Supply Chain - The Toyota Way

The best example of a supplier’s development is Toyota. Their commitment to help their suppliers goes beyond the boundary of cost reduction. Toyota Motor Corporation have also stated in their purchasing rules that Toyota must be treated as a part of Toyota. In the stated rules of Toyota also, they have the responsibility to raise the performance of their nominated suppliers. They believe in helping the suppliers achieved their optimum level by teaching them the Toyota Production System and Total Quality Control.

Below are a video about the Japanese pattern of the supply chain:-

Strategic Considerations for Supply Chain Management

source: http://www.srgpartners.com
In Supply Chain Management, the suppliers are often considered as ‘extended enterprise’ and act as one entity for the buyers benefits. This entity is triggered by the buyer decision and the input of the buyer will cause an effect into the whole supply chain. The whole entity comprises of partnership between suppliers, manufacturers and distributors working together in fulfilling the demand of the buyer. There are many points or selection criteria in determining suppliers but as Eleni Hadjiconstantinou in her book "Quick Response in the Supply Chain", states that the basic rules of defining a partnership are:-

1) Scope of Work
2) Division of Responsibilities
3) Required Service Levels
4) Dedicated or Multi-user Facilities
5) Performance Monitoring
6) Open or Closed Book Accounting
7) Ownership of Assets
8) Length of Commitment
9) Exit Arrangements

These criteria must be well stated in the selection process as this process will lay the foundation for the relationship to grow and mature. Without these ground rules, there is high possibility that the relationship will falter.

Response Management in Supply Chain

Managing the entire supply chain requires companies to view their supply chain as a single entity. Strategic decision making and efficient management is essential in determining the success of the collaborative effort between the suppliers. Collective strategy is developed through mutual understanding and common objectives. Setting a clear goal post for the suppliers will help them in steering towards the same direction regardless of any setback they suffer along the way. Reaction to any disturbances caused by outside factors must also be dealt with collectively by suppliers as a group. The collaboration is also much stronger and enables them to compete effectively in either the local or global market.

An example of a response management in a supply chain management can be seen in this video:-

Integration of Supply Chain

source: http://b2btech.com

Organizations or companies that intend to use SCM should focus on the need for integration of their supply chain. The effectiveness of the company to deliver its goods to the end user is highly dependent on the integration of its linkages between their partners. A company can no longer compete effectively on its own but with support and integration with its downstream partners also. Supply Chain integration is a process integration of upstream and also downstream activities through a medium or platform interconnecting each other. With the rapid development of ICT, the process of integration has become much more easily compared to the past. As Martin stated in his book "Logistics and Supply Chain Management: Strategies for Reducing Cost and Improving Service", “supply chain integration is defined by the collaborative activities between buyers and suppliers, joint product development, common systems and shared information”.

In the past, in the buyer-supplier relationship, the buyer will usually reduce the cost of purchased materials through aggressive negotiations. This usually bring to a win-lose situation whereby the supplier profit margin have been reduced drastically to meet the demands of the buyer. With supply chain integration, this is no longer the case. In a win-win situation, the buyer and supplier are in the form of strategic partnership. The approach is taken based on mutual benefits and continuous improvement on both sides. The approach is also less aggressive and commands the respect of each supplier. Each negotiation that occurs in this approach is done with focus on quality as the priority and follows by the cost.

Example of a local Malaysian company that integrates their supply chain is the Malaysian car automotive carmaker, Proton. After Proton suffers negative growth in the last few years, the new management of Proton has decided to integrate its supply chain and reduce their vendor based from 260 vendors to only 20 to 30 vendors only. Proton’s logistic provider companies have also been reduced from 14 companies to 3 companies only. The objective of the reducing was simply to cut waste and minimize the transaction that does not add value to the company. Reducing the vendors has helped Proton to cut the cost of the car they are selling and with higher quality.

RFID in Supply Chain Management

According to IDTechEx, the entire RFID market is valued at $5.29 billion worldwide in 2008. This value includes tags, readers, softwares and all other forms related to the system. One major sector that is benefiting from RFID is the transportation and logistic sector. Definitely, RFID will revolutionise and change the way of Supply Chain being managed in the future. Check out this video for more information.

Applying Supply Chain to Manage a Business Network

Market leadership can only be achieved by managing the network effectively as well as managing internal processes. Supply Chain Management can be divided into three main flows; Product flow, Finance flow and Information flow. In a successful supply chain network, these three vital categories flow simultaneously among the supply chain partners. Among the critical factors in determining the success of managing the network are collective strategy development.

Managing the entire supply chain requires companies to view their supply chain as a single entity. Strategic decision making and efficient management is essential in determining the success of the collaborative effort between the suppliers. Collective strategy is developed through mutual understanding and common objectives. Setting a clear goal post for the suppliers will help them in steering towards the same direction regardless of any setback they suffer along the way. Reaction to any disturbances caused by outside factors must also be dealt with collectively by suppliers as a group. The collaboration is also much stronger and enables them to compete effectively in either the local or global market.

Minimising Risk using Supply Chain Management

A supply chain is a system which needs a certain amount of control and management. Like any other system, it is prone to outside disturbance that can cause numerous effects to its system. One example of disturbance in the supply chain is the Forrester effect. Forrester effect is the distortion caused by demands from the retailer that causes fluctuation of inventory from the distributors, warehouses up to the factory. Other such distortion that can bring impact to the supply chain is the failure of any parties to deliver its good to other partners in a specific time period that causes major disruption to the overall supply chain process.

In mitigating this disruption, Supply Chain Management allows certain risk to be shared or delegated among its partners. Activities that carry the highest risk can be done by either the buyer itself or outsource to several reliable partners. The activities that hold the lowest risk can be outsource to new partners as to gauge the supplier’s performance before migrating them into a higher level. The strategy of managing this risk should be handled effectively by all partners in the supply chain. Identifying capability of internal and also external processes must be done with thorough risk analysis and mitigation strategy.

As an example of risk allocation at work was the Toyota case that occurred on 3rd February 1997. One of Toyota’s suppliers, Aisin Seki at that time suffered a devastating fire that caused its production to end abruptly. Aisin Seki is the only sole supplier of Brake Master Cylinder to Toyota in Japan. The fire in Aisin Seki causes the imminent collapse of Toyota Supply Chain. Following the incident, around 20 other Toyota suppliers immediately went on a collaborative mode to compensate the missing components. By 7th February 1997, Toyota managed to start back its assembly line and production presume back as normal.