Friday, 25 March 2011


Toyota motor corporations are Japan top auto manufacturer and have experiences significant growth in global sales over the last 2 decades. A key issue facing Toyota is the design of its global production and distribution network. Part of Toyota global strategy is to open factories in every market it serves. Toyota must decide what the production capability of each of the factories will be, as this has a significant impact on the desired distribution system. At one extreme each plant can be equipped only for local production. At the other extreme, each plant is capable of supplying every market. Toyota used specialized local factories for each market. Toyota redesigned its plant so that it can also export to market that remain strong when the local market weakens. Toyota calls this strategy “global complementation”

Supply chain system (Generic)

Flow Chart of Pre-Define Supply Chain Network
in the Simulation Framework when supplies is limited in Toyota
Overall, the advantage of this conceptual simulation framework is the flexibility of the system. It can be set as bi-directional way to determine the flexibility and robustness of the supply change network. This simulation can be used to add on to any existing supply chain management system or enterprise resource planning system, in order to plan the physical network of the desired company’s supply chain network. With the aid of this generic framework, companies are now able to simulate and focus if the planning is accurate, flexible and most importantly, the reliability.

Flow Diagram of a Typical Inventory Operation
With the inventory system keeping track of each product at a facility full of many difference types of products, there is a need to build an Inventory Policy. This Inventory Policy will allow the encapsulation of rules to control associated inventory, as each Inventory as an unique information (variables), such as on Hand, on Order, type of cost and others. In order to build a strategy that governs the reordering behavior for the inventory of a certain type at a particular facility, the Inventory Policy can distinguish each Product’s information by the Policy Type, recorder Point and recorder QTY. Therefore, this will aid the determination on the schedule and quantities to order from the Manufacturing Center


Toyota want to be a lifelong partner to their customers, offering them a full range of services that extend beyond the automobile. In providing diverse lifestyle choices, they are connecting with customers more than ever before. Making that connection brings greater comfort and convenience to their lives, and in the process reinforces their corporate value chain.

Building Unique Relationships With Customers

Toyota has long sought to build close, enduring relationships with its customers. This objective lies at the heart of expanding our value chain, for by offering an extra suite of services that are intrinsically linked to the automobile, we can support people's lives in a whole host of ways. Such wide-ranging assistance strengthens the bond between Toyota and its customers, and encourages them to stay with us throughout their days.

In fiscal 2001, Toyota sold 1.77 million automobiles in Japan (excluding minivehicles) to capture a 43.1% market share. The Japanese auto market is estimated to be worth around ¥30 trillion, but not many people know that sales of new cars account for only a quarter of this figure. The remaining three-quarters includes services, automobile accessories, used cars, car rentals, auto leases, loans and insurance. This is a situation we view as an exciting opportunity to enter into a variety of new fields.

Another source of vast potential are the business opportunities being created by the rising power of consumers. Due to rapid advances in IT, consumers, rather than manufacturers, now take the lead in determining which products will be made. 
IT is the central element of the Toyota value chain, which is designed to broaden our range of services beyond the automobile.

Supply-chain management

SCM is a total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer.


Planning For Uncertainty
  •   changing lead times 
  •   changing demand 
  •   Uncertainty creeps in:  
  •   Plug in safety stock
Safety stock - allows manager to determine the probability of stock levels - based on desired customer service levels

Flow Diagram of a Typical Inventory Operation
With the inventory system keeping track of each product at a facility full of many difference types of products, there is a need to build an Inventory Policy. This Inventory Policy will allow the encapsulation of rules to control associated inventory, as each Inventory as an unique information (variables), such as on Hand, on Order, type of cost and others. In order to build a strategy that governs the reordering behavior for the inventory of a certain type at a particular facility, the Inventory Policy can distinguish each Product’s information by the Policy Type, recorder Point and recorder QTY. Therefore, this will aid the determination on the schedule and quantities to order from the Manufacturing Center

The bullwhip effect.
Add caption
The bullwhip effect is a supply chain phenomenon that affects many companies around the globe and is one of the main reasons for increases in production and inventory costs, as well as product shortages. Several studies have demonstrated that demand variability is magnified as orders flow upstream through the elements of a supply chain.
In other words, product demand variation increases as orders move from buyers to retailers, then to distributors and, finally, to the manufacturer of a supply chain management system. This magnification in demand variation resembles the wave amplitude increase that is seen when a whip is cracked, which is why the phenomenon is called the bullwhip effect.

Electronic data interchange (Australia)

The Toyota Motor Company Australia Limited (TMCA) is located in Melbourne, Australia and is a
subsidiary of Toyota Motor Corporation (TMC) of Japan. The company produces around 100,000 vehicle units per year. TMCA uses about 3000 locally sourced parts and about 5300 imported parts. It has 120 independent local parts suppliers, 19 TMCA owned local suppliers, two overseas Toyota affiliate suppliers and two overseas non- Toyota suppliers. It receives about 500 local deliveries a day and as a result of an extensive Just-In-Time delivery.

Bar code terminals (example)


Product Description:

Properties of the BHT-200 Bar Code Terminal: OS Windows CE.NET, QVGA colour display, and RF communication option. The bar code terminals have a CCD scanning system and can read the bar code from distances up to 1 m. It belongs to the Hi – Tech bar code terminals.
Other information:
Bar code terminal models: BHT - 260B - CE incl. alphanumeric keyboard; 260BW - CE incl. RF transmission; 261BG - CE incl. GPRS card, 280B - CE incl. gun handle; 280BW - CE incl. RF transmission and gun handle. Top bar code terminal models manufactured by Toyota in Japan. 

Radio Frequency Identification

Toyota ’s application will benefit from the use of open, global-standard EPC RFID technology that combines consistent reads, even in a heavy metallic environment, with the ability to leverage extremely low-cost RFID tags. In Toyota ’s implementation, an Alien RFID tag will be applied to each vehicle during production. The tags will then be accurately read by field-proven Alien ALR-9780 readers at ranges exceeding six meters as the vehicle is tracked from within the Assembly Plant, through the Plant Exit, into, through and out of the Vehicle Distribution Yard. The resulting precision tracking will enable Toyota to both streamline and accelerate its vehicle shipping and invoicing processes, and thus its time-to-cash. According to Stoop, the anticipated savings on interest for the targeted reduction of Stock (vehicles “on rubber”) of one day is expected to more than off-set the CAPEX for this RFID Project.


IT-Driven Expansion

To capitalize on these opportunities, Toyota are currently expanding their value chain by reinforcing their IT businesses. Five initiatives form the crux of their actions:
  • The automotive e-commerce site
  • Intelligent Transport Systems (ITS) aimed at commercializing the next generation of highway travel
  • Information terminals designed to add value to automobiles through increasingly sophisticated car navigation systems
  • The TS3 CARD, which will pave the way for their entry into the business of processing and settling consumer purchases
  • Networks to support the above four initiatives

Toyota main focus is on IT and financial services. Creating synergies between the two will be instrumental for the growth of these businesses.

Gazoo: Unlimited Possibilities is Toyota e-commerce site, established in 1998 to market Toyota vehicles and provide automobile-related services. Gazoo boasts a membership of more than 1.1 million, and every month, between 5,000 and 7,000 customers use the site to request quotes from Toyota dealers. Around 14% go on to purchase a Toyota vehicle within six months of their initial request. Clearly, this is a sales channel well-suited to customers' needs.

Even those without a PC can take advantage of, thanks to the E-TOWER, Toyota next-generation multimedia terminal, which provides easy access from Toyota dealerships and convenience stores. Toyota expect to have about 20,000 terminals installed by 2003, and are targeting 4 million E-TOWER members. In addition to automotive services, members can find information about travel, books, CDs, videos, fashion, food and consumer electronics. Toyota see unlimited possibilities for this site, and plan to expand its content even further. will also play a pivotal role in their efforts to communicate directly with customers. Data on their interests and preferences is being fed back into such processes as R&D, product planning, sales and marketing. The site will diversify as they combine its existing features with financial information services, mobile phones and in-vehicle information and communications services, to name but a few ideas. This will allow they to reach out to a wider audience, and the synergies they create will be vital to offering customers more value and bolstering their presence in the auto industry.


Toyota’s incentives in all forms were up 31.6% in 2004, reaching a level of over $3,100 per vehicle. Despite these big incentives, however, no one is really satisfied with the end result. Manufacturers give up the margin and consumers have settle for what’s available, not necessarily what they really wanted. That is why most of the manufacturers are moving towards build-to-order  (BTO) systems that convert orders to products without holding any finished goods inventory.



Collaborative planning, collaborative design, transparency, Toyota suppliers in new product planning when to get involved so that we can ensure an early solution to engineering problems, shorten the time to update and introduction of equipment. Suppliers can also learn about Toyota’s production scheduling, allowing them to adjust the production plan. To reduce excess inventory throughout the supply chain is also a return to both sides.

The practice of communication with the GM and Ford’s corporate culture in sharp contrast. The company does not open some of the information provider is a unique design and prediction of fear of information by competitors to know. The suppliers of these companies fear accounting data to conceal GM and Ford to profit by changing prices. Toyota also offers a comprehensive and timely performance feedback to the vendor. Every month according to a leading provider of quality and cost of pre-established benchmarks, and indicators to assess the expected improvement of their performance and progress reports. These reports provide data on performance evaluation under a contract determines the reward and punishment standards.

Toyota model adopted is an integrated system of various factors. It includes potential suppliers and confidence-building assessment of a large number of front-end work. The contract itself is not complicated; it just made the commitment contract, established a basis for mutual cooperation. However, a long-term commitment to ensure that suppliers for Toyota to get a reasonable return on investment. Toyota’s results benefited from technological improvements. Toyota plans to build more long-term basis the annual cost reduction of the supply chain can continue to improve efficiency. Toyota and suppliers, through the production of specialist suppliers to the factory to help them identify and implement the new plant initiatives to achieve improvement goals. Obtained from the suppliers to determine the time within the improvement of half of the profits. Reduce the cost of a further improvement after the target benchmark.

Toyota can not follow the adoption of some and ignore others. Each part of the impact on the outcome of the whole system; part of the success will not reduce the overall supply chain benefits. Therefore, it is difficult to follow the example of Toyota’s supply chain organization, but it is Toyota’s competitive advantage.


Forecasts.  Sales forecasting is the critical element in all manufacturing management and control systems.  In an MRP II system it is used to set the master schedule and then push product through manufacturing.  In a pull system it is used to turn a cycle time into a targeted inventory level.  The difference is significant.  The unit forecast for a particular end item usually covers a specific period of time -- a month, a quarter, a year and so forth.  In MRP II, the gross unit forecast is used; in a pull system, the gross unit forecast is converted to a rate of sale expressed in the same denomination as the cycle time for final assembly of the end items.  For example, if final assembly cycle time is expressed in days then the forecast will be expressed as a daily rate, if in hours then the forecast will be expressed as a rate per hour.  


In keeping with the Toyota Production System philosophy local parts are delivered directly to the production line where they are used. There is no component warehouse although there is a small staging area to facilitate unloading and transfer to the production line locations. As Kanbans are released by consumption of the parts at the production line, they are delivered to a Kanban sorting area where they are sorted into vendor part number sequence. TMCA is in the process of implementing a system that sorts the Kanbans electromechanically using bar coded data on the Kanban. This system produces a delivery docket with a bar coded delivery number on behalf of the supplier, and also transmits the expected delivery records to the receiving system. The Kanbans and the related delivery dockets are then placed in a bank of pigeon holes, with locked doors, adjacent to the inward goods bays, to be picked up by the vendor's carrier upon the next delivery. Each vendor has a pigeon hole and a number of pre-assigned daily delivery time windows of 15 minutes duration. The door on the pigeon hole is unlocked only during these time windows.

Each vendor delivers parts at least twice a day. Many are serviced by a TMCA transport "milk run". The transport driver must arrive during the preassigned window, drop off the present delivery of parts together with the associated Kanbans and delivery docket.

The delivery docket is scanned with a bar code reader by receiving staff to recall the expected receipt information and checked against the goods and the Kanbans. If the goods are received correctly the system is updated and no confirmation information is produced for the supplier. The driver can pick up the Kanbans and delivery docket for the next delivery provided the pigeon hole is not locked. Otherwise, the driver must enter the sorting office to retrieve them and this results in a down grading of the supplier being recorded. Discrepancies between goods received or Kanban numbers cause a more complicated response leading to a partial reissue of the delivery docket. The parts are then taken to the production line with their Kanbans to complete the replenishment cycle.

TMCA uses EDI to send a Material Requirement Forecast, MRF, (ANSI X12 830) to their local suppliers indicating forecast requirement for the next 6 months. Since May 1995 this information has been purely informational and does not represent a commitment to accept the goods forecast. The use of such an EDI message is standard in the Australian Automotive industry but, in keeping with the Toyota Production System pull philosophy, commitment to accept parts only occurs when a Kanban is freed by the consumption of parts on the production line. 

Thus, in contrast to the practice of the other manufacturers, the EDI MRF does not represent a purchase order for the first months requirements. The MRF is sent twice during the month, the first being a preliminary indication and the second, 8 to 10 days later, being a confirmed forecast. Since a small number of local suppliers are not EDI capable there is a plan to automatically create and send a fax version of the MRF to these suppliers.

Measuring supply chain management.

Based in the chapter 10, the Key Performances Indicators are going to be use in order to measure supply chain management performance for Toyota Company.One of the most commonly used measures in all of operations management is “Inventory Turnover”



In situations where distribution inventory is dominant, “Weeks of Supply” is preferred and measures how many weeks’ worth of inventory is in the system at a particular time .



Quality control has a long history within both Toyoda the parent loom company and Toyota the automotive manufacturing company. Sakichi Toyoda started making looms in the late 1890’s. His work culminated in the impressive 1924 Type G Auto Loom.

The Type G loom was noted for its non stop shuttle change and the concept of “Jidoka” or built in quality. The machine would stop when a thread broke helping to ensure 100% quality in the product. Manufacture of the loom however was still mainly driven by inspection and use of various gauges and measuring devices.
In the 1920’s Walter Shewart devised his famous control chart while working at Bell Labs. The chart came to the attention of W. Edward Deming who became one of the foremost proponents of the chart and Shewart’s work. Use of the control chart slowly spread around the world and usage was evident in a few limited places in Japan even in the 1930’s according to Prof. Nonaka of Josai University (Refer to Chapter 16 – The Recent History of Managing for Quality in Japan in J.M. Juran’s book A History of Managing for Quality).
The end of WWII however saw a much more pronounced spread of control charts in Japan during the occupation period after the war ended. Lectures by Deming and other statistical experts put the tool and other key quality concepts in the hands of Japanese companies.
Here is a quite old example of a initial quality control chart used in Toyota in  the 1950’s. The dimensions of the crank shaft journals are measured using a measuring device and recorded onto a chart next to the line.

Here is an example of such a control chart in Japanese for a steering knuckle.

By the time I worked for Toyota in the latter part of the 1980’s these manual charts were essentially gone. Toyota had worked hard for decades at removing the sources of common cause and special cause variation to the point where process control levels were extremely high.

Over time the act of charting essentially became unecessary work. Instead period checks were conducted to audit the level of process control by production. Quality Control further audited the checks performed by manufacturing on a sampling basis and validated the process control of the machine. Precision items like the crankshaft journals above are 100% measures by automated measuring machines in the line today. Control charts are now automatically generated and displayed as needed on a CRT type device or on an LCD screen. As was the case with Sakichi Toyoda’s automatic looms the process today would signal when a defect occured and automatically stop the line (i.e. Jidoka concept).