Toyota Supply Chain Org Change Essay

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Toyota

Japanese automaker Toyota, headquartered in the city of the same name, is the world's leading automaker by sales, moving over 10 million vehicles per year (Statista, 2016). However, being the industry leader means one thing -- everybody is trying to take share away from you. As such, Toyota faces many competitive threats. The American automakers are performing better after a very difficult period leading into the dual bankruptcies of GM and Chrysler. The Korean automakers, particularly Hyundai, are becoming more powerful. . Emerging economy companies like Geely and Tata loom on the horizon as new competitors in all markets, and they are already challenging Toyota in their home markets.

Furthermore, Toyota faces internal challenges as well. It suffered a major blow to its supply chain management strategy in the wake of the 2011 tsunami. The company had clustered its supply chain around its major manufacturing facilities, but this left the entire supply chain vulnerable to earthquakes, of which Japan is naturally prone. The company scrambled in the aftermath to add much-needed geographic diversity to its supply chain, but learned a lesson about the need for constant change in an organization, and the value of not simply assuming away risks (Sugiyama, 2011). Technological change, such as the evolution of the electric car, is another factor in why Toyota needs to continue to change.

Origins of Change

Typically, the origins of change are in crisis. In 2011, Toyota made several changes to its supply chain. These changes were brought about by the crisis of the earthquake, and would not have been made otherwise. If Toyota faced another crisis -- losing market share, or being leapfrogged in electric car technology -- then it would have further motivation for change. But part of remaining on top of the industry is that the company needs to change in anticipation of the need to change. By the time it loses its dominance in a certain area, it might be too late to make changes. Thus, the origin of change is ideally before the change is truly needed. Waiting until the crisis is not recommended.

The case study, however, will focus on the supply chain issue. Toyota has built its supply chain in a cluster, where suppliers were located in one geographic area. Clustering has significant economic benefits, and is common in the automobile industry. However, Japan is one of the most seismically-active countries in the world. There was always risk with respect to earthquakes disrupting the supply chain of Toyota, should enough damage be done to the region in which most of its suppliers were located. It can be difficult to build redundancy into its supply chain, because there is little motivation for suppliers who are not receiving orders to be able to produce the products that Toyota needs. As such, Toyota simply chose not to worry about the risks that it faced. The earthquake and subsequent tsunami, however, caused substantial disruption in the company's supply chain. The origin of change was a combination of natural disaster and a poorly-designed supply chain.

Process Undertaken

For Toyota, there were two stages to this process. The first is that the company had to scramble quickly for stop gaps. Production on many of its lines had ceased because of a lack of available parts. Toyota very quickly had to find alternative suppliers for those parts, in order to bring its own production back online. This was the first step in the plan - to mitigate the damage. Once the company stopped the bleeding, it was time for it to create and implement a long-term plan for improving supply chain diversification and building in some redundancy, so that such incidents could not occur again, no matter how strong an earthquake would hit.

The company's global procurement chief first needed to build a catalog of its at-risk parts. The company has over 500 Tier 1 suppliers in Japan alone, so this task of identifying suppliers at reasonable risk from tsunami would not be simple. The final list came in at over 1000 parts and there were a further 300 suppliers located in areas that were also deemed to be at risk (Griemel, 2012). This part of the change process is identifying the areas most in need of change, and understanding what the consequences of not changing are, to help the company put together a cost-benefit analysis of its proposed changes. However, the information gathering process did not go smoothly, as some suppliers refused to share critical information with Toyota.

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The second stage of the process was to determine how best to address the at-risk elements in the supply chain. The company had identified weak links, and prioritized their importance. Toyota then needed to work with the suppliers to ensure that those suppliers were able to produce parts at multiple different locations, to reduce the risk of earthquake/tsunami on any one plant. Toyota in some cases sought to use different suppliers for a single part, essentially splitting the order so that that part could be produced by more than one company (Griemel, 2012).

Such approaches were only one element of the change plan. Toyota also decided to build larger inventories of some parts, in particular ones for which there was only one producer, or for which it had yet to build in the desired redundancy. This, and working with suppliers, was a medium-term response that was expected to occur within a few months, up to a year, from the start of the change process.

A third element of the change plan was with the car design itself. Toyota realized that it was exposed to such supply chain issues because too many of its parts were proprietary. Instead, it chose to redesign certain aspects of its vehicles so that parts were commoditized. By using commodity parts, Toyota automatically created redundancy for those parts, as multiple suppliers already exist. It is not always easy to know what parts can be commoditized, and where there is benefit in having a proprietary design, but the supply chain crisis provided an opportunity for Toyota to make such judgements (Griemel, 2012).

Outcome of Changes

Toyota's changes were implemented quickly. The company had to get production running again, and knew that the longer it took to implement these changes, the more risk it faced, since its supply chain is still concentrated in an active seismic zone. The company has centralized more of its supply chain functions, in order that it can work more closely with key suppliers on a global level, and also so that there is greater accountability for supply chain decisions (Ludwig, 2013).

The crisis, when combined with the recall issues in 2010, prompted Toyota to move away from its lean production system, which contributed to the development of local parts clusters, and low inventory levels. Higher inventory levels and a more global approach to the supply chain represented a shift away from the formula that contributed to Toyota's rise to global dominance, but to this point the crises have allowed the company to embrace the new approach, and to see its value (The Economist, 2010).

On the financial side, Toyota has managed to recover. It maintains its global market share lead, sales of its vehicles having recovery as quickly as the production did. Moreover, Toyota is now enjoying record profit levels, something that relates both to sales and to cost controls. Commodity parts cost less, and competition among suppliers also lowers input costs. It is not unreasonable to think that on many models, Toyota is enjoyed a lower cost of goods sold with its supply chain changes. So the changes have generally been quite positive for the company.

Conclusions

In a perfect world, organizational change would be done without the need for crisis. Change literature often discusses the need to manufacture a crisis in order to galvanize management to lead the organization in the needed direction. At Toyota, there was no need to manufacture a crisis, as the crisis occurred naturally. The company was unprepared for this crisis, and therefore it had to move very quickly to address it both in the short-term and the long-term. The millions that Toyota lost while it lacked the parts needed to produce its cars were sufficient motivation to bring about rapid organizational change.

Once the need for change was identified, it was not that difficult for Toyota is move quickly. The company was able to get cooperation from many of its suppliers, as they were motivated by the need to sell to Toyota. The management of Toyota had a clear vision of some of the supply chain changes that they needed to integrate, and they were given approval at the highest levels of the company to make these changes. As a result, Toyota made its organizatioanl change quickly, and effectively. With a coherent vision, and buy-in from all levels of the organization, Toyota was in a good position to implement organizatioanl change. It did, and has enjoyed generally.....

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