An Evaluation of Toyota Motor Company (TMC) Information Systems May 23, 2007 by Ryan Norris in AssociatedContent.com
The Toyota Motor Company is one of the largest automobile manufacturers in the world. To date, it has sold more than 8.8 million of its many makes and models of automobiles on five different continents around the globe. Founded in 1937 by Kiichiro Toyoda and headquartered in Toyota, Aichi, Japan, Toyota is a global leader in automotive technology and development. The company also makes trucks, buses, forklifts, and other industrial equipment.
Toyota also boasts a strong presence in North America. In the continental United States, there are five major assembly plants located in Huntsville, Alabama; Georgetown, Kentucky; Princeton, Indiana; San Antonio, Texas; and Buffalo, West Virginia. Early Japanese imports like Toyota’s Toyopet were initially unpopular in the United States because of their smaller size, but with the energy crisis of the 1970s, Americans began to look to imported cars for their lower price and better fuel efficiency1.
Today, rising gasoline prices coupled with concerns about global warming and the environment have prompted Toyota to design even more fuel-efficient vehicles. The company’s marketing campaign, “Moving Forward,” signals just that. Its current offerings include Camry and Highlander Hybrids and the Prius, which is also a popular gasoline-electric mid-size model2.
Toyota’s global operations are also moving forward in information systems technologies as well. In April 2001, Toyota Material Handling USA (TMHU), which is responsible for all aspects of sales and marketing for Toyota’s industrial equipment line, became a stand-alone company after many years as a division of Toyota Motor Sales USA. The company is a top seller of industrial lift trucks in the United States and 99 percent of its lift trucks sold in the country are also manufactured domestically in North America3.
TMHU faced challenges of inefficiencies associated with the existing information system that was not specifically designed for the industrial equipment business. Many of the large corporate customers wanted to work with TMHU online and the present system was not web-enabled. The situation implored the company to build an individual site for each customer, a timely and expensive project.
Recognizing the need for change, Toyota executives chose to use a third-party consulting firm to evaluate software systems and implemented SAP software based on its recommendation in 2003. Thanks to the industry-specific software, TMHU can track each individual vehicle throughout its entire life using integrated vehicle, warranty, and financial information. The preconfigured software required little modification and has yielded significant results that include increased efficiency and better decision making.
One of the biggest benefits has been its reduced operating costs. According to the SAP article online, by moving its dealers to an Internet-based network, the company has been able to save about $1 million a year in network costs alone. The SAP platform has also reduced turn around times from two days to two hours and strengthened the relationships between customers and dealers4.
Historically, the Toyota Company has been a leader in emerging technologies. As its business needs change, the SAP software will allow THMU in particular to evolve and adapt quickly. It can monitor changes made to product specifications that allow it to better understand customer demand and ensure that it has the right components and offering available (Toyota Material, 2004).
The information systems for the Toyota Motor Company (TMC) can clearly be evaluated by using SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats). The biggest strength of Toyota’s information systems is their ability to integrate their company goals globally by using their systems effectively. For example, Toyota reaches its customers in different markets by using different online web systems for different world regions. Although, there are multiple websites and systems for each of the world regions, such as North America and Europe, the systems all link back to a worldwide website5.
A major weakness of Toyota’s information systems is likely the language barrier that the Japanese based company has with its international employees and customers. Sharing and using information across language barriers on the international scene poses a significant hurdle to using information systems effectively. Toyota mainly uses the English language internationally but their company is primarily based in Japan and therefore Japanese is still a significant part of the sharing of information.
Toyota has created new opportunities by developing their Transportation Systems. Toyota is working globally with partners and governments to improve the ease of transportation. To accomplish this, Toyota is seeking to research current transportation systems using their customers as well as information from other companies6. Pursuing these improvements to transportation systems is a significant opportunity for Toyota, because they can increase their customer base and the satisfaction of current customers. The use of information systems and networking could be a key to helping Toyota have success in improving Transportation Systems.
One of the threats for the development of Toyota’s information systems includes resistance to information sharing between companies. To further advance their information systems, Toyota needs to integrate and share ideas with other companies such as Ford and Honda. In a competitive market, companies are less likely to share information and research with competitors. This poses a direct weakness to Toyota because the advancement of systems like their Transportation System initiative depends on the sharing of global information through the use of networks and information systems databases.
Another great way to evaluate the information systems for Toyota Motor Company is to examine the Porter Five Forces Model for competitive advantages. In examining this model as it pertains to Toyota, it’s important to examine (1) rivalry among existing competitors, (2) the threat of new entrants, (3) the threat of substitute products, (4) the bargaining power of buyers, and (5) the bargaining power of suppliers7. Toyota has strategically placed themselves into position to gain a competitive advantage by considering several of the Porter factors.
First, Toyota Motor Company exists mainly in the automotive markets which house a significant number of competitors. For example, Ford, Chevrolet, Honda, and GM are a few of their major competitors. This competition in an industry with high entry and exit costs has led Toyota to seek a competitive advantage in their information systems. One major example of an information systems competitive advantage for Toyota is their new Hybrid Synergy Drive.
As the automotive industry has suffered from high gasoline and crude oil costs, Toyota has developed a computerized engine system, HSD, that monitors engine performance and makes energy usage in the automobile as efficient as possible8. Toyota has currently employed this system in their Prius and Camry sedan models, which leads the market in hybrid vehicles.
The Hybrid Synergy Drive also must be evaluated using Porter’s model factor for threat of substitute products. Other companies could potentially enter the hybrid market by developing a similar drive and neutralizing Toyota’s advantage. In fact, Nissan and Honda have developed similar technologies for their sedan models. However, Toyota continues to dominate the market for hybrid vehicles because Honda and Nissan do not have a significant impact on the market yet.
In the future, Toyota may lose their competitive advantage if hybrid vehicles take a bigger market share in the automotive industry. However, currently Toyota is adding Sport Utility Vehicles (Toyota Highlander) to their line of vehicles using the HSD. By being the first to add SUV’s to the hybrid market, they have currently protected their competitive advantage from substitute products.
Porter’s five forces model also considers Toyota from the vantage point of bargaining power of their suppliers. Suppliers can exert influence on a company by using pricing of key components. If large suppliers raise prices, Toyota may suffer as a result, so to stay competitive they must have strategy. To stay competitive in this area, Toyota keeps a large database of small business suppliers for their operations in North America9. Via this database, Toyota puts an emphasis on using smaller businesses for suppliers in order to gain a competitive advantage.
Overall, Toyota has done an excellent job following Porter’s five forces model for gaining a competitive advantage. By using is Hybrid Synergy Drive in their revolutionary hybrid vehicles, they have cornered the market on hybrids and gained a significant advantage that boosts sales. Also, Toyota’s addition of the Highlander SUV to the hybrid drive market has successfully maintained their advantage. Moreover, the use of smaller businesses as suppliers allows Toyota to protect themselves from pricing shifts. These factors have all led to Toyota successfully using their information systems to gain a competitive advantage.
Toyota has a unique business model and the way it approaches the automobile production, with its inherent quality controls, revolutionized the industry. Toyota’s “just-in-time” supply-chain concept has become a model for manufacturers around the world, and not just for automakers. The Toyota Production System (TPS) calls for the end product to be pulled through the system. This means the right parts reach the assembly line at the right place, just as they are needed, and with no excess.
This approach represented a radical departure from conventional manufacturing systems, which require large inventories in order to push as much product as possible through production lines, regardless of actual demand. The idea of TPS, on the contrary, is to produce only the products required in the precise quantities desired at a given point in time. This creates a ‘pull’ production system as opposed to a ‘push’ system. By basing production on demand rather than simply on capacity, Toyota manages to keep inventories, of both parts and of finished goods, to a strict minimum. But this is only one of the more obvious advantages of Toyota’s unconventional approach.
By focusing on smaller production lots and producing only what customers require when they require it, Toyota has developed a flexibility and responsiveness that continues to set the standard for the industry. Because of its Attention to continuous improvement, Toyota has attained die-changeover and machine-set times that are a fraction of its competitors’. Thus its capacity for reacting quickly to new market trends makes TPS an ideal system in today’s rapidly changing global business environment. Toyota believes that it is important in ensuring quality control, and the delivery of reliable and dependable products to customers.
If a problem arises at any stage of production, Toyota’s automatic error detection system, called “Jidoka”, flags the defect and enables line employees to take the necessary steps to resolve it on the spot even if that means bringing production to a halt. By calling attention to the equipment when an error first occurs, the Toyota system makes it easier to identify the source of the problem and prevents defects from progressing to subsequent stages of production. Only a system as agile and quality-oriented as TPS could make such measures economically possible.
This approach not only helps eliminate waste, which makes TPS more respectful of the environment, it also means that customers can rest assured that Toyota products will conform to the highest standards of quality, reliability and durability.
By taking this unconventional approach, Toyota is rising from the ashes of industrial upheaval in post-war Japan, becoming the largest vehicle manufacturer in its home country, gaining more than 40% of the national market. By 1980 Toyota in Japan had rolled out its 30 millionth car, and by the turn of the century the figure had risen to 100 million. Outside of Japan, Toyota first started making inroads into foreign markets in the late 1950’s.
The first Toyota Crown models arrived in the USA in 1957, and by 1965, with cars like the Toyota Corolla, the company had steadily built both a reputation for customer service and satisfaction and sales figures to rival those of domestic automakers. In 2004, annual Toyota car sales in the U.S. surpassed the 2 million mark, with 1.4 million vehicles and almost 1.3 million engines manufactured in the U.S. In due course, the Toyota Production System, with its emphasis on continuous improvement, the value of employee commitment and superior quality, would be recognized as a true benchmark in the eyes of the global automotive industry.
References:1. “Automobile industry.” (2007). Microsoft Encarta Online. Retrieved April 29, 2007, from http://encarta.msn.com/encyclopedia_761563934_4/Automobile_Industry.html
2. “Toyota.” (2007). Toyota Online. Retrieved April 29, 2007, from http://www.toyota.com/camry/index.html?s_van=GM_TN_HYBRID_CAMRY
3. “Our history.” (2007). Toyota Industrial Equipment Online. Retrieved April 29, 2007, from http://www.toyotaforklift.com/about_us/
4. “Toyota Material Handling USA.” (2004). BNET. Retrieved April 29, 2007, from http://jobfunctions.bnet.com/casestudy.aspx?docid=258039
7. Reynolds, George and Ralph Stair. Fundamentals of Information Systems. 3rd ed. Thompson Course Technology. Boston, Massachusetts: 2006.