School of Business and Law

University of Gloucestershire

Toyota's Overstretched Supply

Chain

Baba Onotu
0798FKFK1109

International Business
&
Policy

Lect. Bernadette Warner

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This report will focus on Toyota’s competiveness in the international automobile

sector using supply chain and its lean production system.

INTRODUCTION

Toyota, one of the largest automobile in the world was founded in 1937 launching its
first small cars in 10 years later. An important philosophy was introduced in 1950,
giving the company the management and labour system and also helped Toyota to
gain success in overseas markets as well as mutual growth in its domestic market. The
production system picked up becoming the major factor used in decreasing
inventories and faults in Toyota plants and the suppliers (www.toyota.co.uk/history).

The production system of Toyota is built on pillars of two, they are the lean
manufacturing or just in time which focus on detailed planning, a high efficient
production and low inventory. While the second pillar is the Kanban System, it lets
goods to be “pulled” based on need and also for the communicating through the
supply chain the need for particular parts (Page, 2010).

Toyota unbelievable consistency in performance is a direct product of operational

excellence, transforming the excellence into a strategic weapon. The methods
introduce based on quality improvement and operational excellence helped spawn the
technique lean production or lean manufacturing, the methods are one-piece-flow,
heijunka, just in time and kaizen. Toyota’s success grew over time using these
methods, the methods are based on the understanding of human and people
motivation, on the ability to cultivate culture, leadership and teams to devise a
strategy, as well as to preserve a learning organisation and to build supplier
relationship (Liker, 2004).

Supply chain management on the other hand is closely related with just in time, even
as many argued that Henry Ford’s company invented just in time technique, it was
originally linked to the managers of Toyota, such managers as Mr. Taiichi Ohno with
his system which includes the continuous problem solving towards eliminating waste
(Wisner et al, 2008).

LEAN MANUFACTURING

Lean manufacturing is primarily focused on the design of a responsive and consistent

robust production operation. The manufacturing operation is created, focusing on a
continuous improvement through a work force which is self directed and driven by
output based measures united with customer performance criteria. A work force is
developed with the capability of utilizing lean techniques and tools which are
necessary for safety (Feld, 2000).
Lean thinking originated from the shop floors of manufacturers in Japan, specifically
at Toyota Motor Corporation. Lack of resources and a strong domestic competition in

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the Japanese automobile market which includes just in time, Kanban method and
respect for workers and high levels of worker problem solving or automated error
proofing resulted into the lean innovations (Ohno, 1988).

According to the Womack et al (1996) After the 1990’s came a gradual expanding
centred away from the shop floor, the extension process was speed up the successful
western case promotion by businesses in various sectors that had become accustomed
to the production systems which includes a new type of design that is based on lean
principles. These principles are the management of value stream, the identification of
customer value, the mechanism of “pull” that supports the flow of materials at limited
operations and the development of flow production capability. Toyota’s
transformation the U.S factory for parts distribution system is illustrated in the figure
below. It shows the dramatic improvements of Toyota’s lean process.

Lean Ordering

Lean Lean Lean

manufacturing Warehouse retailing

Lean logistics

Figure 1: The downstream lean value stream (Womack et al, 1996).

SUPPLY CHAIN

Supply chain management is a combination of Kierestsu strategy by Toyota, Eliyahu

Goldratt’s theory of constraints, and M. E. Porter’s value chain strategy. Supply chain
management organizes the downstream and upstream organization in a global and
chain quality, timing, quantities for all processes and cost, ranging from parts
suppliers to the sales outlets. Supply chain has over the years been defined in similar
ways by different scholars. According to Lambert et al (1998), they argued and
referred to supply chain as the alignment of organisations that brings services or
products to the market.

Supply chain covers all the firms and activities associated with the transformation and
flow of products from raw materials to the end users and the information flows. The
information flow and the material, go up and the down the supply chain. Supply chain
management is referred to as the management and integration of supply chain
activities and firms through effective business processes, cooperative organisational
relationships and the sharing of information at high levels to create high performing
value system, this will provide the firms a suitable competitive advantage (Robert et
al, 2002).

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Toyota started moving towards supply chain management using computer systems in
the 1980’s, they linked suppliers, dealers, body makers, the Toyota Network System
(TNS) as well as Toyota itself. The phrase supply chain did not exist in the 1980’s;
rather it was referred to as Production sale integration (Hino, 2006).

To keep all the connected components is the overall goal of supply chains for example
the warehouses and the vendors are to make sure the whole process keeps running
effectively at all times.

In recent times supply chain in Toyota has gone a bit awry, and it inevitably raised
questions, i.e. if supply and manufacturing processes had a function in Toyota’s
2009/2010 failures.

INTERNATIONAL COMPETIVENESS

A country international competiveness is related to others of its kind, in terms of mass

media, economic policy discussions and governmental reports. In spite of this, it is
difficult to see a country’s concept of international competiveness easily defined.

International product which is of increased openness is said to have profound

implications for a nation’s factor market, also it is determined by the way in which
domestic factor input is demanded. With respect to the taxes and costs, the wide
acknowledgments of international competitiveness is said to be of importance in
determining factor demands in a country, it was also added that there is relatively a
small empirical evidence that indicates their quantitative significance (Young, 1994).

Toyota’s Competitive Advantage

In the United States, Toyota’s leadership was built on competitive advantage which
ran across the supply chain. According to Jeff Dyer of Wharton School, University of
Pennsylvania came to a conclusion that the US based Toyota Company’s operation
established a competitive advantage and regarded as significant across the supply
chain for productivity and quality based on Jeff’s evaluation of the U.S suppliers
coming up to 39. Knowledge which is proprietary and shared across the supply chain
may be a major risk because they spill over to the looming competitors. In the U.S the
competing suppliers are said to be sensitive on sharing the know-how about
production. According to a Manager at Toyota, “We are not so concerned that our
knowledge will spill over to competitors. Some of it will. But by the time it does, we
will be somewhere else. We are a moving target.” (Halpern,1999).

Toyota’s performance over the years evaluated with equal weight set to both process
used to achieve results and to drive performance. The process aims at generating a
supply chain parameter and ranges of products offered which is balanced, also the

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processes that enable learning (Iyer, 2009). A way for people to understand the Toyota
way or concepts is to ponder on how Toyota achieves its balance.

Iyer et al (2009), argued Toyota’s performance in the international automobile sector,

using the learning principles and what they called v4L parameters. They added that
Toyota believes these principles attain certain mastery universally as well as being the
art of learning. Toyota’s supply chain in its leadership roles is flooded with these
principles. The learning principles are: To create awareness, Establish capability, to
make action protocols and to generate a system level awareness. These principles are
problem solving processes.

The v4L on the other hand are learning principles that are combined across all supply
chain management processes of Toyota. They are:

• Variety – this is carefully selected to balance the operational efficiency and

market demands. The awareness towards the impact of variety on the
automobile market demand as well as on supply chain and manufacturing cost,
this enables all the units across the supply chain which will be considered as
decisions regarding the units are being made.
• Velocity – this key concept manifests in processes across the supply chain, it
focuses on the maintenance of a steady flow all through the system, which
enables the synchronizing of capacity planning across the supply chain.
• Variability – this refers to the deliveries in the supply chain and how it is
minimized by how single processes are executed. The reduction of variability
facilitates all the flows of the supply chain so as to operate with low levels of
inventory. This also facilitates a quality improvement process which operates
without stoppage, enabling quality improvement and cost reduction on a
continuous basis.
• Visibility – this is the process of ensuring the use of the right metrics. Toyota’s
metrics are said to have

Toyota’s Current Challenge and Response

According to the case study, Toyota’s problems stem from an overstretched supply
chain, by this, causing the breakneck expansion of the carmaker beginning in the
2002. Toyota later became dependent on their suppliers outside Japan, retraining on
the fundamentals of collaboration, also reducing the hard part of bringing together its
manufacturers who are scattered around the world. Toyota using the approach of sole
sourcing and furthering the concept, they gained unparalleled economies of scale,
having to use sole suppliers for all their varieties of cars (www.industryweek.com).

According to the Guardian online writing on Toyota’s current challenge, on Thursday

the 4th of February 2010 Toyota was in danger of losing its reputation and diving into
a freefall. There was a recall due to the brake failure of the Prius hybrid cars in the
U.S and Japan. It was reported that an estimated 270,000 of the Toyota’s latest model
were withdrawn from the market due to safety fears. 77 cases were reported of
breaking problems in cars which were sold in Japan and about a hundred in the United
States. The recall in the United Kingdom got to 8,500 cars.

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Toyota responded to this recent challenge by ensuring customers that the recall
involved a software upgrade in the anti locking brake system. They added that the
procedure will be absolutely free and will take less than an hour to upgrade using the
standard equipment for testing, available at all Toyota service centres. Letters were
sent to Prius owners letting them know when to come in with their cars to a dealership
nearby (www.toyota.co.uk).

CONCLUSION

This report has outlined the main objectives of reducing the overall manufacturing
cost, which is the implementation or adoption of the Just-in-time technique and also
the maintenance of long term relationships with the firm’s suppliers, regarding to the
case, Toyota. Ultimately if Toyota wants a leaner production process, Toyota needs to
make sure that all alternatives are properly evaluated. Toyota designs a Supply chain
strategy by utilizing all possible organizational resources and an additional Research
and Development department to cut down on such sprouting crisis like that of the
Toyota Prius, that earlier started with the accelerating paddle and that of February
2010, the braking system which led to the recall and a massive lose on the part of
Toyota.

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REFERENCES

Feld, W. J. (2000). Lean Manufacturing: Tools, Techniques, and How to Use Them

Halpern, M. (1999). Integrating the supply chain: Toyota’s U.S advantage

Industry Week (2010). Toyota Supply chain Lacked Risk management Oversight
Available at: http://www.industryweek.com [Accessed 3 June 2010]
Lambert, D. M., Stock, J. R., Ellram, L. M. (1998). Fundamentals of logistics
management
Lancioni, R. (2000), “New developments in supply chain management for the
millennium”, Industrial Marketing Management, Vol. 29 No.1, pp. 1-9

Liker, J. K. (2004). The Toyota Way: 14 Management Principles from The World’s
Greatest Manufacturer

Ohno, T. (1988). The Toyota Production system: Beyond Large- Scale Productivity
Press, Portland, OR

Page, P. (2010). Journal of commerce: Volume III, Issue No. 9

Toyota History (2010). Available at: www.toyota.co.uk/history [Accessed 3 June

2010]

Wisner, J. D., Keah-Choon, T., Leong, G. K. (2008). Principles of Supply Chain

Management

Womack, J., Jones, D. T. (1996). Lean Thinking: Banish waste and create wealth for
your corporation, Simon and Schuster, New York, NY.

Young, G. (1994). International competitiveness, International taxation and domestic

investment. National institute Economic review, No. 148

BIBLOGRAPHY

Hugos, M. H. (2006). Essentials of supply chain management