Global Supply Chain Management

 

Global Supply Chain Management

“Supply chains are only of interest to customers when they go wrong”: The case of Toyota Motors Corporation

Abstract

Toyota Motor Corporation again reclaimed its title as the world’s largest automotive manufacturer in 2012. It had held this title in 2008 then lost it to General Motors due to the Japanese earthquake and publicly raised questions regarding the quality it offered caused by the death of around 40 people. This disrupted production, negatively affected its reputation, and caused shortage in motor vehicles. Despite these Toyota has worked at boosting its sales through full production, offering higher discounts, and increasing sales incentives. It has done this to regain its market share. Its, sales volume also comprise, Daihatsu Motor Company which makes mini cars and Hino Motors Limited which makes trucks. Regains in Toyota’s sales value are also due to demand for its Prius hybrids and sports cars. Toyota expects to gain more profit this year due to the weakening of the yen against the dollar as well as due to gains in sales (Marshall, 1997: 112). Supply chain is combination of activities and roles to attain an organization’s value proposition to its customers. Supply chain management at Toyota is based on Toyota Production System.  This principle comprises principles that govern chain management. They are, just-in-time system, Heinjuka, Kanban, lean manufacturing, capacity planning among others. Kanban stipulates that every car part has a card, upon its use the card is removed there authorizing creation of new stock. Capacity planning aims at eliminating stock. Lean principle is customer care oriented and strives at waste elimination. However, its major objective is waste elimination since it is based on pull system. Just-in-time involves strict deliveries. Its elements are waste elimination, stock reduction, quality management, continuous improvement, co-operation, and problems exposition.

Theory of supply chain strategies

Supply chain involves flow of information, resources and products. Business supply chain strategies are influenced by the market place, value proposition, internal processes, and connection between supply processes and business strategies. Interaction between suppliers, consumers, and economic factors is what refers to the market place. Drivers affecting supply design in market place are variation in demand, market mediation costs, lifecycle of product, and asset costs to total cost relevance (Liker, 2005). Demand variation fosters efficiency in production and cost of product. Market mediation costs show the unstable balance between demand and supply caused by ease of predicting demand. Product lifecycle is gradually decreasing therefore businesses are compelled to increase product development speed and update product portfolios often. Asset cost to total cost relevance shows the correlation between profits and asset utilization rates. Where low, businesses opt for responsiveness strategies. Value proposition is about understanding the competitive position of a business in supply chain. It enables an enterprise to determine the combination of major elements to include in supply chain processes to fulfill promise of quality products to customers. Connection between supply processes and business strategies creates managerial focus in a business (Sunil& Peter, 2001). It ensures that competitive positioning of a business correlates well with supply chain strategies. Internal processes ensure asset utilization and decoupling point identification. Decoupling point involves a commodity being fashioned according to unique specifications of a particular customer. Basing on these four drivers, supply chain models are categorized into efficiency-oriented and responsiveness-oriented.

Efficiency-oriented supply chains.

In these chains, value proposal is shaped toward low cost or high asset utilization. They are efficient, fast and have continuous flow. Efficient supply chain model is characterized by intense market competition and recurrent peaks in demand variation. Value proposition requires best pricing and perfection in fulfilling orders (Lamming, 1993). To attain all round efficiency, asset utilization rates, equipment efficiency and forecast accuracy should be high. Fast supply chain model is for products with short lifespan. In this case competition is driven by reduced market mediation costs. Companies adopting this model have to keep updating their product portfolios. Continuous-flow supply model depends on stability of demand and supply. High service and low inventory levels are achieved through competition which is based on giving continuous satisfaction of products to customers.

Responsiveness-oriented supply chains

They are meant to provide response to demand variability and uncertainty. They are agile, flexible and custom-configured. Agile supply chain model is for companies that product unique products for specific customers (Liker, 2004). Products are produced after a customer makes an order. Competitiveness therefore depends on the ability to meet unpredictable demand. Custom-configured supply requires high degree of asset cost to total cost relevance. Product configuration can be done through packaging, and mixing, among others. Competitiveness is based on the specific requirements of the finished product by the customer. This is a lot like branding. Flexible supply model is good for service providing companies that deal with unexpected demand. Companies should be able to reconfigure internal processes to meet customer’s needs. Competitiveness is therefore based on speed. Companies want to merge capabilities in their supply chains but skills require required for them are diverse. The only way businesses can apply the different capabilities is by using different supply chains within that single business (Lee, 2004: 109).

Obstacles to overcome in Toyota Motors supply chain management

Toyota Motors in Northern America is faced by slow investment in capacity by the carriers and cross dock suppliers. This therefore is making supply inefficient which is giving an upper hand to othercompetitors. New government regulations enforcing driving hours means supplier’s labor in North America will be constrained. Most chain supply systems have 24-hour working programs therefore government enforcing restrictions on the number of driving hours would mean Toyota Motors has to figure out how to compensate for lost time in supplying. Toyota Motor Engineering and Manufacturing, logistics control team, has come up with several projects. They want to measure internal and in-plant logistics engineering, minimize cost but increase efficiency, centralize operational logistic functions, map logistic flows and define trucking routes. All these supply chain strategies and projects are good but executing them is very difficult. Toyota Motors, faced by 40 deaths due to acceleration problems has raised questions on the quality they deliver. It has negatively affected the reputation of the corporation and rectifying that is close to impossible. Customers have in turn questioned the lean concept applied in chain management hence questioning the principles upon which its supply chain system is founded. Consumers have been increasingly demanding (Krajewski, Ritzman&Malhotra, 2006).

The high demand for Toyota Motors products has led to its rapid expansion in a few years. This has raised concerns over how well advancedits quality systems are to keep up with this growth. Growth has emphasized more on supplying cars and the Toyota Production System principles could have been undermined. This has shifted strategies from consumer satisfaction to cutting costs, and eliminating waste for profit making. It has jeopardizedreliability, quality and efficiency of the corporation. This is why lean concept principles have been questioned yet it is the negligence of management by corrupting them (Sunil& Peter, 2001). Toyota Motors is also facing low ratings on quality from organizations like JD Powers which said their knowledge and belief has decreased over the years. Bad publication is the beginning of ruin for any good business and Toyota has to figure out a way to promote its public relations skills. Toyota Motors in North America lacks enough Toyota Production System experts (John, Naim&Towill1995: 190). Language barrier has hindered training of American supervisors by Japanese experts. This is therefore jeopardizing supply chain management as it is being based on different principles to the stipulated ones. Increased rate in the depreciation of motor vehicles is another problem faced. It requires that Toyota Motors keeps manufacturing more products which affect the quality of products manufactured. The most recent and greatest challenge that Toyota is facing is risk and disaster management. After being hit by the Japanese quake and tsunami, it had to rethink its supply chain setup to incorporate risk management in its chain strategies. It has considered standardizing parts as well as reducing costs.

Preparation of customers for potential supply chain breakdowns

It is the duty of chain management to minimize disruptions in business operations. Most businesses lack skills to minimize risks which in turn paralyzing operations. Customers have ignored supply chains of the organizations whose products they purchase. First most important way of preparing them for potential breakdowns is by emphasizing on the importance of knowing models of supply chains used by organizations (Hines, 2004). This prepares them psychologically that suppliers are erroneous like any other business procedures. With this basic knowledge they would know how to handle diverse inefficiencies in supply.Checking indicators is one way. When suppliers of Toyota Motors are showing weakness in capacity and performance that means supply chains are likely to be affected (Stonebraker& Raoul, 2004: 70). Customers should look out for financial problems, reduced maintenance spending, and untrustworthy suppliers. This can be done using tools that show performance measures. This will help customers decide whether or not to buy Toyota Motors products. Customers can also draw up contracts with a Toyota Motors regarding their compensation in case of any disruptions in business. This contract should cover measures they will take in case of low quality products, harmful products and breach of contract. This ensures the supply chain is secure and builds customers confidence in Toyota Motors. Quantify security risks that could affect Toyota Motors. There may be no internal issues that jeopardize its supply chain system but other external factors could. Consumers should consider the rate of political instability, natural catastrophes, economic protest, national labor strikes and incompetence in governments of the country where it is located. If the business is in a favorable environment then there is no hesitation in buying its products. If otherwise then a buyer can look for another business instead of taking such huge risks (Martin& John, 2005: 117).

Toyota Motors is mainly based in Japan and the country is prone to earthquakes and tsunamis due to its geographical location. It is therefore a risky business and a consumer should consider the impact it poses to security of supply systems. Check the security of modes of transportation used by suppliers. Suppliers use different modes to transport products to customers. Customers should therefore investigate security risks faced by these modes of transportation and decide if they safe enough (Hau,2002: 115).Toyota Motors mostly uses ships and ports to transport its commodities globally. Consumers should therefore consider the efficiency of Japan based ports and security codes they have in addressing risks. They should also assess their effectiveness in implementing these measures in case of risk occurrence. It is hard for customers to know of all possible risks in supply chain management of an organization. Despite all these measures on how prepare and prevent risks in chain supply management, the best any stakeholder can do is hope for best and prepare for the worst.

However, Toyota has a cardinal attribute where tight controls are maintained over the general design and engineering of all the vehicles. Moreover, the company only outsources to dealers who have a tested and proven ability to deliver within the required continuous innovation, cost reduction, quality, and timeliness. The company has a close collaboration with the suppliers and their concerns are responded to with mutual respect and integrity. Therefore, the company has established a remarkable professional trust level as well as an overriding product quality preoccupation.

Importance of lead-time management and time compression

It has been argued that time is a competitive tool in organization processes (Stalk and Hout, 1990). Total Cycle Time implies that short time cycles when productively used can lead to better output in businesses. Lead-time begins when requests for a product are made to the time the product is delivered. It consists of order information pipeline and material flow pipeline. Lead-time depends on cycle time, patience of the customer, willingness to backlog and readiness of customer to receive a delivery. Lead time is the most efficient way of reducing stock. In perfect markets lead time is considered zero (Desflammes, 2012). There is warehouse space, no following up on orders, no damage on products, and reduced risk of theft and cost.  Cycle time begins when one starts to work on the request and ends when work is ready to be delivered.Cycle time measures process capability. Time compression involves compressing information time so that its remains meaningful. Order information time compression ensures information compression through direct feeding of every supplier in supply chain with relevant data. This ensures suppliers not only make decisions based on internal data but also from knowledge of what consumers are buying. This promotes flexibility, stock reduction and speed improvement. Consumers are increasing demand for instant quality product. This means that companies have to provide for these needs on time (Min &Mentzner, 2004: 80). Marketplace competitiveness is influenced by consumers’ choice therefore businesses have to ensure they provide required quality products within short time possible. This way they retain their customers. This has made speed of data important to an effective supply chain time compression strategy.

Analysis of global supply chain management

Due to globalization and offshore sourcing, global supply chain management has occurred .It is fostered by need to reduce procurement cost and to reduce purchasing related risks (Ludwig, 2013). Globalization requires an organization to consider tariffs, cost of expansion, technology level, exchange rates, time in overall procurement plan, weather conditions, customs clearance time, and political situation of other countries. Organizations first have to plan their overall outsourcing strategy (David & Tomas, 2007:577).They need to have a supplier selection strategy. Now that the organization is globalizing it will require management to choose international suppliers from a range of them and also determine how many they should. Globalization will also entail deciding how many to plants and where exactly they should be situated, which is quite challenging for logistics. For organizations to remain relevant, they have to be part of world class performing supply chains. Therefore, companies need to work together to maximize market share.

Conclusion

Industrial framework or marketplace now comprises many well-developed trademarks. Customers have also become more demanding, quality-oriented, time conscious, and have high expectations of variety in products. This has resulted to all supply strategies being consumer oriented to remain relevant in the market. Supply chain models are based on flexibility, efficiency, fastness, agility, customer configuration, and continuous flow. They are driven by transportation, facilities, information and inventory (Tunc& Gupta, 1993: 10). There is a need for the Toyota Company to consider globalization and offshore sourcing so as to promote proper control on its supply chain management. Some of the globalization aspects include tariffs, the level of technology, exchange rates, weather conditions, and other countries’ political situation, among others. Depending on whatever each company is looking to get out of its chain supply strategies, organizations choose a model that best manages its business effectively. Partnering between organizations and suppliers should comprise; mutual trust and understanding, control systems, sharing information, interlocked structures and compatible capabilities. This ensures that chain supply systems are reliable, flexible, efficient, customer-oriented and fast.

References

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