Toyota Supply Chain Strategy - Case Study Example

Running Head: REPORT ON TOYOTA CASE STUDY (SUPPLY CHAIN OPERATION) Student’s Name: Course Code: Lecture’s Name: Date of presentation: Contents 1 Executive Summary 3 2 Introduction 4 a. Importance of supply chain management 5 b. History of Toyota supply chain strategy 5 c. Efforts of addressing the issues faced in the automotive industry 7 3 Recommendations 10 i. Mapping and Modeling Your Supply Chain 10 ii. Standardization 10 iii. Creation of safety stock in the suppliers’ inventory 10 iv. Setting up of distinct geographical regions with key supply strategy 11 v. Re- engineering of the supply chain network 11 vi. Evaluate the impacts of abandoning lean manufacturing concept 11 4 Conclusion 11 5 Bibliography 12 Report on Toyota Case Study (Supply Chain Operation) 1 Executive Summary For many years Toyota Corporation has been popular with quality of their products and efficient manufacturing and supply process. It’s no wonder that many did not predict the severity on the company’s supply line as a result of the tsunami incident of March 2011, which virtually disrupted the entire motor industry in Japan. Matter was further complicated by the shutdown of major nuclear power generating plants as a result of potential dangerous zones. Since the guiding production principle in Toyota’s production lines is lean manufacturing: keeping minimal inventory, it did not take long for shortage of parts to be realized. According to (Spekman, 1988 ) it is now apparent that the supply chain in automotive industry from Toyota Corporation plants is fragile. The system used is Just- In – Time principles comprising of less build up of inventory, thus leaving a small margin of error when interruption of supply occurs. Although the company worked hard to rapidly return back to normalcy, output had been fully restored some six months later. The long delay compelled the industry executives to contemplate some adjustments in their vaunted production and supply chain. Over the years, have adopted a single source for many components common to more the one vehicle models. Although the Toyota sources about 90% of its materials from local industries in Europe and America, it still manufactures the largest proportion of its vehicle in Japan hence the need to counter any effects from interruptions in Japan (Kannan, 2002). In solving this, the top executive began the efforts of developing a “fool proof” supply chain aimed at making them recover from such tsunami disasters in as little time as two weeks. 2 Introduction As the largest automobile manufacturer in Japan, Toyota Corporation is popular for its efficient and effective Supply Chain Management and has served as a great role model to most automobile manufactures and other companies as well. Recently, however, Toyota has been faced with issues touching on product quality and in some instanced has been compelled to recall some of its vehicle products from the manufacture. This case study report is prepared to address the issues faced in the automotive industry, its global supply chain and the questions raised in the case study. The report will also seek to explore the main strategic suppliers within the Toyota’s Global Supply Chain Management (GSCM) (Spekman, 1988 ). Enterprise globalization has spectacularly changed the manner in which products move globally. According to (Prasad & Sounderpandian, 2003), these transformation has led to the development of a new framework that takes advantage of the diverse nature of countries, thus enabling materials to be sourced all over the world. Basically GSCM is founded on the company’s’ efforts of exploiting the competitive advantage enshrined in the international background, which is more diverse than the local supply chain. Globalized trade activities are motivated by the need for increased benefits, lower labor costs, substantial materials and collaborations associated with international suppliers. In the aftermath of the quake, most of the automobile plants in Japan (Brennan, 2011) were shut down for weeks bringing to a stop about 13% of the global motor vehicle production (Ferrari, 2011). Toyota also went ahead to state a halt production in a number of plant in North America as a result of shortage in parts supplies from sister plants in Japan. a. Importance of supply chain management Supply chain management offers a critical role in either success or failure of a company. It contributes immensely on the enhancement of a company’s revenue, asset utilization, cost control and eventually customer satisfaction. In addition, supply chain management provides the organization with the significant information useful in efficient and effective decision making process. If successfully incorporated into an organization objectives, it can help in balancing the firms’ desire for growth and also customer satisfaction. This is in line with the uncontestable fact that; the main goal of nay organization is to offer goods and services to customers’ satisfaction while generating profit to the organization. The growing significance of supply chain management reveals the challenge that firms go through in their effort to beneficially engage their partners in the supply chain. By definition, supply management can be defined as the management of network of interrelated businesses concerned with the ultimate provision of a product or service needed by the end customers. Basically, the network involves various levels of partners with the common objective of fulfilling the desired of the final end user, whether directly or indirectly linked. Supply chain operations and management therefore cuts across all the entities of supply chain; ranging from supply of raw materials, materials in process inventory and ultimately the finished products (Kannan, 2002). b. History of Toyota supply chain strategy From mid 1950s, Toyota Corporation embarked on a production system aimed at boosting their production as well as lowering of the inventories and product defects among its plants and its suppliers. This came at the same time when the corporation was expanding and opening up manufacturing plants outside Japan and in countries such as Japan and Brazil. Toyota Corporation thereafter developed its global market supply through 1960s and 1970s as an initial step of investing in both UK and Europe. However completion from automobile manufacturers in the UK and the US forced the company to invent noble manufacturing concepts such as lean manufacturing and Just- In- Time (JIT), aimed at achieving an efficient inventory control management. According to (Rice, 2001) the manufacturing concepts made Toyota build time for most of the vehicles to be half that taken by in the UK and America. During this period, Toyota Company was also concentrating in investing in local markets of south- East Asia, though with less buyer – supplier relationship. These efforts culminated with the corporation surpassing GM moors as the largest automobile manufacture in 2008. All this time, Toyota was practicing the Just- In- Time (JIT) concept. JIT concept was eventually adopted by other companies with the objective of boosting efficiency and productivity within their process line. The main objective of the concept of lean manufacturing is to gain the effectiveness in the production. Lean manufacturing trained the company to produce exactly what they require thus lowering the inventory cost; thus making people to achieve effectiveness both inside and outside the company. The strategy also is to produce efficient through production of what is enough thus avoiding surplus products and materials. Basically JIT involves manufacturing “what is required”, when it’s needed and the quantity required. This is achieved through complete elimination of inconsistencies waste, and unrealistic requirements along the production line. A typical example adopted by Toyota corporation is; 1. When an order to manufacture a given quantity of vehicles is received, a production instruction is released and which outlines the start of the vehicle production line. 2. The assembly line is stocked with the quantity of the required parts thus making any particular model to be assembled. Over the years, Toyota has been able to establish overseas branches, and in most cases, the company holds its standard as a renowned world- class manufacturer. According to (Spekman, 1988 ), this has made most suppliers in western countries to seek cooperation with Toyota and eventually become accustomed with their top notch management model. (Prasad & Sounderpandian, 2003), recons that through this relationship with suppliers, Toyota corporation is able to create an efficient supply channel that supports their product design, transfer of expertise as well as training of supplier personnel, and also boost the economic status of the suppliers. According to (Wagner, 2006)when these interaction between Toyota and supplier was being initiated, there existed a generation gap between the two sides thus compelling Toyota Corporation to organize training courses in interpersonal communication and problem solving. (Wagner, 2006),asserts that, the first step in selecting the key suppliers is point out companies which Toyota share common goal and aspirations, then train and transfer the professional knowledge so that the management and the selected personnel can take up decision and judgments in an independent manner. In other words, Toyota’s management model is aimed at organizational development of both the suppliers and the buyers. c. Efforts of addressing the issues faced in the automotive industry Toyota Corporation seeks to boost standardization of most of the components and parts such that all the carmakers in Japan can share the inventory supply. The parts therefore need to be manufactured in diverse locations to make sure that uninterrupted supply of the parts. In addition, Toyota Company may request its upstream suppliers of produce highly specialized components, or parts that are sourced from a single location, and also for them to hold larger inventories than what they are used to. The initiatives will also be extended to open up other options for producing the complicate components thus minimizing the dependence on few sources. Toyota also needs to look at ways of decentralizing its manufacturing processes, such the various global regions will be independent of others in terms of manufacturing and parts supply. This will ensure that disruptions in supply chain in one region do not spill into other regions affecting their operations. This will ensure that manufacturing regions such as Europe and North America can be made to independent in the area of procurement of parts thus making disaster in Japan not affect production in overseas divisions. This is also expected to also cushion the losses experienced as a result of stronger yen by decreasing costs. For instance, the engines supplied to Europe from Japan are at higher costs as a result of the stronger yen (Spekman, 1988 ). Despite the speedy recovery, Toyota experienced a major disruption with loss of production in a number of production plants which was evidently major for the diverse global client companies for the Japanese parts and cars. A number of measure are needed in order come up with a resilient, supply chain, through diversification of production of critical parts as well as arrangements to share production and design information with all the manufacturing plants. These will apply to facilities across all departments in company as well as making formal agreement with other automobile companies in order to offer substitute facilities in case of an emergency such as the tsunami disaster (Prasad & Sounderpandian, 2003). Toyota Company should therefore briefly turn back from the traditional “Just in Time” and lean manufacturing strategies and embrace supply chain resilience strategies without “sacrificing competitiveness”. This scenario made the Toyota vice president Shinichi Sasaki to concede that the assumption that they had concerning the grip of on their supply chain was just an illusion. This forced the company to conduct a thorough supply chain mapping. This was however not fully successful since some of the tier suppliers could not reveal their vendors for competitive understanding (Kannan, 2002). After this disaster a new concept term has been discovered with the operations of Toyota Company: time- to- recovery (TTR). Toyota has now set an objective of minimizing its supply chain time for recovery from six months to an ambitious time of just two weeks. This involves each individual manufacturing plant and suppliers within the supply chain assessing the risk mitigation strategies that will lead to the reduction of the TTR, and the “Risk Exposure Index”. 3 Recommendations i. Mapping and Modeling Your Supply Chain It is prudent for Toyota Company to carry out a mapping and modeling of the existing supply chain. This will enable it to understand the fundamental nature of supply chain and also how the supply chain works in term of parts input and output. The impact of the tsunami on Toyotas, production process was not hampered as a result of destruction of its physical facilities but rather as a result of disruption of the supply chain involved in sourcing component parts and assemblies from tier of suppliers to another tier of either suppliers or ultimate users, most of whom did not understand they form part of the intricate chain. ii. Standardization This involves achieving the TTR, standardization of certain components, parts and procedures across all the automakers in Japan, especially those parts and components that have high potential for disruption and risks to revenue. Every supply chain organization needs to make out components that are at high risk of major disruption during disasters. The main challenge however is whether Toyota as a company is ready to open up and share their technology with other automobile manufactures through cross- industry collaboration (Ferrari, 2011). iii. Creation of safety stock in the suppliers’ inventory The is useful in countering the disruption in the supply chain is for the parts suppliers in the lower tier to keep more safety stock, for instance enough for several months of uninterrupted supply; especially that of specialized parts that have not been yet standardized, for instance the shortage that occurred immediately of microchip controllers supplied by Renesas Electronics Corp. Although critics may scoff at the idea of encouraging more inventory safety stock at the height of lean manufacturing, the effects of the earthquake and tsunami begs more awareness in identifying the parts and components at a higher potential risks (Ferrari, 2011). iv. Setting up of distinct geographical regions with key supply strategy The creation of self reliant zones will counter the impact of major slowdown or shut downs if a major calamity occurs in Japan or in others geographical regions; thus not affecting the overall production levels. It is worth noting that during the March tsunami incident, Toyota manufacturing plants in Europe and North America experienced production interruptions and slowdowns as a result of supply cutoff. v. Re- engineering of the supply chain network Toyotas executive and engineers need to diligently evaluate the supply chain that existed prior to the tsunami incident and establish the inherent bottlenecks. This should be extended to the provision of disaster recovery assistance to some of these suppliers. vi. Evaluate the impacts of abandoning lean manufacturing concept Prior to the incident, Toyota Production system of JIT and lean manufacturing was an envy of everyone in the automotive industry. However, this is not so much after the quake. In order for Toyota to regain its headship of the automakers, it is bound to go beyond lean manufacturing and JIT concepts; through the resuscitating of its supply chain and activities for optimum flexibility. It is also important for the company to store the safety stock in diverse non- earthquake locations around the globe thus making the inventory to be at a minimal risk if a particular region is ravaged by the natural disaster. 4 Conclusion The March 2011 disaster in Japan brought an a great concern amount the vehicle manufactures globally due to the nature of the modern days vehicle supply chain. It is global and largely integrated, with most vehicles sourcing components and parts from various countries. In order for these companies to remain relevant in the market, proper measures need to be taken to recover from the operational and financial losses and recapture the shrinking market share in an effort to satisfy the global vehicle demand. 5 Bibliography Ferrari, B., 2011. Toyota Should be Praised for an Active Supply Chain Risk Management Plan. [Online] Available at: http://www.theferrarigroup.com/supply-chain-matters/2011/09/14/ [Accessed 29 May 2013]. Kannan, V. T., 2002. “Supplier selection and assessment: their impact on business performance”,. Journal of Supply Chain Management,, Vol. 11(38 No.4), pp. pp.11-22.. Prasad, S. & Sounderpandian, J., 2003. Factors influencing global supply chain efficiency: implications for information systems.. Supply Chain Management, Vol.8 No.3(.), pp. pp.241-52. Rice, J. H., 2001. “Supply chain v.s. supply chain: the hype and the reality”,. Supply chain Management Review, , Vol. 5( No.5, ), pp. pp.46-54.. Spekman, R., 1988 . “Strategic supplier selection: understand long-term buyer relationships”. Business Horizons, , pp. pp.75-81.. Wagner, S., 2006. “Supplier development practices: an exploratory study”,. European Journal of Marketing, Vol.40( No.5), pp. 554-71. Read More