Business 11th Edition by William Pride,Robert Hughes ,Jack Kapoor

Exercise 3

Toyota's Quality Crisis
Toyota Motor Corp., once the role model for world-class manufacturing, is facing a quality crisis. With over $200 billion in annual sales and 320,000 employees worldwide, the Japan-based automaker has been driving hard for higher market share. However, after a string of recalls involving millions of vehicles, Toyota is now playing catch-up in the very area in which it has long prided itself-product quality. It also faces serious questions about its slow response to reports of defects.
Production efficiency has long been central to Toyota's culture and its financial strength. Its just-in-time inventory system, which minimizes holding costs, has been copied by manufacturers ail over the world. Still, during the past decade alone, the company has boosted its bottom line by building new factories and wringing billions of dollars in savings from its production process. It has reduced the number of parts in its cars, redesigned components to be cheaper and lighter, and increased the speed at which designs are finalized and moved into production. Asked about the effect on quality, a Toyota vice president in North America commented: "It's not true that by reducing cost you automatically reduce quality. Every automaker has to stay competitive relative to price."
Yet in 2005 and again in 2006, Toyota recalled millions of vehicles. After that series of recalls, the company announced a quality-improvement plan based on its famous Toyota Way. One tenet of the Toyota Way is mutual ownership of problems, with quality circles designated to deal with difficulties as they arise. A second is the need to solve problems at their source, which allows factory workers to stop the production line if necessary to address a problem. The third is an urgent and constant drive to improve work processes, fueled by employee suggestions.
In 2008, Toyota's president acknowledged that the company needed to improve internal communications. "When Toyota was a small company," he said, "we could expressly communicate" about quality problems and solutions. "But now that Toyota is so big, we've realized that we have not adequately communicated."
Quality problems surfaced again in 2009, when Toyota learned that a number of vehicles sold in Europe had faulty gas pedals that could lead to sudden acceleration, a serious safety problem. Although Toyota sent its European distributors a bulletin about the problem, it didn't notify U.S. dealers or regulators. That September, the U.S. National Highway Traffic Safety Administration put pressure on Toyota to recall cars because of "unintended acceleration" problems, some reportedly linked to fatal accidents. However, the company didn't announce its gas-pedal fix until November and didn't actually issue the recall until January 2010.
With U.S. regulators and the car-buying public expressing outrage at the slow speed of Toyota's response, Congress held hearings on the matter in March 2010. Toyota's president testified and offered a public apology. Toyota's top U.S. official, asked about the gas-pedal problem, told legislators: "We did not hide it. But it was not properly shared."
The crisis deepened in April when U.S. regulators, after reviewing documents turned over by Toyota, said they would slap the automaker with a multimillion-dollar fine for delaying the recall. For its part, Toyota blamed poor communication. Only weeks after the Congressional hearings, Toyota's president told securities analysts: "Once we thoroughly explored and tried to identify the root cause, we came to realize the problem was… with communications [rather] than with quality itself." A company statement, issued the same day, reinforced this explanation: "We have publicly acknowledged on several occasions that the company did a poor job of communicating during the period preceding our recent recalls."
Right after the recalls, Consumer Reports suspended its "buy" recommendations on the eight Toyota models involved. The magazine, which many consumers consult before buying cars and trucks, later issued a rare "don't buy" warning on one of Toyota's Lexus GX SUVs, expressing concern about the possibility of a rollover during emergency driving maneuvers. What can Toyota do to steer out of its quality crisis? 20
What do you think Toyota needs to do to restore its reputation for quality?