QUESTION

SOLUTION

Introduction:

Supply Chain Management is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers (Harland, 1996). This network is called Supply Chain that comprises of all parties being utilized to fulfill the request of end user, whether linked directly or indirectly. Supply chain management spans across all the entities of supply chain including raw material, work in progress inventory and finished goods.

Toyota Motor Corporation is a Japanese automaker. It is one of the largest automobile manufacturers in the world. Toyota is famous for its effective Supply Chain management. Various automobile manufacturers across the world follow “Toyota Way” of managing operations. Recently Toyota faced issues with product quality and it was forced to recall some of its products from the market. This report is prepared to understand various facets of supply chain management at Toyota and its impact on business process and functions. This report mainly deals with supplier relationship maintenance, Information technology and its role in supply chain management, procurement and logistics. Finally some strategies are suggested for the improvement of supply chain.

Task 1: Supply Chain Management

Importance of Supply Chain Management

Supply Chain management plays a significant role in the success or failure of the organization. Supply chain management helps in revenue enhancement, cost control, asset utilization and customer satisfaction. Supply chain management provides all the stakeholders with relevant information that can be utilized for quick and effective decision-making. If it is implemented successfully, it can balance customers’ demands and firm’s need for growth. The goal for any organization is to provide product/ service to the customers in such a manner that customer is satisfied and organization is able to generate profit from the transaction.

In the 21^st century, business environment has changed that provided development of supply chain networks. There are various supply chain management strategies such as Just in time inventory system, lean manufacturing and agile manufacturing that provide guidelines to organizations. Supply chain management can be used to improve inventory control, reduce holding cost and enhance effectiveness of distribution system. In short, effective supply chain management provides means to any organization for delivering the product/ service to the customer at the right time, at the right place, to customer’s satisfaction and affordability.

Link between Supply Chain Management and Business Functions

Supply chain management can not accomplish its goal working stand alone. With the help of other business functions, such as marketing, finance, human resource, operations and information technology; effective supply chain management can contribute to the success of the firm.

 Here I have discussed some of the business functions of Toyota and their link to supply chain management.

Sales and Marketing:

Customers are the center of focus for sales and marketing department. Supply chain management helps streamlining the organizational supply chain, which can not be achieved without complete knowledge of customer types and segments. Customer types and order characteristics are used to provide flexibility to supply chain.

Operations:

Supply chain management is linked to operations in Toyota as it provides guidelines for the function. Toyota believes in generating system level awareness among employees of operations department.

Finance:

Supply chain management is linked to controlling cost and improving growth of the company. At Toyota, finance and supply chain management are linked through various functions such as procurement, financial planning, budgeting and cost management.

Information Technology:

Information technology has provided various systems that help in supply chain management. Besides with the advance of technology, communication between various entities of supply chain has become faster and more reliable.

Human resource:

Supply chain management can not be achieved without the proper efforts put up by the employees and management. Human resource helps the company to achieve this by providing incentives and guidelines. Performance evaluation is a key function for human resource department. At Toyota, performance is evaluated on the basis of two key parameters: process used to obtain the performance and the results achieved. Besides Toyota deeply emphasizes on learning with a belief that key to attain mastery is universal.

Key Drivers for achieving Integrated Supply Chain Strategy

Toyota has adopted the v4L framework for its supply chain management. So the key drivers for the integrated Supply chain management strategy at Toyota can be summarized as under:

Learning:

Management has made learning a practical and continuous process at every level and at every task in Toyota. Creating awareness about the system, preparing action protocols, establishing each individual’s capability and inculcating the ability to impart knowledge are the key concepts for creating a learning environment at Toyota.

Variety:

Variety is decided by balancing the customer/ marker demands and operational efficiency at Toyota. Variety represents an important design choice that impacts all the participants of integrated supply chain. Feedbacks are utilized to ensure the appropriate representation of market demands in variety decided by Toyota strategists.

Velocity:

Velocity stems from the flow of product, information or process. It is atmost important to maintain a steady flow throughout the system in a way that is synchronized with the capacity planning. A rate-based approach can serve as a linchpin for the planning various processes.

Variability:

Variability is minimized to reduce the operational cost and improve the efficiency. Variability can stem from customer orders or deliveries. Reducing variability helps maintaining lower inventory levels and enabling quality improvement processes. The main function of the driver is to keep the supply chain stabilized at Toyota.

Visibility:

Visibility of processes is achieved with right metrics and consensus on changes in plans. At Toyota, 50% weight of performance metrics is given to process compliance. This way Toyota ensures short term success as well as following the correct processes. This helps in recognizing the bottlenecks early and providing quick response to the problems.

Task 2: Supplier Relationship

Effectiveness of strategies in maintaining supplier relationship

Toyota has achieved highest ranking for supplier Working Relations Index across auto manufacturer from 2002 to 2006 in a study prepared by John Henke. This demonstrates the effectiveness of supplier relations’ success for Toyota.

Suppliers for Toyota provide greater improvement in component quality than the suppliers to other OEMs. S discussed earlier, Toyota thrives on reducing variability and enhancing visibility. Such planning provides proper design and stable order volumes to suppliers. Toyota exerts fair control over the manufacturing processes adopted by suppliers. This helps Toyota to ensure stable product performance and quality, thereby allowing just-in-time delivery and reducing costs.

Toyota identified most competitive suppliers for some 170 key parts and created benchmarks for suppliers to meet. Company launched the Construction of Cost Competitiveness in the 21^st Century program, known as CCC21 in 2000. Toyota brought its own team and component suppliers to prepare processes for cost control. This program continued for five years and provided total savings of $ 9 Billions to Toyota. This was possible due to effective supplier relationship management strategies adopted by Toyota.

Use of Information Technology to develop Supplier Relations

As stated earlier, information technology provides a big help in managing supply chain by providing fast communication and various systems to manage and process data. Some of the strategies that can help Toyota in supplier relations are given as following:

o   Using information technology systems for faster and reliable communication with supplier.

o   Using an intelligent supplier management system that helps deciding the most appropriate supplier who can deliver the competitively priced, high quality products in a timely fashion.

o   Reducing outsourcing cycle time (consisting of finding a suitable supplier, allocation of order, payment for the components) with an IT system.

o   Using information technology driven system for monitoring supplier performances.

Systems to maintain relations with Suppliers

Supplier relations are part of supply chain management and can be benefitted with technology advances. Some of the functions of such system are given as under:

pIt should be able to create, update and manage data related to various suppliersof Toyota. This data will also include past performance of the supplier.

pSystem should keep all the records related to procurement process (invoice, bills etc). This data can help the firm for future decisions.

pSystem should provide inventory information to suppliers as well as to operations manager so achieve just-in-time practice (virtually zero inventory).

pSystem should be able to provide communication with suppliers and should maintain all such records.

pSystem should have provisions for providing feedbacks to suppliers on product quality, timeliness and other parameters.

pSystem should have a functionality that is accessible through web for receiving feedbacks from suppliers.

Task 3: Managing Supply Chain

Use of Information Technology for integration of Supply Chain

Ø  Information technology is an integral part of the supply chain management. IT provides faster and reliable communication medium for communicating among supply chain entities.

Ø  Information technology can help Toyota to reach its target customer segment, create awareness and receive customer preferences/ feedbacks. A comprehensive customer relationship management (CRM) system will definitely help managing supply chain more effectively.

Ø  Information technology can help in providing a system for better management of supplier relationships. The details for such system are given above.

Ø  Information technology provides data management services that are used for tracking and monitoring various logistics and procurement processes.

Evaluation of contribution of Information Technology at Toyota

Toyota has used information technology to robust its supply chain management in the following manner:

o   Toyota uses ERP system for managing its supply chain. Besides the main system, it employs an assortment of information technology systems to stay connected with other entities of Toyota’s supply chain.

o   Besides communication, ERP system provides management with data/ information about various functions and processes such as marketing, procurement, logistics, operations, sales and customer feedback.

o   Toyota manages a website for improving customer awareness and providing web presence.

o   Toyota has implemented just-in-time inventory system that works by maximizing information exchange between manufactures and supplier.

o   Toyota adopted technology solutions like CAD tools, which helped it in reducing new vehicle development time by 50%.

Information Technology for managing Supply Chain

Information technology has helped Toyota by supporting and enabling business processes. These processes are part of supply chain management, which helps Toyota to eliminate wastage, to continue operations with little or no inventory and to improve production.

Technology performs a critical role by supporting and bringing to life such a large scale processes while adhering to supply chain management practices. The analysis of supply chain is eased with the implementation of IT systems as such systems provide quick and reliable data/ information in real time.

Technology has enables Toyota to achieve its goal of cost cutting, lean manufacturing and just-in-time inventory practice. Various other supply management practices utilize data from the information technology systems.

Task 4: Logistics and Procurement Practices

Role of Logistics in Supply Chain Management

Logistics (inbound and outbound) is an extremely important entity of supply chain. The role of logistics is assessed as under:

Ø  To operate a lean supply chain successfully, Toyota requires that components be transported from the suppliers in timely and efficient fashion. Toyota has maintained partnership with some third party logistics providers for such services.

Ø  Toyota adopted network logistics model that enable the organization to operate inbound logistics in an effective and efficient manner. Suppliers, cross-docks and Toyota plants are the entities of such network.

Ø  Toyota uses route planning as a part of production plan for efficient logistics operations. This planning helps in enabling contingency plans during the issues such as strikes, border crossing delays and port related unloading issues.

Ø  Logistics at Toyota provide an excellent example of extending supply chain management beyond the enterprise. Toyota continuously shares its principles and v4L strategy with its partners to ensure that components are delivered in an effective and timely fashion.

An example of outbound logistics used at Toyota is given below.

Procurement Practices

Toyota adopted different procurement practices based on the components involved. The four broad categories of parts that are procured are local parts, long lead-time parts, in-house parts and sequenced parts. Procurement is a crucial process because Toyota dwells in lean manufacturing and just in time inventory practice. Delay in procurement will result in slowdown or complete shutdown of production processes. Some of the procurement practices followed by Toyota for these parts are given below.

o   Toyota follows some common processes that are prerequisite to procurement of any type of component. These include calculation of necessary parts quantity, maintenance of component/ supplier master database and parts forecasting.

o   Toyota takes into consideration actual lead-time for each supplier for planning the procurement process. Besides, it accommodates the difference in work schedules across countries before ordering procurement.

o   Toyota uses specific methods (internal kanbans and sequenced orders) for procurement of in-house parts. The Japanese word kanban stands for the word card. Planning department at Toyota uses this method to keep balance between supplier orders and production schedules.

o   Sequence parts are ordered from a supplier when the vehicle enters final assembly. Seats and wheels are example of sequence parts.

o   Toyota maintains control over procurement process by linking component deliveries with the production sequences. This permits accommodation of dealer order changes by direct adjustments to part orders.

o   Toyota has utilized significant resources to develop supplier capabilities to match its procurement practices.

Factors for consideration in improving Logistics and Procurement

Existing logistics and procurement process at Toyota are well managed. The factors that should be considered during the improvement of these processes are as under:

o   Toyota follows just-in-time practice, which indicates little or no inventory. This is an important factor to be considered, as even the slight deviations will result in slowdown or stoppage of production process.

o   Supplier relations are another factor to be considered because suppliers are directly connected with inbound logistics and procurement.

o   Customer satisfaction is also directly connected with outbound logistics. Besides, procurement process provides control over cost, which results in final price to customer. Therefore customer satisfaction/ preference is another factor associated with logistics and procurement.

Task 5: Improvement Strategy

Strategy to improve Supply Chain

I would recommend the following strategies for improving Toyota’s supply chain.

vToyota should improve its supplier relations as the biggest challenge lies in supplier management currently. It can take help of intelligent supplier relationship management system. This system along with the existing practice of teaming its own engineers with suppliers will help Toyota in procuring the flawless components. This strategy will reduce the risk of safety related recalls. This practice should be followed for Tier 2 and Tier 3 suppliers also.

vToyota’s single supplier policy has caused issues with production. It needs to revisit the benefits and pitfalls of this policy before going ahead. Along with this, strategy of excess reduction in variability should be analyzed again as this reduction causes the quality risks.

vToyota can take help of quality consultants to assess the processes and to provide recommendation for quality improvement.

vToyota should maintain a balance between customer demands and enterprise growth. It should focus on its operations and product quality instead of excessive use of supply chain management.

vToyota should take help of information technology revolution for various purposes such as marketing towards target segments, enhancing customer awareness, sharing information as well as preferences.

Benefits of Supply Chain Improvement Strategy

The improvement strategies given above will help Toyota to regain customers’ trust. These strategies will also help in business performance as under:

vUsing of supplier management system will help Toyota to maintain its lean manufacturing policy even at the large scare of production. This strategy will reduce quality risks and regain customers’ trust in Toyota vehicles.

vBy focusing on quality, Toyota can again create its brand value that helped the firm in the 1990s. It will also effect positively on its stock market performance.

vToyota was forced to recall products and to slash its vehicle price due to faulty products. After implementing strategies to improve supply chain, such incidents will not happen and Toyota will get financial benefits.

vToyota can receive benefits from technology advances by adopting the improvements suggested above. These changes will benefit business functions as operations (enhanced supply chain management), marketing (customer awareness and brand creation) and finance (increased revenue).

Barriers to supply chain improvement strategy and solutions

It will not be easy for Toyota to implement all these improvements rapidly due to it large scale of operations. There are various barriers in the process. But Toyota can overcome these barriers and attain its former glory.

First the Toyota Way is engraved within the psyche of its employees and stakeholders. Toyota will need to revamp its existing strategies to make way for the quality assurance and supplier relations.

Secondly, Toyota will need to move from single supplier policy. This step will require Toyota to assess new suppliers from the beginning. This may result in extra expenses but the competitive prices by the supplies can neutralize the cost effects.

Finally, Toyota will need to shift its focus from excessive supply chain management to quality control. It can not face another production issue again. With the help of external experts, Toyota can overcome the barrier and achieve the quality that was synonym with Toyota.

Conclusion and Recommendation:

As discussed in the report, Toyota started a revolution in the field of supply chain management, which was followed by various auto manufacturers across the world. But it became prey to its own excessive ambition. Recent production issues and product recalls forced Toyota to rethink its strategy and management. But with some improvements as suggested, Toyota can reach on its former level of respect.

I have recommended following strategies to tackle the issue and improve supply chain.

ü  Use effective Supplier Management System.

ü  Focus towards quality management and quality control.

ü  Focus on technology oriented operations and processes.

ü  Revisit policies regarding supply chain management.

Reference List:

Chopra Sunil and Meindl Peter. (2007). Supply Chain Management: Strategy, Planning and Operation. 3^rded. New Jersey: Pearson Education Inc.

Choy K.L., Lee W.B. and Lo Vicor. (2003). Design of a case based Intelligent Supplier Relationship Management System. Expert Systems with Applications, 25, pp.87-100.

IyerAnanth, Seshadri Sridhar and Vasher Roy. (2009). Toyota Supply Chain Management: A Strategic Approach to Toyota’s Renowned System. New York: McGraw Hill.

Toyota’s Supply Chain. (Feb 2010). The Eonomist [online]. Available at: <http://www.economist.com/node/15576506> [Accessed on 25 April 2012]

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