Toyota

Harvard Business School

9-693-019
Rev. September 5, 1995

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Toyota Motor Manufacturing, U.S.A., Inc.

On the Friday before the running of the 118th Kentucky Derby, Doug Friesen, manager of
assembly for Toyota’s Georgetown, Kentucky, Plant, was approaching the final assembly lines, where
shiny Camrys took shape. He heard a cheer go up. Team members on the lines were waving theirhand tools towards a signboard that read “no overtime for the shift.” Smiling broadly, Friesen
agreed: everyone in the plant surely deserved a relaxed Derby weekend.

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The plant had been hectic lately, as it was both supplying brisk sales of the all-new Camry
sedan and ramping up station wagon versions for the European as well as North American markets.
Overtime also had been necessaryearly in the week to make up lost production because the line
utilization rate was below the projected target. In addition to these immediate problems, a growing
number of cars were sitting off the line with defective seats or with no seats at all.
The seat problem had been the subject of an urgent meeting called by Mike DaPrile, general
manager of the assembly plant, that morning, May 1, 1992.At the meeting, Friesen learned of the
situation firsthand from key people in both the plant and the seat supplier. He then spent the
afternoon on the shop floor to learn more about the problem while the issues discussed were fresh in
his mind. By the end of the day, it became clear to Friesen that the seat problem needed solving once
and for all; the trouble was that trying to do so couldhurt line utilization. This was not the first tough
question Toyota’s famous production system had encountered, nor would it be the last. But this seat
problem was especially delicate and undoubtedly would demand Friesen’s attention in the following
week.

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Background

In the early 1980s, Japanese auto makers contemplated building cars in North America.
Japan’s huge trade imbalancehad caused political pressure to mount, while the economic feasibility
of such investment had improved with a rapidly rising yen. At that time, however, it was unclear
whether cars produced outside Japan could live up to their hard-earned reputation of high quality at
low cost. This issue was far from settled in 1985 when Toyota Motor Corporation (TMC) unveiled its
plan to open an $800 milliongreenfield plant in Kentucky. (See Exhibit 1 .) Thus, the company’s
endeavor to transplant its unique production system to Bluegrass Country effectively became a live
experiment for the world to watch.

Professor Kazuhiro Mishina prepared this case with the assistance of Kazunori Takeda, MBA ’93, as the basis for class
discussion rather than to illustrate either effective or ineffectivehandling of an administrative situation.
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693-019

Toyota Motor Manufacturing, U.S.A., Inc.

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In July 1988, Toyota Motor Manufacturing, U.S.A. (TMM) began volume production on a
1,300 acre site in Georgetown, near Lexington. The plant had an annual capacity of 200,000 Toyota
Camry sedans, which would replace thebulk of Japanese imports of the same model. In 1992, TMM
was expected to supply 240,000 of the all-new Camrys, whose sales were up by more than 20% since
the model change in fall 1991. The new Camry joined the ranks of midsize family sedans, which
constituted one-third of the total American car market and returned an average 17% pretax profit
margin1 on a sticker price averaging $18,500....