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MGMT30011 Managing Supply Chain Networks Khar Yan Chin (Cheryl) 1023147 Thursday 4.15pm Dr Bella Gu Individual Case Assignment: Toyota Word Count: 1935

Table of Contents Executive Summary

2

Introduction

3

Strategic Alliances

4

Vertical Keiretsu

4

Supply-Partnering Hierarchy

4

Partnerships

5

Procurement and Outsourcing

6

International Challenges and Risk

7

Covid-19 Crisis

7

Customer Perception

7

Sustainability Initiatives Social Environment

8 8 10

Technologies

12

Recommendations

13

Conclusion

14

Reference

15

Appendix

22

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Executive Summary The report evaluates and provides a thorough analysis on Toyota’s supply chain strategies. As one of the leading automotive manufacturers in the world, it is no surprise that the Toyota Production System (TPS) is well known globally. The pull strategy by Toyota which emphasizes on build to order system maximises the efficiency and reduces the potential costs associated with carrying vast amounts of stock. This also helps with reducing the time from customer orders to the delivery of goods. The strategic alliance Toyota has with many parties are all beneficial and instrumental in the growth of Toyota as a whole. Toyota also ensures that they are involved in sustainability practices, not forgetting their philosophy even as they strive for success. The risks and challenges Toyota has to face is also not foreign to many competitors in the same industry. Thus, it is vital for Toyota to take a step forward and overcome the challenges promptly to avoid falling behind others. Specific recommendations are also suggested in the report for Toyota to carry out.

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Introduction Toyota Motor Corporation began in 1937 and has now become the world’s largest and most well-known automobile manufacturing company (Toyota Motor Corporation, n.d.). With Toyota’s headquarters located in Toyota City, Aichi, Japan, they are also present in 170 countries, has 71 manufacturing companies worldwide, and a total of more than 370,000 employees globally (Toyota Motor Corporation, n.d.).

Toyota has made a name for themselves with their supply chain management practices, specifically the Toyota Production System (TPS), which aims to eliminate waste and to achieve operational efficiency (Toyota Motor Europe, 2019). TPS was developed in the 1940’s and in general, it helps with cutting down the time it takes to convert customer orders into vehicle deliveries (Hines, 1998). The major system in place for TPS is the ‘lean manufacturing system’, also known as ‘Just-In-Time (JIT) system’ (Banton, 2020)). JIT is designed to minimize inventory, enabling companies to cut down on inventory costs (Banton, 2020). In Toyota’s case, they operate with low levels of inventory and heavily rely on the supply chain to receive the parts they require, on an as-needed basis (Banton, 2020). This pull strategy utilizes Kanban (an inventory control system) to track ongoing production processes and the demand for particular materials and parts (Halton, 2019). Kanban facilitates in achieving JIT by harmonizing the inventory levels with actual consumption of the factory (Clifford, 2013). This leads to the firm’s importance on having a strategic alliance with trading partners as they rely immensely on the efficiency of the supply chain. Toyota has built a great supplier relationship by following six steps that they have set called ‘The Supplier-Partnering Hierarchy’, aiming to focus on the long term relationship between the partners where improvement and growth as well as trust can be achieved (Appendix 1) (Harvard Business Review, 2007). They also focus on vertical ‘Keiretsu’ whereby the manufacturer, supplier, and distributor work hand in hand to improve efficiency and cut costs (Liberto, 2019). Aoki and Taro Lennerfors (2013) studied that Toyota has benefitted from the vertical keiretsu as its supplier relationships are more open and cost effective.

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Strategic Alliances The Keiretsu and Supply-Partnering Hierarchy are both beneficial to fostering a credible and reliable supply chain for Toyota. A well-grounded strategic alliance in a business activity is vital as it benefits all parties and aids with achieving a competitive advantage (Išoraitė, 2009). Toyota also focuses on partnering up with companies outside their usual automotive manufacturing business, forming unconventional alliances as they diversify their portfolio. Vertical Keiretsu Keiretsu is an interconnected network of companies where there is a long standing transactional relationship and strong alliance amongst one another (Corporate Finance Institute, n.d.). The companies strengthen alliance by owning a small amount of shares in each other’s companies (Corporate Finance Institute, n.d.). A vertical keiretsu is guided by a large company which will define the rest of the group through the type of products they sell and the smaller firms are influenced by the large company (Corporate Finance Institute, n.d.). In this case the large company would be Toyota. Toyota’s first-tier suppliers are companies that would supply directly to Toyota and the second-tier suppliers would supply to the first-tier suppliers, and the tiers go on (Corporate Finance Institute, n.d.). All suppliers rely on one another and use real-time information to respond to needs or potential problems (Cusumano & Takeishi, 1991). Thus, a strong supply chain relationship amongst all the suppliers would aid in alleviating a possible bullwhip effect as forecasting and information sharing is in place. Supply-Partnering Hierarchy Toyota’s emphasis on the supply-partnering hierarchy enables them to shortlist suppliers who are efficient and are motivated to continuously learn to improve themselves over time (Liker & Choi, 2004). Product design suggestions for improvements are encouraged by the suppliers working in the supply chain with Toyota (Rüttimann & Stöckli, 2016). This helps with stimulating information sharing throughout the supply chain while mitigating potential cost-inefficiencies stemming from skepticism towards others in the supply chain (Cusumano & Takeishi, 1991).

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Partnerships Partnering Company

Description of Partnership

Chevron

Chevron and Toyota’s alliance to pursue hydrogen They are interested in exploring and leading the development of large-scale business in hydrogen in hopes to be the catalyst of a hydrogen economy (Automotive World, 2021). Automotive World (2021) mentioned that they aim to focus on these three aspects: ● Supporting public policies that aid in the development of hydrogen infrastructure ● Supplying and meeting the demands for fuel cell electric vehicles ● Invest in R&D for hydrogen powered storage and transportation

SoftBank

SoftBank and Toyota’s joint venture on new mobility services Their joint venture company is called MONET (Mobility Network), making use of both the company’s capabilities to launch MaaS (Mobility as a Service) in hopes to resolve social mobility issues and to create value in their lives (SoftBank, 2018).

Uber

Uber and Toyota’s collaboration to Automated Vehicle Technology Toyota is investing $500 million in Uber along with providing its Toyota Guardian technology for self-driving (Toyota Motor Corporation, 2018). This will benefit the ride-sharing network and deploy the safest self-driving cars on the Uber network (Toyota Motor Corporation, 2018). Table 1: Toyota Partnerships

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Procurement and Outsourcing With such a structural system in place for Toyota such as the TPS (Appendix 2), it is crucial for the company to have a dynamic procurement and outsourcing process.

Toyota outsources the parts and materials of the overall vehicle which sums up to about 70% of it (Smalley, 2014). The supply contracts are never set in stone but Toyota places an emphasis on maintaining a strong tie with their suppliers and do so by awarding suppliers who exceed performance targets annually (Lioudis, 2019). Toyota’s JIT system enables them to reduce waste from their supply chain by having the right inventory where it needs to be when it is needed (Williams & Ludwig, 2021). The system is then more efficient and coordinated while being able to eliminate extra costs. This is possible as Toyota demands their suppliers to share information constantly with one another (Brown, 2005), which aids in improvements and advancements that can be made to their own company. Even with the pull-system set up, Toyota still expects their sales dealerships to forecast a certain amount of car sales volume (Tomino et al., 2012). The sales dealerships are able to place orders up to three days before actual production begins as Toyota encourages ‘sales to promote a stable production system’ (Tomino et al., 2012). Such strategic procurement practices means that the supply chain will be more stable and fluctuate less due to aggressive sales efforts (Tomino et al., 2012). This means that Toyota’s market responsiveness is strong and with their long term production planning, their procurement effectiveness is relatively better (Tomino et al., 2012).

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International Challenges and Risk Covid-19 Crisis Due to the current Covid-19 pandemic, there has been a decreased demand for automobiles thus leading to Toyota halting their production of 28 lines at 15 different plants and changing their production to single shifts and adding non-operating days (Toyota Motor Corporation, 2020). In 2020, Toyota warned of an 80% collapse in its operating profits throughout the year (Inagaki, 2021). Toyota has also cut production forecasts by 300,000 cars due to the Covid hit just in September this year (Davis, 2021). Davis (2021) also mentioned that this is due to many Southeast Asian countries having been significantly impacted by the coronavirus which disrupted Toyota’s access to semiconductors as well as other key parts. In spite of such circumstances, Toyota’s recovery to pre-pandemic levels is expected to outpace their peers owing to its strong position in China and US, exceptional cost discipline, as well as effective supply chain management (Schorr, 2021). Toyota has also taken advantage of the pandemic and established the first refrigerated vehicle for vaccines that is recognized by the World Health Organization (WHO) for performance, quality, and safety (Toyota Motor Corporation, 2021). Toyota is able to turn an unfavorable situation into something positive that would not only benefit Toyota but also contribute to improving the rate of vaccine use in developing countries (Toyota Motor Corporation, 2021). Customer Perception Just earlier in 2020 there was a major Toyota recall of 3.4 million vehicles worldwide due to issues with their airbags not deploying in crashes (Reuters, 2020). This is definitely not new to Toyota as they have experience in recalling many of their vehicles over the years. For example, 8 million cars were recalled due to sticky accelerator pedals and floor mats (Cole, 2011). Also, more than 45,000 cars were recalled in Australia in the past due to fuel pump issues (Barry, 2020). With every complication Toyota’s vehicles have faced over the years, they were able to provide their customers with exceptional service to resolve the issues. Toyota provides their customers with ample information they need on their website regarding the issues and steps to take as a vehicle owner affected by this (Appendix 3), while personally contacting them through various channels such as phone, email, and face to face settings (Toyota, n.d.).

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Sustainability Initiatives Since the start of Toyota, its values have been built on seeking to contribute to a more prosperous society through the manufacturing of automobiles (Toyota Motor Corporation, n.d.). Toyota has also promised that they will continue to contribute to societal development and earth’s sustainability through their business activities in cooperation with the global community (Toyota Motor Corporation, n.d.). This leads to the philosophy that Toyota lives by, called the Toyota Philosophy (Appendix 4). The vision and mission of Toyota are part of the Toyota Philosophy, and provides Toyota with a clear direction on their sustainability initiatives (Appendix 5).

Social Toyota’s aim is to put a smile on as many people as possible by doing everything in their power to contribute to the creation of a prosperous society (Toyota Motor Corporation, n.d.). They do this through car manufacturing and also by engaging themselves in various activities aimed at nurturing the society (T. M. Toyota Motor Corporation, n.d.). The social contribution by Toyota will be elaborated in Table 2 below.

Initiative

Elaboration on Initiative

Enhance Supply Chain and Internal Systems

Collaboration with Business Partners Toyota ensures that any party that works with them also pursues a “Customer First” and “Quality First” mindset. One of the methods they do this is by concluding contracts that clearly ensures respect for human rights, considerations for the environment both locally and internationally, meeting legal requirements, and obeying to the anti-bribery guidelines set (Toyota Motor Corporation, n.d.). Toyota also aims to pay attention to the quality of their cars that will produce customer satisfaction, peace of mind, and safety through kaizen (continuous improvement) (Toyota Motor Corporation, 2019). Responsible Mineral Sourcing Toyota established its Policies and Approaches to Responsible Mineral Sourcing, and has been consistently implementing them (Toyota Motor Corporation, n.d.). With the recent concerns regarding child labour and issues with human rights abuses surrounding cobalt mining, Toyota has

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done their part in investigating and clarifying the supply chain as well as conducting proper background checks of the smelters (Toyota Motor Corporation, n.d.). Effective Human Human Rights and Labor Relations Toyota also practices “Respect for People” where they believe in the Resources growth of their employees and their ability to better themselves, the Practices company, and the society as a whole (Toyota Motor Corporation, n.d.). Toyota also participates in “Japan Platform for Migrant Workers towards Responsible and Inclusive Society” where they plan to realize a more sustainable society by protecting the human rights of foreign workers as well as improving their working and living conditions (Toyota Motor Corporation, n.d.). This can be seen through Toyota’s initiative to train their interns with “Global Skill-up Training” and awarding them with a certification for completing the training (Toyota Motor Corporation, n.d.). Health and Safety Toyota ensures that their employees’ health and safety would not be overlooked. This is evident through their safety and health philosophy “Safe work is the gate to all work. Let us pass through this gate” (Toyota Motor Corporation, 2019). Toyota seeks to eliminate the chances of their employees from being involved in occupational accidents (Toyota Motor Corporation, 2019). Diversity and Inclusion Toyota strives to establish a workplace that considers diversity and inclusion as a key element of their business infrastructure, and seeks to create a space for a diversity of employees to achieve their self-realization (Toyota Motor Corporation, 2019). External Social Contribution

Improving Traffic Safety An “Integrated Three Part Initiative” involving people, vehicles, and the traffic environment has been developed by Toyota to pursue a “Real-world Safety” strategy (Toyota Motor Corporation, n.d.). Toyota believes that it is essential to educate drivers and pedestrians to achieve a safe mobility society (Appendix) (Toyota Motor Corporation, n.d.). Providing Mobility For All In 2020, Toyota launched “Mobile Toilet” in hopes to promote freedom in mobility other than through automobiles (Toyota Motor Corporation,

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2019). Toyota collaborated with LIXIL Corporation to provide a barrier-free toilet design for people who need them (Toyota Motor Corporation, 2019). Human Asset Development Toyota believes that human development will lead to Monozukuri (making things) and aims to convey the joy of learning to children (Toyota Motor Corporation, 2019). They launched a “Fuel Cell Vehicle” class for attendees to easily learn and understand the technology of hydrogen-powered Mirai (Toyota Motor Corporation, 2019). This is just one of the many examples of how Toyota is contributing to the development of the younger generation who will lead the future. Table 2: Toyota’s Social Initiatives

Environment Toyota has been ensuring that they will not stop challenging themselves to solve various global environmental issues through their initiatives (Toyota Motor Corporation, n.d.). There are numerous issues surrounding climate change which threatens the livelihood of many people in the world whether directly or indirectly (Toyota Motor Corporation, n.d.). Thus, Toyota admits that they also require change which will realize the Sustainable Development Goal (SDG) by 2030 and their personal environmental challenge by 2050 (Toyota Motor Corporation, n.d.).

Initiative

Elaboration on Initiative

Toyota Environmental Challenge 2050

Toyota aims to reach a zero environmental impact in terms of production emissions, recycling, and water handling by 2050 and they have also established mid term targets in 2030 to ensure they are able to realize their goals (Toyota Motor Corporation, n.d.). This includes altering their supply chain as time goes by to meet their targets. They would also require to constantly improve their logistics with their suppliers to ensure it can be made more efficient and less harmful to the environment.

Reduction of Carbon Dioxide Emissions

This is done through Toyota’s initiative to invest in more electric and hybrid cars as well as partnering with other companies

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involved in such initiatives (Toyota Motor Corporation, n.d.). This means that Toyota needs to reach out to new suppliers and fund more capital into this initiative. With an increase in electric and hybrid cars, the plants would need to be able to cater to such changes as well. Recycling Materials

Toyota recycles super olefin polymer to manufacture bumpers and other vehicle components which can be recycled and used repeatedly (Toyota Motor Corporation, n.d.-c). This will lead to additional costs in collecting the materials and investing in such equipment to convert them into something usable. Table 3: Toyota’s Environmental Initiatives

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Technologies Toyota has gained worldwide recognition from their TPS which influenced many other companies to follow suit, and this is expressed by the term ‘lean manufacturing’ (Dudovskiy, 2012). The TPS can be illustrated by a house (Appendix 6), where it contains many different aspects needed to make TPS successful. These practices enable Toyota to create value, reduce waste, improve productivity, and have continuous improvement in innovation (Wiktorsson & Bellgran, 2010). Table 4 presents the three main components that help make the TPS successful.

Name of TPS Component

Meaning

Importance

Just-In-Time (JIT)

A pull system which provides the processes with only the quantity and types of items needed, when it is needed (Banton, 2020).

JIT enables Toyota to save on space and costs from carrying too many inventories. The production efficiency is greatly improved as the parts needed are delivered just before they are required. This flow is possible through the ...