Toyota SWOT Analysis: Strengths, Weaknesses & Strategy

Introduction to Toyota Motor Corporation

Toyota Motor Corporation is one of the largest and most diversified auto manufacturers in the world today, with supply chains and production systems spanning over 70 nations, with sourcing, procurement, and quality management systems unified across its manufacturing centers. The high level of complexity inherent in these operations has made it essential for Toyota to develop one of the most advanced supply chain management systems in the world: the Toyota Production System (TPS) (Dyer & Nobeoka, 2000). This system is the galvanizing force of Toyota's entire operations and is so comprehensive in its coverage of supply chain processes that it takes approximately one year to bring suppliers up to speed and to the point of meeting its quality standards (Toyota Investor Relations, 2012).

The TPS is also a foundational element of Toyota's mission and vision. As stated in the company's annual reports and on the investor relations section of their website, Toyota's mission is "To attract and attain customers with high-valued products and services and the most satisfying ownership experience worldwide and in key markets including America" (Toyota Investor Relations, 2012). To attain these high levels of customer satisfaction, all aspects of the Toyota business model must be synchronized to deliver the greatest possible reliability at the lowest costs. The vision statement of Toyota, as also defined in their financial statements, is "To be the most successful and respected car company worldwide and in key markets including America" (Toyota Investor Relations, 2012).

Despite the recalls that occurred during the 2010–2011 timeframe, Toyota has continued to reinvest in and look for ways to improve worldwide Total Quality Management (TQM) performance, incorporating House of Quality, Lean Six Sigma, and quality functional management initiatives — all aimed at increasing vehicle reliability by driving up supplier quality levels (Takahashi, 2010). Toyota launched an extensive internal audit to determine the factors surrounding the recalls and found that specific factories had taken shortcuts and, at one point, had not performed supplier audits of incoming components for over two months (Minhyung, 2010). Internally, Toyota had lost sight of its core values of product quality within the plants that had produced the faulty products, leading to the globally embarrassing vehicle recalls (Johar, Birk, & Einwiller, 2010).

Toyota is a resilient, analytically driven organization and treated the lapse in quality as a major challenge to improve upon. This became the catalyst of a renewed emphasis on quality and an even more stringent level of supplier quality management processes, procedures, and systems (Toyota Investor Relations, 2012). The intent of this analysis is to evaluate the strengths, weaknesses, opportunities, and threats of Toyota Motor Corporation. The strengths and weaknesses are analyzed from an internal environmental perspective, and the opportunities and threats from an external standpoint.

Of the most potentially debilitating factors the company faces today, product recalls and quality issues could have a very detrimental effect on brand value over time — a factor Toyota mentions in its quarterly filings with the United States Securities and Exchange Commission (SEC) (Toyota Investor Relations, 2012). As Toyota is a highly analytically driven organization with a strong engineering emphasis, its SEC filings also indicate that the company's greatest potential growth lies ahead in its intensive spending on research and development (R&D) in hybrid and hydrogen vehicles (Toyota Investor Relations, 2012).

Analyzing Toyota's Strengths

Among Toyota's many exceptional strengths, one of the most difficult for competitors to imitate is the Toyota Production System (TPS), which orchestrates suppliers globally within a demand-driven production schedule (Dyer & Nobeoka, 2000). The accuracy and precision of this supply chain management, optimization, and supplier quality management framework has also enabled the company to branch quickly into new technologies. The TPS is used for sourcing hybrid- and hydrogen-based technologies that are rapidly incorporated into prototypes and the next generation of vehicles. The TPS has become one of the primary factors the company relies on to fuel its second major strength: exceptional R&D expertise and the ability to execute quickly across global development centers, all oriented toward market leadership in its chosen vehicle segments (Toyota Investor Relations, 2012).

Toyota's strength in R&D is further demonstrated by how effectively the company manages a diverse range of technologies — from small, highly efficient internal combustion engines to large-scale truck and commercial vehicle engines and the latest advances in hybrid technologies (Toyota Investor Relations, 2012). Toyota's R&D capabilities are considered among the most advanced in the global automotive industry (Rechtin, 2010).

Another significant strength is Toyota's pervasive production and distribution network. This extensive supply chain system, managed via the TPS, spans production centers throughout Asia, Europe, the United States, and Australia (Toyota Investor Relations, 2012). The Toyota production network is designed to minimize the lag time between vehicle production and delivery to approximately 7,000 dealer locations worldwide. By aligning its production network with specific market needs, Toyota has successfully created a foundation for advanced Kanban and lean manufacturing processes by unifying production and distribution centers (Thun, Druke, & Grubner, 2010). This optimizes manufacturing efficiency and makes Toyota's operations more customer-centric than those of any other major automaker today.

The combination of the production network, the global dealer and distributor framework, and the TPS has made Toyota a formidable competitor in every market it serves. Together, these three strategic systems also create a highly effective knowledge management and knowledge-sharing platform. The combination of demand management data from the production system and quality management information from the TPS serves to create a highly effective predictive modeling system for production yields — a core component of how Toyota measures and manages profitability (Toyota Investor Relations, 2012).

These strengths are also reflected in how the three strategic systems are combined to strengthen and continuously reinforce the customer experience and brand (Rechtin, 2010). As the mission statement affirms, the company is dedicated to an exceptional customer experience; these three integrated systems translate that mission into actual experiences for every customer. Only by integrating production, distribution, and the TPS can Toyota consistently deliver vehicles that meet and exceed customer expectations over time (Rechtin, 2010).

Opportunities in Hybrid Technology and Partnerships

Toyota is the world's leading patent holder in hybrid vehicle technologies, holding over 85% of all patents registered with the U.S. Patent Office, as well as over forty patents in other registries throughout Europe and Asia. This is a formidable platform for growth in this high-growth emerging line of business. Hybrid technologies can reduce carbon emissions by over 60% in the latest engine prototypes the company has produced and can contribute to a 45% reduction in Total Cost of Ownership (TCO) for fleet care providers (Toyota Investor Relations, 2012). This leadership has earned Toyota several awards for innovation in hybrid technology. In addition, Toyota has invested in a rapid prototyping production process that allows it to create, test, and manufacture hybrid-engine vehicles in 35% less time than traditional internal combustion engine production cycles, at 30% lower cost (Rechtin, 2010).

While other divisions of Toyota were dealing with quality management challenges, the hybrid division had been setting a record pace in perfecting production and quality management systems and workflows. The net result is the world's most efficient and cost-effective series of production workflows, which — when combined with the TPS framework — are projected to account for over 80% of the global market for hybrid engine parts, aftermarket sales and service, and new vehicle sales by 2015 (Rechtin, 2010). The Prius line is the first generation to incorporate these hybrid technologies, with additional vehicle series planned for 2013, 2014, and 2015 that would feature advanced hybrid and safety capabilities, including experiential self-driving mechanisms being developed in partnership with Google (Toyota Investor Relations, 2012). Toyota also has potential opportunities to provide hybrid engine technology to BMW and Ford, both of which are vitally interested in jointly developing hybrid vehicles with the company. The most significant opportunities for Toyota lie in the area of hybrid technologies, both for its own vehicles and for those of its partners.

Conclusion and Strategic Recommendations

Based on this SWOT analysis, Toyota needs to pursue the strategic direction of even tighter integration of its manufacturing network, distribution system, and TPS framework within its hybrid engine research and development programs, and eventually within the full-scale production of planned vehicles. Toyota should unify these three systems on a regional basis and accentuate their value through a Quick Start Program for suppliers critical to hybrid engine development.

In conjunction with these strategies, the company must embrace a quality management initiative entirely focused on hybrid technologies, ensuring that the mistakes of the past are never repeated. This will require audits on a weekly basis at every manufacturing center, along with strict accountability for incoming inspection lines, to ensure there are no recalls on hybrid product lines. If Toyota can successfully integrate quality into the three strategically critical systems that drive its profitability, the company will have laid the foundation for market dominance in hybrid engine production and vehicle distribution and sales for the next decade.

References

Thun, J., Druke, M., & Grubner, A. (2010). Empowering Kanban through TPS-principles: An empirical analysis of the Toyota Production System. International Journal of Production Research, 48(23), 7089.

Dyer, J. H., & Nobeoka, K. (2000). Creating and managing a high-performance knowledge-sharing network: The Toyota case. Strategic Management Journal, 21(3), 345–367.

Johar, G., Birk, M., & Einwiller, S. (2010). How to save your brand in the face of crisis. MIT Sloan Management Review, 51(4), 57–64.

Minhyung, K. (2010). Risks of global production systems: Lessons from Toyota's mass recalls. SERI Quarterly, 3(3), 65–71.

Rechtin, M. (2010, July). Source: Toyota to launch green-car barrage in 2012. Automotive News, 84(6420), 24.

Toyota Investor Relations. (2012). Investor relations. Retrieved December 13, 2012, from http://www.toyota-global.com/investors/

Takahashi, Y. (2010, May 12). Toyota registers surprise profit; automaker forecasts 48% growth in fiscal-year earnings as it bounces back from recall-related concerns. Wall Street Journal.