Toyota and Volkswagen supply chain management

Abstract:

This assignment gives the overview of the Toyota and Volkswagen. It also explains about their supply chain relationship of those manufacturers. It also gives the advantages and disadvantages of those companies. I have also compared the strategies of Toyota and Volkswagen. I have collected some details regarding the future scope and threats for both the manufacturers. I have given some general statistics of both the companies. Then I have given some future strategies of those concerns.

Definitions:

Supply chain: Supply chain encompasses all activities associated with the flow and transformation of goods from the raw materials stage (extraction) through to the end user all well as the associated information flows.

Material and information flow both up and down the supply chain.

Supply chain management: supply chain is the integration of these activities through improved supply chain relationships, to achieve a sustainable competitive advantage.

INTRODUCTION:

In this modern world automotive sector is a rapidly growing sector in various aspects. The automotive manufacturers are developing new products according to the latest trends.

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Meanwhile the competition in this field is also increasing to a great extent. To sustain in this day-by-day increasing competition, the automotive manufacturers all over the world are in a position to update their product according to the modern trend and to make products by reading the mindset of the customers to stay and develop in the market. Other than these two main aspects they are in a position to concentrate on their product quality, reduction in lead-time and they should be in a position to supply their products at a competitive price.

The above seen aspects should be achieved during the design and the production stage of the product. It is impossible for a company to make this happen unless they receive the quality product in right time at the right price from their suppliers because these automotive manufacturers greatly rely upon the suppliers for nearly 80% of their components. So the performance of the supplier reflects on the performance of the manufacturer. So the manufacturers should concentrate on whole supply chain to develop their product rather concentrating only on their company. This is possible only when the manufacturer and the supplier works together to solve their problems and evolve a cost effective and quality product in right time. The above-mentioned out put is possible only when the relationship between the supplier and the manufacturer is healthy. This healthy relationship leads to the competitiveness in the market for the manufacturers.

In this modern automotive trend the manufacturers work a lot to develop their product by developing their existing supply base and by developing the new supply bases. To make this happen different companies work out different strategies. Volkswagen and Toyota are two leading competitors in the globe today. Volkswagen is Mexican company and Toyota is Japanese company, both the concerns use different methodology to increase their competitive advantage but both the companies concentrate mainly in improving the existing suppliers capability and performance.

In this assignment we are going to see the difference in approach of both manufacturers and the comparison between their approaches. For simplicity we are dividing the approaches as western approach (Volkswagen) and Japanese approach (Toyota). We are going to see the success and failures of these companies by adopting their strategies. We are going to see the future trends in general for the future automotive manufacturers development.

OVERVIEW OF TOYOTA MOTOR CORPORATION:

Toyota Motor Corporation develops and manufactures vehicles, and is one of the largest car manufacturers in the world offering a wide range of products from mini vehicles to trucks. In addition to its core business, Toyota has a large business portfolio in financial services, including sales finance, vehicle insurance, and credit cards. It is also involved in telecommunications through a subsidiary that provides cellular services in Japan. Other diversified businesses include industrial equipment, prefabricated housing, and leisure boats.

The company is headquartered in Aichi, Japan.

For the fiscal year ended March 2004 the Toyota Motor Corporation achieved revenues that totalled Y17, 294.7 billion ($159.4 billion), an increase of 11.6% against the previous years revenues that were Y15, 501.6 billion. The company experienced significant increases of 11.6% and 1.6% in its Automotive and Financial Services division respectively.

TOYOTA AND ITS SUPPLY BASE DEVELOPMENT:

Toyota is committed in developing its supplier base, which more closely reflects the diversity of its customers and the diversity of its team members who build Toyota vehicles. Having a diverse supplier base enables it to contribute to the economic well being of all its segments. Also, it recognize that partnering with suppliers who provide a diversity of ideas in addition to delivering manufacturing support, goods and services that creates a significant competitive advantage for Toyota.

Toyota & its partnership development program with its suppliers:

One of the most successful Partnership programs was developed by Toyota. Toyota is world renown for its Toyota Production System (TPS) that emphasizes empowered "shop floor" workers who utilize basic problem analysis methodology to continuously improve manufacturing processes through employee suggestions or proposals.

During the year 1992 Toyota started a supplier support centre in its North American manufacturing plant, its main motive was to help its supplier to solve its difficulties in production and supply and to encourage its supplier base to adapt TPS principles to achieve the goals. Its main idea was to offer its suppliers the benefits possible by focusing on internal logistics. Since the operation's start-up in 1992, Toyota supplier support centre's crew of consultants has worked with 88 companies. Participants outside Toyota's supplier circle include companies with products as varied as toys, home kitchenware and premium leather goods.

The Toyota Supplier Support Centre is a good example of the benefits of establishing an internal supplier partnership program. These internal partnerships or departments provide a forum for manufacturers to influence and advance improvements in its supply chain in a way that builds trust and good relationships.

Toyota's belief in leadership,

Toyota believed Partnership staff must provide strong leadership concerning governance and maintaining a mission focus that continues to address the needs of both suppliers and manufacturers.

Toyota's education program to its suppliers,

A major purpose of supplier Partnerships is to expand the knowledge and capabilities of supplier membership. Formalized education programs allow the chain to work smarter as an integrated supply chain in which members learn common improvement techniques together at the same time to ensure their successful implementation is critical. The Toyota Supplier Support Centre's introduction of the Toyota Production System is an excellent example of a formalized education program can form the base of a common improvement process that benefits the entire supply chain.

Toyota's supplier base management team,

The management team concentrates on three main factors they are,

# Managing the supply chain.

# Improving the relationship.

# Sharing of knowledge.

Toyota's supplier base management team manages the activities that monitor tasks, programs and processes that are taking place in the supply base to keep important programs on track. It also insists the suppliers to be aware of these activities. It takes care in sharing of new knowledge so that common practices can be institutionalised within the Partnership supply chain.

In addition to that Partnership goals and objectives are decided and measured by the supplier base management of Toyota.

Toyota believes that the creation of both private and public Supplier Partnerships can benefit Toyota and suppliers by building a responsive supplier base that can compete in the global market place. Apart from this the management team concentrates on managing and developing the new supply base.

The general Advantages, disadvantages, future scope and threats for Toyota is discussed below:

ADVANTAGES OF TOYOTA:

Vast size/ resources:

Toyota Motor Company is an instantly recognizable global brand with operations in many countries worldwide. It is one of the largest car manufacturers in the world along with General Motors and Ford, and enjoys all of the benefits that come with size, such as economies of scale and risk of failure being spread over several product and geographical markets. Economies of scale allow dramatic reductions in operating costs as well as specialized staff knowledge.

Diverse brand:

Toyota's brand portfolio contains a wide range of successful names. Under the Toyota brand it has leading passenger car brands such as Corolla. Its luxury brand make, Lexus, has also seen significant growth over the past few years. These brands create mass revenues for the company and are a real strength.

Japan's largest car manufacturer:

Toyota is currently the largest automotive manufacturer in Japan and is therefore a highly recognized company within a lucrative market. This strong brand and its differentiation puts up barriers to entry hindering other companies, even established US companies, from making any real growth in market share in Japan. A strong contribution from a company's domestic market usually means for better strength and certainty for the future.

Production engineering innovation:

Toyota currently has one of the most hi-tech product engineering divisions at its disposal. V-comm is a recent development used in the aid of manufacturing. The great advantage of V-Comm is that Toyota can easily foresee and iron out a whole range of possible problems before it starts up a new production line on-site. The system significantly enhances product quality and production efficiency by enabling the company to simulate many different scenarios, such as the contact and position of parts, assembly procedures for line personnel, and the finished product.

DISADVANTAGES OF TOYOTA:

US market reliance:

Outside of its domestic market, Toyota seemingly relies on the US market for the most of its sales (32.4% in fiscal 2003). This reliance puts Toyota in a relatively weak position, being vulnerable should shifts within the US market occur, or economic/ political fluctuations occur. Relative market shares in Europe and Asia (outside Japan) are very low. The dependence on one or two markets can be a weakness for a global company.

Foreign exchange rates:

Toyota is a global company operating in many countries throughout the world. The company has foreign currency exposures related to buying, selling and financing in currencies other than the local currencies in which it operates. Toyota is exposed to foreign currency risk related to future earnings or assets and liabilities that are exposed due to operating cash flows and various financial instruments that are denominated in foreign currencies. Toyota's most significant foreign currency exposures relate to the United States and Western European countries. Fluctuations within these currencies can be a great threat to earnings and revenues.

Operational weakness:

Toyota, like all car manufacturers experiences high levels of capital expenditure, which is required if the company aims to continue its market growth through the introduction of new product lines and the opening of new production facilities. If the automotive industry was on the verge of an upturn and guaranteed increases in capacity were required and increases sales were likely then such capital expenditure would not pose such potential risks. The development of new products though is extremely costly within the industry and the high levels of capital expenditure may be difficult to maintain in the short to medium term as price competition becomes more severe.

FUTURE DEVELOPMENT OPPURTUNITIES FOR TOYOTA:

Russian market growth:

As the Russian market continually looks away from the old Stewart Lada image opportunities grow. Toyota entered the Russian market in 1998 and has seen good steady growth. Russia currently has unprecedented economic and political stability, which will allow for continual growth of the market. By producing its models in Russia,

Toyota will significantly lower logistics costs. A new manufacturing plant would also provide an eastern European base for the company and help to raise its profile in the region

Cost reduction strategies:

Over the past year Toyota has been formulating new strategies for cost reduction.

Toyota is continuing to pursue manufacturing innovations aimed at achieving cost reductions on an extremely large scale. To be successful, these types of programs require relentless hard work behind the scenes. Toyota developed the CCC21 scheme, which challenged it to achieve world-class cost competitiveness for about 170 major components that account for more than 90% of its overall parts purchasing costs. Cost reduction on this scale would allow Toyota to become more competitive and be more flexible for future shifts in market trends.

Further Globalization prospects:

Toyota has plans for further globalization, expanding its manufacturing facilities as well as non-core business interests. There are a number of opportunities for further vehicle penetration globally. For instance, the US light truck market has not fully matured, and there is still room for growth and further sales. There is also a market for more diesel-powered offerings in Europe. The Chinese passenger car market also has much growth opportunity within it. This should be seen as an attractive opportunity for a company such as Toyota.

Active R&D/ technology advances:

Toyota is a very active researcher and developer of new technologies within the automotive industry. The company already makes a hybrid-powered (gas and electric) sedan, the Prius, which is already being snapped up in US and European markets.

Being a leader in technology is extremely important in industries such as this as consumers are always looking for the latest technology, allowing the company to stay competitive. This presents many opportunities for new niche and high technology markets to enable growth in markets such as Europe.

THREATS FOR TOYOTA:

Strong competition:

The global automotive market is extremely competitive. Many large businesses operate on a worldwide scale. Competitors are constantly trying to find new technologies and markets to increase global market share. Recent years have seen globalization and consolidation strategies increasingly used competitors resulting in more intense levels of competition. Competition has also intensified in the race to build low pollution cars and the first to successfully get these vehicles on the roads will gain a significant advantage in the competition.

Regulation change:

The automotive industry is always seeing new legislation appearing on matters such as safety and the environment. For example legislation on 'end of life' of vehicles changed the practices of many car manufacturers in 2002 and 2003 regarding materials used in car manufacture and other factors. New legislation often means new research and development costs for companies as well as supply chain changes.

OVERVIEW OF VOLKSWAGEN:

Volkswagen is Europe's largest car manufacturer, providing a wide variety of vehicles.

The company produces passenger and commercial vehicles. For the fiscal year ended December 2002, the company generated revenues of E86, 948 million. Volkswagen produces passenger vehicles under the Volkswagen and Audi brand groups. The classic Volkswagen brand group comprises Volkswagen passenger cars, Skoda Auto, Bentley and Bugatti while the sporty Audi brand group comprises Audi, Seat and Lamborghini brands. Volkswagen Group produces around five million vehicles a year with the Volkswagen brand accounting for around three million sales.

It is headquartered in Wolfsburg, Germany. For the fiscal year 2002, Volkswagen's revenues totaled E 86.9 billion, a drop of 1.8% from the previous year. The fall in revenues was due to the decline in unit sales of automobiles in the year resulting from poor demand. The company's Financial

Services Division also witnessed a decline in revenues despite its international expansion initiatives. The company's cost of sales declined by 1.8% as a result of lower volumes and also due to the implementation of cost cutting measures. The growth in operating lease business improved the gross margins to 14.7% compared to 14.6% in 2001. Volkswagen's cash and cash equivalents totaled E 3 billion in 2002. Financial investments were lower in the year, decreasing by 5.7% to E 10.5 billion, as a result of lower capital contributions to subsidiaries.