So  

if you want to learn a foreign language, download  the application from the link in the description,  

and let me know how is your experience  being with learning a foreign language.  

This is a story that dates back to 1950 Japan,  now it's already been 13 years since Toyota  

has been founded, and Japan was in complete  ruins after the World War 2. During the war,  

Toyota barely survived by pivoting between  making trucks and cars for the military needs.  

The condition of the company was so bad that even  after 13 years of efforts, while Toyota motors  

produced just 11,000 automobiles in the entire  year. On the other side, Ford motors produced  

more than 1 million automobiles in the exact same  year. And this massive disparity in production  

prompted Toyota top manager EG Toyota and several  of his engineers, to visit the Ford rouge plant,  

in an attempt to learn how do they exactly  improve their manufacturing processes.  

But after this visit, they realised, that simply  copying and improving the rouge system would  

not really work in Japan. Why? Because Toyota  was in a very, very poor financial condition.  

On top of that, Japan was just recovering  from the ill effects of the World War,  

which left the country starving for both capital  and foreign exchange. Therefore, Toyota could not  

buy the latest western production that was needed  to improve the production efficiency and to scale  

up the production. So practically speaking,  there was no way Toyota could compete with  

the American companies in two of the most crucial  aspects of manufacturing and that are capital and  

machinery. Now during such a time any ordinary  engineer would give up and declare that there is  

no way he could compete with the Americans. But  EG Toyota was no ordinary engineer. In spite of  

knowing that all odds were against him, he and  his team work day in and day out to understand  

how could they build a competitive system against  the American manufacturers. And that is when they  

realised that, although they could not compete  with the Americans with capital and machinery,  

there was one very crucial aspect that they  could beat the Americans with and that aspect  

was nothing but efficiency. So he came up with the  idea of something called the lean manufacturing  

system. To tell you about it, EG Toyota understood  that the standard method of operation of the US  

manufacturers was that, they first forecasted the  demand up to a certain extent, and then placed  

bulk orders so that they can save up on the  cost of machine parts and raw materials.  

So if there are three colours of cars that needed  to be sold red, black and grey, the company will  

produce 200 red cars, 500 black cars and 300 grey  cars and these cars will be ready to be delivered,  

but will be stored in the inventory until the  order comes up. And as soon as the customer

places the order, they are immediately  moved out and delivered to the customer.  

But in this process, the Toyota team identified  that there is a major problem that in turn led to  

a series of four major inefficiencies. And  the fixing of these inefficiencies is what  

turned Toyota into a billion dollar company.  In fact, it did not just change the way the  

automobile industry worked, it changed the  way the entire world's supply chain worked.  

The question is, what were these inefficiencies  and how did the Toyota team fix it? Number one,  

the Toyota team realised that when the demand  forecasting happened in the United States, the  

production always used to produce cars in surplus  and never in deficit. Therefore, more often than  

not, it lead to excessive resource allocation.  This meant that unnecessary people were hired,  

more equipments were purchased and more materials  and products were stocked up in the inventory. And  

this in turn, led to an increase in the overall  cash costs without adding any value. Secondly,  

the presence of unnecessary people, equipment and  materials automatically lead to overproduction.  

And then overproduction further lead to  the third type of waste, which is excessive  

inventory of the final products. In this case,  if there are 1000 cars that are overproduced,  

that is a huge amount of land that is being  utilised, leading to very high maintenance costs,  

labour costs and transportation cost. And  lastly, when all these ways come together,  

it leads to the fourth type of waste which is  unnecessary capital investment. For example,  

if 1000 crore loan has been taken out,  and if it is utilised in overproduction,  

Do you realise it's going to stack up a crazy  amount of interest cost lead into very high cost  

with zero return on investment. And this further  leads to more administrative costs, depreciation  

cost, etc. Now, on the outset, it looks like  a lot of things need to be changed, right.  

But when the team of Toyota actually understood  the root cause of this problem, it was all about  

just one thing. Forecasting of demand lead to  excessive inventory, which in turn led to a chain  

effect resulting into the four types of waste. So  you know what, Toyota decided to eliminate two of  

the most fundamental elements of the supply chain  and that are inventory and demand forecast. Yes,  

you heard that right. Toyota built a supply chain  where there was no demand forecasting and zero  

inventory. And this is how Ladies and gentlemen,  the world class just-in-time system was born. And  

this system revolutionised not just the automobile  industry, but also became the world standard for  

supply chain management in every field you can  think about, and this is how it worked out.  

Instead of having the cars manufactured and stored  into the inventory, the cars used to be available  

for the customers in the pamphlets, and they used  to be available in the showroom. And only after  

the customer placed the order, Toyota started  manufacturing the car. Now this on the outside  

seems very simple, right? Well, here's what even  an oversimplified process of Toyota's production  

look like. Once the ideation and booking dates  are finalised, the machinery and technology  

are acquired in three months. After that, the  parts and components arrive in seven days of the  

production centre. After the booking starts coming  from several dealers all across the country,  

the production actually starts and the path start  moving to the assembly. Now, when this moment  

happens, based on the demand, the exact same  number of parts are set to arrive every single  

day. So, if 9871 components have been taken to  the assembly, the next day, only 9871 components  

will arrive. And this happened not just for  one component, but the hundreds of components  

that were being used for the assembly, this is  followed by assembly activities and finally,  

the quality check is done. The vehicles that  are assembled arrive at the dispatch zone  

and immediately, immediately they are shipped  to the dealers based on their respective  

orders. And this entire process is set to happen  in five days as for the stated source in 2016.  

Therefore, the entire supply chain of the company  starts functioning on the basis of demand and not  

demand forecast. This is how the just-in-time  production of Toyota works wherein, even a single  

delay can cause the company millions of dollars  in losses. And this insane precision gave Toyota  

three incredible superpowers for the rest of the  competition. Number one, in case of less demand  

or even if an earthquake shatters the plant  Toyota would incur only minimum damage because  

they had less stock of components and close to  zero inventory. Furthermore, Toyota even asked  

its suppliers to follow the just-in-time principle  for their systems, which again reduced the cost of  

the overall supply chain without creating a  bottleneck for the suppliers. Secondly, all  

four types of waste were eliminated resulting into  extreme cost cutting and this cost cutting turned  

out to be is so amazing that even when other  companies applied JIT, they saw a 50% reduction  

in their inventory itself, and a lead time  reduction of more than 80%, eventually resulting  

into massive cost cutting and drastic increase  in profit margins. And lastly, in case of Toyota,  

from 1955 onwards, Toyota's production started  shooting up, they made 22,786 vehicles in 1955,  

46,417 in 1956, 70,856, in 1957 and by 1965, they  achieved a growth of almost 2,000%, producing  

477,643 units in 1965. This is how by striking  a perfect balance between extreme efficiency  

and extreme risk, Toyota and its engineers built  an iconic supply chain that turned them into the  

largest and one of the most profitable automobile  companies in the world. Now, the question is,  

as an entrepreneur, how can you apply the  just-in-time concept to your company? And what are  

the lessons that we need to learn from a legend  like EG Toyota? Number one, adversity is always  

the breeding ground of innovation. So if you  want to learn to build the most efficient system,  

go back in history, and find scenarios where  people did not have the choice of inefficiency.  

Because here's where you will see the most  remarkable innovations taking place that will  

help you beat your competition. In this case, it  was the adversity of the Japanese, which enabled  

Toyota to build a just-in-time system that helped  it beat the likes of Ford and General Motors.  

Lesson number two, whenever you study the systems  of your competitors, or even your ideal companies,  

never ever copy paste the same system to  solve your problems. Always look deeper,  

and try and see how your constraints are different  from their constraints, and then choose every step  

of execution very, very carefully. In this  case, instead of just being fascinated by  

the just-in-time concept, I would urge you to look  deeper into the risk involved with the strategy,  

which will kind of make you rethink if this  strategy is even worth it. And that is when  

you will see that there are three more strategies  of Toyota that helped them survive along with the  

JIT principle. And these principles are the Kanban  system, the Kaizen model and the Jidoka method.  

I'll be addressing them in the upcoming episode.  But until then, please do a study about Toyota's  

risk mitigation strategies during the 1997  Aisin Seiki fire and 2016 Kumamoto earthquake.  

And you will see that Toyota's entire supply chain  got disrupted only because they used just-in-time,  

but the way they reacted to it might have a very  important lesson for you to learn. And lastly,  

to make this entire process easier for you,  I have attached three study materials and two  

book recommendations for you. Number one is  the timeline of all of Toyota's innovations.  

Number two, is a research paper on Toyota system,  which will help you understand the overall picture  

of Toyota's systems. Now, although there are a few  statistical errors over there, I think the concept  

has been covered very well in this paper. And  lastly, you will find a paper that explains the  

flow analysis of the entire Toyota model. I'm also  attaching two book recommendations for you. Number  

one is the Toyota way. And number two is actually  the second part of this bestseller, which will  

actually help you apply the Toyota way to your  processes. So do have a look at them and do let  

me know what you think about them in the comments  section. That's all from my side for today,  

Guys. If you learn something valuable, please  make sure to hit the like button in order to make  

YouTube Baba happy. And for more such insightful  business and political case studies, please  

subscribe to our channel. Thank you so much for  watching. I will see you in the next one. Bye bye.