Supply chain management at Toyota
Supply Chain Management and Manufacturing at Toyota
Toyota is one of the largest vehicle brands with a global footprint. Known for its innovative methods of production, Toyota has acquired a leadership position in the automotive industry. Every vehicle that it makes requires assembling of thousands of parts sourced from suppliers all around the world. The brand has worked in close collaboration with its suppliers since its foundation. It has also built close and strong relationships with its suppliers. Having and managing a large and global supply chain network are difficult tasks. The brand has also adopted several policies aimed at driving better relationships with suppliers as well as making its supply chain partners more accountable. In the vehicle industry, competition has grown quite intense and in such a scenario unless a brand has a well managed supply chain, acquiring a leadership position would be impossible. Moreover, a supply chain is like the backbone of your manufacturing process and apart from timely availability of raw materials, you need to engage your suppliers so as to ensure continuous supply. Toyota’s supply chain practices have been lauded widely as among the best in the industry. The situation has grown highly demanding in the 21st century and having a healthy supply chain network is an absolute essential to win against the competition.
The Japanese word for manufacturing is called Monozukuri. At Toyota, manufacturing takes place in close collaboration with the suppliers. There are in-house and out-house departments at Toyota that collaborate with the suppliers for implementing improvement measures. This helps at making the production process more efficient. Toyota has implemented Monuzukuri innovation which means pursuing more reasonably priced, good products. It involves Toyota's individual divisions making a part-based cross-functional team with suppliers. Together they run the drawing and production process which is called Genchi Genbutsu meaning on site on hand experience.
Another important feature of Toyota’s supply chain is its resistance to disasters. The brand has collaborated with the suppliers across each country and region for building a disaster resilient supply chain. For this purpose, the brand shares supply chain information and sets up measures for preparedness. The long standing relationship of trust that Toyota has built with its suppliers has helped the brand receive and share information from them. Toyota has used this information to build a database which is based on the concept of protecting Japanese manufacturing. Toyota calls it the RESCUE system. The vehicle brand uses this database for identifying any form of issues in the supply chain and to keep its suppliers prepared for any kind of disaster. April 2016 remained witness to Kumamoto earthquake and following the disaster, Toyota was able to respond fast and make a quick recovery with the help of its database.
In today’s highly competitive industry environment, success depends upon the level of alignment between the supply chain and manufacturing of a brand. Toyota has been able to align these functions successfully by creating small internal and external units to work in tandem with the suppliers. Such kind of alignment brings agility and efficiency both. Regarding the selection of its suppliers, Toyota has kept its doors open to all. The rules are the same for all irrespective of their nationality or language and anybody can apply given the company can match its criteria for quality and efficiency. However, productivity, quality, engineering, cost efficiency and timeliness are some of the most important factors affecting Toyota’s choice of supply chain partners. Its choice of suppliers based purely on business considerations. The brand evaluates the overall strengths of its suppliers apart from its technological capabilities to reliability in terms of delivery. Other areas in which the brand tests its suppliers’ performance include CSR, operational approach, system for tackling ongoing reform etc.
Toyota’s main focus is to steadily improve the vehicles it makes and for this purpose it has implemented a special program in manufacturing which is called the TNGA cycle. The full form of TNGA is called Toyota New Global Architecture. TNGA is the new approach taken by Toyota in car production design concept. This new model was meant to overcome the fresh challenges that Toyota is tackling in its production process. Smart Monozukuri or smart manufacturing which involves including the suppliers in the production process is also a part of the TNGA cycle. Underlying the TNGA is the idea of smart sharing and total optimisation in collaboration with suppliers and manufacturing facilities. based on this initiative Toyota has been able to achieve a 20% reduction in development ratio compared to the conventional ratio. It has made this possible through reinvestment of reserves for improving quality and product performance that has made it possible to deliver ever better cars in a timely manner. Every single car made by Toyota is made up of around 30,000 parts which makes it all the more essential to closely collaborate with the suppliers. It is because most of these parts are manufactured using requiring skillful coordination across several processes. Moreover, Toyota believes in forming stable and equal partnerships with its suppliers so that it can create products with longer lives and that give its customers peace of mind. Toyota is a global brand and to cater to local demand worldwide the brand has to procure locally from local suppliers for local production. It is actively promoting local production so that local demand can be met and for that it procures parts, materials, tools, equipment and others materials from local suppliers.
To make its supply chain management effective, the brand has established a very high level of synchronization and coordination. Coordination across several functions has enabled better management of the supply chain network. From planning and development to production and engineering as well as purchasing and production, the brand has established firm coordination across all these functions to manage its supply chain and production better. To achieve higher efficiency across its manufacturing plants, the brand has made its logistics simpler and holds minimal inventory. It has also kept its production system simple, slim and flexible. An environment friendly system of production minimizes the impact production can have on people. Overall, the brand has carefully aligned its supply chain with manufacturing to achieve higher efficiency, agility as well greater quality.
Suggested Reading: Toyota VRIO Analysis
Toyota Annual Report 2017.