By Neil Bentley, chief knowledge officer, ActiveOps

Despite troubling product recalls in the not too distant past, Toyota’s relentless strong financial performance confirms its continued position at the top of the automotive tree.

One of the earliest adopters of the Lean and Six Sigma methods still being pursued in many service organisations (with mixed results), Toyota’s textbook experiences in manufacturing still reveal plenty of important lessons for other industries – if they are prepared to listen.

The secret of Toyota’s success lies in its production system, where logic pervades over everything from customer relations to product development, manufacturing and supplier relationships. Writing in International Commerce Review, Daniel T Jones and Philip Clarke said: “Because Toyota buys in three-quarters of the value of the car, a key part of its success is spreading this logic to its first, second and third-tier suppliers, giving it the most efficient supply base in the world.”

Lessons for the service sector

Along with the important role of supply chain integration, this analysis of Toyota highlights the lessons the service sector can draw from manufacturing.

Looking back to the automotive sector in the mid to late 1980s, there was a substantial shift from ‘push’ to ‘pull’ scheduling (i.e. where production is made to order (pull) rather than made to stock (push) and not based on actual demand) and a related shift from material requirements planning (MRP) to KANBAN scheduling. Significant interest also arose in the Toyota Production System and in Total Quality Management, which are essential precursors of today’s Lean and Six Sigma management methodologies.

This was also a time of significant growth in manufacturing outsourcing and the subsequent rise in supply chain integration that occurred alongside it. No sooner had manufacturing companies dismantled their vertical integration (in some cases handling everything from raw materials to warehousing and logistics themselves), it seemed they were scrambling to stitch the different elements back together again.

Having reduced its suppliers, one large company stopped pitting competing companies against each other and moved towards a partnership approach, where common interests were shared and the customer was the main priority. It was so committed to this new strategy that some parts of the business even trained suppliers in just-in-time manufacture and supply.

Three decades on and linked to the maturity of outsourcing and offshoring, the same trends are now occurring in service operations – including the banking sector. In particular, there continues to be an increasing move towards collaborative, partnership-style relationships, rather than transactional customer-supplier contracts.

Increasingly, outsourcing organisations have become more sophisticated in the process of selecting a BPO provider. In response, the providers have adapted to meet the challenge of delivering integrated value to the end-customer.

Logic-based processes

As the experts have pointed out, key to the success of the Toyota supply chain was the ‘logic that pervades everything’. Increasingly, there are also signs of this equivalent trend now emerging in banking and other service sectors, in many cases linked to production planning and control, albeit improved operations performance management rather than manufacture.

In one instance, a mortgage services BPO employing a best-practice operations performance management method was so successful in improving its performance that it prompted a major client to adopt the same structure in its organisation. In another case, a BPO provider won a significant deal partly because the client was using the same process logic and was able to discuss the business requirements using a common frame of reference.

Elsewhere, some organisations are beginning to mandate that their BPO providers adopt this structured approach in the service they provide. Banks are also reporting more control and responsiveness in their relationships with their BPO providers having used the method to standardise management control and their management information (MI) systems.

The parallels with Toyota are clear. Having a common method in the adjoining stages of the end-to-end process results in the more efficient transfer of information and the management of service levels, while at the same time improving customer/supplier communication.

Using this increasingly common method, one day a leading service organisation will become so good at service operations management that it will, like Toyota, set a defining standard for others to follow, both within its own supply chain and across the whole of its industry. A capability maturity model will then emerge that is identifiable with one or (at most) a handful of service organisations, setting them apart from their competitors.

Just as the Toyota brand has become synonymous with operations innovation and excellence in manufacturing, one day a bank (or perhaps insurance company) will emerge to claim the crown as a leader for operations in financial services, the ‘Toyota’ of the banking world.

Neil Bentley has been helping organisations to improve their front-line operating performance for over 20 years. Originally qualified in psychology, he worked for Lucas Industries in the 1980s, gaining experience in manufacturing production management, before focusing on financial services and the public sector. He launched ActiveOps, with fellow OCP partner Richard Jeffery, in 2005.

For more information, please visit www.activeops.com