Comparison of Operational Strategies of

Toyota Motors vs Honda Motors

Group # 5

Janmey Patel ( 202 )

Nikhil Arora ( 206 )

Shashank Mohore ( 228 )

Aniket Gupta ( 229 )

Parandeep Chawla ( 231 )

Flow Of presentation

Automotive Industry today

Toyota Motors1. Operations Strategies2. C2C Structure3. Supply Chain Management

Honda Motors1. Operational Strategies2. QCDDM3. Supply Chain Management

The Market Today

In the past few years, General Motors, Ford, and DaimlerChrysler’s market share for cars has been cut in half.

Toyota , Honda , Nissan have shown a positive trend.

While domestic manufacturers still dominate their foreign competitors, the Japanese market share of cars is growing.

Consumers are choosing Japanese cars over domestic because of their competitive price, and high quality reputations.

These advantages are results of a very organized and innovative way of doing business.

The Toyota Way

Company's Profile

Toyota is Japan's biggest car company and the second largest in the world after General Motors.

It produces an estimated eight million vehicles per year, about a million fewer than the number produced by GM.

The company dominates its home market, with about 40% of all new cars registered in 2011 being Toyotas. 

Cash to Cash: Toyota, Inventory Management

Both Accounting and Supply Chain professionals rely on Cash to Cash (C2C) measures to make processes more efficient and cost-effective.

C2C is generally the number of days it takes to convert the expenses for raw materials into payment for the finished product (1).

Many factors influence this, including inventory management, supplier performance, and collection of accounts receivable. In accounting, C2C is a good measurement of liquidity of the firm.

For supply chain professionals, it measures the efficiency of the entire process, from suppliers, to manufacturing, through to order fulfillment (2).

Toyota takes three actions to decrease the C2C cycle:

Extend average accounts payable

Reduce inventory by reducing the production cycle

Decrease average accounts receivable

Internal Structure

One organization that has successfully implemented a C2C system is Japanese automaker Toyota. Its operational success is often attributed to the focus on reduction in inventory.

The term Toyota uses for their system is “HEIJUNKA”. Translated from Japanese, it means “make flat and level.” In particular, it refers to eliminating spikes in demand, but also creating operational efficiency and reducing overall supply chain costs.

Toyota’s lean operation focuses on the idea of buy one, sell one. Toyota is able to manufacture vehicles in about the same order customers buy them . This adaptability to demand has given Toyota the advantage of carrying the least inventory in the field of Japanese auto manufacturers .

Working with suppliers

This concept is one that Toyota uses internally and it also requires of its suppliers to improve the overall C2C cycle.

In the North American auto supply market, suppliers working with Japanese-owned automakers perform at higher levels than those working with U.S. automakers.

Toyota works with U.S. suppliers to teach them the lean manufacturing techniques used in Toyota’s manufacturing facilities (4). These techniques ensure a short amount of time between when Toyota needs an item and when the supplier makes it.

Using small batch production, this short lead-time can be achieved. Rather than running large batches and keeping excess inventory, plants quickly run a small batch and keep inventory low.

For Toyota, this translates to being able to better meet customers’ demands because manufacturing facilities do not have to wait on a particular part before beginning production on a vehicle .

Benefits of Heijunka

Toyota’s improvement in its supply chain benefits the automaker in many ways:

Inventory levels at parts distribution centers have decreased by 53 percent from stocking levels in the 1980s.

Since 1994, the inventory turn of parts in the average dealership has increased from 3.7 to 5.7.

•Toyota dealerships have achieved 20 percent to 40 percent reductions in floor space utilization.

The time spent improving the systems of U.S. suppliers shows results as well.

From 1997 to 2000 alone, supplier on-time delivery increased from 76 percent to 93 percent.

Sixty-six percent of suppliers on daily order status are able to deliver within five days or less.

While inventory management is an effective way to reduce the C2C cycle, it not only requires efficient manufacturing, but also effective forecasting.

Supply Chain Management

Supply chain management (SCM) is the management of a network of interconnected business involved in the provision of product and service packages required by the end customers in a supply chain. 

Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption

Toyota Supply Chain

Suppliers Parts

DEALERS

Customers

Outbound Logistics

Production

Inbound Logistics

INSPECTION

Assembly Plant

Inbound Logistics

Determine which cross dock is

located neares to suppliers

Network Design to analyze lacations of

Suppliers

Transport parts to cros docs and stage

them for coach assemply

Transport to plants and containers

travel in reverse route

Outbound Logistics

Vehicles at Marshalling

Yard

Accessories installation

Final Quality Assurance

Transport TO Dealers

Honda

Company’s Profile

Honda is the number 2 car maker in Japan and the 5th largest in the world.

Renowned for innovative ideas and engineering excellence, Honda has an unusually strong image among mainstream car makers.

This ensure it can remain independent when rivals merge or form partnerships. 

Honda’s Operational practices show a great example of the innovations the Japanese automobile manufacturers perform.

Operational Strategies

Careful site selection

In- depth supplier relationship Close and interactive, similar to a partnership

Japanese/ American manager mix

Honda Purchasing

Suppliers are involved with development and design of new products

Relationship is much like a partnership

Requires an in-depth supplier selection process

Honda Supply Chain

Honda uses their economies of scale by working with their parts suppliers to order raw materials in large quantities.

Honda Supply Chain

Honda Purchasing

Honda Purchasing

Parts Supplier

Parts Supplier

Parts Supplier

Honda Trading

Raw MaterialsMill

Parts Supplier

Parts Supplier

Parts Supplier

Honda Assembly

Plant

Honda Assembly

Plant

Supply Chain Characteristics

The key element for Honda is the flow of information with their suppliers 12 steps:

Initial contact, preparation/investigation of Honda parts, quotations, initial plant visit, prototype development, testing and evaluation, mass production quotation, preparation for mass production, trial run, Quality Assurance Visit, agreement, purchase order

In-house guest engineers

Structural Characteristics

Also known as exceptional drivers that reduce operating costs and increase productivity

Economy of Scale – All purchasing done by Honda Trading America Corp.

Technology – Multipurpose machinery

Capacity Utilization – Honda operates facilities in every major market they enter

Market Characteristics

IT advancements 3rdwave distribution software by Blinco Systems

Assures parts quality, controls availability, guarantees delivery, provides consistent materials pricing

Competitive Characteristics

Strategic and operational variables that must be factored into the design of a company’s global value chain Global value chain

Demand chain (marketing, sales, service) Supply chain (sourcing, manufacturing, logistics) Product development (R&D, design, engineering,

development, and launch)

Company Specific Characteristics

Strategic sourcing – “maximizing the value added through your external suppliers” Will chose highest supplier in overall service (not just

lowest price)

“Target pricing” Price table for parts If price cannot be met, Honda will work with supplier

to get costs down

Q.C.D.D.M

Customer Satisfaction is top priority Accomplished through suppliers competitiveness in

quality, cost, delivery, development, and management (Q.C.D.D.M.)

Quality Most important factor Must be built into production process

Q.C.D.D.M cont’d

Cost Suppliers are given target costs Cost reductions through own ideas, technology,

improved productivity, along with joint efforts with Honda in value engineering, and value analysis

Delivery Suppliers must use just-in-time production system

Q.C.D.D.M cont’d

Development Uniqueness in design and specifications Helps create identity for Honda

Management Positive attitude Measured by Q.C.D.D

Feedback Grade cards for suppliers

Honda Quality and Efficiency

Quality and Continuous Improvement Employee Driven “Kaizen” “Quality Circles” “Domestic Trouble Reports” (DTRs) MRP II and Web-based Ordering for

Supplier Base as a whole

Extent of Efficiency in Supply Chain Honda Trading “Soybean Example” New Honda Ridgeline Composite Bed/Box

In Conclusion : Toyota and Honda share a Similar

Philosophy

Customer Service is key Provides more predictable demand schedule Allows for a stronger relationship with Suppliers

Keys to achieving Cost Effective Customer Service

Monopolistic Purchasing Power

Strong Financial Health Able to ask more from Suppliers

Understanding of global Economic environment