Purchasing Management: Toyota Company

Toyota Motor Corporation

Toyota Motor Corporation is a Japanese company founded in 1937. Since that time the company has managed to employ 333,498 employees worldwide and it is the thirteenth-largest company in the world by revenue. Currently $415.3 million are invested in the company. The strength and the success are predetermined by numerous factors and strategies. The company has endured numerous situations; it suffered from negative public image and experienced the greatest raise in sales. The managerial contribution to its development is significant; however, the very strategies implemented for purchasing and supply chain management have allowed the company to develop in the way it operates now.

The purchasing and supply chain management are based on the strategies of conservative single or limited suppliers that allows the company to regulate the time and cost of supply. Using the global companies, the lean supply chain management strategy allows delivering the necessary items on time. Toyota Company has managed to select the most effective strategy for its development, which helped her to sustain the crises of different years and to remain a leading carmaker in then world. Applying to e Toyota Production System in running business, Toyota company has managed to sustain many problems and to foster its success. The desire of many companies to refer to the same strategy in most cases result into lower activities. Toyota’s purchasing and supply chain management is based on the traditional aspects of Japanese running business principles with the reference to the global practices. A detailed analysis of the organizational management and capabilities, relational capabilities, knowledge-sharing and learning capabilities, and infrastructure support with the support from the outside sources related to the purchasing and supply chain management allows to state that Toyota’s business principles are based on the process it refers to. The importance of the company’s target processes is specified in the way they run business, in collaboration with the suppliers, not just considering as a separate item in their infrastructure (Marksberry, 2012).

Management and Organizational Capabilities

Toyota’s organizational capabilities come to the forth when it is about the efficiency of the company’s operation. In order to enhance the organizational potential, the company believes that employees should be considered to be valuable assets and the source of knowledge, experience, and creative ideas. Therefore, investing heavily in this sphere can contribute significantly to the purchasing outcomes and customer’s demand. According to Tekeuchi, Osono, & Shimizu (2008), “Toyota deliberately fosters contradictory viewpoints within the organization and challenges its employees to find solutions by transcending differences rather than resorting to compromises”. In such a way, the company can handle conflicts and generate innovatory ideas which are successfully implemented. Moreover, the strategy allows Toyota’s managers to sustain a competitive advantage over other global automobile producers.

While analyzing the management capabilities at Toyota, the emphasis should be placed on the analysis of lean manufacturing and total quality management practices. At this point, the managers pay close attention to the development of efficient lean management practices that refer to the “focus of producing high quality products at relatively low cost only” (Chen & Taylor, 2009, p. 826). The scheme of purchasing items is represented in Appendix 1 and highlights five main divisions that sell parts and products. Global Purchasing Planning and Global SPTT and Quality Divisions require special attention because they reveal the main features of management capabilities within the organization (Toyota Boshoku, n. d.). In particular, the departments encourage activities that increase profits and create projects at a global level. Supporting the basic function of the regional management is another important responsibility performed by the department administration.

Relational Capabilities

The changes in customer demand should be prioritized by Toyota company in case they need to adjust to a rigid global competition at the automobile market. In this respect, the importance of enhancing relational capabilities is essential for the organization to advance the current purchasing schemes within the global supply chain. Due to the fact that the exceptional quality of supplied parts, just-in-time delivery, and optimal prices are among the primary aspects that clients are interested in, Toyota works in the right direction. Specifically, the fifth purchasing division focuses on the establishment of an assembly line promoting timely delivery of outsourced parts with respective quantity, quality, and cost efficiency through the introduction of global SPTT processes. Apart from the proper development of the production process, the company has arranged the cooperation committee “Sunshine” (Toyota Boshoku, n. d.) to support the purchasing management for the outsourced organizations.

Introducing an effective purchasing system through delivering quality, quantity and price is indispensable, but addressing customer values and preferences should not be ignored either. According to Hino (2006), developing a structural hierarchy of products can facilitate the cooperation between the producers and their clients. For instance, launching mid-price models of cars could be the best option to meet the demands of the widest market segment. As such Toyota pursues a differentiation strategy in producing different automobile models through the existing subsidiaries. The company also takes into consideration the peculiarities of economics, social setting, and culture in which its subsidiaries operate.

Knowledge-Sharing and Learning Capabilities

It is logical that organizations with advanced knowledge-sharing and learning mechanisms can develop a powerful network within which the suppliers, producers, and clients can operate effectively. Therefore, these kinds of capabilities are essential for introducing innovative production and increasing customer demand. In order to enhance knowledge exchange within an organization, introducing new technologies is indispensable because it contributes to the integrity of supply chain network. According to Dyer and Nobeoka (2002), Toyota has managed to establish direct relations with all subsidiaries all over the world and coordinate its activities efficiently. Being the central company, the manufacturers have to get the maximum benefit from integrating learning routines because they enhance the efficiency and productivity of the entire value chain.

The above-presented analysis demonstrates that Toyota’s purchasing capability is enhanced through the development of learning opportunities for their employees. The attention should be given to organizational learning as the main foundation of all manufacturing processes within the organization. Indeed, the evolution of learning capabilities is premised on a range of organizational routines that define the mode of performance improvement and ability of employees to meet the current demands in the global market place (Sorensen, 2007). This multi-path system of capability development can allow Toyota manufacturers to compete with their leading rivals and create unique values for their clients. Evolutional process of learning opportunities plays a crucial role in strengthening the manufacturing systems through changing and adjusting organizational routines to the modern purchasing trends.

Infrastructure Support

Supply chain and purchasing management in Toyota company experience good infrastructure support. Considering all the purchasing items, it is important to state that much attention is paid to the innovation technologies and the way the company implements its business. Having confirmed that the company refers to single suppliers only, it is possible to understand that the infrastructure support remains significant. Understanding Toyota’s infrastructure support, the following divisions should be considered, namely mass production, smart grids, production preparation, supply, and intelligent transportation systems. The company’s strategy is formed on the basis of the core objectives. The company infrastructure is based on the latest innovations and discoveries and they use the latest IT and electronic infrastructures for designing, producing and delivering the product. “Meeting of the Minds” is the latest update in the company infrastructure. Considering the changes in the city design, the company put for discussion the particular changes in the auto production.

Literature Review with Critical Support

Toyota company’s purchase and supply chain management is based on various strategies and assures on time delivery of the quality product of right quantity within the right place from the right source. The company follows these rights of purchasing applying to purchasing strategies and supply chain management. However, the environment cannot be called favorable for the company. The earthquake in Japan and floods in Thailand constantly test the company for the ability to cope with them. The whole chain of supply management was ruined as the natural disaster made the company to reconsider its logistics management. However, the changes were temporary and now the company returned to its North American supply chain. The natural disaster showed that the company global chain of suppliers work perfectly as the inability to explore the North American supply chain for six months required them to refer to any other possible way.

Nowadays, the company managed to recover from the crisis and now it expresses a desire to increase the output that affects the volumes of production. It should be noted that the company stopped working with some tier supplies during difficult times; therefore, this task becomes a hard challenge to achieve, as “this has meant investing to ramp up in line with output, while still developing new technologies and working with the OEM to support production of next-generation models” (Supplying Toyota Report, 2013). According to the annual report with the fiscal year 2013 (dated March, 2013), the total company sales have increased with the increased company global share (see Appendix 3).

According to the Toyota annual report (2013) the purchasing management of the company is based on the individual suppliers or a limited number of those. In such conditions the replacement appears a difficult affair, “inability to obtain supplies from a single or limited source supplier may result into some difficulties obtaining supplies and may restrict Toyota’s ability to produce vehicles” (Toyota, 2013, p. 40). However, apart from disadvantages of such choice of suppliers, the company does not have another way out. Referring to single suppliers, Toyota is guaranteed to have necessary raw materials and to deliver the ready products in accordance with the five rights of purchasing. The problem is that even if the company relies on a great number of suppliers globally, the first-tier ones in their turn rely on the services of limited second-tier suppliers. Furthermore, the Toyota may be unable to work with supplies based on their suppliers because they may be unable to react on time and within the cost policy. A number of factors may affect it and the company may fail to do anything. Analyzing the factors beyond Toyota’s control, the following aspects may be named, like “the ability of Toyota’s suppliers to provide a continued source of supply” and “Toyota’s ability to effectively compete and obtain competitive prices from suppliers” (Toyota, 2013, p. 40). The single and limited suppliers of the company in case dealt with the second-tier companies could create many problems to the company in case it failed to react on timely and cost effective manner. The main problem is that in case Toyota fails to react properly, the costs on delivery, production, financial condition and results of operations may increase significantly (Toyota, 2013). This choice of single and limited suppliers may be explained by the national Japanese traditions and reference to conservatism.

Having considered the purchasing management and supply chain management in detail, it should be stated that the choice of the Ryohin-Renka Cost Innovation strategy is justified. In the first place is the innovative and better car production for its consumers that is one of the primary statements of the company objectives. Using the innovative technologies, the company plans to reduce the costs promoting “parts commonization based on TNGA”, strengthening “‘Monozukuri innovations’ linked with TNGA”, and promoting “sourcing strategy maximizing volume merit” (Masui, 2012). Furthermore, Toyota plans to accelerate localization for purchasing and strengthen supply chain management by means of diversification and standardization of supply chain issues (Masui, 2012).

Conclusion

In conclusions, Toyota Company has developed a strong and effective management strategy to successful operation. Quality, quantity, sources, price, place, time, and transportation are then the main principles of purchasing management and Toyota Company does all possible to adhere to them. Applying to this strategy the company has developed successfully the particular way of operation where customer is the central issue. Focusing on the innovative infrastructures and trying to adhere to the latest tendencies in the world, Toyota still remains a single supplier tied to avoid any extra costs and additional expenses while working with secondary tier suppliers referred to time and cost. Referring to innovative development, the company remains conservative in its supply chain and purchasing management as the strategies it refers to have been checked in practice by many years of the personal experience successful implementation. The purchasing strategy involves many aspects and price regulations balanced with quality.