University of Wollongong IACT422 Case Studies in I.T.

Name Joseph Baez Nurhazman Abdul Aziz Tee Young Chew Hoh Whay Loh Cong Xue

Student 2387256 2666182 2524272 2400431 2809217

Email jsb16@uow.edu.au naa925@uow.edu.au tyc95@uow.edu.au hwl97@uow.edu.au cx850@uow.edu.au

Course Coordinator: Dr. Aditya K. Ghose Tutorial: Document: Date Submitted: Wed 9:30am to 11:30am Group Case Study 19th August 2005

Executive Summary
The purpose of this case study is to analyse Toyota Motor Corporation of Australia’s (TMCA) supply chain. It also focuses on how Information Technology (IT) is currently being utilized to support its operations.

The history of Toyota since its introduction into Australia is covered in detail, followed by a thorough description of the organisation’s current business and its context. Within the case detail description the supply network is also analysed. These details include the description of the upstream and downstream entities, and how procurement and selling arrangements are done within the organisation. Material and financial flows, logistics and shipping arrangements are also reviewed. Additionally details on the current involvements of the organisation with any e-Marketplace are being highlighted.

Within each of the subcategories of the supply chain being discussed, each of them has been provided with information of how IT is being utilised to support and improve legacy supply chain operations. The strengths of the supply chain are being highlighted, while discussing its weaknesses derived from the previous information.

In summation there is no perfect solution for any supply chain, as all legacy systems have their own weaknesses. With the implementation of IT though, a large scale company can come close to reaping the benefits of a solution that aims at excellence, but not perfection.

Table of Contents
Introduction........................................................................................................................ 1 History of Toyota Australia.............................................................................................. 1 TMCA Timeline ................................................................................................................. 2 Toyota Australia’s Current Business............................................................................. 3 Business Context ............................................................................................................. 5 The basis of Toyota Australia’s supply network .......................................................... 7 Supplier Association .................................................................................................... 7 History of Supplier Association .................................................................................. 7 Effect of “knowledge sharing network” on supply chain coordination.................. 8 Intra-Plant Vs Inter-Firm.............................................................................................. 9 Upstream and downstream entities......................................................................... 11 Bundled Outsourcing ............................................................................................. 11 Logistic Challenge.................................................................................................. 12 Import of Vehicle Components............................................................................. 15 Upstream entities ................................................................................................... 16 Downstream entities .............................................................................................. 17 Internal entities ........................................................................................................... 17 IT solution for Toyota’s overall supply chain operation. ....................................... 18 IT Solution for Toyota Australia’s overall supply chain operation....................... 20 Downstream Sales Arrangements........................................................................... 22 Sales and Marketing Arrangements.................................................................... 24 Financial Management Arrangements................................................................ 24 Procurement Arrangements ..................................................................................... 26 ‘Kanban’ – Card System ....................................................................................... 26 Toyota’s Material & Financial Flow.......................................................................... 27 B2B e-Marketplaces where Toyota Australia participates ................................... 32 Logistic & Shipping Arrangement ............................................................................ 35 Backbone of IT Solutions .......................................................................................... 38 Maximizing Information Exchange ...................................................................... 38 Network Structure................................................................................................... 39 The network is the company................................................................................. 41 Strength & Weakness.................................................................................................... 42 Strengths ..................................................................................................................... 43 Weaknesses................................................................................................................ 46 Conclusion....................................................................................................................... 47 Bibliography ................................................................................................................ 48

Introduction
Significant opportunities are being presented to the Australian automotive industry. Since Toyota’s introduction, it has continued to make remarkable impacts on the Australian marketplace. In spite of the size and complexity of the organisation, every minute detail is transparent across the entire supply chain process. In being able to see these details, errors become apparent which cause losses in productivity and efficiency, from the early manufacturing stages right through to end customer satisfaction.

Given these losses, it is critical to fully analyze the supply chain to cite any inherent weaknesses. What also needs to be determined is whether the implementation of Information Technology has significantly contributed to the known strengths of the legacy supply chain, and eliminated its inherent weaknesses.

History of Toyota Australia
Toyota Australia's origins go back to 1958 when Theiss Brothers began importing the first Land Cruiser models for work on the Snowy Mountains Hydro-electric scheme. Assembly of Toyota cars began in the Melbourne factory of Australian Motor Industries (later AMI-Toyota) in 1963 and within a decade the Corolla and Corona (replaced by Camry in 1987) were well established in the market1.

The commercial vehicle business became Theiss Toyota in 1971 and achieved commercial leadership in 1979. Meantime AMI Toyota began investing in an engine and stamping plant to consolidate its position as a high local content vehicle manufacturer.

In 1988 Toyota's local operations were unified to form Toyota Motor Corporation Australia and work began on restructuring and strengthening the group as a major step
1 Toyota Motor Corporation Australia, (2005), ‘History’, Online, Available: http://www.toyota.com.au/corporate/articles/0,2862,subId%253D922%2526sectionId%253D880 [Accessed 15 August 2005].

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towards achieving international competitiveness and building vital export business. Within two years preceding 1995, Toyota Australia merged its vehicle production at its new Altona plant in Victoria. The Altona plant began production in July 1994 and was commissioned officially in March 1995 .
1

Toyota Australia currently builds two models – the Camry and Avalon series. It has manufactured over 100,000 vehicles and over 80,000 engines at the Altona plant in 2003. In this same year Toyota spent an estimated $1.6 billion on Australian companies supplying locally made components for its Australian made vehicles. TMCA has become a significant contributor to the Australian economy through direct and indirect employment, capital investment and export revenue. Exports of Altona-manufactured Camry vehicles have risen steadily and will approach 50,000 this year, making Toyota Australia the nation's largest export manufacturer2.

TMCA Timeline
Below is a timeline for TMCA from 1958-2004:
Time 1958 Events First 13 Land Cruisers imported for use on Snowy Mountains Scheme Time 1992 Events One millionth locally-built Toyota

produced

1959

First Toyota Land Cruiser sold in Australia

1994

Corolla is first car built at the new Altona Assembly Plant. Camry is the last car built at Port Melbourne

1963 1964

Toyota Tiara assembly starts Corona assembly begins

1995 1996

Camry enters production at Altona First Camry export shipments to the Middle East

1967

Crown assembly starts

1998

Altona

plant

receives

ISO

14001

certification (Environmental Management)

2 Toyota Motor Corporation Australia, (2005), ‘Manufacturing’, Online, Available: http://www.toyota.com.au/corporate/articles/0,2862,subId%253D878%2526sectionId%253D214,00.html [Accessed 15 August 2005].

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Time 1968

Events Corolla assembly begins at Port Melbourne

Time 1999

Events Victorian Parts Distribution Centre opened at Altona

1978

First engines built at Altona

2000

Avalon production commences at Altona. Toyota Australia appointed as national Daihatsu distributor. New National Sales and Marketing headquarters opened in Sydney

1981

Altona begins volume production of body panels

2001

The hybrid petrol/electric Prius launched in Australia. 100,000th Camry exported to Saudi Arabia

1987

Camry replaces Corona at Port Melbourne Assembly Plant

2003

Toyota

Australia's

300,000th

vehicle

exported. Toyota overall Australian market leader with industry record sales of 186,370 vehicles

1990

Lexus LS 400 launched in Australia

2004

Two

millionth

locally

built

Toyota

produced. New corporate headquarters in Port

Melbourne opened 1991 Toyota becomes Australian overall market leader

Source: www.toyota.com.au

Toyota Australia’s Current Business
Toyota Australia is the second largest vehicle manufacturer in Australia and one of Australia’s largest manufacturing organizations. The main corporate and engineering headquarters are based in Melbourne are assisted by wide-ranging sales and marketing operations in Sydney. It has parts and automotive dealerships on mainland locations nationwide, utilizing over 4500 people and many more employed in its supplier and retail networks. As well as its locally manufactured models, it imports a wide range of sedans;

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hatch-backs; four wheel drives and business make vehicles. In fact, it has been manufacturing automobiles in Australia for more than four decades3.

Toyota has exported over 60,000 cars to over 20 different commercial locations worldwide, supplying left and right-hand drive Camry vehicles to South East Asia, the Middle East, South Africa and Australasian markets. This strong overseas sales drive will supply over AUD$1.4 billion dollars in revenue for Toyota Australia in 2003. To compliment this, Toyota Australia also distributes and sells the Lexus range of vehicles, as well as the Daihatsu and Hino series3.

In addition to its Melbourne operations, Toyota Australia maintains a comprehensive sales and marketing operation in Sydney as well sales and distribution operations. Toyota continues to make a major investment in the production plant at Altona and its operation at Port Melbourne. These investments included a new automated press line, e-business implementation, supplier tooling and equipment, and a new corporate business centre in Melbourne4.

Toyota is a people oriented organization that sees the development of its staff as a foundation stone for future business prosperity. In the Toyota Production System, the manufacturing staffs are frequently encouraged to undergo continuous process on the job training. As part of a global company, learning opportunities are often available and encouraged. Furthermore, Toyota also has joint ventures with a number of education and training institutes in Australia. In short, Toyota is working towards excellence in organisation learning3.

3 Egan j., (2000), ‘Submission to Productivity Commission Inquiry into Post 2005 Assistance arrangements for the automotive manufacturing sector’, (Online), [http://www.pc.gov.au/inquiry/auto/subs/sub039.pdf, Last Accessed 15 August 2005]. 4 Toyota Motor Corporation Australia, (2005), ‘Toyota Australia’, (Online), [Available: www.toyota.com.au, Last Accessed: 15 August 2005].

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With the support of Australian government policy, Toyota Australia exports a total of 50,000 automobile, representing 55% of total Australian vehicle exports for the year. This has made Toyota Australia’s largest vehicle exporter, shipping to 33 countries worldwide and ensuring high quality standards in their products3.

In terms of supply chain, Toyota has long been recognized as one of the most efficient manufacturers in the world. It has been proactive in working partnerships with its suppliers to improve capabilities and increase local component sourcing. In addition, Toyota and its first tier suppliers also have benefits on the introduction of lean manufacturing into their operation. With a dedicated supplier development team in place since 1989, Toyota has successfully implemented lean manufacturing, benchmarking their Toyota Production System process5.

Toyota Australia plays an important role in the Australian automotive industry, as well as the manufacturing industry. In terms of supplier capability development initiatives and a major contributor to building skills, Toyota is a leader in the industry. In addition, it is the second largest volume automobile producer and exporter.

Business Context
The business context of Toyota Australia is actually link to the operating environment that consists of a number of factors. They are as follows3: • • • • The global industry operating environment; Automotive investment trends; Policy environment; International market access;

5 Toyota Motor Corporation, Manufacturing, “Toyota Production System”, (Online), [Available: http://www.toyota.com.au/corporate/articles/0,2862,subId%253D905%2526thirdId%253D1005%2526secti onId%253D214,00.html, Last Accessed:15 August 2005].

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• •

Australian industry operating environment; and Government policy environment.

Over the past five years, the global automotive industry has undergone a significant restructuring in their business context. A number of automobile companies have merged into six major production groups to benefit in terms of resource availability. The component supply industry has also seen consolidation by the automobile makers of their component making subsidiaries .
1

In terms of the automotive investment trends, the dominant companies in the industry are usually the Japanese, German and United States companies. Investment decisions are usually based of increasing integrated global strategies, as these companies coordinate brands, product portfolio and supply chains with investments in production, engineering, R&D and design that are distributed across every continent. Moreover, a recent development can be seen in the investment of the industry into the China market. This is due to potentials in its infrastructure, and also to allow important access to international market opportunities. To provide sufficient volume to vehicle and component manufacturers and to exploit scale and scope economies though, an export market is required. Government policy too has had changes over the past five years upon the Australian automotive operating environment, having a significant impact in the industry .
1

In summary, Toyota Australia has to consider these contexts that affect the growth of the operation here in Australia. It is not just a part as a matter in the current business process or the mass production, but also the business context that summaries the profitable and growth of the company, as well as the industry. As an aside point, Toyota too has taken the initiative to develop many innovative systems from the current Toyota Production System to compete against other companies. With the rapid increase of globalization and rapid technology, Toyota Australia has to be up to date with its competitors, from the raw materials suppliers, right across to the sales of its end products.

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The basis of Toyota Australia’s supply network Supplier Association
The key to Toyota’s success would appear to be their highly effective supplier integration process that over the past 50 years has enabled the excellence of their internal hoshin kanri strategic management, cross functional process based management and Toyota Production System to be shared directly with their direct suppliers. In addition, over time, as the supplier integration system has been taught to their suppliers the excellence in performance was then outsourced to second and over time lower tier firms6. The primary method to do this has been the kyoryoku kai or Supplier Association.7

History of Supplier Association
A Supplier Association may be defined as a mutually benefiting group of a company’s most important suppliers brought together on a regular basis in order to achieve strategic and operational alignment through the development of awareness, education and implementation programmes designed to achieve both radical and incremental improvements. The first Supplier Associations had their roots in the late 1930s Japan and have from that time on been generically called kyoryoku kai (or Cooperative Association) in Japan after the original grouping of around 20 of Toyota’s suppliers who formed such a group in 1939 .
7

During 1970s, the original Toyota group was widened to include tooling and capital equipment suppliers with a fully developed multi-tier cascading Supplier Association in place by the late 1980s involving nearly all of the key suppliers to Toyota in their 1st, 2nd and 3rd tiers of supply. The most recent development in the 1990s has been the creation
6 Dimancescu D., P. Hines & N. Rich (1997) The Lean Enterprise: Designing & Managing Strategic Processes for Customer Winning Performance, AMACOM, New York 7 Hines, P., Rich, N. Outsourcing Competitive Advantage. (Online) [http://www.cf.ac.uk/carbs/lom/lerc/centre/publications/downloads/outcompad.pdf#search='Outsourcing%2 0Competitive%20advantage', Last Accessed: 16 August 2005].

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of overseas Supplier Associations based around Toyota’s overseas facilities such as the Suppliers Associations developed by the American and English plants and Australia (Altona) .
7

Effect of “knowledge sharing network” on supply chain coordination
Toyota has a system to increase its suppliers’ involvement, share valuable knowledge, and prevent free riders in its supply chain8. It was found that in the Toyota system, the suppliers were developing a “dynamic learning capability” that improved their competitive capabilities. This type of network – a network where manufacturers and suppliers are highly involved in the interactions and learning – is referred to as “knowledge sharing network.”9 The effects of knowledge sharing network on the coordination of supply chain and product customization forms the basis of Toyota Production System (TPS). Toyota believes it has much to gain from developing strong ties amongst its suppliers and creating and sharing new knowledge to increase the efficiency of the entire TPS. The aim is to have members identify themselves as part of an interdependent economic network.10

8 Dyer, J. H and K. Nobeoka (2000), “Creating andManaging a High-performance Knowledge Sharing Network: The Toyota Case,” Strategic ManagementJournal, Vol. 21, 2000, pp. 345-367. 9 Kim, K., Im, I. The Effect of Electronic Supply Chain Design (e_SCD) on Coordination and Knowledge Sharing: An Empirical Investigation. Proceeding of the 35th Hawaii International Conference on Systems Sciences, 2002. 10 Fujimoto, T.(1999) The Evolution of a Manufacturing System at Toyota, Oxford University Press, Inc., Pg. 10-20

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Lean Production Plan (Value-Carrying Information Cycle)

Intra-Plant Vs Inter-Firm
Lean production, which was originally introduced by Toyota Motor Corporation (Womack, Jones, & Roos, 1990), derives its strengths from two sub-systems: intra-plant (mainly shop-floor) organization and inter-firm relations with key CPA (Components, Parts, and Accessories) suppliers. Automobiles are highly CPA-intensive assembly-based products. Many of these CPAs are specific to particular car models, which are highly differentiated in color and engineering design. Yet, because of a single firm's limited scale of operations, Toyota cannot afford to completely monopolize their suppliers, Toyota use the CPA procurement practice called "design-in" or "black-box" supplier engineering, where they closely collaborate on new model development with their suppliers from the outset.11 Thus, they in effect purchase their suppliers' soft engineering capabilities, rather than simply their hard final components.

11 Fujimoto, T.(1999) The Evolution of a Manufacturing System at Toyota, Oxford University Press, Inc., Pg. 129-172

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Parts Sourcing Systems Source: Fujimoto: The Evolution of a manufacturing System at Toyota12

Once key CPAs are collaboratively designed and engineered, they are delivered just-intime for final assembly. The contracts are long-term, and assembler-supplier transactions are guided by trust and pursued to the mutual benefit of both parties.

Toyota has its own primary suppliers of key components. But those CPAs which are more standardized (i.e. lower asset specificity) will be catering simultaneously to all the local assemblers to gain scale and scope economies. Even if some CPAs are assemblerspecific in design and engineering, flexible production (e.g. multi-purpose robots and adaptable manufacturing techniques, such as fabricating a variety of differentiated CPAs on a given assembly line) can still accommodate considerable diversity in upstream supplier products.

12 ibid

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Upstream and downstream entities
As previous stated, Toyota’s success appear to be their highly effective supplier integration process. Although Toyota Motor has created Overseas Supplier Association in Australia, to enable the development of multi-tier Supplier Association, this move by Toyota however do not allow the supply network of Toyota Australia to work identical as the supply chain in Japan, which thus changes the whole supply coordination. After a series of research, few critical factors were identified. They are as follows:

Bundled Outsourcing
One of the important characteristics of Toyota Japan suppliers system in terms of the inter-firm tasking portioning is that the outsourcing ratio is high not only in manufacturing but also in product development. A firm can assign the product development and production jobs of a given component to one company (e.g. a technologically capable supplier) or to two or more separate companies.13 One good example will be the use of black-box system to produce the whole engine before sending it to the final assembly line. However in the case of Toyota Australia, production of engines are manufactured in-house, which includes many of the engine parts including cylinder blocks, pistons, cylinder head covers, exhaust manifold and bearing caps in their Alton’s Manufacturing plant.. Additionally, bumper bars, door trims, fuel tanks and trim fabrication are also manufactured by Australia, however by their Port Melbourne plant which is brought to Alton for assembly of the vehicles. Above the former, parts such as cylinder block castings, is sourced from external suppliers14.

13 Fujimoto, T.(1999) The Evolution of a Manufacturing System at Toyota, Oxford University Press, Inc., Pg. 10-20 14 Toyota Motor Corporation, Manufacturing ( Online) [http://www.toyota.com.au/corporate/articles/0,2862,subId%253D878%2526sectionId%253D214,00.html, Last Accessed:15 August 2005].

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From above mentioned, it can be seen that there is a difference in terms assembly process and the level of hierarchy in supplier. Without bundled Outsourcing, it has first changed the internal process of the supply chain and most importantly, the number of first tier suppliers decreases and many of the suppliers ascended to the higher tiers and the hierarchy of the parts markers.

Logistic Challenge
In Japan, Toyota’s plants and those of many suppliers have been clustered near ‘Toyota City’. Even suppliers located greater distances from a Toyota plant have been situated along a narrow delivery corridor. Thus, in Japan, suppliers made frequent, small batch deliveries, with orders shipped from individual suppliers typically arriving as often as once an hour. For large or frequently used parts, trucks hauled supplies directly between the supplier and the customer. For smaller or less frequently used parts, ‘milk-run’15 trucks followed looped routes, made quick, frequent stops, and picked up small batches of parts at several suppliers before delivering orders to the Toyota plant. One advantage of localization is closer relationships facilitate collaborative problem solving. When a problem is discovered, a problem-solving team comprised of buyer and supplier personnel comes together to identify the root cause, brainstorm a resolution, and take action. Joint problem solving also can mitigate the impact of an unexpected disaster. For example, when one of Toyota’s suppliers in Japan suffered a catastrophic fire that burned a key facility to the ground, a joint problem solving team was quickly mobilized to get a critical valve back in production. The factory had been the only source of the valve and Toyota Japan only kept four hours worth of inventory on hand. As a result of this joint problem solving, Toyota's auto assembly plants were back on line within a week.

15 A routine trip involving stops at many places. The ‘milk-run’ approach increased the frequency and reduced the batch-size with which individual suppliers delivered without compromising truckload economics.

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Time taken for Assemble back on line Source: SMR, WSJ

In Australia, in contrast, Toyota has only one manufacturing plant. Building the network of 97 suppliers, were geographically dispersed (i.e., some close to Altona plants but some not). Therefore, direct, point-to-point, daily order-shipments from each supplier the plant were not feasible, nor were milk-run routings in many instances.

“Kanban”= Card (Japanese)16

16

Reimer K. (2003), Advance Supply Chain Coordination (Lecture Presentation), University of

Melbourne, (Online), (http://www.dis.unimelb.edu.au/staff/kai/slides/week8.ppt), Last Accessed: 19 August 2005.

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The mechanisms for ordering supplies were therefore different, however, because of the longer travel distances between Toyota’s plants and those of its suppliers. Longer supply lines required faster order processing, and this was done electronically. Essentially, electronic kanban cards were identical in function to the physical kanban cards used by Toyota in Japan. For example, a batch of electronic cards (a) was the sole means of requesting new parts, (b) was sent for every order shipment, (c) went to a specific supplier plant, and (d) established the mix and volume criteria for assessing if an order was correct.

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PARTS SUPPLIER
Material Requirements Forcast
Planning

TOYOTA (TMCA)
Orders

ANSI X12 830

Planning

Forecasts

Kanbans
Delivery Docket
Kanban Sorting
Production Line
Despatching

Goods

Kanbans
Delivery Docket
Receiving

Accounts Receivable

Remittance Advice

Accounts Payable

EDIFACT REMADV

EFT

EFT

BANKING SYSTEM

Electronic Kanban Cards System

16

Import of Vehicle Components
Toyota Japan is one of the world‘s leading automakers, offering a full range of models, from mini-vehicles to large trucks. Global sales of its Toyota and Lexus brands, combined with those of Daihatsu and Hino. Besides its own 12 plants and 11 manufacturing subsidiaries and affiliates in Japan, Toyota Japan has a massive group of suppliers, supplying Japan components for its domestic made vehicles. However in the case of Toyota Australia, only 79 per cent of components are local content, with the balance relying on imports. This has been highlighted as one of the critical factors in terms of supply chain due to the fact the it affects the supply chain coordination as well as the upstream entities.

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Upstream entities
At current, Toyota Australia has an extensive local supplier base from its 98 component suppliers and 300 general suppliers. In general, suppliers may be broadly classified into three categories: • • •

Parts suppliers (Key component/ low assets specificity component) Raw materials suppliers Suppliers of equipment and tools

These companies were predominantly manufacturers of tires and rubber parts, glass, paint, batteries, electronic parts, bearings and brake systems. By contrast, suppliers which have remained members of a single association tended to be locally based singleestablishment companies in mechanical engineering. Additionally, components such as bumper bars, door trims, fuel tanks and trim fabrication manufactured at their Port Melbourne plant are also considered part of the upstream entities as they are brought to Alton plant for assembly of the vehicles.

Toyota was particularly successful in outsourcing a major part of its competitive advantage to its network of direct and indirect suppliers. This performance is partially explained by the supplier associations as previously mentioned. In Toyota Australia, production relies heavily on sub-contracting. The firm deals directly with their 98 components suppliers and 300 general suppliers who themselves deal in turn with their lower tier suppliers. Over time these associations have developed to involve almost all Toyota suppliers in the first, second and third tiers of supply. While encouraging such associations, Toyota is not necessarily involved in their day to day functioning. Instead, leadership is delegated to important direct suppliers.

The kyoryoku kai promotes integration activities among members such as top management group meetings, quality awards and audits, and tries to achieve thereby a better coordination through information exchanges. Such flows of information were not present at that scale in other forms of supplier-buyer relationships and should be viewed Page 16

as the key factor explaining Toyota achievement. As argued by Baiman and Rajan (2002), the amount of information exchanged among subcontractors is what really distinguishes supplier networks from more traditional arm's length relationships.

Downstream entities
In general, Toyota Australia has the following downstream entities: • • •

Warehouse facilities in all major states Distributors in all major states Dealer network of over 285 outlets across Australia

Additionally, downstream entities comprises parts distribution centre in Sydney and Melbourne and a storage distribution complex situated at Woolooware.

Internal entities
Toyota builds two models - Camry and Avalon - in Australia. The fully integrated Altona manufacturing plant incorporates state-of-the-art weld, paint and assembly shops to produce cars that have been independently recognised as Australia's best quality locally built vehicles. To build a car, the internal entities of the supply chain which includes all of the in-house processes used in transforming the inputs from the suppliers are as follows: • • • • •

Production of Engines (Once completed, the engines head straight for the final assembly) Pressing of steel panels and parts Welding of car shells Painting of car shells Final Assembly

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Parts/Service Centers Dealers Overseas Network
Import / export

Customers

Distributors

Altona Assembly Plants

Components Supplier Group
•Key Components •Low Assets Specificity Components •Equipments & Tools

Warehouse

Assembly

Paint

Engine Production

Wielding

Pressing

•Port Melbourne Plant Manufactured Components

Raw Material Suppliers

Legend:

Up Stream

Internal

Downstream

Supply Chain of Toyota Australia

IT solution for Toyota’s overall supply chain operation.
Toyota Australia’s parent’s company, Toyota Motor Corporation (TMC), is Japan’s largest vehicles manufacturer and one of the largest automotive companies in the world. As of December 2004, outside Japan, Toyota has a total of 51 overseas manufacturing companies in 26 countries / locations. Toyota markets cars worldwide through its overseas network consisting of more than 160 importers / distributors and numerous dealers. At current, to support their operation worldwide in terms of building tighter collaboration links among manufacturers of Toyota Group, OEMs manufacturers,

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suppliers, distributors worldwide, Toyota is current supported by the SAP automotive suit17 Enterprise Resource Planning (ERP) system.

With the current SAP automotive suit, outstanding strategic, operational, financial and marketing position gains have been achieved by Toyota that have embedded the lean philosophy, principle, practices, tools and methods of the Toyota Production System (TPS) into their integrated IT systems. Gains ranging from factors of three or more in sales per employee, profitability, free cash flow and a superior market position, among other performance indicators, have been acknowledged in Toyota with revenues from tens of millions to billions of dollars.18 This system hence acts as one of the main means of information flow between Toyota Australia and its counterparts worldwide.

17 SAP, “Toyota Motorsport Accelerates Formula One Operations with SAP” (Online) [http://www.sap.com/solutions/businesssuite/plm/newsevents/index.epx?pageview=print&pressid=2462, Last Accessed: 15 August 2005]. 18 Terence, T., Thomas, E., Building the Lean Extended Enterprise Through Adaptive Supply Chain Networks, The Center for Excellence in Operation, Inc., Special Research Report. (Online)[http://www.sap.com/industries/hightech/pdf/BWP_AR_Building_the_Lean_Extended_Enterprise. pdf#search='CEO%20special%20research%20report', Last Accessed: 15 August 2005].

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Toyota Group Worldwide Source: Toyota Website

IT Solution for Toyota Australia’s overall supply chain operation
At current, while Toyota Australia has the main SAP Automotive suit ERP system, this however could not allow them to be connected to their numerous partners in the value chain via an assortment of systems, including some proprietary technologies. Understanding that modern production methods, which depends on many independent suppliers, and just-in-time delivery requires them to manage an increasingly complex value chain, Toyota Australia commenced a major revamp of its operation, known as the ebusiness Transformation Program in 200419. This program, designed to integrate the

19 BEA Systems, Inc, Press Release: Toyota Australia Selects BEA WebLogic Integration 8.1 as Foundation for eBusiness Transformation Program. (Online)

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systems and processes that connects Toyota Australia and its trading partners, with the goal of achieving real-time information access, enhanced tow-way visibility and improved performance through all of its processes and those of its partners.20 To drive out costs and enable a smooth transfer of data along the entire value chain within Australia, BEA Weblogic Integration 8.1 was selected due to BEA’s aggressive support for open standards. Another advantage of implementing BEA Weblogic Integration 8.1 was that it has the ability to implement existing business logic, such as that within the SAP automotive suit. The current BEA software has the following function21: • • • • • • Electronic proof of delivery Online accounts payable status for suppliers Fleet management integration The Toyota Vehicle Order Processing System (TVOPS) Advance Shipping Notice for vehicle deliveries Vehicles inventory synchronization

With a mover towards open-standards, the value of data collected is increase because it can be shared between projects.

[http://www.bea.com/framework.jsp?CNT=pr01121.htm&FP=/content/news_events/press_releases/2003& WT.si_n=PR1, Last Accessed: 15 August 2005]. 20 BEA Systems, Inc. Whitepaper: Toyota Australia eBusiness Transformation Program. (Online)[http://www.bea.com/content/news_events/white_papers/BEA_ToyotaAustralia_cs.pdf, Last Accessed 15 August 2005]. 21 BEA Systems, Inc. Case Study:Toyota Australia Drives Out Cost and Increase Visiblilty with BEA Solution for Dealers. (Online) [http://www.bea.com/content/news_events/white_papers/IDC_ToyotaAustralia_cs.pdf, Last Accessed: 15 August 2005].

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International collaboration Raw Material Suppliers End Customer

SAP/BEA

Dealers

1st Tier/ 2nd Tier Suppliers Manufacturing Plants Warehouse/ Parts Centers

Supply Chain Collaboration with IT Solutions

Downstream Sales Arrangements
Toyota Motor Corporation of Australia’s (TMCA) downstream sales arrangements, in particular the agreements in place with existing dealerships are done via strict selling arrangements. No customers, corporate or otherwise, can purchase a new car, or fleet of cars, directly from TMCA but must purchase from an authorised Toyota dealership; this purchasing arrangement is also the same for the sale of Toyota Genuine parts.

Another downstream procurement arrangement is the method by which unavailable stock can be obtained from other vendors. This is done via a method called ‘transfers’. For example, when a customer wishes to buy a fleet of cars and the required number of stock cannot be obtained in time by that dealership, they will check the amount of stock that other dealerships have of the required product and initiate a transfer of the amount of vehicles necessary to maintain the sale.

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Internal arrangements can be made for Toyota customers to access disintermediary resources by allowing them to see where their requested product is located in the internal manufacturing process. Using a login and password assigned to them by dealership staff, they can access their confidential product information to see what country, and even the shipment details of the product being delivered.

These sales and related financial transactions are maintained via a customised BEA application. This enables any Australian dealership’s financial managers and accountants to keep track of all purchases and transfers made within the TMCA internal supply chain.

Customised BEA Application (Courtesy Toyota Financial Services Australia)

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Sales and Marketing Arrangements
Marketing arrangements such as paid agreements between the purchasing of advertising space on radio, television and other related media is also monitored via the customised BEA application. Orders for ongoing promotional material required for maintaining regular and ongoing flow of customers such as signs and massive advertising banners are tracked transparently via this application.

Sales and Marketing Functions on BEA Application (Courtesy Toyota Financial Services Australia)

Financial Management Arrangements
Regular marketing instructions for showroom staff can be broadcasted via this same BEA system. This covers such information as the arrangement of showroom promotional material, changes to pricing structures that change with each promotion, as well as

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information about product recalls and what needs to be told to customers in the event of such unforseen circumstances.

Financial arrangements between customers and dealerships can also be monitored with BEA, such as ongoing repayment information that is unique to each client. Credit checking and other financial assessment tools are also available from this system. Customised payment options between clients with special needs such as corporations who purchase fleet vehicles can be modified to suit their needs.

Financial management functions from BEA Application (Courtesy Toyota Financial Services Australia)

To compliment the ongoing requirements of dealership sales staff, customers have access to summarised confidential information that is relevant to their purchase. Customers have access to a web front-end to the BEA’s data via an individual assigned login and password. These assigned customer details allows a mutual exchange of relevant

Page 25

information for customers for the duration of their purchase as well as extended web based information services for their duration of the ownership of their Toyota vehicle.

Procurement Arrangements
Procurement for specific upstream components not manufactured in Australia that are to be added to a car on an Australian assembly line can only be purchased by TMCA via its parent company Toyota Motor Corporation (TMC). Exporting and importing arrangements of Toyota genuine parts are government regulated which is considered to be a barrier to trade22.

‘Kanban’

– Card System

The mechanisms for ordering supplies in Australia are different differ to those of Japanese plants mainly because of the longer travel distances between Toyota’s plants and those of its suppliers. Longer supply lines required faster order processing, and this was done electronically. Essentially, electronic kanban cards were identical in function to the physical kanban cards used by Toyota in Japan. For example, a batch of electronic cards (a) was the sole means of requesting new parts, (b) was sent for every order shipment, (c) went to a specific supplier plant, and (d) established the mix and volume criteria for assessing if an order was correct.

22 Submission to Productivity Commission Inquiry, May 2002

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PARTS SUPPLIER
Material Requirements Forcast
Planning

TOYOTA (TMCA)
Orders

ANSI X12 830

Planning

Forecasts

Kanbans
Delivery Docket
Kanban Sorting
Production Line
Despatching

Goods

Kanbans
Delivery Docket
Receiving

Accounts Receivable

Remittance Advice

Accounts Payable

EDIFACT REMADV

EFT

EFT

BANKING SYSTEM

Electronic Kanban Card System

Toyota’s Material & Financial Flow
In a related research paper (as paraphrased from the “Managing Material Flow and Cash Flow in the Value Chain”, Racheal Zhang), the production decisions (e.g., the production’s schedule and quantity, ordering’s schedule and quantity) and financial decisions (e.g., the payments) are interrelated in a value chain.23 Here, production is defined as the core value-added activity of the firm and needs purchased raw materials, equipment and labour which depend on money, while the finance is responsible for generating capital and investing the firm's assets efficiently and effectively in the company.9 Therefore, the production and financial decisions are required to be decided simultaneously, including the internal material flows as well as material flows through the supply chain. In the case of Toyota, they have approach both materials and financial
23 Zhang, R (1998), Managing Material Flow and Cash Flow in the Value Chain, (A Research Project By Value Chain Program University of Michigan), Online, Available: http://www.engin.umich.edu/VCAP/index.html [Accessed August 17, 2005]

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flow in a new revolutionised way, making Toyota one of the best production factory in the industry.

The success of Toyota’s material and financial flow lays in their Just-in-Time (JIT) system, which is distinctive in applying the concept of the "right part at the right place at the right time" throughout its manufacturing system and supply chain.24 In another words, JIT is actually consider a means of controlling material flows through linear process, as these concept is a result of using the kanban.25 However, from the understanding of the Kanban’s details, a product is being in place and will follow through a specified production pathway. In addition, material will be automatically ordered and travel directly from the suppliers to the customers, without first going through a centralised store. In short, this explains the core operation of the Toyota Production System, in collaboration with the Lean Systems Thinking.

24 Liker, J (1998), Manufacturing and Suppy Chain logistic Strategies for Mass Customization, (A Research Project By Value Chain Program University of Michigan), Online, Available: http://www.engin.umich.edu/VCAP/index.html [Accessed August 17, 2005] 25 Blakemore J, (2002) Maximising profit with Short Production Runs … Lean Systems Thinking, Online, Available: http://www.blakemore.com.au/ [Accessed August 17, 2005]

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This diagram above illustrates a Lean system works, resulting in smoother material flows.26

Basically, the objective of the Lean System, adopted by Toyota is to introduce a pull system with a short lead-time, comprising two main components. They are valued added and non-valued added time, where value added is run time on a machine and latter is the storage time, setup time, idle time, breakdown, inspection time etc. Thus, Australian companies is able to win by being more skilful, flexible in tapping the full creativity as they apply the rules of Lean to all the processes and system. On the beneficial side, IT companies, such as SAP and Oracle is able to present an opportunity to help in rectify this solution further. Moreover, to optimize supply, first establishment agreements with raw material suppliers have to be set. Software such as Vendor Managed Inventory or B2B connections will have in this process to minimize inventory and risk, taking in the consideration for continuous flow matching supply with real demand .
26

26 Strategos-International, Toyota Production System & Lean Manufacturing, Online, Available: http://www.strategosinc.com/toyota_production.htm, [Accessed August 17, 2005]

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In an article report, Toyota Australia has been progressing its eBusiness. This is an effort to move the company’s main business processes into an extensible online environment.27 For instance, the Melbourne’s manufacturing plant have been using BEA WebLogic Workshop Technology to build Java and Web services-based applications, that will allow manufacturing partners (suppliers) to interoperate with Toyota’s. With the aid of the BEA technologies, Toyota’s system will allow information to flow smoothly between the integration of it operating system, increasing the functionality of the existing ones. One of the benefits, is the fleet management integration (the Toyota Vehicle Order Processing System) notifying for vehicle deliveries and a dealer interface that allow dealers to receive automatic updates from Toyota‘s SAP system regarding of vehicle production and delivery.28 Thus, this demonstrates that BEA systems which explained earlier.

Basically, with the implementation system of BEA Weblogic and the SAP’s architecture, Toyota is able to shift the transition from a mass-production material-handling system to a lean system. This is more reliable in supplies purchased parts to continuous-flow cells, small-batch processing, and traditional assembly lines with the plant. The benefits of a lean material-handling system include :
28

• • • • • • • •

Fewer material handlers Fewer equipment (forklift, heavy machines) Higher plant inventory turns Higher production output Less time spent by operators retrieving parts Less overtime Less expedited delivery costs. Less inventory

27 Brace D (2005), Driven to action, Managing Information Strategies, Online, Available: http://www.misweb.com/magarticle.asp?doc_id=23045&rgid=2&listed_months=0, [Accessed August 17, 2005] 28 BEA Case Study, (2003) Toyota’s Australia eBusiness Transformation Program, Online, Available: http://www.bea.com/content/news_events/white_papers/BEA_ToyotaAustralia_cs.pdf, [Accessed August 17, 2005]

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Furthermore, in the developing of the plan for every part to be manufacturing the product, the basic database will fosters accurate and controlled inventory reduction and continuously improving of a plant’s material-handling system. The system to will be able to operate a market that eliminates the waste of hoarding, searching for parts, and storing inventory throughout a facility. In addition, it is able to design delivery route changing the plant into an organised community, where operators get the parts they need, when needed and in the quantity needed.

While the financial flow of the system will consist the methods of payments and other financial aspect between the suppliers or customers and Toyota, In this case, Toyota Australia has adopted CommSecure to acts as an intermediary in the direct debit process, in using of CommSecure method of handling personal and small business lease and loan payments. This move has motivated a desire to give customer to drive to the Toyota website to view informational and marketing messages, and cost savings. Moreover, the system handles the traditional form of direct debit, as well as flexible customer initiated. The data integrity is also transferred between two companies via a Secure Socket Layers (SSL) connection with 128-bit encryption. This is another channel of Toyota handles regular payments from her customers, reducing the number of late payment and is relatively affordable29.

Another approach that Toyota Motor Sales has moved a milestone, when they started to be upgraded their Web portal with the assistance of Microsoft Consulting Services. One of the highlights, it enables dealers to work more closely with other corporate subsidiaries such as Toyota Financial Services. For instant, when a customer wants to finance a vehicle, dealerships can submit a loan application based on already captured customer data through Dealer Daily to Toyota's financing system (which utilizes an Oracle database running on UNIX). Furthermore, this will enables Toyota to respond with an
29 Wither S, How to integrate hosted applications, Technology Business Magazine, Online, Available: http://www.zdnet.com.au/insight/business/soa/How_to_integrate_hosted_applications/0,39023749,3916091 7,00.htm [Accessed August 17, 2005]

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offer in as little as 15 seconds and increasing the chances that Toyota will win the customer's financing business as well. This system is actually used in the United Stated. And, in Australia it is towards CommSecure’s products30.

B2B e-Marketplaces where Toyota Australia participates
According to Toyota Australia’s report to the Productivity Commission Inquiry in 2002, Toyota participates with up to 98 key component suppliers and 300 general suppliers .
1

The Business to Business (B2B) e-marketplace has emerged as a means of connecting buyers and suppliers31. Suppliers are able to look for opportunities to grow their business and expand their customers’ base on a platform, which is able to provide the abilities to improve the purchasing processes and the supply demand. Basically, an B2B eMarketplace is comprised of three main functions, as defined by Turban32: • • •

Matching buyers and sellers Facilitating the exchange of information goods, services and payments associated with market transactions Providing an institutional infrastructure, such as legal and regulatory framework, that enables the efficient functioning of the markets

30 Microsoft Customer Evidence, (2004), Toyota Motor Sales, Web Portal Saves Toyota and Dealers Millions Per Year and Accelerates Delivery of New Business Value, Online, Available: http://www.microsoft.com/resources/casestudies/CaseStudy.asp?CaseStudyID=14987, [Accessed August 17, 2005] 31 Dubbles. J, Eggebraaten, Nowicki, Jeff, Prentice J. (2001) Connect for iSeries with WebSphere Commerce Suite, Available: IBM Redbooks, [Accessed August 15, 2005] 32 Turban. E, (2004), Electronic Commerce - A Managerial Perspective, Pearson Education, New Jersey, USA.

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With the three main functions above, B2B e-Marketplaces operates similar to a physical markets, where it in included further an electronic transactions that fetch about a new distribution of goods and services. In addition, the intermediaries in e-Marketplace has lead towards two types of services obtain. Firstly, they provide relevant information about demand, supply, prices, aiding match sellers and buyers, following the second service to offer value-added services such as consulting and assistance in finding a business partner. Moreover, these services can be fully automated, providing low commission services, benefiting both parties.

Supplier

Manufacturer

Warehouse Supplier

Sub Supplier

Service

Retailer

Buyer A. Traditional Process

Technology

Other Services

Logistic Delivery

Supplier Consultant Logistics

Buyer Buyer Bank Payment

Electronic Hub

Sub Supplier

Support

Manufacturers

B. Hub-Based Chain

Changes in the Supply Chain (Turban. E, 2004)

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In the case for TMCA, a new e-Marketplace, called iStarXchange, was constructed for the automotive replacement parts industry in 2000 to reach. Toyota has predicted that its new e-business initiative with i2 Technologies Inc. will revolutionized further the automotive market reaching all their distributors and suppliers with a vast scope and setting up as a leader in the B2B e-Market area. Hence, in reality, due to the process for dealers, installers and independent auto parts shops and service centre are an expensive, time consuming and often a frustration for both aftermarket business and vehicle’s owners, who has to wait for the right part to arrive.
33

In addition, this marketplace had

grew out from the existing relationship with i2 to streamline Toyota’s own auto parts supply chain, unlike Ford Motor Co or General Motors Corp., which are building marketplace for their suppliers only.

In fact, Toyota has created a market for the entire market industry. This would allow subscripted members able to view a single catalogue with information on parts, checking the prices and availability and conduct transaction online, tapping into the tools for forecasting supply and demand and delivery cycle of a supply chain.34 Thus, by optimising the inventory through improved forecasting and enhancing the planning, deployment and replenishment of the inventory.35

Through the venture, with i2, they have choose to used the TradeMatrix system, providing the software, implementation and support, as well as host and manage the venture.
36

Further, i2 will streamline the system to automate the site’s inventory

33 Keena, T, (2000), Toyota get set to start the eBusiness parts revolution, WARD’s Dealer Business. Online. Available: http://wdb.wardsauto.com/. , [Accessed August 15, 2005] 34 Wallace B, Bacheldor B, Markertplaces Bring Order and Efficency To Supply Chains, INFORMATION WEEK ONLINE,. Online, Available: http://www.informationweek.com, [Accessed August 15, 2005] 35 Enos L., i2 Links Deals with Giant Automakers, TechNewsWorlds, Online, Available: http://www.technewsworld.com, [Accessed August 15, 2005] 36 Farmer M A, (2000) Toyota revs up strategy with online market place, CNET NEWs,, Online, Available: www.news.com.com, [Accessed August 15, 2005]

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management, warehousing and shipping system, enabling equipment manufacturer and suppliers to conduct. A results, exploiting the under-utilised resources, grow on business, diversify the business and combat the cyclical demand of the mainstream activities, as explained by Tidd.37

Logistic & Shipping Arrangement
One of the greatest benefits from the implementation in the Kanban system is the logistic and shipping arrangement. The external business environment in Australia is a totally different stage from Japan. A number of factors have contributed to this statement is due to the range of external forces and other related issues. However, the industrial relation’s structure and geographic concerns are the most concern in this matter. As for the industrial relation, the use of the simple Kanban process is still increase the efficiency and accuracy of the internal logistic process.38 And, in terms of geographical limitations, this system will reduce logistic barriers and cost through a modified integrated Kanban system, just for Australia. This is because, due to, Toyota Australia has suppliers scattered all over the nation, unlike in Japan. The suppliers are located within the radius of the city. In enhancing the existing system, Toyota Australia has decided to integrate the system with BEA software, which includes39: • • • • • • electronic proof delivery online accounts payable states for supplies fleet management integration the Toyota Vehicle Order Processing System (TVOPS) advance shipping notices for vehicle deliveries vehicle inventory synchronisation.

37 Tidd J. (2001). Intergrating Technological, Market & Organizational Change, MANAGING INNOVATION, John Wiley & Sons Inc 38 Olsson J, (2003), Kanban-an Integrated JIT System, Supply Chain Plane, Online, Available: http://www.supplychainplanet.com/e_article000213392.cfm, Access: 18 August 2005 39 BEA System, Inc (2004), Toyota Australia drive out cost and increases visibility with BEA Solution for dealers, Online, Access: 18 August 2005

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The value data of this system will be increase and can be shared with related projects. Furthermore, it is build toward open standards.

Practically, Toyota’s logistic and shipping arrangement is already well planned and integrated in Kanban system. That is begun at the right point, when a customer purchased a car from a dealer. In addition, that application is practice a long time ago by Toyota. And the latest development, Toyota has decided to integrate that system into the BEA software, as mention before. This BEA software will sit on top the current SAP software. This is the only workable solution for Australia’s stage in the logistic and shipping arrangement.

Value Chain Source: Porter, Strategy and the Internet Page 36

Toyota has decided to take this project with BEA, due to the prominent application of the technology in the value chain. Basically, the technology will be built as a web based interface that able to be access across the network in Toyota Australia. At the same time, Toyota Japan too will able to monitor and overview the operation of her subsidiaries companies. In short, the value chain will allow performing a number of discrete but interconnected value creating activities, such as operating sales forces, fabricating a component, or delivering products.40 And, these activities have a connection with the activities suppliers, channels and customers. In addition, at the fifth stage of the application, it will involve relatively simple optimization of sourcing production, logistic and servicing transaction. In other words, in the value chain of the system consists of 5 early stages. Three of them are related to supply chain management, which is inbound logistic, operations and outbound logistic. The illustration above illustrated the whole picture of the value chain that Toyota has adopted.

In general, Toyota Australia has enhance their logistic and shipping arrangement according to the geographical limitations and the industrial relations. With the partnership from BEA, Toyota has solved a new solution of supply chain, for this logistic and shipping arrangement using the value chain process.

40 Porter E M,(2001), Strategy and the Internet, IACT 401’s e-reading materials, Online, Available: webct 401 Accessed: August 20, 2005

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Backbone of IT Solutions
Maximizing Information Exchange
The automotive industry is geared towards Just-in-time (JIT) manufacturing. JIT in short deals intimately with all areas of supply chain to reduce inefficiencies in transportation, processing, inventory and other business processes. In order to facilitate JIT, the automotive industry developed a fast and reliable communication network for all the key stakeholders involved, manufacturers, suppliers, importers and dealers, to share information. This industry driven initiative is called the Australian Automotive Network eXchange (AANX). The four major car manufacturers in Australia are involved in the project41.

AANX provides IP based Extranets for the automotive industry in Australia. AANX Operates as a virtual point network (VPN), an internet-based infrastructure that allows users to send date to each other in a reliable and secure manner. It is a platform for conducting domestic and international business-to-business (B2B) e-commerce activities. The main components of the project consist of42: • • • •

A network that is based on available Internet technology Operated by agreed and standardized service levels. Demonstrating proactive management of trading partner connections Practice the best standard of security and privacy for transactions and interoperability between service providers.

41

Hafiz Mohd, (2002), “Testing new waters Down Under”, Online, Available:

http://www.thefabricator.com/Articles/Fabricating_Exclusive.cfm?ID=198 [Accessed: 16 August 2005]. 42Dcita.gov.au, (2004), “Case Study: The Australian Automotive Network eXchange”, Online, Available: http://www.dcita.gov.au/ie/publications/2002/july/itol_case_study_australian_automotive_network_exchan ge [Accessed: 16 August 2005].

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By connecting to AANX, the benefits reach beyond tangible gains such as cost savings. Some of the benefits include43: • • • • •

Pervasive supply chain communications Rapid application deployment across the supply chain Lower cost of EDI Faster Business Cycles Simpler integration into trading partners' and customers' online e-business systems and strategies

Network Structure
AANX is a multi-provider, virtual private network where service providers compete for customers and at the same time conform to standard service quality requirements such as security. Every trading partners share a similar physical infrastructure of the AANX. Within the framework, all electronic conversations traverse a secure and private connection between two trading partners .
42

43 AANX, (2002), “Benefits of AANX”, Online, Available: http://www.motor.net.au/AANX/a7a8b02e10c7-409a-b6ef-161bf40d02a6/ [Accessed: 16 August 2005].

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Router Trading Partner Firewall Hardware Gateway

Dialup trading Partner
Permanent Connection

Software Gateway

IBM Compatible Modem

Laptop Computer

Modem

Equant
Exchange Point

Connect

AANXO Monitor CASP Keytrust Router
Community Directory & Authentication

Permanent Connection

Trading Partner Hardware Gateway Firewall

AANX Framework Source: http://www.dcita.gov.au/ie/publications/2002/july/itol_case_study_australian_autom otive_network_exchange

As shown in the diagram, Equant and Connect Internet Solutons provide communication services for the network. Keytrust is the certificate authority and vendor for providing IPSec security services.

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Keytrust provides the AANX network with four major security functions :
42

1. Secured Data Transmission - IPSec protocol is used to provide secure communication over publick and private data networks. It is implemented through encryptions for premenant and dialup connections. 2. PKI Digital Certificates - The use of Public Key Infrastructure (PKI) certificated within the AANX network enables all particiapants to achieve a high level of confidence when making transactions on the network; 3. KeyTrust Professional Managed Services - Defines and verify network service levels and certification criteria; 4. AANX Community Directory - Central policy repository used by security gateways when sessions between trading partners are established.

The network is the company
Australia's car manufacturers have started to implement major improvements to their production management systems in order to deliver real-time communications across the entire supply chain.

With the introduction of AANX, key stakeholders are able to link the company's critical business systems that will in turn increase efficiencies and cost savings across all business divisions. Moreover, managers will have real-time visibility into different aspects of the organization. CommercePlus is the central trading solution for AANX. It can significantly streamline the supply chain by allowing companies to collaborate and trade via the Internet44. With this software, documents sent directly from the

44 AAPT, (2002), “40 per cent reduction in data processing costs available for supply chain”, Online, Available: http://203.14.180.116/news/content.asp?n=57 [Accessed: 16 August 2005].

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manufacturer's back-end systems are converted to a form readable by the recipient through an XML (extensible markup language) translation engine45.

Toyota Australia has been working on its eBusiness Transformation Program. It will move the company's main business processes into extensible online environments that links up the company's A$10 billion value chain. The company has been using BEA WebLogic Workshop technology to build Java and Web services-based applications that enables manufacturing partner's system to interoperate with Toyota's. There are many projects already online which provide functions such as the Toyota Vehicle Ordering Procurement System, electronic proof of delivery, online accounts payable status for suppliers, fleet management integration and automatic update systems that alert dealers about delivery status and production information46.

Strength & Weakness
Toyota's business is restricted by the factors that affect its supply chain. This includes available skill base, sophistication and depth of automotive supplier base, industrial relations system, business environment and the quality of education & research institutions. Furthermore, its potential is greatly affected by the local demand. The domestic market is rather limited and is continuously searching for potential export markets.

45 Jenny Sinclair, (2002), “Gearing up for a new era”, Online, Available: http//www.smh.com.au/articles/2002/08/03/1028157861627.html&ei=6-0EQ8qrNcyWYNaXkJMK [Accessed: 16 August 2005]. 46 David Braue, (2005), “Driven to action”, Online, Available: http://www.misweb.com/magarticle.asp?doc_id=23045&rgid=2&listed_months=0 [Accessed: 16 August 2005].

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Its strengths and weaknesses have resulted in various areas that form its competitive advantage. They are :
1

• • • • •

The production of medium and upper medium size cars Innovation - based automotive components Design and engineering automotive services Export to overseas markets High flexibility in producing low volumes of high quality vehicles

Strengths
In order to improve production efficiency, Toyota Australia has applied lean manufacturing principles into its Toyota Production System. Since 1990, the application of TPS and adoption of Just-In-Time delivery by all Toyota Australia Suppliers has achieved 97% reduction in stock holding at its Altona plant. With the introduction of Toyota Production System, suppliers have seen great improvements in efficiency. There has been significant inventory, floor space, and lead time reductions achieved by various Toyota suppliers due to its usage .
1

Toyota holds a major strength in terms of its partnership relationship with its suppliers. A number of initiatives have been introduced to build trust between Toyota and suppliers. These include exchange of information, regular briefings on changing technologies, availability of support services and other opportunities. There have been a range of supplier development programs offered by the Toyota Supplier Development Department such as :
1

Supplier support initiative Direct supplier assistance

Specific program Direct application of TPS principles – interactive support program

Benefits received Overall business operating benefit – cost, quality and delivery

TPS training seminars

Formal theoretical & practical education

Education and motivation process

Page 43

Supplier support initiative Supply chain management

Specific program Value chain analysis and management

Benefits received Focus on all cost areas, from raw material to final customer

Supplier structure/ education

Resources and management structure establishment

Program sustainability & internal education process

In North America, Toyota has an online website (www.toyotasupplier.com) that is dedicated to educating suppliers in that area. Potential suppliers can get information on the company’s purchasing policies, newsworthy articles, and bio information through the home page. The website also provides information on what products the company needs, purchasing principles and development efforts, supplier standard and how to become a Toyota supplier47. This in turn attracts potential suppliers to join with Toyota’s supply chain network.

Toyota has been using AANX to communicate securely with other subscribers on the network. It enables closer collaboration between industry players and facilitates electronic business interchange such as B2B e-commerce and EDI. AANX helps connect new supplier and customers wherever they are48. It also facilitates private E-marketplace activities which enables companies to take their existing processes and trading networks online to gain the connectivity and speed of the Internet, within a secure environment49.

47 Toyota Motor Manufacturing, (2003), “Toyota Supplier”, Online, Available: http://www.toyotasupplier.com [Accessed: 16 August 2005]. 48 AANX, (2004), “AANX Brochure”, Online, Available: http://www.motor.net.au/AANX/ab8500a94526-4256-93c2-ce457e91413b/AANX_brochure.pdf [Accessed: 16 August 2005]. 49 Dcita.gov.au, (2004), “Contemporary Developments in B2B E-Commerce”, Online, Available: http://www.dcita.gov.au/ie/publications/2001/10/b2b_e-commerce/developments [Accessed: 16 August 2005].

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Toyota Australia is a subsidiary of a top global car manufacturer. Global linkages enable the car manufacturers to: • • •

Access know how and technology Access to global platforms Access to overseas markets

These global links will in turn develop the Australian's manufacturing base . Similarly,
1

Knowledge Management (KM) activities such as organization, creation, sharing and flow of information50 can be facilitated through AANX.

Australian car manufacturers and component suppliers have strong skills in low volume production. This is due to the physical and intellectual infrastructure that has been built up over time to support the automotive industry. Furthermore, there is a diversified component supplier industry already available .
1

The Australian automotive industry possesses design, engineer and manufacture capabilities of new vehicles. Furthermore, the workforce is able to operate effectively at high levels of technicality and flexibility .
1

The industry is one of the leading sources of business spending on R&D. Local component suppliers have established their reputation in producing innovate products that are globally acceptable .
1

50 Wikipedia, (2005), “Knowledge management”, Online, Available: http://en.wikipedia.org/wiki/Knowledge_management [Accessed: 16 August 2005].

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Weaknesses
Toyota had to cope with the reality of a small domestic market. In Australia, the size of market places limits the ability of the business to take advantage of economy of scale production. As a result, number of assembly plants and models produced has been reduced to achieve greater economies of scale .
1

Sometimes there are no local productions of certain components. These parts must be produced in order to reach full operating efficiencies. However, it is too much for the Australian market. Therefore, these components are imported from North America, Japan and Western Europe. In order to increase localization of parts, Australian suppliers need to develop technology alliances to reach global competitiveness. Currently, some suppliers do not possess the management ability to develop these relationships and possibly not even investing in developing them . Evidently, there is a need for a local E1

marketplace catered to the needs of Toyota Australia. This will support the major objective of the company to become free of currency exchange exposure by means of localization. The company will then try to source from Australia first before searching for components outside of Australia.

The domestic market is rather small, which means car manufacturers and component suppliers have had to look for export opportunities. Although sold export markets have been established in Middle East, North America and New Zealand, there are trade barriers in regional markets in Asia .
1

Toyota Australia focuses their market on medium and upper medium size cars. This may be a major disadvantage for the company if they endeavor to venture into more foreign markets . To better understand the market demand, both domestic and foreign, they
1

should introduce DSS (Decision Support System). A DSS is an interactive computerbased system or subsystem intended to help decision makers use communications

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technologies, data, documents, knowledge and/or models to identify and solve problems, complete decision process tasks, and make decisions51.

While most suppliers can gain access to AANX network through dial-up or permanent connections, some parties are still without basic Internet access. In order to achieve better localization of vehicle components, this gap between Toyota and these suppliers should be remedied.

Conclusion
With the advent of the technology and the development of Information Technology, computer mediated processes have undoubtedly change the traditional supply chain management through the Toyota Australia to conduct their supply chain operations in the automotive industry. The analysis of the supply chain has improved drastically over the period of time, within the implementation of IT. Nevertheless, the utilization of the IT on supply chain operation still result weaknesses, in spite of the benefits. It appears that while the technology is willing or has the intrinsic capability of effecting this utopian transformation, the reengineer supply chain process simply still need improvement to its current configuration.

51 DSSResource.com, (2005), “Decision Support Basics”, Online, Available: http://dssresources.com/ [Accessed: 16 August 2005].

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