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Toyota Production System (focus on Supply Chain Strategy that

makes Toyota successful in different markets including US market)

Table of Contents
1. INTRODUCTION....................................................................................................................................................... 2
❖ TOYOTA MOTOR CORPORATION (TMC).............................................................................................. 2

❖ SUPPLY CHAIN STRATEGY......................................................................................................................... 2


2. WHAT MAKE THE TOYOTA SUPPLY CHAIN MANAGEMENT?...........................................................2
❖ ZERO INVENTORY AND ZERO DEMAND FORECASTING...................................................................2

❖ TOYOTA PRODUCTION SYSTEM:............................................................................................................. 3


a) SMED................................................................................................................................................................................................................................ 3
b) JIT....................................................................................................................................................................................................................................... 4
c) Jidoka................................................................................................................................................................................................................................ 5
d) Kaizen................................................................................................................................................................................................................................ 7
e) Heijunka........................................................................................................................................................................................................................... 8

❖ SUPPLIERS RELATIONS................................................................................................................................... 9

❖ CUSTOMER CENTRIC.................................................................................................................................. 10
3. Game:.......................................................................................................................................................................... 13

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1. INTRODUCTION

❖ TOYOTA MOTOR CORPORATION (TMC)


 Was founded in 1937 by Kiichiro Toyoda
 Head-quarter is located in Aichi, Japan.
 Market capitalization: 635 billion Yen (as of March 31, 2022), 25th of the world

❖ SUPPLY CHAIN STRATEGY


 Toyota soon realized that to survive and grow in the long term, they needed to expand beyond
Japan and rapidly remade itself. So the corporation looked for a massive and fast-growing
market: the U.S. There, they faced lots of competitors such as Chevrolet, Ford,…
 The first production for the US market was the Toyota Crown, but it was dropped because the
condition of the car was suitable for Japanese roads, not for the Americans. As a consequence, they
sold 287 cars in one year, later it got better when the figure tripled. After all, Toyota could meet the
needs of the US market but they sold inappropriate products.
 Soon, Toyota was serious about understanding the US market and began to design cars specifically
for Americans. When the new products became successful, Toyota was the third best-selling
import brand in the US. Thanks to an oil crisis of the mid 1970s, it left customers finding fuel-
efficient vehicles. Their key factors were quality and reliability at low prices. In conclusion,
Toyota hit the market at the perfect time with high quality, reasonably priced products and
excellent fuel economy when the oil crisis occurred and other competitors didn’t produce small
cars.
 The company have changed to reduce overproduction and unnecessary capital investment
o The root cause of the problem was forecasting of demand led to excessive inventory.
Therefore, Toyota had built a supply chain where they eliminated two of the most fundamental
elements: inventory and forecast demand. => The world's Just-in-time system was born.
Supply chain of Toyota has played an important role in making TPS successful, so what factors
contribute to the success of supply chain strategy of Toyota

2. WHAT MAKE THE TOYOTA SUPPLY CHAIN MANAGEMENT?

❖ ZERO INVENTORY AND ZERO DEMAND FORECASTING


 The change started when Toyota realized their overproduction from a lean manufacturing system. This
leads to 4 major inefficiencies: land, labor, maintenance, transportation. These wastes resulted in
unnecessary capital investment.
 The most essential problem was that forecasting of demand led to excessive inventory, which in turn led
to a chain effect resulting in 4 wastes. Then, they made the most important decision to eliminate 2
fundamental parts: zero inventory and no demand forecasting. Just-in-time supply chain system was
born.
 Throughout the evolution of the system, it became the standard of world supply chain management in
every field, all the aspects.
o Instead of having cars manufactured and stored in inventory, the cars now used to be available
for the customer in the pamphlets and then the showroom. As soon as the customer placed the
order, Toyota started to produce the car.
o Once ideation and booking date are finalized, the technology and machinery are acquired in 3
months after that, components are transferred. When the bookings arrive from dealers, the
components are moved to the assembly plant, the point is the same quantity is moved to each

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plant per day. When the final step - product quality check is done, cars will immediately shipped
to the dealer based on their order. The whole process happened in just 5 days.
❖ TOYOTA PRODUCTION SYSTEM:
a) SMED

What: SMED stands for Single-Minute Exchange of Die. It is a lean manufacturing technique used to reduce
the setup or changeover time of a manufacturing process to as close to zero as possible. The reduction in setup
time achieved through SMED helps in improving productivity, flexibility, and overall efficiency of the
manufacturing process.

How does it work:

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In Toyota:

 Switching off the running machine after completing previous order


 Open the machine and remove the previous die & punch (considering a press machine)
 Take the die and punch to the die rack (waste)
 Bring the die and punch required for next order near the machine (waste)
 Fix the die and punch into the machine
 Checking and taking back the die and punch of the previous order to the storage (waste)
 Run sample pieces and adjust the setting
 Start production

=> The activity of bringing the die and punch for the next order could be done before switching the machine off
and taking back the die and punch of the previous order after starting the machine. The time consumed for
opening the machine, assembling and disassembling the die and punches, adjustments and fine-tuning could be
reduced to bring down the change over time further.

Results: Ohno had reduced the time required to change dies from a day to an amazing three minutes, and
eliminated the need for die change specialists

Drawbacks:

 Resistance to Change: Introducing changes to established setup procedures may face resistance from
employees who are accustomed to existing methods.
 Risk of Error: Rapid setup changes and modifications may increase the risk of errors or mistakes if
proper procedures are not followed meticulously.
 Skill Requirements: Successfully implementing SMED requires employees with the necessary skills and
knowledge to analyze, plan, and execute setup improvements. In some cases, organizations may need to
invest in training or hire specialized expertise to support SMED initiatives.
b) JIT

What: Just-in-time, or JIT, is an inventory management method in which goods are received from suppliers
only as they are needed. The main objective of this method is to reduce inventory holding costs and increase
inventory turnover. It is a ‘pull’ system of providing the different processes in the assembly sequence with only
the kinds and quantities of items that they need and only when it needs them. Production and transport take
place simultaneously throughout the production sequence – inside and between all the processes.

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How does it work: Customer places an order → Manufacturer orders materials/products from suppliers →
Suppliers delivers materials to manufacturer → Manufacturer assembles products → Fulfill the orders →
Customer receives products

In Toyota: Use of JIT within the Toyota Production System means that individual cars can be built to order and
that every component has to fit perfectly first time because there are no alternatives available. It is therefore
impossible to hide pre-existing manufacturing issues; they have to be addressed immediately.

 When a vehicle order is received, production instructions must be issued to the beginning of the
vehicle production line as soon as possible.
 The assembly line must be stocked with the required number of all necessary parts so that any kind
of ordered vehicle can be assembled.
 The assembly line must replace the parts used by retrieving the same number of parts from the parts-
producing process (the preceding process).
 The preceding process must be stocked with small numbers of all types of parts and produce only the
numbers of parts that were retrieved by an operator from the next process.

Drawbacks:

 Just-in-time makes it very difficult to rework orders, as the inventory is kept to a bare minimum and
only based on the customers’ original orders.

 The model is dependent on suppliers’ performance and timeliness, which are hard to ensure.
Additionally, the manufacturer needs to be able to cover any sudden increases in the price of raw
materials, since they cannot wait to order during better pricing.

 Since the JIT model requires a lot of shipping back and forth between the supplier, manufacturer,
and customer, it can have detrimental effects on the environment due to over consumption of fossil
fuels and packaging.

 In case of disruptions, a JIT model can have a major impact on the business. Since there is no excess
stock to fall back on, sales may come to a halt.

 A just-in-time system needs to be carefully tracked and organized, which will be hard if you are
doing it manually. Softwares should be adopted as it makes the whole process more manageable.
Even though a good software help you it can be a bit tricky and/or expensive to adopt a new
software system and train your personnel accordingly to use the same.

c) Jidoka

What: Jidoka refers to autonomation with a human touch and refers to stopping a manual line or process when
something goes wrong. This allows for early detection and correction of problems, which leads to improved
quality, efficiency, and safety.

How work: Jidoka works based on four main principles:

1. Detect something wrong

2. Automatic stop

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3. Solving the problem and root cause analysis

4. Continuous improvement

Benefits of using Jidoka:

Results: Errors have reduced since Toyota first used the Jidoka in its production system.

Drawbacks:

● Costly: Implementing Jidoka requires upfront investment in sensors, automation, and training.
● Challenging to integrate: Adapting Jidoka to existing processes takes time and expertise.
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● Over Reliance on automation: Neglecting human expertise for problem-solving can hinder continuous
improvement.
● False positives: Overly sensitive systems can trigger unnecessary stoppages, reducing efficiency.
● Cultural resistance: Shifting towards continuous improvement can be challenging in some organizations.
● Limited applicability: Jidoka might not be suitable for all processes, especially those with low volume or
high variability.
● Maintenance costs: Maintaining sensors, automation, and software adds further costs.
● Potential job displacement: While creating new jobs, Jidoka might also lead to automation-driven job
displacement.

d) Kaizen

What: The English translation is, broadly speaking, “continuous improvement”. ‘Kai’ means ‘change’ and
‘zen’ means ‘for better’. It is a philosophy that helps to ensure maximum quality, the elimination of waste, and
improvements in efficiency, both in terms of equipment and work procedures.

How: 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.

=> Continuous improvements through acting on suggestions

Benefits: Kaizen improvements in standardized work help maximize productivity at every worksite.
Standardized work involves following procedures consistently and therefore employees can identify the
problems promptly.

Drawbacks:

One major kaizen disadvantage is that it distorts the entire management system. Kaizen could be difficult for
businesses to go back to previous systems. Also, employees might be unwilling to change the system that they
have been used to. Furthermore, training staff to adapt to new changes could be expensive and very demanding.
If employees do not play their part in adopting these changes, the amount of time and resources spent will go to
waste. In the end, the purpose of implementing kaizen is defeated.

Kaizen in TPS: TPS relies on employees to keep an eye out for areas where waste can be removed, thus
increasing efficiency. Each employee takes ownership of their work, which they look to make work easier on
themselves, as well as on the company.

Toyota continues to deliver top-of-the-line products because each employee in the production system is
encouraged to offer suggestions to improve processes and streamline production to consistently improve the
quality of our forklifts.
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Results: 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.

e) Heijunka

Imagine when customer demand is unstable (Monday requires 200 products, Tuesday 500 products,...), if so, it
means your business is producing according to customer needs. This leads to too much free time and
overproduction => waste in production, inventory imbalance, so how to solve this problem? => Heijunka will
help you to find solutions.

What: Heijunka is a term for make flat and smooth the waves of production, expressed through the relationship
between predictability - demand balance, flexibility - reducing production changeover time for different
products, stability - average the quantity and type of products in a certain period of time

How: Heijunka allows you to level your production by the average volume of orders you receive.

For example, if your average demand is 20 orders per week, but the number fluctuates by the day (e.g., Mon 3;
Tue 10; Wed 5; etc.), it would be wise to implement Heijunka to level the production by volume.
This way, you can establish a stable flow of work and process 5 orders per day to meet the average demand by
the end of the week.
=> Be able to keep your process running all the time without extra pressure when the number of orders spikes
up during the week.

Benefits: make the standardization process easier, reduce costs, reduce lead-time, maximize resource
utilization, reduced inventory

Drawbacks:

● extremely efficient and frequent machine changeovers (knowledge of SMED is essential here).
● increased responsibility of suppliers (delivery delays are not allowed, JIT applies).

Heijunka in TPS: demand leveling breaks down the total volume of orders for a given planning period (1-2
months) into scheduling intervals (weekly, daily). A Heijunka calculation then defines a repetitive production
sequence for the scheduling interval, which dictates the model mix scheduled on a given line. The schedule is
then passed into operation through the production and distribution of Kanban cards.

*** Kanban cards: cards to control the materials flow through their production system

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❖ SUPPLIERS RELATIONS

Traditionally, the 1st and 2nd tier suppliers have to bid in order to produce a certain part. The suppliers
with the lowest offered price will win the bid and receive the production order
=> They would not share information on advances in manufacturing techniques
=> Moreover, they wil try to lower the cost (even that is not thanks to their advanced producing technique) of
production inorder to win the bid => the quality will not be secured
The same thing was applied for the supply of 1st tier suppliers
=> Toyota’s supply chain is organized into functional tiers.

1st Tier Suppliers


First-tier suppliers are responsible for working as an integral part of the product development team in
developing a new product. Typically, Toyota will request that suppliers develop a prototype for steering,
braking, or an electrical system. This request would be accompanied by a performance specification.

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Also, the suppliers are given information on other systems within that model, the size (dimensions) of the
prototype, and the cost that Toyota is willing to pay per set. If the prototype worked, that particular supplier got
the production order. Toyota does not specify what the brakes have to be made of or how they are to work.
Toyota leaves these decisions for the supplier’s engineers to make. Lastly, Toyota encourages its
first tier suppliers to talk amongst each other in order to allow the flow of information horizontally across first
tier suppliers. As a result of information sharing, suppliers are able to decrease the cost of production through
improved organization and process innovation. This eliminates waste at the first tier supplier level.

2nd Tier Suppliers


Each first tier supplier forms a second tier of suppliers under itself. Companies in the second tier were assigned
the job of fabricating individual parts. These suppliers were manufacturing specialists, usually without much
expertise in product engineering but with strong backgrounds in process engineering and plant operations. First
tier suppliers group their second tier suppliers into supplier associations so that they too could exchange
information on advances in manufacturing techniques.

Supplier Relations
 Toyota extends its relationship with its suppliers in many ways
 Toyota owns equity in the majority of its suppliers.
 Toyota’s suppliers have substantial cross-holdings in each other creating a win-win relationships
throughout the supply chain.
 Toyota “often acts as a banker for its supplier groups, providing loans to finance the process machinery
required for a new product.
 Toyota shares personnel with its supplier firms. Toyota lends suppliers personnel to deal with workload
surges, and it transfers senior managers not in line for top positions at Toyota to senior positions in
supplier firms.

Adoption of TPS throughout the Supply Chain


 Toyota extends its practice of just-in-time manufacturing principles to its suppliers.=> decreases
overproduction, stock on hand, and work in process => reduce cost in process
 Production schedules are (when to produce and how much to produce, when to order and how much to
order) pulled through the entire supply chain eliminating coordination issues.
 Toyota pressures suppliers to share information (vertically and horizontally) so that muda is reduced
throughout the supply chain in order to lower cost =>suppliers are able to improve their manufacturing
techniques by learning from each other.
 Toyota is able to add value to every member of its supply chain.

❖ CUSTOMER CENTRIC

Customer centric: Putting the customer first and letting everything else follow.

President Akio Toyoda emphasized the importance of putting the customer first, leading to a shift in focus
within the service parts logistics area from a cost-based supply chain to a customer-centric one. This transition
involved engaging extensively with dealers, including meetings, surveys, and firsthand learning to understand
their needs.

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Key customer needs: Dealers emphasized the importance of timely delivery and accurate parts, leading to
initiatives such as extended cutoff times, expanded facility hours, and same-day service in select markets.

Cut-off time (closing time) is the latest time a container may be delivered to a terminal for loading to a
scheduled barge, vessel, train, or truck.

*** Explanation: Initially, Toyota would not accept deliveries after 4:00 P.M., but then Toyota decided to
extend the cutoff time and accept orders after 4:00 P.M. (because after 4:00 P.M. the demand for orders is still
high). Therefore, Toyota's cutoff time is long, so customers can expand order time but still have parts/
components delivered at 7 am the next morning.

Action: The organization introduced a visual decision-making tool called the "Priority Wheel," emphasizing
customer needs as the central focus for all decisions. Behavioral tenets such as humanizing interactions,
encouraging innovation, promoting visual workplace practices, and fostering quick decision-making were also
emphasized to align with the customer-first approach.

Same-day service (SDS):

SDS Dealer Pick Up refers to a service offered by certain businesses or dealerships where they will pick up an
item or vehicle from your location on the same day that you request the service.

SDS Remote Drop refers to a service where you can drop off an item or vehicle at a specified location, often a
designated drop-off point or service center, and have the service completed on the same day without having to
physically wait at the location.

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Looking ahead, the organization is exploring advancements in technology, such as e-commerce integration,
automation, 3D printing, and real-time diagnostics, to further enhance customer experience.

→ Conclusion: Outgrown Ford and GM and successful in the US market (SỐ LIỆU)

The top four automotive manufacturers posted close sales numbers in 2004 with Toyota trailing only General
Motors, Ford, and DaimlerChrysler in sales. However, Toyota experienced substantial one year sales growth in
comparison with its main competitors. In regards to efficiency, Toyota was able to produce similar sales
numbers with a significantly less amount of employees.

In respect to profit margins, Toyota is outpacing almost everyone in the automotive industry. This makes
Toyota the exception in the automotive industry when it comes to making a real return on its capital. Since
2000, the output of the global industry has risen by about 3 million vehicles to some 60 million. Of that
increase, half came from Toyota alone.

Toyota’s financial highlights for 2004:


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 Vehicle sales: up 9.9%, to 6.71 million (an all-time high)
 Vehicle production: up 11.3%, to 6.51 million (an all-time high)
 Net revenues: up 11.6%, to ¥17.29 trillion (an all-time high)
 Operating income: up 31.1%, to ¥1.66 trillion (an all-time high)
 Net income: up 54.8%, to ¥1.16 trillion (an all-time high)
 ROE: up from 10.4% to 15.2%
 Net income per share: up 62.3%, to ¥342.90
 Annual cash dividends per share: up ¥9.00, to ¥45.00
 Shareholders’ equity: up 14.9%, to ¥8.17 trillion
 Total assets: up 9.4%, to ¥22.04 trillion

Toyota profit margin compare with other competitors

Toyota operates in more than 60 manufacturing facilities in 26 countries throughout the world. Toyota’s
operations are sectioned into 4 channels: Japanese region, North America region, European region, and Other
regions. The most profitable region is its domestic market of Japan followed by the North American region.

3. Game:

Toyota Crisis - Solution

Crisis

Aisin Seiki Co., Ltd. is a Japanese corporation in the automotive industry which deals in development and
producing the automobile systems and components. It was established on August 31, 1965. Its Head Office is
located in Aichi, Japan.

During 1990’s, Toyota was largely depended upon AISIN Seiki for its proportioning valves; also known as P-
valves, used in Toyota vehicles for break-related part.

On February 1, 1997, a fire erupted at one of the AISIN Kariya plant number 1. This leads to a halt in Toyota
Group operations for couple of weeks. Both Toyota and AISIN Seiki were dedicated towards the principles of
just-in-time production, which allowed both of them to have a stock of two or maximum three days available. A
Toyota plant at that time was in full capacity which had a lot of temporary workers. Everyday lost was
potentially huge in financial losses in sales and profits for Toyota.

P-valves control the pressure on rear brakes which helps in preventing skidding. It was no bigger than a pack of
cigarettes. It was produced in mass quantity using the dedicated transfer lines, which helps in lowering down

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the costs and resulting in higher productivity and reliability. AISIN Seiki was the only sole supplier at that time
in Japan of such a part.

Toyota on February 3, 1997, suddenly found itself in deep trouble. It forced, Toyota shut-down its 20 lines out
of 30 lines. February 4 and February 5, both days the Toyota plants and its related firms were shut down.

By February 6, all Toyota plants were back to normal. But the number of P-valves produced by AISIN Seiki
was less than 10% as compared to actual demand. Although it gradually increased, but it took more than a
month to reach 60% by March 14 and 100% by the end of March.

BRIEF: Aisin Seiki, a Japanese automotive supplier, relied heavily on just-in-time production in the 1990s.
This system, where parts arrive just before they are needed, left little to no buffer when a fire struck their P-
valve (brake component) factory in 1997. As the sole supplier, this forced Toyota, their main customer, to shut
down production lines for several days, causing significant financial losses.

While Aisin Seiki quickly ramped up production, it took over a month to fully recover from the fire,
demonstrating the vulnerability of just-in-time systems when faced with disruptions.

Solution

1. Just-in-Time (JIT) Inventory Management:

 Minimize inventory holding by ordering components only when needed for production.
 Requires close collaboration with suppliers to ensure on-time deliveries.

2. Kanban System:

 Visual system used to signal production and material needs based on actual demand.
 Prevents overproduction and ensures smooth flow of materials.

3. Supplier Partnerships:

 More than 200 companies participated in the collaboration for impromptu supplies of machined castings,
and approximately 62 of these firms directly produced P-valves. Collaborative problem-solving and
continuous improvement efforts.
 Long-term relationships established with key suppliers.
 Supplier development programs to enhance capabilities.

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4. Lean Manufacturing

 Eliminates waste in all aspects of the production process, including transportation, waiting,
overproduction, defects, and overprocessing.
 Focuses on maximizing value for the customer.

5. Poka-Yoke (Mistake-Proofing):

 Implement systems and procedures to prevent errors and defects.


 Promotes quality control and reduces waste.

Results:

 Reduced lead times: Toyota boasts one of the fastest production cycles in the industry.
 Improved inventory management: Lower inventory holding costs and increased space efficiency.
 Enhanced quality: High product quality consistently maintained.
 Strong supplier relationships: Collaboration fosters innovation and cost reduction.
 Increased efficiency: Waste minimized throughout the supply chain.

The Aisin fire case illustrates how people and partners are the key elements of the TPS. The TPS is not just a set
of tools and techniques, but a culture and philosophy that fosters teamwork, trust, and continuous improvement.
The people involved in the TPS are empowered to make decisions, solve problems, and learn from mistakes.
The partners involved in the TPS are treated as long-term collaborators, not short-term contractors. They share
information, risks, and rewards. Together, they form a network of mutual support and cooperation that can
overcome any challenge.

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