University of Wollongong IACT422 Case Studies in I.T. Name Student Email Joseph Baez 2387256 [email protected]Nurhazman Abdul Aziz 2666182 [email protected]Tee Young Chew 2524272 [email protected]Hoh Whay Loh 2400431 [email protected]Cong Xue 2809217 [email protected]Course Coordinator: Dr. Aditya K. Ghose Tutorial: Wed 9:30am to 11:30am Document: Group Case Study Date Submitted: 19th August 2005
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16194857 Case Studies in Information Technology Toyota Motor Corporation of Australias TMCA Supply Chain
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The purpose of this case study is to analyse Toyota Motor Corporation of Australia’s
(TMCA) supply chain. It also focuses on how Information Technology (IT) is currently
being utilized to support its operations.
The history of Toyota since its introduction into Australia is covered in detail, followed
by a thorough description of the organisation’s current business and its context. Within
the case detail description the supply network is also analysed. These details include the
description of the upstream and downstream entities, and how procurement and selling
arrangements are done within the organisation. Material and financial flows, logistics and
shipping arrangements are also reviewed. Additionally details on the current
involvements of the organisation with any e-Marketplace are being highlighted.
Within each of the subcategories of the supply chain being discussed, each of them has
been provided with information of how IT is being utilised to support and improve legacy
supply chain operations. The strengths of the supply chain are being highlighted, while
discussing its weaknesses derived from the previous information.
In summation there is no perfect solution for any supply chain, as all legacy systems have
their own weaknesses. With the implementation of IT though, a large scale company can
come close to reaping the benefits of a solution that aims at excellence, but not
perfection.
Table of Contents
Introduction........................................................................................................................ 1 History of Toyota Australia.............................................................................................. 1 TMCA Timeline ................................................................................................................. 2 Toyota Australia’s Current Business ............................................................................. 3 Business Context ............................................................................................................. 5 The basis of Toyota Australia’s supply network .......................................................... 7
Supplier Association .................................................................................................... 7 History of Supplier Association .................................................................................. 7 Effect of “knowledge sharing network” on supply chain coordination.................. 8 Intra-Plant Vs Inter-Firm .............................................................................................. 9 Upstream and downstream entities......................................................................... 11
Internal entities ........................................................................................................... 17 IT solution for Toyota’s overall supply chain operation. ....................................... 18 IT Solution for Toyota Australia’s overall supply chain operation....................... 20 Downstream Sales Arrangements........................................................................... 22
Sales and Marketing Arrangements .................................................................... 24 Financial Management Arrangements................................................................ 24
Procurement Arrangements ..................................................................................... 26 ‘Kanban’ – Card System ....................................................................................... 26
Toyota’s Material & Financial Flow.......................................................................... 27 B2B e-Marketplaces where Toyota Australia participates ................................... 32 Logistic & Shipping Arrangement ............................................................................ 35 Backbone of IT Solutions .......................................................................................... 38
Maximizing Information Exchange ...................................................................... 38 Network Structure................................................................................................... 39 The network is the company................................................................................. 41
Significant opportunities are being presented to the Australian automotive industry. Since
Toyota’s introduction, it has continued to make remarkable impacts on the Australian
marketplace. In spite of the size and complexity of the organisation, every minute detail
is transparent across the entire supply chain process. In being able to see these details,
errors become apparent which cause losses in productivity and efficiency, from the early
manufacturing stages right through to end customer satisfaction.
Given these losses, it is critical to fully analyze the supply chain to cite any inherent
weaknesses. What also needs to be determined is whether the implementation of
Information Technology has significantly contributed to the known strengths of the
legacy supply chain, and eliminated its inherent weaknesses.
History of Toyota Australia
Toyota Australia's origins go back to 1958 when Theiss Brothers began importing the
first Land Cruiser models for work on the Snowy Mountains Hydro-electric scheme.
Assembly of Toyota cars began in the Melbourne factory of Australian Motor Industries
(later AMI-Toyota) in 1963 and within a decade the Corolla and Corona (replaced by
Camry in 1987) were well established in the market1.
The commercial vehicle business became Theiss Toyota in 1971 and achieved
commercial leadership in 1979. Meantime AMI Toyota began investing in an engine and
stamping plant to consolidate its position as a high local content vehicle manufacturer.
In 1988 Toyota's local operations were unified to form Toyota Motor Corporation
Australia and work began on restructuring and strengthening the group as a major step 1 Toyota Motor Corporation Australia, (2005), ‘History’, Online, Available:
onId%253D214,00.html, Last Accessed:15 August 2005].
Page 5
• Australian industry operating environment; and
• Government policy environment.
Over the past five years, the global automotive industry has undergone a significant
restructuring in their business context. A number of automobile companies have merged
into six major production groups to benefit in terms of resource availability. The
component supply industry has also seen consolidation by the automobile makers of their
component making subsidiaries1.
In terms of the automotive investment trends, the dominant companies in the industry are
usually the Japanese, German and United States companies. Investment decisions are
usually based of increasing integrated global strategies, as these companies coordinate
brands, product portfolio and supply chains with investments in production, engineering,
R&D and design that are distributed across every continent. Moreover, a recent
development can be seen in the investment of the industry into the China market. This is
due to potentials in its infrastructure, and also to allow important access to international
market opportunities. To provide sufficient volume to vehicle and component
manufacturers and to exploit scale and scope economies though, an export market is
required. Government policy too has had changes over the past five years upon the
Australian automotive operating environment, having a significant impact in the industry1.
In summary, Toyota Australia has to consider these contexts that affect the growth of the
operation here in Australia. It is not just a part as a matter in the current business process
or the mass production, but also the business context that summaries the profitable and
growth of the company, as well as the industry. As an aside point, Toyota too has taken
the initiative to develop many innovative systems from the current Toyota Production
System to compete against other companies. With the rapid increase of globalization and
rapid technology, Toyota Australia has to be up to date with its competitors, from the raw
materials suppliers, right across to the sales of its end products.
Page 6
The basis of Toyota Australia’s supply network
Supplier Association
The key to Toyota’s success would appear to be their highly effective supplier integration
process that over the past 50 years has enabled the excellence of their internal hoshin
kanri strategic management, cross functional process based management and Toyota
Production System to be shared directly with their direct suppliers. In addition, over time,
as the supplier integration system has been taught to their suppliers the excellence in
performance was then outsourced to second and over time lower tier firms6. The primary
method to do this has been the kyoryoku kai or Supplier Association.7
History of Supplier Association
A Supplier Association may be defined as a mutually benefiting group of a company’s
most important suppliers brought together on a regular basis in order to achieve strategic
and operational alignment through the development of awareness, education and
implementation programmes designed to achieve both radical and incremental
improvements. The first Supplier Associations had their roots in the late 1930s Japan and
have from that time on been generically called kyoryoku kai (or Cooperative Association)
in Japan after the original grouping of around 20 of Toyota’s suppliers who formed such
a group in 19397.
During 1970s, the original Toyota group was widened to include tooling and capital
equipment suppliers with a fully developed multi-tier cascading Supplier Association in
place by the late 1980s involving nearly all of the key suppliers to Toyota in their 1st, 2nd
and 3rd tiers of supply. The most recent development in the 1990s has been the creation 6 Dimancescu D., P. Hines & N. Rich (1997) The Lean Enterprise: Designing & Managing Strategic
Processes for Customer Winning Performance, AMACOM, New York
7 Hines, P., Rich, N. Outsourcing Competitive Advantage. (Online)
20 BEA Systems, Inc. Whitepaper: Toyota Australia eBusiness Transformation Program.
(Online)[http://www.bea.com/content/news_events/white_papers/BEA_ToyotaAustralia_cs.pdf, Last
Accessed 15 August 2005].
21 BEA Systems, Inc. Case Study:Toyota Australia Drives Out Cost and Increase Visiblilty with BEA
Solution for Dealers. (Online)
[http://www.bea.com/content/news_events/white_papers/IDC_ToyotaAustralia_cs.pdf, Last Accessed: 15
August 2005].
Page 21
1st Tier/ 2nd Tier
Suppliers
End Customer
Dealers
Warehouse/ Parts Centers
Manufacturing Plants
International collaboration
Raw Material Suppliers
SAP/BEA
Supply Chain Collaboration with IT Solutions
Downstream Sales Arrangements
Toyota Motor Corporation of Australia’s (TMCA) downstream sales arrangements, in
particular the agreements in place with existing dealerships are done via strict selling
arrangements. No customers, corporate or otherwise, can purchase a new car, or fleet of
cars, directly from TMCA but must purchase from an authorised Toyota dealership; this
purchasing arrangement is also the same for the sale of Toyota Genuine parts.
Another downstream procurement arrangement is the method by which unavailable stock
can be obtained from other vendors. This is done via a method called ‘transfers’. For
example, when a customer wishes to buy a fleet of cars and the required number of stock
cannot be obtained in time by that dealership, they will check the amount of stock that
other dealerships have of the required product and initiate a transfer of the amount of
vehicles necessary to maintain the sale.
Page 22
Internal arrangements can be made for Toyota customers to access disintermediary
resources by allowing them to see where their requested product is located in the internal
manufacturing process. Using a login and password assigned to them by dealership staff,
they can access their confidential product information to see what country, and even the
shipment details of the product being delivered.
These sales and related financial transactions are maintained via a customised BEA
application. This enables any Australian dealership’s financial managers and accountants
to keep track of all purchases and transfers made within the TMCA internal supply chain.
Customised BEA Application
(Courtesy Toyota Financial Services Australia)
Page 23
Sales and Marketing Arrangements
Marketing arrangements such as paid agreements between the purchasing of advertising
space on radio, television and other related media is also monitored via the customised
BEA application. Orders for ongoing promotional material required for maintaining
regular and ongoing flow of customers such as signs and massive advertising banners are
tracked transparently via this application.
Sales and Marketing Functions on BEA Application
(Courtesy Toyota Financial Services Australia)
Financial Management Arrangements
Regular marketing instructions for showroom staff can be broadcasted via this same BEA
system. This covers such information as the arrangement of showroom promotional
material, changes to pricing structures that change with each promotion, as well as
Page 24
information about product recalls and what needs to be told to customers in the event of
such unforseen circumstances.
Financial arrangements between customers and dealerships can also be monitored with
BEA, such as ongoing repayment information that is unique to each client. Credit
checking and other financial assessment tools are also available from this system.
Customised payment options between clients with special needs such as corporations
who purchase fleet vehicles can be modified to suit their needs.
Financial management functions from BEA Application
(Courtesy Toyota Financial Services Australia)
To compliment the ongoing requirements of dealership sales staff, customers have access
to summarised confidential information that is relevant to their purchase. Customers have
access to a web front-end to the BEA’s data via an individual assigned login and
password. These assigned customer details allows a mutual exchange of relevant
Page 25
information for customers for the duration of their purchase as well as extended web
based information services for their duration of the ownership of their Toyota vehicle.
Procurement Arrangements
Procurement for specific upstream components not manufactured in Australia that are to
be added to a car on an Australian assembly line can only be purchased by TMCA via its
parent company Toyota Motor Corporation (TMC). Exporting and importing
arrangements of Toyota genuine parts are government regulated which is considered to
be a barrier to trade22.
‘Kanban’ – Card System
The mechanisms for ordering supplies in Australia are different differ to those of
Japanese plants mainly because of the longer travel distances between Toyota’s plants
and those of its suppliers. Longer supply lines required faster order processing, and this
was done electronically. Essentially, electronic kanban cards were identical in function to
the physical kanban cards used by Toyota in Japan. For example, a batch of electronic
cards (a) was the sole means of requesting new parts, (b) was sent for every order
shipment, (c) went to a specific supplier plant, and (d) established the mix and volume
criteria for assessing if an order was correct.
22 Submission to Productivity Commission Inquiry, May 2002
Page 26
SYSTEM
PARTSSUPPLIER
TOYOTA(TMCA)
PlanningPlanning
Despatching
AccountsReceivable
AccountsPayable
Receiving
Material Requirements Forcast
Remittance Advice
BANKING
OrdersForecasts
ProductionLine
Kanban Sorting
Delivery Docket
Delivery Docket
Goods
Kanbans
Kanbans
ANSI X12 830
EDIFACT REMADV
EFTEFT
Electronic Kanban Card System
Toyota’s Material & Financial Flow
In a related research paper (as paraphrased from the “Managing Material Flow and Cash
Flow in the Value Chain”, Racheal Zhang), the production decisions (e.g., the
production’s schedule and quantity, ordering’s schedule and quantity) and financial
decisions (e.g., the payments) are interrelated in a value chain.23 Here, production is
defined as the core value-added activity of the firm and needs purchased raw materials,
equipment and labour which depend on money, while the finance is responsible for
generating capital and investing the firm's assets efficiently and effectively in the
company.9 Therefore, the production and financial decisions are required to be decided
simultaneously, including the internal material flows as well as material flows through
the supply chain. In the case of Toyota, they have approach both materials and financial 23 Zhang, R (1998), Managing Material Flow and Cash Flow in the Value Chain, (A Research Project By
Value Chain Program University of Michigan), Online, Available:
http://www.engin.umich.edu/VCAP/index.html [Accessed August 17, 2005]
Page 27
flow in a new revolutionised way, making Toyota one of the best production factory in
the industry.
The success of Toyota’s material and financial flow lays in their Just-in-Time (JIT)
system, which is distinctive in applying the concept of the "right part at the right place at
the right time" throughout its manufacturing system and supply chain.24 In another
words, JIT is actually consider a means of controlling material flows through linear
process, as these concept is a result of using the kanban.25 However, from the
understanding of the Kanban’s details, a product is being in place and will follow through
a specified production pathway. In addition, material will be automatically ordered and
travel directly from the suppliers to the customers, without first going through a
centralised store. In short, this explains the core operation of the Toyota Production
System, in collaboration with the Lean Systems Thinking.
24 Liker, J (1998), Manufacturing and Suppy Chain logistic Strategies for Mass Customization, (A
Research Project By Value Chain Program University of Michigan), Online, Available:
http://www.engin.umich.edu/VCAP/index.html [Accessed August 17, 2005]
25 Blakemore J, (2002) Maximising profit with Short Production Runs … Lean Systems Thinking, Online,
Available: http://www.blakemore.com.au/ [Accessed August 17, 2005]
Page 28
This diagram above illustrates a Lean system works, resulting in smoother material
flows.26
Basically, the objective of the Lean System, adopted by Toyota is to introduce a pull
system with a short lead-time, comprising two main components. They are valued added
and non-valued added time, where value added is run time on a machine and latter is the
storage time, setup time, idle time, breakdown, inspection time etc. Thus, Australian
companies is able to win by being more skilful, flexible in tapping the full creativity as
they apply the rules of Lean to all the processes and system. On the beneficial side, IT
companies, such as SAP and Oracle is able to present an opportunity to help in rectify
this solution further. Moreover, to optimize supply, first establishment agreements with
raw material suppliers have to be set. Software such as Vendor Managed Inventory or
B2B connections will have in this process to minimize inventory and risk, taking in the
consideration for continuous flow matching supply with real demand2 6.
26 Strategos-International, Toyota Production System & Lean Manufacturing, Online, Available:
http://www.strategosinc.com/toyota_production.htm, [Accessed August 17, 2005]
Page 29
In an article report, Toyota Australia has been progressing its eBusiness. This is an effort
to move the company’s main business processes into an extensible online environment.27
For instance, the Melbourne’s manufacturing plant have been using BEA WebLogic
Workshop Technology to build Java and Web services-based applications, that will allow
manufacturing partners (suppliers) to interoperate with Toyota’s. With the aid of the BEA
technologies, Toyota’s system will allow information to flow smoothly between the
integration of it operating system, increasing the functionality of the existing ones. One
of the benefits, is the fleet management integration (the Toyota Vehicle Order Processing
System) notifying for vehicle deliveries and a dealer interface that allow dealers to
receive automatic updates from Toyota‘s SAP system regarding of vehicle production
and delivery.28 Thus, this demonstrates that BEA systems which explained earlier.
Basically, with the implementation system of BEA Weblogic and the SAP’s architecture,
Toyota is able to shift the transition from a mass-production material-handling system to
a lean system. This is more reliable in supplies purchased parts to continuous-flow cells,
small-batch processing, and traditional assembly lines with the plant. The benefits of a
lean material-handling system include28:
• Fewer material handlers
• Fewer equipment (forklift, heavy machines)
• Higher plant inventory turns
• Higher production output
• Less time spent by operators retrieving parts
• Less overtime
• Less expedited delivery costs.
• Less inventory 27 Brace D (2005), Driven to action, Managing Information Strategies, Online, Available:
http://www.misweb.com/magarticle.asp?doc_id=23045&rgid=2&listed_months=0, [Accessed August 17,
2005]
28 BEA Case Study, (2003) Toyota’s Australia eBusiness Transformation Program, Online, Available:
http://www.bea.com/content/news_events/white_papers/BEA_ToyotaAustralia_cs.pdf, [Accessed August
17, 2005]
Page 30
Furthermore, in the developing of the plan for every part to be manufacturing the product,
the basic database will fosters accurate and controlled inventory reduction and
continuously improving of a plant’s material-handling system. The system to will be able
to operate a market that eliminates the waste of hoarding, searching for parts, and storing
inventory throughout a facility. In addition, it is able to design delivery route changing
the plant into an organised community, where operators get the parts they need, when
needed and in the quantity needed.
While the financial flow of the system will consist the methods of payments and other
financial aspect between the suppliers or customers and Toyota, In this case, Toyota
Australia has adopted CommSecure to acts as an intermediary in the direct debit process,
in using of CommSecure method of handling personal and small business lease and loan
payments. This move has motivated a desire to give customer to drive to the Toyota
website to view informational and marketing messages, and cost savings. Moreover, the
system handles the traditional form of direct debit, as well as flexible customer initiated.
The data integrity is also transferred between two companies via a Secure Socket Layers
(SSL) connection with 128-bit encryption. This is another channel of Toyota handles
regular payments from her customers, reducing the number of late payment and is
relatively affordable29.
Another approach that Toyota Motor Sales has moved a milestone, when they started to
be upgraded their Web portal with the assistance of Microsoft Consulting Services. One
of the highlights, it enables dealers to work more closely with other corporate subsidiaries
such as Toyota Financial Services. For instant, when a customer wants to finance a
vehicle, dealerships can submit a loan application based on already captured customer
data through Dealer Daily to Toyota's financing system (which utilizes an Oracle
database running on UNIX). Furthermore, this will enables Toyota to respond with an 29 Wither S, How to integrate hosted applications, Technology Business Magazine, Online, Available:
http://www.supplychainplanet.com/e_article000213392.cfm, Access: 18 August 2005 39 BEA System, Inc (2004), Toyota Australia drive out cost and increases visibility with BEA Solution for
dealers, Online, Access: 18 August 2005
Page 35
The value data of this system will be increase and can be shared with related projects.
Furthermore, it is build toward open standards.
Practically, Toyota’s logistic and shipping arrangement is already well planned and
integrated in Kanban system. That is begun at the right point, when a customer purchased
a car from a dealer. In addition, that application is practice a long time ago by Toyota.
And the latest development, Toyota has decided to integrate that system into the BEA
software, as mention before. This BEA software will sit on top the current SAP software.
This is the only workable solution for Australia’s stage in the logistic and shipping
arrangement.
Value Chain
Source: Porter, Strategy and the Internet
Page 36
Toyota has decided to take this project with BEA, due to the prominent application of the
technology in the value chain. Basically, the technology will be built as a web based
interface that able to be access across the network in Toyota Australia. At the same time,
Toyota Japan too will able to monitor and overview the operation of her subsidiaries
companies. In short, the value chain will allow performing a number of discrete but
interconnected value creating activities, such as operating sales forces, fabricating a
component, or delivering products.40 And, these activities have a connection with the
activities suppliers, channels and customers. In addition, at the fifth stage of the
application, it will involve relatively simple optimization of sourcing production, logistic
and servicing transaction. In other words, in the value chain of the system consists of 5
early stages. Three of them are related to supply chain management, which is inbound
logistic, operations and outbound logistic. The illustration above illustrated the whole
picture of the value chain that Toyota has adopted.
In general, Toyota Australia has enhance their logistic and shipping arrangement
according to the geographical limitations and the industrial relations. With the partnership
from BEA, Toyota has solved a new solution of supply chain, for this logistic and
shipping arrangement using the value chain process.
40 Porter E M,(2001), Strategy and the Internet, IACT 401’s e-reading materials, Online, Available: webct
401 Accessed: August 20, 2005
Page 37
Backbone of IT Solutions
Maximizing Information Exchange
The automotive industry is geared towards Just-in-time (JIT) manufacturing. JIT in short
deals intimately with all areas of supply chain to reduce inefficiencies in transportation,
processing, inventory and other business processes. In order to facilitate JIT, the
automotive industry developed a fast and reliable communication network for all the key
stakeholders involved, manufacturers, suppliers, importers and dealers, to share
information. This industry driven initiative is called the Australian Automotive Network
eXchange (AANX). The four major car manufacturers in Australia are involved in the
project41.
AANX provides IP based Extranets for the automotive industry in Australia. AANX
Operates as a virtual point network (VPN), an internet-based infrastructure that allows
users to send date to each other in a reliable and secure manner. It is a platform for
conducting domestic and international business-to-business (B2B) e-commerce activities.
The main components of the project consist of42:
• A network that is based on available Internet technology
• Operated by agreed and standardized service levels.
• Demonstrating proactive management of trading partner connections
• Practice the best standard of security and privacy for transactions and
interoperability between service providers.
41 Hafiz Mohd, (2002), “Testing new waters Down Under”, Online, Available:
http://www.thefabricator.com/Articles/Fabricating_Exclusive.cfm?ID=198 [Accessed: 16 August 2005].
42Dcita.gov.au, (2004), “Case Study: The Australian Automotive Network eXchange”, Online, Available:
46 David Braue, (2005), “Driven to action”, Online, Available:
http://www.misweb.com/magarticle.asp?doc_id=23045&rgid=2&listed_months=0 [Accessed: 16 August
2005].
Page 42
Its strengths and weaknesses have resulted in various areas that form its competitive
advantage. They are1:
• The production of medium and upper medium size cars • Innovation - based automotive components • Design and engineering automotive services • Export to overseas markets • High flexibility in producing low volumes of high quality vehicles
Strengths
In order to improve production efficiency, Toyota Australia has applied lean
manufacturing principles into its Toyota Production System. Since 1990, the application
of TPS and adoption of Just-In-Time delivery by all Toyota Australia Suppliers has
achieved 97% reduction in stock holding at its Altona plant. With the introduction of
Toyota Production System, suppliers have seen great improvements in efficiency. There
has been significant inventory, floor space, and lead time reductions achieved by various
Toyota suppliers due to its usage1.
Toyota holds a major strength in terms of its partnership relationship with its suppliers. A
number of initiatives have been introduced to build trust between Toyota and suppliers.
These include exchange of information, regular briefings on changing technologies,
availability of support services and other opportunities. There have been a range of
supplier development programs offered by the Toyota Supplier Development Department
such as1:
Supplier support initiative Specific program Benefits received
Direct supplier
assistance
Direct application of TPS
principles – interactive
support program
Overall business operating
benefit – cost, quality and
delivery
TPS training
seminars
Formal theoretical & practical
education
Education and motivation
process
Page 43
Supplier support initiative Specific program Benefits received
Supply chain
management
Value chain analysis and
management
Focus on all cost areas, from
raw material to final customer
Supplier structure/
education
Resources and management
structure establishment
Program sustainability &
internal education process
In North America, Toyota has an online website (www.toyotasupplier.com) that is
dedicated to educating suppliers in that area. Potential suppliers can get information on
the company’s purchasing policies, newsworthy articles, and bio information through the
home page. The website also provides information on what products the company needs,
purchasing principles and development efforts, supplier standard and how to become a
Toyota supplier47. This in turn attracts potential suppliers to join with Toyota’s supply
chain network.
Toyota has been using AANX to communicate securely with other subscribers on the
network. It enables closer collaboration between industry players and facilitates
electronic business interchange such as B2B e-commerce and EDI. AANX helps connect
new supplier and customers wherever they are48. It also facilitates private E-marketplace
activities which enables companies to take their existing processes and trading networks
online to gain the connectivity and speed of the Internet, within a secure environment49.
47 Toyota Motor Manufacturing, (2003), “Toyota Supplier”, Online, Available:
http://www.toyotasupplier.com [Accessed: 16 August 2005].