Supply Chain and Logistics Management

Toyota Supply Chain and Logistics Management

The focus of this study will be on isolation in the U.S. And Japan that are at the forefront of combining JIT practices with enterprise integration along with innovative logistics systems to get done mass customization. Among those influential in this area are Dell Computer and Miller SQA. Also looked at will be several Japanese companies including Hitachi, and other computer companies to compare these systems to Toyota's classification in Japan and the U.S. (Morash & Clinton, 1997, pp.5-17)

During the earlier part of the 1970s a news era of computing capabilities came into existence with the improvement of supply chain performance and efficiency through the application of scientific and data driven practices. "Other practice innovations of the era include improved sourcing practices and supplier rationalizations, vendor-managed inventory and quick response systems" [which focused on] improving the efficiency of processes and coordination between firms. " (Kambil & Dik, 2005) The stated focus of this era was to "gain speed and other efficiencies through a more scientific approach to managing key processes and functions." (Kambil & Dik, 2005) In the middle part of the 1980s Michael Dell invented a "built to order and direct to customer model for manufacturing and distributing computers" (Kambil & Dik, 2005) Stated is that the supply chain "became the basis of competitive advantage allowing Dell to deliver lower costs, better service, and customization to customers and outgrow its competitors." (Kambil & Dik, 2005) The business reengineering process included Electronic Data interchange (EDI), Vendor managed inventory (VMI) and collaborative planning, forecasting, and replenishment (CPFR). Enterprise Resource Planning (ERP) systems and the World Wide Web both propelled the integration that occurred in the 1990s and created "a new era of intra-enterprise integration and new channel designs that reframed relations with suppliers and customers." (Kambil & Dik, 2005)

The diagram below is the general supply chain in the automotive industry. Toyota's supply chain differentiates in that the 3PL sector of the supply chain or the "Third Party Logistics" was formed in order to provide service to the producers in times when expedited services were needed. Today the part of the 3 PLs is that which characterizes the Toyota Supply Chain as a "pull" instead of the first used "push" manufacturing system. The Toyota Plant in Cambridge, Ontario operates under the next-generation 'just-in-time' model. Actual demand is that which triggers the shipments instead of a best supposition type forecasting of what might be needed. The delivery window has been narrowed to within minutes with this system. In 1989 Transfreight, Inc. was created as a 50-50 joint venture between Japanese Mitsui & Co. (a Toyota partner) and TNT Logistics.

Suppliers' Network raw materials, part, Manufacturers

Distributors' Customers parts, assemblies Network wholesalers, retailers)

Toyota's JIT system or the "Just-in-time" system makes used of kanban cards, paced pull systems, frequent small batch production and delivery as well as reduced inventory which all works to provide Toyota with the performance advantage. Toyota's Supply Chain is characterized by the elements in the following diagram:

Suppliers Network

300 + Suppliers of Manufacturers

Distributors

Customers

Raw materials, parts, Network

And assemblies (wholesalers, retailers)

JIT logistics were developed as an essential element in The Toyota Production System. Two pillars needed in support of the system are (1) Just in Time; and (2) Autonomation (automation with human touch) Ohno (1978) states that "closer cooperation with the suppliers and a no error quality management system are important elements of the Toyota approach."

The four levels in the Toyota process are from the top down as follows:

Problem Solving: Continuous Improvement and Learning - Continual organizational learning through Kaizen; go see for yourself to thoroughly understand the situation; make decisions slowly by consensus, thoroughly considering all options, implement rapidly.

People and Partners: Respect, Challenge and Grow Them - Grow leaders who live the philosophy; respect, develop and challenge your people and teams; respect, challenge and help your suppliers.

Process: Eliminate Waste - Create process "flow" to surface problems; Level on the workload; Stop When there is a quality problem; Use Pull Systems to avoid overproduction; Standardize tasks for continuous improvement; Use Visual Control so no problems are hidden; Use only reliable, thoroughly tested technology

Philosophy: Long-Term Thinking - Management decisions are based on a long-term philosophy even at the expense of short-term financial goals.

The work of Steven Spear (2003) relates much from observation of the Toyota process within its' integrated supply chain and specifically so as to the process as compared to previous 'pooling' processes. Toyota suppliers include Toyoda Bushoku, Araco, Taiheiyo, NHK, and Aisin. TIP Rules-In-Use were utilized in these organizations termed to be: "TPS-managed organizations." (Spear, 2003) These organizations were observed by Spear (2003) to contain assistance pathways in which " each-line worker having specific team leader from whom to ask for help, each team leader having a specific group leader from who to ask for help, etc. " which have products, services, and information flow over pathways (i.e.., from activity-doer to activity-doer)." (Spear, 2003) In other words, the Toyota process is one that matched the required action to the need in a 'current best practice' initiative of discovery that was a continual ingrained and critical process. Adler, Goldofstas, and Levine (1997) and cited by Spear (2003): "make a longitudinal comparison of two new model introductions process at NUMMI through interviews, plant visits and document reviews. Their work also reveals this consistent pattern of specification of work design, built-in-tests to diagnose the work as it is performed, and improvement of design in response to individual problems for a range of processes including standardized assembly work, team and group leader work, production system design, and the process by which the production system design was completed."

The pathway rule states the specification as to who will receive the production service or information from whom over what is termed a 'simple pathway'. The 'connection rule' states the specifications as to the customer's request through a 'binary' type giving indication as to the what, when, and how much of the delivery. The activity rule states the specifications of the different 'activities' work-element content, sequence, timing, location, and outcome. Finally the 'improvement rule' states specifications of the group that was smallest and affected most.

The integration of Toyota's 'Just-in-time" production control tools very much affect great control over inventory and other processes within the realm of Toyota's supply chain. This is acknowledge b y Spear (2003), who calls the system "a superior way for facilitating situated, problem-solving-based learning that leads to organizational forms that fit strategically with the organizational mission."

The focus of Toyota's approach in it supply-chain and logistics management is one that has been termed the "lean approach." Lean manufacturing not only improves cooperation between manufacturers and suppliers, these systems also provide levels of visibility among those participating in the chain which integrates the process. The focus of Lean is " to do only what is needed, only when it is needed....the polar opposite of the traditional economics of scale approach that brought us the long lead times and high inventories that are so troublesome today." (Infor, 2005) The "Lean" approach is one that minimizes inventory and work-in-process, and high quality." (Infor, 2005) The last recession hit the automotive industry, both manufacturers and suppliers quite hard due to "decreased demand, excess inventory and build-up of inventory. The response of the automotive industry has been implementation of new systems that enables "lean manufacturing" and improves manufacturer and supplier cooperation. The automated exchange of data is critical in this industry.

The principle of lean manufacturing is being applied from the top to bottom end of the automotive industry. Stated in the Supply Chain: Manufacturing and Logistics Solutions Journal is: "These new systems provide unprecedented levels of visibility among participants in a supply chain, but much work remains in terms of putting such systems in place and integrating nodes such as JIT/sequencing plants with other nodes." (Navas, 2004) Information technology trends must be considered in relation to a strategic logistic plan for the future of any organization. The "planning and optimization tools" (Supply Chain Management Review, 2005), are important in the "forecasting and management of inventory"(Supply Chain Management Review) including products, and primary packaging. Executive tools are vital and collaboration-related tools that enable effective communication. Lessons learned by the automotive industry and cited by the Supply Chain Management Review are in areas "such as inventory reduction, collocation, reducing the number of suppliers and propagation can be applied to other industries.." The automotive industry is stated to be a leader in relation to lean supply chains through use of the key principles inclusive of management of inventory, collaboration and propagation. Implementation of information technology is effective in reduction of costs and improvement of services.

In companies such as Toyota supply chain strategy will be critical in the growth of the company in the global environment of the business world in the future. The customer of today's world aim for many aspects and only one aspect demonstrated in cost reduction or product quality of expedient delivery will not satisfy. Many companies utilize postponement, or building of the product to the demand of the customer. In other words the order will be completed only after having received the order from the customer and then building the product and shipping to the customer in a minimal time allocation. The use of postponement is sated by Stahl & Wallace (2004) to "enable a company to ship a wide variety of products": (1) Quickly; (2) Completely (3) Cost-effectively; and (4) With sharply lower inventories. (Stahl & Wallace, 2004) Postponement is noted to be successful when the following practices are following:(1) Product completion quickly after the customer sends the order; (2) For the purpose of forecasting and planning volume an effective sales and operations planning process for forecasting and planning volume (as opposed to mix) grouped by families of product is successfully utilized; (3) A planning process in rough form that "converts these volume plans into future capacity and material requirements;(4) "Modular planning bills of material that project future requirements for specific components and materials.. (Stahl & Wallace, 2004)

According to the work entitled: "Lean Manufacturing in a Make-To-Order Environment: Deconstructing Lean Methodologies": The efficiencies and benefits of Lean Manufacturing originated Toyota Production System. Companies embarking on a Lean initiative typically are able to realize significant improvements in cycle times (lead times), customer service (fill rates) throughout, inventory reduction, higher quality, and reduced costs." Lean in manufacturing is stated to be an attitude instead of a technique. The focus is on the elimination of waste whether in materials or time utilized in propelling the product to the market. Lean Manufacturing started in the production system of Toyota and has been inseminated into many in the auto industries internationally. Lean is simply the elimination of waste in every area of production, including customer relations, product design, supplier networks and factory management." (Infor Focus on Essentials, 2005)

Waste is defined by the experts as being inclusive of: (1) Overproduction; (2) Inventory of Work-In-Process (WIP); (3) Transportation; (4) Processing Waste; (5) Transportation; (6) Processing Waste; (7) Motion; (8) Waiting; and (9) Defects. This same focus "can and should be applied to non-production processes. Waiting, handling, motion, waste and defects occur in administrative processes, in communications and interactions with customer and suppliers, in employee contacts and administration processes, in dealing with regulatory and governmental issues, in handling paperwork, and so forth, throughout the organization and the supply chain."

The key in supply chain management, in the growing global supply chain full of complexity and sailing in unchartered waters seeking lower costs is to "examine your basic supply-to-market strategy to ensure" that the course that provides the most support to the business and follows the guidelines." (Bovet, 2005) The work of Bovet (2005) states that if risk and opportunity is to be balanced in an effective manner the market strategies will have to be periodically rethought. "There are two ways to strategically address the burgeoning nature of risk: (1) shorter the supply chain in order to reduce cycle time and disruption risk; or (2) optimize the portfolio of supply chain sources and location in order to gain flexibility through diversification.

According to Bovet (2005) Demand management is utilized through improving the planning for demand in connection to distributors and retailers through a close connection to customers through shared demand forecasts, "forecasts, vendor-managed inventory and other joint systems." The goal: reducing the risk of being blindsided by demand shifts. Supply Management works with suppliers in the creation of contingency plans and in the diversification of sourcing focused toward the reduction of the risk of "catastrophic supply chain failure." This is done through backing up supply plans through the qualification of extra suppliers. Finally, the extension of coverage of insurance for overseas suppliers is inclusive. Enhancement of logistics works to "deal with contingencies" and "modeling and optimizing "inventories on a disaggregated basis." Supply Chain integration is accomplished through increasing the standardization of the product such as the ability to "mix and match components from multiple suppliers and plants" (i.e. this would be wherein companies such as Dell, IBM and others lend flexibility to their supply chain by the reduction of complexity of the product cycle under conditions that are usually while expediting the respond time to crisis demands. Supply chain integration further is inclusive of the creation of the central product data management system, "raise(s) visibility along the extended supply chain," "monitor(s) specific warning signs of trouble through "tracking a limited number of supply chain risk indicators (average train speed, weeks of orders outstanding, component delivery variability, and exchange rate movements" for the provision of a "crucial warning as a problem approaches the tipping point and becomes a dangerous disruption." (Bovet, 2005) According to Coia (2005) "Toyota Motor Company continues to be one of the leaders in perpetuating the lean supply chain philosophy." In the report of Coia (2005) " an example involves picking up from one supplier and delivering to the cross dock, such as delivering kits at the plants, which can abort some fluctuation in demand." this means more frequent pick-ups of small lot levels done hours by hour.