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In this project the procurement mainly consists of the procuring the engineering service form the suppliers it involves the outsourcing of the design activities to the tier one suppliers who have a very much skilled in those activities the conclusion for outsourcing has been done on the basis of the make or buy analysis done below

Project name- Toyota fuel cell Hydrogen vehicle (FCHV)

Background- Toyota motors corporation is in a plan to develop a new fuel cell hydrogen vehicle with hydrogen as fuel which is very environmentally friendly with no carbon emissions and have to consider the design and development process for its new vehicle the time scale for the execution phase is 20 months and have to make a decision on weather to outsource the work of developing of initial product specifications into 3D computer aided design (CAD) models and its analysis using some simulation software's or to do it in-house by recruiting the skilled people.

Decision being analysed - Outsourcing the CAD work

Option 1: Do the work in house by recruiting the people or using the same work force who are working on the other similar projects.

Estimated cost per hour per person is £30

Estimated man hours per person - For 300 days and with 8 hours per day total man Hours will be 2400 hours

The approximate work force required will be total 450 people from all functions like Body, Electrical, Trim, Powertrain etc

Cost incurred from all other requirements like Licences for the software's and infrastructural facilities will be approximately £75000

Total cost from this decision will be £32.475 million {(30X2400X450) + 75000}

There is also need for an additional recruitment to reduce the work load on the existing resources this will be an additional overhead since the new employees should be given some facilities.

Option 2: Outsourcing the design work to the suppliers in the countries like India and China.

The estimated cost per hour from these contractors will be around £20 per hour due to the availability of the large skilled resources and the currency value of these countries.

Considering the same work hours as above total man hors required will be £21.6 million and by considering an additional cost of £50000 pounds as the additional cost of administering these contractors the total cost from this option will be £22.1 million


From the above analysis of the two options it is suitable to go for the second option since there will be savings of around £10.4 million and this also reduces the work load on the existing workers in other projects.

The selection of the suppliers will be in the form of reliability analysis the process of procurement will start with help of request for quotations (RFQ) and with the help of a pilot project which is usually a mock project (some parts to do modelling and analysis in CAD software's) given to the suppliers to test their ability to do the work.

The suppliers will be selected on the basis of the following factors.

  • * Technical superiority
  • * Price
  • * Management capability
  • * Past performances
  • * Financial strengths
  • * Intellectual property
  • Along with the above factors the quality of their work is assessed with the help of the pilot project and the work will be outsourced to them after the negotiations with respect to the contract and its terms.

    Procurement process

    The procurement process for this project consists of E- procurement, the services are received with the help of software packages i.e the data is sent and received through a common software which is used by Toyota currently for other projects and the review meetings will be done through the web conferences or through a coordinator from the supplier who is onsite and act as an interface between the supplier and the Toyota. The selection of the coordinator will be left to the supplier but his skills will be assessed by Toyota to give final approval for the appointment.

    Supply chain management for Toyota FCHV project

    Some of the supply chain strategies for this project are as follows

    Concurrent engineering

    The above figure represents the concurrent engineering for an integrated product development process.

    According to Morris (2009) concurrent engineering is an extension of the multiphased approach to project management. At the heart of its concept is the concurrent execution of tasks segments, which creates overlap and interaction among the various project teams. It also increases the need for strong cross-functional integration and team involvement, which creates both managerial benefits and challenges.

    Concurrent engineering basically involves integrating all the functions including the suppliers in a project to reduce the project lifecycles and to increase the efficiency in a project by following benefits

  • * Better communication with suppliers.
  • * Early detection of the design problems or errors.
  • * Engages all suppliers in information sharing.
  • * Encourages cooperation, trust, respect, and consensus building.
  • * Enhances ability for coping with changing requirements, technology.
  • * Minimizes design-build-rollout reworks.
  • With the help of the concurrent engineering approach in this project it is possible to reduce the communication problems and also strengthens relation by increasing the trust, cooperation among the suppliers thereby resulting in successful completion of the project by avoiding any disputes.

    Relationship with suppliers

    Building strong relationship with the suppliers and considering them as a part of the organisation learning and developing them like own associates with the implementation of the new management strategies like kaizen(continuous improvement) six sigma etc.

    The tier structure of the supplier should be based on the responsibility of the suppliers and with strict cost and timing targets without affecting the quality of the delivery. Adding value to the organisation by encouraging the people and partners to grow has been the motto of Toyota for many years which will definitely yield the benefits.

    With the help of integrated product development systems like concurrent engineering the project, waste elimination in the form of time the case of design with very good communication and information channels with the suppliers can be completed successfully and with the accurate quality on time.

    Agile and lean supplychain strategies

    In a global competitive world there is a need for the new supplychain strategies which are different from the traditional supply chain methods for the successful completion of the project.

    Augustine(2005) defines Agility as the ability to deliver the customer value while dealing the inherent project unpredictability and dynamism by recognising and adapting to the change by balancing stability with flexibility.

    The current project driven by the sustainability factor i.e the environmental factors and which demonstrates the social commitment of the Toyota and the success is measured based on the response from the customer there is a need to think for innovative strategies which helps the project success.

    The Agile methodology contains the following techniques

    Small releases - work is divided into small packages with the manageable complexity

    which makes easy to monitor and control the project.

    Collocation - all team members including the onsite coordinators from suppliers are collocated in an open workcell to facilitate the face to face communication and interactions.

    Self organising teams - team members are allowed to self organise and complete the tasks collaboratively without top down management contol.

    Tracking - tracking of the work should be done continuously and with small intervals of time during the execution stage which allow rectifying the mistakes in preliminary stages rather than at the end.

    Lean supplychain strategy is a concept of reducing the waste or non value added activities to the total supplychain flow. In this project context the waste can be measured in the form of time and unnecessary cost that will occur in execution of the project.

    The success in reducing the waste can be achieved with lean supplychain strategies with the following actions.

    1. Top management support for the continuous improvement processes.

    2. By carefully mapping the supplychain.

    3. By analysing the risks proactively.

    4. By integrating the product design process and the supplychain.

    5. By identifying the non value added activities their effect and the cause.

    6. By streamlining the process of procurement and supplychain by avoiding complexity.

    7. By having a good change control plan and able to incorporate the changes without affecting the project scope.

    With the help of the new techniques like concurrent engineering,integrated product design,Agile and Lean supplychain strategies in this project, Toyota will be reducing the waste and will be building a good relationship with the suppliers which increases the trust and the bond between client and suppliers which leads this project to success.