SOCMS, Sandip University, Nashik

Unit-IV: Innovation Management

Product Innovation

A product innovation is the introduction of a good or service that is new or

significantly improved with respect to its characteristics or intended uses.

An innovative product can cut through a stagnant market and meet customer
needs in new, exciting ways. At its heart, innovation allows businesses to stay
relevant and drive growth.

As a business leader, it can be challenging to foster innovative thinking within

your firm, understand what innovation opportunities exist, and how to execute
them with your current capabilities.

Innovation is making an idea or invention of goods or services that create

enough value for customers to want to buy. Creating unique products and
services and getting them to market before competitors can benefit a company,
often being critical to its reputation and continued success. Understanding the
process of product innovation and reasons to use it can help you develop
professional capabilities valuable in any industry. In this article, we define what
product innovation is, outline the benefits of it and explore specific types and
examples of product innovation to help you better understand the business term.

What is the innovative process?

The innovative process is the translation of an idea into goods or services that
create value. In business, innovative processes can help products or services
seem more appealing to customers and may increase an organization's
competitive advantage. This process usually consists of three stages: discovery,
development and commercialization. Large companies often expand the
innovative process, adding several more phases to ensure accuracy and
efficiency in new developments.

Every innovative process includes gaining insight, identifying potential

problems and testing various solutions to those problems. This can be applied to
large-scale businesses looking to mass-produce a new product but it can also be
an extremely beneficial way to generate creative solutions to complex problems
of all sizes. The process can also be used to develop new marketing strategies,
redesign a product or service, explore alternative methods of production or
restructure the organizational aspects of a company.

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Dr. D K Shukla
 SOCMS, Sandip University, Nashik

The innovative process is important because

* It can help your business adapt to change.

* Maximize your company‘s profit by expanding into different markets.

* Increase your overall competitive advantage in a specific market.

* Help you address changes in customer dynamic grow and evolve.

Packaging Innovation

Defining packaging innovation

Packaging innovation seeks to increase resource efficiency, eliminate waste and

reduce environmental impact through improved design and the use of
alternative materials.

Why do we need packaging innovation?

Packaging is used throughout the food and beverage supply chain – by

agriculture, in manufacturing, by retailers and in the home. Packaging
innovation has the potential to reduce waste and costs, while adding value and
driving sales.

There are many ways in which the food and beverage sector can innovate with
packaging, as follows:

 The reduction of material use through better design

 The reduction of energy consumption by light-weighting
 Increased durability, enabling re-use and reducing failures
 Better designs to suit roll cages and pallets
 Increased recyclability through better material use
 Greater conformity of design to reduce wasted space

But a number of questions should be asked when considering packaging

innovation, including:

 How is the package used?

 What protection is required?
 Is there a possibility for re-use, recycling and redesign?
 What are the appropriate materials?
 What are the customers‘ requirements?

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 SOCMS, Sandip University, Nashik

Industry-driven innovation

Packaging innovation is a continual process and many well known innovations

have been introduced over the years, such as anti-litter retained ring-pulls and
re-sealable cartons.

However, there is a growing realisation that packaging innovation is crucial to

delivering sustainability for the food and beverage sector, and it now forms a
key part of many companies' corporate social responsibility programmes. More
than ever, the food and beverage sector is taking account of environmental and
resource efficiency considerations when innovating with packaging.

Positioning Innovation

If you come up with an awesome product (or service) but nobody actually
understands it, you believe it is so simple but your audience can‘t figure it out,
people start comparing your product with others which are nothing alike at all,
you may have a Positioning problem.

You may interpret this as a sales or marketing problem or blame yourself for not
communicating clearly with prospects but even with spending more on
marketing or doing perfect presentations nothing changes.

Positioning is a well known marketing term but knowing how to do it right is

more complex than the definition of the term. It is the result of a series of
activities and decisions which deliberately defines how and why your product is
the best compared to what the market values the most currently. Especially,
since every single marketing and sales strategy that we set uses positioning as
initial input, it is critical to do it right otherwise the results will be far away
from what expected.

As human beings, when we face something new, we will try to make sense out
of it by using our experience and clues from what we have known before to
determine how we should think about this new thing. Without previous or some
existing context, products are very difficult to understand. At the same time,

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 SOCMS, Sandip University, Nashik

when you create a solution, develop a new product, or introduce something

innovative to the market, you most likely love it too much to realize the market
does not think the way that you do.

The symptoms of positioning problem

1. Your current customers love you, but new prospects can’t figure out
what you’re selling.

It takes almost forever trying to explain what you are selling and very few
result in closing deals. If people can‘t understand what you do as a result
they will come up with their own version of definition which most
definitely hides your KPIs or misrepresents your values.

2. Your company has long sales cycles and low close rates, and you’re
losing out to the competition.

A strong positioning makes your product‘s value obvious, attracts new

customers and sells quickly in the market. A clear and accurate
positioning increases the efficiency of your sales efforts through
attracting great fit customers and moving through the buying process
smoothly.

3. You have high customer attrition.

Do many customers drop shortly after they make a purchase while new
customers are constantly asking for some features which you do not have
any plans about? Customers who misunderstood your values in the first
place, chose it for the wrong reasons and will try to recover their loss by
morfing your product into what they thought they were buying.

In the worst case, you may even spend resources on building those
features for regretting customers, trying to make them happy while
forgetting about the real customers who are already in love with your
product. With a weak positioning but a strong marketing and sales team,
your efforts will lead to generating some leads but they are going to
abandon your product soon anyways.

4. You’re under price pressure.

Customers are always nagging about your prices being too high and say it
is not fair to charge this price for something that seems just like other
products on the market. This is one of the signs for weakly positioned

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 SOCMS, Sandip University, Nashik

products which usually seems as they offer just a little more than their
competitors. Correct positioning helps to understand how and why you
are the leader in your segment and what you offer has considerably higher
value compared to competitors.

If we fail at positioning, we fail at marketing and sales.

If we fail at marketing and sales, the entire business fails.

What is the best way to develop product positioning strategy?

Product positioning is a cross-functional exercise. It typically involves product

management and product marketing working closely together to define the core
essence of your product. You will need to bring together your knowledge of the
following areas:

Understand the customer

Your positioning strategy should succinctly capture who your customers are and
what they need. Describe the attributes of your target customers, including
demographic, behavioral, psychographic, and geographic details. You will also
want to provide insights into the main problems the customer is trying to solve.
Use your persona profiles to inform your positioning strategies and help the
broader team build empathy with your customers.

Conduct market research

You need to know what alternatives customers have to your product so you can
highlight what sets your offering apart. Research your direct and
indirect competitors to understand how they serve your customers‘ needs. Your
market research should also include interacting directly with potential
customers to gather ideas — for instance using surveys, focus groups,
or empathy sessions. This will allow you to differentiate your product from the
competition and help you explain to potential customers why your solution is
the best option to solve their problems.

Assess the product

Your positioning must be built on the unique value your company and product
provides. Conducting a SWOT analysis is a useful way to objectively analyze
what your product or service is doing well and where it can do better. This

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ensures that your marketing messages aligns with the product experience, thus
helping customers make informed decisions.

What elements should your product positioning consider?

Product positioning is made up of core building blocks that explain your

product‘s unique value. After you have completed your customer, market, and
product assessments, you can define your product positioning, align the broader
team around core messaging, and build a product marketing plan.

Here are the key elements that define your product positioning:

Vision The overall direction for where your product is headed

Mission What you will do or build to make your vision a reality
Market category The market that you are in and your key customer segments
Tagline Catchphrase or slogan you use to describe your company or product
Customer challenges Major pain points for your customers
Company and Unique, value-creating characteristics of your company or product
product
differentiators
Brand essence The core attributes you want to be known for

Process Innovation

Process innovation is the application or introduction of a new technology or

method for doing something that helps an organization remain competitive and
meet customer demands.

Process innovation happens when an organization solves an existing problem or

performs an existing business process in a radically different way that generates
something highly beneficial to those who perform the process, those who rely
on the process or both. For example, the introduction of a completely new
sequence to an existing production process that speeds production by 100%,
thereby saving the organization money and time, could be considered a process
innovation. Organizations today often bring in new information technology
systems or find ways to use older in new ways at the forefront of their
process innovation efforts.

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Dr. D K Shukla
 SOCMS, Sandip University, Nashik

What is Process Innovation?

On this blog we‘ve already talked about examples of Product

Innovation and Workplace Innovation. Now, it's time to turn our attention to
―the least sexy form of innovation‖ – Process Innovation, and look at a few
examples of process innovation that seriously changed the game.

―Process‖ means the technologies, skills, labour, supply chains, and facilities
that go into the production, delivery and support of a good or service. Process
Innovation can mean updates to the technology and equipment used in
manufacturing. It can mean improvements to the tools, techniques and software
used in the supply chain and delivery system. It can also mean changing the
way you sell your product to customers, to make that process more streamlined
and effective. Process is the engine under the hood of your value-adding
vehicle. And Process Innovation means tuning that engine, replacing parts to
make it run faster and smoother.

Henry Ford – the Father of Process Innovation

While we‘re on the subject of engines and vehicles, it feels like a good time to
mention the ―father‖ of process innovation – Henry Ford. In the 1910s, Ford
had the goal of bringing the automobile to the multitudes. He achieved this
through a combination of Product and Process Innovation. First, he made his
product, the Model T, robust and affordable. Then, Mr Ford was inspired by
conveyor belt systems used in grain warehouses. He implemented a gradual
series of innovations that culminated in the assembly line.

The new assembly line cut production time for each car from about 12 hours to
1 ½ hours. It also allowed Ford‘s workers to work shorter shifts for more pay.
This became the central paradigm of industrial manufacture. ―This 100-year old
innovation by a car manufacturer in Michigan changed the way we live and
work forever.‖

This is the classical example of Process Innovation, and it is a good one. Ford
utterly transformed the production element of his business process. This in turn
had dramatic effects on the whole of society.

The simplest way to understand business innovation is to see it as a process of

focused change. It means putting your creative ideas into effective use, in order to
improve your products, services, and your overall business processes. However,
oftentimes this practice is easier said than done. Many companies fail at managing

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Dr. D K Shukla
 SOCMS, Sandip University, Nashik

this change and sustaining their competitiveness and growth. On the other hand,
there are companies that make the most out of innovation. What‘s their secret?
Well, I think it‘s best to explain it through a successful innovation case study.

Why do some companies fail with innovation?

When it comes to innovation, people tend to get overwhelmed by the process

of generating great ideas and do not focus enough on their realisation. What they
often forget is that ideas are only one small part of business innovation. New
ideas can be found anywhere, even at patent offices. Every idea that solves a
customer‘s pain point is good enough to become a part of the innovation process.

The key element of innovation is the way you implement it in your organisation.
You need to focus on putting your ideas into practical processes, creating products
and services that customers need. Innovation must be implemented in the very core
of the organisation – in its culture, its management processes and the way in which
employees are motivated and inspired.

Innovation comes with change. And there‘s no way to make positive changes
without openness to new business approaches and calculated risks. That being said,
keeping an open mind and having the courage to take risks are a must for a truly
innovative organisation.

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Dr. D K Shukla
 SOCMS, Sandip University, Nashik

However, very few people are eager to take risks when it comes to business,
although we all know that it‘s the only way to experience progress. Trying to
protect themselves and their companies, they create strict rules and boundaries.
The more silos they put their ideas through, the less the chance to fully reap the
benefits of innovation.

Companies have to be open to new opportunities and be ready to drop the rules
sometimes. This also applies to the funding of innovative ideas. Annual funding
cycles rarely match up with the real needs. In fact, you can never know when a
great idea may strike. Always be ready to make some changes to the already
established budget to fund an idea that can fuel your business growth.

What is more important, be open to take into consideration ideas that come from
your employees. Managers should have in mind that the employees are the ones
that know the business processes the best. They are the ones that are most likely to
come up with better solutions.

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Dr. D K Shukla
 SOCMS, Sandip University, Nashik

Encourage employees to share their ideas clearly and concisely so everyone can
understand them and give immediate feedback. Ensuring proper communication
within the company, through proper channels, is one of the bases for success in
innovation.

What makes IKEA a successful innovation case study?

Today, you can find a lot of successful innovation case studies, but you can learn
best from IKEA. Here‘s why. Founded in Sweden in 1943, IKEA is a Swedish
company that designs and sells ready-to-assemble furniture and home accessories.
It is known for its modern architectural designs, as well as its attention to
continuous product development, operational details, and cost control.

It operates more than 350 stores in around 50 countries which makes it the world‘s
largest furniture retailer. In the 2014 fiscal year, the company generated a global
revenue which exceeded 31 billion USD.

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Dr. D K Shukla
 SOCMS, Sandip University, Nashik

IKEA is undoubtedly one of the world leaders in business innovation. It carries

innovation deep within its philosophy, constantly looking for ways to improve or
come up with new service propositions. The interest in its customer buying habits
helps this company constantly improve its levels of innovation. This is how IKEA
managed to stay on top of innovation and continue changing and adapting even
after 70 years on the market.

IKEA excels in 3 basic aspects of innovation:

1. Communication

IKEA communicates widely about its innovation strategy, both with employees
and customers. It innovates with its core strength in mind – offering something

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 SOCMS, Sandip University, Nashik

appealing to everyone at a low price, while maintaining good quality. It saves on

costs through transportation and assembly with its flat packaging.

2. Openness to new ideas and approaches to innovation

IKEA partners virtually everyone in developing its innovation strategy – from top
management to internal innovation experts. This is how it manages to apply
innovation in everything it does, not only in product development. In fact, IKEA is
very popular for its innovative ways of promotion and marketing. Popup
advertising, popup lounge, storage balconies, and a moving showroom are only
some of the many innovations by IKEA.

3. Innovation management

IKEA has a well-defined organisational and governance structure to manage

innovation. Although innovation exists within every pore of the organisation, the
founder Ingvar Kamprad drives the entire innovation culture. All the changes
related to innovation come directly from the top management. Furthermore, IKEA
has operative key performance indicators that measure the innovation
achievements and milestones. It has a well-established value system to support
innovation.

How can you stimulate innovation in your own company?

Start from the core – create a culture of continuous improvement and creativity.
Always be open to new ideas from employees, customers, suppliers, partners, or
any other source. Then, open opportunities for every idea to be challenged and
enhanced through discussion. Seriously consider every idea, no matter where it
comes from. You never know which seed will turn into the biggest tree.

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Dr. D K Shukla
 SOCMS, Sandip University, Nashik

However, keep your eye on the most creative and thoughtful people around you.
Sometimes, you can get some much needed help from them only by asking what
they would do if they had to make the final decision. But, you‘ll have to know who
these people are so you can turn to them directly for advice.

Don‘t be afraid to take risks. They are your chance to find that ground breaking
idea for your business. Just, make sure you are ready for failures, too. If you have
never failed, it means you haven‘t taken enough risks. Learn from your failures and
don‘t take them too seriously. Remember to have fun along the way. It will help
you increase the potential for creative insight and encourage those around you to
keep looking for the right solutions.

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Dr. D K Shukla
 SOCMS, Sandip University, Nashik

Benchmarking

Benchmarking is a process of measuring the performance of a company's

products, services, or processes against those of another business
considered to be the best in the industry, ―best in class.‖ The point of
benchmarking is to identify internal opportunities for improvement.

TECHNICAL BENCHMARKING

Technical benchmarking is performed by design staff to determine the

capabilities of products or services, especially in comparison to the products or
services of leading competitors. For example, on a scale of one to four, four
being best, how do designers rank the properties of your organization‘s products
or services? If you cannot obtain hard data, the design efforts may be
insufficient, and products or services may be inadequate to be competitive.

COMPETITIVE BENCHMARKING

Competitive benchmarking compares how well (or poorly) an organization is

doing with respect to the leading competition, especially with respect to
critically important attributes, functions, or values associated with the
organization‘s products or services. For example, on a scale of one to four, four
being best, how do customers rank your organization‘s products or services
compared to those of the leading competition? If you cannot obtain hard data,
marketing efforts may be misdirected and design efforts misguided.

BENCHMARKING PROCEDURE
Considerations

 Before an organization can achieve the full benefits of benchmarking, its own
processes must be clearly understood and under control.
 Benchmarking studies require significant investments of manpower and time,
so management must champion the process all the way through, including
being ready and willing to make changes based on what is learned.
 Too broad a scope dooms the project to failure. A subject that is not critical to
the organization‘s success won‘t return enough benefits to make the study
worthwhile.
 Inadequate resources can also doom a benchmarking study by underestimating
the effort involved or inadequate planning. The better you prepare, the more
efficient your study will be.

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 SOCMS, Sandip University, Nashik

Plan

1. Define a tightly focused subject of the benchmarking study. Choose an issue

critical to the organization‘s success.
2. Form a cross-functional team. During Step 1 and 2, management‘s goals and
support for the study must be firmly established.
3. Study your own process. Know how the work is done and measurements of
the output.
4. Identify partner organizations that may have best practices.

Collect

5. Collect information directly from partner organizations. Collect both process

descriptions and numeric data, using questionnaires, telephone interviews,
and/or site visits.

Analyze

6. Compare the collected data, both numeric and descriptive.

7. Determine gaps between your performance measurements and those of your
partners.
8. Determine the differences in practices that cause the gaps.

Adapt

9. Develop goals for your organization‘s process.

10.Develop action plans to achieve those goals.
11.Implement and monitor plans.

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 SOCMS, Sandip University, Nashik

BENCHMARKING EXAMPLE

Carleton University‘s department of housing began a project to improve the

process by which students apply for and are assigned housing. This project had
three main goals:

1. Reduce residence vacancy rates to below 1%

2. Improve student satisfaction levels
3. Make the best possible use of employee time and effort

The department chose benchmarking as the basis for the improvement project
after realizing that other universities already had better processes Carleton could
learn from and quickly implement without needing to re-engineer the process
from scratch.

The cross-functional team started by mapping the existing residence application

process to establish a baseline, focusing attention on the process used by new
first-year students (left side, Figure 1).

Figure 1: Main Process Steps Before and After Benchmarking

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 SOCMS, Sandip University, Nashik

The project team then conducted focus groups with students living in residence,
asking them to describe their expectations of the assignment service process,
their perceptions of the services they actually received, and any gaps between
the two.

The team also reviewed websites of housing offices at 24 international

universities, followed by a telephone survey of 12 of these to find out more
about their systems. The team then conducted site visits to four universities seen
as leaders in dealing with residence applications to learn about their current
processes and discuss the relative advantages and disadvantages of each one.

The team presented its benchmarking report to management, describing the best
practices seen at other universities and making specific recommendations for
adapting them for Carleton (right side, Figure 1). Carleton implemented many
of the recommended changes and is seeing the benefits (Figure 2).

Figure 2: Benchmarking Average Vacancy Rates for Residences

TQM Business Process Reengineer

Business process can be defined as a set of logically related tasks performed to

achieve a defined business outcome. It is a structured, measured set of activities
designed to produce a specified output for a particular customer or
market. Improving business processes is important for businesses to stay ahead
of competition in today‘s marketplace. Over the last 10 to 15 years, companies
have been forced to improve their business processes because customers are
demanding better products and services. Many companies begin business
process improvement with a continuous improvement model. The Business
Process Reengineering (BPR) methodology comprises of developing business
processes are simplified rather than being made more complex. Job
descriptions expand and become multi-dimensional – people perform a broader
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 SOCMS, Sandip University, Nashik

range of tasks. People within the organization become empowered as opposed

to being controlled. The emphasis moves away from the individual and towards
the team‘s achievements. The organizational structure is transformed from a
hierarchy to a flatter arrangement. Professionals become the key focus points
for the organization, not the managers. The organization becomes aligned with
the end-to-end process rather than departments. The basis for measurement of
performance moves away from activity towards results. The role and purpose of
the manager changes from of a supervisor to coach. People no longer worry
about pleasing the boss – they focus instead on pleasing the customer. The
organization‘s value system transforms from being protective to being
productive. In this context it can be mentioned that, some of the biggest
obstacles faced by reengineering are lack of sustained management commitment
and leadership, unrealistic scope and expectations, and resistance to change.

Total Quality Management (TQM)

Total Quality Management (TQM) is not just an academic concept; it is a way

of controlling your business. TQM is concerned with increased customer
satisfaction, along with improved business processes. It uses the goal of
customer satisfaction to generate the organization‘s strategies. During the harsh
economic climate of the 1980s, many western organizations began to look
seriously at improving activities in their service and product delivery. Different
initiatives were put in place within the operations of an organization to try to
improve these activities but, disappointingly, the benefits of such measures,
when used in isolation, were limited and difficult to evaluate in strategic terms.
Some organizations continue to use this method of activity improvement, but
often the results end up being partial or short term. In fact, some of these efforts
may create a localized impression of providing solutions, when what they are
really achieving is shifting the problem elsewhere.

A TQM system may actually make use of any or all of these initiatives as its
component parts. However, it differs most importantly from any one of them in
its scale. In TQM, all the improvement activities are tied together, so that the
‗knock-on‘ effects produced are recognized and used to initiate further
improvements. It is a continuous improvement process. This is the key
difference between TQM systems and other quality improvement systems.
TQM integrates all activities within an organization, guarantees that the
activities of one area support changes made in another, and ensures that the
results can be evaluated at strategic level. Under TQM, quality is applied in all
business functions, not just manufacturing.

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 SOCMS, Sandip University, Nashik

Productive Flow and Quality Product

Productive flow broadly defines the streamlined process of manufacturing

goods and services that have minimal defects. Thus quality products are
important product outcomes of productive flow within a manufacturing unit that
greatly facilitate in meeting the demands of the customers. The streamlining of
the various interactive processes becomes intrinsic to the quality control
mechanisms that significantly help lower the overall cost of production. In the
contemporary times of cutting edge competition, Juran (2000) asserts ‗all
quality improvement occurs on a project-by-project basis and in no other way‘.
This is the foundation of quality assurance techniques and application which the
organizations follow in order to meet the challenges of the time and maintain or
increase their profit and sales.

Product flow management is a powerful profit lever that can increase earnings
while raising customer service levels. Thus, the organizations continuously
make effort to identify factors and issues that would help produce the desired
outcome with efficiency and unmatched proficiency. The various processes that
can reduce time span and efficiently deliver results are adopted to increase
profits through quality products that corroborate with the changing customers‘
requirements. Small and big organizations like General Motors, Samsung, Sony,
Ford etc. have all redefined their strategic goals to meet the changing equation
of global business that primarily focuses on customers‘ preferences and their
satisfaction.

The Toyota Production System (TPS)

A key success factor that enabled Toyota to become the world‘s most successful
automobile company is its famous manufacturing method, the so called Toyota
Production System (TPS). The evolution of the Toyota production system
approach can be traced to the period immediately following the second world
war when the economic outlook was uncertain and human, natural and capital
resources were in limited supply. Against this background, the most important
objective of the Toyota System has been to increase production efficiency by
consistently and thoroughly eliminating waste. This concept developed between
1948 and 1975 by Toyota‘s former president Toyoda Kiichiro and later by Ohno
Taiichi and Eiji Toyoda represents a highly efficient production system that is
similar to that of Henry Ford several decades earlier, although Toyota‘s
approach to both product development and distribution proved to be much more
consumer-friendly and market-driven.

The main objective of TPS is to produce goods synchronously to customer

requirements, thus designing out overburden (muri) and inconsistency (mura)

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and eliminating waste (muda) for instance caused by overproduction,

unnecessary transports and waiting times. In order to achieve these goals, the
Toyota Production System makes use of five different methods.

1. Synchronization and Standardization of Processes — Lean

Manufacturing

One of the greatest advantages of TPS is its strong focus on lean production.
Lean production is aimed at the elimination of waste in any area of
production including customer relations, product design, supplier networks and
factory management. Its goal is to incorporate less human effort, less inventory,
less time to develop products, and less space to become highly responsive to
customer demand while producing top quality products in the most efficient and
economical manner possible.

In order to achieve these goals, Toyota pioneered and implemented several

highly efficient strategies. For instance, during the 1970s Toyota invented Just-
in-Time (JIT), an inventory strategy that strives to improve a businesses‘s return
on investment by reducing in-process inventory and associated carrying costs,
following the simple philosophy that inventory is waste. To meet its objectives,
one of the primary tools of a JIT system are signals (jap. Kanban) between
different points in the process, which tell production when to make the next
part. Such signals maintain an orderly and efficient flow of materials throughout
the entire manufacturing process, improving a manufacturing organization‘s
return on investment, as well as quality and efficiency.

Closely linked to Toyota‘s JIT principle is the company‘s outstanding supply

chain management, as the high efficiency and effectiveness of a JIT inventory
system is heavily dependent upon the smooth co-ordination of a company‘s
supplier network. Toyota as well as other Japanese car manufacturers are able to
ensure such a smooth co-ordination and close and trustful cooperation with their
suppliers through the so called keiretsu. A keiretsu is a traditional Japanese
institution and can be defined as a set of companies with inter-looking business
relationships and shareholdings. In general, there are three different types of
keiretsu:

1. Kigyo shudan — Horizontally diversified business groups

2. Seisan keiretsu — Vertical manufacturing networks
3. Ryutsu keiretsu — Vertical distribution networks

Today, Toyota is widely considered the biggest of the vertically-integrated

keiretsu groups, with companies like the Denso Corporation — the world‘s

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second largest automotive components manufacturer — as well as 300 other

component suppliers being more or less directly linked to the company.

In addition to JIT and an outstanding supply chain management, the high

efficiency of Toyota‘s manufacturing plants is also due to a high level of
standardization. For Toyota, standardized tasks and processes are the foundation
for continuous improvement and employee empowerment. In this context, one
of the most important principles for Toyota is to visualize standards to ensure
that no problems are hidden. Included in this principle is the so called 5S
Program comprising five steps that are used to make all work spaces efficient
and productive, help people share work stations, reduce time looking for needed
tools and improve the work environment.

2. Avoiding Errors

One of the most important aspects when working with a minimum stock of
materials and JIT inventory systems is to ensure that each part entering the next
step of the production process meets the highest possible quality standards. To
meet this requirement, it is not enough to take samples. In fact, all employees
working in production and logistics must be trained and sensibilized for this set
of problems.

At Toyota, this is ensured by the so called Total Quality Management (TQM)

approach. TQM is an integral management concept coined in the 1940s by W.
Edwards Deming, an American statistician, professor and consultant. It can be
defined as a set of management practices throughout the organization, geared to
ensure the organization consistently meets or exceeds customer requirements.
TQM places strong focus on process measurement and controls as means of
continuous improvement. One of the principal aims of TQM is to limit errors to
1 per 1 million units produced.

3. Improvement of the Production Lines

Another fundamentally important pre-condition for a highly efficient and

effective production is the continuous improvement of the production line and
the facilities. Only if the machinery and the equipment are at the forefront of
technology and are working reliably without any defects and failures, it can be
ensured that the machine up-time is predictable and the process capability is
sustained, avoiding that the process must keep extra stocks to buffer against any
uncertainties and that the flow through the process will be interrupted.

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 SOCMS, Sandip University, Nashik

At Toyota, this in ensured through the application of Total Productive

Maintenance (TPM). TPM is a proactive approach that essentially aims to
prevent any kind of slack before occurrence and has been the first methodology
Toyota used to improve its global position in the 1950s. According to the motto
―zero error, zero work-related accident, and zero loss‖, in TPM the machine
operators perform much, and sometimes all, of the routine maintenance tasks
themselves. This auto-maintenance ensures appropriate and effective efforts are
expended since the machine is wholly the domain of one person or team.

4. Employee Training and Qualification

At Toyota‘s production factories, the work-people are seen as the most

important factor within the whole production process. Toyota has understood
better than anybody else that investing into employee training and qualification
is the critical success factor in the battle for quality and costs. According to the
understanding that continuous process improvement means continuous
employee qualification, Toyota for instance offers training‘s for its assembly-
line workers in its own training centers to ensure that they are able to meet the
company‘s standards before they start working at the actual assembly line. This
procedure is aimed at avoiding frustration among the employees due to
excessive performance requirements, thus guaranteeing a high level of
commitment and motivation among the workforce.

5. Continuous Improvement through Kaizen

Finally, the Toyota Production System is famous for the strict implementation
of a continuous improvement process (CIP) referred to as Kaizen (jap.
―improvement‖ or ―change for the better‖). In general, the term Kaizen
describes the philosophy or the practices that focus upon continuous
improvement of processes in manufacturing, engineering, supporting business
processes, and management. Its core principle is the self reflection of processes
through intensive feedback with the purpose of identifying, reducing and
eliminating sub-optimal processes in order to raise overall efficiency. In
addition, the emphasis of continuous improvement is on incremental,
continuous steps rather than giant leaps.

Used in the context of the Toyota Production System, CIP has some sort of
workshop character, describing an environment where all individuals — from
the CEO to the individual assembly-line worker — work to improve all
functions within manufacturing and all related processes. In addition, of
fundamental importance is senior management‘s willingness to implement the

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 SOCMS, Sandip University, Nashik

findings of the CIP as well as to empower all employees to enable them to

implement suggestions for improvement by themselves.

In summary, the outcome of Toyota‘s remarkable production system, based on a

careful analysis of its own resources and competencies, in addition to the strict
orchestration of these resources and competencies over time, can be clearly seen
in the measures of productivity for lean versus non-lean automotive companies.

Quality is a continuous process that can be broken anywhere in the system of

supply and customer service. By letting every person know how their activities
help fulfill customer‘s requirements, the organization can motivate their
employees and supplies to provide quality consistently. They must also realize
that throughout the organization they will have both internal customers and‘
supplies to those outside the organization. In general, a process helps to change
a set of inputs into desired output in the form of products or services. Proper
investigation of the inputs and outputs of the organization help to determine the
action to be taken for the improvement of the quality. The quest for continuous
improvement of quality is a continuous cycle. The process on which continuous
improvement is based is generally known as ―Deming Wheel―. The wheel
represented below shows a continuous movement in a certain direction. The
idea behind this that the input, which generates activities with measurable
output, is process and the perfection of the process is the ultimate objective.

In a Deming’s wheel, the PLAN defines the process, which ensures

documentation and sets measurable objectives against it. The DO executes the
process and collects the information required. The CHECK analyses the
information in suitable format. The ACT obtains corrective action using Total
Quality Management (TQM) techniques and methods and assesses future plans.
At the end of each cycle the process is either standardized or targets are adjusted
based on the analysis and the cycle continuous.

Total Quality Management (TQM) approach is both a practical working

process and a quality philosophy for the organizations committed to growth and
survival. TQM approach starts with a vision that a concentrated management
action can improve the quality of service and products of the organization at a
very competitive cost satisfying customer‘s need and increasing the market
share. This increased market share will be stable because it has been earned
with the help of solid customers‘ goodwill and not by gimmickry advertising.

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