performance mangement


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Course Title……M. B. A……………Year/Stage………Year 1st ……………….

Module Title.…Operation management STRM023 (assignment 2)………………………………………………...

Student Name……Mr. Nikhil Sipani ……………………….
Student Number…20225466………………………..

Tutor…Mr Tim Peacock ……….Date Assignment Due…30/05/06.
Date submitted…30/05/06…….

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Word count 3250
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Operation management


Due Date: 30 may, 2006

Presented To:
MR Tim Peacock

Submitted By:
Nikhil Sipani
Student No. 20225466
MBA (Full Time)


PART I Introduction

Introduction of Toyota Motor
Toyota’s basic management policies

PART II Performance management systems used in Toyota Motor’s –

Standard work
Toyota Way Values Approach:
Promoting Human Resources Development and Diversity,
Sharing Toyota Way Values in Manufacturing Workplace and in Management,
Training Professionals Rapidly through GPC.

PART III Literature review
Performance management framework

PART IV Critical analyses
The Balanced Scorecard
1. Financial
2. customer;
3. internal business process;
 kanban
 jidoka
 heijunka
4. Learning and growth.
PART VI Conclusion

PART VII References

PART VIII Appendix

1. Introduction:

Established in 1937, Toyota Motor Corporation is one of Japan’s representative automobile manufactures and also the most successful automotive companies in the world. “With the largest market capitalisation in the global automotive industry, Toyota has built a strong reputation for the high quality, reliability and durability of its cars and with strong competence, Toyota has steadily been developing its business globally.” (Kazuo Ichijo, 2005)

With the mission statement — To become the most successful and respected car company in the world. Toyota Motors offers a full range of models from mini-vehicles to large trucks. In
Oct 2000, Fortune published its annual rating of the most admired car in the world and Toyota was ranked first in the list, which included 14 manufactures such as Ford, General Motor and Honda. In 2004 Toyota Motors marketed vehicles in 140 countries and automotive business including sales finance, accounts for more than 90% of the company’s sales, which came to a consolidated ¥17.29 trillion in the fiscal year to March 2004.

In fiscal 2005, Toyota achieved worldwide consolidated sales of 7.4 million vehicles under the Toyota, Lexus, Daihatsu and Hindo brands on a shipment/delivery basis. At the end of 2005, Toyota had production bases in 26 overseas countries and regions, a vehicle sales network spanning approximately 170 countries and regions from 140 countries in 2004, and more than 264,000 employees worldwide on a consolidated basis. (Annual Report, 2005)

Toyota’s basic management policies:

Toyota Motor Corporation developed some guiding principles as its basic management policies and some of them are as follows.

(1) Honour the language and spirit of the law of every nation and undertake open and
Fair corporate activities to be a good corporate citizen of the world.
(2) Respect the culture and customs of every nation and contribute to economic and
Social development through corporate activities in the communities
(3) Create and develop advance technologies and provide outstanding products and
Services that fulfil the needs of customer worldwide
(4) Foster a corporate culture that enhances individual creativity and teamwork value,
while honouring mutual trust and respect between labour and management.
(5) Pursue growth in harmony with the global community through innovative
(6) Work with business partners in research and creation to achieve stable long-term
Growth and mutual benefits, while keeping ourselves open to new partners.

The policy of ‘Learn local – Act global’ was another winning formula to create competitive advantage, which helps Toyota to satisfy local customer needs and to develop high quality cars in the emerging markets.

Performance management systems used in Toyota Motor’s –

Japanese built-up techniques have turn out to be a popular topic in the majority of American manufacturing organisation. The Toyota Production System (TPS) is one of the most extensively publicized collections of visual systems. Basically, TPS provides for developing the necessary amount of the required item at the necessary time. When used in a manufacturing plant, it is an expression of visual control and communication by workforce to other workforce. Many organisations which are using TPS know that it takes rules and regulations to pay attention to the visual signals.
The organisation that execute TPS use some highly integrated systems that end result in reduced lead times, JIT organization, decreased costs, continuous flow production, levelled production, increased job satisfaction for workers, decrease in inventories, increase in productivity , and high quality levels. Japan uses this system to decrease the time line that starts with a customer order and finishes with the delivery of the final product. A lot of American companies are learning the ways of time line shrinks when TPS is used and thus are better able to take action to changes in the market, keeping their organisations viable during rough times and maintaining profitability during times of average or good business (Toyota Motor Corporation, 1992).
TPS is a viable method for manufacturing goods because it is an efficient tool for producing the final goal - profit. To attain this purpose, the main goal of TPS is reduction in cost and improvement of productivity. Costs are defined in broader terms include not only manufacturing costs, but also administrative, sales, and even capital costs.
TPS can be implemented well in any country. That is clear at numerous plants around the world where Toyota have used the system successfully. The key is to adapt the system to local circumstances and values. As TPS evolves into a global system, improvements will focus on further reductions in lead times, cost reductions and improvement of information technology for monitoring and managing the sequence of activity that begins in the design for new products and continues through the receipt of payment (Toyota Motor Corporation, 1992).
Standard work
The goal of TPS is to create an efficient production sequence that emphasizes human motion and the elimination of waste. Focused around human movements, standardized work outlines efficient, safe work methods and helps eliminate waste while maintaining quality. Standardized work is the foundation for Kaizen, or process improvement, in production. It organizes and defines worker movements. This is important because, when the work sequence is different each time and/or if the motions are disorganized, there is no base line for evaluation. The first step in kaizen is standardization. . (Ruth A. Kasul, Jaideep G. Motwan, 1997)
The expected results of implementing standardized work include:
• maintaining quality;
• providing safer and more efficient operations;
• ensuring proper use of equipment and machinery;
• facilitating problem solving;
• assisting in the visual control of that cell; and
• Providing a tool for line balancing.

Toyota management system introduced the team concept which helps the employees to work at different levels. At a higher level it refers to Team Toyota, a concept that incorporates the plant and Toyota organisation as whole. Everyone who works for Toyota is taught and is continually encouraged to view themselves as part of a team working to achieve a common set of objectives. At every level the concept of team operates to create a sense of group identification because Toyota organises work into systems that are extremely lean, and workers take responsibility collectively and individually for helping the organisation achieve its objectives for quality and efficiency. Toyota is committed to become the industry leader in diversity; they made significant impacts in the areas of minority procurement, dealership development, management development, employment, job training and community support. (Smith, 1997)

Toyota diversity Advisory Council

Community Involvement

Job Training

Retail Management development

Minority Advertising

Dealer Representation



Diversity Management Structure
Fig: Diagrammatic representation of Culture and Toyota Way: Guiding Principles

HR strategies plays an important role in development of an organisation, it’s the plan with includes standardised processes for recruiting, selection, and placement of team members as well as succession management, career paths, career plans, education and performance appraisals.

Toyota has developed human resources based on Toyota Way Values. And this approach will be wellspring on the Company’s competitiveness.

Toyota Way Values Approach:

Toyota has development human resources based on Toyota Way Values, and this approach will be the wellspring of the Company’s future competitiveness. It consists of three principles.

Promoting Human Resources Development and Diversity,
Sharing Toyota Way Values in Manufacturing Workplace and in Management,
Training Professionals Rapidly through GPC.(see appendix 1)

Literature review.
The expression "Performance Management" is frequently used in two contexts:
1. A method of maximising performance of an individual, team or establishment
2. A procedure for dealing with underperforming individuals (or teams).
While the fundamental principles are always the same, the method in which they are implemented differs between the two contexts.
Maximising performance Poor performers
Usually collaborative between management and staff Involves more confrontation
Can be informal, with written records only recording revised targets Is a formal process with each step being written down
Is a cyclical process, one of constant improvement Is a process that escalates into disciplinary proceedings, possibly concluding with termination of employment
Often involves analysis of the process Often involves analysis of one individual's behaviours/attitudes

Figure 1: A Picture of the Performance Management Framework
The performance management framework always starts with answering mission and strategy of a company. However once strategy is defined and maintained, then business process takeover with accountability to manage each one.
Consumers would most likely say that "consumer satisfaction" is important. Consumer satisfaction encompasses four consumer-facing trends:
1. Consumer retention, an acknowledgment that it is comparatively more expensive to obtain a new consumer than to keep hold of an existing one.
2. Foundation of competitive advantage, attaining an edge by changing from commodity-like product differentiation to value-added service differentiation.
3. Micro-segmenting of consumers, with a focus on consumer’s unique preferences relatively than mass selling.
4. The Internet changing power from suppliers to customers and buyers.
It’s easy to conclude that customer focus is vital for performance management.
Three arrows are at the heart of the diagram, starting and finishing with the "consumer satisfaction" ellipse. In use, these arrows move counter-clockwise. The two fat arrows symbolize the main common core business processes possessed by any business, in spite of if they are for profit or not for profit business. These two processes are appropriate to any business.
The customer also comes across customer relationship management (CRM) systems and customer intelligence (CI). It is the place where work order management systems and sales reside. Whereas in back-office systems all the rest processes reside such as fulfilment of customer or work orders, process planning and operations resides. The quality policies like six sigma and even enterprise resource planning comes across. The result from this process planning and implementation is the mission intended or product, service to meet the customer requirements. To the extent that customer revenues surpass all of an organization's expenses, including the cost of capital, and profit. Finally accumulates into the shareholder's ellipse.
The requirement to satisfy customer’s needs is the major key into senior management's ellipse in the statistics upper left: "mission and strategy."
All business has been undertaking performance management well before it was considered as such. Although it can be said that on the date all organizations were first created, they straight away were controlling their enterprise performance by offering services or products or and fulfilling sales orders. On the other hand an organization that is not undertaking performance management would be observing the consequences of unstable business methods: unbalanced balance sheet, severe shimmy in the cash flow, poor timing of work in progress and poor employ turnover ratio. That result into more expenses where the increase in the waste, decrease in the rate of shareholder wealth creation and possibly devastation. Moreover, there may be business that seems ideal in the mind of the consumer in every way, but still not making profit, making the shareholders discontented.
On the other hand an organisation where performance framework remains unaffected but the shareholder wealth is more rapidly created because there is equilibrium in quality, price and value to all. A good Performance management combines the several methodologies of the performance management portfolio of components and provides superior decision analysis and decision making that aligns work behaviour and priorities with the strategy. Strategic objectives are attained, and the result is relatively better shareholder wealth creation. (Cokins,2005)

Critical Analyses Scorecard.jpg

The Balanced Scorecard is defined as the tool that managers need to steer to success. It is seen as a new structure for integrating measures derived from strategy. It develops from selected financial measures of past performance and the organisational mission and strategy - the drivers of future performance. These drivers include customers, the internal business process, growth and learning and the final measurement is the progress from an explicit and rigorous translation of the organisations strategy. (Inman, 2000)
The Balanced Scorecard has four basic perspectives:
• financial;
• customer;
• internal business process;
• Learning and growth.
• financial;
As would be qualified accountants, it is relevant to ask what was wrong with earlier measures of performance. After all, good financial management and control were a vital part of the success of the industries that came out of the Industrial Revolution (Johnson and Kaplan 1987). Though it is argued that there is an over emphasis on financial performance which centres on excessive short-termism. This so-called short-term approach has led to the exclusion of anything that does not provide a fast return. Apparent examples are R&D or in the recent (mid-1999) case of Wisconsin Central, even new fixed assets to build up a new acquisition and increase its long-term market share. Critics maintain their arguments by pointing to the lead that Japan has developed over its western competitors and point to the greater emphasis on a long-term approach favoured by the Japanese.

This argument is supported by Toyota motors (Japanese organisation) that are growing step by step ignoring short- termisim. In present business environment, Toyota Industries posted total consolidated net sales of 699.0 Billion yen, an increase of 92.0 billion yen, or 15%, compared with the first half of fiscal 2005 (the six months ended September 30, 2004). The following is a review of operations for the major business segments. Net sales of the Automobile Segment totalled 337.7 billion yen, an increase of 29.1 billion yen, or 9%, over the first half of fiscal 2005. Within this segment, net sales of the Vehicle Business totalled 154.7 billion yen, an increase of 15.4 billion yen, or 11%, over the first half of fiscal 2005. (Toyota-industries, 2006)
In the customer viewpoint of the Balanced Scorecard, companies identify the consumer and market segments in which they have chosen to compete. These segments stand for the sources of income that will deliver the profits component of the company’s financial objectives. As such, the customer viewpoint enables the business to ally their core consumer outcome measures contentment, reliability, retention, attainment and profitability to consumers and market segments. Vital to business success is value to the customer - i.e., the ability to deliver the product/service that is valued by the customer. This could mean looking very cautiously at the product and the market and identifying what the needs of customer. In many ways, it is back to the classic rhetorical question, "What does a customer want when he pays £24,000/$40,000 for an automobile?" (Inman, 2000)
Toyota uses a variety of performance management and measurement instrument. Customer feedback is very important in most of performance management processes. In order to be a customer-focused business (or agency), there is a need for an organizational formation that is capable of to measure and deal with consumer contentment issues. On the other hand, if you are not going to empower that organization to do the job, it may be difficult to have it. Whereas in the case of Toyota. Its management felled the importance of accessing the "Voice of the Customer." Its organizational formation includes a refined customer relations section that handles customer satisfaction (i.e., customer surveys) and customer affairs (i.e., employee incentives and trainings, customer assistance centre, and dispute resolution).
Secondly those organisation that listen to their customers, can have all the business attributes that offer them value. However, if organisation that are not using this information to generate change, then they don't bother listening. On the other hand in order to be familiar with what their customers want, Toyota has developed a customer survey system that measures customer satisfaction with the process of buying, the delivery experience, the service experience, and product quality. Based on the results of these surveys, Toyota develops strategic plans to improve customer service.
Thirdly there is a need for good measurement system in order to know your customer fulfilment challenges. However, many organisations don’t have an honest measurement system and it’s not absolutely necessary to have it. Even Toyota found that its survey procedure was not correctly reflecting customer happiness rates. Its survey results were indicating higher customer happiness rates than actually occurred. There were causes for the exaggerated ratings included: pressure on the dealers to attain high scores, which caused them to manipulate data; too much focus on indexes (i.e., the summarizing score); and, at first, little management of the process. The impact of these problems included biased information, employee dislike of the survey, and customer disillusionment with the survey process. In the end, customer disappointment levels were the same and sometimes more than before.
Toyota re-examined its survey process and established a plan to improve its customer feedback system. The plan's key points included (see appendix 2)
There is a need of good reporting arrangement in order to empower the functioning areas to improve customer contentment. On the other hand if the operational areas don't read and use the information, your reporting mechanism will be ineffective. Customer service objectives must be incorporated into each unit of the organization. The customer service "division" of an organization cannot improve customer satisfaction alone. Customer feedback should be shared with all areas and levels of the organization.
The organization must invest in the measurement process in order to get the feedback it needs for improvement. (
Internal business process/perspective

This is all about the internal value chain. This is also about a significant move away from convention. Any one who looks at, or who is concerned in the preparation of conventional reports will find that there is an in excess of emphasis on production. This is not saying that manufacturing is unimportant; rather it is in disagreement that the fault lies in over stress on production to the exclusion of two other very important factors - innovation and post sales.
Toyota uses a variety of internal process system such as-
1 Kanban

2 Jidoka

3 Heijunka (see appendix 3)
Unfortunately, most senior managers currently understand and practice internal process system as a set of tools – plain add-ons to conventional business practices – and view it as a method to reduce labour costs, that to through layoffs (Post and Slaughter, 2000). Thus, this principles and practise has for many workers become identical with bad outcomes such as layoffs. Additional, senior managers implementing these principles and practices typically fall prey to an abundance of misunderstandings and misconceptions about them and usually misapply some or all aspects. (Spear and Bowen, 1999)
In general, mainly people practicing these principles today possess a coarse understanding of it (i.e. tool-based), rather than fine or detailed understanding of principles and practices. (Emiliani et al., 2003 ),
Learning and growth

In this region, the emphasis has changed. The main objective in learning and growth is to make the infrastructure whereby the customer, financial, and internal process objectives might be achieved. Further to continue to be successful, organisations must invest in their people, their systems and procedures. Historically, such an emphasis has been seen as training and vulnerable to cuts in perceived non-value added costs.
Toyota’s policy for “continuous improvement” gave them the big edge in production and operating efficiently around the world, this policy known as Kaizen, is so ingrained in the company’s culture that “it’s almost like a religion”(Jean Hallida, 2005). It is more narrowly focused on a specific area of a process and it emphasizes continuous improvement, a narrow focus, and quick work to solve a problems. The ultimate goal is to improve the efficiency of a company’s processes, reduce cost and boost profits. (Diana, 2005)
Although there are number of obstacles and problems in applying kaizen as pointed out by said study. First, employment practices such as lifetime contracts, rewarding seniority and performance bonuses accounting for as much as 30 percent of salary make workers’ interests inextricable from those of the company. Second, kaizen is as much a key part of operations as, say, accounting, IT or stock control. Finally, kaizen is self-fulfilling, i.e. once it is in place it becomes an embedded way of thinking about working practices and carrying them out which embraces change. (Brunet, 2003)

Performance Management is used to develop and improve team performance, based on the philosophy of measurement, evaluation, action and monitoring. On the other hand, it can be obvious in very different forms depending on the need whether the objective is to more improve good performers, or deal with underperformance. Performance Management can be applied to persons, teams, groups or organisations.
In terms of Toyota TPS(performance management) was completely implemented over a three-year phase in manufacturing operations and whole inventory values are approximately 16 days in 1996 against to over 30 days in 1993. Manufacturing batch sizes were reducing from a 30-day lot size to 20 days or less and they are continuing to shrink. Set-up times in all areas of the plant were reduced by half, on average. (Ruth A. Kasul, Jaideep G. Motwan, 1997i)
While changes have occurred within, purchased parts were over 60 per cent of the content of shipped product. Just in time is fully approved and many suppliers (60-70 per cent) are Kanban scheduled. A local “milk run” provides deliveries on some parts with as little as 24 hours’ notice. Both raw materials (steel coil) and purchased parts are included in the JIT implementation. Internal pull systems are effective; with over 90 per cent of internally produced parts scheduled with a visual signal (only service work uses a traditional schedule). Most of the assembly work is organized in flexible cells scheduled by Heijunka.
Whereas the kaizen workers who include the subject matter of the paper take their work seriously, with obvious enthusiasm and commitment. They regard themselves, perhaps with some shy reticence, as knowledge and learning specialists, dedicated to the smooth operations of the TPS and the kaizen philosophy, and this is expressed in a strong focus on working effectively with other Toyota employees in the overseas transplants. This work behaviour combines thinking with doing, not a separation between them. More than that, the know-how they possess is driven by the need to communicate or transfer it across to others. In that sense they facilitate the learning of others. (Brunet, 2003)


Annual Report – Toyota: 2005 year ended March 31, 2005

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Appendix 1

Promoting Human Resources Development and Diversity:

In the achievement of sustainable growth, employees are the most precious management resources that a company has. One of Toyota’s strength is a management approach that fully brings out the talent of each employee. Therefore as the business expands geographically and portfolio of business grows, they are implementing through employee training program. And trying to increase the diversity of their workforce environments which enables every individual employee to maximise their skills and contribute to operations.

Sharing Toyota Way Values in Manufacturing Workplace and in Management,

The Toyota way is based on the dual pillars of respect for people and continuous improvement, which comprise five principles: Challenge; Kaizen or Improvement; Genchi Genbutsu or go and see; Teamwork; and Respect. They use these guidelines to motivate all Toyota employees involved in manufacturing and t create a sense of solidarity among them.

Training Professionals Rapidly through GPC.
In July 2003, Toyota established GPC, or Global Production Centre, to train employees with the skills to manage plants in Japan and overseas. The centre even promotes efficient production methods and systems, and conducts skills training for short-term employees, and with in a period of two years they had given training to 4,600 employees. More over Toyota intends to create GPC branches in the U.S., Europe, and Asia to step up the pace for the production of site managers with multiple skills. (Annual report, 2005)

Appendix 2

• Survey Forms. Toyota revised the survey forms, included questions that provided more specific and useful data, and established standards for survey question content and processing.
• Standard of Excellence. Toyota established acceptable levels of performance and eliminated making distinctions of performance above that level.
• Dealer Reporting. Summary evaluations and specific, but anonymous, customer comments were shared with the dealers. Dealers now monitor their own progress, which puts less pressure on the measures.
• No Regional Reporting. Regions were often putting pressure on the dealers to cheat on their measures in order to improve regional performance scores. Toyota eliminated regional reporting and now focuses on the dealers only.
• Telephone Survey. Telephone surveys are conducted to determine initial satisfaction with the product. Standards for conducting the phone survey and processing the data have also been established.

Appendix 3

Kanban is a scheduling system of production instructions that replaces what has been taken/used by the following process. It allows for minimal inventories and easily adjusts to changes in demand. Formal production instructions go only to one location (typically shipping) and the rest of the shop floor production is self-managed. The result is a short lead time from order to shipment.
A number of the rules for Kanban are: defects are never sent to the following process, produce only the amount taken, no production or conveyance without a Kanban, Kanban should be attached to the actual parts, “first in, first out”, and information on the Kanban must be consistent with the actual part (Monden, 1993).

Jidoka is defined as a system of ensuring that defect-free product is passed from one operation to the next. Quality is designed into the operation beginning at the product/equipment design phase utilizing prevention techniques. Standard work supports tasks that involve exercising human judgement. Two common prevention techniques are Pokayoke and Andon.
A Pokayoke is an element of the process that senses a defect or non-conformance and will not allow the process to proceed. Examples of Pokayoke include fixture features that will not accept an out-of-spec part, sensoring that checks for parts or features from previous operations, or sensoring/clamping in the process that will not release a part if it is not properly processed. (Ruth A. Kasul, Jaideep G. Motwan,1997i)

Heijunka is a production planning method which evenly distributes the production volume and production variety over the available production time. Heijunka prevents preceding operations from experiencing uneven workload and makes the planning process easier. Distributing the variety of parts produced prevents imbalances in inventory, having too many of one part and not enough of another. (Ruth A. Kasul, Jaideep G. Motwan,1997i)


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New member
Nice post buudy. I have some issue regardin supply chain managemnet. Can you give me a case study on it?? Any product


New member
Thanks to share here it here. Very informative, I have learn many new terms trough this discussion. Its good effort. There are informative concepts of supply chain management.