Supply Chain Management - Coursework Example

Supply Chain Management: Its Role in Improving the Value of the Product or Service to an Organisation’s s Introduction With growing competition among companies in the different industries, an efficient operation is essential for firms to offer quality goods and services at competitive prices. This can be made possible through the adoption of appropriate production technology, having a customer-oriented philosophy, and good management of the company’s resources. Also, the ability of the company to develop and maintain competitive advantages depends on what it does well. The effective and efficient management of a company’s supply chain is a possible source of competitive advantage as long as the company can manage its better than its competitors. Change is pervasive not only in peoples individual lives but also in business organisations – for profit or not. Change is inevitable; it is also one of the constants in this world. It doesnt matter if an organisation is doing something about the impact of change – technological, societal and market – on how they do business. These changes will still impact on them and those who react fastest and most constructively will survive. Management theories emerged as a result of change. From the scientific management to centralized organisation; from a decentralized management to empowered workforce; and from a knowledge management to learning organisation. In order to protect its current status, Toyota Motors Corporation, as they say, must run faster to stay in place. First and foremost, it must embrace change whole heartedly – this means the entire organisation as a whole rather than its parts individually. The above changes unfortunately results to a more cutthroat competition not only in the automobile industry but in all industries affected by these changes. Sustaining status quo or surviving in a highly competitive environment is expensive. Companies, to maintain their standing in the market, have to spend more and more in advertising and other activities to sustain the market’s interest in their products and services. This practice is fatal in the long run. Certainly a company can not indefinitely spend its scarce financial resources in activities which can only sustain what is. To survive the company must not only please existing customers, but make new ones too. In this dynamic environment, an organisation finds change and performance improvement more as matters of business survival rather than as matters of competitiveness. Product differentiation and cost leadership are two strategies a company can adopt to stay ahead of competition. Continuous process improvement including total quality management, six sigma, and knowledge management is one of several programs a company can integrate into its operations to improve productivity and quality. Integrating different strategies such as the blue ocean strategy into the company’s organisational strategies to improve competitiveness and protect competitive advantages is not a fad, but rather a necessity if an organisation wants to be in the long haul. Standards in the manufacture and production of goods, and execution of services must be met for the customer to be able to optimize value for money. Toyota Motors Corporation all throughout its history – from Kaizen to Toyota Production System to further Kaizen – has strived not only to maintain its current market position, but to improve it as well. A testimony to the success of these efforts is Totoya’s inclusion as one of the top ten Fortune Global 500 companies by Fortune Magazine in 2003. This success is a result of Toyota hard work over its entire history. This paper documents how Toyota became one of the most admired companies in the world from producing Japan’s first power loom. This paper looks at the specific supply chain management techniques employed by Toyota to achieve where it is now. Toyota Motors Corporation From its beginning in the late 19th century and of producing Japan’s first power loom, Toyota Motors Corporation or TMC is now one of the most successful multinational companies not only in the automotive industry, but in the whole world (Toyota Motors Corporation 2008). As a manifestation of its success, Fortune Magazine included Toyota Motors Corporation as one of the top ten Fortune Global 500 companies. Toyota’s history of success didn’t come easy. It was the result of dreams, hardwork, innovation and passion not only of its founder, Sakichi Toyoda, and his son’s, Kiichiro, but of its more than 300,000 employees around the world as well. From these dreams, hardwork, innovation and passion, Toyota Motors Corporation is now one of the most admired car makers of all times. TMC pioneered technologies in automobile production and manufacturing system. Its Web site states that “Toyota’s approach to automobile production and its inherent quality controls revolutionized the industry. Its “just-in-time” supply-chain concept has become a model for manufacturers around the world, and not just for automakers” (Toyota Motors Corporation 2008) which is popularly known as the Toyota Production System or TPS. The TPS is one of the proofs of Toyota’s dedication to its craft and industry. An integral part of the Toyota Production System is its just-in-time system for its inventories supported by kanban which the company popularized, then furthered improved on by materials resources I and II Just-in-Time or JIT The Just-In-Time or JIT approach was developed by the Toyota Motor Company of Japan in the sixties. It is a manufacturing philosophy that emphasizes the following: short setup and lead time, small batch sizes, frequent production runs, high quality, and constant improvement in product and process design. JIT advocates a zero or minimal amount of inventories and defects. Frequent delivery of inputs and outputs is necessary to minimize levels of inventories. Toyota factories keep on hand only that amount of parts needed for immediate production. Hence, JIT reduces storage, personnel and financing costs for Toyota. With the seemingly impossible objective of zero or nearly zero inventories under the JIT system, certain requirements have to be in place before the successful adoption of JIT. These are as follows: a) design flow process, b) total quality control (TQC), c) stable schedule, d) kanban pull, and e) close coordination with suppliers. The design flow process of JIT requires that the plant layout allows a smooth flow of production to keep work-in-process inventory at the minimum. It also requires that preventive maintenance at different stages of the production process be in place and that deliveries of raw materials by suppliers be more frequent, but in smaller quantities to keep the inventories at minimum levels. Total Quality Control (TQC) on the other hand, requires that employees in the different production stations assume responsibility for the quality of their work at these different production stages, minimizing or eliminating quality control inspection and rework. Quality is very important and must be observed by everyone in the different stages of the production process. Problems in quality can delay the whole production process and can result in inventory accumulation which the JIT system is trying to avoid. TQC concepts require the development of skills, not only among people in the production division, but even among the other divisions of the company as well. With workers getting more skilled, the number of people required in the production and even in the other operations of the company can be reduced. Companies adopting the JIT system anticipate that such systems can result in lower overall production cost, despite the added cost of TQC. A stable schedule is prerequisite for the successful implementation of JIT. Hence, strong coordination among the marketing, finance, and production people is necessary. Kanban is the Japanese word for “card.” The kanban pull, otherwise known as the pull system, triggers the movement of inputs to the station where they are required. The need for inputs is indicated through the use of cards. The presence of these cards in specific station indicates that existing inventories in one work station should be moved to the next station. The kanban helps in the determination of the production quantities needed by each of the production processes. These quantities are necessary to facilitate just-in-time. The kanban, specifying the exact inputs needed by a process, ultimately eliminates overproduction and reduces defects. Coordination with the suppliers is also critical if a minimum amount or near zero raw materials inventory is desired. This may increase the suppliers’ delivery cost. Therefore, suppliers must be located near the company’s production plant. But this can only be made possible if the company is a big customer relative to the size of the supplier. Otherwise, a supplier will not spend much of its resources relocating just to accommodate a small client, unless there are many of these small clients operating in the area, in which case, economies of scale can is attainable. Successful implementation, therefore, of JIT concepts leads to a more efficient and effective utilization of the company’s resources leading to lower production costs, probably more affordable prices to customers, and higher operating income for the company. EOQ model emphasizes the balance between carrying and ordering costs. How do recent management approaches like the JIT balance these costs? EOQ model suggests that frequent production runs and small batch sizes of JIT will lead to high setup and order costs. Risk of stockouts will also increase. However, JIT concepts go beyond carrying and ordering costs. The requisites for the successful implementation of JIT include constant improvement in process design. The improvement in process design can lead to a more efficient production outweighing the higher setup costs brought about by frequent production runs of smaller quantities. Higher ordering costs due to frequent deliveries can be reduced by improving communication and coordination with the suppliers. The proximity of suppliers to the end-user enhances communication and reduces the risks of stockouts. The resulting lower levels of inventories can lead to lower investment in inventories and lower carrying cost. Material Requirements Planning or MRP Developed in the 1960s, Material Requirements Planning or MRP is a computer-based information system designed to handle ordering and scheduling of dependent-demand inventories, e.g., raw materials, component parts and subassemblies . MRP results in low levels of work-in-process inventories since dependent-demand items are procured just prior to the time when they will be needed in the production process. MRP also results in better inventory planning and scheduling. The establishment of a material requirements planning system which requires the preparation of a master production schedule, bill of materials, inventory and purchase records, and the lead times for each item allows for a more efficient inventory planning and scheduling. The MRP process determines the “finished” or “end-item” requirements and breaks up these requirements into time-phased requirements in an assembly-time chart. Since MRP involves careful estimates of the “finished end-item” requirements and the length of each process, the acquisition of raw materials can be more effectively planned. The end result is a lower investment in inventories and better cash budgeting. For instance, the finance department of the aluminum products manufacturer can now anticipate that payments for raw material acquisitions should be made on the sixth and seventh week, given a 30-day credit term, and if materials were delivered on the second and third week. Consequently, funding requirements and investments of cash resources are better managed. Toyota Motors Corporation embraced MRP in its further quest to reduce non-value adding activities in its production process. Manufacturing Resources Planning or MRP II Manufacturing Resources Planning or MRP II was developed in the early 1980s as an expansion of MRP with the inclusion of two additional elements: Financial and Simulation. Finance translates the operating plan into financial terms while simulations addresses “what if” questions. Techniques for planning capacity requirements such as sales forecast and production or operation planning are integrated with material requirements planning in MRP II. From the benefits it gained from MRP I, Toyota enhanced its materials resources planning system to encompass financial and add simulation capability. From this on, the company became the benchmark in the automobile industry. Enterprise Resource Planning Enterprise resource planning or ERP is the perfect title for a solution that integrates all the computing needs of a corporation into one package, and also supports cooperation with suppliers, partners and customers (Wilson 2002, p. 52). Below is a diagram of this integration. Figure 2 Source: Wilson 2002, p. 52 Enterprise resource planning or ERP was popularized in the mid-1990s, and since then, in spite of the well-publicized implementation failure in large companies such as Hershey’s and Whirlpool “have had an enormous impact on businesses and organizations around the world” (Hedman and Borell 2003, p. 2). ERP evolved from prior legacy IT business systems specifically Materials Resource Planning or MRP and MRP II as information systems, the technical capabilities of which allow for the seamless integration of an organization’s processes and functions under a centrally managed technical umbrella. ERP’s predecessors are the MRP II software tools considered that the production of any product includes more than just raw or semi-finished materials. During the 1980s, MRP II was further extended to include production, business planning, financial and distributions systems within a single software and into the hardware landscape. One of the attractions of the adoption of ERP and its related systems is the value of integration (Hedman and Borell 2003, p. 2). ERP integrates the different business functions and units of an organization which results to business process improvements and standardization, real-time access to company and other relevant data and information, integration of business units, increased company flexibility – both as an organization and in its individual components, increased employee productivity which is a result of the streamlined business processes, increased customer satisfaction, optimized supply chain and logistics processes, better competitive positioning ability, improved time to market cycles, and improved product and services quality. The supply chain of the organization encompasses inventory management among other activities. Through ERP, the organization can lower its inventory costs through the improvement of business processes, and integrated business-to-business procurement. Furthermore, the integration as shown above appears to have been adopted by Toyota Motors. Its existing system now connects all others within the organization and even connects Toyota directly with its suppliers and distributors. Supply Chain Management: In Focus Clearly, “a company can improve its business dramatically, especially with formation and performance of suitable management. An important role in the whole management of a company also presents supply chain management (SCM), which represents the integrated concept of managing across the traditional functional areas of purchasing operations and physical distribution” (Potocan 2009, p. 181). From the specific inventory management tools and general management techniques above, it is clear that supply chain management is a vital element in the success or failure of a business venture. Hence, supply chain management should be an important part of any organisation’s strategy plans. This logic is clearly understood not only by Toyota’s management, but also its employees as shown by how open the entire organization is in embracing changes implemented in its production system Supply chain management involves the management of supplier and distributor relationship, inventory management, logistics, production floor and the entire organisation as well. An in-depth analysis of Toyota’s production system and supply chain management practices, based on available documents on the company, shows that Toyota’s supplier relationship is one of the most intensive in the automobile industry. So intensive those suppliers even put up plants near Toyota’s assembly plants to efficiently service the company’s needs. In order to gain the benefits from an efficient and effective supply chain, Toyota has implemented the following: a well designed supply chain “integrated databases throughout the supply chain” (Lee and Billington 1992, p. 71) “integrate control and planning support systems” (Lee and Billington 1992, p. 71) a redesigned organisational incentives which had been aligned with the supply chain strategies “supply chain performance measurement” (Lee and Billington 1992, p. 72) to ensure that the entire organisation works toward the goals of the supply chain strategy Conclusion As competition become more and more intense, companies such as Toyota Motors Corporation which are leaders in their industries can not afford to become complacent. Rather they must again pioneer developments in their fields. These companies have to integrate all their resources, use these resources efficiently and effectively to attain organisational goals. From its history, it had strived to innovate on its processes. Lastly, a company can not surely just ignore its supply chain. It has been established that the supply chain is a critical factor in business success (Horscroft 1993, p. 46). The collaboration of the organisation within and beyond its own organisational boundaries is key in synchronising the activities of these different elements to work sinuously toward a common goal – value added for the company’s products or services for the organisation’s customers. Operating within a vacuum is no longer feasible in the current business environment. Works Cited Hedman, J. & Borell, A. 2003. ‘ERP systems impact on organizations’ in ERP & Data Warehousing in Organizations: Issues and Challenges, ed. G. Grant, IRM Press, London. Horscroft, P. 1993, ‘The supply chain game’, Logistics Information Management, vol. 6, no. 1, 46-48. Lee, H. & Billington, C. 1992, ‘Managing Supply Chain Inventory: Pitfalls and Opportunities’, Sloan Management Review, vol. 33, no. 3, 65-73. Porter, M. 1985. Competitive Advantage. Free Press. Potocan, V. 2009, ‘Organizational Viewpoint of the Relationships in Supply Chains’, Journal of American Academy of Business, vol. 14, no. 2, 181-187. Toyota Motors Corporation. 2008, ‘Annual Report 2008’, www.toyota.co.jp, [Online] Retrieved on January 1, 2009, Available at: http://www.toyota.co.jp/en/ir/library/annual/pdf/2008/ar08_e.pdf. Wilson, D. A. 2002, Managing Information: IT for Business Processes, 3rd edn, Butterworth-Heinemann, Oxford. Read More