Toyota Discovers a New World

May 27, 2010:

Toyota’s recalls are old news fading from mainstream media, but not automotive media. Core problems in the company will take time to rectify, and like everyone else that screws-up, its leadership may not be completely through denial yet. Everybody can learn from this. The entire vehicle industry, not just Toyota, is rapidly entering a new world.

Toyota’s famed production system was never much of a factor. Its TPS performance may have slipped a tad, but TPS mostly assures that designed-in quality is replicated in each unit with little waste. Anything not designed-in is not replicated-in. Toyota could not keep up with its own growth, pushed new designs out too fast, and didn’t keep up with technical change overtaking the automotive industry. Automotive complexity has grown rapidly since TPS became famous in the 1980s.

Everybody still in the global auto business has some version of TPS. It’s a necessity. The performance differentiator is ability to rapidly perfect and integrate innovation. And innovation includes business model innovation, not just technical features.

Plaintiff lawyers are still digging into Toyota’s innards for culpability bombs. Another one or two may turn up. Painting Toyota as just another investor-driven corporation would balloon settlements from a billion dollars or so to 10x that much. Discounting to hold sales ate into the margins that built “Bank Toyota.” But less cash might be good. The pile of inventory hiding the most “evil” is excess cash. Going for growth appears to be the source of many Toyota problems. In opposition to their own Toyota Way, too many decisions came to favor quantity growth over quality performance.

Toyota watchers long ago anticipated slippage, but not such a dramatic thud. Toyota expanded too fast for mentors of the culture to keep up. Became less open. Did not scale up global operations; total inventory ratios slid to the industry average, too much design expertise stayed in Toyota City too long. And technology changed. Cars became computers, unlike when Ohno’s TPS proteges automated Kamigo #9 Engine Plant 44 years ago using technology little more complicated than limit switches. Early in the crisis, statements by Toyota’s top officials suggested that they were not personally up on the implications of highly computerized vehicles. But all is not lost if they learn fast and adapt quickly. The new agreement with Tesla (electric vehicles) at NUMMI is a small sign of opening to wider learning.

In 2009, Toyota still hung around the top in J.D. Power quality surveys. But not in unintended acceleration complaints to NHTSA from 2005-2010. Toyota topped that list: 1113 to Ford’s second-place 387. Everyone in auto safety knows that many customer complaints are self-deceptions; thought they were braking, but weren’t. This breeds complacency — “Nothing to it.” However minute percentage incidents have drastic consequences when customers die. Ask Ford about Pinto gas tanks or Explorer tires. Low ppm is not all there is to quality. Disasters lurk far out in statistical distribution tails.

Toyota slowness to open up was no surprise; Toyota people don’t speak until they have facts, with fixes are in hand. This “A3 thinking,” not assimilated quickly, works well when problems stay internal. In the middle of a media storm, lacking facts, it doesn’t. Better to open up, but being opaque became part of Toyota’s mystique, breeding overconfidence that discounted data from outside the company too steeply. For example, Toyota’s black box recorders in accidents reportedly could only be read by the company, and it withheld data after accidents. Investigative authorities can read all other vehicle companies’ boxes. Puts their legal defenses in a hole from the get-go.

Ford and GM invited Toyota customers to switch, but didn’t criticize Toyota’s technical problems, lest media notice their own recalls. Electronics experts criticized the entire industry’s drive-by-wire technology, noting that electromagnetic interference is always impossible to rule out, and that vehicles with 10 million lines of code in 35-40 different controllers were entering a new zone: Complex to integrate, much more to consider assuring reliability, and maybe even opening themselves to hacking.

A 2010 automobile averages more lines of code than in commercial aircraft designs. In another design generation or two, this will grow to about 100 million lines. Is this something to be proud of, or an indicator of process waste? The industry is aiming for vehicles that largely drive themselves — at least in emergencies — swathed in electronic safety cocoons, not balky systems subject to the blue screen of death. Public perception and acceptance is a key factor.

Software complexity is also a strategy to cope with fuel economy improvements and emissions requirements. Complexity alone is starting to change the business model of the industry. To diagnose a faulty vehicle one has to know the mechanical components in it, and the versions of software loaded on it. Ford now starts a lifetime software record when each vehicle lines off. When the vehicle comes into a dealer, scanning the vehicle number brings up its record, including any software updates that have been downloaded to it. In addition, the total software system must be integrated from sub-systems, some of which come from suppliers. Integrating all this takes more supplier collaboration than ever. In addition, designs must be extensively checked by simulation. If an integrated design can’t pass a simulation smell test, there’s no point committing to a hardware prototype. Modern designs can’t be integrated without extensive simulation– too many variables to consider, from too many different directions. Taiichi Ohno never had to cope with this.

The vehicle industry as a whole seems to be getting compressed in old industrial society markets. For example, vehicle registrations in Japan have been declining since 1990.  But the industry has yet to seriously address the larger problems of Compression.

Automotive companies will migrate toward becoming life-cycle service companies. Complexity will require it before environmental mandates and material shortages require cradle-to-cradle life cycle monitoring and control. Fading: the old automotive business model — sell it; service the warranty — forget it. Every customer’s experience with the vehicle has to be tracked. The far-sighted ones will try to get in front of this. The most far-sighted one moving toward a new business model may or may not be Toyota.

This new business model has to deal with customers in lot sizes of one. Customers use vehicles in lot sizes of one. They get killed in lot sizes of one. Replicative quality is only one issue. How will the industry deal with this while shriveling consumption of fuel and virgin material, and production of pollution? Welcome to the new world.

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