E-commerce techniques used by Toyota Motor Corporation

This report discusses the details of conducting a long-term comparison and analysis of the Automotive Industry-Covisint, specifically focusing on Toyota Motor Corporation (TMC). The purpose of this comparison and analyses is to examine e-commerce techniques used by Toyota Motor Corporation. TMC has become the world’s largest automotive manufacturer in regards to sales and production (Schmitt, 2011). With innovative developments such as QR technology and use of e-commerce practices within their corporation, Toyota has become a leader with automotive practices.

The practice of e-commerce in the automotive industry has lead to increased savings, profits, and productivity. Its greatest impact within the automotive industry has been in the manufacturing process. E-commerce enables companies to alter their ways in sectors such as Supply Chain Management (SCM) and B2B transactions.

Covisnt is a global wide online marketplace for the automotive industry. Ford, GM and Daimler-Chrysler launched Covisint in 1999 with intentions to become an online exchange for supply chain management participants. The online auctioning portal allowed corporations to compete for customers based on buying needs such as price, quality and delivery time.

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Since Toyota’s formation in the 1930’s, Toyota has grown to expand into international operations. Despite various obstacles such as recalls and labor disruptions, Toyota has continued to successfully increase production while making efficient decisions within their corporation. Aside from automobile technologies, TMC has also developed technologies that have grown into industries outside of the automotive sector. Such technologies include QR technology, which is a 2D barcode that contains information in both vertical and horizontal directions, unlike traditional barcodes where information is only stored in one direction. QR technology was initially designed for automobile parts tracking, but has become a common social media trait in outside companies. The Toyota Production System has also grown to become a standard in many industries. The practice of using people as people and not as machines has become a success story for Toyota, while being credited as one of factors in Toyota’s success. ERP technology has also been a B2B and ERP integration model that has been growing within the automotive sector.

E-commerce techniques such as online auctions and paperless transactions, has lead to reduced costs and increased efficiency. The technology has demonstrated to be effective with manufacturing processes and building relationships with buyers & suppliers. Aside from B2B interactions, TMC conducts B2C activities. Goals and objectives for TMC are strived towards with the use of business plans, cases, revenue models and value propositions.

Identifying strategic partnerships with suppliers will further increase cost savings, create higher quality products and ensure technological advancements. Focusing on e-commerce tools such as cloud computing can be used for information exchange on a global scale. Social networking should also be invested into for global communication. With strong relationships, collaborative goals and shared vision will achieve greater profits for all participants. To ensure TMC remains the world’s largest automobile manufacturer, an investment into its forward thinking culture must be maintained.

Historical Background: B2b automotive industry

history of covisint

Ford, GM and Daimler-Chrysler launched an online marketplace for the global automotive industry by the name of Covisint in 1999. The inintial development of Covisint was to created to act as an online exchange for manufacturers and supply chain members. Covisint encompasses three areas of the vertical buy-side e-markets including e-procurement, supply chain management and e-development. Between 2000 and 2001, manufacturers Renault, Nissan, and PSA Peugeot had joined as investors in Covisint. Also during 2001, Ford saved $70 million in procurement costs by using Covisint (Konicki, 2001). Alongside Covisint, various other e-marketplaces were being developed to source and produce goods. The competition of other e-marketplaces caused a concern for Covisint, who then rebranded its image and services

as an automotive industry software solutions provider and standards body” (“E-Marketplace Evolution”).

Covisint’s first step in its plan was to target online auction technologies since auction-driven e-marketplaces were the most popular business-to-business purchasing technology at the time. By using online auctions, corporations had the ability to work with competing suppliers within one platform. With competition, corporations could choose the best fit for their buying needs based on price, quality and/or delivery time. Online auctioning has been credited as an evolution changer as the success for e-marketplaces are based on supplier sourcing and price negotiation.

Historical Background: Toyota Motor Corporation

In the early 1930’s, Kiichiro Toyoda began a trip to the US to learn about the automotive industry. Upon returning home to Japan from a trip Toyoda made from the US visiting carious automotive production plants, Toyoda decided to open up an automobile division named “Toyoda” at his fathers loom factory. By 1935, the first vehicle prototype was created, while establishments of research centres were made by the mid 1940’s. Following World War II in 1945, Toyoda was rebranded as Toyota.

Rather than following the American footsteps in producing medium-large sized vehicles, Toyota decided to focus on working towards the creation of small cars. Doing so gave Toyota leverage in the automobile market as the only leader in small-sized vehicles. It was in 1949 when Toyota was confronted a labor and management conflict because of an imbalance in sales and payroll resulting in Toyota paying employees with long-term promissory notes rather than cash (“History of Toyota”). After the resignation of President Kiichiro Toyoda as well as the executive staff, Eiji Toyoda and Shoichi Saito replaced their positions. Both executives visited the US in anticipation of learning the ways of production in the automotive industry.

Toyota discovered international growth during the 1980’s when the corporation was ranked second in worldwide production levels. During the 1980’s, TMC became more involved with the American culture and joined forces with General Motors to create a manufacturing firm called New United Motor Manufacturing Inc. (“History of Toyota”). It was also during this time when Toyota announced American production facilities as part of their expansion. In 1992, Toyota ownership was transferred to Totsuro Toyoda. TMC had experienced an economic downturn during the recession, resulting in declining profits between 1991-1994. With new ownership, programs were implemented for reducing costs in various areas by 50 percent and production costs were reduced by transferring production to oversea markets (“History of Toyota”).

At the time Toyota president Hiroshi Okuda, introduced Toyota’s New Global Business Plan as a “way to place focus on innovation and international expansion” (“History of Toyota”). Toyota’s New Global Business Plan objective was to localize production, and increase market share. Aside from production facilities, Toyota demonstrated initiatives in eliminating landfill waste and regulating stricter environmental practices. With Toyota’s extensive growth in international markets such as Canada, India, UK, France and Turkey and China, Toyota Motor Corporation (TMC) has grown to be one of the worlds largest automobile companies. By the year 2000, Toyota became the largest car company in Japan, while holding the 3rd position worldwide.

toyota production system

During the late 1950’s, Taichi Ohno and Shigeo Shingo had established the Toyota Production System (ToyoLand, 2011). Also known as lean manufacturing, the Toyota Production System was based on the theory that people should be used as people and not as machinery. Its concept was based on Ford’s manufacturing system; Ohno and Shingo had analyzed Ford’s system to determine where problems were occurring. During the initial stages, Ford had a number of problems dealing with the treatment of its people as machines.

The Toyota Production System is made up of Jidoka and just-in-time production (ToyoLand, 2011). As illustrated in Appendix A, the concept of Jidoka is based on “automation with a human touch” (Toyota, 2011). Jidoka ensures that defects do not pass through the production process, eliminating the production of defective products (ToyoLand, 2011). Just-in-time production focuses on making “what is needed, when it is needed, and in the amount needed” (Toyota, 2011). Reducing the amount of products in inventory not only reduces required maintenance, but also reduces capital costs and allows for ease in technological advancements. Not only has the system been effective for Toyota, it has been implemented in a range of industries around the world.

QR COdes

In 1994, QR Codes were developed by Denso-Wave. QR Codes were originally created for tracking automotive parts in vehicle manufacturing (Wave, 2010). Its “Quick Response” concept was based on 2D symbols, similar to traditional barcodes. It functioned using scanner equipment, where the information contained in the symbol was contained in both vertical and horizontal directions, whereas traditional bar codes contain data in only one direction (Wave, 2010). Presently, QR codes are used in areas beyond the vehicle manufacturing line and are implemented into a range of industries including entertainment, technology, social media, and much more. Specifically in the automotive industry, QR Codes are used as shipping labels and receipts containing customer information, product identification, shipping addresses and much more. QR Codes proved to be beneficial due to significant cost reductions and greater efficiency.

how e-commerce has changed the industry

The rapid advent of e-commerce has resulted in dramatic changes within the business environment. Due to the unique structure of the technologies, there are more opportunities for businesses to benefit from those advances. Using e-commerce related technologies, a businesses can reach their potential suppliers and consumers worldwide. The automotive industry has benefited significantly from the advancement of e-commerce. “General Motors, one of the world’s largest automakers, traces its roots back to 1908. With its global headquarters in Detroit, GM employs 209,000 people in every major region of the world and does business in more than 120 countries” (General Motors Company, 2011). The industry has come to adopt e-commerce technologies by implementing Business-to-Business, and Supply chain integration models.

By using the Business-to-Business model, automotive vehicle manufacturers have achieved efficiency in their daily operations. A typical B2B transaction within the automotive industry can be illustrated by an automakers need for direct material purchases from suppliers, while also having the ability to conduct sales. After the B2B related technology has been widely implemented in the industry, automotive companies are able to save costs by eliminating paper-based systems, and reducing the usage of mailroom staff. Also B2B concepts have assisted companies reduce the potential errors made by the employees in order to improve the company’s data accuracy. Without an Electronic Data Interchange (EDI) system in place, the company would face a potential loss. EDI’s can define and transfer standard data without human intervention. Finally, implementing a B2B model can improve the relationship between automobile manufacturers and suppliers in order to reduce procurement costs and improve efficiency. For example, Ford cooperated with its competitors creating an auto-exchange website (Covisint) to assist dealers meet suppliers online.

By adopting a supply chain integration model, the automotive industry is able to manage information efficiently and create a smooth flow to distributors, suppliers, internal divisions and customers. Majority of automotive manufacturers are using ERP and CRM (Customer Relationship Management) systems in addition to managing their supply chain management process. “ERP (Enterprise Resource Planning) is an industry term for the broad set of activities that helps a business manages the important parts of its business” (The, PP. 123). The results obtained from ERP can assist managers evaluate the company’s performance and see if it meets corporate objectives. CRM is a model built to help organizations reach customers easily and receive feedback. Since this model integrates customer’s information to the overall enterprise, the supply chain management is improved efficiently.

In the automotive industry, e-commerce platforms are commonly used for automakers to buy material online from suppliers. For instance, Ford uses the system to divide the supplier for different levels based the components of a car. When the firm needs to buy systems or seats, the firm would inform first layer suppliers through its e-procurement platform. With that methodology, Ford can improve its relationship with suppliers, save transaction costs and reduce its inventory levels.

industry analysis: current & possible future state

Current

Covisint’s portal allows participants such as manufacturers and suppliers to trade based on a standardized process. The goal of the Covisint is to create a standardized industry system that any manufacturer and its partners can access. “In 2001, Covisint hosted 1,400 auctions, which led to over $51 billion worth of transactions” (E-marketplace evolution, 2006). Covisint has currently extended its services to providing a range of applications for its customers. Unlike its original approach of creating revenues based on subscriptions and/or transactions fees from its e-marketplace, Covisint now generates revenues through its extended applications services. Design collaboration, procurement, supply chain management, quality control and portal solutions are some of the extended applications apart of Covisint’s growth.

In order to remain ahead of competition, corporations such as Covisint have begun to increase investment budgets for B2B infrastructures. By investing into new technologies, changes in day-to-day management practices can be shifted to increase efficiency and quality. Also, investment in B2B services can increase the variety of business interactions.

Foreign automobile manufacturers are also entering the automotive industry, causing a threat to older corporations, such as Toyota Motor Corporation. The automotive industry faces a large amount of competition, where many factors may influence consumer and supplier decisions. Changes in technologies impact corporations based on their situation analysis. With increased technological advancements, a company may position themselves effectively while focusing on a specific target market.

porters five forces Analysis

Porter’s Five Forces (Appendix B) are significantly affected with the advent of technology enabling business to e-business and can be examined in respect to the automotive industry.

Threat of New Entrants (Low): New entrants, specifically foreign corporations, in the automotive industry serve as a threat. With low capital, knowledge and experience, corporations face a difficulty in staying ahead of the positioning curve. Using B2B models, corporations face an easier entry point, as companies are able to outsource more easily.

Bargaining power of Suppliers (Low): The power of suppliers is limited and has been determined to be in the hands of the automaker, who chooses to do business with the supplier. If the automaker were to dispose of the supplier, the supplier may be left in a troubled situation. As a result it is important as a supplier to reach and maintain demands/requirements of the purchasing partner.

Bargaining power of Buyers (High): The automotive industry faces a great amount of bargaining power by buyers with their influence in automobile prices. With such a competitive market, prices are based on supply and demand. With real time access to information such as research and design, buyer power will begin to increase.

Threat of Substitutes (High): Based on the automakers target market, the threat of substitutes may be a concern. Substitutes include public transit, airplanes, or possibly a competing company who manufactures a different style automobile. Gas prices also act as an influence to substitutes, as one car may cost less than another based on fuel needs.

Competitive Rivalry within the industry (Low): The automotive industry is an oligopoly, where the industry is controlled by a small group of firms/corporations. Price based competition is not the focus of competition, but emphasis in value added services have grown with automobile corporations.

future possible state

“Businesses worldwide now use B2B e-commerce to buy over a trillion dollars in goods and services yearly” (Boeth, 2009). By shifting the B2B automotive network to a cloud based environment, the future industry can expect reduced costs. Social networking tools are more readily available to help improve alliances and cooperation amongst trading partners worldwide. As technology continues to advance, communication structures enhance communication security, enabling industries such as the automotive sector to share confidential information securely.

With an emphasis on an organizations bottom line structure, the practice of outsourcing operations to emerging countries such as India and China is increasing. The future success of B2B in the automotive sector rests within its ability to connect the online marketplace with Enterprise Resource Planning (ERP) systems. With the use of ERP platforms, costs an organization may incur can be reduced, while improving inventory management and developing positive global relationships around the world.

toyota motor corporation: swot analysis

A SWOT analysis is used to establish the efficiency of e-commerce within Toyota Motor Corporation, as well as any potential improvements that can be implemented.

strengths

Toyota Motor Corporation is an established international company and a manufacturing leader in the automotive industry. This allows its efforts in electronic commerce to be powerfully employed. The corporation is specialists in integrating B2B and B2C e-commerce into its business activities. The formation and employment of QR codes has provided TMC with a considerable lead in the automotive industry, ultimately decreasing costs and generating greater efficiency. The company’s online showroom allows potential consumers to view the vehicles in customized forms by changing colour and allowing them to read up on added accessories and interior details. These showrooms ultimately promote purchase decisions. By using the internet, TMC has efficiently implemented online storefronts for vehicle purchasing. Toyota also has a strong system of reusing and salvaging parts through the use of e-commerce. Used parts are sold on the web through distributors, as seen in Appendix C.

weaknesses

Although the company has implemented online showrooms, consumers are unable to make the final purchase. The online storefront allows consumers to select and research the vehicle they wish to purchase, but cannot do so without visiting a certified dealership which they are shown at the end of their purchasing decision. There is room for more advancement in the e-commerce world by allowing consumers to search, purchase, and have a vehicle delivered to the home, ultimately eliminating the absolute need for a brick-and-mortar dealership where the purchasing process is traditionally completed.

opportunities

Continual international growth through e-commerce is attainable. There is demand for environmentally friendly vehicles, an area of strength for Toyota. By recognizing the extent of this demand, Toyota can use e-commerce to exploit it through online advertising and promotions (Bradbury, 2010). The internet has a great potential in reaching large audiences effectively while being efficient for both the seller and buyer, therefore marketing opportunities are forever huge. There is also room for improvement in regards to manufacturing efficiency by developing social networking concepts and mobile computing practices in order to strengthen relationships with suppliers and buyers.

threats

The external environment is what ultimately provides threats to any particular business, and Toyota is not an exception. These threats can fall into several categories including; reduced demand for the offered products, inability to meet consumer needs, and competition. Higher gas prices affects the demand for vehicles, making e-commerce efforts which have been promoting growth within TMC, become less effective (Bradbury, 2010). Competition in the automotive industry in respect to e-commerce is major, therefore Toyota must be sure to continuously improve and keep up-to-date with its rivals in terms of e-commerce implementation. By doing so, TMC’s efforts in the e-commerce perspective will not be undermined.

firm & industry e-commerce effectiveness & Improvements

The Toyota Production System (TPS), also known as lean manufacturing, has become a system looked up to by the automotive industry and has also been implemented into a range of industries on a global scale. This “lean initiative” not only dominates the automotive industry but has “recently has gone beyond the shop floor to white-collar offices and is even spreading to service industries” (Likert, 2006). The recognition comes from the fact that with the use of TPS, Toyota continues to produce high quality vehicles faster and for less cost than most of its competition, which results in greater overall profits. “They also manage more new vehicle launches annually than most of their competitors, thus creating a steady flow of high quality new products to meet consumer demand” (Likert, 2006). Alan Miialty, who took over as CEO of Ford in 2006 was quoted the following about TMC, “They’re arguably the finest manufacturing company in the world, I’ve been a student of the Toyota Production System for my 37 years at Boeing. I’ve been to Japan 47 times” (Chappell, 2007). Underlying the Toyota Production System are the involvements of people, processes and technology. The Toyota Production System requires underlying principles that effectively integrate many aspects of the organization including people, processes and technology. Toyota is able to accomplish this by creating a learning culture across the organization to include “continual, comprehensive, and coordinated effort for change and learning across the organization” (Likert, 2006).

The use of e-commerce initiatives has contributed to the success of the Toyota Production System. Planning Perspective CEO John Henke Jr. surveyed 231 Tier 1 suppliers, where suppliers graded six automakers based on categories such as: willingness to help suppliers cut costs, pay suppliers for cancelled programs and reward top suppliers with new business (Sherefkin, 2009). Although Toyota has always finished with top marks historically, Honda recently dethroned them in a North American survey as having the best supplier relations in the annual ranking. “Honda, Toyota and Nissan remain above the industry average in supplier relations, while the Detroit 3 are below average” (Sherefkin, 2009). Toyota engages e-commerce tools such as Covisint to emphasize its relationship management with its suppliers. As studies have shown, “large hub firms are able to exercise power over their tier 1 (direct) suppliers (spoke firms) with an estimated 80% to 90% of tier 1 suppliers receiving or using EDI in Australia” (Tanewski et al., 2003). Although Covisint has focused on using “XML Technology rather EDI” (Tierney, 2004), the examples from Australia show the willingness of business-to-business e-commerce with both OEM manufacturers and suppliers. The use of Covisint allows Toyota to share information electronically with its tier 1 suppliers with lower transaction cost, therefore maintaining its lean production system. The transaction cost perspective is that the firm focus on more than just production costs, but also the associated transaction costs to do business, which “include all search and information costs, as well as the costs of monitoring and enforcing contractual performance” (Robins, 1987: 69). Prior to the development of Covisint, suppliers were using multiple software packages and file exchange formats to communicate with the different OEM manufacturers for engineering design information (Tanewski et al, 2003). This problem was addressed within the framework of Covisint ensuring the benefits of this e-commerce exchange to be benefitted by all its members.

Suppliers like Denso, makers of components for fuel saving hybrids, have also flourished due to their cooperation with of Toyota and will likely continue as they strive to become more of a global player. President Koichi Fukaya of Denso recently stated, “It’s Toyota first, Toyota is our biggest shareholder and originally like our father”. Toyota holds a 21 percent stake in Denso and accounts for half of the auto supplier’s sales (Greimel, 2007). Keeping close contact with trading-partners like suppliers and information systems portals like Covisint, as well as industry groups has been extremely helpful for manufacturers to lower its costs. “Only in this way can manufacturer avoid very costly or rush projects necessary to stay in step with the industry and its customers” (Piszczalski, 2003). Covisint has capitalized with the use of the internet to ensure these multi-million dollar auctions run more efficiently. By utilizing the internet compared to traditional fax machine based communication, online auctions can be finished in as little as 10 minutes. Typically, Covisint’s average auction lasts about 45 minutes, and allows suppliers to “instantly see what others are bidding so they know how much to adjust their own price” (Loftus, 2002). The ability to see the pricing of other suppliers have both positive and negative impact, as the speed of these auctions, suppliers are warned “to know what their lowest possible bid will be before an auction… as there is hardly enough time to crunch the numbers if the prep work hasn’t been done” (Loftus, 2002).

Significant savings can be realized by Toyota through the online auction function, as well as the progression into paperless purchasing transactions. In 2001, “Ford revealed that it had conducted 65 online auctions for the year. The auctions helped Ford save about 19 percent, or $38 million, on purchases worth $200 million” (Sedgwick, 2001). The growth of Covisint will only help facilitate greater cooperation and adaptation from both OEM manufacturers and its suppliers in all tier levels. In turn all the manufacturers involved, including Toyota, will realize greater profitability and faster production time.

Toyota Motor corporation: e-commerce key concepts

Toyota Motor Corporation has exemplified in the field of e-commerce. The corporation has implemented e-commerce concepts targeted towards maintaining strong relationships with their consumers, suppliers, and buyers. TMC has included B2B as well as B2C uses in their e-commerce activities. With the use of business plans, business cases, revenue models and value propositions, TMC has strived towards achieving business goals, benefits, and revenue growth.

Aside from Toyota’s involvement in Covisint, Toyota has generated their own line of electronic marketplaces targeted for private, public, and consortia sources. Toyota’s involvement in business-to-business e-commerce includes transactions for direct materials. Common direct materials purchased and supplied by Toyota include automotive parts for the production of vehicles. Toyota’s e-commerce trades are based on vertical marketplaces as they are dealt with only the automotive industry.

In the year 2000, Toyota Motor Corporation announced that they would not conduct affiliated e-commerce practices. Based on Toyota’s marketplace position, the internet as a middleman was not required, rather they would pursue in the intention of independent business-to-consumer e-commerce activities (Greenberg, 2000). The e-Toyota division was created in January 2002 with intentions of strengthening Toyota’s B2C relationship. e-Toyota’s components included TID (Toyota Internet Drive) and GAZOO.com (Fujitsu). An illustration of TID can be found in Appendix D.

GAzzo.com

Toyotas approach of business-to-consumer activities increased during the launch of GAZOO.com. GAZOO, an independent B2C website created by Toyota, was targeted towards prospective and current Toyota consumers. The website offers browsers e-tailing, internet malls, communication forums, vehicle information and much more (Toyota, 2002). Its plans included expanding into online brokering, financing, insurance, and dealers for future automobile purchases. GAZOO developers focused on creating a membership based website, where users obtained free membership by trading personal information. Based on data-mining techniques, Toyota discovered that 13.6 percent of website visitors purchased a Toyota vehicle within 6 months of accessing the webpage (Greenberg, 2000). Towards the end of the year 2000, GAZOO’s membership numbers hiked to approximately one million, from its previous 430,000 in the end of 1999. Projected e-commerce revenues by 2003 were US$5billion (Greenberg, 2000).

environmental initiative

Toyota does not come short when working towards saving the environment. In 2001 Toyota announced their newest B2B e-commerce program. With the use of exchanges and auctioning, Toyota’s recycling initiative introduced its promotion for reusing repaired/replaced automotive parts (Toyota, 2011). Used parts are sold nationwide online through part distributers. Appendix C illustrates Toyotas strategy in using e-commerce as part of its recycling initiative.

G-book

The development of Toyota’s G-BOOK in Japan, which was based off of GAZOO, enabled subscribers to connect with navigation, news, weather, entertainment and much more (Toyota, 2002). G-BOOK’s design provided information through wireless terminals connected to the Toyota vehicle internally. The technology was later introduced in both Toyota and Lexus’ line of vehicles. Its e-commerce component included its storefront for purchasing merchandise from GAZOO’s Internet mall.

e-crb (customer relationship building)

Toyota Motor Corporation announced in e-CRB (customer relationship building) in 2004, serving as an e-commerce version for CRM (customer relationship management) (Toyota, 2004). The initiative was based on the G-BOOK technology. The objective of e-CRB was defined as improving the customer service relationships between dealers and consumers. e-CRB focused on improving customer service between the two parties, no matter their location in the world.

Community activities

Toyota Motor Corporation stands strong behind their motto “Make Things Better” (Toyota, 2011). Online and offline, Toyota has continued to portray a positive image in involvement in a range of activities affecting the future of the well being of others. According to Toyota Motor Corporations corporate website, the following are examples of Toyota’s community involvements:

Educational Contributions (ie. Scholarships, improvements)

Safety Contributions (Rehabilitation clinics)

Special Olympics Canada National Games

Environmental Initiatives

Volunteering

Conclusion

This