Toyota Business System on Supply Chain Management

In the automotive industry, supply chains are extensive and include elements of producing based on several forecasting techniques. The amount of money invested is large and fixed. Key trend in the automotive industry is the increase of the variant numbers on individual models and standardization of components in the supply chain. This means that models can be adjusted to the individual tastes of customers and new models are developed and produced continuously in order to meet the changing market demand.

The uncertainty in the market place is translated into mix flexibility and volume flexibility in order to be competitive in the market place. Generally the parts that customer doesn’t touch and see are the ones that are standardized; other ones are left to differentiate different models and fine-tuned to their taste. For example in US, Toyota’s minivan is built on the same platform as their Highlander Sports Utility Vehicle. This communization of basic architecture -Saves Toyota money by reducing required investment, -Increases increasing volumes to get lower pricing, and -reduces training required for different models

Toyota can be considered as the first automobile brand that introduced a clear need for flexibility in its entire business system. Toyota’s ‘lean philosophy’ is not only restricted to its manufacturing system: it describes a philosophy that incorporates a collection of tools and techniques into the business processes to optimize time, human resources, assets, and productivity while improving the quality level of products and services to their customers. Currently, several automobile brands clearly recognize the strength of ‘lean thinking’ in relation to increase flexibility in their supply chain activities.

In the dyadic relationship between a buyer and supplier, emphasis is put on how the work can be done smoothly in order to improve quality and reduce costs. Best value procurement becomes more important instead of merely a cost-oriented approach that ensures a close relationship with suppliers. First tier suppliers are incorporated into the production development program. This means that suppliers make their own engineering decisions instead of designing on the basis of blueprints solely. Next to this, these suppliers have their own 2nd tier suppliers

under itself who supply parts for these components. This ensures that the exchange of information is possible horizontally which improves the collaboration between suppliers. This collaborative aspect is of major importance in a relationship when market demand (or other influences) requires changes of demand in the buyer-supplier relationship. This collaborative aspect among suppliers is rather uncommon in many industries since sharing information increases the risk of losing the next bidding process among suppliers to an assembler. Related to flexibility, the following can be said.

Since Toyota strives for a long-term relationship with its suppliers and also pursues a single-sourcing strategy for their strategic components, it does leave the OEM vulnerable for disruptions. But, the single-sourcing strategy is also a means to establish a long-term and flexible relationship with a supplier. Since each supplier shares its destiny with other suppliers and Toyota, the level of collaboration horizontally and vertically is higher. Therefore, a singly sourcing strategy itself is considered to be as hazardous, the relationship itself is far more flexible then a more economic-oriented relationship between a buyer-and-supplier.

As a preliminary conclusion, the Toyota cases sheds light on the mix, volume, new product and delivery time aspects of flexibility in SCM. ? Conclusion Most automotive manufacturers outsource a majority of parts and components that go into cars these days. They create a large web of suppliers with high demands on quality expected by customers flowing to their suppliers. This web of capability is so desirable that countries fight to create an automotive hub. Fortunately, India has three in Pune, New Delhi and Chennai. The relationship between the Auto manufacturers needs to be strong.

Does that mean rigid or flexible? Relationship at Toyota is very much unlike the model followed by Chrysler and Ford who squeeze their suppliers and require them to reduce costs by 5% every year. The result is multiple bankruptcies and multiple years of poor financial performance. Toyota case and its success has been an example for other manufacturers to follow. By creating a web of suppliers that get some level of continued business it creates certainty for the suppliers to invest long term in this very highly capital expenditure driven business.

Also all the innovation doesn’t just come from one source but is rather a two way street in each relationship it has with the suppliers. Sharing of responsibility (i. e. investment) helps drive down cost required by just one company and shares the success of companies. It is seen in fewer bankruptcies in the Toyota network but also in continued domination of the Japanese automakers and suppliers in technology front in the automotive business. Toyota’s example is one that companies can follow not only within automotive industry but even outside if they want continued excellence in their desired business.