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Supply-chain management at Toyota is an element of company’s operations strategy which is thoroughly based on the Toyota Production System (TPS). It was developed in the 1940’s by Shigeo Shingo and Taiichi Ohno. As Toyota’s success gained world-wide coverage, at was followed by interest by other companies in TPS, the principles of which is expressed by the term of “lean manufacturing”
Liker (2005, p.16) lists following components of Toyota Supplier Partnering Hierarchy: mutual understanding and trust, interlocking structures, control systems, compatible capabilities, information sharing, joint improvement activities, and Kaizen and learning.
“JIT system – a system that organizes the resources information flows and decision rules that enable a firm to realise the benefits of JIT principles”. (Krajewski, Ritzman & Malhotra p.349)
The elements of just-in-time system are being pro-active in exposing problems, pull production based in Kanban, Total Quality Management, elimination of waste, reducing inventory through involving suppliers in planning process, continuous improvement, improving machinery and focusing on co-operation.
According to Kanban each part travels with a card. New stock will only be required when that part has been used, the card is removed, using signals to re-stock this part. Kanban is well integrated in Toyota’s production system, because in Toyota there are limited number of parts with stable demand for them. Also, product mix is low and exchanges are infrequent.
Capacity planning in any company is part of a supply-chain management for that specific company. Toyota’s way to capacity planning is that it strives to eliminate inventory. In achieving this objective Toyota relies heavily in pull system. Generally, the main objective is continuous improvement.
Another operational excellence pioneered in Toyota and later adopted by other companies worldwide is a “Lean Concept”. Lean philosophy aims to achieve are the elimination of all waste, superior customer care, and Lean is based on pull system where the elimination of waste seen as a primary objective. Just in time inventory management allows a company to gain a competitive edge by not having to have a large amount of inventory in their warehouses, but only to order parts when they are actually needed. According to just in time philosophy new material will be produced only when old stock of that material has finished.
Toyota’s seven major types of non-value-adding waste in business and manufacturing business is shown by Liker (2004, pp.28-29) in he suggests eighth’s type as well. These are overproduction, waiting, unnecessary transport or conveyance, over-processing or incorrect processing, excess inventory, unnecessary movement, defects and unused employee creativity.
In today’s highly competitive global marketplace companies are forced to seek opportunities to create competitive edge for them not only to broaden their share of market, but also to survive at all. Supply chain management is an aspect for any business to be looked at properly in order to identify ways to improve it. Improvement in supply chain management can reduce costs for a company and increase the efficiency and requires a strategic approach to be implemented towards it.
Toyota Motor Corporation is currently one of the model companies worldwide in many aspects of conducting a successful business practice, including supply chain management. They principles of Just in time, Kanban, lean manufacturing, Kaizen and others provides competitive edge for Toyota and provide efficiency in many business functions along with supply chain management. Other companies willing to increase their productive efficiency need to look at these principles above, and if the need arises, implement them into their own business practices. It needs to be done, of course, taking into account the current culture within organization and the level of knowledge and qualification of employees. Therefore, some of the principles practiced by Toyota can be adopted by other companies with some adjustments.
- Liker, JK, 2005, “The Toyota Way and Supply Chain Management”, Presentation for OESA Lean to Survive Program, The University of Michigan
- Liker, JK, 2004, “The Toyota Way: 14 Management Principles from the World’s Greatest Manufacturer”, The McGraw-Hill Companies
- L.Krajewski, M. Ritzman, N.Malhotra 2006. Operations Management: Processes and Value Chains. (8th edition). Prentice Hall.
- Toyota, 2010, Wikipedia – the free encyclopedia, Retrieved 8 July, 2010. Available at: http://en.wikipedia.org/wiki/Toyot
Toyota and other global manufacturers are experimenting with a combination of technology and new operations strategies to help their lean global supply operations recover more quickly from disruption.
In the aftermath of the devastating 9.0 earthquake that struck northern Japan in March 2011, automobile manufacturing giant Toyota learned firsthand the extent to which one natural disaster can wreak havoc on a finely tuned global supply chain.
The company had recently attained the position of best-selling automaker worldwide, thanks in part to its tightly managed supply chain. Toyota had worked diligently over many years to remove slack from its supply operations by using just-in-time parts delivery to keep inventories to a minimum. But having pruned its supplier base severely as part of this process—to a single supplier for some parts—it became vulnerable to disruption. In the aftermath of the 2011 earthquake, a few disabled parts makers in Japan brought Toyota assembly lines in China and North America to a halt. Global production plummeted by 29.9 percent. Moreover, it took six months for many suppliers to return to pre-quake delivery levels.¹
Natural disasters are one of many events that can disrupt a company’s essential supply chain operations. Whether it’s a spike in demand for a particular product in a regional market, an act of war or terrorism, a regulatory change, or supplier bankruptcy, Toyota and other companies operating globally are realizing they must accommodate the unexpected if they hope to thrive.
Stung by the experience, Toyota set out to transform its supply chain in ways that would make it possible to recover from future large-scale disruptions in two weeks or less. Learning to mobilize more effectively in the aftermath of disaster would not be enough. Toyota’s entire supply system had to learn to anticipate problems—if not always the catastrophic event itself, then the knock-on effects that would inevitably follow. Management embarked on a large-scale initiative to expose vulnerabilities and then worked internally with engineers, technologists, and business leaders, and externally with suppliers, to address them. The results of this effort are far-reaching: Toyota now has a more forward-looking, flexible, and effective supply chain.
Toyota’s experience offers an extreme example of a challenge many manufacturers face. In response, the company has developed a solution others now want to replicate. The operational and technological requirements for creating anticipatory supply chains will vary from sector to sector and even company to company; however, a few general principles may prove broadly useful:
Supply chain considerations are integral to strategy. Traditionally, the supply chain team determined the best method for meeting product requirements once the strategy had been set, which often resulted in “accidental supply chains.” Today, driven by greater global complexity, supply chain considerations are becoming central to strategy.
Supply chain organizations require new leadership and talent. Designing and maintaining the anticipatory supply chain will require leaders who are both true innovators and disciplined operators—executives who combine global experience with creative problem-solving and analytical skills. Already, many companies are giving more authority and responsibility to supply chain executives because they recognize that supply chains are vital to the future of the organization.
Supply chain transformation may benefit from increased regionalization. In the new wave of globalization, the simple trade flows familiar to most managers—low-cost producers in the East supplying products to rich consumers in the West—are giving way to far more complex patterns. In parts of the world that have been centers for low-cost manufacturing, new wealth is being created and consumption is rising rapidly. Corporations spotting revenue growth opportunities in these markets are scrambling to redesign supply networks to match demand and supply within the same region.
The Role of Technology
The vision of the anticipatory supply chain will likely take years to realize fully. At every step along the way, however, the most effective organizations will likely apply leading-edge technology to enhance their real-time understanding of activity in complex supply networks, and to improve the economics of having production capacity closer to consumption.
As the Internet of Things (IOT) expands and companies’ analytics become more sophisticated, predictive supply decision-making will increasingly become automated. Sensors signaling disruptions or unexpected activity in remote corners of the world will trigger appropriate adjustments in the flows of materials.
Other technologies will reshape global supply chains as well. Additive manufacturing, known popularly as 3D printing, has the potential not only to transform the manufacturing process for some goods, but to greatly reduce or even eliminate the need for shipping these goods across long distances. Much of the excitement about this evolving technology is based on the prospect of being able to manufacture replacement parts rather than having to either stock large varieties of them “just in case,” or incur delays while they are shipped from centralized warehouses.
Ever more sophisticated robotics may make it possible for manufacturing schedules to turn on a dime. With this potential in mind, Apple is investing a reported $10.5 billion in advanced production automation. The company is striking deals that will give it exclusive access to technologies for numerous tasks, from polishing the colored plastic of iPhone 5c mobile device cases to laser-cutting the aluminum bodies of MacBook computers.²
During a 60 Minutes interview broadcast in late 2013, Amazon CEO Jeff Bezos unveiled what he see as an inevitable development in package delivery technology: using unmanned aerial vehicles—aka drones—akin to those employed by the U.S. military, to drop parcels at consumers’ doorsteps.³
New technologies like these and many others will likely guarantee that supply chains grow ever more anticipatory, and that the quest to optimally make and move products will be ongoing.
—This article, by Kelly Marchese,a principal with Deloitte Consulting LLP, and Bill Lam,a senior manager with Deloitte Consulting LLP, was adapted fromBusiness Trends 2014: Navigating the next wave of globalization.
.1 Supply Chain Digest, “Global supply chain news: Toyota taking massive effort to reduce its supply chain risk in Japan,” March 7, 2012, http://www.scdigest.com/ontarget/12-03-07-2.php?cid=5576&ctype=content, accessed December 6, 2013.
2. Adam Satariano, “Apple’s $10.5B on robots to lasers shores up supply chain,”Bloomberg Technology, November 12, 2013, Business Trends 2014 is an independent publication and has not been authorized, sponsored, or otherwise approved by Apple Inc. iPhone® and MacBook® are trademarks of Apple Inc., registered in the United States and other countries.
3. CBS Interactive Inc., “Amazon’s Jeff Bezos looks to the future,”60 Minutes, December 1, 2013,