Report on Supply Chain Strategy and Issues of Toyota

Running head: STRATEGIC PROCUREMENT
Strategic Procurement
Name of the Student
Name of the University
Author Note

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Executive Summary
The report presents the findings consisting of the issues that an organization Toyota faces in its
supply chain practices. The purpose of the report is to develop an understanding about the supply
chain strategy and the issues associated with such strategy. Thus, to fulfill the objectives and
purpose, the report intends to evaluate the issues associated with the supply chain of Toyota,
Australia. It identifies the gaps in the strategies applying theories and models and eventually
develops strategies to resolve the issues. The findings indicate that the organization faces supply
chain challenges in Australian market because the major suppliers Holden stopped producing the
supply items and Toyota does not have such major supplier like Holden in Australian market.
Certainly, this issue with supply chain is affecting the overall organizational performance. Based
on this issue, some relevant and specific strategies have been suggested.

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Table of Content
Introduction......................................................................................................................................4
Evaluation of the Supply Strategy...................................................................................................4
Application of theory and concepts.................................................................................................6
Recommendation- Strategic Plan..................................................................................................15
References and Bibliography.........................................................................................................18

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Introduction
The following report is based on procurement evaluation, which includes the strategic
issues faced by the organizations in the supply chain. The organizations often make changes in
the supply chain activities to avoid the unnecessary obstacles in the operation. However, as the
business environment has been dynamic in the recent time, the organizations might face different
supply chain issues in the operation. Thereby, to learn and analyze those issues, the report
considers the organization Toyota, Australia. Due to the unfavorable market environment in the
automotive sector in Australia, Toyota is facing some strategic supply chain issues in the
operation. The automotive manufacturing sector remains as an extremely competitive one and,
many firms are focusing on their supply chain for the sources of competitive advantages.
Thereby, this paper effectively presented the findings of an exploratory research that investigated
the contemporary issues associated with the strategic supply chain in Australia. The report
discusses those issues and applies some particular theories and models. Based on the evaluation
of issues and theories, suitable recommendations have been provided that would help the firm to
deal with the challenges.
Evaluation of the Supply Strategy
It has been identified that the large car manufacturing company Toyota in Australia is on
the verge of leaving the industry and soon, they are going to close their door. Even though, the
organization has made it clear that government subsidy is not the issue but the dynamic market
environment, which creates big challenges in the supply chain network. The supply’s demand in
the car-manufacturing sector of Australia is high, the suppliers know the market trends and
likewise, other existing car manufacturing organizations have become accustomed with the

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market. However, Barney (2012) mentioned that Japanese technology based firm Toyota did not
understand the market and the economic relation with trade in Australia. A put forward by
Christopher and Holweg (2011), Toyota Australia with the help of partner Sixtree- in the recent
time developed a dashboard that surfaces the data regarding the dynamic status of car transition
through company’s supply chain. Even though, the firm seeks to develop a wide supply chain
network in Australia car manufacturing sector to meet the growing demands of the customers,
several attempts made by the firm failed to implement the initiative. According to Roh, Hong
and Min (2014), the organization wants to run the operation in Australia, it needs to work with
the suppliers, stakeholders involved and the government to determine the possible steps.
The major issue, which has been identified is that Australia’s car manufacturing sector
teeters on the overall collapse in the wake of Holden’s ultimate decision to stop producing
vehicles. Thus, Toyota in Australia refuses to speculate on its future in Australia in the wake of
Holden’s decision. As the leading supplier decided to call off the operation, Toyota is in the need
of making relationship with the suppliers. Holden is the second biggest vehicle manufacturer in
the nation, which produce 75000 to 80,000 vehicles. Nevertheless, mentioned that the car
manufacturing organization Toyota could be able to sustain its operation with the combination of
imported as well as domestic parts (Mullan et al. 2011). Hence, Shaheen and Cohen (2013)
mentioned that if a single component manufacturer supplies the firm can also be a useful option
for Toyota. Nonetheless, if Toyota relies on such single component supplier, another supplier
with the same volume could be difficult to continue and this probably remains as the major
concern for Toyota’s supply chain network in Australia. In addition to this, it is also observed
that Toyota finds the supplier challenge due to the presence of other car manufacturing

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organizations in the sector. This means the organization faced the deficiency of suppliers and
they failed to build a long-term relationship.
The existing suppliers already have relationship with other car-manufacturing firms.
Conversely, Ghadimi et al. (2012) mentioned that as Toyota has large market share in the Asian
nations and thereby, a large proportion of the profits come from the Asian markets. Due to this
factor, the firm did not pay the required attention to the competitive Australian market. The firm
would have fulfilled the suppliers’ needs if the demands of products were observed to be high in
the Australia market. In addition to this, even though Holden was the one major supplier of
Toyota, the firm did not make or come into any long-term relationship with Holden. Moreover,
the organization also did not pay required attention to other suppliers. Bennett and Klug (2012)
mentioned that the reluctant nature of Toyota in Australian market observed because the firm did
not experience high demands in the market. In this context, Dodgson et al. (2011) also
mentioned that dynamic market environment and presence of large competitors like Ford,
Mitsubishi are the reason of poor market share of Toyota. Therefore, it can be mentioned that
poor demands of vehicles created an indirect impact on the supply chain activities of Toyota.
Application of theory and concepts
The automotive sector in Australia has undergone a transformational evolution over the
last two decades. In this context, Timmer et al. (2015) commented that conventional technique
for developing an automotive supply chain requires a wholly, integrated as well as the lean
materials. Historically, it is observed that supply chain operated under a “Push model” and
hence, in this model the marketing as well as sales covers an appropriate speculation at the
market demand and then feed the forecasts into the design to make model production volume. In

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this context, Farahani et al. (2014) commented that due to the boom of internet, the data has
become much more accessible to both consumers and the manufacturers. The following are the
supply chain theories and models that can be applied to Toyotas contexts.
Lean supply chain
The term lean refers to the series of activities or solution to decrease waste, as well as
minimize the non-value added operation. In this context, Olugu and Wong (2012) commented
that leanness referred to the action of developing a value stream to reduce all waste with the
inclusion of time and ensure a level of schedule. However, in this context, Tian, Govindan and
Zhu (2014) mentioned that lean is a systematic approach to identify and eliminate waste. It is
also observed that lean is a supply chain strategy that manufactures just what and how much is
required. The major objective of such supply could be realized by embedding the basic contents
of data communication on stocks, delivery plans and fluctuation in the frame of “Just in Time”.
The purpose of such integration is to ensure the commitment to quality and cost, gain least
distortion of approaches and usual delivery of small amount of orders. It can be added that lean
based philosophy is in general applied when the marketers could predict the demands of market.
In addition, such philosophy is applicable when the decisions of buyers usually depend on the
lowest price. In the case of Toyota, it is observed that even though the organization faced the
crisis of suppliers in the market, it maintained the waste management through the lean supply
chain practices. This means the suppliers who provide services to Toyota, have to follow the
principles of Toyota’s supply chain practices. Toyota asks its suppliers to reuse the wasted
materials in the next part of the entire shield. So that the excessive use of resource can be
controlled.

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Leagile supply chain
It has been observed that several studies have demonstrated that lean as well as agility
supply chain practices could be integrated in a variety of ways and this happens due to the
general characteristics embedded with each theory. These characteristics can be linked to evolve
a new manufacturing paradigm with the name of leaglie. Hence, Naim and Gosling (2011)
defined legality as the combination of lean and agile paradigm within the whole supply chain
practice by positioning and documenting point to perfectly meet the need for responding to a
volatile demand.
Kraljic Portfolio Purchasing Model
Kraljic Portfolio model helps remains useful for the purchasers, as it helps the purchasers
to minimize the supply security and decrease the cost by making the most of their purchasing
power. Thus, in implementing so, the procurement moves from being a transactional activity to a
strategic activity; this is because purchasing should be supply chain management. The
application of the model has been discussed in the following.

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Figure 1: Product Purchasing classification Matrix
(Source: Padhi, Wagner and Aggarwal 2012)
Purchase Classification
While applying this model, the organization needs to classify all of the commodities,
products, components as well as services that the firm is supposed to purchase in accordance to
the supply risk and potential profit impact. Supply risk could remain high when the item is a
scarce raw material, at the time when the availability can be affected by instability or natural
disaster (Padhi, Wagner and Aggarwal 2012). Thereby, hence, delivery logistic are difficult as
well as it could easily be disrupted. Likewise, the profit impact could also remain high when the
items increase the significant value to firm’s output. This occurs as it makes up a high proportion

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of the output and it has direct impact on the quality. For example, the vehicles used by a high
end-clothe manufacturer.
Strategic items- This usually include (high profit impact and high supply risk)
These items usually carry the most attention from the purchasing managers. Hence, the aspects in
the form of options involve the long-term supply chain relationship (Ferreira, Arantes and
Kharlamov 2015). The supply chain executives and managers have the opportunity to analyze as
well as manage the risks on a regular basis for the purpose of contingencies.
Leverage items- Hence, the managers or the organization should use the full purchasing
power by substituting the products and by placing high volume orders.
Bottleneck items (Limited profit impact and increasing supply risk)
In this phase, the firm could use the approach of over-ordering when the items are
available and the firm needs to look for the ways to control the vendors. However, in the context
of Toyota, this approach could be unreliable because the availability of raw materials is
restricted. Thus, the firm finds it difficult to deal with growing demands of vehicles and dynamic
market environment.
No critical-items- (Limited profit impact and low supply risk)-
The approaches for buying such items could include use of standardized product items,
optimization and supervision of inventory levels (Padhi, Wagner and Aggarwal 2012). In a
competitive market like Australia, it is difficult for Toyota to stock the standardized products
when the demand of vehicle is low due to the changing market needs. Moreover, the firm might

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not run the operation where the profit is limited but the cost of operation is high due to the
increased cost of raw materials.
Step 2- Market Analysis
Hence, the firm needs to investigate how stable and demanding the suppliers and the
purchasing power that the firm has as their customers. In Australian automobile sector, Toyota
observes a high supplier power, as suppliers are limited in the market, but the market has many
players. For example, the major supplier Holden has several key customers like Ford, Mitsubishi.
Thereby, Toyota is left with limited options when it comes to suppliers.
Step 3- Action plan
Hence, the firm needs to develop an implementation plan for each of the products as well
as materials on a regular basis. This approach is further divided into three different steps
discussed below.
Exploit- Here, the organization needs to make the most of their buying power to acquire
good price as well as long-term contracts from few suppliers; thereby, they could reduce the
supply risks engaged in these items (Knight, Tu and Preston 2014).
Balance-Hence, the organization needs to maintain the balance status between the
exploitation approach as well as the diversification approach. However, Toyota here finds the
challenge of diversification; it cannot apply diversification because the organization is largely
dependent on its core business.
Diversity- In order to minimize the supply risk by acquiring alternative suppliers, the firm
should depend on its core suppliers (Drake, Myung Lee and Hussain 2013). Hence, the firm

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could maximize its buying power by fulfilling by a single supply power. Nonetheless, in
Toyota’s case, the major supplier Holden stopped producing the items. Toyota is left with the
options of relying on the small and medium size suppliers.
Figure 1: Supply Market Strength
(Source: Padhi, Wagner and Aggarwal 2012)
Physical flow of supply chain
It is observed that the physical flow of supply chain might include the information and the
process associated with the status and the shipping of physical items in the inventory. As put
forward by Estampe et al. (2013), in the supply chain practice of physical flow items, the

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components manufactured by the suppliers and shifted through inbound logistic to accumulate
the plant. Carter, Rogers and Choi (2015) specified that at the assembly plant, a vehicle usually
goes through the body shop, shift to the paint shop and then finally to the assembly. Eventually,
it goes through the inspection phase. After all these procedures, once these vehicles have been
produced, the product is transported to the dealership through outbound logistics. Similarly, in
the context of Toyota, the physical flow of supply chain consists of the suppliers, inbound
logistics, outbound logistics, production as well as the dealers.
Figure 1: Physical Flow of supply chain
(Source: Carter, Rogers and Choi 2015)
Suppliers
As put forward by Wong, Boon and Wong (2011), the significant precondition to build supply
chain practice requires a stiff integration of production schedule of suppliers, which
amalgamated to the production schedule of customers. Hence, under this model, the suppliers
usually deliver several parts and components that might fit into the vehicles and these elements
generally obtained through outbound logistic network, where the organization has many tier-one
suppliers.

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In Australia, Toyota has limited number of suppliers and they are located in remote
geographical areas; thus, the time for parts required to arrive from each supplier could vary
largely. Moreover, in Toyota’s operation, it is observed that regional suppliers could be one or
two days away from the assembly plant, while the suppliers located in the overseas area could
require several weeks to shift the components to the factory or assembly plant. Olugu and Wong
(2012) mentioned that such process could result in suppliers as well as customers acquiring
inventories to keep a balance between the variability and the lead-time in the production
timeline. Toyota, to ensure the flexibility and deal with the challenge of lead-time, implements
the ideas such as supplier parks and modularization to minimize the lead-time needed to manage
the possible deviation between the received order as well as plant production. The entire process
of assembling the vehicles depends on delivery of components, which should be on time. Toyota
follows the practice of Just in Time for the suppliers to distribute the ordered components of
customers.
Inbound and outbound logistics
Carter, Rogers and Choi (2015) described logistic in a way where a connection between the
supply chain and its sub-system remains visible. While focusing on Toyota’s supply chain
system, it has been identified that two general types of logistic functions in new vehicle supply
chain are discovered-“inbound and outbound logistics”. In outbound logistic, car distribution of
Toyota from the assembly plant of the vehicle to dealers is done appropriately, as such practice
effectively maintains the awareness of the whole vehicle supply chain system by having a control
over the lead-time from the plant to the customers. In this context, lugu and Wong (2012)
commented quantity between the lead-time of production and the lead-time of distribution
remains little, hence, customers’ only concern is the arrival of merchandise.

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Recommendation- Strategic Plan
The above-mentioned discussion helps to conclude that the organization Toyota has some
significant issues in the supply chain network. To resolve or deal with such issues, the
organization should implement the following strategies.
Develop alliance with the key suppliers
When a business is largely dependent on the suppliers, it should closely work with the
suppliers and this is known as supplier relationship management. Hence, Toyota needs to use the
two-way communication, which requires both buyers as well as suppliers to collaboratively
manage the relationship. To form such relationship, the firm needs to provide techniques to
make sure that the relationship remains healthy and vibrant. This means, the purchaser and
suppliers both need to ensure that their needs are fulfilled. The organization should ensure that
their suppliers’ demands are satisfied and they are happy working with their customers. Both the
parties in such relationship should create a platform for the problem resolution, where all issues
and problems can be resolved. To do this, the firm could enhance continuous enhancement goals
with the objective of achieving value for both parties.
Engage in collaborative strategic sourcing- This strategic sourcing remains as the cornerstone
of successful supply chain management. However, it is identified that but a collaborative
strategic sourcing initiative could produce better outcome. Instead of considering strategic
sourcing as just for the purchasing department, best in-class should try to have internal customers
who are actively involved in the decision making process. In order to implement such initiative,
the organizations both the supplier and purchasers need to solicit feedbacks as well as the
information about their objectives and the strategies.

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Appropriately align and staff the supply chain organizations-
It often becomes difficult to manage the supply chain function in a manner, which could
increase its effectiveness and bring equal benefits to the firm. The organization could adopt a
hybrid approach that combines a centralized strategy to acquire consensus with the centralized
implementation to enhance service. Likewise, another emerging trend that the firm could include
the placement of contract management, forecasting, demand planning and the supply chain
leader. However, whatever structure, the organization adopts, appropriately staffing the supply
chain network remains vital to success. Furthermore, it can also be added that enhancing staff
members’ supply chain management skills and knowledge always remains as the priority but the
senior leaders should focus on the strategy and they should be less concerned regarding the
transactional capability. In addition, as the supply chain leaders tend to move up to join their
organizations’ management team; thereby, they might have additional characteristics.
Nevertheless, the firm could hire supply chain managers who acquire strong communication as
well as relationship management skills. Hence, the leaders must think strategically and focus on
the value creation.
Utilization of technology
In the advancement of technology, the organizations should take advantages of
technology to make the supply chain practice more efficient. The organization needs to structure
the workflow and implement the process with the help of selected technology. However, before
implementing such practice, they need to review the processes or the practices that require
enhancement. Based on the review, they need to select the technology that perfectly satisfies the
processing needs. Australian market is technologically developed and thereby, Toyota might not

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find any challenges in terms of the technology. Particularly, the firm could implement the
technology called enterprise resource planning with the information and as the solution, the firm
might not find the difficulty in retrieving the type of data that they require for making the
strategy effective. In addition to this, in adopting technology in the supply chain process, the
supply chain managers should play the major role in finding ways to implement technology to
manufacture beneficial information to perform different “work arounds”. The managers needs to
recognize the significance of an efficient purchase to pay process and utilize the strategies to
acquire benefits.
Develop a governing supply chain council
The major purpose of a governing council is to provide direction as well as help to align
the supply chain strategy with organization’s overall strategy. In the council, the membership
needs to include the leader of the supply chain firm and the corporate executive, the production
unit manager and other leaders. The council needs to hold scheduled meeting on a daily basis.
On the other side, it is also observed that supply chain firm has often been seen struggling for the
recognition as their objectives and strategies differ from their firms’ own objectives and
strategies. Thus, a governing council could prevent that from occurring by delivering constant,
consistent validation that supplies chain strategy, which could directly correlate with the
corporate strategy. Moreover, the council could help to withdraw the barriers to achievement that
remains within the organization. Most of the organizations face such challenging or difficult
situation that does not accept the value that a supply chain should provide. Thereby, by
identifying these challenges, the members of the council make sure that supply chain
organization provided with the scope to implements its potential.

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