Toyota is Showing a Move Towards What Others are Already Finding Key to Profitable Automotive Production - Flexibility

Implications: Toyota's announcement that the new Mississippi facility will produce the Prius is a smaret decision to increase capacity for a marketable product, with variant potential for the future. Toyota's temporary suspension of production in Indiana and Texas to reconfigure the plants for greater product flexibility is a model already proven to be a smart capital investment strategy by Nissan and BMW. Toyota is also indicating with this article a philosophy for world cars, as demonstrated by Prius production for other markets.

Analysis: Toyota is about to employ lessons learned by other OEM's as a method to survive and thrive in an unpredictable, single market. Those lessons are to create product flexible manufacturing facilities and produce world cars delivered from a low cost maunfacturing base.
 
One of the many Achille's heels of GM, Ford, and Chrysler is that they concentrated for too long on a sole market for predominance of sales - the United States, and they invested in manufacturing facilities with minimal product flexibility. In addition, vehicle assembly capacity was created to service a single market.

Nissan and BMW, among others, have long created a flexible infrastructure in their factories that allow multiple products to be produced in one process. The Tennessee Nissan facility pumps out small trucks, small SUV's, sedans, coupes, and hybrid all in the same manufacturing process. And the flexiblity is built in to adjust product mix based on market demand.  So if the Altima is selling, but the Frontier is not, then capacity utilization can be adjusted.The South Carolina BMW facility has taken this even a step further by not only producing X5, X6, Z4, and Zcoupe products on the same assemlby line, but the products are delivered to a world market of more than 130 country destinations. So not only can product mix be adjusted, but the markets supplied can be adjusted. So the example is that if the US is down, then Russia and China are up to absorb vehicles available for the market.

Toyota is now doing just this in multiple locations. The Missippi facility, originally intended to produce the Highlander and hybrid Highlander, will be tooled to produce the Prius. Now one could question if flexibility should be built in to also produce the hybrid Highlander. Even if the current generation of hybrid technology doesn't deliver the fuel efficiency savings expected in small SUV's, then perhaps the next generation might. And a manufacturing site that can deliver sedan and truck hybrid vehicles, in a flexible manufacturing environment, would be a formidable tool to deliver what the market demands in the future.

Also expect to seeing tooling changes in the Texas and Indiana truck plants that will allow greater flexibility in the number of vehicle models that can be delivered from the same manufacturing site.

Also, another indicator of manufacturing success is utilization of the factory capacity that you have. Toyota, Nissan, and BMW typically plan to keep worldwide manufacturing capacity at a 90% plus utilization rate.  And if the market demands more, then overtime and flexible work schedules deliver more hours and more vehicles. In many GM and Ford facilities, factories will routinely run at less than 80% capacity - a huge waste and misallocation of resources and capital.

The next step for Toyota and Nissan will be do deliver world products from their US manufacturing sites. With the dollar no longer a dominant currency, producing cars from US dollar components, produced in US dollar manufacturing facilities, then sold in European, Asian, and South American markets, is a smart business decision.


Toyota, even with slow US sales, will emerge as a stronger manufacturing and marketing company as a result of this strategy.
 
The obvious question is will, or even can, GM, Ford, and Chrysler afford to emulate this sound strategy. Can they afford not too?