Adoption of Toyota Production System by Hyundai Motor Company

Introduction

Over the last couple of decades, Toyota Production System (TPS) has succeeded in restructuring the auto industry worldwide. TPS’s success in transforming Toyota into a world-class company and a leader of the industry is undisputed. The restructuring has enticed many companies to adopt the management model and philosophy. The paper will look at how Hyundai Motor Company, a South Korean car manufacturing company has adopted TPS and the changes it made on the original model to suit its environment. The analysis reveals that adoption of TPS by other companies is a multifaceted growth process involving recipient companies learning and interpreting the system in their context and adjusting it to fit their specific environment. The essay also highlights different paths in implementing lean production and how internal and external factors interact to shape how companies adopt the model.

Hyundai’s Adoption of TPS

Since 1967 when the company was founded, Hyundai Motor Company has evolved from a low-income car manufacturer for the South Korean local market into a significant player in the industry. Currently, Hyundai is ranked fifth globally with over 8 million units sold in 2015 alone. The company employs thousands of workers and its products sold in many countries globally. To improve its efficiency, quality, and profitability, Hyundai adopted the TPS philosophy in its production. The company began adopting TPS when it started producing Pony in 1975. To achieve success in implementation, Seiyu Arai was hired as a TPS technical advisor. Arai, a former Mitsubishi employee and strong TPS advocated and former student to TPS inventor Mr. Ohno Taaichi, played a crucial role in the development of the production system at Hyundai. He taught the management of Hyundai how to eliminate from production process irrationality, imbalance, and superfluity. Arai reversed the original order of priorities by prioritizing the elimination of superfluity, elimination of imbalance and lastly irrationality to fit the resource constraints at Hyundai. Arai who then led the Japanese advisory group recommended adopting TPS manufacturing principles to increase tooling, to shorten the time it took to set up press lines and improving the effectiveness of body-welding. They also designed the manufacturing process, including the role played by floor managers to resemble that of Toyota and other Japanese automakers. An argument can be made that Hyundai benefitted immensely from ‘late- development’ by adopting TPS selectively to suit its competitive advantage and not blanket adoption.

Hyundai’s Growth and Implementation of TPS

The 80s saw Hyundai make big inroads into the global market. The Excel model, a subcompact, front-wheel-drive sedan, successfully penetrated the North- American market. The company has grown fast owing to increased motorization in South Korea and exponential rise in demand abroad. The domestic demand rose from “64,070 units in 1980 to 650,388 units in 1990” and by 2000 this volume had soared almost 30-fold (Lee & Jo, 2007). In response to its rapid growth rate, Hyundai aggressively increased its production capacity. During this time Hyundai adopted elements of TPS in small and discontinued ways. They did this whenever they built a new production line or introduced a new model in its production. In 1980, Hyundai set up its second assembly line. The management introduced flexible automation in its production scheme by utilizing the ’flexible body line’ (FBL). Flexible automation enabled the company to ease the continuous flow of different cars (2-4 models) because of reduced set-up time. The system was done by Yamashita Machinery, which was also involved in the design of TPS at Toyota. Hyundai’s system fused Toyota’s way with Yamashita’s ’windmill jig system.’ The management was able to change car models in manufacturing process without affecting workflow and saving floor space. In addition to this, Hyundai computerized inventory management of its sequential parts. This played a big role in upgrading the level of Just in Time (JIT) parts delivery and reducing the Work In Progress (WIP). They also introduced different shop- floor campaigns modeled after workplace activities at Toyota. These include Kaisen and suggestion program which advocated for employees to do things right the first time they did them and a five workplace attitude campaign championing for plain, clean, neat, orderly and disciplined work.

Continued Improvement and Innovation

Hyundai opened a third assembly plant in 1991. The company was the transitioning into a flexible mass production model. The company upgraded its flexible body line model to Assembly Line Control system. This system synchronized production orders through computerization. In the process, it enhanced the company’s capability to produce different models in a production line with minimum work in progress and an optimum level of inventory. The process was helped by the implementation of two other supporting systems; Material Requirement Planning (MRP) system and Value Added Networks (VAN) which enabled the company to link and control parts in the assembly line with its suppliers in a JIT manner. Management also introduced Total Preventive Maintenance (TPM) and Total Quality Management (TQM) principles in production (Swamidass, 2007). The developments promoted workers to perform quality assurance and maintenance duties.

Hyundai made another stride when it opened its green-field plant in Asan in 1996. The plant’s layout was a replica of Toyota’s Miyata Plant. The plant comprised segmented assembly lines with interline buffers of three vehicles. An ergonomic design was used to automate production process improving the work environment in the process. Unlike Toyota’s plant, the Asan plant adopted a pull production model controlled by material requirements planning (MRP). The effect was a 95% improvement in sequential production from its previous plants. The adoption helped the company reduce its inventory lead time from 1.7 days to 0.8 days. The model was however dropped in 1997 when the plant reverted to its previous push model of production as the company downsized in response to the prevailing economic crisis at the time.

Hyundai Version of TPS - HPS

The development of the Hyundai Production System (HPS) began following the 1997 to 1998 economic slump. The company continued to benchmark itself with Toyota as it strived to achieve a global manufacturing network (Lee & Jo, 2007).

The core of the Hyundai version of TPS is an ambitious multidimensional plan for managing production. Using the strategic plan, Hyundai implemented advanced planning and scheduling in 2002. By the end of 2006, the company had adopted both the enterprise Bill of Material (E-BOM) and Enterprise (ERP). The company has also adopted Supply Chain Management (SCM) and Order to Delivery (OTD) to complete its production management system.

Hyundai’s Focus on Automation and Modular Production

Hyundai’s model is driven by engineering and technology oriented. It moves toward eliminating human labor involvement. The company has invested substantially in automation over the past decades. Hyundai has fully automated the press and body-welding shops and a significant percentage of its assembly lines. Unlike Toyota which seeks automation to supplement workers’ jobs by making them more efficient, Hyundai pursues automation to eliminate labor. HPS stresses the automation of processes where humans make mistakes instead of merely preventing the mistakes in the first place. The focus on modular production depicts the company’s focus on the engineer’s role on the production process. The company’s just-in-Sequencing (JST) system approach enabled the company to increase its modularization from 30 to 40% from 205 to 2006 alone. The modularization entails the subcontracting of parts sequencing tasks, the automatic assembly of sectional parts and simplifying key product lines. The HPS also adopts similar work innovation program. They consist of basic management practices which ensure workplace ethic of hard work coupled with Kaisen activities and exemplary performance in quality improvement, minimizing costs of operation and improving production. Hyundai’s innovation program is mainly driven by young engineers who are encouraged to register many patents and are paid one merit-pay system.

Conclusion

Hyundai has successfully developed its production model, HPS. The company started by emulating Toyota Production System (TPS), followed by modifying and reinterpreting the system to fit its environment by benchmarking and employing technical consultants. The model which is technology driven applying push production philosophy has enabled the company gain numerous competitive advantages in the utilization of resources in manufacturing, improving the quality of its products, holding optimal levels of operation inventory and improved customer satisfaction.

All those improvements in planning, process control, development, and innovation have helped the company increase its market share as shown in the figure above.

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