In of products and services to the consumer

In this
report I will be discussing the importance of supply chain management (SCM),
and the role it will play using examples of real world issues. Supply chain
management is the management of the relationships and flows between the string
of operations and processes that produce value in the form of products and
services to the consumer (Slack).  The
supply chain is said to be the skeletal structure and framework for a business
and therefore its management is critical for any organisation in any industry. A
typical supply chain may begin from suppliers and wholesalers to distribution
centres, followed by stores and then customers. The main aim of the supply
chain is to get the product from the manufacturer into the consumer’s hands.

A privilege in today’s society is
the freedom of driving a car. Therefore the supply chain is accountable for
receiving all the components for your car to be manufactured and then
transported to your local dealership. However the process for an automotive organisation is
more complicated due to a single car has up to 30,000 components including all
the smallest parts including nuts, bolts and screws (Corporation.T). The
automotive industry heavily relies on supply chain management as both strive
for customer satisfaction and to meet customer’s needs. The automotive industry
accounts of more than £77.5 billion turnover in the UK. Therefore making up
12.0% of the UKs total export of goods. There are over 30 manufacturers and
over 2500 component providers explaining the complexity of the manufacturing
process (SMMT). Furthermore highlighting the importance of supply chain as it
is based on the idea that every product which appears in the market, results
from an integrated effort making up the supply chain.

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Therefore
it is critical that each supply chain sector should recognise their role to
co-operate with other supply chain partners allowing the specific supply chain
activities to be completed to a quality standard. One segment is planning, a
plan will allow an automotive organisation to devise both long and short range
integrated strategies and forecast any patterns of customer demands. This could
include research of current consumer trends for cars, or producing different
models of cars depending on the seasons or in simple an action in response to
competitors. Another activity is procurement, which will require excellent
negotiation skills to purchase raw materials or components. This is important
for an automotive organisation as a car requires numerous parts. Therefore it
is important for the procurement team to capture quality components, to produce
a quality cars at reasonable prices to maintain costs. This is followed by the
production of the car, this is where raw materials and components will be
assembled into the final product. It is important for supply chain managers to
oversee the production and guarantee that vital materials are accessible when
required to maintain the flow of the process. Once the car is manufactured it
is then distributed from either internally owned trucks, or logistics may be
outsourced to safeguard the goods which are being transported safely to where
they are requested. The final step is customer interface where the consumer
will want to interact with a well-informed employee, and pay secure
transactions to achieve customer satisfaction.

Supply chain management at Toyota was mainly constructed on
the Toyota Production System (TPS) which was identical as just in time
production. The process was developed by Shigeo Shingo and Taiichi Ohno in the
1940’s (Corporation.T2)

The Jidoka concept was one of the
two main concepts of the TPS. Jidoka was generated identify an error or
problem, where Toyota have given every employee the power to stop the
production line in order to make any corrective amendments. Furthermore if any
machinery detects any errors, the machine is programmed to stop on its own
allowing operators to fix the problem. Therefore components and products
meeting quality regulations will be allowed to progress on the production line,
whilst any defects would be fixed or removed. 
Overall this would improve the production in the supply chain process as
it would result in higher quality productivity as continuous enhancements will
boost processing capacity.

The second concept used by the TPS consists of manufacturing a
vehicle when it is requested by a customer, known as Just in time production
(JIT). Furthermore providing what is needed, when it is needed and how much is
required. This can allow Toyota to produce quality cars whilst minimising waste
increasing their overall efficiency for production. (Corporation.T2)

The TPS had implemented the Kanban system, which was originally a
super market technique. Toyotas manufacturing will have several machines
operating, some machines could work faster than others causing machine downtime
and increased set up times reducing production efficiency. Therefore the Kanban
system uses information technology allowing machines to send signals to each
other to notify when one machine is ready to receive the items, or when more
parts are required to continue the process. Therefore implementing a pull based
supply chain.

Whereas a push based supply chain is where Toyota would have to
forecast customers demand for products to base the number of units produced.
Some finished goods may be sat idle in storage and not sold in the market if
demand forecasting was inaccurate. This can result in the car being sold at a
discounted price due to depreciation over time resulting in decreased revenues
and an increase in wastage. Therefore I believe the Pull system is more well
suited for Toyota as it reduces wastage if products and time, it leads to lower
levels of inventory therefore resulting in fewer costs. However it would be
difficult for Pull based supply chain to achieve and benefit from economies of
scale for transportation and manufacturing. The pull based supply chain will
allow shorter cycle times, faster throughput and less wastage of time and
production, due to the immediate identification and correction of errors,
improving efficiency and quality. Overall allowing Toyota to produce Quality
cars one at a time whilst achieving customer satisfaction.

Toyota created the V4L framework to help create and maintain
stability in the supply chain process. The first V is Variety which is seen to
be the most important segment of the framework. Variety is Toyota keeping up with
trends as customers want new and different cars, therefore it is key Toyota
meet customers’ needs without increasing costs. This is followed up with
Velocity, which is the rate at which Toyota will manufacture and sell cars. Furthermore
the next segment is variability which monitors the fluctuations in sales.
Toyota will monitor sales by the regions they operate in and will allocate more
resources to manufacturing plants with greater sales figures. Finally the last
segment is visibility, this is the process where the car will be transported
and stored through the system. The L term in the acronym represents learning.
Toyota promotes learning as it they give the opportunity for all employees to
give their own input in order for Toyota to improve. The book 40 years, 20
million ideas was a book was written based on the suggestions made from
worldwide Toyota employees to help improve the organisation. With Toyota
following a key anecdote of business activities striving for replicable results
(Yasuda).  This will help to ensure the
constant quality improvement Toyotas supply chain and to help achieve customer
satisfaction.

Toyota have also extended their supply chain by including
customers as part of it. They have allowed customers to connect with the company
such as allowing feedback and reviews. This could consist of any flaws from a
customer’s perspective or any other issues allowing Toyota to make the correct
design changes. The retail section produces the most profit for automotive
organisations. The retail segment has split their customers into two
categories. Firstly the serious buyer is a customer who requires a car within a
short period of time. This customer will purchase products depending on price
and value, and therefore will be very attentive to car specification. The
second is known as the serious shopper. This customer is one who has done
research prior to purchasing a product, comparing alternatives and analysing
advantages and disadvantages, as they know exactly which product they are seeking.
Therefore the Toyota Production System being a sufficient method to satisfy
both customer’s needs.

A key process which Toyota requires to complete
their supply chain is planning, which is conducted one to three years in
advance to car manufacturing. Toyota undertake product planning, designing and
sourcing. Toyota have sought to source parts from local suppliers resulting in
an overall reduced leads time. Toyota split their supplies and components into
three categories. Parts which have to be specifically imported from Japan are
known as long lead parts, these components are mainly used for specialised
customised orders. The second category is In-house parts which are produced at
the manufacturing site such as bumpers, wing mirrors, headlights etc.

Toyota outsources almost up to 70% of the parts they use to manufacture
cars, and produce 30% of required parts internally. Overall Toyotas outsourcing
for supplies is a multiple sourcing strategy as they require so many components
and have to use more than one supplier. By Toyota having more than one supplier
is beneficial as it will reduce any supply risks and improve flexibility of any
cases where suppliers may fail to provide their goods and services. However a disadvantage
Toyota may face is that it may be difficult to build a suppler business
relationship. However Toyota believe that they should not be chasing suppliers
for low cost to be competitive (Art of Lean)

However
in 2010 Toyota had suffered issues around their supply chain resulting in
recalls of cars globally. Toyotas CEO Mr Toyoda suggested that Toyota were
looking to expand, and therefore being side tracked and overlooking of what had
made Toyota so successful in the first place. Toyotas original focus based on achieving
customer satisfaction and to stop activity to continuously look for ways to
make improvements (The Economist). However Toyotas motives to reach customer
satisfaction was challenged. James Womack an author of the “The Machine that
Changed the World” had stated that back in 2002, Toyota had altered their goals
to raise market share from 11%-15%, however this increase did not consider the
best interest of the customer, and was derived from Toyotas own selfish desire.
Therefore complications began as for Toyota to expand their supply chain within
a short time frame resulted in the organisation working with unaccustomed
suppliers who lacked knowledge of Toyotas ethos (Womack). This was followed by
Toyota aiming to overtake GM motors and becoming the largest car manufacturer
in the world. However as Toyota overtook GM motors, the increase in production
resulted in issues with quality control and a rising number of recalls, as the
root of this issues were not found in Toyotas factories and not but their vast
range of suppliers. Therefore Toyota transformed their supply chain by using specific
suppliers as the main source which specialise in producing specific components.
This was beneficial to Toyota as they built better relationships with
suppliers. However in comparison with western competitors, competitors tended
to offer supplier contracts for the lowest bidders to be more economical at the
sacrifice of quality. Toyota went on to achieve economies of scale from using
sole suppliers for their complete range of vehicles across various markets.

Another
Automotive organisation where the supply chain plays a critical role is Volkswagen,
which is the second largest motor vehicle producer in the world after Toyota. Volkswagen
have developed their own FAST framework to help the organisation identify the
best supplier and partners for an efficient supply chain. The FAST framework is
to identify the areas where investment is most required and use resources
effectively, whilst working close with suppliers to build long term
relationships. Therefore Volkswagen must identify the best suppliers who will
offer quality resources for a fair price, where the selected companies will have
direct contact with the Volkswagen FAST scheme. Selected suppliers will be
allowed to share their opinions and ideas for the early stage manufacturing of
cars. Therefore integrating more ideas into the production and developing a
strong relationship within the overall supply chain. (Staff)

However
in 2016 Volkswagen fell into disagreements with two of their main suppliers.
This had resulted in supply chain issues, and postponed manufacturing for the
Golf vehicles. Suppliers such as Cartrim and ES Automobilguss have refused
supply to Volkswagen resulting in a halt in production costing Volkswagen
millions of pounds. Volkswagen was at fault for cancelling supplier contracts
without valid explanations or compensation pay, resulting in suppliers reacting
in cutting off their supplies. Overtime organisations tend to reduce the number
of suppliers to a select few to maintain efficiency. However this leaves
suppliers in a solid position due to less competitors for Volkswagen to
consider. Therefore it is difficult for Volkswagen to search for alternative
suppliers in a short period of time, this is also due to the specific and
precise components specifically made for Volkswagen golf cars. Therefore
Volkswagen cannot purchase and install random parts from alternate suppliers
into the manufacturing line. (AYD)

Another Automotive industry is Mercedes-Benz who are
looking to reduce expenses by 20% in their logistic framework, due to the
organisation investing millions of euros, aiming to reorganise the supply
chain. Mercedes-Benz have
increased their manufacturing activities oversees from Germany, and outsource
many components from their suppliers in Europe. Therefore this has a resulted
in a strained supply chain due to the distant transportation of goods overseas.
However Mercedes have designed a way to combat the issue by developing a
consolidation centre. This is where components and parts will be repacked more efficiently
for transportation to manufacturers located in the U.S., South Africa and China,
which are defined as the organisations growth regions. Mercedes have removed
the roles of having plant directors of their global manufacturing plants.
Instead they have placed one global manager who will oversee manufacturing in Germany,
Hungary and China. Mercedes believe that their savings will be enough to
finance the additional logistics activities. Furthermore they will continue to
save costs by using hybrid transportation carriers. By adjusting their logistics
designs this will result in Mercedes to reduce overall lead time in their
production process. (Hetzner)

Concluding
overall Organisations which use both the just in time and Kanban systems
allow themselves to hold small amounts of stock on-site, which can vary from a
few of hours of production to a few days of stock, where suppliers are
accountable for constant distributions of resources to maintain the flow and
rate of production. This process majority of the time will work well until there
are supplier disruptions. Therefore any issues where the product is unavailable
for consumers will result in a decline in demand. Highlighting the importance
of transportation network to assist sales. The rate of inventory turnaround
should be at an optimum level, and should always be flowing in the process of
being sold and not sat in storage where it will depreciate in value. Therefore
visibility plays a key factor in supply chain management where organisations
know exactly where their products are at what stage, and can make
transportation readjustments to send products where demand is high.

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