Supply chain objectives are rarely fully met because of the individual behavior of decision makers in Toyota along the supply chain, as their behavior is neither optimal nor rational (Parnaby 1979). Due to the dynamic nature of the supply chain, amplifications and fluctuations occur from suppliers all the way down the chain (Sterman 1989). What is needed is a robust control system that is flexible enough to counteract any disturbances along the supply chain (www.adbi.org).
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Logistics and supply chain management are seen as the fields in which logistics providers, by virtue of their particular expertise, are able to offer the most added values to transactions in the freight trade. Freight forwarders, as “logistics service facilitators,” play an important role in supply chain management, as an increasing number of firms e.g. Toyota outsourcing their logistics function (United Nations Economic and Social Commission for Asia and the Pacific [UNESCAP] 2002). These third party logistics providers are now becoming more involved in the design, management, and control of Toyota supply chains. Asia-based regional logistics providers are the best equipped to manage supply chains in Asia as they are familiar with the context in which they operate.
The selection of a logistics provider is critical to supply chain competitiveness (Hensher and Chow 1999). Third party logistics plays a pivotal role in the design and provision of an integrated supply chain that responds to the client’s needs. In order to help their customers, logistics providers need to behave more like partners of their clients. Not only do logistics providers have to arrange for the transport of cargo and facilitate its clearance through customs, they also need to manage their clients’ order processing. This means that logistics providers are involved not only in lowering their clients’ costs by reducing waste in ordering operations, but also in integrating their clients’ supply chains. The aim is to make the partnerships so tight and seamless that the logistical services provided become part of the clients’ own businesses (www.adbi.org).
Designing Supply Chains: The Role of Logistics Providers
In Asia, e.g. Toyota Motor Corporation supply chain control processes, including production scheduling, shipment of product, and inventory maintenance, are frequently decentralized and remote from each other. The processes usually operate independently of one another and in serial order. Slow feedback from the marketplace causes scheduled production to over or under manufacture in relation to the actual demand (www.adbi.org). Another issue in the region is the relatively high cost of logistics, the result of inadequate physical facilities and cumbersome administrative barriers, coupled with a legal framework not adapted to modern international business practices (Banomyong, Cook, and Kent 2008).
2cii) Evaluate procurement practices in the organization
Toyota Industries Corporation is involved in a wide range of business fields from textile machinery to automotive related fields such as engines, car air-compressors, and vehicles, to materials handling equipment such as forklift trucks, and the electronics that go into these products, and even to foundry parts (www.toyota-industries.com).
Toyota procures the necessary parts, materials, and equipment for these many different business fields from suppliers all over the world. Along with requiring their suppliers to provide quality items at a low price and in a timely manner, Toyota cooperate with them to promote environmental preservation and meet the other demands of society. In addition Toyota take a long term view toward their relationships with suppliers with an aim to realize an amicable relationship of mutual prosperity based on fair business practices (www.toyota-industries.com).
Fair Competition Based on an Open Door Policy
Toyota have an open and fair entry process that allows all potential suppliers, regardless of nationality, size, and experience, the same chance to offer them their products or services. Toyota selected their business partners based on economic reasons such as the quality, price, and volume of their products, as well as on their adherence to delivery times. In addition, Toyota also considers comprehensively things like environmental awareness, company stability, and technological development ability (www.toyota-industries.com).
Amicable Relationship of Mutual Benefit Based on Mutual Trust
At Toyota Industries Corporation they work hard to realize an amicable relation of mutual benefit with their suppliers based on mutual trust.
Toyota also believes that it is important to promote friendly communication with their suppliers by means of their procurement activities.
Environmentally-Friendly Products Based on Green Procurement
In order to create environmentally-friendly products they aim to procure parts, materials, and equipment that have low environmental impact from suppliers that always give sufficient consideration to the environment (www.toyota-industries.com).
Localization of Business Based on Good Corporate Citizenship
As a company that undertakes local production overseas, Toyota promotes procurement from local suppliers in order to contribute to the local community.
Obeying the Law
It is Toyota Industries’ policy to strictly abide by both the letter and spirit of laws and regulations and to also carefully handle and protect their partner’s secret corporate information (www.toyota-industries.com).
2ciii) Discuss the factors that must be considered when improving logistics and procurement practices in the organization
In an increasingly competitive global environment, organizations must innovate to find opportunities to improve their productivity and reduce total cost. Initiatives that consider all aspects of process improvement and waste reduction will find the greatest level of success in improving efficiency (www.grainger.com).
Supplier consolidation lowers costs and improves productivity
The trend in the facilities maintenance business is moving toward organizations trying to reduce the number of suppliers and lower the cost of procuring tools, safety equipment, lighting and other maintenance products used to keep their businesses running. What is actually required in these situations are lean supply channels that (James Womack & Daniel Jones, 1996):
possess more of a thorough understanding of customer needs; and,
Are able to provide needed goods at the appropriate place and time as determined by demand (pulled).
This methodology would solve two problems – the reduction of the costs (waste) associated with holding rarely used items in inventories, and allowing organizations to focus on their core competencies and production efforts, not spending time (waste) sourcing and procuring infrequently used MRO requirements.
For planned purchases, a typical company will use 5 to 10 suppliers from whom they purchase a few high-volume commodity items. For unplanned purchases, a typical company will have more than 20 suppliers to buy thousands of different products every year.
Managing those relationships and adjusting to different suppliers take time and affect productivity. Managing as few relationships as possible for making unplanned purchases will minimize procurement complexity and its associated costs.
In some cases, MRO suppliers even offer discount structures tied specifically to the indirect spend for buyers who use a consolidated approach for MRO purchases (Optimizing MRO Inventory Management Bryan Ashenbaum, 2005).
Consolidation to one source simplifies the process, saves valuable time, and reduces costs for product search and availability, resulting in increased productivity.
Consider a broad-line national MRO distributor.
Many broad-line national distributors maintain inventories of literally hundreds of thousands of MRO items. They use extensive networks of distribution centres and local branch offices to ensure prompt and reliable deliveries to their customers. To ensure their success, they have developed strong relationships with thousands of manufacturers of the items needed to maintain, repair, and operate all types of facilities. This integrated approach ultimately saves customers time and money. The scale advantages provided by broad product lines, extensive customer coverage and logistics network of branches/distribution centres position them as the perfect solution for unplanned occasion purchases (Industry Week/Manufacturing Performance Institute Census of Manufacturers, 2006).
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In addition, a few have electronic business (e-business) technology expertise that can provide customers with procurement integration solutions to handle and streamline the indirect product purchasing processes. Look for a distributor that offers a range of e-solutions that will grow with Toyota future needs, whether they are integrating a sophisticated e-procurement system or streamlining their ordering process from electronic data interchange (EDI) and marketplace platforms, to online order management tools. These types of systems will provide some real, easy-to-take cost benefits, like less inventory, better cash flow and lower labor costs (www.grainger.com).
If available, utilize the consulting services teams that are available at some of these distributors. They have significant experience with MRO procurement practices, and will be happy to share their insights with Toyota. They use that knowledge to create a powerful set of diagnostic, analytical and reporting tools that can give customers a major advantage in identifying cost inefficiencies and correcting them. They are applied by experienced people who work closely with customers to ensure smooth transitions, and complete integration for maximum results.
Choose a broad-line national distributor who is positioned to consistently supply the right product, to the right place, at the right time. Identify one whose integrated solutions will help improve efficiency, maximize productivity and reduce total cost – by helping to minimize Toyota inventory investments, the time and effort required procuring them. As with any lean initiative, focusing on reducing waste in Toyota MRO procurement practices will be beneficial and tangible for Toyota (www.grainger.com).
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