Executive Summary

Nowadays, Toyota offers entirely different products ranging from cars and robots to the construction of elite cottages. This is a multi-faceted company known for being the largest automaker in the world. The choice of the company to analyze its supply chain management is stipulated by Toyotas success on the world market and specialties of manufacturing and corporate culture. Toyota is known for its standards that are reflected in supply chain management. Toyota's success is based on the implementation of its basic principles that are the Toyota standards. These five fundamental principles determine the outlook and principle strategy of company. Everyone in Toyotas team adheres to the corporations principles in their day-to-day work and in relationship with other colleagues regardless of their status or position in Toyota Motor Corporation. More than 700 thousand people around the world make a daily contribution to the development of the Toyota team's success by making the right decisions, improving every process every day, solving the arising issues, and maintaining respect for the companys clients and colleagues. Toyota Way core values ??include Genchi Genbutsu (search for the reasons for the determination of the facts in order to make the right decision, agreeing and implementing goals; kaizen (constant improvement), creativity (creating a long-term vision and finding solution to all problems, applying a creative approach), team spirit, and respect (Miller, Wroblewski, & Villafuerte, 2014).

Additionally, Toyota Motor Corporation is well known for its innovations in production, management, automotive industry, and in supply chain management as well. Supply chain management is implemented through the Toyota Production System. The purpose of the paper is to analyze the Toyota Production System, to investigate Toyotas specific supply chain management techniques, to find out the main problem is Toyotas supply chain management, and to propose a possible solution for it.

Toyota Company. Toyota Production System

Toyotas supply chain consists of such components as assembly plants, the suppliers of raw materials, overseas network, warehouses, customers, dealers, distributors, component supplier groups, and service centers. The Toyota Production System (TPS) was developed in the Toyota Motor Company for about three decades from 1945 to 1975 (Spear & Bowen, 1999). TPS focuses on the complete elimination of losses and it is based on two principles. The first principle is "just in time", when the parts necessary for assembly are delivered to the production line strictly in the right time and in the strictly required amount; it is done using information communication means called "kanban". The second principle is autonomy - automation with intellectual element. To minimize the inventory of finished goods, the Toyota Production System is mainly focused on the production based on orders. That is why Toyota uses used the system of "pull", in which the follow-up processes refer to the previous one in order to take the necessary items.

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Production plans, which outline the necessary car models, their number, and production time, are sent to the final assembly line (Poluha, 2016). Then, the material transfer method is turned in the opposite direction to get the components for the final assembly. Final assembly line refers to the assembly line nodes, indicating strictly necessary names and the number of units and the timing of their delivery. Therefore, the production process moves in the opposite way from the stage of the finished products to the Department of procurement of raw materials. Each link in the process chain is organized according to the principle of "just in time", connected, and synchronized with the other.

The losses in Toyota supply chain management are the useless repetitive actions that should be immediately eliminated, for example, idle waiting or storage nodes. The work is divided into two kinds - the work does not create added value, and the work creates added value. The work that does not create added value in the conventional sense can be considered as a loss.

Toyotas concept of "work flow" means that added value comes from a product at each stage of the production process (Myerson, 2013). The main achievement of the Toyota Production System is the organization of the workflow, which naturally means an organization of the production flow.

A preliminary step to the use of the Toyota Production System becomes a complete identification of losses such as those caused by overproduction, the loss of time due to expectations, loss on unnecessary transportation, and losses caused by extra processing steps (Kito, Brintrup, New & Reed-Tsochas, 2014). Furthermore, there are losses due to excess inventory and unnecessary movements as well as losses caused by to the release of defective products (Kito et al., 2014). Eliminating these losses can significantly increase the efficiency of the enterprise. To achieve this, the company must produce only the required number of items, thus freeing surplus labor. The Toyota Production System clearly reveals the presence of excess labor. The main objective in the fight against loss is lowering the costs by reducing labor and inventory, the identification of additional capabilities of equipment, and the gradual reduction of indirect costs.

The basis of the scientific approach of Toyota is that when a problem is detected five times, to ask the question "Why?", or that is designated as 5W (Sisson & Elshennawy, 2015). In this way, one can get to the root problem that is often hidden behind the more obvious reasons lying on the surface. A sheet with standard operations hangs over every workplace. When an employee raises his head, right before his eyes there is andon, or the electronic display showing the state of the production line that immediately reflects all the problems found on the line, their location, and character (Gao & Low, 2014). Moreover, the parts containers transported by a line are provided with kanbans, a kind of visual symbol of the Toyota Production System. Toyota's system works according to the principle of complete elimination of overproduction caused by the accumulation of inventories and associated costs to pay for the labor of the workers, the land, and buildings. To achieve this, the system uses kanban, in which each successive process is performed exactly at the time when it receives the necessary parts from the previous process. If the previous process produces defective parts, the person working on the next process is forced to stop the production line. Moreover, everyone can see at what point it happens, and the defective item is returned to the previous process. Within Toyota, there is a simple rule - the repetition of the problems should be excluded.

For the work to go smoothly, manufacturing by Toyota and its timetable information system must be coordinated well. There is a monthly production schedule. The required volume of the issue is determined by the sales that, in turn, are dictated by the market. Consequently, the production is based on the figures received. The Toyota Production Systems motto is "small delivery and fast setup." To ensure that the previous production process are made with as much detail as the company would need in the follow-up process, the workers and the equipment at every stage of the manufacturing process must be able to produce exactly the amount of detail that is needed at any given moment. To align the production capacity and reduce the size of the supply, it is necessary to carry out quick changeovers (SMED system). This quick changeover equipment is the principle of the TPS that allows the many hours of stamps replacement to be reduced to a few minutes. Preventive "medicine", or maintenance, is an integral part of the Toyota Production System (Ottman, 2011). The strength of the TPS is preventive maintenance but not the possibility of the instant elimination of the processes problems.

In the book The Tao of the Toyota: Management Principles 14 Leading Companies in the World, Jeffrey Liker (2004) has formulated 14 principles grouped into four categories representing Toyota approach. This approach represents the long-term philosophy that has such principles as making management decisions based on the long term, even if it is detrimental to the financial outcomes in the nearest time (Liker, 2004). Other principles are to use a systematic and strategic approach when setting goals, all operational decisions should be subject to such an approach, and Toyotas main task is to create value for the customer, society, and the economy (Liker, 2004). Liker (2004) also mentions the principle of estimating any type of activity in the company in order to take into account whether it solves the problem. Then, it is necessary to be responsible as the process in a continuous flow helps to identify the problems - rearrange the process to create a continuous flow, effectively providing added value (Liker, 2004). There is the principle of making the connection between the processes and the people so that any problems were identified immediately (Liker, 2004). The next principle is to use pull systems to prevent the excessive production, which means to be sensitive to the daily fluctuations in consumer demand that gives more information than computer systems and graphics (Liker, 2004). Toyota has also to distribute the workload evenly. Furthermore, another principle is to make a production stop in order to solve the problems part of the production culture, if required to improve quality as the quality for the consumer determines demand and create equipment able to recognize their own problems and stop when they are identified (Liker, 2004). Other principles are as follows: a standard task is the basis for companys constant improvement and delegation of authority to employees; one should pay greater attention to visual control that ensures that no problem has not gone unnoticed; and one should use only reliable, proven technology since before introducing a new technology and equipment, the test should be carried out in real conditions (Li, 2013). According to Li (2013), there is the principle to reject or modify the technology that goes against culture or that could disrupt the stability, reliability, and predictability. As for principles regarding the people in Toyota Motor Corporation, they encourage to grow and educate leaders who are devoted to the companys work, philosophy and who are able to give that knowledge to others (Sato & Parry, 2013). These principles call for the management to educate people and teams within the company, promote respect for partners, customers and companys suppliers, confronting them with the challenges and making them grow further, making decision by consensus, taking into account everyones opinions and options, and implementing it without delay (nemavashi) (Sato & Parry, 2013). Lastly, the truly Japanese approach is to become a structure due to relentless self-examination and kaizen, becoming the example for others.

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Supply Chain Management Techniques


Toyotas supply chain management success lies in SMED - Single-Minute Exchange of Die (Poluha, 2016). The SMED system allows reacting quickly to the changes in consumer demand, reducing cycle time, going to a small production batch, and achieving the elimination of over-production. Out of main eight methods and after several hundreds of improvements for many years, SMEDs most productive ones were the clear separation of internal and external adjustment, the complete transformation of internal adjustment to the outside as far as possible, the elimination of the adjustments, and the implementation without mounting screws. These methods can reduce the installation in about 20 times as compared with the initial time (Poluha, 2016).


Another distinct feature of Toyota supply chain management is autonomization and automation with an element of intelligence or with a human factor. For example, it is the automatic termination of an abnormal flow of the production process such as stopping the production line or machine to prevent the production of defective products, or overproduction. The invention of Sakichi Toyoda was equipped with a device that automatically stopped the machine as soon as it started lunging or threading ends (Ono, 2013). In other words, the machine was able to respond to the emergency. In all the factories of the company the equipment, new and old, is made with a variety of safety devices, systems, exact stop, devices for quick changeover, and foolproof devices (baka-yoke) to prevent errors. Autonomization changes the way a machine operates. If the workflow runs smoothly, the machine does not need an operator. Human intervention is required only when the machine stops due to a violation of the normal course of the process. Hence, one operator can handle several machines. If the machine is repaired without the knowledge of management, the improvement will never be achieved. Conducting improvement is possible only when there is a clear understanding of the problem. For any machine, the differences between normal and abnormal course of the working process should be clear.

Gradual transition from the manual labor to autonomy involves 6 steps (Ketchen & Hult, 2007). Stage 1 is the work manually: workers produce and process products by hand, without the help of machines (Ketchen & Hult, 2007). Step 2 is the manual handling of workpieces and tools with automatic processing. Workers install the workpiece, remove the product from the machine, and help tools move by hand. Step 3 is the automatic tool movement and processing. Workers install and remove the items from the machines and switch the machines on. Workers detect problems and correct them, and the latter function is performed during the first two stages (Ketchen & Hult, 2007). Stage 4 is half-automatized. There is automate placement and the removal of products and processing. Workers perform only detection and correction of problems. Stage 5 goes before the automated one when machines perform all functions, including the detection of defects, and workers only correct the defects. Stage 6 is automation or fully automated processing, detection, and correction of defects (Ketchen & Hult, 2007).


Andon is a device for the visual inspection of the production area that alerts workers about defects in the work equipment or other problems with the help of light, sound, and similar signals (Hines, 2016). When workers need to adjust something on the line and they are called for help, it shows a yellow signal. If the line is stopped to eliminate failure, then a red light turns on.


Baka-yoke or, foolproof measure, is another technique used by Toyota (Hearnshaw & Wilson, 2013). For example, if an error occurs in a workflow, the item will not be suitable for the instrument; if parts are found to be defective, the machine does not turn on; if an error occurs in the working process, the machine will not start handling the details, and so on.

Visual Control or Management by Sight

This technique is the visualization or visibility through the respective boards, screens, cards, signals on the lines, machines, and equipment.

Production Leveling

Production leveling is aimed at the production of a fixed amount of items transferred from the preceding process. In this system, the production processes are arranged to facilitate the production of the desired quantity of items at a desired time, and for this purpose, the workers, equipment, and all the other elements arranged in a certain way. Aligning the quantities of products means that the same number of items produced in any process, including a balancing output and productivity.


Kanban is the means for the organization of production, ensuring compliance with the principle of "just in time", the first of the principles of the Toyota Production System. Essentially, kanban is a simple form of direct communication, always located where it is needed. In most cases, kanban is a piece of paper, sealed in a transparent plastic bag. The sheet contains information that can be divided into three categories - the information about how to obtain products, the information about transportation, and the information about the product itself. Kanban transmits information on the vertical and horizontal production hierarchy both within the company itself and within Toyota in cooperation with the partners systems. If the kanban system is properly used, it can be synchronized to structure all phases of work. The Toyota Production System manages to avoid overproduction completely due to the use of kanban. As a result, there are no excess reserves and, therefore, there is no need in warehouses and warehouse workers. Kanban functions lie in providing the information about the place and time of receipt and transportation of products and the information about the product. Kanban is used as a work order, it prevents the production of defective products, detects problems, and helps to control production.

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A Problem in Toyotas Supply Chain and Solution

Toyota has a well-aligned management in its factories. Therefore, the problem of supply chain management may be connected with the subjects outside. One of the crucial issues is connected with the suppliers of Toyota. The risk lies in the excessive dependence on some suppliers. Unlike the Western automotive companies that tend to have short-term collaboration with suppliers, Toyota has established long-term contracts (The machine that ran too hot, 2010). Working together for a long time ensured the quality of just in time approach. When Toyota started to expand in the first decade of the 21st century, it started to cooperate with many non-Japanese suppliers (Simone, 2014). Moreover, the company should work with single suppliers who have helped to create large series of cars. The risk lies in the philosophy that presupposes a single supplier, while the Japanese companies prefer centralized decision-making. Moreover, having the partners overseas, for example, in North America may hinder Toyotas development and damage its image in that region as the TPS experts there may not be well- trained, particularly because of the language barrier (Supply Chain News, 2010)

The solution can be the diversification of suppliers for Toyota. Diversification can reduce the risk of investment, but it cannot completely get rid of it. There are risks that are called non-diversifiable (Toyota to Increase Supply Chain, 2012). They take their name from the fact that one cannot escape from them by means of diversification. An example of such a risk is a global economic crisis, since the crisis has led to a decline in all sectors of the economy, the issuers of fixed income instruments defaulted, and the cost of resources fell with great speed (Takeuchi, 2008).

The concept of diversification is very broad and applies not only to the investment instruments. There can be also the diversification of production to avoid the risks associated with the fall in demand for a separate type of products; supply diversification is necessary need to ensure continuity of production in the case one or more suppliers has problems.


In sum, Toyota demonstrates a bright example of a successful supply chain management. It unites both national specialties and modern technology. Toyota uses the Toyota Production System (TPS) and a variety of techniques within it such as andon, Kanban, baka-yoke etc. The main task of the Toyota Production System is to link together and provide the alignment and synchronization of the production unit in the stream of products at earlier processes such as sheet metal stamping, pressing, welding, forging, and casting. In the future, they can be combined with the existing processes of treatment painting and assembly, thus obtaining a comprehensive integrated flow system. The structure of Toyota supply chain is basic: assembly plants, raw materials suppliers, overseas network, warehouses, dealers (first-tier customer), customers (second-tier customer), distributors, component supplier groups, and service centers. At the same time, Toyota follows the philosophy of constant improvement called kaizen. In general, the company follows the fourteen principles that include the rules about production, collaborating with other partners and suppliers, corporate ethics, and so on.

However, there are some problems in Toyotas supply chain management. One of the biggest of them is the issue with suppliers. That issue involves some aspects such as being too dependent on suppliers, the language barriers, and the lack of well-informed TPS specialists abroad. The solution for this issue can be the diversification of suppliers, decreasing the dependence on them, and training of the TPS overseas partners who collaborate with Toyota.

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