Toyotas Supply Chain Process - Essay Example

Toyota’s Supply Chain Process Supply Chain Supply chain attempts to view the whole production process as a seamless entity that begins with market research for correctly evaluating consumer demand and follows the flow of inputs and services through the production process right till the time when the finished product reaches the final consumer. Thus this is a wider concept that includes all the stakeholders; right from the supplier of raw materials to the final consumer that buys the product. (Dependable Logistics Services 2009) Supply chain management is basically akin to running a relay race and just as in a relay race the entire team is as good as its weakest link, so also in supply chain management the entire operation is as efficient as its least efficient sections. Another way to look at a supply chain would be to view it from a network perspective where not only immediate customers and suppliers but also consideration. (Slack, Chambers and Johnston April 2007) Pull System The best example of “pull” system can be found in Toyota Motor Corporation. Just-in-time manufacturing, which is described as “Producing only what is needed, in necessary quantity and at necessary time.” (Toyota Production System 1995), kanban production system, or, more specifically the famous "Toyota Production System" is the best example of such a system in practical action. (Ibrahim 2008) Toyota often refers to the kanban system as the ‘supermarket concept’. The managers in a supermarket always ensure that the shelves are full with items in such a way that almost all the customers get what they want. Taiichi Onho considered subsequent processes as customers and preceding process as a supermarket, ready to supply whatever is required in exact quantities that are necessary so that subsequent processes need not unnecessarily hoard components to survive in temporary stock-out situations. In Toyota manufacturing units all subsequent processes send signals to the preceding processes indicating the exact quantity that needs to be manufactured and the accurate time when it needs to be supplied by those preceding processes. These signals are conveyed through kanban cards which in Japanese mean signboard. This form or ordering production in reverse is not only carried out between different production departments of the company but also between its vendors thereby bringing inter-process inventory to a minimum. (McCoby 1997) However, such a fine-tuned production process can run with clockwork precision only when each process unambiguously defines the exact permissible duration during which a particular job has got to be fully finished by that particular process. This is done by measuring Takt (a German word meaning meter) time which is measured using the formula: Total Daily Operating Time ------------------------------------- = Production time for one unit of output Total Production Requirement If there is a demand for 50 vehicles per day and if the available production time is 8X60 = 480 minutes, the Takt time available at each production station is 9.6 minutes. A job must not stay for more than 9.6 minutes at each production node to ensure that requisite numbers of vehicles are produced to satisfy the existing demand. (Imai 1986) Taiichi Onho also discovered that the cost per part manufactured reduced substantially when such manufacturing is done in small batches instead of large lots. There was another benefit of manufacturing in small batches. As the workers dealt with relatively less volumes, it was easier for them to identify manufacturing defects almost immediately and restrict any further expense of material and labour on a defective product. All these measures ensured maximum utilisation of capital employed. (Tolliday 1998) The most important benefit of “pull” method of production is that the producer never wastes any resources on producing a product that might not have any customer. This, by itself, makes the organisation highly efficient if return on investment becomes the only criterion to judge the efficiency of a business entity.(Webster 2007) Push System In “push” system the production is scheduled in accordance with a Master Production Schedule and as such the whole process is controlled by upstream information that is generated by forecasts prepared in-house about future demands. However, in today’s world of advancing technology that brings in its wake a high risk of obsolescence, stable demand can be expected only in those industries that deal with basic goods and services that are generally labelled as ‘necessities’. For any other form of industry, there is no guarantee that technological advance might not make a huge stock of finished output completely unusable almost overnight. Push and Pull systems – a possible interface One feels that a pure “push” or a pure “pull” method might not be ideal for any industry. (Factory Physics 2009) Most producers actually follow a middle path where production is carried out both as a response to clear and concise consumer demand and also in anticipation to consumer demand that is expected to materialise when the finished product finally rolls out of the production line. Hence, it can be theoretically conceptualised that there is an area where “push” and “pull” meet and that push-pull boundary is the ideal zone where a producer should operate. (Womack and Jones 2005) Push” and Pull systems – as observed in automobile sector Almost every producer, including Toyota, who happens to be the most ardent follower of “pull” system of production, has opted for a judicious mix of the two systems where “push” system is operational up to a certain stage of production while the final stages are totally guided by the “pull” method. Toyota is aware that it manufactures high value goods and any unsold stock would result in heavy strain on working capital requirements. Therefore it never produces fully manufactured cars in anticipation of future demand. Rather, it produces “platform” products according to some predetermined schedule, but manufactures the completed version only against confirmed demand. In this way, the lead time for final delivery is substantially reduced while Toyota does not have to block large amount of capital as the platform products are basically at the initial stages of production where neither much labour nor significant volumes of overhead have been expended. This hybrid method tries to include the leanness of “pull” system with the inherent agility and ability to quickly satisfy consumer demand of “push” system and some experts prefer to call it a “leagile” system. (Goldsby, Griffis and Roath 2006) The best example of this “leagile” production system is observed in the Scion line of cars produced by Toyota. While the basic platform is manufactured in Japan according to certain predetermined production schedules, the various models, viz., tC, xB or xD are manufactured according to specific demands either at Toyota’s Long Beach production facility or at a dealer’s production facility, if that happens to be logistically more economical. Toyota has also made a marketing coup by taking this agility in its production system even further by allowing customers to mix and match the various specifications of these three models to create unique designs and models for themselves. Thus, customers get the satisfaction of getting their unique cars within a very short time while Toyota retains its leanness by keeping inventories at the minimum. As consumers are becoming more and more involved in the process of production, the differentiation between “push” and “pull” is progressively getting blurred.(Greeff and Ghoshal 2004) Some other tools used by Toyota Toyota Production System has incorporated a process known as Value Stream Mapping. It is a visual method of following the material flow in a factory – right from the entry of raw materials in the factory premises to the despatch of finished goods outside the factory gates while noting the quantum of value added at each step. It generally consists of four main steps with numerous sub-steps thrown in between that depend on the level of complexity of the production process. The four main steps are: “Preparation”, “Current State”, “Future State” and “Planning and Implementation”. This system thus allows one to clearly identify activities that add value and activities that do not do so. Management thus can focus more on activities that add value and devise logical steps to ensure that higher productivity levels are attained. The desired status is described in the “Future State” template and constant reference to it highly motivates the workforce to reach the target.(Locher 2008) (University of South Australia 2008) The other innovation of Toyota was the implementation of Quality Function Deployment (QFD) that tries to incorporate the customers’ requirements while designing the products. Till now a company produced what it felt it was best in and its marketing team tried to convince customers into accepting whatever the company has produced. But with the implementation of QFD, a company would no longer have to be bothered about a consumer demand since it has produced what exactly the consumers want. This method also guarantees a massive savings in cost as all the problems are solved at the drawing stage only.(ReVelle, Moran and Cox 1998) Toyota introduced the concept of Total Productive Maintenance (TPM) and elevated the job of maintenance from a necessary nuisance that only added to downtimes to an essential activity that is as much a part of production as is the act of churning out finished jobs from machine bays. It also incorporated the maintenance downtime within the normal time required for production and thus reduced machine breakdowns and consequent production losses to near zero levels.(Wireman 2003) References Dependable Logistics Services. 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Total Productive Maintenance. Industrial Press Inc., 2003. Womack, James P., and Daniel T. Jones. From Lean Production to Lean Solutions. October 4, 2005. http://www.lean.org/library/leansolutions_preface.pdf (accessed December 29, 2009). Read More