1. The global competitive business environment has both positive and negative impacts on the automobile industry like Toyota. It forces the company to take an intense look at their global supply chains, to question some of their strategic outsourcing assumptions, searching for location economies, and to root out major technical inefficiencies.
Critically evaluate and discuss the global supply chain management challenges/decisions (in terms of strategies, planning and operations) for Toyota to survive and thrive in the next decade as uncertainties in the political economy and stiff competition from competitors begin to hit the organisation. Use the appropriate models, tools and theories to support your arguments.
2. The growing globalized economy has redefined the dynamics of competition for Toyota. With product life cycles shortening, technologies and worldwide rivalries increasing, critical success depends on effective global supply chain management – being able to deliver the right product to the right market at the right time and right pricing.
Critically analyse and discuss the potential risk factors and new difficulties that Toyota may have in its effort to continue to dominate the car industry.
3. The internet as an information and communication medium offers new business possibilities in managing the global supply chains.
Evaluate how the internet and electronic age will shape the global information structure of Toyota to remain competitive in a globalized and competitive business environment. You may use an appropriate model for this assessment.
Automotive industry is one of the Australia’s significant and largest industries that employ large number of people but it is still small by global standards. Last decade has witnessed the trends of withdrawing from the local manufacturing in Australia by the Automobile giants. Mitsubishi was the first company to end the local manufacturing in Australian markets, followed by the Announcement of GM’s owned subsidiary Holden and this time finally Toyota had announced to end it local manufacturing in Australia in 2017. Automobile manufacturing and assembling industry has been struggling in Australia due to high costs and low volumes (Bracks, 2008). Also, the industries were in state of confusion about the new policies of the government. But when the Tony Abott, Australia’s prime minister has clarified to the automobile giants that government is not willing to provide subsidies to the automobile sector (Levien, 2014), Toyota sees no point in continuing manufacturing in Australia and continues to pay high labor costs despite of fragmented demand and poor forecasts in Australia and thus joined the exodus started by the Mitsubishi, lead by the Ford and GM’s Holden and further depressed the already existing gloomy outlook of the country’s struggling manufacturing sector. Toyota, the Japanese Automaker, does not withdraw or shut down its plant easily. It ended its New Zealand factory in 1998 after tariffs were axed to such low levels that Toyota find itself unsustainable to continue the factory and hence shut down. The objective of this report is to elucidate the effect of global competitive business environment on the supply chains and to take an intense look on Toyota’s supply chain, its strategy, supply chain planning and operation. This report will cover how the increasing technology and digitalization are shaping the information structure of the organizations and helping them to remain competitive in this age of increasing competition.
1. Toyota Motor Corporation is a top Japanese auto manufacture. Sometime back, A key issue at Toyota was the design of its supply chain, distribution network when the demand of its products is increasing rapidly across the world. AS a result, Toyota Motor defines its global supply chain strategy which it calls “Global complementation” (Shimizu, 2003). Under this strategy, Toyota decided to open the local factories in every market having demand. The open question now is to decide the production capacity of these local factories. Initially, each local factory setup by the Toyota was for serving the local demand only. In such cases, if there is low demand in any particular region, then it does not make sense to have factory in that country. However, the organization has already setup the factories in such regions and starting and shutting the operations in a region is not easy, it comes at a cost of huge investment. After the Asian recession of 1997, Toyota redesigned all its factories to make them capable of serving the local as well as global markets so that when the local market weakens, it can make the products for the global markets. Let us see some of the important drivers of the Toyota’s supply chain in Australia:
Auto suppliers are generally moved to near car manufacturers in most of the areas but not in Australia as it is very expensive. As a result, Toyota ahs to import many raw materials which has pushed the logistics cost very high for the company. Most of the car comes from the plants located at low cost clusters like Eastern Europe, India, Thailand and china in Asia, and Michigan in US. Major auto components suppliers also move their facilities near to these locations. Importing material to Australia from these suppliers incurs high costs to Toyota (Smith, Smith, & Sohal, 2005).
Australia demand for the cars is 1.5 % of the total sales of the Auto worldwide. Out of this number, only .4% of the cars are locally supplier while all the others are imported. This means that Australian people are not buying only models which are manufactured locally but also importing the globally made models. Only Holden cruze and Toyota camry are the only models having significant local demand.
All the auto makers serve the Global markets from their plant in Australia. Below is the figure having export of all the automakers by the destination. If this view can be narrowed down to Toyota, every 2 of the 3 vehicles it is manufacturing in Australia is exported. Toyota Australia is one of the major exporters of Toyota motor and Serves close to 13 countries. It has terrific knowledge of Middle East markets and thus Camry which is the number 1 selling car in the Middle east comes from Toyota Australia. In Middle East, Toyota competes with almost every auto manufacturer of the world (https://www.toyota.com.au/toyota/company/operations/exports ). Increasing value of Australian dollars in bringing the exports down and the facility is becoming unsustainable with huge loss incurred every year.
Figure 1: Australian automotive exports by Destination (Source: https://www.businessinsider.com.au/the-verdict-is-out-heres-why-australian-car-manufacturing-is-at-an-end-2013-12)
Currently, Australia facility is serving the local as well as global markets. Any car manufacturing plant should manufacture cars between 200,000 to 300,000 to make use of economies of scale and to be cost competitive. However, In Australia, the total vehicle production by all the Auto manufactures is less than two hundred thousand which is less (https://www.abs.gov.au/ausstats/[email protected]/mf/9309.0). This may be the reason that Mitsubishi, Ford and Holden had already shut down their factories in Australia.
The high value of Australian dollar, increasing local costs of labor, low tariffs and no subsidy from the government make car manufacturing unsustainable in Australia. Below graph is showing that labor costs are highest in Australia while very low in India and Thailand. This graph’s interpretation is very powerful and suggests a case in point why Toyota is not shifting their plant to these countries especially when this Australian plant is mainly serving global markets. Middles east markets can also be served from Thailand. Also, there are political issues when the prime minister of the Australia announced to stop the subsidies for the Auto manufacturers. According to the report, Toyota has suffered a loss of 1.7 US dollar in a decade and received only 1.2 billion as part of subsidy (Lansbury, Wright, & Baird, 2006) .
Figure 2: Australia having highest labor costs (Source: https://www.businessinsider.com.au/the-verdict-is-out-heres-why-australian-car-manufacturing-is-at-an-end-2013-12)
In a nutshell, there is no motivation for the Toyota to continue its production in the Australia when there are high labor costs, high value of Australian dollar, poor local demand and when this plant itself is facing stiff competition from other Toyota plants in different countries.
2. In this age of increasing globalization, there is stiff competition everywhere. Automobile industry is also not untouched by it. Toyota is facing huge competition from competitors in terms of innovation and marketing. Huge cost of making the auto parts, huge labor costs and cost of marketing and innovation has increased the cost of the production however; the car manufacturers have to keep their price as competitive as they can. Thus, cost cutting should be on the operations and supply chain and the focus should be on driving the waste in the supply chain and making it as efficient as possible.
It is very important that Toyota should at the right time and at the right price. Current scenario in Australia is making it difficult for the Toyota Australia to bear the losses and continue making the cars. Some of the other challenges that are plaguing Toyota global competitiveness are as follows:
Reduced demand of cars: Forecasts are not good for the future demand of the cars worldwide. There are many factors attributed to it. High cost of fuels has discouraged people from buying the cars. Environment awareness and awareness among people to use more of a public vehicle to ease the traffic jams ahs also lead to decrease in demand of the cars. There is emergence of Taxi services like Uber worldwide and there is research on how these taxi services will reduce the demand of the cars. When there were less Ubers, car utilization is less. Now, with Ubers running worldwide, Car utilizations has increased very much as cars are used for 10-14 hours in a day. If numbers of people are using the car remains the same, this increase utilization will drastically bring down the demand of the car but this effect will take some time before it is visible (Wallsten, 2015).
Huge competition: There is huge competition between Mazda, Honda, general motors, Volkswagen and Toyota. Some of the companies are known for their aggressive marketing strategies while Toyota always remains conservative in the market (Liker, & Wu, 2006). Although innovation has been a differentiator factor for the Toyota but other competitors are also investing heavily in research and investment and coming up with new products making their portfolio very diverse which is affecting the demand for Toyota products.
Risk associated with Toyota’s Just-in-time approach/Risk with keeping minimal inventory: Toyota has been the pioneer of the concepts like lean systems, Just-in-time. These applications have helped the organization to save a lot of money in terms of keeping excessive inventory and help to build the products at a competitive rate. However, this strategy does come at a risk. For example, Toyota keeps the supplies of only few hours in their plant and believes in just in time. This strategy was exposed when during the earthquake of March 2011 in Japan, 75% of the profits of the firm were washed away in a matter of hours. As the plants keep minimal inventory, they have to be shut down because of no inventory available and suppliers are struggling in supplying the material due to the emergency situation (Savaglio, & Freiag, 2005). Toyota faces huge loss during that period.
3. Technology has a very big role in improving the supply chain of today. Information technology can improve the visibility of the supply chain by locating various items any time; IT can make the supply chain more agile and more adaptable.
With Information technology, Toyota is able to manage its operations in a better way and able to automate them. Toyota uses Oracle ERP for the management of its back office operations like Procure to pay cycle, Account receivables, Account payables, general ledgers, Order management. It used Demand planner for forecast the demand. It also uses CRM tool to manage the customer effectively. Toyota has also deployed various analytics software that helped to study the customer preferences and generates informative insights about the customer preferences and behavior. It also has a dealer management system which is integrated with the Oracle ERP. This system helps the company to integrate its strategic operations with the help of its dealer. This system is gradually rolled out at various dealers and it generates the entire information for Toyota from the customer enquiry, sales support it is getting from the dealer and after sales services. This system has the entire history of the car (Christopher, 2000).
Not only this when Toyota receives any order from the dealer, it will check various global factories that can be used to replenish that order. While doing so, it also considers the existing capacity of each of the factory and what will be the cost of producing the car in various factories considering logistics and transportation costs. After considering so many factors in a flash of seconds using software, it can generate the cost and recommendation to manufacture in various factories. It then places the order with the appropriate factory. Thus, use of information technology and advanced analytics software helped the organization to build intelligence in system that can give very good recommendation. Apart from this, Toyota is also integrated its system with various suppliers and shares the forecasts with some of the key suppliers. It has automated the purchasing for some of the key parts and when the inventory fells below the particular level, automatically purchase order is placed. All these are helping the company to automate the supply chain and reducing the costs.
Along with the Tracking id in each car, Customer are updated about their car which is in process of getting manufactured from time to time and the remaining lead time. Customers are also thrilled about getting such notifications. Thus, Toyota is using technology not only keeping the supply chain costs low but also in providing customer delight and making the supply chain effective and competitive.
Conclusion
Australian automotive industry was dominated once by four Auto manufacturers all of which are foreign owned. All these foreign owned players are receiving heavy subsidy from the government to run their operations and generate the jobs. But still the factors were not very favorable in Australia to manufacture the car. As a result, Mitsubishi was the first company to shut down its facility in Australia followed by the Ford and Holden. Currently, there was only 1 company i.e. Toyota is manufacturing cars in Australia. However, it has also announced to stop its operation in Australia by the end of 2017. The local factors were not at all conducive for the Toyota to continue the production over there. For instance, Australia is having one of the highest labor costs in the word, then there is poor local demand and it is continuously been reducing from the last few years and as a result majority of the output of this plant is used to serve the global markets. At this point, the clear question is that why the global markets cannot be served using the other plants located at Thailand or in Michigan that are having the less manufacturing costs (Humphrey, & Memedovic, 2003). Not only this, The Toyota Australia has been running in losses from last few years but when the government has announced to stop the subsidy, it becomes unsustainable for the company to continue over there and it announced to halt its operation in by end of 2017. This decision was not at all surprise for the industry experts and it was expected from a long time.
References
Bracks, S. (2008). Review of Australia’s automotive industry: final report.
Christopher, M. (2000). The agile supply chain: competing in volatile markets. Industrial marketing management, 29(1), 37-44.
Humphrey, J., & Memedovic, O. (2003). The global automotive industry value chain: What prospects for upgrading by developing countries. UNIDO Sectorial Studies Series Working Paper.
Lansbury, R. D., Wright, C. F., & Baird, M. (2006). Decentralized bargaining in a globalizing industry: The automotive assembly industry in Australia.Relations Industrielles/Industrial Relations, 70-92.
Levien, H. (2014). The Abbott government’s damning record. Australian Options, (76), 21.
Liker, J. K., & Wu, Y. C. (2006). Japanese automakers, US suppliers and supply chain superiority. Supply Chains and Total Product Systems: A Reader, 177-196.
Savaglio, F., & Freitag, B. (2005). Just-in-Time Inventory: Effects on Earthquake Recovery. J. L. Clark (Ed.). Cascadia Region Earthquake Workgroup.
Shimizu, K. (2003). A maverick in the age of mega-mergers? Toyota’s global strategies. In Globalization or Regionalization of the American and Asian Car Industry? (pp. 119-143). Palgrave Macmillan UK.
Singh, P. J., Smith, A., & Sohal*, A. S. (2005). Strategic supply chain management issues in the automotive industry: an Australian perspective.International Journal of Production Research, 43(16), 3375-3399.
Wallsten, S. (2015). The competitive effects of the sharing economy: how is Uber changing taxis?. Technology Policy Institute.
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