Alignment Is The Engine of Toyota's Growth

It’s been in the news lately that Toyota has now overtaken Ford to grab the No. 2 slot in worldwide auto sales, and very soon may leapfrog over GM to the No. 1 slot. Toyota’s sales for the six months ended Sept. 30 grew more than 15%, even as GM, Ford and the Chrysler Group collectively continued to pile up billions of dollars worth of losses.

Toyota provides a leading example of a business that really understands alignment. Externally, it is closely allied with its customers’ demands, and internally, its manufacturing and business operations are closely allied with IT.

The market is moving toward what AMR Research analyst Kevin Reale calls “niche vehicle production.” As the traditional Big Three auto companies struggle with overcapacity issues, Toyota reaps the advantage both of having plants that can turn out more than one vehicle line, which gives it the flexibility required to respond to the changing market, and of having an IT infrastructure that streamlines collaboration and production.

In a recent report on the 2007 budget outlook for automotive and heavy equipment manufacturers, which covers 52 companies with revenue greater than $1 billion, Reale finds that these organizations will target their IT investments at improving their competitive position. They will shift some of their enterprise and software investments away from core ERP systems to manufacturing operations, supply chain management, and product lifecycle management technologies.

These efforts will be spurred by the desire — in fact, the need — to reduce time to market, increase manufacturing flexibility, and improve visibility to demand.

“The most important business initiatives affecting IT investment decisions in the next year will involve application of lean processes across the organization and better utilization/analysis of data throughout the organization,” Reale notes.

Toyota, of course, wrote the book on lean manufacturing, and is enjoying the benefits of its incisive approach to managing direct materials costs. Reale cites the Harbour-Felax Group finding that Toyota has a greater than $1,000 per vehicle cost advantage over North American legacy auto manufacturers because of its parts reuse capabilities.