Toyota Supply Chain Management

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Supply-chain initiatives help Toyota increase US niarket share and sales
By William Hoffman
ecades-old, supply-chain initiatives and supplier policies are at least partly responsible for helping Toyota Motor weather the storm hitting the U.S. automotive industry. While General Motors and Ford are laying off employees, closing plants and hemorrhaging sales, Toyota is picking up market share, jumping'ahead of Chrysler Group this year to become the third-largest automotive company in the U.S. in terms of sales. Its sales last month rose 13.6 percent, giving it a 15.6 percent share ofthe U.S. market, compared with 15.1 percent last year. Toyota executives in North America said they are more sure-footed about reengineering their logistics processes because of partnership policies established by the company's founders decades ago. ."Just-in-time is part of Toyota's DNA," said Steve Hagan, assistant manager, logistics, at Toyota Motor Engineering and Manufacturing N.A., the Japanese company's North American manufacturing unit. The Toyota Production System, pioneered by the company's founder, his son and an engineer in the 1950s, sought to minimize production defects, transportation, inventory and other sources of waste in a continuous process that would eventually • become known more generically as lean manufacturing. Toy9ta's success has long been the stuff of business school legend. Now approaching 2 million vehicles produced at M plants, the North American manufacturing division,'called TEMA, has a $600 million annual parts logistics budget. The division manages 750 suppliers in the U.S., Canada and Mexico and organizes 2,000 runs totaling 835,000 miles a day of transportation to and from plants. Yet the manufacturer maintains '

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only four core truck carriers and two • core consolidation partners. Toyota manages "not just the trailer efficiency but we look at the skid efficiency," look at the box efficiency," said Kevin Thornberry, TEMA assistant manager, logistics. "We've got a lot of precision'in our process."

"If you treat logistics and production as two. different things, it's not going to w.ork.^'
— Steve Hagen, Toyota >
It wasn't always so. Hagan said until around 1999, each of Toyota's North American manufacturing plants rnaintained their own logistics systems. Steering columns were produced in Canada and shipped to assembly plants in the U:S. South. Low-frequency deliveries with unpredictable fiow resulted in high in-house inventories. The system required many high-mileage transportation routes, and multiple deliveries within a single production plant. The problem, Hagan said, was, "if ^ you treat logistics and production as two different things, it's not going to work." Starting in 1999, Toyota decided its U.S. operations had to work by the same Toyota Production System enforced in Japan and elsewhere. That means one continuous production flow and a goal of reducing warehouse dwell time to zero, Hagan said. All individual departments had to be integrated to assure supply chain disruptions were caught and fixed promptly. Integration reached back all the way from transportation to parts design; Hagan recalled reducing the size

of a part for Toyota's Tacoma truck line by 1 millimeter and saving the company a few million dollars. Integration also reached out to suppliers, said Matt Greene, TEMA assistant manager, purchasing. "We very much lay out our expectations for our suppliers," Greene said. Toyota uses open-ended supplier contracts; as long as the supplier is cost and quality competitive and attentive to customer service, their contract stands. Greene estimates he spends 40 percent of his time with suppliers inspecting operations, seeking improvements and building relations. "You can't solve a problem if you haven't been there," GreCne said. Suppliers are often invited to Toyota's Georgetown, Ky., production center for training. Toyota delivers annual cost, quality of service, management and operational targets to each supplier and reviews • them quarterly. ' ' • "By no means do we think that we are perfect," Greene said. "We know that we need to get better and the best way to get.better is to go out and see others, because somebody else is doing something better than us." Not every supplier will support collaboration that may see its client demand they sacrifice short-term profit for longer-term success, and Greene said Toyota sometimes does. "Toyota as a company, part of our culture, very much values relationships with the suppliers," Greene said. "Because of that Toyota culture it has developed into us having a very small, tight supply base. Frankly speaking, as we grow here in North America, I feel we may need to expand our supply base some. But one of the struggle points that we have is (that) companies coming from the outside do not know how we operate and cannot be • competitive in our environment." ^

NOVEMBER 13, 2006 Shipping Digest 15

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