Fig : Differences between TAC and TMMNA
( ii )
Let us discuss about operational and SC strategies which could be used to enhance TMMNA’s future performance and achieve competitive edge on other firms. “ Operations Strategy is the total pattern of decisions which shape the long term capabilities of an operation and their contribution to overall strategy ” ( Lowson, ). SC strategy is a long-term plan with goals and objectives. It is about using all of elements involved in the SC to produce better results for the company. Monczka ( 2003 ) describe it consists of improving the use of technology, reducing costs and cycle times. In short, operational strategy is the planning of day-to-day activities and a part of SC strategies. SC strategy is a long term and a part of corporate strategy. Operational strategy supports SC strategies and again SC strategies provide corporate strategy to achieve company’s objectives by linking SC strategy and business strategy. Many researchers describe there are many operational and SC strategies. We will discuss all possible operational and SC strategies which is being used by TMMNA.
( a ) Material Requirement Planning ( MRP, Push Strategy )
MRP is a widely used production scheduling technique in manufacturing industry to plan the requirements of raw materials by using bills of material, inventory, open order data, lead time and master production schedule. Nagendra ( 2001 ) describe it aim is to reduce the inventory cost while demand relationships are met. It supports to plan for effective production and control the materials. One of the useful software which help for MRP is Enterprise Resources Planning ( ERP ). ERP helps manufacturers to better control the time, raw materials and resource requirements to fulfill production orders. It provide the link between planning and assembling systems by acquiring and sharing information from and to suppliers, dealers, customers and employees. From that, it provides to produce master production schedule for MRP. TMMNA utilize this ERP and MRP programs for it production system. TMMNA uses ERP solution by licensing with People Soft Inc. to support parts production facilities manufacturing and assembly of engines and other automotives subassemblies. ERP provides TMMNA for effective order management, inventory, purchasing and production planning by showing each department information. ERP helps TMMNA to communicate with suppliers and other TOYOTA companies about required materials to produce master production schedule. The quantity of material by each production process is computed. Then a bill of materials is made based on master production schedule to provide MRP. Because of ERP and MRP, TMMNA knows daily required quantities of each material to be used within company.
( b ) Just-In-Time ( JIT, Pull Strategy )
Weele ( 2002 ) describe JIT means that all materials and products are produced when they are needed in the production process, not sooner and not later, but exactly on time and in exactly the right quantity. In other words, nothing is produced if there is no demand. The production process is pulled by customers orders. Many researchers describe JIT improves quality, overall productivity and eliminating waste. It provide for cost-effective production and delivery of only the necessary quantity of part at the right quantity, time and place while using minimum amount of equipments, materials and human resources. It drives for continuous improvement ( kaizen ). Morash ( 2001 ) describe JIT emphasis on time-definite deliveries and reduce buffer inventory and safety stocks. JIT involves more frequent deliveries of smaller shipments and it depends on the balance between suppliers’ flexibility and customers flexibility. The main element which support to accomplish JIT production is kanban system. But before applying kanban, detailed schedules need to be produced in advance for each production process by using MRP system. A kanban is a card and which describes details quantities which the subsequent process should withdraw and which the preceding process must produce. Let us see how TMMNA implement JIT approach.
To achieve TMMNA’s cost reduction and improvement of productivity objectives, it uses JIT approach. It apply JIT system by implementing kanban system. It uses kanban system within TOYOTA factories, between TOYOTA and its many cooperative companies and within the factories of cooperative companies. Since the type and quantity of units needed are described on a kanban card, it is easy to know the amount of quantities need to withdraw and produce. TMMNA effectively use this JIT approach to eliminate unnecessary wastes such as excessive inventory and work force. It realize over production causes to be excessive inventory and this again demand more workers, equipments and floor space to transport. Because of JIT approach, TMMNA knows how many product need to be stored in the inventory and products need to deliver. JIT approach helps TMMNA to achieve its objectives an to respond the demand of the market immediately.
( c ) Lean Manufacturing ( Pull Strategy )
Lean manufacturing is a production philosophy and a way of mapping the overall manufacturing process from raw materials to finished goods and customers. Mason-Jones etal ( 2000 ) describe lean manufacturing develops a value stream to eliminate all waste, including time and to ensure a level schedule. Researchers describe it highlights what needs to be changed to streamline overall production process and JIT approach is based on lean thinking, which produces more and more with less and less time, inventory, capital, human effort, equipments, resources while coming closer for providing customers with exactly what they want. TMMNA also use lean thinking to control production and amount of work in process ( WIP ) inventory. TMMNA produce materials and transport several times a day only to replenishment materials are consumed by downstream process or customers. For replenishment inventory, TMMNA uses MRP and kanban as we discussed above. To reduce the cycle time, TMMNA check quality of products during the whole production process. If defective parts are found, they repair it firstly. The main objective is to reduce the cycle time and to give qualified products to customers. TMMNA could reduce cycle time, higher quality, excellent customer services and lower production cost from this lean manufacturing strategy.
( d ) Product Strategy
One of the main elements in SC strategies is product strategy. It establishes the basic tasks of the supply chain. It shapes SC strategies by impacting location, logistics and transport, storage and warehouse activities, make or buy strategies and infrastructure ( See Appendix 1 ). Product strategy means where materials come from. Let us see TMMNA’s product strategy. The main reason why TMMNA chooses Kentucky as the site for its plant is it is close to Detroit, America’s automotive capital. It is close not only the Detroit parts manufacturers but also the manufacturers who were already supplying parts to other Japanese factories. TMMNA also demands their suppliers who have production plants within a radius of 30km of TOYOTA plants. It facilitates infrastructures such as nearest road for transportation to keep raw materials and to deliver finished parts to TOYOTA’s plants and storage and warehousing facilities.
( e ) Make or Buy Strategies
Make or buy strategies determine whether tasks are internal or external operations. But cost and capacity of organization shape whether organization should make or buy ( Gadde and Hakansson, 2001 ). Simply, unless organization has no capacity to make by itself, it should buy from others. If buy, organization needs to communicate more than one suppliers. TMMNA has gained competitive edge by outsourcing its parts from more than one suppliers. The reason why TMMNA buy from suppliers is to cover the problems associated with future opportunities to adopt to rapid changes in the marketing environment. TMMNA purchase nearly $15 billion worth of parts and materials from 500 North America suppliers in 2002. TMMNA’s make or buy decisions include evaluating production plans and assessment of suppliers. It has strict standards for its suppliers. It seek only the suppliers who have the ability to invest in plant, equipment, technology, research and HR. 70% of manufacturing costs are purchased from suppliers by assessing them in terms o price competitiveness, quality and delivery. Let us see how TMMNA build relationship with suppliers.
( f ) Supplier Relationship Strategy
Building and maintaining relationship with suppliers are important for the long-term. To achieve advantage from suppliers, organization needs to build and retain firm relationship with suppliers to achieve continuous improvement ( kaizen ) for organization. TMMNA adopts open- door policy for competition in terms of price, quality and delivery to be TMMNA’s suppliers. TMMNA build long term relationship with suppliers by supporting, discussing openly and building mutual trust with suppliers. TMMNA set clear expectations for suppliers in its annual purchasing policy. If suppliers have problems to meet expectations, TMMNA send its experts to work with suppliers. TMMNA solve suppliers problems by phoning or meeting suppliers either TMMNA’s plants or suppliers plants. TMMNA also involve in supplier development by advising, coaching, monitoring suppliers performances and training them. To increase suppliers productivity and quality, TMMNA establish Toyota Supplier Support Center ( TSSC ) which train and give instructions to achieve TMMNA objectives. In this way, TMMNA build and maintain long-term relationship with suppliers by relying each other.
( g ) Customer Closeness Strategy
Living closely customers also help TMMNA to achieve competitive advantage over other firms. TMMNA always watch customers’ changing needs by making market research and R&D department. It tries to design and make new products to persuade customers according to the findings of researches. Because of those departments, TMMNA can respond ever-changing markets quickly while giving satisfaction to customers.
( h ) Efficient Consumer Response ( ECR )
The other potential system which TMMNA could use is ECR. Because many researchers describe ECR enables distributions and suppliers to anticipate future demand for more accurately than the current system allows while reducing inventory 37% and reducing overall cost reduction. But successful adoption of ECR for manufacturers depend on their abilities to maintain manufacturing flexibility such as demand management, production scheduling, inventory deployment and better utilization information.
Let us discuss about part ( iii )
( iii ) Technical and HR changes require for successful implementation of SC strategies
To implement SC strategies successfully, it would be necessary to change existing technology or introduce new information technology such as hardware, software, telecommunications networks to share, store, manipulate and transfer the information within the organization and outside suppliers and customers. Changing HR style is also important. Let us see how TMMNA change this approaches to implement JIT and Lean manufacturing successfully.
As we discussed above, Kanban system supports JIT approach by applying MRP data. MRP schedule is accomplished by a computerized information system. For this, TMMNA uses Electronic Data Processing ( EDP ) system. It maintains the data for the planning and actual performance subsystems. The former provides information for determining the number of kanban and the distribution of workers on the assembly line. The later supplies directing information to improve process by comparing actual performance with planned data. As we discussed, JIT improve quality. For those, autonomous defects control system is necessary. At TMMNA, almost machines have this system. This system does not allow defective parts to go to next process. To be more effective, TMMNA uses visible control system. Lean manufacturing also focus on using visual management techniques to solve problems immediately, if problems occurred. TMMNA’s visible control system is an electric light board which shows yellow lights when problems are occurred and if the process is stopped, it shows red light. TMMNA also chooses Visual Plant Manufacturing Intelligence software from ATS ( Applied Tech Systems ) to provide operational visibility and enable a fact-based decision making process for all plant floor operation. It helps to meet the requirements of each department from starting to ending to customers.
To communicate suppliers and dealers effectively, TMMNA has Strategic Information System ( SIS ) or Toyota Network System ( TNS ). It helps TMMNA to know inventory information, flexible delivery schedule to adjust to the market demand. The other information system which could be used by TMMNA is Electronic Data Interchange ( EDI ). “ EDI is the transmission of standard business documents in a standard format from one trading partner’s computer application ( e.g. materials planning software ) to the other trading partner’s computer application ( e.g. order entry software ) ” ( Walton and Gupta, 1999 ). It can help TMMNA to reduce overall production costs by regular contacting with its suppliers, dealers and customers and enhance operational efficiency. As the nature of lean manufacturing, organization needs to contact suppliers regularly to meet organization’s expectations. EDI could help effectively to meet and maintain supplier relationships. At the same time, TMMNA can accomplish more effectively its supplier relationship strategy.
To implement JIT and Lean manufacturing strategies, it needs to be wide awareness of company goals. Everyone within the organization from top level to shop floor need to participate each production process. Top management needs to set and provide necessary guide lines to improve the whole manufacturing process. To achieve quality objective, organization need to implement Total Quality Management ( TQM ) approach by participating each in quality issues. At TMMNA, top management involves in each production process by providing necessary resources. It also establish a project team consists of various departmental managers and force employees to participate in quality control cycle to achieve continuous improvement ( kaizen ) for both employees and organization.
To achieve JIT and lean manufacturing strategy, it is necessary to enhance the contribution of employees who make the improvement of performance of the organization. For those, training is essential. Changing and introducing new information technology is not enough, unless training is implemented. Therefore, organizations need to train employees to be familiar the changes and new computerized systems. According to the nature of JIT and Lean strategies, employees need to be multi- skilling and flexible. TMMNA train employees by giving necessary instructions. TMMNA also implements job rotation programs, where each employees rotate through and perform every job to develop proficiency in each job and to be a multi-functioned workers. To facilitate changes for introducing IT systems, TMMNA can also recruit competent employees from outside the organization.
Saunders ( 1997 ) describe to be effective JIT, employees are needed to empower to increase their participation in problem-solving practice. For those, organization management styles need to be decentralized and participative. TMMNA adopt decentralized and functional management styles against centralized in Japan. In its functional management, each director of the company is responsible for a certain department and multiple functions. Functional management also consists of functional meeting to enhance communications and human relations among various departments.
Since JIT approach relies on the demand of the market, designing organizational structure is important. To respond immediately and sensitively to ever-changing customers’ needs and environments, organization structure needs to be flat and flexible. TMMA follows this flat structure to be more efficient and flexible in its responses to environment.
TMMNA uses Human Capital Management and Enterprise Portal system from People Soft Inc. This system help employees to access the portal to review benefits and pay checks, change personal information, sign up for training, reserve conference rooms and check out company cars, plant information on employees attendance, safety policies and overtime.
The main important thing to implement strategies through changing technical and HR are cost implementation problem. Simply unless organization have no efficient money, it could not implement any strategies effectively although it has ideas. Organization needs to manage cost issues effectively to buy necessary equipments and it shapes organization’s make or buy decisions. TMMNA manage cost issues to develop and perform various activities to achieve its objectives relying on target and kaizen costing. It provides to support TMMNA’s overall production cost reduction process while establishing detailed cost plan to satisfy customers’ needs by producing new models and eliminating the costs of existing products. Each departments has also its own departmental budgeting to improve cost management. TMMNA decides whether make or decisions depending on those cost management factors.
In conclusion, TMMNA designs operational and SC strategies by utilizing all possible organization’s resources such as doing Market Research, having R&D and QC departments and TLS and using exclusive push and pull strategies. Its main objective to reduce overall manufacturing cost reduction is implemented by adopting JIT, Lean and maintaining long-term relationship with suppliers. To make technical and HR changes in order to achieve SC strategies successfully, TMMNA adopt decentralized and flexible management styles, flat and flexible organizational structure and effective cost management methods. All these factors help TMMNA to enhance its future performance while achieving competitive edge over other firms.
Supply Chain Strategy Framework