Managing the Supply Chain - Essay Example

?Managing the Supply Chain Table of Contents Table of Contents 2 Introduction 3 Background of Toyota Motor Corporation 3 Organizational Structure & SCM 4 Product Development Process & SCM 5 Procurement Process & Supplier Decisions 6 Legal Issues & International Contracts 7 Inventory Management 7 Conclusion 8 References 9 Appendices 10 Introduction This project presents the supply chain management of Toyota Motor Corporation, the Japan-based third largest automaker in the world. Supply chain management is a strategic and systematic coordination of business functions within the organization and supply chain to improve its long-term performance. Therefore the scope of supply chain management includes the organizational structure, product development process, procurement process and supplier selection, inventory management and legal issues. Each of these factors related to Toyota have been discussed in the following sections. Background of Toyota Motor Corporation Toyota Motor Corporation was founded in 1927 by Kiichiro Toyoda and it is presently a multinational automaker employing 317,716 employees worldwide. The majority of the company’s sales are generated from the overseas regions. There are currently 15 companies under the Toyota Group including non-automotive companies Towa Real Estate and Toyota Housing Corporation (Appendix 1). The company has a large fleet of cars, MPVs, SUVs and hybrid models. Toyota’s global vision is to exceed the expectations and rewarded with a smile through its commitment to quality, respect for planet and constant innovation (Toyota Motor Corporation-a, 2012). Toyota has its operations worldwide including Canada, U.S.A., Latin America, Europe, Asia, Africa, Australia and Middle East. Its regional headquarters are in U.S.A., Belgium, Thailand and Singapore whereas its major R&D centers are in U.S.A., Japan, France, Belgium, Thailand, Australia and China (Toyota Motor Corporation-b, 2012). Organizational Structure & SCM Toyota has a flat organizational structure with very few management layers. Toyota’s philosophy is to delegate the responsibility to the lower levels. Therefore the managerial span of control at the bottom of the organization is small as compared to its competitors. The front-line production comprises the hourly production workers as team leaders responsible for direct support to production line. The salaried supervisors are group leaders who support the functions of whole group. Figure 1 shows an organizational structure of Toyota in relation to support and responsibilities. The production employees are a part of groups of 20-30 people as per the needs of the work area. The group leaders i.e. supervisors are responsible for the groups and report to assistant managers each of whom is responsible for 4-6 supervisors and all production related activities. The manager above him/her is also responsible for the production activities but not the daily activities like the assistant managers. Depending on the number of employees in a department a number of managers report to the assistant general manager and so on. The production system in Toyota is based on JIT system based on elimination of activities which consume resources and which do not create values for customers, and keeping the inventories at minimum levels. Overall it is a method of cutting the time taken to convert orders from customers into deliveries. But as per Toyota all this can only be achieved by philosophy of continuous improvement and respect for its customers, suppliers, dealers and employees. The employees are given vague instructions and broad targets instead of rules to inculcate the habit of setting targets for self (Iyer, 2009, p.158-160). Figure 1: Toyota's Organizational Structure of one of its facilities in U.S.A. Source: (Liker & Meier, 2005, p.223) Product Development Process & SCM The new product development process at Toyota follows the following steps: 1. The product planning department conducts research and analysis, draws up product plan including line-ups and schedules for next ten years and reports them to the president. 2. Technical planning department studies the development resource allocation and prepares detailed new product plan for five years ahead on the request of development centers, sales departments and technical management departments. The comprehensive plan for new product is presented to product planning council for approval from the president. 3. As per the comprehensive plan for new product the concerned departments assess and settle on the requirements of organizational staffing, long-term production plans, outsourcing, long-term expenses, and equipments. 4. A chief engineer (shusa) is appointed for the new vehicle development or model changes. This engineer before the submission deadline by Design Research Prescriptions submits the engineering conception report which includes the vehicle concept, summary dimensions, weight, and cost, quality targets target geographical market, customers, performance image, and required resources. These activities and their duration are called ‘Black Box’ which is specifically supervised by the chief engineer (Hino, 2006, p.181). Procurement Process & Supplier Decisions Toyota’s philosophy in parts procurement is ‘growing together’. This way it has successfully tied up with the suppliers and lowered manufacturing costs. In 1990s Toyota decided to return its suppliers half of the total cost reductions made to motivate them. In 2001 out of the 30 top auto parts suppliers, 12 were part of Toyota Group (Hino, 2006, p.229). Toyota makes its supplies purchases including components, parts and raw materials from many external suppliers based worldwide. The company chooses its suppliers based on certain KPIs such as on-time delivery, cost targets and quality. These KPIs are used internally by the suppliers so as to be compatible with Toyota’s expectations (Iyer, 2009, p.209). Managing the suppliers hasn’t been easy for Toyota because many of its purchases whose replacement is difficult are made from single or limited suppliers. This poses supply-side risk to Toyota. Some of the responsible factors are out of the company’s control such as ability to effectively obtain competitive prices from the suppliers and compete in the markets. Failure of Toyota in this may lead to delays or suspensions in production and deliveries (Toyota, 2011, p.36). However Toyota manages its supplier base from its multi-tiered network of independent suppliers- tier 1 supplier, tier 2 suppliers and lower tier suppliers. Tier 1 suppliers are the most critical suppliers and also most adept in quality controls (Taylor & Brunt, 2001, p.72). Legal Issues & International Contracts The world automotive industry is regulated by numerous laws and regulations such as environmental concerns and vehicle safety. Toyota is required to implement safety measures like product recalls that do not comply with the regulations. The company has decided to recall voluntarily its products to reassure the safety of customers even if the product has passed the safety standards. The company is also subject to various trade barriers in different countries, the costs of which are borne by the company. Toyota being in the automotive industry has also been subject to legal proceedings such as infringement of intellectual property, product liabilities, legal suites filed by shareholders, and government investigations such as violations of Motor Vehicles Safety Act and Sherman Antitrust Act (Toyota, 2011, p.100). Inventory Management Toyota manages its inventory as per the Just-In-Time philosophy which requires the material or inventory to be delivered just when it is required in the production process. This results in minimum or no warehousing and storage costs. The implementation of JIT requires high-level coordination with the suppliers so as to be able to procure inventory just before the use. Toyota sees the inventory as a sign of inflexibility and therefore it strives towards ideal JIT and utilizes its inventory strategically as per specific controls and rules as well as location within the inventory flow. However the company does not equate this concept with having zero inventories as many perceive. Conclusion After analyzing Toyota’s organizational structure, product development process, procurement process, supplier management, and inventory management it can be said that Toyota has a very strong supply chain network evident from its strong supplier base and introduction of incredible JIT philosophy in production process. Many manufacturing businesses around the world follow this philosophy so as to be able to minimize its costs. The nature of Toyota’s business has led it to rely on a limited number of suppliers for specific parts which is a huge risk to the company. However Toyota believes in ‘continuous improvement’ and is expected to be able to continue its present supplier network and improve it further. References Hino, S. (2006). Inside the mind of Toyota: management principles for enduring growth . Productivity Press. Iyer, A.V. (2009). Toyota: Supply Chain Management. Tata McGraw-Hill Education. Liker, J.K. & Meier, D. (2005). The Toyota Way Fieldbook. Tata McGraw-Hill Education. Taylor, D. & Brunt, D. (2001). Manufacturing operations and supply chain management: the lean approach. Cengage Learning EMEA. Toyota Motor Corporation. (2012). Toyota Group | TOYOTA MOTOR CORPORATION GLOBAL WEBSITE. Retrieved on January 20, 2012- from http://www.toyota-global.com/company/profile/toyota_group/. Toyota Motor Corporation-a. (2012). Toyota Global Vision | TOYOTA MOTOR CORPORATION GLOBAL WEBSITE. Retrieved on January 20, 2012- from http://www.toyota-global.com/company/vision_philosophy/toyota_global_vision_2020.html. Toyota Motor Corporation-b. (2012). Facilities | TOYOTA MOTOR CORPORATION GLOBAL WEBSITE. Retrieved on January 24, 2012- from http://www.toyota-global.com/company/profile/facilities/. Toyota. (2011). Toyota Annual Report 2011. Retrieved on January 24, 2012- from http://www.toyota-global.com/investors/ir_library/annual/pdf/2011/ar11_e.pdf. Appendices Appendix 1: Companies in Toyota Group Source: (Toyota Motor Corporation, 2012) Read More