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Bench Marking Toyota's Supply Chain; Japan vs U.K.

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Benchmarking Toyota’s Supply Chain: Japan vs U.K. Peter Hines How Toyota Suppliers are Developed Throughout the Value Stream The advantage gained by Japanese car manufacturers over their western competitors has been well documented.‘-” These advantages have been felt both at the vehicle assembler leve1,1.6 and at the component At the assembler level, manufacturer level.‘-’ Womack, Roos and Jones report quality gaps of 2 to 1, productivity gaps of 1.82 to 1, and inventory levels ten times higher
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  Benchmarking Toyota’s SupplyChain: Japan vs U.K. Peter Hines How Toyota Suppliers areDeveloped Throughout the ValueStream The advantage gained by Japanese car manufacturersover their western competitors has been well docu-mented.‘-” These advantages have been felt both atthe vehicle assembler leve1,1.6 and at the componentmanufacturer level.‘-’At the assembler level,Womack, Roos and Jones report quality gaps of 2 to1, productivity gaps of 1.82 to 1, and inventory levelsten times higher outside Japan.l At the direct or firsttier component supplier level, similar gaps have beendemonstrated by Andersen.3X4 In particular the And-ersen sponsored research team found 100 to 1 qualitygaps, 2 to 1 productivity gaps and 7 to 1 inventorygaps when comparing the abilities of U.K. andJapanese component makers within four product cat-egory areas.” In addition, previous research suggeststhat the ability of Toyota and their suppliers withinJapan may be higher than that of some of their dom-estic competitors due to their use of the Toyota Pro-duction System (TPS).l.’The Toyota Production System is, simply put, amethod of shortening the time it takes to convertcustomer orders into vehicle deliveries. In orderto achieve this the entire sequence from order todelivery is arranged in a single, continuous flow withcontinuous efforts made in terms of shortening thesequence and making it flow more smoothly. Theresult of this is a far higher level of productivity, betterquality and a major reduction in wasted time, moneyand effort, or, in short, better products made morecost effectively.7However, although the previous research is useful,it does not answer all the key questions regardingToyota’s success in Japan. First, it fails to extend fur- Previous studies have shown by benchmarkingthat significant advantage has been gainedby the application of the Toyota ProductionSystem (TPS) both within Toyota and in theirdirect and indirect suppliers. However, nodetailed analysis has taken place to verify wherethis advantage lies and how it has beenachieved. In addition analysis of whetherthis advantage is transferable by Toyotaoverseas is lacking at present. As a result of thesegaps a comparative research programme hasbeen carried out in Japan and the U.K. 01998 Elsevier Science Ltd. All rights reserved ther along the value adding supply chain involved inthe production of the final car. Thus, although data isavailable for Japanese car assemblers and first tier (ordirect component suppliers) it is not readily availablefor lower tier organisations (or firms that indirectlysupply components to Toyota, where a third tier firmsupplies a second tier firm who in turn supplies a firsttier organisation that sends products to Toyota) orraw material manufacturers. Linked to this point isthat the majority of data does not differentiatebetween firms primarily supplying Toyota and thoseprimarily supplying other Japanese car makers. Ifboth these points can be answered then it may bepossible to suggest where and why the Toyota Pro-duction System is superior to other approaches. Inaddition, if TPS is better than other approaches wecan ask whether it is transferable to other countries. PergaIWJnPII: SOO24-6301(98)00096-XLong Range Planning, Vol. 31, No. 6, pp. 911 to 918, 19980 1998 Elsevier Science Ltd. All rights reservedPrinted in Great Britain0024-6301198 $19.00+0.00  Methodology This research programme involved the bench-marking, verification visit, semi-structured interviewand modelling of a group of eight first tier and 13second tier Toyota suppliers in Japan together with asimilar grouping in the U.K. Benchmarking ques-tionnaires were sent to the participating companiesapproximately one month before a visit was made.The firms were requested to return the completedquestionnaires before the visit date. This was the casein all but one company. Each questionnaire was ana-lysed to ensure that errors had not occurred duringcompletion. This was primarily achieved by entryonto a comprehensive spreadsheet with pre-deter-mined check questions and calculations. This isbelieved to have identified over 90% of any suspector missing data at this pre-visit stage.Subsequent to this analysis a visit was made toeach company site for the purposes of verification andqualitative semi-structured interview. During thesehalf day visits, remaining missing or suspect data waschecked and verified. The verification also includeddiscussion of each data set and a tour of the factoryshop floor. In addition a semi-structured interview (I. 5-2.5 h in length) was undertaken to ascertain howthe results demonstrated on the questionnaire wereachieved. In particular, time was spent understandingto what degree the Toyota Production System (TPS)was employed, when it had been employed, how ithad been learnt and how it had been disseminated tosuppliers. Due to the range and detail of the tech-niques employed it is believed that the resulting evi-dence and data displays a high degree of rigor andintegrity.To supplement the above approach, structuredinterviews were carried out with relevant tradeassociations, academics and researchers in Japan andthe U.K. This methodology was chosen to giveadequate researchtriangulation between theapproaches used to provide as far as possible arealistic appraisal of the existing situation. Main Findings The Japanese first tier suppliers appeared to performbest in virtually every measure employed whether itwas concerned with process results, internal excel-lence measurement or supply chain integration. Withthe exception of the new product developmentprocess, the Japanese second tier showed themselvesto be broadly superior to the U.K. first tier and secondtier. This will be demonstrated in the following sec-tion using various value stream mapping tools beforewe discuss the underlying factors.8 Supply Chain Responsiveness As can be seen from Fig. 1, he responsiveness of theJapanese supply chain far exceeds the U.K. chain. The figure plots the cumulative inventory and leadtime in both countries from the point of delivery ofraw materials to second tier firms to the point of deliv-ery to the assembler. In the Japanese case this processtakes five working days using a “pull’ kanban system(where orders are placed on suppliers based on theactual requirement for parts against known orders)rather than the more traditional western “push’ sys-tem [where orders are placed on suppliers based onforecasts) involving 40 working days of lead time.Also the total inventory required in Japan for thisportion of the supply chain (21 working days] is farlower than in the U.K. (127 working days). Process Abilities We believe that key process deliverables are moreimportant to customers than departmental excellenceand data was collected for both Japan and the U.K.focusing on key process deliverables.g This was addedto earlier data to provide information at assembler,first, second and third tier 1evels.l Table 1 dem-onstrates that the gaps in quality, productivity [cost)and delivery performance are considerable at everytier. However, the quality and delivery performancegaps peak at the first tier whilst the productivity gapis widest at the second tier. Value Added in the Supply Chain We compared the value adding profiles of the twocountries’ automotive industries. Figure 2 segregatesthe raw material component of the final product out-side the pyramid structure. This has been donebecause the principles,dynamics and style ofrelationships operating in the raw material valuestream are very different from those operating withinthe parts and components value stream. Figure 2 dem-onstrates the similarities and differences. The valueadded by assemblers is very similar due to the emu-lation by U.K.-based firms of earlier Japanese pref-erences for outsourcing.In contrast, the value, or more correctly the costadded added by suppliers is considerably higher inthe U.K. (45.7% compared with 34.7% in Japan) andthe cost added by raw material firms (31.3% com-pared with 43.1%) is considerably higher in Japan.Variability in Demand The last key area for discussion is the demand varia-bility within the different supply chains as shownin Fig. 3. The variability is based on the differencebetween forecast orders one month before deliveryand the actual quantity required. Although variabilityincreases from the assembler back down the supplychain in Japan, the change is only from 2.2% up to 4.2% from the assembler’s purchases, through thedifferent decision points, to the second tier firm’spurchases reflecting the near exact “pull” of productfrom third tier firms. Benchmarking Toyota’s Supply Chain: Japan vs U.K.  Japan ResponsivenessPradoction Time: Cumulative Lead Time Working Days) Inventory:Lead Time: Production Time: FIGURE . Supply chain responsiveness: U.K. vs Japanese automotive industry. TABLE 1. Differences in quality, productivity and delivery between Japanese and U.K. automotivesuppliers Assembler*’ 1 st TierQuality Customer delivery defectrate Productivity Value added qualifiederemployee*’ Delivery -Inventory level-Late delivery2.00 244.5012.01 2.571.82 2.844.35 N/A 10.00 14.344.33 N/A N/A 283.8213.20 1.71*’ Based on data from Womack, Jones & Roos (1990),’ Japanese vs Western assemblers.“Qualified employee includes direct shop floor operators and supervisors/team leaders who spend the majority of their time as directlabour. Long Range Planning Vol. 31 December 1998  FIGURE. Value added by Toyota suppliers in Japan and the U.K.FIGURE. Variability in demand in U.K. and Jspanase automotive industries,*Based n the cube of the variance. Benchmarking Toyota’s Supply Chain: Japan vs U.K.
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