When Toyota was in just 2 years in it's business, Japan had to go through World War II and Hiroshima Nagasaki incident which completely destroyed Japan's economy. While struggling for labor and capital, they also had to face companies as big as Ford and General Motors of the United States. Despite all the odds Eiji Toyoda was abled to make profits and raise the company above all the giant automobiles companies.
Back in the 90s when Japan's economy was shattered and people were struggling to stay alive, making a place in a market under such circumstances were impossible, let alone profit.
THE LOOPHOLES
A BRILIANT IDEA
Noticing their company struggle keep it's foot on ground, Eiji Toyoda decided to visit Ford's rouge plant, where he learnt about the production system of the company. When he got back, he realized it isn't just abut copying their methods and mechanisms , plus affording machinery and labors were out of the question. While the seemingly perfect method of Ford did end up making profits, there were few loopholes in the system which caught Eiji's eyes.
The production line of Ford was as such, first they would forecast the demand and then they will place order for the raw materials in bulk to reduce the cost. After that they will store the materials in the warehouse and then start assembling the parts. Proceeding that the cars were store in the inventory and then to the dealers. Noting that they would always produce in surplus, they would more often than not face overproduction. The overproduction in tern lead to excessive inventory and unnecessary capital investment.
In order to make their production efficient and profitable, Eiji came up with idea of Just In Time method of production. In this method the cars will we only available in the pamphlets and the showroom, the assembling will only starts after the customer places an order. They would also encourage their suppliers to follow the same. And the best part is that the entire process would take only 5 days. This method lead to extreme cost cutting since their were no excess inventory and even if a natural disaster were to occur, which is quite common in Japan, there will be little to no loss.
THEIR SUCCESS
After adopting the Just In Time method of production, Toyota's production started to shoot up from the year 1995. In 2008 it became one of the largest car manufacturer and in 2016, Toyota's market capitalization was more than that of Ford, General Motors and Honda together. Later when almost every company started to implement the Just In Time method, they saw 80% less lead time and up to 50% reduction in inventory, resulting them to save capital. And this is how Toyota transformed the world of supply chain while becoming one of the most profitable company.
