Taiichi OHNO and Toyota Production System

In May 2004, Toyota Motor Corporation (Toyota) announced record financial results for the fiscal year ended March 2004. The company's revenues and operating income had reached highs of $163 billion and $15 billion respectively (Refer Exhibit I). What was noteworthy, however, was that the company's net earnings were more than double the combined net earnings of automobile majors General Motors (GM), Ford, DaimlerChrysler, and Honda for their latest fiscals (Refer Exhibit II). Toyota was firmly entrenched as the most profitable company in the automobile industry in the early 2000s. At a time when the giants of the industry were making meager profits and some were even suffering losses, Toyota showed steady profits.

Because of its stable cash position, it was able to invest in the development of new technologies like hybrid engine systems³ and develop brands like the youth-focused 'Scion', which many believed to be risky. Analysts said that the foundation of Toyota's strong performance was its much analyzed and emulated manufacturing system, which made use of concepts like Just-in-Time (JIT) and Kaizen or the process of continuous improvement, to reach a high level of efficiency in production. Through its competitive advantage in manufacturing, Toyota was not only able to maintain its award winning levels of quality, but was also able to rapidly capture market share by exercising aggressive cost control and churning out better car models.