Toyota's Business Intelligence: Oh! What a Feeling

By CIOinsight  |  Posted 10-01-2004

Toyota's Business Intelligence: Oh! What a Feeling

Just ten years ago, Toyota Motor Sales U.S.A. was suffering under the weight of a hopelessly backward IT infrastructure.

The U.S. distributor of cars and trucks built by Toyota Motor Corp., the Aichi, Japan-based pioneer of hybrid vehicles and cars that can run forever—the very model of efficiency and technological innovation—found itself awash in directionless data.

With little or no distributed computing in most departments, Toyota U.S.A. was generating sales and market data at a frightening rate, but it had no way to use the information strategically.

Stuck in a mainframe malaise, internal departments regularly failed to share information, and, by the time they did generate so-called "actionable" reports, it was often already too late.

In 1996, Toyota decided to do something about it.

The company hired Barbra Cooper, a serial CIO with two top tech posts already to her credit, to head up its IT department. What Cooper brought with her, besides her impressive resume, was a willingness to listen to her internal user community, and, in particular, to the company's business executives.

The painful evolution in Toyota's data-management strategy that followed was guided by Cooper but driven by the business side, and the results have been impressive.

Toyota U.S.A. has managed to increase the volume of cars it handles by 40 percent over the past eight years while increasing head count by just 3 percent.

That's helped parent Toyota Motor Corp. reach the highest profit margins in the automobile industry, and its stock is a perennial performer.

Next Page: Daly's data.

Daly

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Daly's Data

Before there were record profits for the parent company, before the U.S. subsidiary laid claim to a 506 percent ROI from its business-intelligence rollout, even before Barbra Cooper, there was Bob Daly.

A 19-year veteran of Toyota U.S.A., Daly speaks with the polite impatience of a man with better things to do with his time. He was brought to company headquarters in Torrance, Calif., in 1996, from Washington, D.C., where he ran Toyota U.S.A.'s government-relations division.

His new job: to head up Toyota Logistic Services, a wholly owned subsidiary that manages the transport of vehicles from the factories in Japan and North America to the dealerships in the U.S. What he found when he arrived was nothing short of chaos.

"I discovered quickly that I could not ask the systems we had in place for information," says Daly, who today is a group vice president in charge of Toyota Customer Services.

"There were overlapping reporting systems, we couldn't be certain that any of the data was accurate, and nothing was giving me a good picture of what was going on. I couldn't get information while we were doing business. I was using way too much Quicken."

Daly came to TLS with virtually no knowledge of technology. But he had a keen business sense and a mandate to refine the division's efficiency.

The task of TLS is one of the most crucial in all of Toyota's U.S.-based operations. The job requires precision tracking and supply-chain management in order to ensure that the right cars get to the right dealers in a predictable and timely fashion. Toyota U.S.A. takes ownership of the vehicles from the moment they leave the factories until the moment they reach the dealers—essentially purchasing the vehicles from its corporate parent in Japan and then reselling them to dealers across the country.

That means Toyota U.S.A. must carry a finance charge of about $8 a day per car until they can unload them on the dealers. Multiply that by about 2 million cars a year and an average delivery time of nine days, and it's easy to see how manually compiled Quicken spreadsheets and a lack of data integration were costing Toyota millions.

"If just one individual made a data entry mistake when a ship docked, the mistake would endure throughout the entire supply chain," Daly says.

"We had data that told us that ships had been sailing out on the water forever, and never made it to port. There was no way to catch such mistakes."

Resources
Studies
"The Financial Impact of Business Analytics—An IDC ROI Study"

Nov. 2002

Articles
"Global Growth Gives Toyota 29 percent Rise in Profit"

By Todd Zaun, The New York Times, Aug. 4, 2004

Books
Kaizen: The Key to Japan's Competitive Success

By Masaaki Imai
McGraw-Hill, 1986

Daly didn't know how to fix the problem, but he knew what he needed, and he communicated that to Cooper, who at the time had been on the job only a few months and was still learning the Toyota corporate culture.

"I think it was somewhat of a case of the business community almost in rebellion," says Cooper of her first year on the job.

"The IT organization didn't really know how to respond to the growing needs of the business, and I think they were getting frustrated and needed a change agent."

Cooper had been busy trying to identify the problems on her own, so when Daly approached her with a clear idea of what TLS needed, she moved on it quickly.

"Most of the departments were struggling to describe their problems at that point, but we had a few self-starters in TLS who were stepping out and trying to make some things happen."

Cooper set up a data warehouse from Red Brick for TLS that used BRIO tools to mine the data, while Daly identified seven key areas in which he needed real-time, accurate data. The first data entry was made in January 1997.

Daly thought he had the problem licked.

"At first we had a field day," he says. But he soon discovered that with all the new data, the information that was coming back was hit or miss, much of it miss.

"We had a lot of false positives," he says.

It turned out that years of human error had gone unchecked, so duplicated data and data points that were never entered into the system returned illogical analyses. It didn't help that the Red Brick data warehouse was unwieldy, and there were severe problems transferring files from the old system into the new warehouse.

Over the next two years, it became clear that the data warehouse was not working the way Daly had envisioned. Meanwhile, continuing his upward career trajectory, Daly himself was promoted out of TLS and into a different division entirely.

Next Page: Starting over.

Starting Over

Starting Over
In 2000, Cooper was left with the right idea but the wrong technology.

The Red Brick warehouse was helping to store and integrate the data, but it wasn't having a measurable impact on the business users. IT employees and research analysts still had to run the reports, rather than the business execs themselves, a process that took days and sometimes weeks.

So without Daly to articulate TLS's ongoing needs, Cooper turned to a now-familiar formula: She went back to the business executives.

"I actually hosted a debate by two business users," she says.

"There was someone from the finance department who was a real advocate of Essbase [a business-intelligence platform from Hyperion] and someone who was a real Red Brick advocate. I put them in a conference room to decide whether we should standardize on one or the other, and what were the trade-offs and differences between them."

Cooper remembers being surprised at the passion the two business execs brought to the table, and at how both had grown so attached to their respective systems that neither could imagine doing their jobs without them.

Cooper decided to go with an Oracle database and the Essbase software, a product now folded into the Hyperion business-intelligence platform, and the company immediately started seeing results.

Mike Burkes came on board in 2001 as the data-tech manager in the enterprise data-management group—a position that was created specifically for him. He had been working as an outside consultant to Toyota before joining the company, and calls Bob Daly the "visionary" behind the business-intelligence operation that Burkes now runs.

But it wasn't until the company made the switch to Oracle and Hyperion in 2000 that Daly's vision finally became a reality.

In one day, an analyst found that Toyota was getting billed twice for rail shipments of vehicles out of a particular rail yard. The problem was that the railcars were being scanned twice—an honest mistake—but up until that point, Toyota execs had no way to drill down and discover the duplicate entries.

The new information saved the company $800,000 "overnight," Burkes says. "The analyst who caught the error won an award."

The difference between the old system and the Hyperion system, according to Burkes, is the ability to use a dashboard feature that allows executives to see hot spots in their business units and investigate further to identify the problem.

The dashboard works like a simple stoplight, with lights that display green (good), yellow (acceptable) and red (danger).

A business manager can see, for example, when delivery times are slowing to unacceptable levels and immediately try to find the source of the problem. The gauges can be programmed for a variety of data sets, including accessory revenues, order management and expenses.

The results have been eye-popping.

IDC conducted an independent study of the Oracle/Hyperion implementation at Toyota Logistic Services as part of a broader study the research firm was doing on business performance management.

Their conclusion: Toyota had achieved a 506 percent return on the software. (The reason the ROI is so dramatic, however, is that the historical data the new system made available allowed TLS to identify a port in Baltimore that it no longer needed. The closing of that port resulted in the bulk of the ROI. Still, the median ROI for the 43 other Fortune 500 companies that participated in the study was 112 percent.)

Of course, to achieve that kind of return, there had to be some pretty severe inefficiencies in the business to begin with.

"Suffice it to say we were overspending," says Burkes, adding that the transparency the new data gives the company allowed TLS to take much of that inefficiency out.

Next Page: Spreading the wealth.

Spreading the Wealth

Spreading the Wealth

Word of the success quickly spread throughout Toyota U.S.A., and it wasn't long before Bob Daly came back to Burkes wanting a demonstration of the new and improved technology.

Daly now heads up Toyota customer services, which includes call- center operations, accessory and part centers, and dealer relationships, and he wanted to see how the revolution he had initiated in TLS could help him in his new position, but with entirely different data.

Burkes came to Daly's office, set up some dashboards, and in two minutes had Daly up and running.

"I was sweating," recalls Burkes. "But when I was done, he stood up out of his chair and clapped. It would have taken me two weeks to get that information in the past, but now he can do it himself in six seconds."

As with any new project, there is still resistance in some quarters. Burkes is actively trying to get the CFO her own dashboard, but he admits that "not all of management is comfortable with the technology."

For one thing, the dashboard can be so detailed that it can send managers to the brink of obsession, distraction and micromanagement. The temptation to ruthlessly scrutinize every transaction is difficult to resist.

Cooper herself admits to taking the bait: She had a dashboard set up so that she could better manage expenses throughout the IT department. The first day it was set up, Cooper took a hard look at employee purchases of office supplies at Staples. She even reviewed the purchase of a coffee machine that she thought was a bit pricey.

"I thought it would drive me crazy, because I'm always going to find some margin of error."

The other problem is that it is resource intensive.

The amount of data the company is collecting on an hourly basis boggles the mind. Moving millions of cars on a yearly basis, adding on accessories and shipping parts to dealers is a logistical nightmare.

"It's a huge issue with a manufacturer the size of Toyota," says Mike Walls, an automobile industry analyst at research firm CSM Worldwide.

"Take the combination of overseas manufacturing and domestic manufacturing, compound that with port-installed accessories and dealer offers—it's a monumental task."

All of that data can eat up a lot of compute cycles. Daly, a staunch perfectionist, still complains that the dashboard doesn't load quickly enough on his laptop.

Eventually, says Cooper, the company hopes to push the technology out to the myriad managers who work throughout the company to help them manage more efficiently. And it is working—more than 2,500 employees, ranging from mid-level managers to C-level executives, are using the tools.

The belief in the IT department is that the more people who engage the data-analysis tools, the more money Toyota will earn.

"A good portion of Toyota's profitability comes from driving costs out of the business," says Walls. "They are adamant about it. And these guys are printing money."

Toyota's revenues for 2003 were $132 billion, as opposed to General Motors' $184 billion.

But Toyota's profits dwarfed their bigger competitor. The company earned $13.6 billion to GM's $2.8 billion. For the quarter ended June 30, Toyota earned more than Ford and GM combined.

After reporting the record quarterly earnings, Toyota's management didn't waste time congratulating themselves.

"The sense of crisis we feel, despite increasing sales and profits, stems from the fear that we have not kept up," said Toyota Motor Corp. President Fujio Cho.

It's all part of Toyota's corporate culture, says Cooper, who struggles at times with the company's obsession with kaizen—the Japanese business philosophy that demands obsessive cost control and relentless micromanagement.

"You cannot get headcount out of this company, you just can't," she laments.

"They limit headcount intentionally to grind the inefficiencies out of the business. So if we don't have that type of aggressiveness in using this technology, we're not going to get there."

Of course, technology will only get you so far. While the business performance software should be helping Toyota to better anticipate the needs of its customers, it's still not going to help you get a Prius any faster.

"There was a general underestimation of how fast hybrid cars would go out to the mainstream buyer," Cooper says of the interminable backlogs to buy the Prius.

"But we are getting production, and I'm telling you, it's worth the wait. Don't buy a Honda hybrid."