Toyota shares key insights

Yoshiaki Kato, the Managing Director of Toyota Lanka (Pvt.) Ltd., Colombo and President of the Japanese Solidarity Association in Sri Lanka, delivered an address at the Colombo MBA Alumni Association recently. Following are excerpts:

Good evening, ladies and gentlemen.

First of all, I would like to express my sincere thanks for giving me this opportunity to make a small presentation in front of so many MBA’s in Sri Lanka. I feel very honoured and privileged to be here.

I personally do not have the degree of MBA and I very much doubt if my presentation will satisfy your academic interest or not; however, I am happy if I can deliver some hints which have contributed to today’s success of our business.

I joined Toyota Tsusho Corporation in 1978 after graduating from Sophia University in Tokyo where I studied foreign languages and international relations. My thesis was British foreign policy toward Japan in the middle of 19th century in comparison with their policy toward China. The conclusion was very simple.

Japan was too small a market for the British compared to China, which is very true even now. Anyway this was long time ago and what I want to say is that I have learned the most of the things about business after joining the company.

For about 20 years, I was in forklift distribution business including eight years stay in Belgium.  After four years in Japan, I was transferred to Karachi, Pakistan as Deputy Managing Director of Hinopak which is a manufacturing company of Hino brand trucks and buses. This was a very exiting assignment in an exotic environment as you may well know. I stayed 3 years from 2006 to 2009 in Tokyo where I was general manager in charge of automotive business management department. The job in short was to control and provide support to subsidiaries, mainly car distributors and dealers in various countries.

Assignment in Sri Lanka

I came to Sri Lanka in April, 2009. Almost always my new assignment starts at the bottom of the economy of that country. When I went to Pakistan in April 2001, the company was almost over indebted. However, within less than six months, there was the 9/11 and subsequently the war in Afghanistan started, which triggered a hike of demands for trucks in Pakistan and before the end of my term there, we could pay out 50% dividends. Unfortunately, after my departure, the situation in Pakistan seems to have deteriorated, however.

The same seems to be true also of my assignment in Sri Lanka. I came here in April, 2009. The car market was at its bottom. The total market volume used to be somewhere around 25,000untis in 2006,2007 and 2008 but the figure of 2009 was a mere 9,000 units due to global recession, unfavourable exchange rates, high interest rate and notoriously high import duties on cars. The situation has changed completely.

The civil war was over in May, 2009 — just one month after my arrival. Import duties were brought down to nearly one half in June this year. Inflation and interest rates are under control. And we have now very stable and strong government under the leadership of President Mahinda Rajapaksa. So, according to my past experience, the economy of Sri Lanka should be all right so long as I stay here.

Now, I would like to explain the structure of the Toyota group of companies.

There are 13 group companies. Toyota Motor Corporation is off course the manufacturer and brand holder of Toyota cars. But the mother company of the Toyota group is Toyota Industries Corporation. This company used to be called Toyoda Automatic Loom Works and was established by the famous inventor of textile machinery, Sakichi Toyoda. The car business of the Toyota group was started by Dr. Kiichiro Toyoda, grandfather of the current president Akio Toyoda and the starting fund for car business was generated by selling the patent of textile machinery to a British company.

It is worth mentioning that Sakichi Toyoda was brought up in a rural village seeing the back of his mother who was toiling with antique manual weaving machine every night and he wanted to relieve his mother from toil by inventing an automatic weaving machine.

I am from Toyota Tsusho Corporation which is the trading and Investment Company of the Toyota group.

For your information, Hino and Daihatsu are consolidated subsidiaries of Toyota Motor Corporation now.

Toyota Tsusho

Now, briefly about Toyota Tsusho. Toyota Tsusho is a trading and investment company and its size in terms of turnover is No. 6 in Japan. Consolidated highlight figures are indicated here to give you some idea on the scale of its operation.

There are six operating divisions; metal, machinery & electronics, automotive, energy & chemical, produce & food stuff and consumer products, service & materials divisions.

I am from the automotive division and we are operating in 47 countries and we have 177 sales outlets in total. The number of car distributors and dealership among the total is approximately 120 and Toyota Lanka is one of them. Now, how can we manage over 100 distributors and dealers all over the world?

Of course there is basic framework provided by Toyota Motor Corporation. However, with only manuals and guideline of Toyota, your success is not guaranteed.

As for finance, all of you are MBA title holders and I do not have to elaborate on financial criteria like ROE, EVA or return on risk assets. Just for your information, among these parameters, nowadays we give more weight on return on risk assets.

With regard to financial control, we have a global IT system for consolidation and a unique team of specialists who are visiting our subsidiaries for periodical financial due diligence for improvement of balance sheet and fraud prevention.

And in addition to Toyota’s general support, Toyota Tsusho has dedicated teams for operational supports and Kaizen.

These are rather basis or infrastructure to manage subsidiaries. However, on top of the infrastructure and more importantly, we need clear identification of core value and clear message from the top management is to be shared by all subsidiaries.

People centered approach

To define the guiding principle, a group of managers and staff have worked for nearly two years and reached the conclusion that the core value should be people-centered approach.

These are, respecting people, creating value for people, always delight people and be loved by people. Now, to understand this people centered approach a bit more systematically, we normally break it down into five elements.

These are:

SS – satisfaction of shareholders

ES – employees’ satisfaction

CS – customer satisfaction

MS – manufacturers’ satisfaction

CSR – corporate social responsibility And for business development, Kaizen activities and rotation of PDCA (Plan-Do-Check-Action) cycle form the foundation. These five elements are interrelated.

First of all, you cannot make reasonable profit and achieve sustained growth without repeated purchase of your customers and support of society in general.

And corporate social responsibility can be realised only if you can make money. Without profit, you cannot pay tax and continue social contributing activities.

Manufacturer satisfaction is a little bit difficult to understand but good relationship with suppliers and contribution to improvement of brand in general is an important role of distributor and dealers. This also is possible with support of your customers.

Customer satisfaction is off course very important but if your employee is not happy and does not greet your customer with bottom of their heart, you cannot expect customer satisfaction.

So, employee satisfaction is very important. Without satisfied employees, you cannot achieve customer satisfaction and without customer satisfaction, you cannot achieve shareholders’ satisfaction or reasonable profit; but at the same time, without reasonable profit, you cannot achieve employee satisfaction either. On this issue, I would like to explain a little more details later. This is the illustration of the interrelationship of the five elements and Kaizen/PDCA that I have explained.

Please note that at the core there are competitive and highly motivated people.

Guiding principle

Now, let’s look at our guiding principle from different aspects. Our guiding principle can be explained also from these three aspects. First; best people and workplace; second lean operation and third CRM, tight and long term relationship with customers. To achieve high motivation of employees, reasonable pay and good physical working conditions are necessary but this is only the basement.

In addition, we have to satisfy the feeling of achievement, that is, employees should have a sense of accomplishment in their jobs and their accomplishment is fairly and well recognised by the organisation. People complain more about inequality of treatment and lack of recognition rather than by absolute level of income of grade.

Therefore, as the basis of employee satisfaction, I believe that such HR rules, system and corporate culture are necessary that ensure fair and transparent target setting and appraisal, salary increment and bonus evaluation and promotion.

We spent a lot of time and efforts in developing the HR system and the result is published as this ‘Employee Handbook’.

Internal and external training of our basic principles, Toyota/TTC way, Kaizen and PDCA are repeatedly organised to share the core value among all management and employees in addition to ordinary training on managerial, commercial and technical skills.

And to work as a team, various corporate events like Christmas party, group tour etc. are being organised and recently we started to distribute a quarterly news letter. I would like to point out the fact that the issuance of this news letter “Wheels” was proposed by one of our Kaizen teams and many staff enthusiastically contributed to this news letter spontaneously rather than by instructions or solicitation of the top management.

Lean operation

Now, lean operation. Probably you have heard often about lean operation as an element of Toyota production system like Kanban.

Even to distribution business like car dealership, we can employ the concept of lean operation and this can be broken down into:

Seiryuu-ka (rectification of flow or streamlining) of products, money and information.

Seiryuu-ka of products means, for instance, to try to achieve a sales target with minimum stock on hand. Another example is to streamline the parking arrangement of cars of service customers. Parking is an important factor in running car dealership because most of the investment goes to the real property or land and the size of the land is dictated largely by space necessary for parking.

Therefore, we are continuously improving our operation so that a set output can be achieved with minimum parking space and flow of vehicle within the premises is kept as smooth as possible.

Seiryuu-ka of money means control of total assets by reducing inventory level, account receivable and other unnecessary assets. Our performance is measured mainly by return on risk assets and risk assets are calculated by multiplying certain factors on balance sheet items like inventory, accounts receivables and we are extremely conservative and rigid about provisions for obsolete stock and bad debt.

Seiryuu-ka of information means streamlining of flow of information within the organisation. It is sometimes surprising to realise to what extent the information is not shared among various departments and identical typing and key-in operations are repeated within the same company. There may be unnecessary documents which are still circulated just because some boss in the past demanded but is no more required.

Kaizen activities are in a sense to find out stagnation of flow of products, money and information and make rectification to the flow.

Muda, Mura and Muri

Another three aspects of lean operation are removal of Muda, Mura and Muri.

Muda means simply waste. Waste of goods, money and time. This does not need much elaboration but simple example in our company is, for instance, to use projector extensively at the meeting without distributing hard copy of presentation documents to participants to save money, paper and forest.

Mura means unevenness. For instance, a certain assignment may be very busy at the end of each month and overtime has to be done like the case of preparing monthly order with manufacturer.

But the monthly order with manufacturer is more or less equal to the accumulation of orders received from customers on a daily basis and you can prepare order with the manufacturer as you receive order from customers without waiting for the end of the month. Then you do not have to do overtime at the end of each month.

Muri means unnatural or forcible work. A simple example is to remove tires from a car. If the car is on the ground, you have to bent down to remove the nuts and if you repeat this many times a day, you will have back pain. But if the car is on the lift, you can remove the nuts while you are at natural standing position but then you have to bring down the heavy tires onto the ground. To solve this problem, we devised a tire holder which catches the removed tire to reduce the fatigue of operator.

From this aspect, Kaizen is the activity to remove these Muda, Mura and Muri.

As I said in these examples, Kaizen activity aims not only at improvement of efficiency but more at removal of toil of workers for better working environment. And as I touched upon at the beginning of my presentation, the founder of the Toyota group, Sakichi Toyoda, invented automatic looms to relieve the toil of his mother and to see her happy face. This people or human centered approach is one of the traditions of Toyota.

Customer Relationship Management

CRM – Customer Relationship Management or customer retention management. All of you are MBAs and I think I do not have to elaborate on this issue. In our automobile distribution business, customer retention is one of the most important activities because simply happy customers return and invite other customers and unhappy customers just do not come back and talk ill of us.

Fortunately or unfortunately, used car dealers in this country normally do not provide any after sales service.

They just import and sell. So, the customer of used Toyota car has to rely on us or other repair shop for service. Therefore, used car customers are important customers of our service business and can be future potential buyers of new car and we treat them just as our own customers of new cars.

I have not explained what S-TEAM stands for so far.

S-TEAM means:

S is Smiling, Superior, Seiryuuka and in a difficult time, also means Survival

T is off course Toyota Tsusho

E comes from Efficient

A indicates Affectionate

M is Manner

And the pronunciation of S-TEAM is similar to “esteem” and we mean by that “esteem of people”.

Finally, I would like to introduce our vision and mission.

I do not say we want to become the biggest automobile distribution company in Sri Lanka, but we want to be the most respected and admired one. And to achieve this vision, we create life time customer and life time employment.

Thank you very much for your attention.