A report of Toyota Group’s Supply Chain Management
This report will look into the supply chain of one of the most successful automotive manufacturer, Toyota. With the current success of the Toyota Rav4 as the best seller in the Australian market and the impact of the pandemic Covid-19, Toyota with its widespread supply chain meets some difficulties to balance their production with their demand. With the two main strategies of Just-In-Time (JIT) and Kaizen, Toyota’s supply chain is a model for the lean supply chain approach. This report will discover the supply chain – major trading partners, procurement and outsourcing, challenges and risks, and the technology. Further investigation is about the benefits of Toyota in their Corporate Social Responsibility (CSR) and recommendation.
In this report, the chosen company to be discussed is Toyota, one of the leading carmakers in the world. Toyota is a Japanese automotive manufacturing company who is famous across the world for its supply chain. Toyota is also recognized as the leader of lean management in the world, especially with Just-In-Time (JIT). Just-In-Time is a manufacturing approach in which minimizes the inventory of all the stage in the manufacturing process (B.V., 2002). Another supply chain strategy that Toyota implemented is Kaizen where the workers always find a new way to have things done more efficiently. With the two approaches, Toyota ensures its supply chain to reach the most efficient. To explore the supply chain of Toyota, we look into the strategic alliance of Toyota with their major trading partners, procurement and outsourcing strategies, international challenges and risks as well as the technologies behind them. Next to the discovery of the Toyota supply chain, the company CSR and recommendation will also be mentioned in this paper to see other benefits of the supply chain on other aspects besides the production and distribution of Toyota cars. Then this report also suggests some recommendations to improve the supply chain of Toyota.
In the current automotive business field, Toyota has streamlined the logistics part by using integrating genuine Toyota cars’ part distributors with automotive suppliers (Annual Report 2019). The original reasons of strategic alliances for the company are able to access resources, knowledge and low-cost material as well as laborers. Over the years, in our modern life, through the supply chain activities, the reasons have also changed into combining capabilities, exchanging technologies (such as R&D collaboration, products with shorter life cycles and extending investment), industry convergence, international competition ( as a team or partnerships), scales’ economies and risk reduction by pooling resources (Jeong & Ko, 2016) (Jeong, H.J., Ko, Y.2016).
In the past, there is an alliance between Toyota, General Motors (GM) and the USA, which helped to manufacture the Pontiac Vibe and the Toyota Matrix, sharing the same technique and having the same virtual interiors (IYER, SESHADRI, & VASHER, 2009). Another collaboration between Toyota and GM was developing a fuel-cell system for non-gasoline vehicles, making Toyota become the largest manufacturer of hybrid vehicles in the world from 1997 until now. In January of 2020, the company sold over 15 million hybrid motorcars over the world (Toyota 2020). Through these partnerships, Toyota is offered advantages from other parties to raise the volume and increase the profitability of each brand.
According to Toyota’ Annual Report 2019, the company is adopting a ‘Home & Away’ perspective while they have tried to rebuild their business based on a careful assessment of the pros and cons of each company in the Toyota Group while enhance the alliance relationships with other companies to improve speed and competitiveness. They have formed a strategic alliance with Daihatsu Motor Co., Ltd., to strengthen coordination in automobile production, which is mainly focusing on compact motorcars in Japan or other emerging countries. Besides, they have also formed the strategic alliance in the development and manufacturing areas with Suzuki Motor Corp., which has a remarkable market share in India, taking advantages of both companies, and partners with Subaru Corp. in the All-wheel Drive (AWD) technology field, in order to make driving a motorcar more fun and develop Battery Electric Vehicle (BEV) (Annual Report 2019).
Toyota Group procures the required materials, parts and equipment for a variety of business industries from suppliers around the world. In addition to asking our suppliers to deliver quality items at low prices as well as at the appropriate time, they partner with these suppliers to promote environmental protection, smooth the supply chain process and satisfy other society’s needs (Toyota Industries Corporation, n.d.). Furthermore, Toyota focuses on a long term view of the relationships with suppliers, based upon fair business practices. Toyota Industries promotes open procurement, co-existing and co-prosperity with their business partners on the base of mutual trust. They also facilitate preferable eco-friendly and CSR-oriented procurement (Toyota Industries Corporation, n.d.).
Toyota Group has fair entry practices that encourage all potential partners, from all nations, scales and experiences, to have the equal opportunity to offer them the products or services via their Website to achieve open procurement. Toyota comprehensively values their business partners on the base of price, quality, on-time delivery, capabilities of technologies and corporate stability. In some instances, the power train for the RAV4 EVs of Toyota is supplied by Tesla Motors; Samsung Electronics is the partner who created the Car Mode App, support the smartphones connect to the Toyota radios; the Toyota FJ Cruiser’s tires are provided by Bridgestone Americas; or the touchscreen of the Toyota Avalon is from Cypress Semiconductor (Lioudis, 2019).
To increase local manufacturers inside Japan, Toyota promotes procurement from local partners for the contributions to the local community. Like Nippon Denso Co., an air conditioner manufacturer, and Aisin Seiki Co., a producer of systems and components for motorcars, started as a part of Toyota Group but then became independent entities (Lioudis, 2019). Nippon and Aisin still continue to be the principal suppliers of Toyota and also produce products for other motorcar producers.
In October 2009, Toyota has recalled almost 8.5 million cars because of issues with floor mat and a sticky pedal which works as an accelerator, and problems with electronic throttle control. Then, in the same year, the company announced another recall of 412,000 motorcars due to steering problems. Based on their research, outsourcing strategies in the context of their rapid growth is the main reason for the failure situation of the company. Therefore, at the end of 2009, Toyota decided to decrease the work with the outsourcers and developed a plan to be the first electric vehicle firm vertically integrated. Vertical integration level relates to how many stages in the value chain of a product in which a company engages. The more of these stages a company participates in, the more vertically integrated it is. The shift from outsourcing to vertical integration is a game-changing factor for the company (McMillan, 2018).
There are many challenges that Toyota Group is facing in the automobile industry when things come to global. The international market is extremely competitive while the industry is greatly volatile. The company has to focus on offering new products with innovative features at a competitive price but still meet the need of consumers in a period of time, then maintain and boost their brand image. Besides, the company still relies on their suppliers for certain parts and components or raw materials all around the world. Regarding financial matters, the operation of Toyota depends on the fluctuations of foreign currency and interest rate or the rapid change in the financial market would heavily effect company fundraising (Toyota Motor Corporation, 2019). Only a few difficulties are mentioned but we can see the challenges that the company is coping with. Hence, Toyota Group has their own risk management department, called Toyota Global Risk Management Standard (TGRS) to layout global standards relevant to their approach to managing risk and their related systems and operating procedures. The reviews and reports on existing key risk categories to propose preventive action, called Sustainability Meeting are also given (Toyota Motor Corporation, 2019).
Social and environmental objectives are also a part of Toyota’s sustainable strategy. The objective contains two parts in which the social responsibility and environmental responsibility.
With the base of five principles of Toyota and the stable base of business, enriching the lives of communities is also an important objective. The importance of this objective is shown in the illustration of Toyota Sustainability Data Book (2020) as below:
Source: Toyota Sustainability Data Book2020 -p.7
From internal aspects across the supply chain of Toyota, they have trained the executives of their suppliers to provide a better workplace for not just Toyota’s employees but also suppliers’ employees. Another scheme, such as responsible mineral sourcing, also displays the deep integration of Toyota and their influence along the supply chain as an external effort. The initiatives have stressed the deeper care of Toyota to enriching lives and communities in a wider range rather than just their direct suppliers.
For the environmental objective, it is also an objective of Toyota to grow sustainably. One of the main famous qualities of Toyota is their energy-saving product which consumes less fuel than their competitor in a similar car. Thus, their objective to save fuel also matches with the target to reduce the greenhouse emission of many different organizations across the world. One of the environmental objectives that Toyota has reached with their supply chain is the production of the hybrid car which uses both electricity and fossil fuel for the car. Such achievement comes from the strategic partner with GM. This leads to a reduction of Carbon monoxide emission in Toyota’s cars and other manufacturer cars. Such collaboration also allows Toyota to shift their production line into more environmentally friendly than before such as electric cars and automaton to produce without humans, therefore, minimize waste in production. Toyota also planned to reduce its carbon monoxide emission into zero in 2050 in different aspects such as plant, product and to reduce water used in production.
In this era, Information Technology (IT) is used to increase competitive pressure, faster delivery of products and optimize the supply chain system in the automobile industry. The information technology system is described as coming with three key features namely data storage, retrieval; data capture, communication; and data manipulation, reporting. Toyota has applied the IT system for the core functions’ configuration of the Toyota Production System (TPS) (Toyota Motor Corporation, 2019).
JIT is a modern manufacturing concept, which is developed by Toyota, as a guideline for the supply chain management. The shortest summary of JIT is: “The right product – with the right quantity – at the right place – at the right time” (B.V., 2002). Besides, Toyota also developed the Kanban procedure into a computer-based system named e-Kanban to communicate to their suppliers better. It helps the suppliers can receive electronically information on the actual requests in the assembly line (IYER, SESHADRI, & VASHER, 2009). The system has enhanced the efficiency in the supply chain system and reduced the rate of order duplication as well as other human errors.
As Toyota is a leader of the industry in various aspects, there are still spaces left for Toyota to improve. From the above information, two main solutions can enhance the Toyota supply chain.
The first recommendation relates to the shifting to electric vehicles. Toyota would look into the material for the battery to make it last longer and has a longer life cycle. With a longer life cycle, the cars can be used in a long time which makes less waste as old cars with tons of material is difficult to recycle. Therefore, Toyota could cut their cost in recycling old cars. This would require deeper collaboration such as GM and Toyota’s suppliers.
The second suggestion is about the material for cars which is exchangeable parts in which allow Toyota to use parts of other cars of different brands. Using the same platform for cars has been a way to reduce the production cost of car manufacturers. However, using the same part is a different topic of discussion. With collaboration, Toyota would be able to build up their products using the same parts across their products which can reduce the size of the supply network of Toyota. Therefore, the risk of recall as mentioned in the above part will obviously be reduced.
In conclusion, the Toyota system of the supply chain is widespread across the world which can be influenced by a wide range of external factors. With the JIT approach, it is difficult to deal with the sudden event such as COVID-19 as everything should work as planned. However, as a leader of JIT and lean management, it is obvious that Toyota has done the best to deal with such situation. With collaboration, Toyota has reduced the cost of production, save more energy with the hybrid car while increasing the profitability of each partnership and Toyota themselves. While with vertical integration, Toyota’s supply chain cut production costs while increased revenue and quality. As the size of the Toyota supply network is large and worldwide, it is a challenge for Toyota to keep everything in their hand such as recall. Such pandemic like Covid-19 also affected Toyota together with the financial and currency fluctuation. The supply chain management is really a field for continuous improvement with continuously changing market and demand. It is a real challenge to keep everything just in time.