SUPPLY CHAIN MANAGEMENT

To begin I should define a core competency as this is related with the Supply Chain in my review, so first, what is a core competency? According to Fitzsimmons (2012), core competency is something that the company does so well that it provides the company a competitive advantage. Core competency gives the company hard-to-imitate advantage. One of the Toyota's core competencies is their production system which is known as Toyota Production System (TPS). This is consists of Lean manufacturing and Just-In-Time (JIT) Production. Lean Manufacturing is the production practice in which it is focusing on the elimination of waste and continuous improvement over long-term. Lean Manufacturing has been proven to be successful in improving productivity and reducing cycle times. On the other hand, Just-In-Time production is the production practice in which it is focusing on synchronizing the material flow so that when one item moves out from a work station, another item is ready to move in. It allows Toyota to keep their inventory to the minimal levels and this can help the company to reduce the cost significantly. Toyota Production System has enable Toyota to gain competitive advantage over their competitors. Many companies viewed Toyota and argued that many of those companies which have studied Toyota Production System for decades and try to imitate their production system but not many companies have not been proven to be successful in imitating their production system. It requires long-term commitment, determination and discipline to make all the process work. Furthermore, another Toyota's core competency is their brand management. Toyota has been successful in their marketing strategy in which their brand has been recognized in all over the world. Toyota has outsourced 70% of its vehicle content. It means Toyota did not manufacture many of their auto parts; they just focus on assembling those parts to build cars. In fact, those suppliers also provide their auto

parts to the other companies, not only to Toyota. Therefore, it is obvious that Toyota is actually selling their brand name on their cars. Nowadays, customers are expecting highest possible quality products with lowest possible costs. This gives pressure to the company to continuously improve and innovate. Failure to innovate will lead to the loss of market share to their competitors. Innovation manufacturing has been introduced by Toyota through its Toyota Production System (TPS). This is helpful for the improvement of the company system-wide process by linking the focal company, suppliers and customers in order to improve the quality and at the same time reducing costs. However, in order to survive in the future competition, Toyota should be able to exploit its core competencies. Network orientation which is part of the Lean Manufacturing principles can be exploited in the future through Early Supplier Involvement (ESI). For the company like Toyota in which they rely on few suppliers, getting the suppliers involved early is critical. Recent Toyota recall case occurred because of the poor communication between the Toyota and its suppliers. The gas pedal provided by CTS Corporation has been proven to be the primary factor leading to the recall issue. This is because CTS Corporation are only given a specification regarding the design of pedal by Toyota without getting CTS Corporation to be involved early in the development process. In the future, Toyota needs to get their supplier to be involved early to avoid the mistakes. Moreover, Toyota recall issue has tarnished Toyota image as the high quality auto-maker. In this case, brand management as one of the Toyota's core competencies must be exploited so that Toyota's image can be repositioned in the customer's mind. Toyota can use marketing strategy such as repositioning strategy to reposition itself as an innovative and user-friendly auto-maker rather than high quality auto-

maker. Keep in mind though, Toyota has overcome this negative view by American and worldwide consumers and has streamlined its supply chain by integrating more building of vehicle parts within the United States. Toyota is facing fierce competition in the automotive industry. Competition is increasing with new entrants are trying to enter the automotive industry. This new entrants can be automotive company from Europe, China and South Korea. Direct competitors of Toyota are Honda, General Motors, and Fords. Besides that, Hyundai has become serious threat for Toyota as well. According to Can anything stop Toyota (2011), Hyundai's vehicles cost less than Toyota while it has more power compared to Toyota's vehicles. In the luxury market segment, Toyota's Lexus lost to BMW in terms of sales (Business Week 2009). Technology innovation has become major force in the industry. This requires those automotive companies including Toyota to catch up with their competitors or otherwise, they will lose their market shares. Recently, the raising price of fuel and pollution has become a major concern. Therefore, the latest trend in the automotive industry is producing hybrid cars which are environmentally friendly, uses more electronic power and less fuel. Toyota has successfully taken advantage of this changing environment through positioning itself as an innovator by introducing its first hybrid car, Toyota Prius in 1997 (Hybrid Cars 2010). So far, the others competitors such as General Motors, Daimler-Chrysler, and Ford are in the process of introducing new hybrid cars (Hybrid Cars Guide 2010). Toyota's global supply chain strategy is to localize its supply base in which the company is developing local suppliers to minimize the supply chain costs. Instead of seeking for low-cost

production sites, Toyota wants to produce its vehicle in the places where their customers and part suppliers are. Toyota has located its assembly plants in 28 countries. Toyota's assembly plant in Japan are used to manufacture multiple model and more flexible than other plants because other plants especially North American plants are used to manufacture single model. Around 26 out of 52 of its assembly plants are located in North America. There are several reasons for Toyota to locate many of its assembly plants in North America. One of the reasons is because it has abundant, hard-working as well as high quality work force. Besides that, it has modern infrastructure and close proximity to Toyota's largest market which is North America. The total sales for the North American region in 2009 is around 8.7 trillion. By locating its plants in North America, Toyota also have access to its suppliers. Many of the Toyota's suppliers are located in North America including CTS, Delphi and Bosch. Around 20 billion per annum has been spent by Toyota for its North American parts suppliers. Moreover, Toyota is relying on sole suppliers for certain components. Toyota's gas pedal is one of the components that is outsourced to sole supplier which is CTS Corporation. CTS Corporation is located in North America. Therefore, through its assembly plants in North America, it made it possible for Toyota to support its Just-In-Time production process and optimization of its materials. There are advantages and disadvantages of Toyota's supply chain strategy. Toyota Production System (TPS) which is including Lean Manufacturing and Just-In-Time production allows Toyota to reduce cost, improve quality as well as productivity. However, there are some disadvantages from the system. Inventory is kept on minimum level. Therefore, when there is a problem occurred in its supplier side such as quality issues, Toyota need to shut down its assembly lines. Besides that, Toyota has gained economies of scale by relying on single

suppliers to produce entire range across multiple markets. Toyota's lean manufacturing makes Toyota depends heavily on sole suppliers. In the Toyota recall case, quality error in its auto parts has cost the company around 2 billion. Furthermore, Toyota's strategy in localizing its supply base has led to the shorter supply chain which enables Toyota to keep its supply chain costs down. Economic and strategic factors such as transportation costs, energy costs and labor costs are more likely to be unpredictable in the longer supply chain. Fitzsimmons argued that unpredictability always implies risks. Fluctuation of exchange rates also can have a huge impact on the company. Therefore, Toyota is trying to purchase its auto parts locally as many as possible to reduce the risks. However, this makes Toyota become dependent on its suppliers outside Japan since its largest market is in North America and majority of its suppliers are located in North America.

References Fitzsimmons and Fitzsimmons, 2012, Operations Management: Morris Graduate School of Management, Robert Morris University. Business Week 2009, Can Anything Stop Toyota, Retrieved 5 September 2012 http://www.businessweek.com. http://library.robertmorris.edu:2124/ehost/detail?vid=7&hid=123&sid=a1c57804-aee54347-a839861562bd07b5%40sessionmgr115&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bsh&A N=11331467 Integrating the Supply Chain, (1999), Retrieved from http://library.robertmorris.edu:2130/pdf14_16/pdf/1999/1ou/01sep99/2722800.pdf?T=P& P=AN&K=2722800&S=R&D=bsh&EbscoContent=dGJyMMvl7ESep6440dvuOLCmr0qep7ZSsKa 4SLaWxWXS&ContentCustomer=dGJyMPGttVGur7BPuePfgeyx44Dt6fIA Industry Week, Supply Chain and Logistics, (2011), Retrieved 5 September 2012 http://library.robertmorris.edu:2124/ehost/pdfviewer/pdfviewer?vid=9&hid=123&sid=a1c5 7804-aee5-4347-a839-861562bd07b5%40sessionmgr115 Hybrid Cars 2010, History of Hybrid Vehicles, viewed 7 September 2012, http://www.hybridcars.com/history/history-of-hybrid-vehicles.html

Hybrid Cars Guide 2010, Impact of Hybrid Cars on The Automotive Industry, viewed 5 September 2012, http://www.hybrid-cars-guide.com/impact-of-hybrid-cars-on-theautomotive-industry.html