In a Word, Toyota Drives for Innovation

"Oobeya" is Japanese for "big, open office" — and it's Toyota's system for cutting costs and boosting quality. It's also the secret behind the redesign of one of history's best-selling cars.

Five years ago, Takeshi Yoshida landed a plum job: chief engineer for the 2003 Toyota Corolla and its all-new five-door version, the Matrix. The redesign of this small car involved big stakes: The Corolla is one of the best-selling automobiles in history and the heart of every other car that Toyota makes. The Corolla, Yoshida says, "carries all the Toyota DNA — whether it's a Camry or a Lexus — of quality, reliability, and affordability."

Yoshida's assignment was tricky. He had to keep the price of the new Corolla under $15,000 while reinvigorating the design and adding high-tech options that would win over young drivers. Yoshida responded with a new approach to planning and engineering, one that promotes more innovation, lower costs, higher quality, and fewer last-minute changes.

That new approach is captured in one word: oobeya (ooh-bay-yuh). It's Japanese for "big, open office." The business translation? To change the way that you create a product, change when, how, and with whom you share information. For Toyota, oobeya means bringing together people from all parts of the company — whether they're from design, engineering, manufacturing, logistics, or sales — every month for the two years before a car goes into production. Those meetings can take place anywhere (Yoshida has convened oobeyas all the way from Toyota City, Japan to Erlanger, Kentucky), and everything is open for discussion: how to cut costs, reduce mistakes, and unplug bottlenecks.

"The big room is about sharing," says Don Esmond, senior vice president and a general manager at Toyota Motor Sales U.S.A. "It's not about tearing down silos in engineering and manufacturing and putting people on special teams. That's the crossfunctional approach. Oobeya is about creating more communication between the people in those divisions so that they can do their jobs better."

At the outset, oobeya meetings focused on squeezing costs. Virtually every penny spent on the Corolla was argued over, fought for, and explained. Between meetings, people kept the discussion going through email and phone calls. Some even set up their own smaller oobeyas to tackle specific problems.

Yoshida held his first Corolla oobeya in early 2000. The first order of business was to determine the exact cost of creating a single Corolla. "Cost became our universal language," says Esmond, who was a regular at Yoshida's oobeyas. "We had never looked at a car that way. In the past, each of us had a budget, and we were fine if we stayed under that."

As the different players looked beyond their own departmental budgets, all kinds of smart savings came into view. In North America, Toyota was making the bulk of its Corollas with sunroofs in Canada (not exactly prime sunroof country), while a plant in California was not outfitted to make them. Once logistics told manufacturing that it cost $300 per car to haul sunroof-equipped vehicles from Canada to warm-weather states, executives revised the assembly process. "Someone probably noticed this problem before but never did anything about it," Esmond says. "This time, we changed an entire plant. It cost $600,000. But it will end up saving us millions."

Esmond set up his own oobeya at his headquarters in Torrance, California to tackle a smaller cost problem: expensive four-color brochures. "They cost so much to produce, and they were too expensive for dealers to buy," Esmond explains. The solution: Enhance the Toyota Web site to include the full-color brochures so dealers or customers could print one out. "We saved another $2 million," he says.

If Esmond's group showed a willingness to cut costs, they also felt comfortable enough with oobeya-based insights to add costs. Esmond argued that adding features like a CD player, sleek wheel covers, and a 60-40 split backseat would help Yoshida sell Corollas to a younger crowd. Esmond also suspected that such features would come standard in cars within two or three years. If Toyota didn't include them now, dealers would have to discount those optionless cars in the future.

By the time the new Corolla and the Matrix made it to market in March 2002, Yoshida was pleased with what oobeya had helped him accomplish. He'd kept the base models under $15,000 (even with Esmond's perks), but he'd given up nothing in quality. Indeed, Toyota did not have to make a single change to the car once the final design was set. That's unheard of in an industry where design, engineering, and manufacturing often argue over quality problems right up until the first car rolls off the assembly line.

Meanwhile, the Corolla is picking up speed in the marketplace. Combined sales of the Corolla and the Matrix topped 22,000 units in April — a 12% increase over last April. Yoshida would like to hit 300,000 units in the United States in 2003, up from 245,000 units in 2001.

Oobeya is all about the power of open minds. Explains Yoshida: "There are no taboos in oobeya. Everyone in that room is an expert. They all have a part to play in building the car. With everyone being equally important to the process, we don't confine ourselves to just one way of thinking our way out of a problem."

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