Research Paper on "Purchasing and Supply Chain Management"

Research Paper 15 pages (4453 words) Sources: 10

[EXCERPT] . . . .

Toyota Production System

Defining the Toyota Production System

How the Toyota Production System Plans and Manage Spare Parts Production

Assessment of the Current Economic Conditions and Toyota's Position

Toyota Motor Corp. Income Statement Analysis (2005 -- 2009)

Toyota Motor Corp. Ratio Analysis (2003 -- 2009)

Toyota Production System

The Toyota Production System (TPS) is a globally-based supply chain planning, management and forecasting system that seeks to nurture and actively promote shared knowledge between suppliers and Toyota. There are many highly differentiated aspects to the TPS, with the active support and continual promoting of collaboration between suppliers being one of the most significant, given how highly competitive and price-focused the auto industry is (Shook, 2009). Toyota firmly believes however that in creating their TPS so that it allows for intra-supplier collaboration that a learning ecosystem begins to develop that significantly increases collaboration, increases accuracy, and reduces risk (Dyer, Nobeoka, 2000). After a study of the TPS and analysis of its impact on supplier integration to the Toyota supply chain Dyer & Nobeoka (2000) concluded that the level of inter-supplier collaboration in fact significantly increases trust and as a result, transaction velocity and shared ownership. The TPS has both been described as a series of supply chain processes and also as a philosophy of how to manage suppliers to obtain consistently optimal results (Shook, 2009). The intent of this analysis is to evaluate the TPS from the standpoint of Toyota manages its end-to-end supply chain and how the company relies on this system for planning and ordering car parts as well. The recent financial difficulties Toyota has had will also be discussed, as they are related to how middle management in Toyota's factories have over time grown in arrogance and neglected to rely on the TPS for insight into how they could continually improve.

Defining the Toyota Production System

The origins of the TPS are in lean manufacturing principles specifically designed to alleviate waste in the supply chain, sourcing, procurement and manufacturing processes. Toyota had studied the American approaches to mass production and deemed them to be ineffective in managing the high variability of demand and product variations necessary to compete in the Japanese market (Hassler, 2008). Despite the economies of scale inherent in the mass production methods of General Motors, Ford and other American manufacturers, Toyota faced the challenge of how to cut costs while also manufacturing small numbers of many different configurations of cars (Kotani, Ito, Ohno, 2004). Toyota therefore set the strategic objective of producing many models is small quantities, which would give Japanese consumers the option of purchasing cars that reflected their preferences (Kotani, Ito, Ohno, 2004).

To accomplish these strategic initiatives, Toyota realized that there would need to be new product plans, forecasts, and sales results shared throughout the entire supply chain if it was to be as synchronized as possible (Dyer, Nobeoka, 2000). The TPS is specifically designed to reduce and eliminate seven different types of manufacturing waste from the sourcing, supply chain, manufacturing and fulfillment processes. These seven areas of waste include overproduction, inappropriate or inaccurate processing, waiting or lost time, transportation inefficiencies, motion inefficiencies, inventory, defects, and underutilization of employees (Kotani, Ito, Ohno, 2004). Taking into account high variability of production planning by deliberately looking to design these seven areas of waste out of the systemic processes and tasks required the TPS to be inordinately more focused on inter-supplier collaboration (Alukal, 2007). Toyota reasoned that to manage a very high level of variability in product demand there would need to be correspondingly high levels of suppler synchronization and communication throughout its supply chains globally (Dyer, Hatch, 2004). The TPS was specifically designed to drive variability out of supply chain, manufacturing and fulfillment processes through the use of knowledge, so much so that the TPS over time became a learning ecosystem (Dyer, Nobeoka, 2000). As the benefits of the TPS as a learning ecosystem became clear, the TPS started to be defined both from a technique or strategy as well as a philosophy. The implications of these two definitions are shown in Figure 1.

Figure 1: Definitions of the Toyota Production System

Sources: (Based on analysis of (Dyer, Nobeoka, 2000;

(Black, 2007;

(Kotani, Ito, Ohno, 2004)

The TPS has matured from philosophy to strategy with the goal being the elimination of all possible waste from supply chain, manufacturing and logistics processes. With the goal being the elimination of waste, two pillars of the Toyota Production System House of Quality, shown in Figure 2 are Just in Time Inventory and its related processes balanced by Jidoka or built-in quality. Just-in-Time and Jidoka are balanced by the foundation of Operational Stability which includes standardized work processes, supplier integration and involvement, preventative maintenance and a passionate pursuit of the 5S of quality. Toyota has practically made a religion out of the 5S of quality which include sort, set in order, shine, standardize, and sustain. It is evident when visiting Toyota Manufacturing centers that the 5S approach to managing operations permeates the organization (Kotani, Ito, Ohno, 2004). The commitment to continual quality improvement is also seen in the center of the house of quality, with Kaizen being the leading value of its structure and organization. Figure 2 illustrates the Toyota Production System House of Quality.

Figure 2: Toyota Production System House of Quality

Sources: (Based on analysis of (Dyer, Nobeoka, 2000;

(Black, 2007;

(Kotani, Ito, Ohno, 2004)

Just-in-Time (JIT) is defined as having the right goods at the right quantity at the right time to satisfy demand (Kotani, Ito, Ohno, 2004). As the managers of Toyota Motor Company studied American car manufacturers they realized how much of a risk each had in the inventory carrying costs and the lack of shared risk when it came to inventory valuations (Black, 2007). The senior managers at Toyota realized that there was no way they could finance the larger parts inventories that American auto manufacturers had, and second, they did not have the space to store inventory positions of parts, components, and subassemblies. Realizing that the inventory costs and space were at a premium and that the American production model would not scale for the needs of the Japanese market, Toyota managers quickly defined assembly sequences that sought to optimize only the parts, components and subassemblies needed to complete a given car at its intended completion date. The focus then of the TPS quickly shifted to having the right part, in the right amount, at the right time (Kotani, Ito, Ohno, 2004) which became the foundational element of JIT in the Toyota Production System House of Quality. The TPS was further refined to minimize waste, unevenness of production and unreasonableness of customized orders that were unprofitable to produce (Alukal, 2007).

As a result of these lessons learned from studying American manufacturers, Toyota's Production System designers concentrated on creating lean manufacturing tools and techniques including continuous flow, production leveling, pull systems, quick changeover, takt time, and production leveling (Kotani, Ito, Ohno, 2004). All of these tools combined served to minimize the variation in product demand while increasing product quality due to variation in production processes and quality being minimized.

In conjunction with the focus on JIT the TPS was also specifically designed dot ensure designed-ion quality was attained in every Toyota car produced. Jidoka or the integration of the concept of build-in quality had been in the Toyota culture since the launch of the company. At the center of Jidoka is the concept of creating machines with intelligent features, ones that could potentially predict quality shortfalls and compensate for them, without intervention of operators or manufacturing engineers (Kotani, Ito, Ohno, 2004). This continues to be a core value of Toyota today as the philosophy of having machines intelligent enough to discern smaller or binary-level problems and solve them puts manufacturing engineering in control of the machine, rather than vice versa (Kotani, Ito, Ohno, 2004). Jidoka has been such a successful concept due to its focus on time and labor savings by having machines interpret and respond to lower-level quality problems and either halt production or make slight variations on production processes to alleviate the problem. Given the prominence in the Toyota culture, this is why Jidoka is the second pillar in the Toyota Production Systems House of Quality.

Implicit in the Toyota culture is the passionate pursuit of continual process improvement and perfection. One of Toyota's core values is that if they are not continually improving over time, they are falling behind their competitors and leaving open the potential of losing market share, customers, and long-term profitable growth (Kotani, Ito, Ohno, 2004). That is why Kaizen anchors the Toyota Production System House of Quality. For Toyota, standing still is actually falling behind competitors; that that is why the TPS must continually be focused on improvement both from a JIT and Jidoka standpoint, in addition to the foundations of operational stability as well. As a result of this mindset Kaizen within the Toyota culture is focused on teams of employees who continually update and… READ MORE

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