Toyota Supply Chain Management and Lean Manufacturing

Introduction to Toyota's Supply Chain Strategy

Toyota has a number of key business drivers that contribute to its longstanding global success, and one of the most important is its supply chain management. Developed by Taiichi Ohno and Shigeo Shingo in the 1940s, Toyota's lean manufacturing style gained the interest of competitors worldwide. The main components that make this supply chain management successful for Toyota include interlocking structures, compatible capabilities, joint improvement activities, mutual trust and understanding, and a commitment to learning and Kaizen. When Toyota expanded internationally, some of these processes weakened, as seen in the 2009 recalls (Takeuchi, 2008, p. 1). Regardless of those setbacks, Toyota's efficient use of the Just-in-Time (JIT) system led customers and competitors alike to remark on the company's ability to produce vehicles quickly. By using parts as needed and then reordering, Toyota eliminates unnecessary inventory, enables more effective capacity planning, and drives continuous improvement.

Toyota's Lean Manufacturing and the TPS

Toyota is an automotive manufacturer of Japanese origin, headquartered in Toyota, Aichi, Japan. As of 2014, the company employed approximately 338,875 people worldwide. It ranks eleventh in the world by revenue and stood as the largest automobile manufacturer by production volume in 2012, surpassing competitors General Motors and Volkswagen Group (WU, BLOS, WEE & CHEN, 2010, p. 12). That same year, Toyota produced its 200-millionth vehicle and became the first automaker to manufacture ten million vehicles in a single year. The company was founded in 1937 by Kiichiro Toyoda as a spinoff of his father's business, Toyota Industries.

Toyota's method of manufacturing is called the "lean manufacturing system," embodied in the Toyota Production System (TPS), which was developed to improve productivity and quality. The company's objective was to build vehicles that are ordered in the most efficient and quickest manner possible, in order to meet the demands of its customers. TPS drew on past innovations such as the automatic loom developed by Sakichi Toyoda and the chain conveyor in assembly lines pioneered by Kiichiro Toyoda, in order to deliver fast and well-built cars (Iyer, Seshadri & Vasher, 2009, p. 46). Quality and speed were Toyota's primary competitive offerings against rivals like Volkswagen and General Motors.

TPS rests on two main pillars. The first is "Just-in-Time," which emphasizes efficiency by using only what is needed, when it is needed, and in the quantity required. The second is "Jidoka," or the capacity to halt production — by machine or by worker — when a malfunction is detected (Magee, 2007, p. 120). When efficiency and speed are prioritized, a company gains the competitive advantage of producing products quickly without squandering resources.

Inbound and Outbound Logistics

In order to implement faster manufacturing, Toyota had to devise a supply chain management framework capable of meeting the company's demands. This included locating local parts, importing parts, receiving goods, storing them, producing the vehicles, transporting finished goods to dealerships, and supporting the customer purchase process. The inbound logistics of Toyota — in relation to obtaining raw materials — involved procuring them from third parties, often importing from Japan, and then feeding these materials into the assembly line (Drake, 2012, p. 32). Storage and transportation processes provided Toyota with the means to deliver products to its customer base, typically via trucks and barges.

The outbound logistics of Toyota's manufacturing management system involve collecting finished vehicles, storing them, and distributing them to buyers. From there, the product is marketed, giving customers both the incentive and the means to purchase. Toyota relied on indirect distribution channels to deliver its product. By placing the customer first, continually meeting customer needs, and making service improvement a priority, Toyota built another competitive advantage: customer loyalty. However, challenges remained.

A key issue the company faces is the design of its international manufacturing and distribution network. When Toyota redesigned its plants to export to stronger global markets rather than serve only local ones, management issues arose — most notably the 2009 recalls. In those recalls, improperly positioned floor mats led to uncontrolled acceleration in several models, resulting in the recall of 3.8 million vehicles in the United States. Toyota has approximately forty-five international plants, and its foundational philosophy of efficiency and speed becomes harder to maintain when managing so many facilities globally. In response, the company has invested significantly in information systems — including projects supporting the advancement of AI technology — not only to maintain a competitive advantage through innovation, but also to improve communication across its many international plants. Effectively communicating and controlling production through the consistent application of standards allows Toyota to continue delivering quality products at pace.

References

Drake, M. (2012). Global supply chain management. Business Expert Press.

Iyer, A., Seshadri, S., & Vasher, R. (2009). Toyota supply chain management. McGraw-Hill.

Magee, D. (2007). How Toyota became #1. Portfolio.

Software, R. (2015). Supply chain case study Toyota — Data collection software. Rfgen.com. Retrieved December 15, 2015, from http://www.rfgen.com/supply-chain-case-study-toyota

Takeuchi, H. (2008). The contradictions that drive Toyota's success. Strategic Direction, 25(1). http://dx.doi.org/10.1108/sd.2009.05625aad.009

WU, S., BLOS, M., WEE, H., & CHEN, Y. (2010). Can the Toyota Way overcome the recent Toyota setback? — A study based on the theory of constraints. Journal of Advanced Manufacturing Systems, 09(02), 145–156.