Managing the Supply Chains

Supply Chain Management at Toyota Toyota essentially follows a very simple supply chain management policy. While ensuring a reasonable level of quality, delivery time and satisfaction of customers, Toyota attempts to reduce costs in its supply chain. Producing the right product for the market at the right price that can be affordable for the customers are the primary objectives of the supply chain management policy at Toyota at the right time.

In order to maximize profits, the company follows a policy of targeting the right customer group at the right time (Liu & Brookfield, 2006). A pictorial representation of the supply chain management policy of Toyota is listed in the appendix. The company segregates its supply chain and the suppliers. It considers the suppliers as a very integral part of the supply chain. Apart from supplying raw materials for automobile production, the suppliers are also suppliers of technology for the various systems that are incorporated in the automobiles.

Based on what functions the suppliers perform, they are segregated in to several tiers (Iyer, Seshadri & Vasher, 2009). Suppliers engaged in the product development at the company are placed in the first tier. Companies that are engaged in the development of computer software for the vehicles and the various intelligent systems that are incorporated in the state-of-the-art luxury cars that are produced by the company and the companies that directly take part in research and development with the company are considered in this tier.

The suppliers of individual parts of the automobiles is in the second tier such as the ones who regularly supply electrical, sound or navigation system or parts of the engine. Encouraging cross supplier communication, supply chain management at Toyota aims to enhance the quality and range of products that the company gets. The supply chain management also involves the cross sharing of personnel with the company as well as between the suppliers.

With the aim of compensating for greater workloads when it is needed by the company Toyota often sends its employees to the suppliers. This helps in delivery of parts and raw materials in time which in turn ensures that the customers get their delivery in time (Kubota, 2015). Senior managers and experts in production are sometimes sent by the company to the suppliers with the aim to encourage corporate managing of the business of the suppliers. The Toyota employees are mostly placed at top positions in the supplier companies.

The aim is to streamline the supplier company in line with the high standards of company management at Toyota which ensures product quality and on time delivery of products. Toyota follows the "market price minus" system instead of the general popular "supplier cost plus" system of pricing for the supply chain.

This entails that the price quoted for a supplier is based on the market price of a vehicle instead of adding costs to the cost that was incurred in the company in paying the suppliers while the company decides on the final pricing of the products. This is a supply chain management measure by the company that helps Toyota to keep the final value of the product very competitive and checking costs while ensuring that quality of the products is maintained and delivered in time.

This increases customer satisfaction and helps in increasing profits. In order to ensure that the suppliers are able to maintain a constant volume of business throughout the year and value is created for the suppliers so that they get associated closely with the company, Toyota shares its personnel and expertise with suppliers. This also creates an atmosphere for long-term relationship between the company and the suppliers. The supply chain management at Toyota is also based on the Toyota Production System (TPS).

This is similar to the concept of 'lean manufacturing' which in Toyota is also known as the 'just in time' or JIT production policy. The supply chain of the company is managed on the basis of this. This management policy entails that the company produces that quantity of products that are estimated to be in demand and just in time for the time of delivery. This reduces inventory pile up thus reducing unnecessary costs and increasing profits (Liu & Brookfield, 2006).

According to Liker (2005) the following are the components of the Toyota Supplier Partnering Hierarchy: "mutual understanding and trust, interlocking structures, control systems, compatible capabilities, information sharing, joint improvement activities, and Kaizen and learning." The basic concept of management of the supply chain at Toyota is a system that allows for use of resources through a steady flow of information and decision rules to attain the benefits of the JIT system (Deloitte.wsj.com, 2016).

The other aspects of SCM at Toyota incude Total Quality Management and continuous improvement systems as well as close co-operation between the suppliers and the company. Kanban is another aspect that Toyota utilizes where every part had a card attached and when the part is.