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Value Chain Analysis of Toyota

The value chain is a systematic approach to examining the development of competitive


advantage (Porter, 1980). The chain consists of a series of activities that create and build
value. They culminate in the total value delivered by an organization. The 'margin' depicted in
the diagram is the same as added value. The organization is split into 'primary activities' and
'support activities.

Primary Activities

Inbound Logistics

The main aspect of Toyota Companys value chain analysis is the inbound logistics. Inbound
logistics use JIT (Just-in-Time) system of production as it decreases the inventory cost. JIT
helps Toyota to optimize their assembling and production process as well as to minimize
parts going to waste or getting unused as inventory. Inbound logistics are the goods that the
company receives from its suppliers and store for some period of time until the moment when
they will be used in the production process. Toyota company does not have and is not able to
create own raw materials that are needed for assembling of cars, thus it has to collaborate
with a third party.

Toyota orders the raw materials from all over the world and in the interest of maximizing
their availability of raw materials; they maintain good relationships with their suppliers.
Toyota uses Just-in-Time system to manage the supply of raw materials as well as optimizing
the supply and production processes.
Operations

These activities comprise mainly of the manufacturing and assembling process of the motor
vehicles. Other activities in the operations may include motor tuning, configuration of motor
parts and final engine tuning. Toyota Motors have established and maintained the image of
producing reliable and long lasting vehicles largely due to their well-designed and moderated
operation process. One of the main factors of Toyotas successful sales record is credited to
their comprehensive implementation of an exquisitely planned operation system.

Toyota Production System (TPS) is an operation structure followed, which consists of the
integration of the lean production concept and Just-In-Time (JIT) management, controls the
production process in accordance with the customer requirements. Other operation activities
also include the Jidoka system; which stops the production process if any defects or other
operational problems occur. Operational constancy is also a part of TPS and consists of
Heijunka concept which focuses on the uniform distribution of work at any position of the
production process; Work Organization focusing on the accurate distribution of tasks in the
correct order and description; and Total Productive Maintenance (TPM) which emphasizes on
overall check-up of all equipment and tools used in the production process.

Outbound Logistics

On completion of the operation process, final products are transferred to the retailers,
wholesalers and, ultimately, to the final customers. Toyota controls the whole process of
vehicles distribution, from the factory to their branches worldwide, to ensure that the final
products are delivered in the right place at the right time. Each Toyota dealer is directly
linked and controlled by Toyota, with few or no subsidiaries involved in the distribution
process. Outbound logistics of finished vehicles are the responsibility of Toyota Motor Sales.
Parts Distribution manages the supply of service parts from the plant to the service centre. It
supports service parts production and shipping preparation which includes containerization
and overseas shipping. This group is also responsible for quality, technical support and
overseas logistics and customs
Marketing and Sales

Marketing and sales practices at Toyota emphasize innovativeness and efficiency of the
brand, as well as, integration of brand with the best practices of Japanese ways of doing
things. Toyota marketing strategy utilizes a combination of print and media advertising, sales
promotion, events and experiences, public relations and direct marketing techniques with a
particular focus on television advertising. In true customer orientated fashion, at this stage the
Toyota motors prepares the offering to meet the needs of targeted customers. This area
focuses strongly upon marketing communications and the promotions mix.

Service

Services are the final aspect of the primary activities that mainly adds value to the products
and ensures successful distribution as well as obtaining feedback and response from the
customers. This includes all areas of service such as final checking, after-sales service,
maintenance, complaints handling, training, repair services and additional customer services.
Toyota recognises that its customers are the driver of the companys success, thus it
provides and improve several types of their offered services. As Toyota products main factor
is reliability, therefore services are delivered by qualified personnel ensuring all services
provided are of high quality. The importance of perfection ensures service excellence and
more satisfied customers as well as sustaining a greater competitive advantage.

Support Activities

Firm Infrastructure

These activities are connected with developing the strategic plans of the organization. MIS
(Management Information System) plays a vital role in designing the strategic plan,
organizing and controlling the various departments of Toyota such as finance, accounting and
corporate strategy. Moreover, Toyota uses robotics system where people act as operators that
make the production process fast and efficient.
Toyota may use value evaluations to accurately identify their under-utilized resources and
thereby make better u se of these resources. Developing synergies may also aid in a stronger
inventory control. Toyota may also enhance designing to further maximize their operations
and offshoot process within the value chain processes should re-modelled to support the
value chain.

The success of Toyota in Japanese and international markets involves production of motor
vehicles with high level of quality and safety, as well as continuous improvement of
technologies that are involved in all activities of the company's operations. Toyota Motors has
designed different models and concepts that help to increase productivity and are focused on
customer needs and preferences as the customer is the pioneer of Toyotas success.
Furthermore, Toyota pays great attention to its workforce and motivates its employees with
different variety of rewards. This method leads to production improvement and results in
customer satisfaction.

Human Resource Management (HRM)

It is the important part of the whole organizational business and thus Toyota Indus Motors
Co. uses different tactics to sustain its employees. Other car manufacturing companies are
considered as producers of high quality cars, however they cannot compete with Toyota in
HRM (Human Resource Management), as well as its suppliers and methods of distribution.
Toyota has a highly integrated Lean Production System in order to use the workforce in more
productive and efficient way. The main concept of managing human resource is to expand the
capacity and capability of the employees by providing them a material encouragement for the
extra work, training to develop their working skills and various rewards. These methods lead
to friendly and comfortable working atmosphere in the company that in turn increase in
productivity and quality of the product and results in creating of the competitive advantage.

Technology Development

These activities are the integration of constantly developing technologies in the processes
used and help to create and maintain their competitive advantage. Every department of
Toyota is build up on technologies; the main focus on technology development is to
guarantee the customers of the safety of the vehicles. Toyota Motors combine forces with
Collaborative Safety Research Centre located in U.S.A to reform safety checks of the
vehicles and improvised test-drives as well as improving their overall product
performance. Toyota has integrated safety technological systems that are aimed to provide
safety of the drivers and vehicles. The first technology is PCS (Pre-Crash Safety) system that
helps to predict possible crash and thereby minimizes the risk of damage and injuries. Pop-
Up Bonnet technology is a definite design of the car frame structures that was created by
Toyota Motors to avoid the damage caused to other vehicles and the pedestrians. Adaptive
Driving Beam system was assimilated in some models of Toyota cars and helps to regulate
high beam in automatic way.

Procurement

These activities are associated with the purchase of goods, materials, equipment and services,
and focus on reducing the cost on purchases and receiving them on the assigned time. Toyota
Motors uses e-buying and outsourcing methods to manage procurement activities.
Furthermore, in collaboration with its suppliers, Toyota supports the reduction of
environmental pollution that occurs during the delivery of supplies.

[DELIVERING CUSTOMER VALUE]

September 9, 20138

purchases of the highest possible quality. Toyota motors will be responsible for
outsourcing(components or operations that would normally be done in-house are done by
other organizations),and e-Purchasing (using IT and web-based technologies to achieve
procurement aims). Furthermore,the company in cooperation with its suppliers supports the
reduction of environmental pollution.

(Toyota Supply Chain Management, 2009)


SUMMARY THE VALUE CHAIN ANALYSES

The activities of Value Chain Analysis are linked with each other. One value chain activity is
usually affected by the performance of another. Linkages may exist between primary
activities and also between primary and support activities. An example can be the technology
development that is included in support activities. Information systems are used in each of
primary and support activities. Toyota automated the whole production process with use of
robotics system. It shows that technology affects the whole business process of the company.
Human Resource Management also affects the operations processes and other activities since
employees are involved in the process of productions as well as other departments of the
company. Although the operations process is automated with robotics system, this system is
controlled by operators i.e. people. At the same time, Human Resource Management cannot
work without inbound logistics, raw materials and other goods that play main role in
production of products.

Recommendations

The external factors identified in this PESTEL/PESTLE analysis of Toyotas remote or


macro-environment mostly create opportunities for the company. For instance, the firm can
focus on product development to exploit opportunities in the market. Toyota can also improve
business operations and market presence to exploit opportunities based on economic external
factors. However, Toyota must address threats based on the external factors of the widening
wealth gap and the rising frequency of cybercrime. Technological measures and product
innovation could prove beneficial in this endeavor. Thus, this PESTEL/PESTLE analysis
shows that Toyota has significant opportunities for growth and stability.

Toyotas SWOT analysis identifies key issues, such as the effects of competition and the
companys weaknesses based on its organizational structure and culture. To address the
threats based on competition, Toyota needs to maximize its competitive advantage based on
its innovative capabilities. The company can also further adjust its culture and structure to
optimize its flexibility in decision-making and problem solving.

Undoubtedly when the organizations implement their strategies facing problems and
barriers,strong management is the key behind overcoming these barriers, it plans and
implementsemergent strategies to flexibly change their approach of achieving their vision.For
Toyota strategies as mentioned previously for implementing low cost leadership
strategymany problems and barriers Toyota might face, some of it is like the ones developing
andimproving the quality of technology, and keep up with the modern technology, especially
whenthey add new electronic systems and sensors.When the company plans to apply the low
cost strategy, that means they will decrease all cost forall value chain in primary and
supportive activities, these will affect directly on the quality oftechnology because they will
not be encouraged to spend more money for research anddevelopment, and support
innovation centers which slows down the technology growth incomparison to the
competitors, the new technology production may appear defected that wouldforce the
company to recall the defected cars which will lead to losing customers trust andreputation,
and society loyalty.Other problems that may face the low cost leadership strategy is price
increase of raw materialsand suppliers over-controlling the prices, forcing the company to
raise their product costaffecting its known reputation of value of money.Also currency
exchange rates in the scale of economy between company, suppliers anddistributers may also
make Europe increase the taxes rates for the foreigner markets, and makinginappropriate
advertising and promotions to the society.The company should keep its prices low for this
strategy and adopt operational strategies tomaintain capability and resources for appropriate
prices. The implementation strategy should beflexible and emergent perspective in action
plans which deals with all emergent cases that becomes a barrier of implementing the
strategy.Suggestion for the low cost strategy, to keep technology growing with low expenses
is toencourage younger people, invest and support innovation in schools and social groups
and awardthe young learners by making technological competitions whom wages come lesser
than theexperienced ones, generating new ideas from the young minds.

here are a number of recommendations that can be made to Toyota to improve their
operations management strategies and techniques. Toyota already uses the lean
manufacturing method of operations management in their production of vehicles and as
mentioned above, it can be said that the method is the Toyota method - it was pioneered and
developed by this company and the company evidently still employ the method of continual
improvement and efficiency in their operations dealings and waste management. However, it
will be recommended here that to achieve the best possible operations management strategy,
the lean manufacturing technique must be employed in conjunction with other techniques so
as to establish the best possible operational efficiency and waste management.
The first recommendation is to do with the six sigma technique. This technique is often
criticised but it can offer a suitable improvement to the operations management techniques of
Toyota. It has been remarked that the six sigma technique is based on arbitrary standards of
success - this is because the standard of success is always set at a standard deviation of 6 on
the normal distribution of a production curve - and it is difficult to see how such an arbitrary
number can offer anything of importance to widely different products and services that
require greater or lesser amounts of quality control. However, though this criticism may make
sense for something which requires a very high degree of quality control in which a standard
deviation of 6 is highly irresponsible, such as military equipment, there is no need to apply
this criticism to the motor vehicle industry where the six sigma system will work perfectly
well and increase the quality of Toyota's product measurably. The six sigma system can be
used alongside the lean manufacturing technique so that quality control and waste
management can be suitably and efficiently controlled with the same process and
management team. This will not only save on waste and improve quality but will ensure that
the operations management team itself is running things smoothly from one optimal vantage
point.

The next recommendation is in regards with Kaizen. This technique is very general and can
be applied along with any other techniques that a company may already be using such as the
lean manufacturing already being used by the company under scrutiny, Toyota. The reason
for recommending Kaizen along with the current lean manufacturing and the other
recommended technique of six sigma is because Kaizen is seen as a great motivational tool.
Kaizen, as well as seeking to continually improve efficiency just like the lean manufacturing
technique also employs a continual appraisal system that all of the workforce is encouraged
to participate in and not only the operations management team. This is an incredibly
successful motivational tool as it is quite obvious that a workforce that feel their voices are
being heard and they have a tangible stake in the final product will work harder and far more
efficiently to the betterment of the overall operations performance of the company. Toyota,
and any company in fact, would be well advised to employ such a method of operations
management that not only improves efficiency vastly but also raises the esteem of the
production team as well.

Findings in this report are suggesting a Joint Venture strategy for Toyotas growth.
Chinas fast growing market is an attractive opportunity. Toyota needs to choose an
established Chinese domestic partner to introduce Toyotas products to the mass market.
Japanese technology is more sophisticated than Chinese and therefore would require training
and upgrading employees skills and knowledge as well as introduction of technologies and
training on its usage. Chapter 7 provides detailed plan for implementation of a Joint Venture.

REFERENCES

http://internationalbusinessreview.blogspot.my/2015/07/value-chain-analysis-
toyota.html

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