Table of contents

I. Introduction................................................................................................................................................................. 3
1. Overview: Toyota..................................................................................................................................................3
1.1. History of Toyota......................................................................................................................................3
1.2. Market........................................................................................................................................................... 3
1.3. Main Competitors............................................................................................................................................ 5
1.4. Toyota Vision and Mission...........................................................................................................................6
1.5. Toyota's Scale.....................................................................................................................................................6
2. Products and services......................................................................................................................................... 6
2.1. Products:...............................................................................................................................................................7
2.2. Services.................................................................................................................................................................. 8
3. Toyota Future Objectives..................................................................................................................................9
II. EXPLAIN COMPANY INTERNATIONAL BUSINESS STRATEGY..................................10
1. Business Strategy...............................................................................................................................................10
1.1. Cost Leadership in Porter’s Generic Strategies Matrix......................................................10
1.2. Applying Cost Leadership to a Broad Market Scope...........................................................10
1.3 Cost Leadership and Market Share Growth......................................................................................10
1.4 Combining Cost Leadership with Differentiation............................................................................11
1.5. Conclusion......................................................................................................................................................... 11
2. International Strategy......................................................................................................................................11
2.1 Multi-domestic Strategy...............................................................................................................................11
2.2 Transnational Strategy.................................................................................................................................12
III. Explain company global supply chain...............................................................................................13
1. PLAN...................................................................................................................................................................... 13
1.1. Mix planning............................................................................................................................................13
1.2. Sales and Operations Planning........................................................................................................17
2. SOURCE............................................................................................................................................................... 17
2.1. Toyota Supplier Selection..................................................................................................................17
2.2. Toyota way to manage Suppliers performance........................................................................18
2.3. Suppliers location decisions..............................................................................................................19
3. MAKE.................................................................................................................................................................... 21
3.1. The SMED Program............................................................................................................................ 21
3.2. Jidoka (Highlight Problems)............................................................................................................22
3.3. Kaizen (Continuous Improvement)...............................................................................................23
3.4. Poka-Yoke (Fool Proofing)................................................................................................................23
3.5. Just-In-Time Production....................................................................................................................23
 3.6. Kanban....................................................................................................................................................... 24
4. DELIVER & RETURN...................................................................................................................................24
4.1. Inbound Logistics..................................................................................................................................24
4.2. Network Logistics....................................................................................................................................... 25
4.3. Pipeline Management................................................................................................................................26
4.4. Outbound Logistics....................................................................................................................................26
IV. Explain how GSCM contribute to the company strategy..............................................................27
Challenges for Toyota to align Supply Chain Strategy with Business Strategy.............................30
V

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I. Introduction
1. Overview: Toyota

1.1. History of Toyota

Toyota's journey began in the Japanese weaving industry when Sakichi Toyoda
invented the world’s first automatic loom and founded the Toyoda Spinning and Weaving
Company in 1918. The sale of the loom's patent rights to the British Platt Brothers in 1929
provided funds for Sakichi’s son, Kiichiro Toyoda, to venture into automotive development.
This led to the launch of Toyota’s first passenger car, the Model AA, in 1936, followed by
the establishment of Toyota Motor Company in 1937.
In the 1950s, Toyota embarked on international expansion, opening its first overseas
manufacturing plant in Brazil in 1959. Toyota’s entry into the American market came in
1957 with the Toyota Crown, marking the brand's early international success. Iconic models
like the Corolla and Camry became global favorites, boosting Toyota's reputation for
quality and affordability. By 1982, Toyota consolidated its operations into the Toyota Motor
Corporation, establishing itself as a global leader in automotive manufacturing, renowned
for its dedication to quality and technological advancement.
1982-2010s: Growth and Globalization
In 1982, Toyota Motor Co., Ltd. and Toyota Motor Sales Co., Ltd. merged to form
Toyota Motor Corporation, creating a unified company prepared to expand globally.
Toyota’s focus on quality and efficiency led to innovations like the Toyota Production
System (TPS), which became a global manufacturing benchmark. In 1989, Toyota launched
Lexus, its luxury brand, initially targeting the U.S. market and later becoming a leading
luxury brand worldwide.
The 1990s and early 2000s marked Toyota’s rapid expansion, with new plants across
North America, Europe, and Asia. In 1997, Toyota launched the Prius, the world’s first
mass-produced hybrid vehicle, cementing its reputation as a pioneer in eco-friendly
technology. By 2008, Toyota became the world’s largest automaker by production, driven
by strong demand for reliable, fuel-efficient vehicles.
Recent Innovations and Sustainability Efforts (2010s-2024)
In the 2010s, Toyota continued its commitment to sustainability and innovation. The
company introduced new hybrid and plug-in models and developed hydrogen fuel cell
technology with the launch of the Toyota Mirai in 2014. Recognizing the shift towards
autonomous and connected vehicles, Toyota invested in artificial intelligence and robotics,
establishing the Toyota Research Institute (TRI) in 2015 to advance autonomous driving
and mobility solutions.
In recent years, Toyota has intensified its efforts in electric vehicles, aiming to offer
electric or hydrogen-powered versions of every model by 2030 and to sell 3.5 million EVs
annually by 2035. The company is also advancing autonomous vehicle technology and
remains committed to its global sustainability goals, working toward carbon neutrality
across its operations by 2050.
Today, Toyota operates in over 170 countries, with a reputation for quality,
innovation, and environmental stewardship that continues to drive its leadership in the
global automotive industry.

1.2. Market

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 Toyota holds a substantial share of the global automotive market, consistently ranking
among the top manufacturers worldwide. In 2023, Toyota captured about 10% of the global
market share, with its strongest markets being Japan, North America, Europe, and Asia.
Toyota’s lineup appeals to a broad demographic, spanning economy, luxury (via Lexus),
and electric vehicles, establishing Toyota as a trusted brand for durable and accessible
vehicles across various market segments.

Source: Car brand market share worldwide 2023

Source: Toyota Statics

In FY2024, Toyota’s highest revenue originated from Japan, contributing ¥21,020.7

billion, underscoring Toyota's strong domestic presence. North America follows with
¥17,943 billion, highlighting Toyota's significant foothold in this competitive market. Asia
(excluding Japan) generated ¥8,730.7 billion, showcasing growth in emerging economies
like China. Europe added ¥5,681.7 billion, reflecting Toyota’s alignment with the region's
shift to eco-friendly vehicles. Other regions accounted for ¥4,389.7 billion, demonstrating

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Toyota’s global reach. Toyota’s diversified revenue streams illustrate its strategic resilience
across mature and emerging markets.

1.3. Main Competitors

Toyota faces competition from major global automotive brands. Volkswagen is a
significant rival, particularly in Europe, where both brands dominate the market. In North
America, General Motors competes closely with Toyota, holding a significant U.S.
presence. Tesla, known for its innovation in electric vehicles (EVs), challenges Toyota in
the EV space with advanced autonomous features and sustainable technology. Honda, Ford,
and Nissan also offer substantial competition, driving Toyota to constantly innovate and
diversify its product range.
However, a Toyota competitors analysis below shows the brand coming out at the top.
In 2021, 1.1 million Toyota Corollas were sold worldwide, making it the best-selling
passenger vehicle that year. Toyota Rav4 came in second place with 1 million sold. In fact,
Toyota claims 4 of the 10 top selling vehicles in 2021.

1.4. Toyota Vision and Mission

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 Toyota’s vision is to develop mobility solutions that benefit society and support
environmental sustainability. The mission, "to create a future where everyone has the
freedom to move," reflects Toyota's dedication to manufacturing high-quality vehicles that
are accessible and reliable. Toyota’s environmental commitment is exemplified by its
development of the Toyota Prius, the first mass-produced hybrid vehicle, showcasing the
brand’s dedication to sustainable practices. Additionally, Toyota prioritizes safety and aims
to improve lives through advanced automotive technology and eco-friendly manufacturing
processes.
Mission Statement Toyota’s mission is "to make ever-better cars, to build a future
where everyone has the freedom to move." This mission underscores Toyota’s focus on
continuous improvement, inclusivity, and innovation, driving it to create high-quality
vehicles accessible to a global audience. Toyota is dedicated to delivering mobility solutions
that enhance customer satisfaction and build an inclusive future for all.
Vision Statement Toyota aspires to be a leader in future mobility, emphasizing
organizational values that contribute to global communities. The corporate vision is
forward-thinking and empowering, reflecting Toyota’s aim to be a role model in quality and
sustainability within the automotive industry.
Core Values Toyota upholds core values of integrity, customer satisfaction, quality,
and safety:
+ Integrity: Toyota emphasizes consistency and adherence to organizational
standards.
+ Customer Satisfaction: As a people-centered brand, Toyota prioritizes
fulfilling customer needs with products that provide exceptional value.
+ Quality and Safety: Toyota’s reputation is built on providing reliable, high-
quality products that exceed customer expectations, fostering a commitment to
excellence across all operations.

1.5. Toyota's Scale

Toyota operates on a global scale, with a presence in over 170 countries and a
workforce of approximately 370,000 employees. Its production network includes 67
manufacturing plants worldwide, allowing Toyota to produce around 10 million vehicles
annually. In 2022, Toyota's global revenue was about ¥32.5 trillion (around $230 billion
USD), securing its position as one of the highest-grossing automotive companies. This scale
and operational capacity enable Toyota to effectively meet diverse consumer demands and
sustain its competitive advantage.

2. Products and services

2.1. Products:
Toyota's diverse product lineup includes a wide range of vehicles catering to different
customer needs and market segments. Below is an overview of Toyota’s product categories
and their key characteristics:

a. Product line:
- Passenger Cars:
+ Sedans: Models like the Toyota Camry and Corolla are known for
reliability, fuel efficiency, and comfort, targeting families and
everyday commuters. Positioned in the mid-range segment, they are
competitively priced to attract both individual and fleet customers;

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 + Luxury Sedans (Lexus): Lexus, Toyota's luxury brand, offers premium
vehicles like the Lexus ES and LS, targeting affluent customers
looking for high-end features, superior comfort, and advanced
technologies. These models are priced in the premium range.
- SUVs and Crossovers:
+ Toyota offers popular models such as the RAV4, Highlander, and
4Runner, catering to customers looking for versatile, spacious, and
reliable family vehicles. These are priced from mid to high range,
depending on the model and trim level;
+ The bZ4X, an all-electric SUV, reflects Toyota's shift towards
sustainable mobility, targeting environmentally conscious consumers
interested in zero-emission vehicles.
- Trucks and Pickups:
+ The Toyota Tacoma and Tundra are designed for heavy-duty
performance and are popular among both personal and commercial
users. These models are competitively priced within the pickup
segment, appealing to customers looking for durability and off-road
capabilities.
- Electrified Vehicles (Hybrids, PHEVs, BEVs, and FCEVs):
+ Toyota has a comprehensive lineup of hybrid and electric vehicles,
including the Prius, RAV4 Hybrid, and the hydrogen-powered Mirai.
The company targets eco-conscious customers and markets that are
incentivizing low-emission vehicles. Toyota’s hybrid models are
positioned to offer a balance of fuel efficiency and affordability;
+ The Toyota Mirai, running on hydrogen fuel cells, is part of Toyota's
strategy to pioneer clean energy technologies, particularly targeting
niche markets with hydrogen infrastructure.

b. Key Characteristics:
- Price Positioning: Toyota vehicles are generally positioned to appeal to a wide
range of customers:
+ Entry-level models (e.g., Corolla, Yaris) are budget-friendly and
appeal to first-time buyers;
+ Mid-range models (e.g., Camry, RAV4) offer enhanced features and
are popular among families and professionals;
+ Luxury models (e.g., Lexus series) target high-income consumers
seeking premium experiences.
- Target Customers: Toyota caters to diverse customer segments, from budget-
conscious buyers to luxury vehicle enthusiasts, and from urban commuters to
adventure-seeking off-roaders. The company’s focus on hybrids and zero-
emission vehicles also attracts environmentally conscious consumers.
Toyota's product strategy focuses on innovation, sustainability, and addressing
different market needs, which is aligned with its long-term goal of achieving carbon
neutrality and expanding its electrified vehicle lineup.

2.2. Services

Toyota's services complement its diverse range of vehicles, focusing on enhancing

customer satisfaction, mobility solutions, and sustainability. Below are the primary services
Toyota offers:

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- Toyota Financial Services (TFS):
+ TFS provides customers with various financing options, including vehicle
loans, leasing programs, and insurance products. This service aims to make
Toyota’s vehicles more accessible by offering flexible financing plans tailored
to different customer needs;
+ Additionally, TFS includes specialized plans like Toyota Lease Trust and
Certified Used Vehicle financing, which target both new and pre-owned
vehicle buyers.
- ToyotaCare and Maintenance Services:
+ ToyotaCare is a complimentary maintenance plan offered with the purchase of
new Toyota vehicles. It includes regular maintenance (e.g., oil changes, tire
rotations) for the first 2 years or 25,000 miles and 24/7 roadside assistance for
2 years;
+ For ongoing vehicle maintenance, Toyota also offers extended service
contracts, such as ToyotaCare Plus, which provides coverage beyond the
initial warranty period.
- Connected Services:
+ Toyota offers Connected Services that include features like remote engine
start, vehicle tracking, and maintenance alerts via the Toyota app. These
services improve convenience, safety, and connectivity for owners by utilizing
telematics;
+ The Audio Multimedia System in newer models integrates cloud-based
navigation, Apple CarPlay, Android Auto, and over-the-air updates, enhancing
the in-car experience.
- Mobility Solutions and Rentals:
+ Toyota is expanding its offerings beyond vehicle ownership with mobility-as-
a-service (MaaS) initiatives. This includes car-sharing services and
partnerships for ride-hailing, aimed at urban customers looking for flexible
transportation options;
+ The "Kinto” service, a subscription-based vehicle leasing service, allows
customers to rent vehicles on a monthly or flexible basis, including
maintenance and insurance, providing an alternative to traditional car
ownership.

- Fleet Management and Commercial Services:

+ Toyota provides fleet management services, especially for businesses needing
commercial vehicles. These include customized fleet solutions, maintenance,
and dedicated support to optimize business operations

- Sustainability Initiatives:
+ Toyota is integrating renewable energy projects into its operations, such as the
Tri-gen facility at the Port of Long Beach. This initiative supports zero-
emission vehicle processing using on-site generated electricity, hydrogen, and
water;
+ The company also collaborates with local communities on sustainability
projects, focusing on reducing its carbon footprint through innovative energy
solutions and community engagement

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 These services are designed to enhance the ownership experience, promote
sustainable practices, and provide flexible mobility solutions in line with Toyota’s
commitment to innovation and customer satisfaction.

3. Toyota Future Objectives

Toyota’s Vision 2030 sets ambitious goals to lead in sustainable mobility and achieve
carbon neutrality. By 2030, Toyota plans to offer electric or hydrogen-powered versions for
every model, aiming to sell 3.5 million electric vehicles annually by 2035. The company is
advancing autonomous vehicle technology with fully autonomous options for commercial
and private use, supported by significant investments in AI, robotics, and alternative energy
to drive innovation.
Toyota is committed to “leading the future mobility society” by providing safe,
sustainable, and responsible transportation that enriches lives worldwide. Through quality,
continuous innovation, and environmental responsibility, Toyota aims to exceed
expectations and earn customer satisfaction. To achieve these goals, Toyota engages the
talent and passion of its workforce, driven by the belief that “there is always a better way.”

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II. EXPLAIN COMPANY INTERNATIONAL BUSINESS
STRATEGY
1. Business Strategy

1.1. Cost Leadership in Porter’s Generic Strategies Matrix

The Cost Leadership quadrant in Porter’s Generic Strategies Matrix is characterized

by strategies that aim to achieve the lowest production and operational costs in an industry,
allowing the company to offer competitive pricing across a broad market scope. Toyota
aligns closely with this quadrant due to its focus on cost efficiency and market-wide appeal.

Key Aspects of Toyota’s Cost Leadership Strategy:

Toyota Production System (TPS): Toyota is famous for the Toyota Production
System, which uses lean manufacturing principles to minimize waste, reduce costs, and
increase production efficiency. TPS includes processes such as Just-in-Time (JIT), which
reduces excess inventory and optimizes the flow of materials, helping Toyota keep
production costs low.
Operational Efficiency: Toyota continuously refines its production processes,
focusing on eliminating non-value-adding activities. This efficiency allows Toyota to
minimize overheads and produce high-quality vehicles at a lower cost than many
competitors.
Economies of Scale: Toyota’s large-scale production and global presence give it
significant economies of scale, which further reduce per-unit costs and allow Toyota to pass
these savings on to customers in the form of competitive pricing.

1.2. Applying Cost Leadership to a Broad Market Scope

In Porter’s matrix, Cost Leadership targets a broad or industry-wide market, rather

than a narrow or niche segment. Toyota exemplifies this by offering a wide range of vehicle
models, from economy cars to mid-range and luxury models, making it accessible to diverse
customer segments across global markets.
Global Reach: Toyota’s strategy of targeting various international markets allows it to
leverage its cost efficiencies on a large scale, appealing to mass-market consumers in
multiple regions.
Product Variety: By offering a range of vehicles at competitive prices, Toyota meets
the needs of different customer demographics, such as entry-level buyers, families, and eco-
conscious consumers, all while maintaining cost-effective production.

1.3 Cost Leadership and Market Share Growth

Toyota’s market penetration strategy (a part of its growth strategy) is focused on

increasing market share by offering competitively priced products across various segments.
Due to its low production costs, Toyota achieves high sales volumes (high-volume sales),
which is essential to its Cost Leadership strategy. High sales volume further supports
Toyota’s competitive position in the global automotive industry, as it helps to spread fixed
costs and enhances economies of scale.

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 1.4 Combining Cost Leadership with Differentiation

Although Toyota’s primary focus is on Cost Leadership, it also incorporates elements

of differentiation through unique products like the Toyota Prius (a hybrid vehicle) to meet the
market demand for environmentally friendly options. However, differentiation serves as a
supplementary element rather than the core strategy, as Toyota’s main focus remains on Cost
Leadership. This approach allows Toyota to keep prices low while attracting environmentally
conscious customers, achieving a broader market appeal.

1.5. Conclusion

From this analysis, we can conclude that Toyota’s primary competitive strategy in
Porter’s Generic Strategies Matrix is Cost Leadership. Toyota continuously optimizes
production to reduce costs, expands its market through competitive pricing, and benefits from
economies of scale. This approach enables Toyota to maintain its position as a leader in the
global automotive industry and sustain a lasting competitive advantage.

2. International Strategy

Toyota uses a multi-domestic strategy and transnational strategy for its international
operations. Under a multi-domestic strategy, strategic and operating decisions are
decentralized to allow each country's unit to tailor products to local markets. Toyota also
focuses on achieving both global efficiency and local responsiveness through a transnational
strategy, conducting local market research and modifying vehicles to meet diverse customer
preferences across countries while maintaining consistent quality assurance globally. By
balancing global integration with local adaptation, Toyota is able to efficiently respond to
varied market needs worldwide.

2.1 Multi-domestic Strategy

A multi-domestic strategy is an international strategy in which strategic and operating

decisions are decentralized to the strategic business unit in each country to allow that unit to
tailor products to the local market.
The company might introduce a new brand for each region, adjusting marketing,
packaging, services and sometimes product lines to match local preferences, norms and
customs. For example, a multidomestic beverage company could release unique drink flavors
in different regions. Websites also undergo localization, using local languages and often
featuring residents of the region.
Toyota realizes that they need to focus on competition within each country. They can
use a highly decentralized approach which allows each division to focus on a geographic
area, region, or country. This approach will place less pressure on headquarters staff because
the management of country operations is delegated to individual managers in each country.
Thus, the effectiveness and efficiency of Toyota will increase from time to time. As a result,
Toyota can produce their car which can be better adapted to the local markets. In short, the
use of multi-domestic strategies can expand Toyota’s local market share because the firm can
pay attention to the needs of the local clients.
Toyota like many international car manufacturers, realizes the importance of
customizing their operations based on location with multiple design and development
locations as well as manufacturing locations in over 25 countries. The company is using a

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globalization strategy that includes a multi-domestic strategy in all aspects of sourcing,
manufacturing, product development, and marketing.
In regions where consumers have strong local preferences, Toyota customizes its
vehicle models, marketing, and brand messaging. For example: In US market, Toyota
emphasizes SUVs, trucks, and larger vehicles because of high consumer demand for these
types. But in Europe, Toyota places a significant focus on compact and eco-friendly cars, like
the Toyota Yaris and Prius, because of the high demand for fuel-efficient vehicles in this
market.

2.2 Transnational Strategy

Toyota uses a transnational strategy when it seeks to balance global efficiency with
local adaptation, integrating local responsiveness without sacrificing cost efficiencies.
Toyota Motor Corporation, one of the leading automobile manufacturers globally, has
successfully adopted and implemented a transnational strategy. This strategy focuses on
achieving a balance between global integration and local responsiveness, efficiently
responding to the diverse needs of various markets worldwide.
Toyota has to be responsive to local demands due to variations in consumers’ tastes
and government regulations across countries mean. Toyota modifies its vehicles to meet the
diverse preferences of customers in various countries, considering local regulations, road
conditions, and customer behaviors. The company has tailored models for specific regions,
like the Etios series for emerging markets or the luxury Lexus brand in the United States.
Thus, Toyota has to confront significant pressures for cost reductions and for local
responsiveness.
In this strategy, a company often sets up a transplant in an area where the raw
materials required for the manufacture of their products can be found. Transnational
corporations search out locations for their plants outside their original country because they
can overcome costs such as transport and duties on imports and exports, speed up delivery
times, while maintaining global production standards. Transnational corporations are the
most important force causing changes in global economic activity. Companies often use
transplants for routine assembly work which is known as 'backend work'. This allows the
main company base to focus closely on the research and development aspect of the industry.
This is the higher paid 'front end work'.
Although based in Japan, Toyota produces most of its cars in its transplants in
Georgetown, Kentucky, and Burnaston, Derbyshire. Toyota is a typical transnational
corporation who understand that considerable gains can be made by locating manufacturing
plants outside their country of origin. Toyota expanded to Europe in 1992 in order to achieve
the benefits associated with establishing a manufacturing base in another country.
Toyota’s location choices consider factors like skilled labor availability,
infrastructure, and financial incentives. For example, the UK was chosen for its engineering
tradition, and Kentucky provided a workforce that could be trained according to Toyota’s
standards. By setting up plants closer to key markets, Toyota can adapt products to local
consumer needs and compete effectively with local companies. Also, Toyota's transnational
approach significantly impacts local economies by creating jobs and supporting local
industries, though it also poses environmental and social challenges.

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III. Explain company global supply chain
Overview

Toyota is one of the world’s leading automakers, and its success is largely due to its
efficient supply chain management system. This system has enabled Toyota to reduce costs,
improve quality, and increase customer satisfaction.
One of the primary benefits of Toyota’s supply chain management system is cost
reduction. By streamlining the supply chain process, Toyota has been able to reduce costs
associated with production, transportation, and inventory. This has allowed the company to
remain competitive in the global market and offer customers competitive prices.
Additionally, Toyota’s supply chain management system has enabled the company to reduce
waste and increase efficiency. This has resulted in improved quality and customer
satisfaction.
Another benefit of Toyota’s supply chain management system is improved customer
service. By utilizing a streamlined supply chain process, Toyota has been able to reduce lead
times and improve delivery times. This has allowed the company to respond quickly to
customer needs and provide better customer service. Additionally, Toyota’s supply chain
management system has enabled the company to better manage inventory levels and reduce
stockouts. This has resulted in improved customer satisfaction and loyalty.
Finally, Toyota’s supply chain management system has enabled the company to
remain competitive in the global market. By utilizing a streamlined supply chain process,
Toyota has been able to reduce costs and improve quality. This has allowed the company to
remain competitive in the global market and offer customers competitive prices.
Additionally, Toyota’s supply chain management system has enabled the company to reduce
waste and increase efficiency. This has resulted in improved customer satisfaction and
loyalty.
In order to deeply dive in Toyota Supply Chain, we will divide it according to Apics
SCOR model: Plan - Source - Make - Deliver – Return

1. PLAN

1.1. Mix planning

Definition: Mix planning is an important process for companies that manufacture and
distribute products to retailers in multiple market areas.
Mix planning at Toyota means that the planned variety offered in a sales area is
chosen carefully to be primarily the 20 percent of product range that represents around 80
percent of the demand in that region. Thus, planned offerings in a region are frequently a
small subset of all available product types or even of all product types offered in the national
market. That simple decision enables synchronization of all activities in a region, from TV
advertisements focusing on the specific colors and options available in a region to newspaper
and periodical pictures and dealer brochures, all suggesting offerings that synchronize with
the product available at the dealer. In addition, the smaller range means that most dealers
carry similar products, thus both enabling customers to decide where to buy the car and
keeping dealer margins competitive. Availability of the same set of products among dealers
increases retail availability without the need for high levels of dealer stocks. Similarly, a
focus on offerings with high-demand velocity also decreases dealer inventories and thus
increases inventory turns. That is one of the reasons that Toyota’s average incentive cost per

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vehicle is typically about $1,000 compared to the $3,000 average for the industry as shown in
Table:

Step 1: Before mix planning can be undertaken, the product complexity needs to be
reduced. That effort requires collaboration among design, sales and marketing, and
manufacturing groups. The following is a summary of some methods that are used to achieve
complexity reduction.
Product Planning, Design, Sourcing
Look for opportunities to use common parts across products (i.e., share radios). This
step focuses on studies that suggest that over 80 percent of manufacturing costs are fixed at
the design stage. So, preventing designers from adding variety when none is warranted is the
first step. In addition, part commonality permits higher inventory turns for original parts as
well as spare parts, production flexibility for suppliers and the assembly plant, and economies
of scale in purchasing, design, and production.
Consider making high-volume options standard (e.g., if air-conditioning is sold in 95
percent of all vehicles, it should be made a standard feature). Such a step focuses on trading
off the forecasting difficulties when choices are left to consumers against the enhanced value
perceived when customers are offered standard features. For example, antilock brakes and
other standard safety features may not be valued by customers if offered as separate choices
but may well enhance the product preference if offered as standard. In addition, the
forecasting of individual variants is often more difficult than forecasting the total demand for
a product. This gain in forecasting accuracy as well as improvement in perceived value may
well offset the lower margins because some features are discounted to customers who may
not want them.
Eliminate options that do not sell well (e.g., if ashtrays are only ordered in 5 percent
of vehicles, eliminate them as an option). This approach focuses on simplifying designs even
at the cost of losing some customers in order to make demand more predictable
Minimize parts that vary by option and color—for example, does the window washer
nozzle on the hood have to match the color, or can it be black? In our example, supplier-part
orders for the window washer nozzle will be kept standard even if customer vehicles vary by
color. Because the same supplier component may be used in many car types, it is a great
example of assembly postponement applied to stabilize supply while providing variety.
Attempt to source optional parts to local suppliers to shorten lead time. Such an
approach focuses on decreasing safety stock by lowering lead time for difficult-to-forecast
parts. In addition, because the forecast error for some options may be higher than for standard
equipment, the lead time impact on safety stock inventory for optional parts is higher than for

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standard equipment parts. Thus, a more responsive supplier for option parts may well
generate lower overall costs compared to an efficient long lead time supplier
Design accessories that can be installed after the vehicle leaves the factory at a hub or
at a dealer to minimize impact on the factory and supply chain. Such a practice moves some
accessorizing tasks to the point of sale or close to the point of sale and permits last-minute
customization for the customer. It is particularly relevant for cars like the Scion. The Scion is
produced in Japan with almost no options or accessories. The vehicles are then kept in stock
at the ports until the dealers submit an order, at which time the accessories are installed and
the vehicle is shipped to the dealer.
Marketing
Limit product offering for a market area. Vehicles sold in Europe and the United
States should each offer a subset of products that best reflects local demand (e.g., manual
transmission may be offered in Europe as an option but not in the United States). Such
synchronization of products offered to local preferences makes demand levels more
predictable and thus improves supply chain performance. In addition, such an approach
increases the chance that demand can be satisfied directly from dealer stock, thus decreasing
retail customer lead time.
Combine related options into packages (e.g., the safety package may include side
airbag, stability control, and auto window wiper). Bundling of features permits the market
segment as a whole to be targeted rather than individual feature choice. This process balances
“up-selling” whereby customers end up choosing more than they actually need, with stability
on the supply side. In addition, by converting products into, perhaps, three offerings
(economy, deluxe, and luxury), with associated option bundles, customer choice is simplified
and the number of variants sold at retail reduced.
Consider making high-volume options standard, not offering low-selling options, or
both.
Step 2: Mix Planning by Sales Region
After the complexity reduction activities outlined previously have been completed, the
next step is for each sales division to work closely with its sales region to determine which
subset of the vehicle mix will be the high-volume sellers in each region. This step is
necessary because each sales region may have different demand characteristics. The
following are some of the guidelines that are to be considered:
● Limit stockkeeping units (SKUs). Determine which build combinations will be
stocked by a sales region. A sales region within a sales company’s territory could be
the southern region of the United States or Italy within Europe.
● Analyze past sales, competition offerings, and local regulations to predict demand for
future sales.
● Use the 80/20 rule. The 80/20 rule identifies the SKUs that account for 80 percent of
the sales. This should be about 20 percent of the possible SKUs.
● Stock high-volume SKUs. Dealer stock should include only the 20 percent of the
SKUs that represent 80 percent of the volume.
● Target marketing campaigns to support mix planning by region. Synchronizing
offerings with marketing plans permits customer preferences to be “guided” whenever
feasible. For example, featuring the same subset of colors and features in print ads,
TV ads, dealer showrooms, and dealer inventory increases the chances that customers
will choose from the available colors and features and thus reduces the customers lost
because of unavailability of special colors featured but not offered.
● Manage demand. Provide guidance to dealers on ways to respond to demand for
vehicles that are not in stock:

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 The salesperson can gently persuade the customer to change his mind and take one of
the vehicles in stock. This is called “guided selling.” However, this technique could result in
negative customer satisfaction. (Note: it is not necessary to sell a vehicle to every customer;
sometimes it is better to lose a sale than to have an unhappy customer.)
Locate a trade with another dealer
Request an order change from the factory
Simulated Examples of how Toyota do Mix Planning
Determine the volume of vehicles that is expected to be sold by region. For this
example, assume that 10,000 cars—specifically, Camrys—are to be distributed across four
different regions. The percentage sold in each region reflects the share of the national
volume; this is shown in Table 3-2. With this market share, the volume by region is also
calculated to ensure that the aggregate mix will be weighted accurately.

Next break the planned volume into the volume of sales by vehicle model. This
planned mix reflects marketing plans, production volumes, supplier commitments, expected
competition and price points, demographics, and so on. Table 3-3 shows such an example.

Models are then distributed to regions according to the market share percentage,
quantity for each models of each regions will be adjusted based on various factors: sales
historical data, market trends,... Then, we have Distribution of Model Mix by Region as
below

16
 For each model, there may come different variants, whether it has Cruise control,
sunroof, any many others. In this case we take 4 variants into examples and here based on
rules like 80/20, historical data, market preferences,... we can conclude all into a Mix of
Model Variants by Region as below to finish the mix planning process

1.2. Sales and Operations Planning

Sales and operations planning (S&OP) is a critical component of the supply chain
planning process. It is linked upstream to the mix planning process and downstream to the
production scheduling process. The goal of S&OP is to generate a production plan that
balances demand and supply in a profitable way. The end point of this process is an order for
vehicles with full specifications that will be scheduled for production
At Toyota, the regional offices submit the vehicle orders once each month. Toyota
uses a monthly allocation process to allocate the vehicles planned for production to each
dealer—in other words, it uses a top-down approach which enables Toyota to ensure that the
resulting production plan is stable.
Sales and operations planning processes at Toyota are performed in two stages: annual
planning and monthly ordering.
- Annual Planning: The annual planning process is a collaborative process between the
sales and manufacturing divisions. The responsibilities of sales are to grasp the
market and economic conditions, predict competitive product plans and strategies, and
understand new product launches and marketing plans to create a sales forecast for
each model for each month and year. Manufacturing’s responsibilities are to
determine the operating capacity for each model and each plant, evaluate various
model mix scenarios, and identify peaks and valleys in the production calendar that
are created by model changeover schedules
- Monthly Order: At Toyota there is a monthly global process to receive the sales
orders from each sales company from around the world. That is translated into a
production plan for each assembly plant as well as for each Toyota unit plant.
Toyota’s culture emphasizes a process that does not rely only on sophisticated
computer systems. Although Toyota certainly utilizes numerous computer systems
that process data and crunch the numbers, the results provided by the computers are
reviewed and discussed by a cross-functional team of sales and manufacturing
managers. The process is an iterative one that ultimately generates a three-month
rolling production plan for all Toyota assembly and unit plants worldwide. A joint
focus by both sales and manufacturing on the monthly order ensures that all
perspectives are balanced and the logic for the decision is clarified.

2. SOURCE

2.1. Toyota Supplier Selection

17
 At Toyota, choosing a supplier is a long, drawn-out process that involves verifying
whether the supplier will mesh with the supply network. In some cases, suppliers are selected
because they have innovations that improve processes or decrease costs. Both new and
existing suppliers are expected to share their innovations with other suppliers that supply
similar products. Thus, being a supplier brings along with it an opportunity to receive ideas
generated across the supply network. Toyota’s goal is to minimize the number of suppliers
and create long-term partnerships by nurturing existing suppliers to expand and grow with
Toyota instead of growing the number of suppliers to induce competitive price bidding.
Individual suppliers receive a contract for a fraction of the total market over the life of
a model. Empirical data collected by Japanese economist Asanuma suggest that suppliers are
promised all of the orders associated with a market segment (e.g., exports versus domestic) or
a fixed fraction of a certain market (e.g., a fraction of the domestic market volume) or all of
the orders for a particular car model. The goal of the supplier is to maintain delivery
performance, high quality, productivity improvements, and so on, over the life of the model.
Asanuma’s study suggests little use for the supplier as a source of slack capacity.

Examples of how Toyota selects its suppliers:

The United Kingdom provides a good example of how Toyota selects its suppliers. A
supplier must meet extremely tough conditions to qualify. When Toyota set up its plant in
Derbyshire, England, in 1991, it initially started with a list of 2,000 potential suppliers. It
reduced that list to 400, which it then evaluated using criteria such as “assessment of
management attitudes, production facilities, quality levels, and research-and-development
capability.” The final group was whittled down to 150. Some of the candidate companies had
been discouraged by the amount of detail that had been requested. Others found that that
requirement was to their advantage and held that the advice on improving quality and
competitive factors provided by the Japanese technicians saved the cost of employing outside
consultants. Toyota asked its potential suppliers to provide evidence that they could cut costs
immediately with improved designs. One supplier came up with a design that was not only
cheaper but simpler and better than that of Toyota’s own Japanese supplier. The component
was a simple gear stick knob costing pennies, but the British found a way of making it in two
plastic parts instead of four, as in Japan. Jim Robinson, Toyota UK’s general manager for
purchasing, said: “We get suppliers thinking immediately about cost. In the case of the gear
knob, it involves only a small cost. But if that part costs two pounds [approximately
US$2.90] today and we can make it for one pound [about US$1.45], that is a huge saving
over 200,000 cars a year.” He added that some of Toyota’s suppliers have doubled
productivity with negligible defects. Such success helps the whole economy. The change in
the auto-parts industry was highlighted by the decision of Daimler-Benz, of Germany, to turn
to Britain for component suppliers. More than 30 German executives met 100 British
component firms. Dr Gerhard Liener, a Daimler board member in charge of the company’s
$35 billion materials purchases from 60,000 contractors in 100 countries, made no bones
about why he was in Britain. The arrival of Japanese manufacturers, he said, had helped
improve the technological and quality achievements of British supply firms.

2.2. Toyota way to manage Suppliers performance

The pressure on a supplier is maintained by using a staggered system of model
changes, which in turn entails a staggered system of negotiations. The usual price
commitment by Toyota to a supplier is for a one-year period, and prices are reviewed every
six months, but the contract award is kept in place over the model life. The impact is to keep
the pressure on a supplier to perform even while offering a long-term contract. The absence

18
of desired performance after winning the contract will jeopardize chances to win a contract
for other vehicle models made by the same supplier. This approach balances the stability of
orders over a longer time frame with pressure that is uniformly maintained for compliance.
Nishiguchi also suggests that an ALPS system of supplier organization (referring to
the jagged outline of the Swiss Alps), with staggered contractual links across vehicle models,
provides a secondary source for most components while permitting sole sourcing for a
component for a car model. The availability of alternate suppliers, who can step in readily,
places pressure on the existing supplier to conform

2.3. Suppliers location decisions

Toyota’s planning for assembly plant sites assumes that most suppliers will be located
at a reasonable distance from the assembly plant and that their delivery schedules will permit
efficient operation of the assembly plant to produce vehicles based on the final vehicle mix
and sequence. The low lot sizes of assembly plant parts orders imply that suppliers need to be
located close to the assembly plant. Toyota suggests that a planning rule be used of 50-mile-
per-hour travel time from supplier location to assembly plant. That assumption is one factor
that is used to determine when supplier parts orders are released. Many suppliers choose to be
located close to an assembly plant. In Japan, 85 percent of the volume comes from suppliers
located within a 50-mile radius of a plant (i.e., within a one-hour drive). In North America
and Europe, the goal is for 80 percent of the parts to be delivered within three to five days
lead time. Similarly, supplier location closer to the OEM results in lower inventories for the
supplier and assembly plant. For Toyota in Japan, the average distance is short, in contrast to
other OEMs. The resulting inventory as a percentage of sales is thus the lowest of the OEMs.
So, what can a supplier expect? Suppliers need to consider building factories near Toyota
plants, especially as Toyota continues to expand and build new plants around the globe. The
proximity of supplier location to the Toyota plant enables frequent deliveries to be made to
the assembly plant, and in return, observed lower inventories at the supplier and the Toyota
plant. In addition, the completed vehicle has fewer defects, because frequent interaction due
to more deliveries enables quick feedback and more opportunities to fix defects.

19
 From data given, we find that Toyota has 580 firms in Tier-1, 1476 in Tier-2 and 136
in Tier-3.
In which 78% of Tier-1, 65% of Tier-2, and 69% of Tier-3 suppliers are located in
Japan, indicating Toyota’s high dependency on Japanese firms.

A significant number of Japanese suppliers provide (P11) processing and (P12) clean
energy products, whereas products (P1) engine, (P3) suspension/steering/wheel & tire, (P4)
axle/brake/body control, (P6) interior, and (P10) small/general goods seem to be produced
mainly by European suppliers. Considering the high financial dependency of the Japanese
suppliers on Toyota, and the low financial dependency that the European suppliers have with
Toyota (or Japanese suppliers), this trend may suggest that processing and clean energy
products would require more unique skills or sensitive information, whereas the products in
(P1, P3, P4, P6, P10) would be more standardized. We can also see that European suppliers
tend to produce a wider range of products (The average number of product categories per
firm is 616/207 = 2.98). American suppliers, on the other hand, have a similar size of average
product range to Japanese suppliers (2.25 and 2.37, respectively), but America as a whole

20
does not appear to specialize in any particular product category. It is also clear that Asian
suppliers mainly produce (P1) engine products and (P13) motorcycle parts.

3. MAKE

Toyota Production System - Lean Manufacturing

The Toyota production system is now widely recognized for its groundbreaking
techniques as it is considered to be the next stage in development of manufacturing after mass
production. The techniques used in Toyota’s production system have revolutionized the way
manufacturer’s approach and implement production across industries
There are 6 main components of TPS: the SMED program, Jidoka, Kaizen, Poka-
Yoke, just-in-time production, and Kanban

III.1. The SMED Program

Consider a simple manufacturing scenario. Manufacturing of Car doors. We usually
need to produce 4 different types of car doors (front right, front left, rear right and rear left).
If we have 4 lines, each dedicated to one type, we do not have any problem in continuous
production. What if we have only one line, where we need to produce all four types of doors.
Consider the demand is 100 sets of doors every day. How do we schedule our
production? First produce 100 doors of type 1, followed by 100 doors of next type, then the
third and then the last type. But each time we change the type of product we produce, we
need to do certain changes on our machine. In cutting machine, pressing machine, drilling
machines and probably in welding stations.
The time taken for making these changes in a machine/process line in order to change
over from one product to another product is called Change time or set up time. We can define
set up time as the time lost between the exit of the last piece of the previous batch and the exit
of the first acceptable pieces of the new batch from the machine.

Setup time is one of the major losses in a manufacturing unit. Normally, a change
over may consume few hour every day. On the lower side, if our one change-over takes one
hour, we straight away lose 5% of the shift time. So, usually, production managers will try to
avoid the changeovers as much as possible. One of the easiest ways to minimize the loss due
to setup time is to increase the batch size. For each order, they calculate the economic order
quantity (EOQ) and accumulate orders until the EOQ is reached.
The inflated batch sizes cause the following waste to occur on the shop floor
- Over Production: Production managers decide the batch sizes depending on the EOQ
and not based on available customer orders. This results in overproduction -
producing more than the demand. Overproduction is considered as the “sin” and it is
the mother of all other 6 wastes on a shop floor.
- Over-processing: As we produced more than what is required, we obviously create
more and more processing that is not required viz., stacking, counting, checking and
what not…
- Inventory: The more we produce, the more we store them as WIP (Work-in-process)
or as Finished Goods. This leads to high inventory across the value chain and will
increase the cash-to-cash cycle time.
Here’s Toyota way to solve the problem of long Setup time:

21
 - Step 1: Study the Process.
- Step 2: Separate internal and external work.
Note: Internal work is what you can perform only when the machine is stopped. For
example, removing the tool from the machine. External work is what you can do
while the machine is running. For example, grabbing the tools you need to perform
the setup.
- Step 3: Convert internal work to external work. The primary objective is to reduce
internal setup activities and convert them into external setup tasks, which can be
performed concurrently with the production process.
- Step 4: Reduce time associated with internal work.
- Step 5: Reduce time associated with external work.

By reducing changeover times, they dramatically reduced their batch sizes. The
movement of small batches through production line reduced the waiting time,
overproduction, over processing. This indeed helped them in improving their flow and attain
Lean with reduced cash to cash cycle times.

III.2. Jidoka (Highlight Problems)

Trash in - Trash out
Jidoka also refers to stopping a manual line or process when something goes wrong.
Ohno viewed the production process used by mass producers in the West to be rampant with
muda – a Japanese term for waste that encompasses all elements of production that only
increase cost without adding value. For instance, excess people, inventory, and equipment are
all types of muda that may exist in a factory. In order to prevent mistakes from multiplying,
Ohno placed a cord above every work station in the production facility and encouraged
workers to stop the entire assembly line immediately if they discovered a problem. Once the
assembly line was stopped the problem would be addressed. Ohno implemented this method
with the intention of making workers more conscious of Jidoka or quality. Jidoka places
responsibility down to the assembly workers to ensure that they are mindful of the quality of
each part produced. Errors have reduced drastically since Toyota first implemented the
Jidoka approach in its production facilities. Today, Toyota plants produce yields that often

22
approach 100%, meaning the line practically never stops. The quality improvements that
Jidoka offers allows Toyota to reduce cost by saving on repairs, and increase their brand
reputation as a high quality automotive manufacturer.

III.3. Kaizen (Continuous Improvement)

Kaizen is a Japanese term for incremental improvement process. Taiichi Ohno was
inspired to implement Kaizen at Toyota by the company suggestion system at Ford. Here,
Ohno paired teams of assembly workers with industrial engineers to facilitate suggestions on
ways to improve manufacturing processes. Through Kaizen key members of the production
process collectively come up with ways to improve quality, efficiency, and the work
environment. By indoctrinating employees into the improvement frame of mind, employees
are able to identify opportunities for improving their jobs. Through Kaizen, Toyota creates
ownership for workers to maintain standard work. In 2001, Toyota received over 100,000
improvement suggestions from employees, 98% of which were used resulting in a savings of
$18,000,000, and returned $3,000,000 for individual awards of $25 to $25,000

III.4. Poka-Yoke (Fool Proofing)

Shigeo Shingo is credited for coming up with the idea of Poka-Yoke. Poka-Yoke in
the automotive industry is regarded as mistake proofing production processes. This is a
manufacturing technique of “preventing errors by designing the manufacturing process,
equipment, and tools so that an operation literally cannot be performed incorrectly.” The
approach is to prevent mistakes before they occur in order to reduce failure. A PokeYoke
device is one that prevents incorrect parts from being made or assembled. An example of a
Poke-Yoke device for the automotive industry is when you make sure an assembler uses three
screws by packaging the screws in groups of three.
Effective Poka-Yoke devices make before-the-fact inspection more effective by
reducing the time and cost of inspection to near zero. Because inspections entail minimal
cost, every item may be inspected. Provided that work-in-process inventories are low, quality
feedback used to improve the process can be provided very rapidly. Consequently, Shingo’s
application of Poka-Yoke throughout the Toyota production system enables Toyota to reduce
muda thereby increasing operational efficiency.

III.5. Just-In-Time Production

Just-In-Time is a way to coordinate the flow of parts within a supply system on a day
to day basis. Inspired by practices at American supermarkets, Taiichi Ohno sought to
incorporate a just-in-time process at Toyota. The motivation behind just-in-time is to reduce
stock. Just-in-time causes a reduction in stock by decreasing overproduction, stock on hand,
and work in process. Overproduction occurs in traditional mass production systems because
companies keep extra stock on hand to respond to the fluctuations in demand that regularly
occur. In just-in-time environments, lot sizes are smaller and production is synchronized
enabling manufacturers to easily change production schedules. Toyota’s just-in-time system
affords it the opportunity to be more responsive to unpredictable demand. Work in process,
work that is waiting in between processes, is reduced in the just-in-time environment because
materials arrive at the process just as they are needed and therefore the inventory is
eliminated. Stock on hand, material that is actually being worked on, is reduced in the just-in-

23
time environment because smaller lots reduce the amount of stock needed at the machines to
run. Reductions in stock make Toyota more flexibility with their production decisions and
afford the company cost reductions throughout the entire supply chain.

III.6. Kanban
Just-in-time is implemented at Toyota through the use of Kanban cards. Toyota uses
Kanban cards to control the flow of material through their production system. There are tow
types of Kanban cards. The first type of Kanban card is the production ordering Kanban
(POK), which signals an upstream cell or process to produce a certain number of parts. The
second type of Kanban card is the withdrawal Kanban (WLK), which serves to link two cells
or processes. Both POKs and WLKs are placed on standard carts, and the information on the
cards show how many parts are in the cart.

The Kanban system at Toyota is used to implement pull-type controls in the

production system, which reduces costs by minimizing work-in-process (WIP) inventory.
This enables Toyota to adjust production more quickly in response to changes in demand.
Under this system, first-tier suppliers only deliver components when they are needed, so that
there is no storage of excess inventory. This contrasts with the traditional forecast method of
inventory management, where parts are "pushed" to the production line based on anticipated
(rather than actual) demand

4. DELIVER & RETURN

4.1. Inbound Logistics

Toyota’s success in operating a lean supply chain requires that the parts be transported
from the suppliers in an efficient and timely matter; therefore, Toyota establishes a
partnership with a limited number of third-party logistics providers (3PLs) to deliver logistics
services. Toyota’s inbound logistics operation can best be described as a logistics network.
The company organizes many of its suppliers into clusters based on geographic location.
Parts are picked up from those suppliers by trucks on a “milk route” (i.e., a circuit in which a
truck picks up multiple parts from various suppliers along the way), and then they are
delivered to a regional crossdock. (Suppliers that are located close to the plants, however,
ship parts direct.)
At the cross-dock (a staging facility that is used to transfer parts), the parts are
unloaded and staged for pickup and delivery to one of the Toyota plants. After the trucks
arrive at the plant, the trailer is disconnected and parked in a numbered space in a staging lot.
The trailers are not unloaded until the production progress triggers the need for the trailer to
be unloaded. All incoming parts orders and deliveries are synchronized to the production rate.

24
Doing so ensures that the parts unloaded and delivered to the lineside workstations are just
what is needed and just-in-time.

4.2. Network Logistics

The network logistics model enables Toyota to operate a very efficient and effective
inbound logistics operation. Figure 8-1 shows an example of a logistics network. The entities
of the network are suppliers, cross-docks, and Toyota plants. The entities are connected by a
continuous flow of trucks that move containers of parts inbound to the plants or move empty
containers back to the suppliers. Plants include not only the assembly plants but also
component plants that produce engines and transmissions. Toyota’s strategy is “small lots,
frequent deliveries.” The ideal situation is for each supplier to ship parts every day to each
plant. That course of events is where network design plays an important role.

The first step in network design is to analyze the location of the suppliers and identify
clusters of them that are located in close proximity to one another. Next, a determination is
made as to which cross-dock is located nearest to the suppliers. The idea behind this design is
that one truck picks up parts from multiple suppliers in what is called a “milk route.” The
truck then delivers the parts to the nearest cross-dock. The parts are unloaded and the
corresponding empty containers are picked up and returned to the suppliers on the next run.
The parts are then staged for pickup by trucks that are scheduled to deliver full truckloads of
parts directly to each plant.
In the example in Figure 8-1, there are two clusters of suppliers, two crossdocks, and
two plants. Parts from suppliers S1, S2, and S3 in cluster C1 are picked up by truck T1 and
delivered to cross-dock CD1. Parts from suppliers S4, S5, and S6 in cluster C2 are picked up
by truck T2 and delivered to crossdock CD2. Then, truck T3 picks up parts from CD1 and
delivers them to plant P1. Also, truck T5 picks up parts from CD1 and delivers them to plant
P2. Truck T4 picks up parts from CD2 and delivers them to plant T2. Finally, truck T6 picks
up parts from CD2 and delivers them to plant P1. As you can see from this example, there are
two milk run routes picking up from suppliers and four main routes from two cross-docks to
two plants.
The advantages of the network logistics structure is that it enables Toyota to pick up
from most suppliers on a daily basis while at the same time minimizing transportation costs.1
However, the network is extremely complex to operate and manage. Toyota’s size enables it

25
to maintain control over the logistics network by partnering with 3PL companies. The
logistics partners provide a dedicated fleet of trucks and drivers to operate Toyota’s logistics
network. In addition, the entities in the network work closely with Toyota to design and plan
routes. The shared transportation enables suppliers to receive small orders without increasing
transportation costs.

4.3. Pipeline Management

Toyota strives to operate an extremely lean supply chain, so it is critical for the plant
production control personnel to understand the status of all parts in the pipeline. The “parts
pipeline” is defined as all parts that have been ordered from a supplier and have not been
unloaded at the receiving plant.
Toyota uses a variety of methods to track parts throughout the pipeline. The process
starts with the parts order that is sent via Electronic Data Interchange (EDI), along with the
kanban bar code label that the suppliers affix to the parts shipping container. Once the parts
are shipped, the supplier sends an EDI Advanced Shipping Notice (ASN). The truck driver
scans the kanban bar code label and identifies the truck onto which the parts are loaded. Once
the truck arrives and is unloaded at the cross-dock, the parts status is changed to show arrival
at the cross-dock. Again, as parts are loaded onto another truck bound for the plant, they are
scanned and associated with the truck number. As the truck enters the gate at the plant, the
parts status is updated to show that the parts are in the plant yard. The trailers remain in the
yard until production progress dictates that they should be unloaded at the dock. As the parts
are unloaded, each container is scanned to confirm the arrival at the plant. Pipeline data
enable Toyota to have visibility into the parts pipeline. This pipeline database is especially
important whenever there is a crisis situation such as parts shortage, short shipment, or
transportation delay. It is thus clear that visibility plays a key role in the management of the
inbound parts logistics process.
Some of the metrics used to monitor inbound logistics are percent of cubic capacity
utilized, number of blowout loads, on-time pickup and delivery, and actual mileage versus
plan.

4.4. Outbound Logistics

Outbound logistics is also known as product distribution, because the function of

outbound logistics is to distribute the finished products from the OEM plants to the retailers.
The relationship with the 3PL providers for outbound logistics differs from that for dedicated
3PL providers for inbound logistics. Although Toyota still considers outbound logistics
providers to be its partners, those partners are not dedicated to Toyota because no one 3PL
provider can control all transportation activities end to end from the plant to the dealer.
Therefore, Toyota relies on common carriers, railroads and truck “car haulers,” to transport
its vehicles from the assembly plants to the dealers. Railroads ship many types of goods and
raw material in addition to vehicles. They also ship vehicles from multiple manufacturers on
the same trains. Trucking companies, like the railroads, ship vehicles for multiple
manufacturers—in many cases, they mix vehicles from different manufacturers on the same
truck.

26
IV. Explain how GSCM contribute to the company strategy
As previous discussion in Part 1 and 2, we can conclude that Toyota follow the
strategy of becoming a global cost-leadership, applying both transnational and multidomestic
strategy to provide customers with not only cost-optimizing but also locally-tailored products
in some specific regions. This requires Toyota supply chain design to not only be at the most
efficient level but also agile enough to be responsive to different product variants.
It is quite controversial to say a supply chain model can be both efficient and
responsive at the same time as we all know about the Cost-Responsiveness Efficient Frontier
where there will always be trade-off and you have to choose only one thing and sacrifice the
other. But in the case of Toyota, with continuously improvement of their processes and
technology advancement, especially in Manufacturing function with the worldwide famous
Toyota Production System, Toyota has shifted the efficient frontier itself to achieve both
goals at the same time.

So how exactly has Toyota achieved both Efficient and Reponsive Supply Chain at
the same time while there are different characteristics between these 2 Supply Chain models.

Efficient Supply Responsive Toyota Supply Chain

Chains Supply Chains

Primary goal Supply demand Respond quickly Both lower cost and increasing
at the lowest cost to demand responsiveness

Product Maximize Create modularity Modular Design: Toyota breaks down

design performance at a to allow products into modular components,
strategy minimum postponement of allowing for flexibility in customization
product cost product and efficient production. For instance, a
differentiation Toyota Camry can be customized with
various engine options, interior features,

27
 and exterior colors, all based on
modular components.
Standardization: By standardizing
components across different models,
Toyota reduces complexity and lowers
costs. For example, many Toyota
models share common engine blocks,
transmissions, and electrical systems.
Continuous Improvement (Kaizen):
Toyota's commitment to Kaizen drives
innovation and quality enhancements.
Engineers and workers are encouraged
to identify and implement small
improvements in their daily work,
leading to significant cumulative
benefits over time.

Manufacturi Lower costs Maintain capacity Lean Manufacturing: Toyota's lean

ng strategy through high flexibility to manufacturing principles, such as Just-
utilization buffer against in-Time (JIT) production and pull
demand/supply systems, eliminate waste and maximize
uncertainty efficiency. By producing only what is
needed, when it is needed, Toyota
minimizes inventory costs and reduces
the risk of overproduction.
Flexible Manufacturing: Toyota's
production facilities are designed to be
flexible, allowing them to adapt to
changing demand and product mix
requirements. This flexibility is
essential for responding to shifts in
consumer preferences and market
trends.
Quality Focus: Toyota's relentless
pursuit of quality is evident in its
rigorous quality control measures and
emphasis on defect prevention. The
company's Total Quality Management
(TQM) philosophy ensures that quality
is built into every product, from the
initial design stage to the final assembly
line.

Inventory Minimize Maintain buffer Just-in-Time (JIT) Inventory: A

strategy inventory to inventory to deal Cornerstone of Toyota's Success
lower cost with - Kanban System: This visual
demand/supply system uses cards to signal the
uncertainty need for replenishment of parts

28
 or materials. When a worker
removes a part from a bin, the
attached Kanban card is sent to
the supplier, triggering the
production or delivery of
replacement parts.
- Pull System: Toyota's
production system is driven by
customer demand, rather than
forecasts. This means that
production is initiated only
when there is actual demand,
reducing the risk of
overproduction and inventory
buildup.
- Close Supplier Relationships:
Toyota has cultivated strong
relationships with its suppliers,
fostering trust, collaboration,
and timely delivery. This
enables the company to
minimize inventory levels and
respond quickly to changes in
demand.
Lean Manufacturing: Eliminating
Waste and Maximizing Efficiency
Value Stream Mapping: By identifying
and eliminating non-value-added
activities, Toyota can streamline its
processes and reduce lead times.
- 5S: This methodology focuses
on organizing the workplace to
improve efficiency and reduce
waste. By maintaining a clean,
organized, and safe work
environment, Toyota can
minimize errors and improve
productivity.
- Total Productive Maintenance
(TPM): By ensuring that
equipment is well-maintained
and operated efficiently, Toyota
can prevent breakdowns and
reduce downtime. This helps to
maintain a stable production
process and avoid disruptions to
the supply chain.

Lead-time Reduce, but not Reduce Shortening Lead Times: Toyota

29
 strategy at the expense of aggressively, continuously works to reduce the time it
costs even if the takes to produce and deliver products.
costs are This is achieved through a variety of
significant techniques, including streamlined
processes, reduced setup times, and
improved supplier collaboration.
Predictive Analytics: By analyzing
historical data and market trends,
Toyota can forecast demand and
optimize production schedules. This
helps to avoid stockouts and excess
inventory, improving overall supply
chain efficiency.
Agile Supply Chains: Toyota's supply
chains are designed to be agile,
enabling the company to quickly adapt
to changes in demand and supply
conditions. This agility is essential for
responding to unexpected events, such
as natural disasters or economic
downturns.

Supplier Select based on Select based on Toyota’s goal is to minimize the

strategy cost and quality speed, flexibility, number of suppliers and create long-
reliability, and term partnerships by nurturing existing
quality suppliers to expand and grow with
Toyota instead of growing the number
of suppliers to induce competitive price
bidding.

Meanwhile, staggered contractual links

across vehicle models, provides a
secondary source for most components
while permitting sole sourcing for a
component for a car model. The
availability of alternate suppliers, who
can step in readily, places pressure on
the existing supplier to conform (multi-
sourcing strategy)

Challenges for Toyota to align Supply Chain Strategy with Business Strategy

1. Increasing product variety and Shrinking life Cycles

One of the biggest challenges to maintaining strategic fit is the growth in product
variety and the decrease in the life cycle of many products. Greater product variety and
shorter life cycles increase uncertainty while reducing the window of opportunity within

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which the supply chain can achieve fit. The challenge gets magnified when companies
continue to increase new products without maintaining the discipline of eliminating older
ones. As consumer preferences evolve and technological advancements accelerate, Toyota
must introduce new models and variants at a faster pace. If the supply chain is not agile
enough, it will not meet the demand on time, especially for regions or group of target
customers who have special preferences, this will directly affect the transnational and
multidomestic strategy of Toyota. On the other hand, if product range is widen uncontrollably
with no modular design between variants, it will decrease the supply chain efficiency and
directly affect cost-leadership strategy.

2. Changing technology and business environment

With a changing environment in terms of customer needs and technology, companies

must constantly evaluate their supply chain strategy to maintain strategic fit. A strategy that
may have been very successful in one environment can easily become a weakness in a
changed setting. For example, Toyota is very successful with conventional gasoline-powered
cars but the world is witnessing an enormous trend of electric cars that may totally replace
gas cars in the future. Facing up with this situation, in a mean time, Toyota supply chain has
to be as responsive as possible to meet the demand of electric cars if there may suddenly
come a surge of electric vehicles demand due to reasons like: changing preferences,
government intervention,... In that case, Toyota supply chain is very hard to get as efficient as
before which will negatively affect the cost-leadership strategy of this company which has
been remaining stable for decades.

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