Toyota Supply Chain

□ Organized suppliers into functional tiers ← First-tier suppliers: worked together in a product-development team ← Second-tier: made individual parts □ Encouraged cooperation and communication among first-tier suppliers □ Cross- sharing of personnel through ← Toyota sending personnel to suppliers to compensate for greater workload ← Toyota transferring senior managers to suppliers for top positions □ “market price minus” system, not “supplier cost plus” system ← Value analysis reduces costs

□ Production smoothing enables suppliers to maintain a constant volume of business □ Focus is on long-term relationships that underscores cooperation, teamwork [pic]

Procurement □ Suppliers are the partners □ Suppliers are the integral elements of Toyota □ Located within 56 miles radius □ Security to the suppliers for guaranteed order □ gradual mutual improvement, rather than price through bidding as a way to choose a supplier □ Trained suppliers as per requirement

Suppliers partnership hierarchy □ Kaizen and learning □ Joint improvement activities □ Information sharing □ Compatible capabilities □ Control system □ Interlocking structure □ Mutual understanding and trust

Managing suppliers □ Suppliers are extensions of Toyota □ Care and develop as own associates □ Long term partnership □ Tier structure : levels of responsibility □ Strict cost target and timing □ Integrated system (JIT)

Purchasing challenges □ Normal expectation : 3 to 4 % price reduction per year after model year launch □ Meet best price with Toyota quality □ Trim master goal : 30% price reduction for new vehicle launch

[pic] Key to logistics performance □ Packaging : mixed box size, small pallet size □ Dedicated transportation service □ Consistent daily route, period route revision □ Good timing at all connection points □ Order fluctuation allowance built into route capacity plans

Manufacturing □ Toyota Production System ← Best quality ← Lowest cost ← Shortest lead time ← Best safety ← High morale □ Through shortening the production flow by eliminating the waste □ Continuous improvement ← JIT ← People and teamwork ← Jidoka – quality (make problem visible) ← Waste reduction ← Leveled production ← Stable and standardize process ← Visual management ← Kanban – flow of correct information

DISTRIBUTION □ In Japan, Toyota’s sales and marketing work is divided into four distribution channels

← Toyota (mostly high-end, large cars), ← Toyopet (medium size), ← Toyota Corolla(compact), and ← Netz Toyota (compact). □ Overall, Toyota offers about 60 car models, with each channel offering only 15-25 models.

□ The Toyota dealers as a whole have approximately 5,000 outlets and 120,000 employees.

□ This way, each dealer can develop deep knowledge of all models he has for sale, and can make an effort to sell all car models assigned to him, rather than only the few most profitable ones.

□ Toyota applies the “Toyota Way” to manage dealers, based on three basic principles:

← Dealers are free to make independent decisions, and Toyota can only help them to invest in the right things to improve. Such a strategy motivates dealers to be more proactive.

← Both the dealers and Toyota must prosper jointly. ← Competition is a means to improve.

□ Toyota works with one distributor in each country □ Toyota markets cars in about 170 countries through its overseas network consisting of more than 160 importers/distributors and numerous dealers. □ Overall, China is the highest-growth market.