Toyota Value Chain Analysis
The selected brand in the study is Toyota. It is one of the leading Japanese multinational automobile manufactures, which operates its business all the major cities of the globe in a much effective manner (Toyota.com, 2019). It is premised here that for a few of the world’s most successful organizations that competitive advantage is primarily sought through their direct and indirect network of suppliers Toyota which in Japan has managed to outsource a major part of the realization of its competitive advantage achievement to its network of direct and indirect suppliers. Indeed, taking productivity as a measure, over 80% of Toyota’s achievement of competitive advantage over its UK based rivals is based on its effective use of its supplier network (PETER HINES)
Founded by Kichiro Toyoda in 1937, Toyota Motor Corporation is a multinational company headquartered in Japan and is currently the world’s largest automaker. The goal of Toyota is to attract customers for life. Their objective is to become the most eminent sales finance company for all stakeholders. The vision of the company is not to be no. 1 instead to become the most successful and respected car company in the world. Externally, Toyota belonged to the transportation equipment industry and its market is the public companies trading. (Khaleel, n.d.)
In this research paper we will be discussing about the value chain propositions of Toyota. Why does Toyota disvalue the value chain in regards to it’s manufacturing processes, What are the key benefits that it tackles, challenges in outsourcing for Toyota and how it manages its sustainability with the help of OLI paradigm.
Toyota Motor Corporation (TM) is the world’s biggest automaker by volume of cars produced. The Japanese auto industry forerunner was founded in 1937. Toyota’s name originated from the family name of its founder, Kiichiro Toyoda.
Toyoda was the son of a successful businessman who developed an automatic loom manufacturing company in Japan. Toyota’s headquarters are in Toyota City located in Aichi Prefecture, Japan. The company has seen numerous hurdles in its nearly 80-year history. In 1957, Toyota entered the United States market with its initial export of Japanese passenger cars to the United States.
Toyota manufactures and sells vehicles and spare parts all around the globe. Currently, the company operates its business processes worldwide with 53 overseas manufacturing companies in 28 countries and regions. The company’s vehicles are sold in more than 170 countries and regions. (Parker)
Toyota City in Aichi is the operational and business headquarters of the company. Based on the latest business report published by the company, the corporate structure represents nearly 364,445 employees measured globally and among the sixth largest companies in the world estimated globally (Toyota.com, 2019). The concept of the lean management system was first introduced by Toyota, with the motive of ensuring minimum waste produced in the operations and at the same point of time applied the idea of optimum utilization of resources (Toyota.com, 2019). The company maintains a versatile business module and maintains its speciality in every sector associated with the automobile industry.
The following part of the study analysed the concepts as well as applications of different kinds of Porters theories associated with the frameworks of the selected organization Toyota. As one of the leading car manufactures, the use of several types Porters concepts in the operations draws from industrial organizations economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness of an industry in terms of its profitability, measured in certain competitive aspects.
Porters Value Chain analysis
Infrastructure, human resources, technology development and procurement, are the combinations of the four points associated with the execution process of value chain analysis for the selected company to seek opportunities and evaluate a proper business plan. (Pratap, 2019)The ultimate reason for applying the notion of the value chain analysis is to enhance its overall production process. Porter’s Value chain analysis is an systematic framework that supports in identifying business activities that can add value and competitive advantage to the business. Figure below illustrates the concentration of value chain analysis. (Dudovskiy, 2016)
Toyota promotes a jinx of monozukuri i.e. meticulous manufacturing throughout its processes. Its lean manufacturing characterizes one of the core sources of Toyota competitive advantage. As it is illustrated in Figure below, a distinctive Toyota assembly plant comprises. (Dudovskiy, 2016)
Why does Toyota outsource
Toyota has approximately 170 distributors and 8,900 dealers outside of Japan. (Dudovskiy, 2016)Toyota Motor Corporation, unlike American companies, outsource over 70% of their vehicle manufacturing content. Outsourcing is the new corporate reality to disvalue the value chain . In this case, Toyota motor corporation disvalues majorly manufacturing and other value propositions in porter value chain. Companies will be more likely to outsource a function if there are multiple reason for doing so. Such multiple reasons are as follows:
- a) acquire better management,
- b) Improving controls,
- c) concentrate on strategy and core processes,
- d) evade major investments,
- e) support a fast-growth affairs,
- f) enhance flexibility and ratio.
Toyota though understands that customers are expecting reliable quality regardless of who makes the engine, radio, seat, etc of their cars. Nevertheless, outsourcing does not absolve Toyota or responsibility. Toyota is known to have outsourced engines as well as software and hardware. (Khaleel, n.d.)
Which countries does Toyota outsource?
Toyota outsources its manufacturing facilities in countries of:
- ‘ Argentina
- ‘ Belgium
- ‘ Brazil
- ‘ Canada
- ‘ Colombia
- ‘ France
- ‘ Indonesia
- ‘ Japan
- ‘ Mexico
- ‘ Philippines
- ‘ Poland
- ‘ Russian Federation
- ‘ South Africa
- ‘ Thailand
- ‘ Turkey
- ‘ United Kingdom
- ‘ United States
- ‘ Venezuela (List of Toyota manufacturing facilities, 2019)
It conducts operations of Joint venture, licensed, and contract factories in the countries of:
- ‘ Czech Republic
- ‘ France
- ‘ China
- ‘ Pakistan
- ‘ India
- ‘ Taiwan
- ‘ United States
- ‘ Vietnam
- ‘ Australia
- ‘ Colombia
- ‘ Ghana
- ‘ United States
- ‘ Zimbabwe (List of Toyota manufacturing facilities, 2019)
Benefits of outsourcing
The major reason why Toyota outsources is that Toyota is a master of cost reduction internally and expects its suppliers to master this confidentiality as well. Toyota makes use of purposeful outsourcing which is delegating of certain services towards partners or providers. The advantages of well-designed outsourcing for Toyota are superior control of the market, termination-capable and maintenance of outsourcer’s control over processes though this process can result to a dismissal of end-to-end management. (Khaleel, n.d.)
Associating with Toyota, Toyota demands of appropriateness, innovation, quality and cost savings. Toyota offers its suppliers to innovate the product design through useful engineering. As Toyota responds to supplier concerns with integrity and capability, it has developed a great level of professional trust with its suppliers and customers. It has also developed a sophisticated system that embraces people, processes, tools and technology and extends to all partners in lean enterprise. Although reducing costs is critical for Toyota, quality must not be put at stake. (Khaleel, n.d.)
The second reason why Toyota outsources is to further recuperate quality management. A feasible option to eradicate poor management in exchange of quality management through Kaizen and just in time approach of serviceable areas into suppliers. Through this process, a relative degree of pressure will also be mollified. The result would be suitable control over the processes.
The third reason is to focus on strategy and core functions while also preventing heavy investments. The tactical part of operation-distribution would enable Toyota to focus on strategy-related issues like market positioning and product research and development. Moreover, procuring increased market share requires a support mechanism for function overloads. Converting fixed costs into variable costs and driving the performance ratios will improve the profitability per person and the business as a whole. (Khaleel, n.d.)
Challenges in outsourcing
One of the disadvantages of outsourcing is supplier failure. Breakdown or seizures of the suppliers, are equated to failure of the company. There are other serious risks, for eg. confidential information sent by the businesses adds up to the limitations and data risks since suppliers are given the right and control over critical information. The future changes in supplier circumstances also determine the position of Toyota. Changes in the operations of suppliers (e.g. financial difficulties, technology requirements of services) might change the outsourcing business relationships.
However, the risk can be contracted through the addition of a termination clause in contracts. There are perceived risks which could be either higher or lower in actual. The bandwagon effects of outsourcing are persuaded as success stories whereas, in reality, outsourcing is problematical and conflict-laden. In reality, it is a far major risk that can anytime lead to downfall of the business. (Khaleel, n.d.)
OLI Paradigm For Toyota
The idea of the OLI paradigm defined the way for Toyota to concentrate on the application process of Ownership-, Location- and Internalization. The combinations of these three factors highlighted how the company would be to develop successful business operations associated with engaging in foreign direct investment most pragmatically. (Pratap, 2019) . It is one of the core theories of economies and on the same point of time allowed the company to evaluate the process accomplishment of the goals and objectives (Marburger, 2012). However, Toyota is facing many threats in inter and external paradigms of organisation. For eg, the total number of recalls of Toyota in the year 2009 were more than 10 million vehicles. (Analysis of toyota, 2019)
In sum, the purpose of Toyota is always inclined at lowering costs while solidifying the competitive advantage through quality improvement. Though they possess the power to decide whether to outsourced or not, they might as well as think of better ways to outsource while not endangering the reputation of the company. The contribution of the Porters Value chain analysis along with the diamond theory led Toyota to maintain its excellent production management. Toyota, being as the best in the automobile sector maintains the specifically related framework in the overall business operations and analysed all the essential factors associated with the formation of getting the best results is well-understood by Toyota. . Every classification associated with the selected approaches has been evaluated as a pioneer outsourcing company through its lean manufacturing business model. (Khaleel, n.d.)
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