Toyota IS Business Planning - All about Plan Do Check Act

Toyota IS Business Planning - All about Plan Do Check Act

Toyota IS Business Planning - All about Plan Do Check Act

Toyota IS Business Planning All about Plan‐Do‐Check‐Act Xiang Tjoa, BSc BMI, 1202952 27 January 2008 Toyota Motor Europe Information Systems Division Business Planning Avenue du Bourget 60 1140 Brussels Belgium Supervisor: F. Grauls Vrije Universiteit Faculty of Sciences De Boelelaan 1081a 1081 HV Amsterdam The Netherlands Supervisor: Dr. S. Bhulai Second reader: Dr. C. Verhoef Version 2.6

Toyota IS Business Planning - All about Plan Do Check Act

Toyota IS Business Planning All about Plan‐Do‐Check‐Act ‐ 2 ‐

Toyota IS Business Planning - All about Plan Do Check Act

Toyota IS Business Planning All about Plan‐Do‐Check‐Act ‐ 3 ‐

Toyota IS Business Planning - All about Plan Do Check Act

Toyota IS Business Planning All about Plan‐Do‐Check‐Act ‐ 4 ‐

Toyota IS Business Planning - All about Plan Do Check Act

Toyota IS Business Planning All about Plan‐Do‐Check‐Act ‐ 5 ‐ Preface This internship is to conclude my Master Business Mathemetics and Informatics at the Vrije Universiteit Amsterdam. Seven months I have spent at Toyota Motor Europe in Brussels to try to understand the business processes within Information Systems and to contribute in improving them. My internship has given fortunately enough foundation of trust for Toyota to ask me to stay at Information Systems division after the conclusion of it. But to come this far, it took also the support and patience of a lot of other people. First I had the goal to search for an internship abroad.

Secondly, it was absolutely not easy when it came to making the final decision. My parents, partner and friends helped me to make this decision and kept supporting me during the entire period as an intern far away in Brussels.

As of the first Monday I came in as an intern at IS Business Planning, my team didn’t hesitate in giving me my first assignment with a deadline set on that Friday already. With the right support from Ricardo (and on the background Frank as manager and Tim as General Manager) I was able to meet that deadline. That culture of no fooling around and to work the best you can was exactly to my liking. The support that was given from the first day continued during my entire internship. After Ricardo left in February, Frank became my direct mentor. Although it was a very hectic period with a merge coming up between two so very different entities (Manufacturing and Sales), the support was there when I needed it.

My team members were fun to work and chat with.

But not only Toyota made the conclusion of my internship possible, also the support and trust of my supervisor from the university pulled me through some more difficult periods. I would like to sincerely thank Sandjai for his support and advices. And not to mention Chris; he (like Sandjai) did read through my report every time I sent it to my supervisors so very short before the deadlines. Even after so many months spent at Business Planning, I still act like a student ☺

Toyota IS Business Planning - All about Plan Do Check Act

Toyota IS Business Planning All about Plan‐Do‐Check‐Act ‐ 6 ‐

Toyota IS Business Planning - All about Plan Do Check Act

Toyota IS Business Planning All about Plan‐Do‐Check‐Act ‐ 7 ‐ Index INTRODUCTION .

. 9 1 TOYOTA . . 11 1.1 KAIZEN . . 11 1.2 INFORMATION SYSTEMS DIVISION . . 11 1.2.1 THE CREATION OF TOYOTA EUROPE DATA CENTRE (TEDC . . 12 1.2.2 A LEGAL MERGER BETWEEN TMEM AND TMME . . 12 1.3 THE TOYOTA WAY – PHILOSOPHY AND MANAGEMENT TOOL . . 13 1.3.1 THE TOYOTA WAY . . 13 1.3.2 THE DEMING CYCLE: PLAN DO CHECK ACT . . 14 1.4 DEMING IN IS . . 14 1.4.1 IS DIVISION WITHIN TMME AND RDMC . . 15 1.5 OBJECTIVES OF MY INTERNSHIP . . 16 2 THE ANNUAL PLANNING CYCLE . . 19 2.1 INTRODUCTION . . 19 2.1.1 TOOLS USED . . 20 2.2 DRAWING UP BUDGETS . . 20 2.2.1 BUDGET TYPE ~ PORTFOLIO ACTIVITY . . 20 2.2.2 BUDGET TYPE ~ MEMBERS ACTIVITY .

. 21 2.2.3 BUDGET TYPE ~ PROJECT ACTIVITY . . 22 2.2.4 MY SUPPORT DURING THE BUDGET ACTIVITIES . . 23 2.2.5 HOSHIN . . 24 2.2.6 MY SUPPORT DURING THE HOSHIN CREATION . . 25 2.3 DIFFERENCES RDMC/TEDC/TMME IS . . 26 2.3.1 BUDGET PREPARATION (PROJECT, PORTFOLIO AND MEMBER EXPENSE . . 26 2.3.2 HOSHIN . . 26 2.3.3 MANAGER’S VIEW . . 26 2.4 CHALLENGE MEETINGS . . 27 2.5 CONSOLIDATION SHEET . . 27 2.5.1 BASIC IDEA CONSOLIDATION SHEET . . 27 2.5.2 REQUIREMENTS . . 28 2.6 AFTER DECEMBER . . 29 3 KEY PERFORMANCE INDICATORS . . 31 3.1 INTRODUCTION . . 31 3.2 TOYOTA KPIS . . 32 4 HARMONISING THE KPIS .

. 33 4.1.1 NEXT STEPS . . 34 4.2 RDMC . . 34 4.2.1 CURRENTLY . . 34 4.2.2 NEXT STEPS . . 36 4.2.3 MANAGER’S VIEW . . 39 4.3 TEDC . . 39 4.3.1 CURRENTLY . . 39

Toyota IS Business Planning - All about Plan Do Check Act

Toyota IS Business Planning All about Plan‐Do‐Check‐Act ‐ 8 ‐ 4.3.2 NEXT STEPS . . 40 4.3.3 MANAGER’S VIEW . . 41 4.4 TMME . . 41 4.4.1 CURRENTLY . . 41 5 CONCLUSION . . 43 6 (APPENDIX . . 45 6.1 TME IS TEAMS . . 47 6.2 ANNUAL PLANNING CYCLE – OVERALL PROCESS . . 49 6.3 ANNUAL PLANNING CYCLE MASTER SCHEDULE . . 51 6.4 ANNUAL PLANNING CYCLE – VISUAL CONTROL . . 53 6.5 HOSHIN – FIRST DRAFT . . 55 6.6 HOSHIN – FINAL . . 57 6.7 BUDGET CONSOLIDATION SHEET . . 59 6.8 KPI REPORT – FRONT PAGE . . 61 6.9 GUIDELINES WEEKLY KPI TEMPLATE . . 63 6.10 TMME AND TEDC KPI REPORT . . 65

Toyota IS Business Planning - All about Plan Do Check Act

Toyota IS Business Planning All about Plan‐Do‐Check‐Act ‐ 9 ‐ Introduction Today Tomorrow Toyota.

This is the slogan Toyota uses in the current advertisements. Apart from the alliteration (all words starting with the letter ‘t’), this slogan also symbolises the mission of this car manufacturing company. It shows the long‐term view of Toyota and the intention of maintaining and improving the quality of its products in order to become the manufacturer of the car of the future. Toyota has developed a philosophy containing fourteen principles, the Toyota Way, which is famous throughout the world and which has been copied to other organisations, some with more success than others. One of the pillars of a car manufacturing company is the plant where the cars are being built.

The choice for a logistic system is crucial for the success of any manufacturing company. Efficiency, low costs and low inventory stocks being the keywords, Toyota has developed the Just‐In‐ Time pull system. This system is not the only factor to define the success of Toyota, also the philosophy of –amongst others– continuous improvement, respect for your colleagues, standardisation and decision making based on consensus of all parties involved creates an environment which is open for development of both the business processes and the Toyota employees.

Standardisation and continuous improvement will be the keywords throughout my internship and throughout this report. With a merger between the organisations Manufacturing and Sales & Marketing of the European head office, common business activities and functions need to be harmonised. I will be supporting this process within the IT functions for Toyota Motor Europe. I will support the further standardisation of business processes and implementation of improvements within the budgeting processes. As this year will be the first time that IT Sales & Marketing participates in this budget process, it will probably bring forth some adjustments to the IT Manufacturing templates, which are currently being used.

After a further introduction on Toyota in Chapter 1, an elaboration on the budgeting process will follow in Chapter 2.

After establishing the budgets, it is time to define the Key Performance Indicators to measure the progress on both financial and non‐financial terms. Within IT Manufacturing, a set of indicators already exists based on cost, quality, performance and productivity. The goal is to extend this philosophy to the other two IT organisations within Toyota Motor Europe. Before the start of the next fiscal year on April 1 2007, a format for each of the IT organisations should be ready for implementation. In Chapter 3 (introduction into KPIs) and Chapter 4 (way of work and results) you will find this harmonisation process.

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Toyota IS Business Planning All about Plan‐Do‐Check‐Act ‐ 11 ‐ 1 Toyota 1.1 Kaizen! Continuous improvement, also known as “Kaizen”, is, next to standardization, one of the magic words within Toyota. According to the Just‐In‐Time method, which was developed in the 1950s within Toyota, Kaizen has always been a part of the manufacturing processes in the plants. With implementing the Deming Cycle (Plan‐Do‐Check‐Act), Toyota has extended this philosophy to the business processes as well (please see next paragraphs for more information about the Deming Cycle).

During 2004 two important changes were to be rolled out next to each other, although they were not directly connected. 1.2 Information Systems Division The Information Systems division (IS) introduces itself with the following texts: “The Information Systems Division develops, installs and maintains the systems, which support all the areas of our business. The team works as an internal provider for other divisions to precisely define user and business requirements, analyse all available options and make the company efficient and effective by recommending the latest hardware and software that provide the most appropriate solutions.”1 and “The Information Systems division is fully involved in providing IT solutions to all business operations from design to dispatching of vehicles, covering as well R&D, pre‐ production support, procurement, supply chain, manufacturing support, Finance and HR.

Most core business related applications are developed in house.”2 The IS division does not exist only of business support teams, that provide IT solutions to the business operations. The Business Planning team, of which I will be part during 1 Source: http://www.graduates.toyotajobs.com/html/grad_prog_is.htm 2 Source: http://www.graduates.toyotajobs.com/download/IS_2006.doc

Toyota IS Business Planning All about Plan‐Do‐Check‐Act ‐ 12 ‐ my internship, supports the IS management by consolidating, explaining, and checking the IT results and complex IT plans. This team also provides guidelines, standards, and assistance in IT planning and administration functions for the entire IS division. See the figure below for a visual overview of the portfolio of Business Planning. Business Planning Financial Management Budgeting Performance & Process Key Performance Indicators Resource Management Staff Planning Strategic Planning Mid Term Plan Annual Planning Cycle Vendor Management Contracts Figure 1 ‐ Business Planning (November 2006) 1.2.1 The creation of Toyota Europe Data Centre (TEDC) In 2004, discussions started about bringing IT Services of TMME and TMEM under one organisation.

Common IT services, like hardware and software purchasing and defining IT infrastructure, were provided separately by both organisations and it was thought that more efficiency and lower costs could be accomplished when the services in this part of the IT area would be combined. The virtual organisation came into existence in January 2005 when daily operations started. In 2006 a dedicated organisation was established. The members of this new organisation were transferred from the existing ones. This was to enable and emphasize that TMME and TMEM were integrating their common activities with regard to IT Services.

2004 2005 2006 2007 Start Discussions Start Operations Virtual Organisation Dedicated Organisation Figure 2 – TEDC 1.2.2 A legal merger between TMEM and TMME Next to centralising the IT Services of TMME and TMEM, discussions were held about merging the two head organisations into one. In 2004, three entities existed for Toyota Motor Europe: 1. Toyota Motor Europe – Holding Company; 2. TMEM – Coordinating the Manufacturing and R&D operations; 3. TMME – Coordinating the Sales & Marketing operations.

Toyota IS Business Planning All about Plan‐Do‐Check‐Act ‐ 13 ‐ In September 2005 it finally came to a legal merger. Instead of separate organisations, the two companies changed into two groups under the responsibility of the official company TME. TMEM changed names into RDMC (Research & Development and Manufacturing Company), whereas TMME kept the old one. Although the merger was official, the operations for common functions such as Corporate Affairs, Information Systems, Finance, and HR for Sales and Manufacturing side continued to be separate. The prospect is to integrate those common functions as well in the very near future.

In this light, harmonising and standardising business processes become a very important topic.

2004 2005 2006 2007 2008 ‐ TMEM ‐ TMME ‐ TME Holding TME TMME RDMC Integrate common functions Legal Merger Sept Figure 3 – Merger 1.3 The Toyota Way – Philosophy and Management tool 1.3.1 The Toyota Way Since the Toyota Way has been successful in the manufacturing plants, this philosophy has been implemented within the business processes throughout the company as well. The Toyota Way consists of fourteen principles: 1. Base your management decisions on a long‐term philosophy, even at the expense of short‐term goals; 2. Create continuous process flow to bring problems to surface; 3. Use “pull” systems to avoid overproduction; 4.

Level out the workload (Heijunka); 5. Build a culture of stopping to fix problems, to get quality right the first time (Jidoka); 6. Standardised tasks are the foundation for continuous improvement and employee empowerment; 7. Use visual control so no problems are hidden; 8. Use only reliable, thoroughly tested technology that serves your people and processes; 9. Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others; 10. Develop exceptional people and teams who follow your company’s philosophy; 11. Respect your extended network of partners and suppliers by challenging them and helping them improve; 12.

Go and see for yourself to thoroughly understand the situation (Genchi Genbutsu); 13. Make decisions slowly by consensus (Nemawashi), thoroughly considering all options; implement decisions rapidly; 14. Become a learning organisation through relentless reflection (Hansei) and continuous improvement (Kaizen).

Toyota IS Business Planning All about Plan‐Do‐Check‐Act ‐ 14 ‐ Seven out of these fourteen principles lie at the basis of my internship at Toyota Motor Europe (see the italic principles). 1.3.2 The Deming Cycle: Plan Do Check Act The Deming Cycle is a framework for management to implement continuous improvements into their processes. This Cycle enables them to track, visualise and act upon the actual progress. The Deming Cycle consists of four phases that are connected through a loop construction. Plan Do Check Act Plan: During this phase, a plan has to be drawn up. This plan consists of targets that have to be reached during a certain amount of time.

In a project environment, these targets can be seen as clear milestones achieved through following a schedule. Targets can also be – for example – to plan a cost budget and to not overspend this budget.

Do: After planning, the plan needs to be implemented and executed. Check: During the actual execution, some tracking and checking need to be done to monitor the progress of the project schedules or expenses. Regular evaluations need to be conducted of the original plan versus the actual condition. Act: If during the evaluations issues are identified that may endanger reaching the targets set, countermeasures or improvements can be taken. According to these revised “plans” a new Deming Cycle can be entered. 1.4 Deming in IS The RDMC IS division has implemented the Deming Cycle (or PDCA Cycle) for their own division activities.

In the figure below you can find the link between the Annual Planning Cycle and KPIs.

Toyota IS Business Planning All about Plan‐Do‐Check‐Act ‐ 15 ‐ Plan Do Check Act Hoshin Mid Term Plan Annnual Planning Cycle Projects HR KPIs Evaluation Improvement Mid Term Plans Figure 4 – The Deming Cycle The Annual Planning Cycle provides guidelines in making a plan on resources, cost budget, and long‐ and short‐term goals, whereas the KPI reporting supports the tracking and evaluating of the progress made during execution of the plan. Both are management tools and should be used and treated like ones. 1.4.1 IS division within TMME and RDMC Both RDMC and TMME have an IS division. Taking the upcoming integration into account, RDMC IS took the initiative to standardise some of their activities, namely the Annual Planning Cycle and the measurement of the Key Performance Indicators (KPI).

As can be seen in Figure 1 – Business Planning, the Annual Planning Cycle has its influence on the financial and resource management. KPIs are part of tracking performance and processes within IS.

Figure 5 – IS organisation chart on page 12 shows the current status of the Annual Planning Cycle and KPI reporting between the three IT organisations of Toyota Motor Europe.

Toyota IS Business Planning All about Plan‐Do‐Check‐Act ‐ 16 ‐ 1.5 Objectives of my internship During my internship, my responsibilities lie in the support during the Annual Planning Cycle and the harmonisation of the KPI reporting across the three organisations. In Chapter 2, the Annual Planning Cycle will be discussed. The objective here is to support in preparing and answering to requests and concerns with regard to the tools used.

Next to this the goal is also to manage and visualise requests in order to make sure that they are followed up and all stakeholders are aware of them. The KPIs will be elaborated upon in Chapter 3 and 4. The main objective here is to identify the ideal situation based on Executives direction, find the gaps with the current situations and propose a new structure for an equal KPI reporting across TME IS to enable fair comparison and healthy competition.

In addition to supporting everyday operations, I will also try to capture whether the management tools to support the PDCA Cycle is implemented and used as it is meant to be. Within Toyota, the KPI reporting should be used as a management tool rather than another administrative report to check the progress on each target set during the Annual Planning Cycle.

Toyota IS Business Planning All about Plan‐Do‐Check‐Act ‐ 17 ‐ 2. KPIs TMC Tokio, Japan TME IS Head Office Europe Information Systems (RDMC) Information Systems (TMME/ITD) STEERING COMITEE Business Planning Business Planning Business Management KPIs based on Cost Time Quality Productivity with regard to both Maintenance/Support and Projects.

KPIs regard systems and operations (f.e. topics concerning Helpdesk or outages of systems affecting the Business). First steps for KPIs for Projects based on Cost Time Quality Productivity Maintenance does not have KPIs. 1. Annual Planning Cycle The annual planning cycle has been implemented since 2004. FY2005 has been the first year budget drawn up according to these guidelines.

The annual planning cycle as drawn up for RDMC has been implemented since 2005 for making the budget of FY2006. The annual planning cycle as drawn up for RDMC and TEDC is now in practice for making the budget for FY2007. VP RDMC IS VP TMME IS/ITD TEDC Figure 5 ‐ IS organisation chart (November 2006)

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Toyota IS Business Planning All about Plan‐Do‐Check‐Act ‐ 19 ‐ 2 The Annual Planning Cycle As Figure 5 in the previous chapter shows, the Annual Planning Cycle is more established within the three organisations compared to the set up of KPIs.

However, seen in the light of the philosophy within Toyota, improvements and further standardisation need to be implemented. 2.1 Introduction Before having a final budget for next fiscal year that has been approved by the Accounting & Finance department of TME, an internal budget process has to be followed. The Annual Planning Cycle has been developed by the RDMC IS Business Planning to provide guidelines to come to a plan for next fiscal year. During the Annual Planning Cycle, managers from the first level until the high executive level should think of which way to proceed, which projects to pursue, etcetera.

Planning is the crucial thought behind this Cycle. When the plan is drawn up, the budget, resource plan, annual and mid‐term plans for the next fiscal year for each team within IS over the three groups (RDMC with 16 teams, TEDC with 12 teams and TMME with 10 teams)3 will come naturally.

The Cycle describes the entire budget process that exists of four different budget‐ planning categories of which the fourth is slightly different compared to the first three: 1. Portfolios ‐ The portfolio budget shows the plan for next fiscal year for portfolio items and calculates the budget and resources of support for existing applications, technologies and/or services; 2. Member Expenses – The member expense budget takes expenses into account with respect to ‐for example‐ expected travel, training, and office supplies; 3. Projects – The project budget is used to list all new projects and schedules with their resource requirements (both on personnel as well as on technical area); 4.

Hoshin – Hoshin is the Japanese word for policy management. In the spirit of continuous improvement, Kaizen, the top management evaluates the old and defines the new long‐term visions and company policies. They will be translated into an action plan (Mid Term Plan).

Complete with timelines, this Cycle also provides an overview of how each budget category is linked to the other categories and when they need to be synchronised. From September to November the IS management have to work on drawing up their budgets in order to have a draft ready by the start of December. 3 See for an overview of teams Appendix 6.1. Situation as per October 2006.

Toyota IS Business Planning All about Plan‐Do‐Check‐Act ‐ 20 ‐ This draft will be reviewed with the General Managers and if all goes well, it will be turned into a final (internal) budget proposal, which will be sent just before Christmas to Accounting & Finance.

From January to March, Business Planning takes the lead to change the status of a final “internal” IS budget into a final “external” IS Budget approved by Accounting & Finance of head office. The fourth category, the Hoshin, is not really a budget category. It is a contemplation about the direction Information Systems has to follow next fiscal year and to translate this into objectives and measurable targets. In general the elaboration of the Hoshin starts in January and continues until a final version is ready. The deadline will be before the start of the new fiscal year, which is April 1.

Although each budget category has its own process, deliverables and deadlines, they are connected to each other and have to be synchronised before they can be finalised. An overview of the whole process can be found in Appendix 6.2. September April October November December January February March GM & IS executives review & SYNCHRONISATION GM review & SYNCHRONISATION TME executives review & SYNCHRONISATION draft final -internal- (approved by IS executives) final -external- (approved by TME executives) draft final -internal- (approved by IS executives) final -external- (approved by TME executives) draft final -internal- (approved by IS executives) final -external- (approved by TME executives) Portfolio activities Project activities Member Expense activities 2.1.1 Tools used The tools that are used to come to a budget are created within Excel.

Each tool is numbered alphabetically (as can be seen in Appendix 6.2). I will go into further detail in the next paragraphs.

2.2 Drawing up Budgets 2.2.1 Budget Type ~ Portfolio Activity Within the Portfolio Budget three types of portfolios exist which are not always applicable to all the IS teams and for some teams more than one type is applicable:

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