Toyota Foolproof Supply Chain Management Plan - Case Study Example

Running Head: TOYOTA FOOLPROOF SUPPLY CHAIN MANAGEMENT PLAN Name Course Tutor Date Table of contents Executive summary.......................................................................................................3 Introduction..................................................................................................................3 Global automotive industry..........................................................................................4 The Toyota case study............................................................................................6 The foolproof supply chain plan..............................................................................7 Recommendations.........................................................................................................9 References...................................................................................................................10 Executive summary In the contemporary businesses have been driven to having operating strategies that ensure efficiency and reduction of overall cost. Efficient businesses are able to operate at lower costs and at high capacities. This has been made necessary by stiff competition and rising costs of doing business. As a result, profits have been on a downward trend while costs have been on a rising one. Most industries have been affected and the automobile industry has not been left behind as well. The supply chain and its management in a company determine the volume of sales that a company can archive, given its operating capacities. The supply chain management deals with both inbound and outbound logistics. Inbound logistic in the supply chain perspective deal with procurement and supplies of raw materials and other supplies needed by the organisation. Outbound deals with the final product and its delivery to the consumer. Toyota as one of the largest automobile companies in the world, it has massive supply chain requirements in it various portfolios. First, it manufactures a wide array of motor vehicles and spare parts that are distributed all over the world. Adoption of a foolproof supply chain strategy has its own challenges as well as advantages. Supply to different parts of the world has its own challenges, depending on the dynamics of operations which vary regionally. Again, the automobile industry has its own operating dynamics and challenges which would also determine the success of such a strategy Introduction Toyota is one of the largest and most successful automobile companies in the world today. The company operates on a global scale and serves millions of consumers all over the world. In order to suffice the market, the company requires efficient management and application of strategies that serve such a huge population. In this view, the supply chain management system of Toyota is very complicated due to its widespread orientation. The company has to constantly deal with huge supplies and receipt of commodities required to run smoothly (Andrews, Simon, & Zhao, 2011, p. 1064). In supply chain management, the company has to deal with frequent challenges both locally and internationally. Supply chain management in the automotive industry The automobile industry has diverse dynamics which affect its operations in many ways. First, there are many competing players who supply products that are determined by different consumer tastes and preferences. In this view different vehicles are made for different consumers who have different kinds of needs (Grötsch, Blome, & Schleper, 2013, p. 2842). For instance, Toyota makes a number of luxury vehicles that it distributes throughout the world. They also make heavy commercial vehicles that are used in many countries in the transport industry. Being the largest automobile company in the world, the company cannot afford to have hitches in its operations. a hitch in the main production firms in Japan often spill over to other nations and cause huge losses to the company and stakeholders that have invested heavily in the company. The operations of the company are mostly centralized in Japan with other countries acting as intermediaries and assembly points. Therefore, the supply chain begins in Japan where more than 90% of parts and completed parts are sourced (Marksberry, 2012, p. 279). This calls for extreme efficiency and accuracy, given the number of vehicles that Toyota sells globally in the whole world. Even with other major competitors in Europe and America, Toyota still remains the major player, beating companies like Mercedes, Benz, Ford, BMW, among other competitors. Generally, players in the Asian market have dominated the automobile industry with appealing products to persons with low and average disposable incomes in developing and emerging nations. The main challenges that the industry faces revolve around the visibility of the supply chain strategies. This is further accelerated by costs and their containment in a rapidly dynamic environment. The industry also faces enormous risks in their supply chain management strategies. This was evidenced by the 2011 tsunami disaster and also the 2008 massive recall of Toyota. Further, consumer demands are becoming increasingly complicated and diverse. All this is driven by world globalisation liberasation of international trade (Simpson, Power, Samson, 2007, p. 28 ). The Toyota case study Toyota has a supply chain management system where a majority of its products are manufactured in Japan. The company has mega industries and receives its raw material both locally and internally in the manufacture of spare parts and finally assembling them to motor vehicles. Some of these parts are exported to other countries where assembly is doe through subsidiaries and partnerships. The recent earthquake in 2011 destabilized the operations of the company and huge losses were experienced. It was characterized by massive deficits in inventories al over the world where assembly activities took place. Toyota also ships fully manufactured vehicles to showrooms and distribution globally. The crisis in Japan caused a shortage in motor vehicle supply of major Toyota brands. Overseas assemblers could not continue with operations as the stocks of spare parts ran out. The devastating floods and power interruptions halted production in Japan and hence the world at lager. The flooding did not only affect Toyota but other players in the country were also hit. However, Toyota got the biggest hit due to its supply chain management system, inventory strategies and material sourcing dependence. Companies like Nissan who had shipped more spare parts to assembling countries overseas did not experience many problems like Toyota. The foolproof supply chain plan Due to the huge losses and inconveniences that were experienced in 2011, the company was just recovering from massive recalls in their vehicles which turned out to be faulty and had caused several accidents. As a supply chain manager, there is a dire need for the company to re-evaluate on the supply chain management and the inventory rules measures. The just in time system adopted by the company had its potential and was effective as long as there were no interruptions. The just in time system of inventory management is one of the lean operations strategies and it reduces both storage and holding costs associated with inventories (Sohal, 2013, p. 230). This way, a huge company like Toyota has the potential of reducing costs by huge margins and translate this into more sales of affordable automobiles. Lean operations are meant to remove inefficiencies in the supply of commodities to help reduce cost as much as possible (Singh & Power, 2009, p. 189). Globally, automotive industries face such problems in their operations due to unseen disasters and catastrophes. When one major plant that supports other intermediaries is affected, the operations of the company are greatly reduced. As a result, such companies have resulted to more diversified systems that are independent of each other. This ensures continued supply even when there are interruptions in a certain area. It also reduces the time which is taken to recover from disasters. The dynamics of trading in the global perspective calls for a system where automotive companies have to restructure their supply chain management strategies depending on the opportunities they have and hurdles they have to overcome ( Towill, Childerhouse, & Disney, 2002, p. 80). Due to the problems faced in 2011, the foolproof supply chain management was suggested to overcome such situations in future. The intention of the plan is to improve the supply chain management to levels that would cope with disasters better and which the company would recover from within a short period of times, in this view, the suggested system would see the company continue with production and supply of motor vehicles and spare parts despite interruptions. Though the system sounds promising in given the disaster, there would be several challenges to its implementation and success. However, if it was successful a lot of business could be safeguarded in cases of unforeseen events. The ‘foolproof’ projects would be conducted in three phases. The first phase would involve standardisation of spare parts and other auto parts in the Japanese industry. This would make all carmakers in the country to share a common supply. This would ensure that the firms in the country would be evenly distributed and automakers could source from one supplier if another were to fails. This strategy would also reduce costs of specialisation and that would be left to the auto companies themselves. It would therefore, bring down the costs of supplies and hence increase competition in the industry. The problem with standardisation of spare parts is that it would have to be a decision made by all stakeholders in the Japanese market. Furthermore, international stakeholders who have investments and large stakes in the company would also like to be made part of the decision. Smaller players in the market ay also feel left out as they would have to compete with huge companies on a similar platform. The only reason that a majority of companies would agree to such a plan is if they were facing similar challenges as Toyota. However, being a huge player in the market, the company has enormous influence and capabilities to affect the final decision. Standardisation of auto parts would mean that they would become cheaper for some companies and expensive for others. This means that for the strategy to work, the parts would have to be cheaper and acceptable by all players (Stevenson, Hojati, 2007). The second phase of the foolproof plan would involve up scaling of supply of highly specialised parts. This would involve opening of new locations for manufacturing especially where only single ones were available. Diversification of the production of these parts would also be essential in ensuring that the interruption of one does not affect the operation of the company. Toyota also intended to have such companies increase their inventories to hold more parts than they did in the past. These suppliers were also required to have more manufacturing options which will enable diversified supply to Toyota. This phase would see Toyota have a full time supply of raw materials and supplies in a constant and stable manner at any one given time. It would also reduce the likelihood of shutting down of operations despite interruptions in one of the major suppliers. The problem with this is that Toyota would be ‘calling the shots’ or suggesting suppliers to make huge operational decisions. Diversification and increasing inventories could see their costs rise and this would see the prices of auto parts rise as well. The phase would be very expensive on the suppliers and this would see costs transferred to Toyota. This would be an undesirable situation. However, Toyota could invest in this niche itself to reduce the costs and also make the supply more reliable and standardised. He phase would be very capital intensive and could take years to implement ( Marksberry, 2012, p. 283). The third and final phase would see all companies operating as assemblers in the overseas market become independent of the Japanese market. This would be a very ambitious plan as all companies abroad would have their local sources of supplies and spare parts this would mean opening of multiple industries in a majority of countries where Toyota has intermediaries and partnerships. This would translate to investment in billions dollars and probably trillions over several decades. The success of the phase would be determined by the success of the initial phases. As global population and demand for affordable automobiles increases, the phase would serve many purposes beyond the supply chain management strategy. It would see the company establish manufacturing plants globally and further reduce costs associated with the company (Marksberry, 2012, p. 286). The effect of this strategy would be stable supply of raw materials spare parts, and distribution of finished products. Problems or challenges in Japan, which is a disaster prone region, would not spill over to other countries that are dependent on Japan for continued operations Recommendations With the ambitious plan that Toyota hopes to implement, there are several considerations in terms of lean operations that should be considered. Given the vulnerability of Japan as a disaster prone zone, inventories in Japan should be kept at a minimal and should instead be supplied immediately to counties with assembly plants. This reduces the risk of loss in Japan. Due to this aspect, Toyota should consider expansion of its activities in countries that are more disaster stable. This would increase their capacity and supply abilities in cases of interruptions. The standardisation of auto parts in Japan would make the supply of parts more convenient and more diversified. This would allow Toyota to source its parts on a convenience-based system which is much reliable and cheaper. Though lean operation suggest that inventories should be kept at lowest points possible that are capable of supporting production, the company could increase productivity in major plants to enable an increase in inventory levels as well. This would also support the just in time (JIT) approach in ensuring that stored inventories do not take a lot of time before being utilised to final products. Toyota could also carry out intensive market research to evaluate different consumer needs that would see them increase production, hence improving on their supply chain strategies. 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