Macro Environment

Supply-chain management at Toyota is an element of company’s operations strategy which is thoroughly based on the Toyota Production System (TPS). It was developed in the 1940’s by Shigeo Shingo and Taiichi Ohno.

As Toyota’s success gained world-wide coverage, at was followed by interest by other companies in TPS, the principles of which is expressed by the term of “lean manufacturing” Liker (2005, p.16) lists following components of Toyota Supplier Partnering Hierarchy: mutual understanding and trust, interlocking structures, control systems, compatible capabilities, information sharing, joint improvement activities, and Kaizen and learning. “JIT system – a system that organizes the resources information flows and decision rules that enable a firm to realise the benefits of JIT principles”. (Krajewski, Ritzman & Malhotra p.349)

The elements of just-in-time system are being pro-active in exposing problems, pull production based in Kanban, Total Quality Management, elimination of waste, reducing inventory through involving suppliers in planning process, continuous improvement, improving machinery and focusing on co-operation. According to Kanban each part travels with a card. New stock will only be required when that part has been used, the card is removed, using signals to re-stock this part. Kanban is well integrated in Toyota’s production system, because in Toyota there are limited number of parts with stable demand for them.

Also, product mix is low and exchanges are infrequent. Capacity planning in any company is part of a supply-chain management for that specific company. Toyota’s way to capacity planning is that it strives to eliminate inventory. In achieving this objective Toyota relies heavily in pull system. Generally, the main objective is continuous improvement. Another operational excellence pioneered in Toyota and later adopted by other companies worldwide is a “Lean Concept”.

Lean philosophy aims to achieve are the elimination of all waste, superior customer care, and Lean is based on pull system where the elimination of waste seen as a primary objective. Just in time inventory management allows a company to gain a competitive edge by not having to have a large amount of inventory in their warehouses, but only to order parts when they are actually needed. According to just in time philosophy new material will be produced only when old stock of that material has finished. Toyota’s seven major types of non-value-adding waste in business and manufacturing business is shown by Liker (2004, pp.28-29) in he suggests eighth’s type as well.

These are overproduction, waiting, unnecessary transport or conveyance, over-processing or incorrect processing, excess inventory, unnecessary movement, defects and unused employee creativity. In today’s highly competitive global marketplace companies are forced to seek opportunities to create competitive edge for them not only to broaden their share of market, but also to survive at all. Supply chain management is an aspect for any business to be looked at properly in order to identify ways to improve it. Improvement in supply chain management can reduce costs for a company and increase the efficiency and requires a strategic approach to be implemented towards it.

Toyota Motor Corporation is currently one of the model companies worldwide in many aspects of conducting a successful business practice, including supply chain management. They principles of Just in time, Kanban, lean manufacturing, Kaizen and others provides competitive edge for Toyota and provide efficiency in many business functions along with supply chain management.

Other companies willing to increase their productive efficiency need to look at these principles above, and if the need arises, implement them into their own business practices. It needs to be done, of course, taking into account the current culture within organization and the level of knowledge and qualification of employees. Therefore, some of the principles practiced by Toyota can be adopted by other companies with some adjustments.