Supply Chain Management of Toyota Motor Company - Assignment Example

Abstract

This paper involves looking at issues to do with procurement in business. Procurement is a crucial part of a business that can either involve acquiring products that is significant business organization. This paper is focusing on Toyota Moto Company and look at how their unique procurement activities have made it to be the best in market as far as vehicles and machine parts is concerned. Toyota Motor Company is the best choice because it is a worldwide business organization. It will provide the necessary knowledge in procurement strategy, supply chain management, procurement processes, strategic sourcing, e-procurement, sustainable procurement and supply risk.

Introduction

Procurement is the most crucial part of a business organisation. It involves that act where a business organisation acquires goods and services that will enable them to continue their operations. It is the process where a business organisation select vendors, negotiate prices, vet the vendors, negotiate contracts and making the actual purchase of goods.it is also important to understand that procurement price is one major determinant in the procurement process. If the price of the procurement is more than the profit, it is going to make then the business will not survive (Margulis and Yoshpe, 1964). That is why most business organizations such as Toyota Motor Company, which deals with the parts, materials and equipment for the production of vehicles has personnel who specifically concentrate on procurement. They have procurement manager.

Procurement manager is entrusted with the responsibility to act as a link between the business and its suppliers. The procurement manager has the superb skills to identify a potential supplier. This means that the procurement manager should do enough research to know which people deals with products that management of Toyota Motor Company wants to acquire. The procurement manager also negotiates the prices and payment terms with the suppliers. The negotiation must be favorable and should be in line with organization’s goals and objectives. A procurement specialist is also another personnel that Toyota Industries Corporation has seen important. The responsibility of a procurement specialist is much deeper regarding finances. The main role of a procurement specialist is to ensure that quality goods at affordable at affordable prices are acquired which are in line with the business financial strength. Other roles of procurement specialist include resolving any price disputes, the creation of the purchase order and order tracking and management. The third personnel in the field of procurement that Toyota Motor Company has invested in is the procurement analyst. The procurement analyst simply ensures that there is value for the money used. This implies that the procurement analyst evaluates critically the vendor’s prices. This will prevent overcharging. The quality of the product is also evaluated. This will ensure that the product that is being distributed is of high quality and genuine. The reliability and technical support are also evaluated.

Components of the business strategy and its relationship with procurement

Every business organisation has a strategy that directs it on its function. Toyota Motor Company has four components of its business strategy. They include company identity, market placement, company capabilities and management issues (Bower, 2003). On company identity, the Toyota Motor Company is very clear that it deals with manufacturing of vehicles, vehicle parts and other machinery. If this is understood, then the procurement of its goods is not a problem and will lead to the necessary products being acquired. On market placement, Toyota Company is very clear that is targeting anyone who is indeed of ant type of vehicle. The types of vehicle have been identified, for instance, ambulances normal vehicle. This also directs them to the kind of equipment that they will need to acquire to make it a success. On the company capabilities, it is all about the finances. Toyota Motor Company ensures that it clear on the price range of the products that they need to procure. This is very important because it will be a lead when the price negotiations take place. Management issue as component relates in procurement due to the personnel. It answers the question on the personnel that is needed to ensure that the procurement process is a success.

Procurement management

Toyota Motor Company being one of the world known vehicle manufacturing in the world it has to ensure that it conforms to the best practices in procurement. Procurement management is the systematic approach that is followed when Toyota Motor Company is buying its goods. Toyota Motor Company has confirmed that if procurement is managed well, then both time and money is saved. Procurement Management covers the following areas; one of them is the identification of need. When Toyota Motor Company identifies that there is a market niche, or the customers are in need of a certain product that they can provide, they make it known (Laffont and Tirole, 1993). This will help in selecting the type of products, supplier and quality of the product that is needed. Finding and evaluating the supplier is another area of procurement management. Toyota Motor Company uses the internet to search for suppliers who have the products that they need. They ask other people who have procured with a supplier as a way of qualifying the suppliers. The third area of procurement management is requesting for a proposal. This is where the company informs all the potential suppliers of the needs and get response from them. This will make the company decides which suppliers will they negotiate with.

The fourth area of procurement management is negotiating with clients. Toyota Motor Company faces a challenge in this because reaching a middle ground when negotiating is an uphill task. During negotiations, issues that are discussed include price, terms of the business and delivery. In fact, this process is very important especially if it is the first time dealing with that supplier. It will help in proving their worthiness. Contracting is the next area of procurement management. If an agreement has been reached then signing of the contract follows. Delivery is the next area of procurement management. The contracted suppliers ensure that it delivers the products it is supposed to. The analysis takes place after the whole project has been completed as the last area of procurement management. The outcome of the result will be useful when another procurement is being made. Toyota Motor Company has made a great use of procurement management, and there is not one time they have deviated from this systematic approach to procurement.

Procurement process

Most business would like to deviate from the formal procurement process. This is because they seem to be bureaucratic and time-consuming. However, when the formal process is not followed, it will lead the business making mistakes that might bring the business to its knees. The reason why Toyota Motor Company has not had any problems that deal with procurement is that it has laid down clear procedures that need to be followed during procurement. The procurement process has been broken down into steps. Step one of the procurement process is the need recognition stage. This is where the business organisation needs to state the product that it is required (Dimitri, Piga and Spagnolo, 2006). The product may be a new product or may be an existing product that is being reordered. Step two deals with the specific need. This involves the specific need that the company usually needs for various products. For instance, Toyota Motor Company may need a product which is used to create logos for the vehicle or the body for vehicles. Such products will need to be regularly updated and be ordered accordingly.

The third step of the procurement process is the source. In this, She Company decides where to get their goods. For a company like Toyota Motor Company, has already a list of its approved suppliers. This is a practice that the Toyota Motor Company recommends to any other business organizations. However, Toyota still tries other vendors to see whether they can deliver the products that they need. Companies should ensure once a supplier is chosen; the relationship between them and the supplier should be maintained. This will help in establishing preferred pricing in future. The fourth step of the procurement process is price and terms. On prices, it involves the negotiation of the prices that will be charged on the products and services. This is a difficult process because the business organisation would not want to spend much on the products since it will affect the profit margin. On the other hand, the supplier wants to get a profit of the products. It is hard to arrive at a win-win situation but eventually it is usually arrived at. On the terms, it means that rules that govern the delivery and the purchase of the products to be stated. This includes issues such as punctuality in payment and delivery. The consequences of not adhering to the rules set are also discussed in this step.

The purchase order is the fifth step of a procurement process. One the terms and prices have been agreed upon and a purchase order is created. A purchase order serves as the formal contract that is used in buying the documents. The purchase order stipulates the price, specification, terms and conditions of the product and services. Any other additional obligation is also included in the purchase order. The sixth step is the delivery. The purchase order is best delivered through email as recommended by Toyota Motor Company. Delivery involves the transfer of the products from the supplier to the business organisation. The seventh step is expediting. This will address the time of delivery. The purchase order will have information of the expected date of delivery. However, delays during delivery are usually expected. Expediting will address the timeliness of the product that is being delivered. When a delay is expected, then the supplier must inform the company beforehand to avoid any inconveniences.

Receipt and inspection serve as the eighth step of the procurement process. Once the products have been delivered, it is the responsibility of the company to inspect the product. This is where the company can accept or reject the product. Rejection of product may be due to a wrong product or a damaged product. The ninth step is the invoice approval and payment. Once the product has been inspected and approved, the company checks whether the three documents are matching. The invoice, the receiving document which is attached to the product and the purchase order. If there is any difference, it must be corrected before any payment is made. The last step is record keeping. The company that receives the products must keep the records. This is important for the financial evaluation of the business.

Procurement strategy

Procurement strategy is the directions on how procurement should be organized in the organization for it to be successful to develop and implement a procurement policy. Toyota Motor Company has a procurement policy which directs all its procurement processes. Their procurement policy stipulates how they should interact with their suppliers, the type of products that they expect, abiding by the law and also what they expect of the product. There are components of a procurement strategy. One of the is the vision of the organisation. It is very important the vision of the organization should be looked into when coming up with a procurement strategy which will lead to the creation of the procurement policy (Erridge, Fee and McIlroy, 2001). If the vision of the company is to ensure that it comes up with products that will be of high and durable quality. Then it is best to stipulate in the procurement policy that the products expected should be of very high quality. Opportunity analysis is another component of a procurement strategy. This involves the company doing research on the market and see whether they have a need that they can provide. If a market gap is realized, then it means that new products will have to be procured. Resource plan is another component of procurement strategy. It is best to note that a company cannot procure products that will worth more than they can afford. The procurement policy should make it very clear that anytime procurement is done, the products must not be at a higher price that exceeds the profits that the company is making. The last component of procurement strategy is a strategic roadmap. The procurement should be aligned to the company’s roadmap. For example, if Toyota Motor Company has a roadmap that shows that it should manufacture an extra twenty thousand vehicles every year, then it means that the product that is being acquired will increase yearly.

There are five steps for creating an effective procurement strategies. The first step is to understand where the procurement activities are today. This involves the evaluation of the company’s performance as far as the procurement is concerned. Whether the suppliers are honoring the terms and agreement of the contract. Is also wise to look at kind of suppliers are they companies dealing with. The second step is to identify what is important. It should be noted how the product being procured has any importance to the company. The third step is to define what success looks like. It should be clearly be stated what a successful procurement is to the business. Fair prices and quality products will yield more profits to the business. The fourth step is to develop measurable targets that define success. For instance, when the business wants to grow, it should have a plan for increasing the number of products by a certain amount in a year. The last step is to implement and measure the strategy. If the strategy does not register any results, then it should be reviewed.

Supply chain management

The supply chain of the Toyota Motor company is an element of the company’s operation strategy. Supply chain management is based on a core idea that every product that reaches the end user is a cumulative effort of multiple organizations (Special Topic Forum on Supply Chain Management in Emerging Markets: Critical Research Issues, 2013). The Toyota supply chain management has the following components; mutual understanding and trust, interlocking structures, control systems, compatible capabilities, information sharing and joint improvement capabilities. Due to Toyota’s high level of organisation as far as the supply chain management is concerned, it can maximize customer value and achieve sustainable competitive advantage. Supply chain activities that cover product development, production, sourcing, logistics and the information system that is required to coordinate these activities is dome perfectly by the Toyota Motor Company. Toyota Motor Company has linked together physical flows and the information flows. Where physical flows, involve the transformation and movement of goods and services. Information flows supply management partners to coordinate the movement of goods on a day- to- day basis.

Strategic sourcing

Strategic sourcing is an area in the supply chain management that help in achieving improved quality, price and achieve faster time to the market of the final product. It involves doing extensive research on suppliers and able to come up with one who is best suited for the contract. Toyota Motor Company uses strategic sourcing approach in a very collaborative Manner to ensure that it gets the best supplier. Strategic sourcing requires organized methods that can help the supply chain function to get products at a cost saving price (Sollish and Semanik, n.d.). The steps of strategic sourcing include identification of spend areas as the first step. This is usually done by the top management level. Where they select areas that could incur less cost and process improvement. It is very critical step since it is difficult to prioritize. The second step entails the creation of the strategic sourcing team. This team rarely serves permanently they are usually formed when the need arises. The third step is creating a strategy on how the team will identify and approach the spending area. The team is required to state what and how they will achieve their set goals. They are also supposed to create a time span on when they are supposed to finish. Communication is very significant for this team they will be communicating their progress. The fourth step is the market information. Strategic sourcing should lay out the capabilities of the supplier in the market. This can be done by interviewing key suppliers in the market and which they will be able to determine the best. The last step of strategic sourcing is supplier relationship management and maintenance. This step is usually ignored but it is important to remember the tedious process of selecting a supplier. It is wise for companies to maintain a good relationship with their suppliers.

E- Procurement

Technology is one area of business that cannot be avoided. E- Procurement is also referred to as business to business network. It is an online system where companies can connect with potential suppliers. It is very convenient such that it can help business to get suppliers who can sell products at a very low price (McKie, 2001). Procurement technically replaces the offline version which is tendering. Toyota Motor Company has made use of the E-Procurement but only for the suppliers that they are used to. Some of the software that is used in E-Procurement include Rubberstamp, Coupa Procurement, Promena e-Sourcing, Panacea, BuySpeed among others.

The advantages of E-Procurement include the low cost of information. This has been brought about by the internet where information is passed through the click of a button. There is transparency since the prices are seen and the how the transaction takes place is visible. It encourages better tracking of the transactions because the records are accessible. The supply chain is also interacted effectively.

E-Procurement also exhibits some disadvantages. There is fear of the E-procurement services of being obsolete and disrupting business flow. Another disadvantage is that most suppliers find it uncomfortable dealing with the clients online as opposed to face to face.

Sustainable procurement

Sustainable procurement addresses the purchasing process that looks into the economic, environmental and social impact of the product’s cost. It makes the organisation to meet the customers need by the product they produce. For a sustainable procurement, the following principles need to be applied. Managing demand is one the principles. This means that it is important to ensure that links are in place between the user of the goods, the procure and the producer. Encouraging innovation is a principle of sustainable procurement practice. This is done through extensive research and the use of outcome specifications. Developing a competitive and sustainable supply chain. This can be done through a supplier with lower sustainability capacity to be selected but forced to sign a contract for improved performance. This will improve the number of competitive suppliers.

Supply risk

The risks in supply may be losses occurring due to the unavailability of the product. This loss can be due to the damage of goods while in transit stage. The goods can also be stolen while being transferred from the supplier to the company (Braim, 2006). Toyota Motor Company cannot risk any challenge that comes with supply, which is why they came up with supply risk management strategies that they use. When there is a strategy risk, Toyota Motor Company can avoid it by choosing the right suppliers and use reliable market intelligence in decision making. When there is a market risk, it is important that the product quality and standards are adhered to and not compromised at any point. Performance risk from the side of the supplier such as late delivery, quality and bankruptcy. This can be mitigated by regular monitoring of the suppliers. Technology would be needed for such monitoring activities.

Conclusion

Procurement is a vital part of any company as far as adding value to its image is concerned. This paper has discussed the Toyota Motor Company and how it has made tremendous strides as far as managing its procurement sector to achieve its positive global image. This paper has discussed issues in the procurement strategy. It has laid down the procedures of the procurement process and supply chain management. Strategic sourcing and use of technology in procurement has been discussed. It has explained how to mitigate supply risk to achieve sustainable procurement process.