Value Chain Analysis Toyota Motor

Toyota Motor’s vision is to be the most successful and respected company that can created the happiness for customers. Toyota also wants to be the best solution of the automobile industry with the variety of its products, and the best quality of its people and technology.

Mission of Toyota motor is to provide customer with safe and sound journey. Because of Toyota concern with the environmental-friendly is the first and most important issue for its working, so it developed many new technology for energy saving and diversify energy source while Toyota also concern for creating a good and clean society.

Meanwhile, Toyota Motor Thailand’s vision is to be the leader of Toyota Asia Pacific and Toyota motor network around the world that be the most respected and admired company in Thailand. For the mission, it wants to strengthen its production and support the collaboration in the Asia Pacific area that can achieves the high customer satisfaction and market share. Moreover, Toyota Thailand focuses on the safety with the first issue for its working and also wants to create social quality through many useful society activities.

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2. Value Chain Analysis ( focus on Toyota Motor Thailand )

Toyota uses a Cost Leadership as its generic strategy. Toyota has been trying to reduce their costs in every stage of value chain but still, they need to maintain the high-quality standard. So, each stage of the analysis will show how it links the cost leadership strategy to the value chain.

2.1. Inbound logistics

In this stage, Toyota receives parts from both local and international suppliers. They ship components from international suppliers by ships then deliver to production plant by trucks and for local suppliers in Thailand, trucks with full-loaded are used. This way they can buy components at cheaper price. Toyota makes suppliers making a commitment that they will share any innovation in the suppliers group that produces similar products. This will make suppliers produce better quality parts, more efficiently. Also they use Just-in-time and Milk run. (see appendix)

Just-in-time is a part of lean management. It reduces lead time, inventory level, so holding cost decreases. In this stage, by applying JIT, we will receive parts from suppliers at the right time and right amount. Because we will order parts at the amount the production plants really need. For this method, you offset holding cost with ordering cost.

Milk run is the method you use logistics providers to get auto parts from all suppliers in the routes and deliver to production plants. This method can reduce traffic at the production plants. There will be fewer trucks because sometimes many suppliers used to deliver their supplies to the plants but now only logistics providers’ truck with full-loaded of parts from different suppliers. Also, this will make inventory level decreases, because you will receive the parts many times a day, instead of getting a big lot once in a while. So cost in traffic management and holding cost decrease.

2.2 Operation

After receiving components from suppliers, now production plants put all the parts together at their own production plants in Sum Rong, Gateway and Baan Poh. This can be called as Lean manufacturing which involve of Just-in-time, Jidoka and Kaizen. (see appendix)

For Just-in-time, Kanban has been used to help achieving. Kanban tells you what to produce, when to produce and how much to produce by handing cards along in the production process. So you won’t produce if the previous production process has not passed you the card, which also could not get started if there is no demand from customers. Also it could reduce lead time, which satisfies customers, because it can respond to customer demand immediately. Furthermore, no stocking occurs in the production plants.

Jidoka can reduce defective goods by detecting the production process closely, so if any problem occurs in the assembly line, the production line will be stopped immediately, fixed and make sure that it will not happen again. When less defective goods occurs, the production system becomes more reliable, higher quality, the chance that customers will get defective goods will decrease, satisfaction increases.

Kaizen is used to improve all functions continuously. It starts with idea generations, then tests the best with the standardized process, if it is good, they will apply that idea to the old process. The key in this method is to keep improving, never stop generating ideas and test to see whether it is a good idea. By Kaizen, it creates value to customers because they will get better and better product from the improvement in production process.

For Toyota, it has worked on improving their lean manufacturing system in order to spread their fixed costs more over production. They have surpassed Ford and GM in production and costs. They can produce 15 cars per worker which is far more than the 4.7 vehicles per employee Ford can produce. By creating more cars to sell, Toyota has effectively spread their fixed costs over more production.

2.3 Outbound Logistics

After products are finished, production plants need to delivery its finished goods with the full-loaded truck of cars directly to its own showrooms following the demand order of each showroom. Toyota Motor Thailand manages its own showrooms around the country. It helps customers to find Toyota’s product easily.

In the distribution process, Toyota will wait for the customers’ demand. Most of the car will be parked at the parking lots in which they are waiting for the purchasing orders from the dealers. For the cars that already have been placed purchasing orders from customers, they will be parked at the point of exchange and will be sent to the customers as fast as possible. And around 15 % of the cars that have been parking in the park lots will be sent to the near parking lots for further sending to the dealers

In Thailand, there are 119 dealers with 319 showrooms that Toyota production plants in Thailand have to serve. For this outbound logistics in Thailand, Toyota has developed a system called Vehicle Logistics which is a cluster deliver. In the past, one truck can carry 3 large-sized cars and 6 small-sized cars. In nowadays, it is improved so that one truck can carry 4 large-sized cars and 8 small-sized cars. This also helps save the transportation cost for the company as well as reduces carbon dioxide emission to protect the environment which is one of the Toyota’s purposes.

2.4 Marketing and Sales

At this stage, Toyota communicates their cars by focus more on local area and specific lifestyle to satisfy the different need in each area by using below the lines marketing. It is because Toyota found out that auto market expanded more than 50% from the previous year and only mass media cannot build up attention of its target. So, Toyota decided to offer more of its events through segmenting lifestyles of its customers such as for people who love racing, Toyota offers the “Toyota One Make Race” which the event is for racing Toyota cars and to show quality of Vios and Yaris, around the country. For sport market, Toyota offer itself to be a sponsor in many sports that popular in Thailand, boxing and football, such as the Toyota Thai boxing marathon Vigo smart and the Toyota premier cup 2010. Toyota also provided 100 cars for the prize of short film competition in the Film Expo Asia 2010. However, Toyota tries to expand its events in every part of Thailand which Toyota will not control all of those events but local dealer to be the one who manage each event. This method can make Toyota get more attention from people in different lifestyle and help to increase the impulse purchasing from customer.

Environmental friendly is the one that Toyota considers as its first issue for working. Therefore, Toyota pushes many CSR activities for save environment and improve the society such as the White Road Campaign to teach children about traffic regulations and safety through fun and practical lessons

Toyota also communicates and updates its news through electronic media such as its website, www.toyota.co.th. Moreover, direct mail is a tool for people who want to receive news through e-mail from Toyota by register on its website. Brand ambassador also another tools that Toyota use for gain more attention from people by using celebrities who popular in at that time for promote its cars such as it used “Joe-Wan AF” to be brand ambassador for New Toyota Vios in concept of Make it happen.

Even though Toyota focus more on below the line advertising but it also communicate its cars through Mass media such as Toyota launch its advertisement of New Toyota Vios, which has Joe-Wan AF to be a presenter, through television, radio, newspapers, magazine, and billboard. As a result, people aware that Toyota has new Vios in the market because mass media can communicate in wide area.

Besides Toyota communicated its cars by advertisement and promotion for its current targeted, it tries to catch new target customer which is a teenager with in-trends lifestyle by building a place for hanging out, learning, and show up their creative of student at the center of teenager, Siam Square. This place was called “The Style by Toyota” which has the concept of Edutainment that people can come to this place to have fun with many entertainments and can also learn new technology or news of Toyota in the same time. Moreover, Toyota also launch a new model of its cars, Yaris be…Groovy, to satisfy its new targeted which are teenager from 18-25 years old with fashionable lifestyle. Toyota change its Yaris to be superior and fashionable with its new technology ,such as engine start, from its Vios and Honda Jazz which is a main of its competitor. Therefore, the price of Yaris be…Groovy also higher than the main competitor which is Honda Jazz for make customers value its Yaris to be high quality than Honda Jazz.

2.5 Services

After customers make a purchase of automobiles, the most important thing they need is customer service, which are check service.

Toyota provides its customers a guarantee after purchased by 36 months or 100,000 km. depends on an offer. For this guarantee, if there is any defect components or any activity that affects from the irresponsible of an assembly line. Toyota will replace and fix those for free. This guarantee could also pass along through different ownerships but within 36 months or 100,000km.

Express Maintenance is after sale service for car checking. They can give customers a fast service, normally within 1 hour or the given exact time by having 2 technicians check on your car and a boss to make sure that your car meets their standards. Also, they provide a very comfortable waiting room for customers or if you can ask the technicians about problems you have with your car, you can. From the room, you can see the place where all the cars are being checked. There are magazines, TV, snacks, soft drinks for customers to enjoy.

Toyota Sure is a Certified Used Cars center. It is the place where you can sell, buy or exchange your used Toyota car with a better deal. They buy at a standard price. They make sure that the cars they are selling meet the same standard, with high quality. About 176 points need to be checked before they sell those cars. Every car that has been purchased, they offer a 1-year warranty or within 20,000. And they offer a wide service with more than 50 Toyota Sure across Thailand.

3. Porter’s Five Forces Analysis on Automotive Industry

3.1 Threat of new entrants: Barriers to entry

– Economies of Scale: High

If we take a look at a big players in this industry; Toyota, Ford or GM, that sell the products to many countries all around the world. We could see that they are producing in the large amount. And of course, this is in the advantage of economies of scale.

For automobile industry, it is very large and of course economies of scale must have been successfully reached. In order to compete in this big industry, a manufacture must be able to achieve economies of scale. It is generally valued to be a low-cost producer, sales of over four million vehicles a year are necessary. For this to happen, manufacturers have mass-production of the automotives so that the price of product will be affordable to the customers. This also implies that, the more the company produces the lower cost per unit. This means in term of the fixed cost like the rent, the electricity, the overhead cost, etc. The company can save the advertising cost and the transportation cost as well. As once they pay for the advertising cost or transportation cost, the cost per one unit is less if there are more units produce to sell.

Therefore, for this industry, it requires high economies of scale for the businesses to compete.

– Product differentiation: High

For the automobile industry, for sure there will be high product differentiation. As we can see in daily lives, many brands of cars are in the roads and even if in the same brand there will be many models available for customers to choose. Nowadays cars demonstrate a variety of features in which they differ from their predecessors that an entrant has to spend big amounts on safety, motor management, comfort, design, and numerous electronics functions. However, the innovative technology can also be one of the tools that established firms use to make their differentiation in products as well as create brand identification and customer loyalties. For example, Toyota has been introduced the hybrid technology in many models of their cars. This also helps save the environment. However, Ford also comes up with a new model called “Ford Fiesta” that inventing the new technology that uses driver’s sound to control the cars.

Therefore, in the present day technology and design can be use to create the differentiation between brands and this helps to satisfy the needs of customers as well.

– Capital Requirement: High

The investment in capital is another barrier to entry that it keeps the difficulty and inconvenience for the new entrants to enter in the industry, since it takes a marvelous amount of capital to manufacture the automobiles. It takes an extreme amount of capital not only to be able to manufacture the products but also to keep up with the Research and Development (R&D) cost that is necessary for the innovation requirements and product development. So, in order to start the business, it requires quite a high investment. There must be an investment in term of the factory, machines, warehouses as well as other supporting facilities like service facilities.

Let’s take a look at the example of Toyota, in the year 2010 Toyota has invested its fund for the development of environment technologies, maintenance and replacement of manufacturing facilities, and the introduction of new products. And the net cash used in investing with these activities was ¥2,850.1 billion for fiscal 2010.

Therefore, in starting or existing in the automobile industry, high investment in capital is substantial.

– Switching Cost: Low

For the automobile industry, the switching cost is low. Let’s say if you would like to change from buying a Honda car to a Toyota one, this would take you a little bit higher or smaller amount of money for you to pay. As there are many competitors for customers to choose and there are in competitive price, the price for each brand is not largely different. However, the switching cost is not only mean in term of the money or the amount you have paid, but this also involves your time, energy, and other costs that have been used to search or learn for the information base on the new brand you want to purchase. Since people get familiar with the car and they can also listen from the words of mouth from their family or friends so, they might not have to pay a large amount of time or energy to search for information. Therefore the switching cost from one brand to others is low and the gap of price among brands is not largely different.

– Access to distribution channels: High

Access to distribution channels is another high barrier to entry. A company must find a dealership to sell their automobiles or consider having their own dealership. Also, considering with dealership, since space in the dealerships lots is quite limited. This makes it difficult to have a wider variety of inventory.

And of course, to find a dealership is not that easy regardless of brand awareness Limited capacity within distribution channels (e.g., brand reputation), risk aversion by dealer ship, and the ¬xed costs associated with carrying an additional product can result in retailers being reluctant to carry a new manufacturer’s product

– Government policy: High

Local content requirement is one of regulation that government set to protect the local automobile companies to get hurt from the foreign automotive manufacturer that access to invest in lower cost countries. It is a regulation, that automotive manufacturer, especially on Toyota which is the biggest firm from Japan have to follow, that required manufacturer to use some parts of car that come from local country. In Thailand, the government required that about 85% of local parts are for picks up car’s production, almost 70% are for passenger cars, and around 100% are for motorbike.

Imported car tax requirement is one major of regulations that control the quantity of imported finished or unfinished cars to target countries. In Thailand, the imported cars tax are charged around 200-300% of car values while the cars that produce in Thailand are charged only 40-70% of cars values. Even with the same brand, same series would be more expensive if it is imported.

Therefore, the government policy of automaker in Thailand is high because government issued the law for protect the local firm intentionally. Which mean it’s really hard for new entrants to import their cars or invest production in Thailand because regulations that government required, new automotive manufacturer need to have good relationship of suppliers to send the parts for productions and if some parts of productions need to import from oversea, it will effect a lot for new manufacturers to face the high cost of tax.

In conclusion, the threat of new entrants for automotive industry is high.

3.2 Threat of substitute products: Low

Transportation system such as buses, trains, motorbike, sky train, subway, ferries, and airplane are consider as one major of substitute products of automobile. Because transportation system can satisfy people need that for transport people from one place to another, similar to automobiles. Moreover, nowadays the oil price is rising continuously due to the hedge of world price of oil; it tends to motivate more people to use transportation system which can save their money. Environmental effect is also one reason that makes people turn to transportation system because of the driving more cars, the more Co2. So, people concern more of the earth and environment that make them try to change their lifestyle. As people take more interest on time than before especially on working time in urban people so instead of get stuck on the road from traffic jam and wasting time, people turn rely on sky train and subway for saving time and cost. In Bangkok, even though it has the rate of using sky train slightly increased from 132,071,000 people to 146,964,000 people in 3 years, but the rate of cars on the road also high more than 2 times when it compare with the sky train using rate in same period of time. Moreover, for Thai people, car is more than a vehicle. It also shows the image and social status of the driver. That is why Thai people value cat as social materialism and they do not want to go by public transportation like bus to show lower social status. (see table in appendix)

Walking, riding bicycle is other substitute product for using car because these activities can also bring people to other place without tax paid like taxes of imported car, and it can benefit more for personal health and environmental advantages. But concerning with Thai weather which is quite hot, therefore it is quite impossible for a person to go by bicycles in a far distance.

Therefore, threat of substitute products of automobile is low. As well as, the management of transportation system in Thailand is lower than the standard that should be. In addition, Thailand do not have good city plan system for transportation so people in Thailand willing to pay more of cost and time for private cars more than using transportation system. Moreover, the weather in Thailand is not suitable for walking or riding a bicycle for other place because it too hot and wet. So even though there are many ways to transport people from one place to another place but private car also offer people more personal and comfortable.

3.3 Supplier’s Power: Low

As there are about top 49 vehicle manufacturing groups (by volume), range from big players like Toyota, General Motor, Volkswagen Group to local groups such as, Ashok Leyland from India, Navistar International Corporation from USA which produces trucks, internal frameworks, Diesel engines, buses, and school buses.

For suppliers, there are about thousands suppliers around the world. When talking about suppliers, it means to supply from very small components such as battery boxes, battery switches, electrical fuses, etc. to bigger components, such as wheels and tires because normally car makers outsource those components and out together those components in their own manufacturing plants.

So, supplier’s power in automobile industry is low because they are lots of suppliers with very few top vehicle manufacturing companies. This means automakers have a high bargaining power over the suppliers; the suppliers rely much on those auto makers. If the supplier does not meet auto makers’ expectations or rules in terms of standard, price, lead time, etc., they can just switch to a new supplier.

3.4 Bargaining Power of Buyers: Moderately high

The buyers can purchase almost all of the industries output since there are many brands for them to choose. The manufacturers depend on them to stay in business. The buyers also are a significant portion of the industries revenue. If they cannot keep their buyers with satisfaction then they are in risk to lose them to their competitors. However, the buyers may go for the other brands if they are not satisfied. All the buyer do is sell the car they own and purchase a new one. For example, like I buy a car from Toyota and I am not satisfy with it I can sell it and purchase a new Honda. The reasons why the power is not completely high is that the buyers are not large and few in number. The buyers do not have the ability to integrate backwards into the industry. If they want a car then they have to purchase it from a dealership.

3.5 Intensity of rivalry among competitor: High

In Thailand, Toyota holds almost half of the market share, along with 2 big holders which are Isuzu and Honda. So we could say that automobile industry is a consolidated industry, which means it has few big players who hold major control within the industry.

For car industry, they compete in the similar target market, price, and product innovation. When one company comes up with one of those techniques, other companies tend to follow.

For example, Toyota Yaris launched the first generation in 1999; two years later Honda Jazz had been introduced to the market and in 2007 Mazda launched Mazda2 to the market. These 3 cars, Jazz, Yaris and Mazda2 are segmented as a hatchback subcompact car. They target same group of people who are looking for affordable transportation with fuel efficiency, young and energetic. They all come with slightly different prices with slightly different options, performance and promotion. (see appendix )

For automobile industry, the intensity of rivalry is high because there are few big players where 1 product innovation encourages other companies to launch the same type of product, either with the same or better function or more valuable. They could not let anyone take a step ahead for so long, because they would lose a high market share to the product leader.

5. Implementing Strategies

Lean Manufacturing failure and Vertical Integration

Toyota had to recall millions of Prius, Tundra and many other models during the past years, from their gas-paddles, floor mats, fuel-pressure sensor, etc. These results from Toyota tried to cut their unnecessary costs too much, to reduce any waste as it said in Lean Manufacturing strategy.

The reason why many models of Toyota had been recalled is because Toyota used the same model of those defective goods from suppliers in many models, to gain more Economy of Scale, for company to reduce cost and get a higher margin. These recalls caused sales of Toyota to decline by 16% last year.

As we can see that the problem arises from defective goods from a supplier, so we could apply the Vertical Integration to supply components, instead of outsourcing. This way we can control and maintain a standard of Toyota cars, protecting a company’s image and creditability.

Push and Pull Strategy

As Toyota has been implementing the Pull Strategy, which mean they usually wait for the demand to come then produce, as applying the Kanban tools. But sometimes, this results a long lead time for customers. From this situation, Toyota should integrate Push and Pull strategy together to balance customer satisfaction and cost.

For Pull strategy, they already gained a benefit from producing less excess inventory, reduce cost, and flexibility of products increases. But for Push Strategy, they can use for high-stable-demand products. For example, applying push strategy with the popular car color, features and model. So if you already have those high-demand cars for customers, customer satisfaction will definitely increase, due to less lead time. Normally, people tend to buy more cars during the Motor Show session because they get a better deal. In this case, after having a demand forecast, we could produce cars in advance.

Centralized distribution system

This strategy is used to respond to Push Strategy because when finished goods are waiting for demand, they will need a space for cars to store. By using this system, fixed cost, renting cost, overhead cost, electricity and water, etc. reduces; also inbound cost because instead of delivering goods to many distribution centers, you only deliver to fewer centers, risk decreases but outbound cost increases, comparing to cost that incurred from decentralized distribution system.

Time Postponement

Toyota has been implementing the Manufacturing Postponement, which directly links to Kanban, wait for demand to start producing, but if Toyota would apply the Push strategy and centralized distribution system, they should apply Time Postponement Strategy too. Because it means that the finished cars would be kept in central location and wait for demand to deliver the orders to customers.

Demand – Driving Strategy

As we want to implement the Push Strategy along with the Pull Strategy, Toyota can use this strategy to forecast demand for Push Strategy from historical data to develop an expected demand from customers. But also demand could change, due to marketing, advertising campaign on your products, trends (about color for example), economic condition, etc. So as you forecast, these factors should be include under your consideration, in order to get the most accurate forecast. And the more accurate your forecast is, the fewer inventories you have to hold, the more cost reduction and the more customer satisfaction.

Graph1: the comparison of using Sky Train and cars from 2007 to 2009 in Thailand.

Table1: The table shows the specification of Toyota Yaris, Honda Jazz, Mazda2, and Suzuki Swift.

Toyota official website – www.toyota.com

Toyota Thailand website – www.toyota.co.th/th/toyota2009_home

Figure 3: Milk Run delivery system

Figure 4: The differences between doing business as usual and practicing Lean Manufacturing

Figure 5&6: Toyota Production System including Just-in-time, Jidoka and Kaizen

Guarantee after

sales

Express maintenance

Toyota sure

Below the line

Mass media

Vehicle logistics

Deliver directly from plants to dealer

Just-In-Time

Milk Run

Just-In-Time

Jidoka

KaiZen

Figure 2: Strategy used in Toyota Motor Thailand Value chain

Appendix A

Figure 1: Toyota Motor Thailand Value Chain

Appendix B

Toyota Innovative Technology

Hybrid Technology

What is hybrid technology?

A hybrid system combines different power sources to maximize each one’s strengths, while compensating for the others’ shortcomings. A gasoline-electric hybrid system, for example, combines an internal combustion engine’s high-speed power with the clean efficiency and low-speed torque of an electric motor that never needs to be plugged in.

Are all hybrids creating equal?

There are several ways in which electric motors and a gas/petrol engine can be combined.

Toyota perfected the series/parallel or “full” hybrid to deliver the energy-saving benefit of a series hybrid together with the acceleration benefit of a parallel hybrid. Two key technologies – the power split device and sophisticated energy management – make this possible. They constantly optimize the flows of mechanical power and electric power for safe and comfortable vehicle operation at the highest possible efficiency.

The Full Hybrid

Toyota’s unique hybrid system combines an electric motor and a gasoline engine in the most efficient manner. It saves fuel and reduces emissions while giving ample power.

For more information: www.toyota.global.com/innovation/environmental_technology/hybrid/

THE TOYOTA PRODUCTION SYSTEM

Toyota’s approach to automobile production, with its inherent quality controls, revolutionized the industry. Its “just-in-time” supply-chain concept has become a model for manufacturers around the world, and not just for automakers.

The Toyota Production System (TPS) calls for the end product to be “pulled” through the system. This means the right parts reach the assembly line at the right place, just as they are needed, and with no excess.

This approach represented a radical departure from conventional manufacturing systems, which require large inventories in order to “push” as much product as possible through production lines, regardless of actual demand. The idea of TPS, the contrary, is to produce only the products required in the precise quantities desired at a given point in time

Focus on flexibility

By basing production on demand rather than simply on capacity, Toyota manages to keep inventories, both of parts and of finished goods, to a strict minimum. But this is only one of the more obvious advantages of Toyota’s unconventional approach. By focusing on smaller production lots and producing only what customers require when they require it, Toyota has developed a flexibility and responsiveness that continues to set the standard for the industry.

With its attention to continuous improvement (Kaizen), Toyota has attained die-changeo