GLOBAL BUSINESS AND SUSTAINABILITY OF TOYOTA
Toyota is a leading company in terms of the Just-in-time and supply chain management which swiftly burgeoned into a front runner of the global motor industry. Unlike to subsequent firms, Toyota has showcased Japanese uniqueness of supply chain management and has turned it into a global standard (Bradman & Stuart 2010). Toyota success in supply chain management rests on recognition that sustainable supply chain is an essential component in maintaining its manufacturing operations. Key aspect of Toyota transformation strategy is alignment of its strategy for the future with plans and objectives of its supplier base. Toyota supply chain management is an essential element of the company operations strategy based on Toyota Production System (TPS) (Bradman & Stuart 2010). As Toyota success gained global coverage, it was followed by the interest of other companies in TPS, the principle that was expressed by the term of lean manufacturing. In spite of its globally recognised supply chain management dubbed ‘Just-in-time, the approach is not suitable from an environmental perspective.
Key Challenges in the Global Motor Industry Supply Chain Management
Rapidly changing and dynamic business environment of the 21st century has made the companies in the industry face issues ranging from economic uncertainty and globalisation to new technologies and increasing consumer demand (Fawcett 2012). In the motor vehicle industry, as the manufacturers design and build new vehicles globally, their supply chains have become increasingly complex which limits company profitability. The situation is complicated by higher stockholder value such as long order-to-delivery lead time, excess inventory in the chain, ineffective production programs and long demand forecasting sequences (Heizer & Render 2014). The effect of international economic breakdown has also increased the pressure on motor industry executives in terms of taking appropriate decisions so as to make supply chain more efficient (Fawcett 2012). In a highly challenging and competitive environment, an effective and efficient supply chain strategy is essential for automotive manufacturers and their component manufacturers to meet the demands of consumers (Heizer & Render 2014).
Globalisation, outsourcing and other trends have explicitly impacted supply chain actions and strategies of Toyota, as well as other companies. However, Japanese companies such as Toyota also face a variety of challenges that are more or less unique to their nations. Most of these challenges are related to the issues of flexibility (Heizer & Render 2014). Toyota Company tends to be less far along with its established standardised global operating models; largely because it supplies chain process is tightly defined by the enterprise technology. The net impact is that broadening or changing the company supply chain reach usually become more complicated, and thus, less equipped to address common problems common in the emergent market (McKeller 2014).
Comparative Analysis between American and Japanese Supply Chain Management
Many manufacturers are nowadays concerned with inefficiency and delivery practices of their companies. Therefore, companies are increasingly replicating successful supply chain management in an attempt to ensure efficiency in their supply systems (McKeller 2014). Any manufacturing firm can learn a lesson from the US automakers and their Japanese competitors that have set up the operations in the US as well as the automotive suppliers. In between 1980s and 1990, Japanese automakers established volume production capacity in the US, thus, their practices of manufacturing became the standard of quality for the US automotive industry (Morana 2013). Since then, such practices went beyond the Just-in-time delivery of the parts to a plane and encompassed all lean manufacturing aspects. Relocated Japanese automakers realised that their success largely depended on establishing a local supply chain, which implied sharing of similar manufacturing management technologies and practices with the US suppliers in order to become competitive in Japan (Morana 2013). Though it was initially perceived impossible considering the size of the continent and transportation network, Japanese firms in the United States appear to prove otherwise. US automobile manufacturers started using the Just-in-time (JIT) logistical approach from their suppliers.
Japanese Automakers, when compared with their US counterparts, tend to emphasise on long term business relationship. When Honda, Toyota and Nissan established an engine and assembly plants in the USA, they brought most of their nationals suppliers which had already grasped the lean concept and supply logistics (Johnsen, Howard & Miemczyk, 2014). Nevertheless, pressure from the government made the automakers seek local supply sources that could meet their stringent, quality, cost and delivery standards. As a result, Japanese firms had either to accept poor performance or invest their relationship with the US suppliers. As a result, they decided to invest in supplier development initiatives (Viswanadham & Kameshwaran 2013). However, the American supply chain had been strenuous especially for the automakers before adoption of the lean concept. For instance, Johnson Controls, an American firm that delivered seats for the Toyota just few hours before the seat were installed in the assembly line (Johnsen, Howard & Miemczyk, 2014). However, before working with Toyota, the supplier would have a huge inventory of seats. Subsequently, after working with Toyota, the levels of inventory went down from 32 days to 4.1 days.
The supplier plants making and shipping comparable product to both the US and Japanese customers maintains lower levels of inventory for the Japanese firms than they do for the US automakers. Suppliers serving Japanese firm achieved an inventory turnover of 38.3 as compared to 24.4 for the US customers. They also maintain much less work in progress inventory, finished goods and on wheel inventory for their Japanese customers. An important variation also occurs among the Japanese and US customers (Viswanadham & Kameshwaran 2013). Among the transplanted automakers of Japan, Toyota is regarded as the first lean manufacturer with its Toyota production system. In USA, Chrysler leads its US peer, having invested in JIT systems for getting parts to its assembly plants. In contrast, Ford has the highest on-the-wheel inventory (Saban 2012).
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Although, American firms continue to lag behind their Japanese competitors, the US automakers work towards improving. Whereas in the past weekly deliveries were common, there has been a significant change towards daily deliveries and, thus, supported efforts toward reduction of the inventory. For instance, irrespective of its high on-the-wheel inventory, it has been moving aggressively towards realisation of a more effective and efficient, small-lot deliveries as a part of the Ford production system (Saban 2012). One would expect that reducing the inventory would raise the risk of missing deliveries to the customer and shutting down of the assembly line, as an aspect that would result in more expensive shipment by expedited trucks. However, despite operating with far less inventory, Japanese transplants are not paying more for emergency shipping. Rather, they pay less in emergency shipping of approximately $371 per million sales than US automaker that pays $714 per million sales. Toyota suppliers are the best performers with $204 while Chrysler is by far the worst with $1,235 (Packowski 2014).
Lean Production System, the Benefits and Challenges to the Motor Industry
Although, a lot has been written about Just-in-time delivery as well as lean manufacturing, there seems to be a misunderstanding regarding how to utilise the above approaches effectively. Lean manufacturing is an ideology that focuses on delivering quality products within the lowest cost through focusing at value stream focus (Saban 2012). The value stream entails all steps in the process that are required to convert raw material into the product the customer desires. As a result, any step in the process that fails to achieve this goal is usually considered wasteful in the operations. Ultimate goal of the lean supply chain management is to reduce the waste, so that the product flows as efficiently as possible. However, the key part of the lean manufacturing process is the JIT delivery that ensures getting appropriate part at the right time (Packowski 2014).
The birth of lean manufacturing philosophy was in Japan within Toyota in 1940s. Toyota production systems were based around to produce a continuous flow which did not rely on long production runs to be efficient (Packowski 2014). The model is entirely based on recognition that only small fraction of the total time and effort to process a product is added value to the end customer. Lean manufacturing starts with the customer’s definition of the value. Value is not defined by the company engineer, managers or the shareholder, but anything the customer is willing to pay for. Hence, since the manufacturing process forms the vehicle of delivering value to the customer, the principle of lean thinking focuses on delivery product that are appealing to the customers’ needs (Monden 2012).
However, in order to link all the elements within the supply chain, it is essential to ensure the flow of value. It is a concept the most people contradicts with the mass production systems (Monden 2012). For instance, Toyota realised that lack of flow in the manufacturing process accounts for huge warehouses that house mass of inventory that consumes working capital of the firm. In the lean production process, value stream links the events or activities that ultimately deliver value to the consumer since it crosses functional and organisational boundaries (Monden 2012). In the lean production concept, any activity or process that fails to add worth to the consumer is called waste. However, the concept recognises that not all process is a waste, especially financial control they form a critical part of the company though they don’t add value to the customer.
Benefits of Lean Production System
Lean principles minimise all form of waste from the source. Through the concept, many sources of the waste in Motor industry such as worn machines and production of defected parts are detected and correct earlier in the production process. As an aspect that limits transfer of such errors to the ultimate product of the vehicle (In Kahraman & In ÖztayşI 2014). Furthermore, it permits identification of other forms of wastes such as environmental conditions that impacts operation efficiency. In addition, implementing lean principles in company enhances staff satisfaction since their input is required in implementation of the concept (In Kahraman & In ÖztayşI 2014). Employees are termed to be the best in pinpointing the source of waste and operation inefficiency in the motor industry. Therefore, inclusion in the process nurtures a sense of responsibility, ownership and ultimately leads to satisfaction, a crucial aspect in enhancing productivity and efficiency in production process.
The concept offers a competitive advantage since it reduced the cost and improved efficiency. The technique introduces a system and develops skills within the staff, an aspect that support operation changes that scale the production process (Ciravegna 2012). Since it permits the motor firms to save space in the warehouses, the extra space can be used for new auto-spare parts or other products. The concept is also accredited for its ability to save time since it makes a staff adapt and react to new work in a quick and efficient manner, thus, ensuring consumers’ needs are met (Ciravegna 2012). The concept offers the firm a competitive advantage since operation is usually first, with short iterations, minimal waste and timely delivery.
In most motor industry, lean production technique can be overused resulting to inefficiency of operations. This usually happens when tracking of productivity and the waste start to impact the time used for production. Initial implementation of lean principles leads to larger returns, but the productivity tends to drop over time (In Golińska 2014). Therefore, in an attempt to push such expectations, it is essential to examine the value of improvement. For instance, refined throughput of 1000 parts an hour in one section, but with only 500 parts from the previous stage implies that results haven’t improved (In Kahraman & In ÖztayşI 2014). The concept also acts a source of frustration to the worker. This happens when a certain level of refinement are achieved, the company applies the lean method to realise more economy from the production process, an aspect that discourages the worker, reverse positive motivation and undermines the company leadership (In Golińska 2014). A trend indicating revert to previous improvement usually indicates staff resentment to the process. Therefore, striking a balance between the stasis and continuous improvement is a critical challenge that faces any lean environment. However, complex companies such as motor manufacturing firm are prone to such refinement because of complex nature of their operations (In Kahraman & In ÖztayşI 2014).
Analysis of JIT production and Supply Management
Suitability of Toyota supply chain management has been numerously questioned, especially from an environmental perspective. However, it is evident Toyota recognises that a stable supply chain is an important component of maintaining its manufacturing process (Chopra & Meindl 2013). The company works closely with suppliers in order to enhance its manufacturing procedures and productivity. Toyota is reputable for its manufacturing operations that eradicate non-value adding activity. In an attempt to enhance sustainability, Toyota has programs that permit sharing of skills and knowledge with the local suppliers in order to ensure their long-term sustainability (Agrawal 2010).
Toyota recognises significance of having sustainable and capable automotive parts manufacturers that are globally competitive. The company through its JIT concept continues to work closely with government and the industry to implements supplier improvement initiatives to enhance capabilities of local suppliers (Chopra & Meindl 2013). A team of specialists in Toyota’s supplier development collaboratively works with the supplier to embed the principles of Toyota production System (TPS) in their manufacturing operations. The TPS strives for a completed elimination of the waste in all aspect of production to maximise efficiency. The company closely works with its suppliers in identification and implementation of safety, quality, cost and productivity improvement (Agrawal 2010).
Furthermore, sustainable JIT needs to be eco-efficiency and can be achieved through management of links in the supply chain to ensure they are aligned with consumer service level that involves acquisition of raw materials and delivery of the product to the client via design, procurement, production and distribution (Prater & Whitehead 2013). However, the use of JIT in Toyota has promoted sustainable logistics since its increase in operational efficiency and environmental sustainability in the transport and logistics system. Furthermore, Toyota JIT manufacturing strategy has been centered on changing the factory layout, thus, eliminates the need to transporting product back and forth to different machines; rather it arranges the machine to ensure that items flow smoothly from one machine to the other (Prater & Whitehead 2013). This significantly reduces the energy used, thus, promoting environmental sustainability. JIT concept permits the company to reduce the amount of waste produced in term of defects since the system is designed to automatically detect the defects and only proceed until a human intervention fix the problem (Prater & Whitehead 2013).
In the face of global competition, companies focus more on customers needs and seek means of reducing costs, improve quality. As a result, many companies have identified logistics as areas to build advantages of cost and service (Fliedner 2012). Just-in-time (JIT) management approach, which has traditionally been proved effective in manufacturing sector in quality enhancement, productivity and efficiency, improved communication and reduction of costs and waste permits the firms to achieve a competitive advantage through logistic (Fliedner 2012). The approach originated in Japan in 1950s. Since then, it has been subsequently adopted by Toyota and another Japanese manufacturing firm due to its potential to raise productivity while eliminating waste. In Japan, waste manufacturing process is defined as anything else other than equipment, material and workers who are essential in production (Grant, Trautrims & Wong 2013). The concept underlying the JIT is to find ways to make processes more efficient with the ultimate objective of producing goods or services without incurring any waste.
JIT forms an integrated problem management perspective that aims at enhancing the quality and timeliness in production, supply and distribution. Toyota, the first company to realise full potential of JIT believed that the only way to make JIT efficient was to have every individual within the organisation involved and committed to the system, resources and processes are fully utilised for the maximum output and efficiency and the product are delivered to satisfy the market requirements without delay (Grant, Trautrims & Wong 2013). To achieve objectives of the JIT, the process largely relies on the signals between different sections in the manufacturing process. However, JIT relies heavily on other key elements in the inventory chain. For example, effective application cannot be independent of other key components of the lean manufacturing system. Irrespective of its influence in the manufacturing process, focusing JIT on the presupposition of steadiness is usually inherently flawed (Iyer, Seshadri & Vasher 2009).
Personal Reflections on Toyota Supply Management
It is evident that global motor industry is facing challenges with its supply chain management, especially as the industry becomes globalised; the situation is complicated by increased competition and the urge to meet consumer needs. However, enhancing sustainability of key supply chain management and model embraced by key companies such as Toyota remains a challenge. Although, the question has been raised regarding suitability of JIT concept from an environmental perspective, I am of the opinion that enhancing and reinforcing environmental management in the supply chain will be critical for Toyota (Drake 2012). In order to produce safe and clean products, it is critical that all Toyota firms form concerted efforts to manage the environmental impact through its supply chains.
Toyota needs to develop green purchasing guideline for its suppliers taking into consideration the changes in environmental laws and regulations that have taken place globally in the recent years. Such guideline will largely reinforce the management of substances of concerns from managing raw material, through design, development, production and delivery of the product. Explicit requirements vary subject to the type of industry and the commodity produced by the supplier. However, supplier needs to be expected to comply with the relevant environmental requirements. Enhancing sustainability of the Toyota JIT model, Toyota needs to provide a guideline on corporate social responsibility (Fliedner 2012). Such guideline has to entail company expectations of the suppliers in the areas of environmental, safety and human rights and complement the green purchasing guidelines.
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