Ford Motor Company was founded in 1903 by Henry Ford Sr. The Articles of Incorporation were signed by Henry Ford and 11 investors in Michigan on the 16th of June 1903. Approximately two years later, the company introduced the Model T which is said to have become one of the most popular automobile models in the world. Ford is currently engaged in the production of trucks and cars. It has a number of subsidiaries that are engaged in other businesses such as car financing. (Google, 2009a; Reuters, 2009). The company’s business is organised into two divisions including Automotive and Financial Services. Ford’s Automotive Division has operations in North America, South America, Europe Asia Pacific and Africa. (Google, 2009a; Reuters, 2009).
Another automobile giant is Toyota with origin from Japan and operations across the globe. The company is engaged in the production and sale of automobile, provision of financial services as well as other businesses. (Google Finance, 2009b).The company’s operations are organised into three divisions including “automotive operations”, “financial services operations” and “all other operations”. (Google Finance, 2009b). The automotive operations division is responsible for designing, manufacturing and selling of passenger cars, minivans and trucks, as well as related parts and accessories. The Financial Services Operations business division is engaged in the provision of financing to dealers and customers for the purchase or lease of Toyota’s vehicles. The division also provides retail leasing through the purchase of lease contracts originated by Toyota dealers. (Google Finance, 2009b).
The objective of this paper is to provide a comparative analysis of Ford Motor Corporation of the 1930s with the Toyota of Today. The paper will be looking at how both companies have tried to innovate their operations through the use of lean management techniques such as Just-in-time inventory (JIT) systems, Management Resource Planning II (MRP II) and Total Quality Management (TQM). The rest of the paper is organised as follows: Section 2 provides a literature review of operations management techniques such as JIT, MRP II and TQM so as to gain an insight into the theory behind these techniques; section provides a comparative analysis of how Toyota and Ford have used these techniques to improve on their operations and section 4 provides some conclusions and recommendations.
- Literature Review.
2.1. Just-in-Time Inventory System (JIT)
A just in time inventory system refers to an inventory system in which inventory is ordered only when the level of demand is known with certainty. (Mullins, 2005). The JIT system enables an organisation to produce the required quantity at the required point in time. (Takahashi et al., 2003). It is implemented to improve the return on investment of a business by reducing in-process inventory. This technique was first introduced by the Ford Motor Company and later patronised by Toyota Motor Company in Japan. (Mullins, 2005). The JIT system came as result of limited storage space for finished products and parts. The JIT system is driven by a series of signals known as kanban (ticket or visual signals). As stock drops below the re-order level, a purchase order is placed for new stock. The order release for each process in a JIT production system is determined by the actual demand rather than on demand forecast. (Takahashi, 2003). Other inventory systems similar to JIT have been proposed. For example the Kanban system takes into consideration not only the arrival of demand but also the supply of parts and the availability of production. (Kimura and Terada, 1981; Takahashi, 2003). Another inventory system is the concurrent ordering system which considers only the arrival of demand. (Izuma and Takahashi, 1993; Takahashi et al., 1993, 2003).
The major advantages to Ford and Toyota for adopting the Just-in-time inventory system were as follows (Mullins, 2005):
- Highly profitable as in-process inventory was built and sold;
- Response time of the factory was greatly reduced as a result vehicles ordered; could take only a day or two to be delivered; and
- Vehicles were built according to order, thereby removing risk of not being sold.
Major benefits of the JIT include (Mullins, 2005):
- Set up times are reduced in the warehouse
- The flow of goods from warehouse to shelves are improved
- Multi skilled staff are used efficiently
- Better consistency of scheduling and consistency of employee hours
- Increased emphasis on supplier relationships
- Supplies are around the clock, keeping workers productive and business focussed
- This saves warehouse space and cost
The Just-in-time inventory system has also been used in the computer industry. For example, Dell Computers has a Built-to-Order model where it sources inputs and assembles computers only when it has received an order. In order to succeed, Dell as made its value chain to be very short by manufacturing and selling directly to the customers rather than sell through distributors like other PC makers such as Hewlett Packard and Gateway. (www.dell.com).
A number of studies have been conducted on the JIT system. For example, Takahashi (2003) in recognition of the fact that the JIT is based on actual demand and not demand forecasts, proposed a reactive JIT ordering system that can be used for multistage production systems that exhibit high demand volatilities in the mean and variance. The Takahashi et al. (2003) augmented JIT system allows for the detection of unstable changes in the mean and variance of demand through the use of exponentially weighted moving average charts for mean and variance. White and Prybutok (2001) suggest that understanding JIT manufacturing concept philosophy, he role of each practice, their interactions, and their organisation is essential for effective implementation of JIT manufacturing. In a study of the relationship between JIT practices and type of production system in Japan, White and Prybutok (2001) observes that both repetitive and non-repetitive production systems utilise JIT manufacturing. However, White and Prybutok (2001) observes a difference in the manner in which both production systems utilise JIT manufacturing systems.
2.2. Management Resource Planning (MRP II)
There has been a tremendous increaser in the importance for master scheduling in recent years for manufacturing firms. (Olhager and Wickner, 1998). Manufacturing re-engineering programs related to lead times, quality and other manufacturing issues have been implemented by an awful lot of firms with the objective of reshaping the manufacturing environment and increasing their competitive positions. (Olhager and Wickner, 1998). High customer service, minimum inventory levels, as well as increase operational efficiency are increasingly being recognised by many firms as important competitive goals. (Olhager and Wickner, 1998). Suer et al. (1998) projects Material Resource Planning (MRP) as one of the most commonly used tools in industry today. MRP replaced Statistical Inventory Control Techniques; rescheduling capacity was later added thereby leading to an increase in industry acceptance of MRP. MRP has gone through a number of evolutions. The most recent and final stage of its evolution was the development of a technique capable of tying planning activities with finance, marketing and accounting activities. (Suer et al., 1998). This final stage gave birth to Manufacturing Resource Planning (MRP II) described as a hierarchical planning tool in which decisions made at one level impose constraints within which more detailed decisions are made at the lower level. (Suer et al., 1998). MRP II seeks to address some of the shortcomings of MRP. (Wight, 1981; Institute for Management, ND). It includes all the elements of MRP (Wight, 1981; Institute for Management, ND):
- Is based around bill of materials;
- Its starting point is the Master Production Schedule (MPS);
- The initial schedule is created using three steps including explosion netting and offsetting.
MRP II extends MRP by including four major developments including feedback resource scheduling, batching rules, and software extension programs. (Wight, 1981; Institute for Management, ND).
MRP II is designed in such a way that the higher level can receive feedback from the lower level, a feature that allows for the possibility of revising decisions at the higher level. (Suer et al., 1998). For example, MRP II includes feedback from the shop floor on how the work has progressed to all levels of the schedule so that the next run can be updated on a regular basis. (Wight, 1981; Institute for Management, ND). The ability of MRP II to enable feedback from the lower level of the hierarchy to the higher level has led to the name “Closed Loop MRP”. (Wight, 1981; Institute for Management, ND).
(ii) Resource Scheduling
Within the heart of the system is resource scheduling described as a capability that concentrates on the resources required to convert raw materials into finished goods. Resource scheduling enables the development of detailed plans that can be put to the shop floor and reported on by operations thereby offering much tighter control over the plant. (Wight, 1981; Institute for Management, ND).
(iii) Batching Rules
MRP II also allows for the incorporation of batching rules, which are regarded as building blocks for resource scheduling. (Wight, 1981; Institute for Management, ND). A variety of baching rules are offered by most software; e.g., ‘Lot for Lot’, ‘EBQ’ and ‘Part Period Cover’. (Wight, 1981; Institute for Management, ND). ‘Lot for Lot’ stands for “batches that match orders”. (Wight, 1981; Institute for Management, ND). ‘EBQ’ refers to “Economic Batch Quantity”. It is the batch size calculated by a formula that minimises the cost through balancing set up cost against inventory holding cost. (Slack et al., 2005; Wight, 1981; Institute for Management, ND). ‘Part Period Cover’ describes batches whose size cover a fixed period of demand. (Wight, 1981; Institute for Management, ND).
- Comparative Analysis of Toyota and Ford
Having discussed the different operational management tools, this section of the paper provides a comparative analysis on how Ford and Toyota have made use of these tools to improve on their operations.
Ford had a mass production system designed to make huge quantities of a limited number of models, which explains why all Ford’s Model Ts were black in colour. (Liker, 2004). The company had a large cash outlay, as a well as a large U.S and international market. Moreover, it had a complete supply system and enjoyed economies of scale form its mass production system. One of the most astonishing things of Ford’s ideology was its high level of division of labour. (Womack et al., 1991). Workers performed assembly, while industrial engineers and management personnel handled line organisation and optimisation and diversification went beyond the assembly plant. (Womack et al., 1991).
Most of the innovation at the Ford Motor Corporation was initiated by Henry Ford who is described as the “genius in manufacturing cars”. (Peterson, 2002). Ford’s successful idea was to produce small, strong, simple cars. Ford did not believe in inspecting all of his finished automobiles. Rather, Ford was more concerned with building high quality components and properly assembling them into finished cars. (Peterson, 2002). Ford constantly sought to improve the manufacturing process and he believed that improvements were never complete and that best solutions were never found. (Peterson, 2002). Ford developed the idea that it would be more efficient to assemble cars near locations where they would be sold and to have component manufacturing plants ship the components as needed to the assembly plants. As a result, small plants for manufacturing components were developed and located throughout the U.S.A and other parts of the globe. (Peterson, 2002). To reduce transportation costs, components plants were located in such way that minimum transportation would be required to move components to assembly plants. Moreover, the same transport vehicles that delivered component parts to assembly plants were used to transport finished (assembled) cars to automobile dealers. (Peterson, 2002).
Ford’s major innovation was therefore an efficient system developed among component manufacturers, the assembly plant, the dealer and the customer. Moreover, Ford shipped components overseas rather than cars, a practice that contrasts it from major competitors who shipped finished cars overseas. (Peterson, 2002).
Henry Ford is said to have been the brain behind many of the central ideas of the JIT system. However, due differences exist between the JIT system that was practice by Ford as reflected in its Model Ts production system (MTPS) and the JIT modern JIT system adopted by Toyota as reflected in the Toyota. (Wilson, 1994). The reason for this difference is due to differences in the manufacturing environment in the 1900s and 1920s and the present day manufacturing environment of Toyota. (Wilson, 1994). Obviously, Ford implemented the JIT system but not in the manner in which Toyota did it. The following section will review Toyota way of manufacturing and section 4 will provide general conclusions.
Toyota had a lot of difficulties in the 1930s. (Liker, 2004). The company employed primitive technology (based on manual labour) to produce poor quality vehicles. (Liker, 2004). Inspired by Henry Ford’s Book “Today and Tomorrow (1962)”, as well as visits to Ford and General Motor’s (GM) assembly plants Taiichi Ohno Toyota’s Chief Production Officer was determined to overturn things in Toyota. (Liker, 2004).
Unlike Ford, Toyota produced different models in very low volumes using the same assembly line as a result of low consumer demand in the Japanese auto market. (Liker, 2004). Toyota therefore depended solely on the domestic market for demand for its products which accounts for some of the problems it faced during its early stages of business. The company basically had no cash and operated on a very low scale. (Liker, 2004). After Taiichi Ohno’s studies from the U.S auto industry he was satisfied that the U.S model of mass production could be useful for Toyota. However, Taiichi Ohno was also concern with its short-comings. (Womack et al., 1991). Taiichi Ohno’s mains concerns were limited capital, strong labour laws and lack of space. As a result, Taiichi Ohno developed an alternative ideology to mass production described as the “Toyota Production Systems (TPS)”. (Womack et al., 1991). TPS is nothing more than just an inventory planning and control system similar to the ubitiqous material planning requirements (MRP) systems being widely discussed, analysed and implemented in the United States. (Pegels, 2007). The TPS system covers areas such as process design, job design, job standardisation, economic lot sizes and accelerated set-up times, just-in-time production, kanban, jidoka, andon, and Yo-i-don. (Pegels, 2007).
Taiichi Ohno recognised that the key to maintening efficiency, quality and flow through the system was to adopt a “total systems view” of the manufacturing process. (Womack et al., 1991). Figure 1 below shows the TPS. JIT and Kanban have already been discussed in the previous section. Here we focus on the Japanese terms found in the TPS. Jidoka stands for a production problem warning system aimed at alerting everyone to the source of the problem through a battery light mounted high above the production assembly line floor. (Pegels, 2007). The battery of light is referred to as “Andon”. In the event of a problem at the production operation, the light turns either yellow or red. (Pegels, 2007). Yellow means that there is a small problem such as a production delay whereas red indicates a more serious problem. (Pegels, 2007). Yi-i-don stands for co-ordinated production of parts or subassemblies that are simultaneously produced for assembly into a next stage subassembly. (Pegels, 2007).
Source: Pegels (2007).
- Conclusions and Recommendations.
One can observe that Ford and Toyota both adopted innovative measures to improve on their manufacturing operations. Henry Ford is said to have been very instrumental in developing the central focus of the JIT. Wilson (1994) suggest that Western manufacturing managers ignored Fords early approach to manufacturing during a period described as one in which Henry Ford had the greatest impact on automotive design and manufacturing development.
Ford developed an integrated systems approach which was based on a market strategy in alliance with a focused manufacturing system that emphasised quality, efficient production and an avoidance of waste within a paternalistic framework intended to make the best use of a generally low grade but highly varied workforce. (Wilson, 1994).
The main difference between the JIT approach adopted by Ford and that adopted by Toyota is the time. another prominent difference is that Ford’s JIT is was based on a limited product line while Toyota’s JIT is based on a multiple number of products. Ford however, abandoned its single product strategy in the mid-1930s but failed to augment its JIT system to adapt to a multiproduct JIT system like the one implemented in the TPS. (Wilson, 1994). Toyota is therefore considered superior over Ford as far as the implementation of the JIT is concerned. This paper therefore recommends that the TPS to Ford and other automakers.