Toyota - Supply Chain Case Study

Introduction Establishment: September 5, 1995 (official openning in October 1996) Investment capital: $US 89.6 million Business field: - Producing, assembling and selling Toyota vehicles - Repairing, maintaining and selling Toyota genuine parts - Exporting auto parts

South Vietnam is more than 2.000km. Therefore the lead-time to supply cars for South & West dealers is too long.

2. Standardization product to reduce inventory Toyota Motor Corporation and Toyota motor vietnam have a project which standardize the frame and chassis of the car in IMV project (In Multipurpose Vehicle) IMV project includes these cars: Innova, Hillux, Fortuner. These cars use a common frame and chassis. When the frame and chassis are standardized, the inventory of these parts is decreased. It makes the inventory cost decrease.

3. Develop long term partnership with vendor & Use vendor near by the Headquarter TMV has been sign contracts with its suppliers to supply material for long term. And TMV chosen most suppliers which are very short distant from Headquarter. - Harada industries company limited: provide antenna for TMV - Sumi-Hanel Wiring systems company limited is located in Ha Noi: provide Electric Wire System - Denso Vietnam company limited is located in Ha Noi: provide Sensor, Accelerator Pedal, Valve, Switching - Etc…

4. Performance advantages in Production To explain Toyota’s performance advantages, much focus has been on Toyota’s Just-in-Time tools such as kanban-card paced pull systems, frequent, small batch production and delivery, and reduced inventories. Production processes of TMV are: Press -> Welding -> Painting -> Assembling -> Inspection.

5. Logistics management – Third party Logistic (3PL) TMV doesn’t transfer its cars/parts form the Headquarter to Dealers, South Center by itself. It has been using few transportation suppliers to take over TMV’s logistics functions. They have a long term contract with TMV to provide the service. - TMV is not good at transportation

- TMV can concentrated in car manufacturing except transportation (focus on core competencies) - Transportation suppliers will invest more

- Transportation cost will be lower in case suppliers TMV has 2 warehouses so it will make the lead-time shorter to provide cars for dealers nationwide. - By truck: 4 days - By Train: 3 days - By Vessel: 6 days

6. TMV limited the suppliers TMV is the automobile manufacturer leading in localization ratio that come up to 19% to 37% depending on each model (according to ASEAN value evaluation method), in which Innova have the highest localization rate of 37%. Up to now, the localization of other car manufacturers in Vietnam still very low (10% in average). - TMV limited Vietnamese suppliers: with each part TMV has just one supplier. After 14 years in operation and with great efforts, TMV has established stable relationship with 11 suppliers in Vietnam. - Vietnamese suppliers don’t have ability to supply parts such as: engine, chassis, Electronic Unit Control (ECU), … Therefore, most of the car part are import form Thailand, Singapore, Japan … 7. Cross – Docking

TMV use South Center as a cross-docking point to received cars form Headquarter then delivery to dealers in South and West Vietnam. - Eliminate the inventory - The period of time to transfer the car from Headquarter to dealer is shorter

8. Retailer-Supplier relationship TMV has been created a good relationship between TMV and all dealers nationwide. Not only supplied cars for dealers but also training staff, setting up operation system for dealer. TMV supports dealers in most of the side of operation. Dealers know the demands of the market better than TMV, they will help TMV to get that point. In case of problem with the products, dealers used to help TMV to deal with customers.

9. Bullwhip effect According to the past 2 years in Vietnam, TMV sometime meet overtime production and idle production scheduling. Especially, Vietnamese customers always claim about the unavailable products (stock out). All of those are result of government’s policies. TMV seem to be smart in reducing bullwhip effect when they try to communicate with customers (end users) directly and increase sharing the information between TMV and dealers. Then create more accurate forecast rather than orders from dealers in previous stage

10. Recall issue These day, TMV is facing with 2 recall issue which are related to the mistake in production process. TMV has been decided to recall more than 60.000 units to check that fail and fix at the dealers

To be continue

Products: - Hiace, Camry, Corolla Altis, Innova, Vios and Fortuner (Locally-produced models) - Land Cruiser, Hilux (Imported models) Partner: - Toyota Motor Corporation (70%) - Vietnam Engine and Agricultural Machinery Corporation – VEAM (20%) - KUO Singapore Pte. Ltd (10%) Employees: nearly 1,400 employees (including seasonal members) Production Capacity: 20,000 vehicles/year/2 working shifts

 Address: - Headquarter: Phuc Thang Ward, PhucYen Town, Vinh Phuc - Hanoi Branch - Ho Chi Minh Branch - South Center: Vietnam – Singapore Industry of Park, BinhDuong Province

1. Risk pooling Toyota motor vietnam (TMV) has 2 warehouses to delivery cars for dealers: - Headquarter in Vinh Phuc: delivery cars for all dealers in the north and mid-Vietnam - South Center: delivery cars for all dealers in the south and west of Vietnam We know applying risk pooling is that TMV should have 1 warehouse to reduce the inventory. However, the distant between North and