SUPPLY CHAIN MANAGEMENT

REPORT

ANALYSIS OF TOYOTA’S SUPPLY

CHAIN MODEL

Group No.
10
Ankit Shah 9A
Harshit Bairoliya 21A
Kunal Roy 28A

1
 Simran Sahoo 50A

Introduction

During the previous 20 years, many assembling associations in the U.S. have been
composing and examining all parts of lean assembling. Most of these investigations
have been founded on the renowned Toyota Production System (TPS). These lean
endeavors have taken us in various ways. In numerous books, you can find out
about TPS, its different apparatuses, for example, kanban, etc, and improvement
methods, for example, kaizen. Practically nothing, nonetheless, has been composed
concerning one of the essential achievement purposes behind this incredible
framework—production network the executives and advancement.

We have found out about the kiritsu of the Japanese OEMs, and accept this is
another explanation behind achievement in Japan. Many accept that the joint
proprietorship (and control) of providers by enormous organizations in a kiritsu
permit organizations, for example, Toyota to keep material costs and benefits of
providers down. This is probably the biggest misconception while examining lean
assembling. Significantly more pertinent is the consistent joint investigation of the
all out worth chain, and the thorough exertion to remove squander from the all out
framework. These endeavors are cultivated while partaking in the money related
prizes made conceivable by the upgrades in quality and benefit. Maybe a couple
have attempted to advance the benefit of using the whole framework approach total
with the devices of TPS and store network the executives in a justifiable, relevant
way.

Past finding out about the store network come nearer from a fruitful organization,
the best learning favorable position is supply organizations like Toyota and
customary (car) organizations. This would give an individual head and groups the
benefit of seeing and looking at the two strategies, customary versus lean, next to
each other. This next to each other correlation empowers us to perceive what works
and what doesn't work in the U.S. producing condition.

There is a level of dissatisfaction in numerous associations attempting to make the

progress of incredible organizations like Toyota or Honda. This achievement
incorporates improved quality, conveyance, cost decrease, and colleague assurance,
all went for the journey of improved productivity. There are proceeded with
endeavors to examine, read books, and utilize advisors, yet numerous organizations
are not seeing the normal main concern of these endeavors. One of the serious
issues with these endeavors is the way that pioneers don't comprehend lean

2
assembling as an aggregate, completely coordinated arrangement of assembling the
item, including the all out material worth chain. They will in general treat each
instrument of lean as an autonomous improvement potential. A subsequent issue is
that, very frequently, the lean assembling framework is thought of as an assembling
floor venture utilizing things like JIT, kaizen, and andons, yet having almost no
relationship to the all out worth chain. Similarly, in different corners of the
organization, complete inventory network upgrades are being considered
autonomously from the more prominent all out assembling frameworks being
actualized.
In the early 1900s, Henry Ford had a vision of accomplishing his mass production
process with a vision of three days from raw material to finished product. Mr. Ford
did this by understanding the total value chain from lumber, elements, and raw
material through the entire supply base and into final assembly. He realized he
could not achieve total cost reduction without a full concentration on the complete
value stream. By the way, this was not known as a value steam in the 1900s—it was
only sensible way to achieve total
waste reduction and profit improvements while reducing the price of the product to
the customer. Likewise, if you look very deeply at the Toyota Production System,
or any successful lean system, you will need to realize that the company system
goes far beyond the manufacturing floor and extends to the total value stream of
suppliers. The system must incorporate the tools of lean manufacturing, aimed at
improving the strength of the entire group by the reduction of waste. Jeff has
worked to incorporate many of these tools.
Many major manufacturers in many fields have not begun to grasp the need to
work cooperatively with their suppliers to achieve real improvement. Their
approach to price improvement, inventory control, or any other improvement is for
the supplier to absorb all the cost, with the benefit only going to them as the
customer. Even today, they are not seeing that this approach will not only destroy
the supplier but also will not lead to cost reduction even in their own company. Jeff
wants to take you in a completely different direction in his approach to
understanding and approaching profit improvement through the total value chain.

Generally, the companies who have embraced and implemented lean

methodologies try to model themselves after the example of the Toyota Production
System (TPS). One of the hallmark features of the lean methods of TPS is that
there exists an underlying philosophy that guides individual practices and efforts—
that is, clearly defined ethics drive behavior. It is the critical nature of these
business ethics that enables the successful implementation and ongoing success of
lean practices.
The drive to win in the supply chain relationship determines the behavior exhibited
by the SCM professionals. SCM professionals in North America generally believe
that the tactics they employ are not only ethical, but positively contribute to the
buy-sell relationships. The way to validate the truth in that belief is to examine the
individual behaviors and their impact on relationship building. By moving from

3
destructive to constructive behaviors, the ethical and philosophical backbone of the
SCM strategy can be established, enabling a positive win strategy.
Moving toward lean manufacturing practices and systems in the suppliers'
operations represents the final phase of the crisis plan. This final phase, however,
does not end, is not a program, and represents a fundamental shift in business
management. Lean-based manufacturing, usually exemplified by the use of Toyota
Production System (TPS) methodologies, takes the art of kaizen to a different level.
Whereas we've so far discussed kaizen as an event, lean efforts transform
kaizen to a process encompassing the entire business enterprise. This concept
creates flow kaizen where the flow of material, information, design,
manufacturing, and administration are all parts of continuous improvement
efforts.
Taking lean disciplines to the supply base requires practical experience and
knowledgeable facilitators from your organization. Academic understanding of lean
systems is by no means sufficient to begin an implementation effort with the
suppliers. The information in this chapter defines just one of many methodologies of
beginning a lean enterprise implementation plan for the suppliers. The important
lesson here is that there needs to be a well-thought-out, and, even more important,
well-executed deployment of lean. Without planning and execution perfection, the
credibility of the practice and of the facilitators comes into question. The lean
practice never becomes an institutionalized business approach.

Inventory Management Policy

Toyota Production System

Toyota has successfully implemented and developed world-renowned inventory management

systems like “Just-in-Time” and “Kanban”. This lead to branding of its practices known as
“Toyota Production System”. TPS has evolved through many years of trial and error to
improve efficiency efficiently based on the these two concepts.
The process was set in motion due to the automatic loom invented by Sakichi Toyoda
not only automated work that used to be performed manually, but also built the capability to
make judgments into the machine itself. By eliminating both defective products and the
associated wasteful practices, Sakichi succeeded in rapidly improving both productivity and
work efficiency. Kiichiro Toyoda, who inherited this philosophy, set out to realize his belief
that "the ideal conditions for making things are created when machines, facilities, and people
work together to add value without generating any waste." He conceived methodologies and
techniques for eliminating waste between operations, between both lines and processes. The
result was the Just-in-Time method.
These philosophies of "Daily Improvements" and "Good Thinking, Good Products,
TPS has evolved into a world-renowned production system. Even today, all Toyota

4
production divisions are making improvements to TPS day-and-night to ensure its continued
evolution. This Toyota spirit of monozukuri (making things) is today referred to as the
"Toyota Way." It has been adopted not only by companies in Japan and within the
automotive industry, but in production activities worldwide, and continues to evolve globally.
Kanban, was originally developed at Toyota in the1950’s as a way to manage material
flow on the assembly line. Over the last few decades, the Kanban process—a highly efficient
and effective factory production system—has become a widely used tool in the
manufacturing environment and global competition. Kanban stands for Kan- card, Ban-
signal. The essence of the Kanban concept is that a supplier, The warehouse or the
manufacturer should deliver components only when they are needed so that there is no excess
inventory. The requirement for this was due to Japan having fewer natural resources as
compared to other big countries like USA and European countries, which leads to increase in
its costing of raw materials in many ways. This was well recognized by Toyota in order to
reduce its costs towards wastage. Toyota Production System has taken many years to
establish it-self by continuous rigorous improvements. The main motive behind its success is
to generate more profit through cost reduction. This also means producing vehicles and
delivering it to customers quickly and efficiently.
The concept of cost does not confine only to production cost in Toyota Production
System. It has a broader context, so in Toyota Production System, cost also refers to sales
costs, administrative costs, capital costs, etc. In manufacturing workplace like Toyota, the
principle of Toyota Production System is to reduce costs by simply removing waste. Waste
can manifest as excess inventory, extraneous processing steps, and defective products, among
other instances. All these "waste" elements intertwine with each other to create more waste,
eventually impacting the management of the corporation itself.

Toyota Production System (Sub-Goals)

Cost reduction has been given the highest priority in Toyota Production System, but there are
another three sub-goals too, which hold equal importance. They are Quality Assurance,
Quantity Control and lastly, Respect for Humanity.
1. Quantity Control– It allows the Toyota Production System to adapt to demand of
quantity and variety as per daily and monthly requirements.
2. Quality Assurance – It assures the Toyota Production System of supplying of only
good units to subsequent process.
3. Respect for Humanity – It helps in cultivating a system of respect in Toyota
Production System towards the utilization of human force to meet its cost objectives.
TPS makes sure that proper emphasizes are given to these three sub-goals because
they cannot exist or can be achieved on their own. This also requires influence from the
primary goal of cost reduction, which enables investment to be done for these three sub-
goals. Moreover, it makes a special feature of Toyota Production System that primary goal
will be hard to achieve without realization of its sub-goals and vice versa. In order to attain
such a system, Toyota has given special importance to “JIDOKA” and “JUST-IN-TIME
PRODUCTION”.

5
Just-in-Time System
In automotive industry, efficient production system is only possible by removal of
following three distinguished problems. The typical automotive industry will consists of mass
production assembly type, which will involve assembly of each vehicle from several
thousand parts which have also gone through numerous processes. So removal of any
obstacle in any of these processes will keep the proper functioning of the production system.
Otherwise, it may create a huge mess in whole production system if any of these processes
are having trouble. Huge fluctuations as per the demand of a particular model. Whereas, the
production house consists of numerous types and variations in other models. After every
couple of years, the vehicle is completely remodeled. This also leads to change of various
other small and big parts to complete a particular model.
The ordinary production control system allows fulfilling of the schedules of
production by holding work-in-progress inventory. Moreover, such a situation in production
house will lead to condition of excessive equipment’s and more than required labour, which
does not match up with Toyota’s expectation. Just-in-time production system helps in
avoiding such situations, where problems related to unbalanced inventory and excessive
equipment’s and labour are due to troubles and demand fluctuations. In order to achieve this,
all efforts are put in to develop a production system that will reduce the lead time from the
moment materials are entered to the completion of vehicle.
1. Withdrawal by Subsequent Processes: The first and the foremost important part of just-in-
time production, to gather accurate knowledge related to timing and quantity required.
Normally, every production system, but in case of Toyota Production System, follows the
production schedule of a particular product in automotive plant which is based on the various
parts schedules and instructions given to all the processes. The production of these parts as
per their schedule, lead to the implementation of preceding process of supplying the parts to
its subsequent process. But this process could only make it worse and difficult to adapt the
constant changes to meet the production targets.
On the other hand, Toyota adopted the opposite of preceding process of supplying the parts to
its subsequent process. In just-in-time production, parts are being produced as per various
processes in the exact required numbers and exact timeline for completing the assembly of a
vehicle, which is regarded as the final product of Toyota.
After connecting the above discussed processes and put into the chain fashion process, it
would be right to say that whole production process of the company is engaged in just-in-
time production without making unnecessary bulky production orders.

2. One Piece Production and Conveyance: This is the second important part of just-in-time
production. In this, all the processes must be able to fulfill the criteria of producing one part
in their respective process, so that, they are only left with one piece as stock and the other
part is moved to subsequent production processes to complete the vehicle. Therefore, no
process in the production is allowed to produce more number of parts and maintain surplus
inventory between the processes.
So it was necessary to understand this by every process and keep their approach in such a
way, that it only produces and conveys a single piece of unit for the final assemble line. All in
all, it meant no lot production and no lot conveyance. By following this, it results in ordering

6
of multipurpose vehicle equipment adhering to processing requirements for a single product
line.
Toyota successfully carried out all of these with its Toyota Production System and also with
its large number of sub-contractors.

3. Levelling of Production: To meet the requirements of this important point in just-in-time

production, all the processes must have small lot of production and conveyance. If the
situation arises and the huge quantity for the following processes is withdrawn. This will lead
to have excessive stock within the company and with sub-contractors all the time.
To make just-in-time succeed, priority should be given to final assembly line, so that it can
level the production. To meet the requirements of levelling of production in just-in-time,
assistance from managerial positions is very much required. Firstly, the final assembly lines
at Toyota are mixed product lines.
Furthermore, the production per day is calculated by the average number of vehicles
produced in the monthly schedule divided by the number of working days. Secondly,
calculating the cycle time of different vehicles on daily basis in the production sequence, so
that all the different vehicles appear according to their own cycle time. Once the assembly
line levels up with production, then the production of process of withdrawal and once piece
production and conveyance are also levelled.
Therefore, when the above mentioned production system is compared to general schedule
production system, it will be easier to operate with former system with minimal changes to
production than the latter system. Hence, it will allow in completing the task with less
equipment’s and more stable numbers.
Practicing the above three general rules in production control system is called KANBAN
SYSTEM.

4. Elimination of Waste from Over-Production: Derecognizing the value of existing inventory

is the most essential part of just-in-time production system. As per the classical production
control system, availability of inventory is very much appreciated in order to combat the
troubles and fluctuations of demand, and to smoothen the fluctuations in load of processes.
Whereas, Toyota sees this stock on hand, leading to collection of troubles and bad causes.
Most of the unwanted stock on hand is caused by over-producing the particular item than the
required amount, which is considered as the worst waste in Toyota Production System,
leading to overall increase in the production cost.
Now this prospect of waste makes it harder for employees to display their actual potential and
also leads to hamper the overall growth of the company.

Jidoka
The term means application of automation with the essence of human touch to it. For
Toyota, jidoka means that a machine must come to a safe stop whenever an abnormality
occurs. Achieving jidoka, therefore, requires building and improving systems by hand until
they are reliable and safe. First, human engineers meticulously build each new line
component by hand to exacting standards, then, through incremental kaizen (continuous
improvement), steadily simplify its operations.
Eventually, the value added by the line's human operators disappears, meaning any
operator can use the line to produce the same result. Only then is the jidoka mechanism
incorporated into actual production lines. Through the repetition of this process, machinery

7
becomes simpler and less expensive, while maintenance becomes less time consuming and
less costly, enabling the creation of simple, slim, flexible lines that are adaptable to
fluctuations in production volume.
The work done by hand in this process is the bedrock of engineering skill. Machines
and robots do not think for themselves or evolve on their own. Rather, they evolve as we
transfer our skills and craftsmanship to them. In other words, craftsmanship is achieved by
learning the basic principles of manufacturing through manual work, then applying them on
the factory floor to steadily make improvements. This cycle of improvement in both human
skills and technologies is the essence of Toyota's jidoka. Advancing jidoka in this way helps
to reinforce both our manufacturing competitiveness and human resource development.
Human wisdom and ingenuity are indispensable to delivering ever-better cars to
customers. Going forward, we will maintain our steadfast dedication to constantly developing
human resources who can think independently and implement kaizen. Toyota used it in
equipment’s or operations, which allowed them to stop the whole production process if they
found any defect in the relevant process. It can also be described as a distinctive feature,
which leads to stoppage of equipment or entire line, if there is a defect found in it.

i. Elimination of Waste Movement by Worker’s:

Hardworking workers in the organization can help in raising the awareness of their work
being worthy only if they add some value to the products. Workers movement in the working
space is also considered as waste. This is mainly due to movement of materials from one
place to another in the operations. It is mostly caused by large inventories.
Toyota is now able to effect large reductions in this kind of waste with the thorough
application of just-in-time production. However, this will help in reducing too much waste.
Due to this, it will do no good to workers and the production system, if their waiting time is
increased. Production system should avoid the situation where workers and equipment are
tied to each other.
It will only increase the idleness of the workers in the production system and to avoid
creating such scenarios in the production system, following changes are been made by
Toyota:
 Keeping labor occupied to multiple machines instead of attaching him to
single equipment.
 Workers concentration level is also checked in such situations. The worker
has to concentrate on certain parts of the equipment for producing acceptable
items without any faults.
 Lastly, creating such lines in the production system which requires minimum
supervisory. Workers sometimes perform such a waste in operations system
which is not required by the other workers. These are waste in operations
involving the physical danger, operations which are injurious to health,
requiring hard physical labour, etc. Moreover, waste in workers movements
which results in troubles of defect.

2. Considerations to Worker’s Safety:

Workers at Toyota are very hard working and are very enthusiastic for attaining the
production target. This allows the workers to continue his work, even if there is a problem
detected in operations has no serious issue to the production system working. The worker will
end up taking a non-standard method, so that the line keeps on running.

8
3. Self-Display of Worker’s Ability:
Nowadays, respecting the humanity of workers in most of the production shops are gaining
the international interest. Toyota believes in creating an environment of the highest order that
would be the foundation of human respect. In order to respect the human independence, it’s
not the conveyer belt that is operating the human worker, while it’s the human worker who is
operating the conveyer. Secondly, workers at all Toyota shops are well informed about the
priority order. This allows the workers to process those parts first which belong to the priority
list and also leads Toyota Production System into state of production advancement. Toyota
has also introduced a system in all the Toyota shops, which allows all the workers to
contribute towards the improvement in the system. Even a single employee at Toyota, who
found the waste, is entitled to use his right to remove that waste he has found from the
system. It will no more be the managers and foremen detecting the trouble, but as a
production system, its responsibility of every individual working in the Toyota Production
System. The above mentioned is also known as “visible control”. By implementing such
control in the working system, all workers in the Toyota Production System have taken
positive actions to remove the unwanted waste. This gave the delegation to exercise its
control and accountability for operating and constantly making things better for the workers
in the workshops.

Kanban System
Kanban system is a production control system which allows workers to fully utilize their
capabilities using the just-in-time production system. Thanks to Kanban system efficiency, all
Toyota workshops are in no longer in need of an electronic computer. There can be various
reasons for applying Kanban System as compared to electronic system. Following are few
important reasons which justify it:
1. Reduction in Cost Processing Information: By adding electronic system, it will
require a huge cost to implement such a system, which gives you the real time control of
production schedules for all the processes and suppliers.
2. Rapid and Precise Acquisition of Facts: Managers working in the Toyota
workshops believed in the Kanban System because it continuously provided the real-time
facts on various things like man power, production capacity, and operating rate. Moreover,
the data collected corresponding to the change was accurate enough to make managers and
workers to further improve the promotional activities and responsibility.
3. Limiting the Excess Capacity of Preceding Shops: Since Toyota being an
automotive industry, it will have many multistage processes where demand for a particular
item will gradually become more regular. This allows the preceding processes to have more
items in excess capacity. Hence, it will lead to waste of over-producing. Kanban system is
also considered as a tool to achieve the just-in-time production system.
For a scheduling process to be considered a true Kanban, the production process must
 Only produce product to replace the product consumed by its customers
 Only produce product based on the signal sent by its customer’s

There are two versions of Kanban. The first one is called “conveyance Kanban” which deals
in going from one process to preceding process. And the second one is called “production
Kanban” which is used only for order production purposes by simply withdrawing through

9
subsequent process. Both versions of Kanban – Conveyance and Production are always
attached to the boxes of the parts required by the processes.
When the worker wants to use the content of a box or container, he simply removes
the conveyance Kanban from the container or box. A worker than takes this conveyance
Kanban to the stock point of preceding process to collect his required part. The worker will
simply attach his conveyance Kanban to the box which will consist of his completed part.
Once the box or container is received by the production process, they remove the conveyance
Kanban and replace it with production Kanban. After this, the production Kanban is removed
from the box or container and is sent directly to dispatching process. Hence, the production
activities of the final assembly line are all inter-connected, just like a chain, which contributes
largely to just-in-time production system of the entire process which alter on goes through
preceding processes or to sub-contractors and then materialize. Finally, when all the parts are
assembled and processed in vehicle, it increases the overall value of the product. Gradually,
one by one all the vehicles are rolled out from the workshops. If any trouble is found, it will
stop the whole line straight away, but immediately it will start and rolling out the vehicles.
Toyota Production System is a kind of a set-up which helps in creating the awareness of such
an ideal conveyor line system for businesses around the world and Kanban system also
contributes in this conveyor by simply connecting all the processes.

Sourcing Framework

Purchase policy pursued by Toyota: Toyota has developed three basic principles that guide its
relationship with suppliers with a view to optimising its purchases in a global context. These
principles are the following:

i) Fair competition based on an open door policy:

Toyota is open to any potential supplier, regardless of nationality, size or whether this
company is a first-time supplier or not. Toyota’s co-operation with SME suppliers is solely
based on business considerations, which include an assessment of the overall economic and
technological capacities of the potential supplier. Critical parameters of this evaluation are
quality, cost, technological capabilities and reliability regarding the on-time delivery of the
required quantities of inputs, as well as the entrepreneur’s ability to implement a kaizen
strategy, which means the continued improvement and enhancement of products, services and
management.

ii) Mutual benefit based on mutual trust:

Toyota believes in developing mutually beneficial, long-term relationships with suppliers
based on trust and confidence. Close and wide-ranging communication with them is
considered a key factor in building and maintaining trust.

iii) Contribution to local economic development through localisation and corporate

governance:
As part of the on-going globalisation efforts, Toyota is relocating a larger part of its
production to other countries. It is its objective to contribute to the host country’s economic

10
development in line with Toyota’s market presence by purchasing parts and other inputs from
local suppliers.

Global Optimum Purchasing Framework

The Global Optimum Purchasing Framework provides the basis for Toyota’s worldwide
contacts with suppliers. By helping to identify and to recruit the most competitive suppliers,
Toyota ensures that all its branch offices purchase inputs from the most competitive source.

The Framework has three main elements:

 The global cost comparison system
This system helps to evaluate the competitiveness of purchased inputs at a global
scale.
 The new suppliers and technology recruitment programme
Under this program, relationships with competitive suppliers are identified and
developed.
 The reinforcement programme for current suppliers
This program assists established suppliers to enhance their international
competitiveness.
These components of the Global Optimum Purchasing Framework promote competition
among current and potential suppliers, thus contributing to an on-going improvement of both
products and services, as well as enabling Toyota to secure inputs from the most competitive
suppliers in the world.

Reinforcement Programme for Current Suppliers

The Reinforcement Programme for Current Suppliers is a framework for supporting

individual efforts by established suppliers to increase their international competitiveness. It
is part of Toyota’s policy to build steady, long-term relationships that spawn mutual benefits
amid a spirit of mutual trust. The enforcement programme for current supplier comprises two
parts: the Toyota Target Value System and the Suppliers Support Programme.

The Toyota Target Value System

The Toyota Target Value System is a complex system that is continuously applied in Toyota-
supplier relationships. Under this system, Toyota and a supplier agree on a number of long-
term issues and objectives to strengthen the supplier’s competitiveness. In the course of
intense consultations, the long-range objectives are scaled down to annual targets, the so-
called “target values”. On this basis, the supplier undertakes appropriate steps and measures
to reach these goals as agreed. Progress is regularly evaluated in terms of organization, effort
and achievement and the assessment is communicated to the supplier. Suppliers that succeed
in raising their levels of competitiveness receive awards. In case suppliers experience
difficulties in their efforts to attain the agreed targets, Toyota provides expertise to analyse
the problems and to design measures to remedy the situation.

11
 The continuing circle of improvement, attainment and further improvement enables
suppliers to improve their competitive edge, while laying the foundation for a stable and
long-term business relationship with Toyota, as well as for a broadened range of business
opportunities.
This long-term approach also helps to overcome problems emanating from economic
recession and turmoil. For example, during the recent economic crisis in Thailand a number
of local suppliers faced severe liquidity problems. At the same time, Toyota Thailand was
aware of the fact that without a stable network of local suppliers its own existence was at risk.
Hence, Toyota realised the gravity of the situation and initiated various support measures.
These measures included price adjustments to mitigate adverse effects of exchange rate
fluctuations, advanced purchase to increase turnover, compensation of dead stock stemming
from order declines, encouragement of job transfers from local companies to local joint
ventures to utilise excess capacity, and efforts to increase the volume of local inputs at the
expense of imports.

Required qualifications of suppliers

As a basic rule, Toyota expects its suppliers to excel in quality, cost, delivery, engineering,
including technology, and management. These are the five key areas that shape competitive
entrepreneurs and make them successful in a competitive environment. Thus, Toyota
requires suppliers to maintain consistently high quality levels which can be measured in
terms of the number of defect parts per million. In addition, suppliers need to build and to
maintain a strong position regarding unique designs or special technologies, while being cost-
competitive. They also need to follow and to monitor trends in information technology and
be able to harmoniously amalgamate state-of-the-art technology with their business
organization.

Toyota’s Expectations from Suppliers

Excellence in critical areas

Cost
Quality Delivery
No.1
Management Engineering

To be successful with Global Competitiveness

It is often necessary that potential suppliers undergo a preparatory process before

entering a business partnership with Toyota. During this period, the management should
attach particular emphasis on the following issues:

 Encouragement of an enterprise culture of creativity, continuous learning and

improvement

12
  Particular attention on R & D, which should go beyond technological issues to include
an analysis of both customers’ needs and competitors’ competitive potential
 Improvement of employees’ satisfaction in order to promote creativity and strengthen
organizational development
 Strengthening the management information system to help executives to take
informed and effective decisions

The Reinforcement Program for Current Suppliers

No.1 GlobalCosts
Global Costs
Toyota Target Value System Competitiveness Comparison
Comparison
Database
Database

Common Understanding
Kaizen Annual Target
Cycle
Higher
Supplier Support Program
targets

New Suppliers
Awards Evaluation

TOYATA’s INBOUND NETWORK:

In North America alone, Toyota spends about $26 billion each year on parts and $1.5 billion
in services from 660 suppliers across more than 30 states, Canada and Mexico. About 75% of
its inbound material is sourced in North America, with a large concentration of suppliers
around Midwest states, including Kentucky, Ohio, Michigan and southern Ontario, as well as
the southeast. Although it has some suppliers in Mexico, Adams says that the company has
not seen a migration south. “There was a push for that a few years ago, but our new model
launches have mainly used our existing supply base,” he says. 

 The inbound network is highly planned and synchronised, and designed for material
to be touched a minimum number of times. The most efficient flow is what Toyota
calls a ‘direct route’, which is from one supplier in a full truck or else a truck
that makes multiple stops before going direct to a plant.

 Some plants have multiple lines and docks, such as Georgetown. In such cases,
Toyota uses ‘separation centres’ near the plant to manage the flow between
truckload and the assembly line. For these routes, carriers collect material by milkrun
before delivering full loads in sequenced timeframes to the separation centres,

13
 which sort freight according to dock or course code, and shunt trailers to the factory
door.

 The third mode for trucking is regional crossdocks. For longer distance or smaller
suppliers that cannot go direct to the gate or separation centre, trucks collect the
material from suppliers and deliver to crossdocks (movements that Toyota calls ‘sub-
routes’). The crossdocks work the same way as the separation centres, except the
freight is sorted according to different plants and trucked by ‘main routes’ to the
factory gate, or again to separation centres in some cases. 

External separation centres and crossdocks are both outsourced to providers. All the facilities
are dedicated to Toyota, except for two crossdocks that can be shared in Knoxville,
Tennessee and Dayton, Ohio. “Our vendor can bring in any company it wants to these
crossdocks, although the freight must be handled separately,” says Adams. 

Less than 1% of Toyota’s freight moves less-than-truckload, says Bold, which is made up of
low volume and long distance suppliers. There is no planned air freight in its network, adds
Brown. “We don’t plan any air freight but of course we have to use it sometimes – we
certainly did as we recovered from the earthquake”

Rail struggles to keep up

Toyota uses very little rail in North America, as the mode usually cannot match the
carmaker’s strict routing schedules. Only the Baja plant in Mexico, which builds the Tacoma

14
pickup truck, relies on rail. Material is consolidated in Chicago and in San Antonio and railed
from both points to Mexico.

oyota also used to move by rail from its San Antonio plant to the Midwest but as the
carmaker ramped up production last year, it found that rail could not keep up with supply.
“We switched from rail to over-the-road to get more flexibility,” says Adams. “We learned a
lot about lead times during that period and how flexible our supply systems were and weren’t.
Rail just couldn’t keep up.”

Brown says that Toyota would like to look more into rail, and it is currently considering a
new lane for backhauls out of Baja back to Texas, as the Baja plant builds truck beds used for
the Tacoma truck built in San Antonio and shares other suppliers. “We need to look more at
rail but the fluctuations in lead times are a concern for us,” says Brown.

Import/export

Toyota imports parts from overseas to North America, mainly from or via Japan. It receives
about 160 full containers per day – nearly 80,000 TEUs per year. The total to each plant
varies considerably; at Georgetown, where the Camry and Avalon are around 85% localised,
it is only 13 containers per day, says Brown.

Almost all parts from Asia are repacked and consolidated in vanning centres in Japan, then
imported to North America; the exception is Brazil, from which Toyota imports directly to
the port of Norfolk. TEMA does not manage imported containers; Toyota Motor Corporation
in Japan buys the sea freight and each plant contracts carriers to move it from ports.
Containers are only opened at the factory dock. 

By contrast, exported parts are under Brown’s responsibility at TEMA and he says they are
growing to Russia, Japan, Brazil, Central America, Europe and Australia. Toyota currently
exports about 1,500 containers per year from North America – about 3,000 TEUs.

Most exported parts, including those for FTA projects, are consolidated at crossdocks in San
Antonio and Chicago. San Antonio is 100% pallet-based shipping, says Adams, so the
crossdock receives freight and loads it directly into sea containers.

Chicago has both full pallet and module shipping. Workers break down pallets by box type
and put them in modules for some customers, such as for Toyota’s CKD production in
Russia, says Adams. 

Some FTA projects move in other ways. TEMA ships leather from Mexico to a provider that
has a free trade zone in Laredo, Texas, and from there moves it onward to Japan.

Packaging loops – a consumer and a supplier

15
TEMA i.e. Toyota Engineering and Manufacturing North America, has several packaging
projects for both returnable containers and designing standards. While TEMA’s central
viewpoint is again important, packaging touches so many parts of the supply chain that it’s
essential to work in concert with plants, Production Control and third party providers. In
many ways TEMA’s role is to track the KPIs and processes across the chain. 

Toyota’s container loop is a huge operation, as 98% of the packaging in North America is
returnable. Trailers that deliver components are reloaded with empty boxes to return to
suppliers or crossdocks. For Bold, this loop means that Toyota is not just a customer
receiving parts, but also a supplier expected to return packaging to tier ones. “So, as a
supplier, we have to monitor that we are delivering our output – that empty box – in the right
quantity, right place and in a clean and working condition,” says Bold.

Toyota does not use any outside providers to manage its packing loops. In terms of
ownership, Toyota’s Canadian operation owns the supplier packaging, while in the rest of
North America the plants control the packaging, but the asset is ‘transferred’ to tier one
suppliers and carried on their books, says Bold. As with other OEMs, the carmaker faces
issues with tracking and losing boxes, but somewhat typical for Toyota, it does not use any
automated or barcode scanning system to track them (although it does have a loading
verification system for parts at crossdock and separation centres). TEMA has instead worked
on improving the loops through more central oversight and monitoring. Likewise, the
network integration across North America means that packaging assets are shared more
across locations, which makes proactive management necessary.

Toyota Group & Suppliers Organization:

 Toyota Industries Corporation (Manufacture and sales of spinning and weaving

machines, industrial vehicles and Automobiles)
 Aichi Steel Corporation
 Toyota Auto Body Co. Ltd
 Denso Corporation
 Toyota Tshusho Corporation, etc

16
Optimization of one part of the Supply Chain
Manufacturers have been compelled to advance or become irrelevant with regards to
upgrading the procedures just as exploring the new devices and best practices for supply
chain management. Most have turned out to be intensely mindful of the difficulties and
exchange offs that influence their undeniably unpredictable, focused and straightforward
stock chains. Anytime, an improved store network remains lean, oversees costs and maybe
most basically, reacts immediately to even minor changes sought after.

While there is no single playbook to guarantee achievement in an amazingly powerful

worldwide market, here are five hints that ought to be considered for the assembling venture:

1.Think Globally however Act Locally

This isn't just a geographic reference; however it is likewise a significant point to think about
when contemplating inventory network or worth chain arranging. Organizations
progressively should think as far as worldwide open doors for acquisition of merchandise
AND enterprises, and when thinking about the worldwide needs of the company. Producers
ought to think about numerous channels and decide the ideal degrees of stock inside the
echelons of the inventory network process. This is additionally basic to consider carbon
impression levels and guarantee the greening of the production network. Be that as it may,
during the execution of the inventory network it is essential to advance locally to boost your
interests in basic assets: foundation, resources and innovation.

2. Concentrate on Core Strengths and Outsource every other Activity

Numerous associations attempt to do such a large number of things or don't understand that
they can re-appropriate monotonous or undertakings or irregular tasks (for example deciding
the ideal dissemination arrange; the installment and review of cargo bills or supporting
improvement of its data frameworks). Frequently it appears just as an associations' inward
assets can improve work in the short run. Frequently, by depending upon a particular outsider
supplier, a superior worth will be acknowledged in the long haul. Concentrating on your
associations center skills will enable you to develop your business.

3. Improve Collaboration Between Manufacturer/Supplier and Retailer for Demand

Data Driven Forecasting and Inventory Management
This will enable associations to decrease stock, improve satisfaction rates and item
accessibility at purpose of procurement and guarantee a lean store network improving edges
and benefit. Today, innovation gives horde chances to team up, there is a multiplication of
information accessible to be mined and propels in processing force and availability enables us
to test for optimality in consistently expanding territories.

17
4. Use Mobile-Based Technology
This innovation can help improve field deals, merchandizing and advertising, and empower
direct administrations to the purchaser (through customized location-based coupons or
services that improve representative efficiency in the field). Giving data, for example,
provenance, inception, thing substance and particular data on interest about supportability,
local content or assembling system improves the brand and enables organizations to associate
straightforwardly with the shopper.

5. Construct a Responsive Supply Chain

Use source information, for example, POS deals, also internet based life data to distinguish
patterns and request changes a lot prior and empower your store network to react quicker to
build deals, improve administration levels and reposition stock to augment genuine
advantages. Multi-channel projects will change desires from production network
guaging/arranging ideal models to building responsive stock chains.

Supply chain performance metrics

Tracking the performance of manufacturers is instrumental in assessing whether they are
demonstrating improvement. Each organization must survey what estimations and
measurements are significant assessment devices for them. Most associations track different
execution criteria, and in spite of the fact that there are a bunch of estimations that could be
utilized when developing suppliers, the agreement among most specialists is that the
accompanying measures are the most significant:

• Delivery
• Quality
• Cost
• Benchmarking

Delivery
One would be slanted to accept that late conveyance ought to be the main measurement in
surveying execution. Indeed, late conveyance isn't the main thing that ought to be estimated
here. Conveyances made too soon can negatively affect execution. For example, if a producer
has little space to store stock, the material could undoubtedly be lost and inaccessible when it
is required for creation. Likewise, early conveyances could affect the conveying expenses

18
brought about by the maker. So it is essential to take note of the potential effects of early
conveyance.

Bruce Nolting, ranking director of obtaining and generation control for Toyota Industrial
Equipment Manufacturing, accepts "that conveyance is the most testing part of (provider)
improvement." Toyota set its objective at 100% for on-time conveyance and requires, as a
rule, that the conveyance be made inside one hour of when the parts are required. Toyota
possibly considers a conveyance as complete when the *entire* request arrives when
planned. This is a troublesome standard for most of providers to meet, so Toyota must be
specific during its provider choice. Be that as it may, Toyota is eager to work with the chose
providers to create them so they can meet these troublesome achievements .

Quality
Estimating quality enhancements is crucial to measure the improvement of a provider. A
provider needs to show its eagerness to adapt new systems and to work broadly with the
association it is providing. Organizations must be eager to work with their providers to help
decrease/wipe out mistakes and surrenders, or in any event direct their providers in lessening
quality issues.
Honda of America has demonstrated great outcomes through its quality improvement
programs with its providers. Honda holds a yearly provider meeting and distinguishes zones
for development just as perceives providers who have demonstrated excellent execution .

Cost
Maybe the most effortless assessment apparatus to quantify, expenses can be immediately
recognized. Diminishing provider costs impacts the organization's primary concern
legitimately. Frequently the focal point of consideration, two strategies for following a
provider's cost decrease endeavors are regularly utilized. The main technique is to follow
provider costs, balanced for expansion. Another strategy is to benchmark a provider's
expenses against comparable providers.
Cost decrease is an advantage of experiencing Honda of America's BP Program. In this
program, Honda works broadly with providers on ceaseless improvement extends and expects
that the provider will divide the cost reserve funds into equal parts. This demonstrates the
degree of participation important to summon this sharing of cost reserve funds .

Benchmarking
Why start without any preparation when others have made ready? Realizing which
organizations have effectively created shared providers is basic in starting the procedure.
Organizations that have displayed achievements around there need not be in a similar

19
industry, yet the procedures ought to be comparable in nature or reason. For instance, Honda
has viably utilized provider advancement methods for a long while now .
Honda has conveyed this procedure over to its North American assembling gathering. Honda
North America has made what is known as the BP Program. This methodology centers
around the accompanying territories of undertaking improvement:

• Best Position – improve worldwide intensity

• Best Productivity – improve the procedure
• Best Product – improve quality and conveyance
• Best Product – decline cost
• Best Partners – improve Honda/provider relationship .

The program is a hands-on endeavor that endures 13 weeks and has been fruitful in more than
120 activities. Its point is to improve efficiency inside the provider's activities. Be that as it
may, the essential driver of achievement in these activities isn't building know-how given by
the Honda gathering, yet correspondence among organization and providers. At first Honda
colleagues invest impressive energy at the provider's office to exhibit their responsibility to
the program and their devotion to constant improvement systems. As a rule, representatives
associated with creation are reluctant to acknowledge Honda's contribution, having seen the
disappointment of different projects. When these workers have gotten tied up with the
program the enhancements start to compound. Taken exclusively, these enhancements are not
significant, yet saw together they can emphatically influence the presentation of the
association.

Integration Strategy

Integration is a 2-dimensional strategy: Horizontal integration and Vertical integration.

Toyota for the most part is concerned with vertical integration which includes both
backwards and forward integration. The core business of Toyota is the production of
automobiles. The production of automobiles includes gaining components such as tyres and
batteries from external producers. Integrating these producers via mergers or acquisitions
could lead to greater efficiency in terms of lower cost and knowledge sharing. It also ensures
a stable and reliable supply of components and eliminated the threat of supplier bargaining
power. An example of Toyota’s backward integration policy includes the Panasonic EV
which is 60% owned by Toyota and develops car batteries for Toyota’s hybrid automobiles.

20
Toyota is an epitome, when it comes to vertical integration strategy. But before choosing and
applying that strategy, it looked at the advantages and disadvantages of outsourcing or buying
from the market vis-s-vis making products in-house (vertical integration. The following
matrix summarises the gist of vertical integration and outsourcing.

Since, the cost of producing in-house has always been lesser for Toyota, it has become a
pioneer in vertical integration strategy. Another example of this can be the deal between
Toyota and Orocobre for the extraction of lithium (used in car battery), in which Toyota took
an equity position in Orocobre to promote huge investment which is required for the
extraction of Lithium.

21
The company also follows outsourcing strategy in some cases where it has dependency on
knowledge or capacity or both.

 Engines:
 Company has knowledge and capacity
 100% of engines are produced internally
 Transmissions
 Company has the knowledge
 Designs all the components
 Depends on its suppliers’ capacities
 70 % of the components outsourced
 Vehicle electronic systems
 Designed and produced by Toyota’s suppliers.
 Company has dependency on both capacity and knowledge

22
Toyota seems to vary its outsourcing practice depending on the strategic role of the
components and subsystems i.e. The more strategically important the component, the smaller
the dependency on knowledge or capacity.

CHALLENGES:

 Toyota’s “QUAKE-PROOF” Supply Chain That Never Was:

The lean and J-I-T principle was somewhat fragile since a single disruption at a local
supplier can bring the entire global operation to its knees and with little stock to draw
up, a jammed supply chain cost the company dearly.
This weakness was first dramatically exposed in the March 2011 earthquake. The
quake and subsequent tsunami, had a devastating impact upon Toyota. In a matter of
hours, 75% of the company’s profits were washed away. Most of its Japan-based
production plants were closed as its supply chain suffered from a widespread shortage
of parts that persisted for weeks.
Since the 2011 incident, Toyota has worked closer with local suppliers to share supply
chain information, and develop its RESCUE (REinforce Supply Chain Under
Emergency) system to protect Japanese manufacturing. This is a database of supplier
information that identified vulnerabilities and parts information of over 650,000
supplier sites.
It also implemented a 60/20/20 supply model that split spend between several
suppliers to spread risk. Should the main supplier (providing 60% of volume) fails,
production from the remaining two vendors can be ramped up to meet the short fall. It
was thought that building in this redundancy into the supply chain could marry
resilience to lean principles.

 Toyota's deeply integrated ties with its parts makers actually permitted the problems
with the pedal modules to occur. How? The automaker has remained lean while its
volume has increased dramatically since the days when the company's principles and
methods were established. Thus, Toyota can no longer maintain sufficient support and
quality control, especially as it adds new suppliers around the world. Yet it still
governs the design of key components.

 Toyota's streamlined supply base is at fault. By relying so heavily on sole suppliers

and using parts across multiple platforms and vehicles, the automaker increases its
risks.

 Toyota's methods have minimised the damage - enabling a relatively quick fix to the
sticky pedal problem because of the automaker's inherent ability to work closely with
suppliers on engineering solutions.

23
REFERENCES:

https://www.supplychain247.com/article/toyota_to_formally_integrate_companies
https://www.studocu.com/en/document/adelphi-university/supply-chain-
management/mandatory-assignments/toyotas-crisis/2750000/view
https://www.just-auto.com/comment/supply-chain-management-and-the-crisis-at-
toyota_id102995.aspx
https://www.forbes.com/sites/jwebb/2016/04/26/toyotas-quake-proof-supply-chain-that-
never-was/#683275972101
https://notesmatic.com/2018/09/supply-chain-management-at-toyota/
https://studymoose.com/supply-chain-drivers-on-example-of-toyota-company-essay
https://www.automotivelogistics.media/toyotas-total-supply-chain-vision/8729.article
http://www.business.illinois.edu/josephm/BA449_Fall_2014/BA449Chap008.ppt

24