For Shigeki Terashi, March 11, 2011, marks a day that affected millions of fellow Japanese, but it also marks a day that greatly impacted production for Toyota Motor Corp. The earthquake and tsunami that hit Japan that day caused manufacturing production levels for the auto maker to drop to 50 percent capacity in Japan and 30 percent in the U.S.
The damage and destruction affected many of Toyota’s suppliers throughout the country, caused a scarcity in parts supply around the world and as a result reduced production levels for the better part of a year.
Terashi, president and COO of Toyota Motor Engineering & Manufacturing North America Inc., the 2,500-employee division of Toyota responsible for engineering design and development, R&D, and manufacturing activities in the U.S., Mexico and Canada, had to help the company and its suppliers overcome obstacles to return production levels to normal as quickly as possible.
“Once we ensured that our team members and employees at dealers, subsidiaries, vehicle manufacturers and suppliers and all their respective family members were safe, our team members and suppliers focused their effort to normalize the production,” Terashi says. “In response to the earthquake and tsunami … Toyota Motor Corp. established a companywide emergency task force to assist the situation.”
Toyota is known for its exceptional practices and processes of efficiency and the onset of these obstacles put those systems to the test. Here’s how Terashi focused on communication, continuous improvement and new risk management processes to help the company overcome unforeseen circumstances.
Assess and communicate the situation
Following the disaster, production levels plummeted. Roughly 150 different parts were involved in the workflow between Japan and the U.S.
“A big impact to TEMA suppliers was one supplier could affect many parts, technology related parts sourced from Japan,” Terashi says. “TEMA implemented practices and policies across the region, which included multisourcing. Some parts are unique, and if we move toward more standard parts, we can buy all over the world. We view this as more of a risk management issue. Regarding production, we adjusted week by week and day by day as we went along.”
That constant adjustment required the efforts of a team that met to continually monitor the situation and the progress being made.
“We had to be very team-oriented,” Terashi says. “We established a risk management team at TEMA and every day, every morning, and every night we had meetings. Through these meetings we gathered and calculated information from Thailand or Japan and we shared that information in order to make a quick decision. Those decisions were shared with team members and the management level and we announced our next week’s production schedule.”
Even at the low production levels the company had dropped to during this time, Toyota never laid off employees. They put their downtime to other uses.
“This is the Toyota way,” he says. “We use nonproduction days for training and kaizen. The founding principle of our company’s foundation is respect for people and continuous improvement. We rely on our foundation to show us the way.”
Since production days were cut, schedules were altered and changes were being made daily throughout the recovery process, it was critical to communicate what was happening to keep things running smoothly.
“There has to be a lot of communication with team members,” he says. “At this moment the North American business affiliates with these huge organizations and how to communicate is always a very big first priority with team members. You have to announce to the team members for total understanding.”
This communication was not only critical to keeping processes running well, but it also served the important purpose of keeping employees informed and not receiving wrong information from unofficial sources.
“Open information is a very risky situation and so a quick response to the team members is very important,” Terashi says. “This is important because team members can get information from outside sources like the media or something like that; however, team members want to hear direct communication and direct information from the company. If your team members get information from someone else it may not be accurate. Through our past experiences we figure out new ways of how to communicate with team members and how to share information. This is our top priority always.”
These initiatives helped bring up production levels, which following the disaster were expected to reach 100 percent by November or December. By June, production increased in the U.S. from 30 percent to 70 percent.
Use the experience as a lesson
Toyota has always been known for its leading practices in efficiency and ability to solve problems quickly. The company learns from its experiences and this was no exception.
“You have to gather correct information quickly to assess the situation and to make quick decisions and then communicate,” Terashi says. “My role in TEMA was to make quick informed decisions and support recommendations to Japan. We had experience with impacted production, but we needed larger scale countermeasures. So we had plans for minimal disruption, but we did not have plans for a large-scale disruption.”
Just as in the past, the company used this experience to help prepare for the future.
“Through our experience we found one area has an impact around the world,” he says. “As the result of issues in Thailand and Japan, we developed a target and brought our risk management up to scale. In the organization of a consensus you need to bring the team together quickly to make an informed decision that countermeasures can support. We now have a larger scale plan for a more comprehensive and wider scope of risk management processes. At Toyota, we always look for a systematic approach to the problem. You begin by making plans for all scenarios.”
One of the steps the company took was to buckle down on its risk management process so that if and when a similar situation ever happened again, the company will know exactly how to handle it.
“We had to do that and it’s now global risk management,” Terashi says. “We tightened our risk management process, and recently we had an issue with a parts supplier from Thailand. So our experience with that supplier in Thailand allowed us to have a process in place and we made a production adjustment. We tweaked and expanded our countermeasures.”
TEMA and Toyota use these experiences as opportunities to understand where things can be improved throughout the business.
“The last couple of years have been difficult for the industry and Toyota because so many of the challenges are beyond our control,” he says. “So we view these challenges as opportunities to improve and tighten our processes and response to issues. You have to constantly look for productivity improvement, cost reduction, and marketability improvement.”
Toyota calls this ongoing process PDCA, or plan, do, check and action.
“It’s a systematic approach to problem solving, running an organization and outside strategy,” Terashi says. “You ultimately reflect on the processes and how to improve. You do not want to think you already have the best ideas. You always have to look for a better way. In that changing spirit we benchmark our automotive companies to improve our risk management group. You have to breakdown the problems to make things better for the process. A very fundamental portion is being able to find that root cause of those issues.”
The root cause of the reduced production levels was that all the automotive parts were coming from Japan. There was no place else the company could go and so it was stuck waiting. Toyota is now giving more responsibility to Terashi and the U.S. manufacturers.
“At this moment we are accelerating in North America in every area,” he says. “Many of the responsibilities were transferred from Japan to the United States in process. We’ve been instructed to accelerate more localization to avoid these kinds of disasters. In the past we were supported by Japan for vehicle development or production preparation. Now we can do that. Additionally we have had more localization that’s unique to each vehicle.”
The company has put more people in charge of individual vehicle models.
“In the past Toyota hasn’t had a local chief engineer for vehicle development,” he says. “At this moment we have three local chief engineers for the future of production.”
Additionally, the company has started an export business from the United States.
“In the past the volume was very low; however, this year we’ve started a Sienna project to export to South Korea and this is just a starting point,” Terashi says. “In the future, we’d like to increase more export business from the United States to all over the world. We are accelerating our self-reliance and localization processes through the direction of Toyota’s Global Vision.”
The constant effort from all Toyota employees, the formation of a risk management team, and the increase in self-reliance and localization of U.S. manufacturers brought production to 100 percent in mid-September, a full two months ahead of predictions.
“During the last few years we had a very severe situation,” Terashi says. “We look forward to a bright and eventful future with production of a safe quality vehicle that makes people smile.”
HOW TO REACH: Toyota Motor Engineering & Manufacturing North America Inc., www.toyota.com/usa or (859) 746-4000
- Understand what and where your obstacles are.
- Communicate the situation to keep people informed and move progress forward.
- Implement countermeasures to fix and prevent future problems.
The Terashi File
President and COO
Toyota Motor Engineering & Manufacturing North America Inc.
Born: Kobe City, Japan
Education: He studied mechanical engineering and earned a bachelor of engineering degree and a master of engineering degree from the University of Kobe.
What was your first job, and what did you take away from that experience?
I cleaned up the vehicles in the preparation division of Toyota. I have been working for Toyota for more than 30 years. I learned genchi genbutsu, which means to go and see or do things for yourself.
Whom do you admire in business?
For a long time I have looked up to Takeshi Uchiyamada, executive vice president and representative director of Toyota Motor Corp. in Japan. He is the father of the Prius.
What do you enjoy most about the auto industry?
I love driving all the different kinds of vehicles.
What is your favorite Toyota car?
What are you most excited about for the future of Toyota?
We look for the industry to continue to recover and to pick up. We are in an excellent position to take advantage of the rebound in the marketplace during the coming year. We will benefit from the biggest influx of new and updated product in our history.