Toyota SWOT Analysis

Strengths: Strategic Advantages

Kanban System- Toyota’s strategic aspect that differienates them from other auto
manufacturers is their production process. The just in time method has proven to be effective
and efficient at saving costs for Toyota, therefore can charge less for their products. This gives
them a competitive advantage over other auto manufacturers. Only when the parts are needed,
do the suppliers provide the parts due to an integrated supply chain system. Lean
manufacturing also cuts down on storage costs and increases inventory turnover and speeds up
production. Toyota is about effectively using resources to maximize their production and
maximize elimination of unwanted costs. This lean manufacturing system has distinguished
Toyota from any other organization and has greatly decreased costs and increase product
production efficiency (Teresko, John).

Organizing Suppliers - Toyota believes that to have an efficient manufacturing system, there needs to be
strong relationships with suppliers. Suppliers are a key component of the Kanban System, so it is vital to
have close relationships with them to keep them up to date on new changes. They have a strong horizon
integration verses most automotive company’s vertical integration. Horizontal integration merges
competitors to gain a competitive advantage with large organizations. Toyota found that horizontal
merge proves to be cost effective, risk reducing, and increase benefits (Hill, Charles W. L.).
Understanding the importance of good relationships with suppliers, Toyota sought out to assist with
management, help engineering expertise, and even offered to finance potential investments (Hill,
Charles W. L.). Toyota strives for the best and only goes after the best suppliers of Japan and now the
United States (Vaghefi, M. Reza).

Strengths: Cultural Advantages

Loyalty - One of the major advantages in working with Toyota is their cultural advantages. One of the
cultural advantages is respect for hierarchy authority. Japan is much more devoted to groups then to
individuals. Toyota reflects this in their employee’s devotion to the company and the constant desire to
improve it. One of their fundamental beliefs is that every employee deserves respect (The Toyota
vision). Japanese value work differently then how Americans value work and it reflects in the quality of
the product. When Toyota designs their automobiles, each Japanese employee had a part and they take
pride in whatever part they have. Since there is this sense of respect for authority instilled in the
Japanese employee’s mind, the top management makes the decisions. The decision making process is
much quicker and implemented quicker due to this respect for hierarchy authority. This is one of
Toyota’s strongest competitive advantages; they believe in empowering every employee to be
innovative (Vaghefi, M. Reza).
Continuous Improvement - Coming from a culture that highly values pride in products, Toyota continues
to work for improving the quality of the product, the manufacturing system, or relationships between
suppliers. Toyota was built on the belief of continuous learning therefore this inspires continuous
improvement. Specifically, Toyota makes their employee teams figure out what the problem is when
one has occurred and traces the problem back to its origin. The employees are more educated on the
product now and can be more attentive to look for similar defects (Hill, Charles W. L.). Another way
Toyota is improving their internal structure was through organization. By organizing workforce into
teams that perform similar tasks and grouping those teams into areas with similar tasks teams, Toyota’s
manufacturing system can be more efficient.
Weakness
Just-in-time system - Even though the Kanban or the JIT system has proven to be a competitive
advantage for Toyota, it can be a weakness as well. The JIT system is so interdependent on one another
that no supplier is allowed to mess up even for a moment. The one supplier that does not provide the
quality supplies to Toyota will halt the rest of production till the issue has been resolved. Between
unions, strikes, and product quality malfunction, Toyota is relying on every supplier to be on time with
the best quality of products. Too much dependency can trickle down to parts of the manufacturing lines
if the suppliers do not provide.

Opportunities and Threats: Porters Five Forces

Risk of Entry by Potential Competitor
Entering the automobile market is expensive and risky. Some automobile companies constantly
battle against bankruptcy. Car companies are expensive to establish and expensive to maintain.
Companies like Toyota, Honda, and Ford discourage new competition because of their well
established presence in the market.
Economics of Scale – Toyota has worked on improving their lean manufacturing system to
spread fixed costs more over production. They have surpass Ford and GM in production and
costs. They can produce 15 cars per worker which is far more then the 4.7 vehicles per
employee Ford can produce. By creating more cars to sell, Toyota has effectively spread their
fixed costs over more production (Hill, Charles W. L.).
Brand Loyalty – Over the years, Toyota has proven to be a more reliable, dependable vehicle the
American made cars. Toyota builds cars for safety as well. In 2010, the Toyota Camry received
the highest possible grade for safety according to the National Highway Safety Administration.
They design cars to appeal to all types of social demographics and are now selling hybrids to
accommodate the high petrol prices.
Absolute Cost Advantages – Because of their just in time system, Toyota has been able to
significantly reduce costs and therefore have increase their profits more.
Customer Switching costs – Cars are liquidity assets and switching from one company to another
can be easy. All customers have the opportunity to but whatever brand they desire, but once
stuck with that vehicle, they are not as easy to dispose of.
Rivalry among Establish Companies
During the present times, competition between major automobile companies is intense.
Between the large automobile companies in the States, competition continues to increase
especially in tough economic times. Toyota has succeeded in narrowing the sales gap between
Ford and GM. Now Toyota holds 18.4% of the market share of passenger cars while Ford holds
to 15.4% and GM is 19.3%.
Industry Competitive Structure – Toyota competes in a consolidated industry in that there are
few but powerful companies competing with them. Consolidated companies are interwoven in
their market because what one company does can have direct impact on a competitor. For
Toyota, bringing in the just-in-time method has transformed how Ford and GM assemble their
products. Toyota is the leader in cutting costs and continuous improvements which have
brought new challenges to Ford and GM.
Cost Conditions – What makes Toyota different from rivalries is their strict cost cutting
techniques. This along with lean manufacturing and continuous improvement go together to
produce a strong business model. Since Toyota highly depends on lower fixed costs, they
counted on strong sales to increase profits and continuous grow which creates intense rivalry.
Exit Barriers – Automobile industries create high exit barriers since so much investment is
needed to get an automobile organization started and maintained.
Bargaining power of Buyers
Buyers can negotiate prices down since cars are plentiful. When there are plenty of product out
in the market, buyers can afford to be more precise and have higher standards for product
quality. In the case of vehicles, buyers can have some negotiating power over the vehicle’s price.
Ultimately, automotive companies need to learn how to enhance their profits while keeping
prices down. This is where Toyota’s technique of cost cutting is a competitive advantage.
Bargaining power of Suppliers
Suppliers do not have much power in the automotive market. There are other means of
automotive companies to get the parts then need if the suppliers charge too much. A
competitive advantage that Toyota has is their strong relationships with their suppliers.
Substitute Products
As the customers are becoming more environmentally conscience, more people are riding their
bikes or taking the bus to work. For personal reliable transportation, there are no substitute
products for vehicles. People will always need a personal, safe, dependable way of
transportation.

Works Cited
Hill, Charles W. L., and Gareth R. Jones. "Toyota in 2009." Strategic management cases: an integrated
approach. 9th ed. Mason, OH: South-Western/Cengage Learning, 2010. C238-C250. Print.

Teresko, John. "IndustryWeek : Toyota's Real Secret: Hint, It's Not TPS." IndustryWeek - Connecting
Manufacturing's Leaders. Penton Media, 1 Feb. 2007. Web. 10 Mar. 2011.
<http://www.industryweek.com/articles/toyotas_real_secret_hint_its_not

"The Toyota vision - The Manufacturer.com - Promoting best practice in Manufacturing." The
Manufacturer.com : Promoting best practice in Manufacturing. N.p., n.d. Web. 10 Mar. 2011.
<http://www.themanufacturer.com/us/detail.html?contents_id=4010

Treece, James B.. "The Roots of Toyota's Strength." AUTOMOTIVE NEWS. Crain Communications, 18
Aug. 2006. Web. 11 Mar. 2011. <www.autoweek.com/article/20060818/FREE/60816004 >.

Vaghefi, M. Reza . "Creating Sustainable Competitive Advantage: The Toyota Philosohpy and its Effects."
In the Press: Toyota. N.p., n.d. Web. 11 Mar. 2011. <sysdoc.doors.ch/TOYOTA/toyotaphilosohy.pdf>.