November 2, 2010 9:2 WSPC/0219-6867 180-JAMS S0219686710001867

Journal of Advanced Manufacturing Systems

Vol. 9, No. 2 (2010) 145–156

c World Scientific Publishing Company
DOI: 10.1142/S0219686710001867

CAN THE TOYOTA WAY OVERCOME THE RECENT

TOYOTA SETBACK? — A STUDY BASED
ON THE THEORY OF CONSTRAINTS

SIMON WU
National Taiwan University of Science & Technology
Ford Motor Company, Taiwan
[email protected]

MAURICIO F. BLOS
Department of Management & Information System Engineering
Nagaoka University of Technology
Nagaoka, Japan
[email protected]

HUI MING WEE∗ and YI-LI CHEN†

Industrial and Systems Engineering Department
Chung Yuan Christian University
Chungli, Taiwan
∗[email protected]
†[email protected]

The Japanese carmaker Toyota has long been regarded as the pinnacle of Japanese inno-
vation, manufacturing quality and industrial strength — particularly since it overtook
General Motors in 2008 to become the world’s biggest carmaker. Its “lean” manufac-
turing techniques and culture of continuous improvement were the envy of the business
world. Companies sent delegations to tour Toyota’s factories in the hope that some of
its magic would rub off on them.
But within a few weeks all this has changed. Problems with “unintended acceler-
ation” of its cars which the firm has belatedly taken seriously, has resulted in a crisis
within the company. Toyota’s woes were compounded on 9 February 2009 when it said
it would also recall 440,000 hybrid vehicles, including the celebrated Prius, to fix a
problem with their brakes. The firm’s reputation for quality, on which the business was
built, is shattered. Its market capitalization has dropped by an amount roughly equal
to the entire value of Ford. But the greatest damage has been done by its misreading
and mishandling of the crisis.
Surrounding this current problem, we came with an interesting question: Can the
Toyota Way bring back Toyota to the lead? The aim of this paper has the intention to
answer two significant questions. The first question is “Is the Toyota Way safe enough
to prevent problems brewing outside its factories?” In order to address this question
and get reasonable answer, this study tries to use the Theory of Constraints (TOC)
to discover the root causes and countermeasures of how Toyota’s Way can bring back
Toyota to the lead. The second question is “Can TOC deal with this kind of complicated

∗ Corresponding author.

145
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146 S. Wu et al.

problem effectively?” From the case study, we successfully answered the two preceding
questions, presenting some findings about TOC problem solving strategy.

Keywords: Toyota way; lean manufacturing; continuous improvement; Theory of

Constraints (TOC); problem solving.

1. Introduction
The Japanese carmaker Toyota has long been regarded as the pinnacle of Japanese
innovation, manufacturing quality and industrial strength — particularly since it
overtook General Motors in 2008 to become the world’s biggest carmaker.2 Its
“lean” manufacturing techniques and culture of continuous improvement were the
envy of the business world.1,10,14 Companies sent delegations to tour Toyota’s fac-
tories in the hope that some of its magic would rub off on them. But within a
few weeks all this has changed. Problems with “unintended acceleration” of its cars
which the firm has belatedly taken seriously, has resulted in a crisis within the com-
pany. Toyota’s woes were compounded on 9 February 2009 when it said it would
also recall 440,000 hybrid vehicles, including the celebrated Prius, to fix a prob-
lem with their brakes (http://toniiordache.ro/?p=742). The firm’s reputation for
quality, on which the business was built, is shattered. Its market capitalization has
dropped by an amount roughly equal to the entire value of Ford. But the greatest
damage has been done by its misreading and mishandling of the crisis.
The firm initially refused to acknowledge the problem; then, last year (2009), it
offered an explanation (badly fitting floor mats) that was greeted with skepticism;
only last month did it change its mind and agree to replace the accelerator pedals
in affected vehicles. Some people still doubt that it has really got to the bottom
of the problem. As well as seeming indecisive, Toyota’s bosses went to ground as
the story erupted in newspapers, on television and online. Only on 5 February
2010 did Akio Toyoda, 53, the scion of the founding family, appear in public to
bow in apology — and even then critics complained that he did not bow deeply
enough.
Toyota’s problems are not its own alone, but they highlight broader failings in
Japanese corporate governance that make large companies particularly vulnerable
to mishandling a crisis in this way. Such firms typically have a rigid system of
seniority and hierarchy in which people are reluctant to pass bad news up the chain,
thus keeping information from those who need to hear it in a misguided effort to
protect them from “losing face”. In many firms, including Toyota, family ties make
challenging the boss all but impossible. Any attempt to short-circuit the hierarchy
is deemed an act of disloyalty and a violation of the traditional consensual corporate
culture. Groupthink becomes entrenched because there is so little mobility between
companies: hiring from outside is thought to disrupt a firm’s internal harmony, and
an executive willing to move will be stained as a disloyal “job-hopper”. This further
hinders firms’ ability to take bold, decisive action. The preference for harmony
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Can the Toyota Way Overcome the Recent Toyota Setback? 147

crowds out alternative viewpoints. The interesting question is that why the Toyota
lost track in quality control measure in US? Is there any comprehensive action for
Toyota Way to bring the customers trust to force Toyota to the lead? In order to
address this question, this paper applies the Theory of Constraints (TOC).

2. Problem Solving Model and Theory of Constraints

Kepner and Tregoe9 defined “Problem Solving” as the activity associated with
changing the AS IF state to the TO BE state. Chang and Wang4 defined “Model”
as a scheme used for describing system operation. “Problem Solving Model (PSM)”
is useful not only for solving problems through comprehensible processes, but also
is applicable to monitor, evaluate and manage them by problem solvers.
A comparison of expert and novice approach to analyze and use information in
problems has revealed three areas of significant difference3 : (1) Experts are more
likely to spend a greater length of time on the information; (2) Experts are more
likely to incorporate the relevant components of their domain and topic knowledge
with the information; (3) When classifying problems, experts are more likely to
identify and use the underlying principles on which the problem is constructed
whereas novices are more likely to identify and use surface features. Most important
of all, the proper use of appropriate PSM (Problem Solving Model) can distinguish
a problem-solving expert from a novice.
The TOC is a problem solving model developed by Eliyahu M. Goldratt.7 Since
the mid-1970s, Goldratt has used scientific methods to create concepts in manage-
ment, which have been proven to be of great value to industry. Goldratt also pre-
sented his own expression of the scientific method and the structured TOC thinking
processes using common sense. The problem solving process takes the form of the
Theory of Constraints thinking processes and a family of five Theory of Constraints
logic tree diagrams.6,11
In essence, the Theory of Constraints is about change and how best to influence
change. The TOC is a set of management principles that helps to identify obstacles
to one’s goal(s) and influence the changes essential to eliminate them.13
In order to induce effective output from TOC thinking processes, Goldratt used
three basic questions namely: (1) What to change? (2) What to change to? and (3)
How to cause the change? They are linked with five logic trees.6,12,13 The detailed
linkage is shown in Table 1.

3. A Case Study Using TOC

In this case study, we employ the basic analysis tools of four TOC tree diagrams15
except Evaporating Cloud tree (EC). They are fitted into the following 4-step
process adapted from a generalized problem solving process: (1) Problem finding,
(2) Idea finding, (3) Obstacle finding, and (4) Solution finding.
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148 S. Wu et al.

Table 1. TOC thinking processes & logic trees.

Key Questions Intermediate Objectives Logic Trees

What to Identify core problems and find out root 1. Current Reality Tree (CRT)
change? causes.
What to change Eliminate the core problem starting with 2. Evaporating Cloud Tree (EC)
to? an objective to search for solution. (for use with conflicts)
3. Future Reality Tree (FRT)
How to cause Identify obstacles to implement and 4. Prerequisites Tree (PRT)
the change? devise detailed plans for overcoming 5. Transition Tree (TT)
these obstacles.

3.1. Step (1) problem finding

In order to effectively find the root causes and solutions, the first priority is to
correctly identify and clearly define the confronted problem under Toyota. Also,
the problem situation needs to be explored and appraised. For this purpose, the
Current Reality Tree (CRT) is developed based on the following list of undesirable
effects (UDE) which are separated into six portions related to the current situation
of Toyota (Table 2):
The completed CRT is shown in Fig. 1. From this diagram, the root causes are
clearly identified as:

(1) Conducting corporate governance in western countries with Japanese style

(Current Model).
(2) Overly rapid expansion without proper check in place.

Table 2. The undesirable effects (UDE) of Toyota.

A. Product 1. Potential safety & software problems

2. Wrong product design
3. High quantity recalls
4. More complexity of design, production & parts supply

B. People 5. Hide engineering & quality problems

6. People are reluctant to pass bad news up to chain

C. Customer’s relation 7. Customer complaints

8. Neglected costumer’s voice

D. Cost 9. Reduce crash testing of new cars in order to cut costs

E. Governance 10. Poor communication between key stakeholders

11. Conducting corporate governance in western countries with
Japanese style

F. Business Strategy 12. Lax safety policy

13. Customer’s perspectives too much localized (Japan) quality control
teams instead of globalized ones
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Can the Toyota Way Overcome the Recent Toyota Setback? 149

(3) Low cost oriented culture.

Basically, the CRT is a cause and effect diagram. Taking the right-most path of
“overly rapid expansion without proper check in place” in Fig. 1 as an example, it
can be interpreted as follows:

The “overly rapid expansion without proper check in place” is the root cause
of “do not have adequate contingency plan in place”. And the “do not have ade-
quate contingency plan in place” will cause “organization’s growth over the speed
of people development”. Then the “organization’s growth over the speed of peo-
ple development” will cause “people are reluctant to pass bad news up to chain”.
Moreover, the “people are reluctant to pass bad news up to chain” will further
cause “hide engineering & quality problems” and “defective products are ongoing”

: Represents undesirable effects (UDE)

Toyota lost global
market & credit : Represents root cause

: Represents causes & effects

Consumers damaged
Misreading & High quantity
& regulation
mishandling of crisis recalls
punishment

Missed to deal
Missed to catch Customers keep Inability to Safety & quality The defective model
with problems &
, quality issues in complaints & address on issues are out of cars are quickly
customers
the right time spread over complaints quickly break cumulated
complaints

Neglected Poor Defective Hide eng ’g &

, communication The real problems
customers products are quality
with key are under the table
voices stakeholders ongoing problems

Neglect local Traditional Potential safety Beyond People are reluctant

Lack of outside Production system ,
market consensual & software organization s to pass bad news
perspective lose control
requirements corporate culture problems capacity up to chain

Engineers are
Too much Japanese quality Quality Engineering Cut new car Wrong People are over Organization’s growth
forced to borrow
control team instead of Division is located in model crash product confident to over the speed of
from existing
globalized ones Japan testing design handle people development
models

Conducting corporate More complexity

Cut cost Do not have adequate
governance in western Product quantity Lax safety Search for low of design,
through lead contingency plan in
countries with Japanese superior to quality policy cost parts production &
time shortening parts supply place
style (Current Model)

Overly rapid
Low cost oriented expansion without
culture
proper check in place

Fig. 1. Current reality tree for “Toyota lost global market & credit”.
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150 S. Wu et al.

respectively; but also cause the “beyond organizations’ capacity”. Nevertheless, the
“defective products are ongoing” is also the effect of “hide engineering & quality
problems”. Then the undesirable effect — “hide engineering & quality problems”
will combine with “defective products are ongoing” to cause the effect of “the defec-
tive model cars are quickly cumulated”, then “the defective model cars are quickly
cumulated” will cause the effect of “safety & quality issues are out of break” to
result in “inability to address on complaints quality” and “consumers damaged &
regulation punishment”. Nevertheless, the “consumers damaged & regulation pun-
ishment” will further cause another important undesirable effect — “high quantity
recalls”, then finally result in “Toyota lost global market & credit”.
According to the three root causes mentioned above, we define the task as how
can Toyota come back to market lead — from the perspective of Toyota Motor.
There is a core problem which must be dealt with: how to transform “the low cost
oriented culture under overly rapid expansion with no globalization thinking” to
bring Toyota back to market lead?

3.2. Step (2) idea finding

Having defined the objectives of the problem solving project, the next immediate
task is to develop a potential solution by collecting a set of ideas for further evalua-
tion. For this purpose, we exploited the TOC future reality tree (FRT) to build the
road map. The gap between the objective and the reality is bridged with a series of
intermediate tasks. The completed FRT diagram is shown in Fig. 2. Basically, the
FRT is also a logic tree diagram depicting the cause and effect relationship. The
interpretation of diagram follows the same manner as shown in the Step (1).
Examining both current reality tree (Fig. 1) and the FRT (Fig. 2), it is clear
that the 13 undesirable effects can be effectively eliminated by the desirable effects
(DE) through the scheme as shown in Fig. 2. After deploying the FRT, this paper
finds out three key ideas of improvement for Toyota Motor to potentially come
back to the global market lead, which are: (1) Set up the culture of low cost but
high quality and meet safety requirements (not only cost reduction), (2) Has proper
check organism in place for any overly rapid expansion, (3) Conducting corporate
governance in western countries with western style (Future Model).

3.3. Step (3) obstacle finding

The set of solution ideas generated through the FRT is of a preliminary nature.
There might be a number of potential problems hindering its realization. In order
to discover the hidden obstacles, the TOC prerequisite tree is exploited to map
out a prerequisite plan for examination. Based on the FRT diagram as depicted in
Fig. 2, the prerequisite tree diagram for this case study is completed as shown in
Fig. 3. A total of 11 obstacles are identified and shown as hexagons to obstruct the
achievement of each intermediate objective (IO).
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Can the Toyota Way Overcome the Recent Toyota Setback? 151

: Represents desirable effects (DE)

Toyota backs to
global market lead : Represents key improving ideas

: Represents causes & effects

Effectively deal with Only accepted recalls Consumers are

business crisis in under control & product protected under
multiple levels recall procedures regulation

Face & deal with

Fix products & , Enable to address Safety & quality The defective cars
problems & Satisfy customers
, parts quality on complaints issues are under are quickly fixed
customers complaints on time
issues on time quickly control before shipment
complaints

,
Preemptively Improve & continue Defective No eng g &
There is no real
respond to communication with products are quality problems
, problem hidden
customers key stakeholders fixed on line be hidden

Link with Focus on More flexible No potential Production Under People should
outside local market consensual safety & software system is under organization share bad news up
perspective requirements corporate culture problems control capacity without fear

People are
Set up globalized quality Testing the cars Developing people at
Quality Engineering Right product Cannibalism is no skillful &
control team instead of & parts under the same speed of
Division is globalized design more permited confident to ,
Japanese ones varying conditions organization s growth
handle

Conducting corporate Set up model

Search for low Shorten lead Create adequate risk
governance in western Improve product Focus on complexity
cost but safety time only meet limitation for recovery plan & a
countries with western quality over quantity safety policy
parts quality & safety production business continuity plan
style (Future Model)

Set up the culture of low Has proper check

cost but high quality and organism in place for any
meet safety requirements overly rapid expansion

Fig. 2. Future reality tree for “Toyota backs to global market lead”.

3.4. Step (4) solution finding

Having identified the intermediate objectives and obstacles, we are ready to for-
mulate the solution scheme. In order to achieve this purpose, two separate issues
need to be dealt with: (1) develop action plans for achieving intermediate or ideal
objectives, and (2) take necessary actions to remove those obstacles.
The Transition Tree diagram is developed based on the prerequisite tree dia-
gram. Figure 4 depicts the transition tree with respect to the three key issues (the
darkened box of Fig. 3) for Toyota backs to market lead. Enveloped in the darkened
boxes with dotted line are the proposed solution schemes.
The solution scheme so developed according to the three key improving ideas
to achieve their objectives and considering the elimination of 11 obstacles proposes
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152 S. Wu et al.

: Represents intermediate objective (IO)

Toyota backs to
market lead
: Represents key improving ideas

: Represents obstacles or potential risk

Effectively deal with Consumers are

business crisis in protected & customers
multiple levels The are satisfied
unreasonable
customers may
still complain

Face & deal with

Fix products & , The defective cars
problems & Satisfy customers
, parts quality are quickly fixed
customers complaints on time
issues on time before shipment
complaints
Some
customers are
unreasonable
Defective Still have
There is no real
products are some cases
Suppliers & problem hidden outlet
fixed on line
Dealers may
Pay attention to still miss to
, May miss
customers highlight issues some special
voices weathers /
Improve & continue conditions
communication with Testing the cars People should share
key stakeholders & parts under bad news & problems
varying conditions up without fear
People fears
Set up globalized quality performance
The global punishment
control team instead of team should
Japanese ones be more Developing people
difficult to Right product The design based on expansion to
handle design cost should handle any impact of
be increased
complexity
People are too
busy to take
training during
org. growth
Conducting corporate Set up & follow a
Search for low
governance in western Improve product good business
cost but safety
countries with western quality over quantity continuity plan to
& quality parts The cost
style (Future Model) deal with complexity May not
should be consider all
more potential
expensive impact/risks
Set up the culture of low Has proper check
cost but high quality and organism in place for any
meet safety requirements overly rapid expansion

Fig. 3. Prerequisite tree for “Toyota backs to market lead”.

the following action plans:

(A) Set up a culture of low cost with high quality and fool-proof safety requirements
(not just cost reduction, need to go back to the basics)
(1) Follow up suppliers to work according to Toyota Supplier Quality Assur-
ance Manual.
(2) Reduce parts purchasing cost only under quality assurance.
(3) Make sure the fresh operators follow quality on job training.
(4) Confirm all operators follow assembly SOP every day.
(5) Testing cars & safety parts under varying conditions.
(6) Re-visit Toyota Way & back to original basics of Toyota Production
System.
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Can the Toyota Way Overcome the Recent Toyota Setback? 153

: Represents intermediate objective (IO)

Toyota backs to
market lead
: Represents key improving ideas

: Represents action plans

Effectively deal with Consumers are

business crisis in protected & customers
multiple levels are satisfied

1. Document assessed
Face & deal with
Fix products & , The defective cars impacts & risks to the
problems & Satisfy customers
, parts quality are quickly fixed extent possible (create
customers complaints on time
issues on time before shipment a risk/impact database)
complaints
2. Set up 5 years of
business plan including
1. Communicate customers issues
people development
transparently, and deliver solutions
before onto a new job.
that they need. Defective
There is no real 3. Conduct on job
2. Need a major breakthrough in products are
problem hidden engineering training for
public relations: first, to improve 1. Follow up suppliers fixed on line
all engineers.
Pay attention dialogue with U.S. safety regulators. to work according to 4. Conduct on job
to customers
, 3. Perform the test-retest after repairs Toyota Supplier Quality supervision training for
voices carried out. Assurance Manual. group leaders &
4. Forming a quality advisory group 2. Reduce parts
People should supervisors.
composed of respected outside Testing the cars purchasing cost only
share bad news 5. Toyota should
experts will ensure Toyota not to & parts under under quality ,
& problems up rethink its employees
make a misguided decision. varying conditions assurance.
without fear performance
5. Build up local management team 3. Make sure the fresh evaluation to eliminate
including quality & safety divisions. operators follow quality ,
employees hiding
on job training mistakes.
4. Confirm all operators Developing people 6. Set up models &
Set up globalized quality Improve & continue follow assembly SOP ,
Right product based on expansion functions complexity
control team instead of communication with every day.
design to handle any impact limitations for
Japanese ones key stakeholders 5. Testing the cars & of complexity production & design.
safety parts under 7. Establish
varying conditions. Organization Strategic
6. Re-visit Toyota Way Development Center to
Conducting corporate & back to original basis Set up & follow a
Search for low prevent impact from
governance in western Improve product of Toyota Production good business
cost but safety any overly rapid
countries with western quality over quantity System. continuity plan to
& quality parts expansion.
style (Future Model) deal with complexity

6. Set up across departmental

communication organism.
7. Organize cross functional task Set up the culture of low cost but Has proper check
, high quality and meet safety organism in place for any
forces to immediately fix customers
complaints. requirements (back to basis) overly rapid expansion

Fig. 4. Transition tree for “Toyota backs to market lead”.

(B) Has proper check organism in place for any overly rapid expansion

(1) Document assessed impacts & risks to the extent possible (create a
risk/impact database).
(2) Set up 5 years of business plan including new people development.
(3) Conduct on job engineering training for all engineers.
(4) Conduct on job supervision training for group leaders & supervisors.
(5) Toyota should rethink its employees’ performance evaluation to eliminate
employees’ hiding mistakes.
(6) Set up models & functions’ complexity limitations for production & design.
(7) Establish Organization Strategic Development Center to prevent impact
from any overly rapid expansion.
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154 S. Wu et al.

(C) Conducting corporate governance in western countries with western style

(Future Model )
(1) Communicate customers’ issues transparently, and deliver solutions that
they need.
(2) Need a major breakthrough in public relations: first, to improve dialogue
with US safety regulators.
(3) Perform the test-retest after repairs were carried out.
(4) Forming a quality advisory group composed of respected outside experts
will prevent Toyota from making a misguided decision.
(5) Build up local management team including quality & safety divisions.
(6) Set up across departmental communication organism.
(7) Organize cross functional task forces to immediately fix customers’
complaints.
In summary, there are all together 20 activities highlighted in the Transition
Tree for Toyota backs to market lead, but they may need to be broken down in
detail according to the current severe situation of the auto market.

4. Findings and Discussions

In this article, a four-step problem solving process is employed to provide solutions
for Toyota to counteract its market decline. The four steps include: (1) Problem
finding (2) Idea finding (3) Obstacle finding and (4) Solution finding. It is to be
noted that this 4-step process is a subset of the generalized problem solving process
as proposed by Chang and Wang.4
We have successfully demonstrated how a sophisticated case such as global com-
petition in the motor market can be solved with only four logic trees, i.e. current
reality tree, future reality tree, prerequisite tree and transition tree. Four TOC logic
trees instead of five TOC logic trees are utilized in this case study. This is contrary
to the conventional practice where the five logic trees are almost always in use. A
similar case was reported by Taylor III et al.13
Furthermore, it is interesting to note that the four TOC logic trees fit perfectly
well with each of the four problem solving steps. Namely, the current reality tree
is used as the basic vehicle in the problem finding stage, future reality tree in idea
finding stage, prerequisite tree in obstacle finding stage, and transition tree in the
solution finding stage.
As illustrated earlier, the problem of “Is there any comprehensive action for
Toyota Way to bring back customers trust and restore Toyota to the lead?” is
solved by starting with undesirable effects (UDE) as the fundamental stepping
stone. It is further developed by exploiting cause-effect-cause relationship through
“if . . . then . . .” thinking process. It is obvious that a different set of UDE may lead
to a different core problem and thus a totally different solution scheme. Therefore,
correct finding of the critical UDE determines the success in the identification of
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Can the Toyota Way Overcome the Recent Toyota Setback? 155

the root cause or core problem for further development. Hence, it is where the
effectiveness of an expert is distinguished from a novice in problem solving.
In this case study, it is clearly seen that the TOC problem solving follows a dis-
tinctive alternative thinking process. Firstly, the negative aspects, namely UDEs
of the problem are explored in the CRT. After that the positive aspects namely
DEs are considered in FRT for solution solving. It further considers the negative
aspects by focusing on the potential obstacles in the PRT. Finally, attention is
again turned to the positive aspects by searching for feasible solution in the TT.
This distinctive approach adds to the problem solving in two aspects: (1) it provides
a shortcut through mirror imaging process and (2) it enhances the clarity of the
thinking process.
However, there remains some issues open for further exploration: (1) How can we
be sure that the appropriate core problem(s) or root cause(s) has been identified in
CRT and it is indeed the most meaningful one? (2) How can we proceed from CRT
to FRT and then from FRT to PRT more effectively? (3) How can we discover key
obstacles from PRT and how to develop action plans from TT smoothly? (4) How to
refine and integrate these feasible solution sets coming out from TT into the optimal
solution scheme to be adapted in the real world? (5) How to further use five-step
problem solving process to fit with five TOC logic tree diagrams in the future?
The TOC approach has at least two advantages: it is easy to follow owing to its
clear thinking process, and the solution scheme has a structured presentation using
logic tree diagrams.

5. Conclusion
This study demonstrates how TOC problem solving can help to solve the core
problems and root causes: How to transform “the low cost oriented culture under
overly rapid expansion with no globalization thinking” to bring Toyota back to
market lead? It provides managerial insights for Toyota Motor Company to break
through its paradigm to counteract market decline; and identify how a complex
problem beyond production field can be analyzed and dealt with effectively. The
proposed use of four TOC trees instead of five TOC logic trees demonstrates that
this model is more flexible. This originality is contrary to the conventional practice
where the five logic trees are almost always in use. We have made an attempt to
answer the question raised in the outset: “Is there any comprehensive action for
Toyota Way to bring back customers trust and restore Toyota to the lead?” TOC
has been shown to deal with this kind of complicated problem effectively. Future
research may consider the use of the proposed TOC model for different industries.

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