IBMR-Chapter 1

Chapter 1
Introduction Toyota Motor Corporation Kirloskar Group Introduction to Toyota Kirloskar Motor Background History of Toyota in India Factors for Success Leveraging India Advantage Corporate Social Responsibility Company Profile Organization Structure Present Market Scenario Future plans

Role of Logistics in Supply Chain at Toyota Kirloskar Motor Bidadi, Bangalore

Page 1

IBMR-Chapter 1

Introduction to TOYOTA
The Toyota Motor Co. Ltd (Toyota) was first established in 1937 by Kiichiro Toyoda as a spinoff from Toyoda Automatic Loom Works, one of the world’s leading manufacturers of weaving machinery. The Toyoda Automatic Loom Works was established by Japan’s “King of Inventors,” Sakichi Toyoda, who was Kiichiro’s father. The seed-money for the development and test building of Toyota's first automobiles was obtained by selling to Platt Brothers (U.K.) the patent rights to one of Sakichi Toyoda’s machines. In 1950 the company experienced its one and only strike, from which both labor and management emerged firmly committed to the principles of mutual trust and dependence. This corporate philosophy continues to guide the company’s growth, so while Toyota employees are unionized, the two parties maintain a good relationship. In fact, Toyota Motor Sales (TMS) U.S. uses the term “associates” in place of “employees,” to emphasize the respect for individuals that the company champions. In the late 1950s Toyota’s production systems were improved, culminating in the establishment of the ‘Toyota Production System’ (TPS) by Taichi Ohno, a system that has become the basis for highly efficient “lean” manufacturing in industries worldwide. Based on the principles of Jidoka (automation with a stop system when the machine finds defects), Just-in-Time (through the tool of Kanban) and Kaizen (continuous improvement), the system is a major factor in the reduction of inventories and defects in the plants of Toyota and its suppliers, and it underpins all the company’s operations across the world. Toyota launched its first small car (Model SA) in 1947. Production of vehicles outside Japan began in 1959 at a small plant in Brazil, and continued with a growing network of overseas plants. Toyota believes in localizing its operations to provide customers with the products they need, wherever they need them. This philosophy builds mutually beneficial long-term relationships with local suppliers and helps the company fulfill its commitments to local labor. As of March 2002, besides its own 12 plants and 11 manufacturing subsidiaries and affiliates in Japan, Toyota has 45 manufacturing companies in 26 countries and regions, which produce Lexus- and Toyota-brand vehicles and components, employs 264,100 people worldwide (on a consolidated basis), and markets vehicles in more than 160 countries and regions.
Role of Logistics in Supply Chain at Toyota Kirloskar Motor Bidadi, Bangalore Page 2

IBMR-Chapter 1
Besides manufacturing, Toyota also has a global network of design, research and development facilities, embracing the three major car markets of Japan, North America and Europe. By 2004, Toyota was the world's second largest manufacturer of automobiles, with combined sales of 6.78 million units in the 2003 calendar year, and by far the largest Japanese automotive manufacturer. Their target is to reach 15 percent market share worldwide by the 2010s, with an annual sales level of 9 million vehicles. Together with its subsidiaries, Toyota produces a full range of model offerings! from mini-vehicles to large trucks. Automotive business, including sales financing, accounts for more than 90 percent of the company’s total sales, which came to a consolidated ¥15.5 trillion in the fiscal year to March 2003. Toyota also has a growing portfolio of diversified operations, with ventures in telecommunications, prefabricated housing and leisure boats. Overseas, Toyota sold more vehicles than ever in North America, reaching 2.07 million units in 2003. European sales reached 834,700 units, also a record. Domestics Distribution Toyota is Japan’s market leader with 42.6 percent market share (excluding mini-vehicles) in 2003. It faces two archrivals! Nissan (market share 19.4 percent) and Honda (11.9 percent). Toyota is an independent company, not part of a business group (or keiretsu). This has led to a different company mission, as well as a different approach to channel strategy, compared with the other car manufacturers. For example, Toyota in Japan listens closely to the opinions of its dealers and offers a wider line of products in Japan, mostly building on orders from dealers. Distribution Channels In Japan, Toyota’s sales and marketing work is divided into four distribution channels 1: Toyota (mostly high-end, large cars), Toyopet (medium size), Toyota Corolla (compact), and Netz Toyota (compact). Overall, Toyota offers about 60 car models, with each channel offering only 15-25 models. This way, each dealer can develop deep knowledge of all models he has for sale, and can make an effort to sell all car models assigned to him, rather than only the few most profitable ones. About 50 percent of car models are sold as exclusive models for a single channel. The channels and car models were introduced over time, as Toyota expanded the market by more granular segmentation. The Toyota dealers as a whole have approximately 6,000 outlets and 120,000 employees. Altogether, Toyota has 295 dealerships, each with an average of 16 to 17 outlets. In addition to the four major distribution channels, Toyota has two small channels: Volkswagen and Rental. The Volkswagen channel was set up by Toyota as part of the efforts by the Japanese government to show that the Japanese distribution market is not closed to foreign cars. Toyota handles the physical distribution and order management of Volkswagen to their dealers, acting like a distributor.
Role of Logistics in Supply Chain at Toyota Kirloskar Motor Bidadi, Bangalore Page 3

IBMR-Chapter 1

Toyota applies the “Toyota Way” to manage dealers, based on three basic principles: • Independence of dealers as outside investors: Dealers are free to make independent decisions, and Toyota can only help them to invest in the right things to improve. Such a strategy motivates dealers to be more proactive. • Winning jointly: Both the dealers and Toyota must prosper jointly. • Encouraging competition among the channels: Competition is a means to improve. Toyota measures the performance of dealers periodically, using both a ranking system and a recognition system. The dimensions of evaluation include: e • Sales of new and used cars (units and market share) • Sales from after after-sales service (units and market share) • Customer satisfaction • Number of showrooms, service shops and staff • Profitability Criteria 1 and 2 above constitute around 50 percent of the weight in the evaluation. The percent normal contract term with dealers is three years. Dealers who performed poorly in the above evaluation are given a one year contract term. After this one year, if the dealer one-year continues to perform poorly, then the dealer may be asked to reduce the primary aler marketing area it is responsible for; or another dealer could be added on to this same primary marketing area. These dealers have to submit plans for improvements to be evaluated by Toyota. So far, no dealers have be terminated due to continual poor been performance. The Toyota National Dealers Advisory Council, made up of Toyota dealers nationwide, exists as an advisory group to interface with TMC and to foster dealer friendship. Dealers are encouraged to invest in improving their showrooms and facilities. Dealers improving have invested a total of ¥80 billion annually for such improvements, excluding advertising budgets. Advertising is planned by the dealers and Toyota. Toyota is primarily responsible for Toyota product level advertising to create and promote brand image, while dealers are advertising responsible for local sales campaigns. The main competition among dealers involves after-sales service and customer handling. sales

The First Kirloskar Group of Company
Kirloskar Brothers Limited (KBL) - the first Kirloskar venture at Kirloskarvadi was to become the base for all of the Kirloskar Group’s subsequent enterprises. It began as the only Indian company with its own standard products - the fodder cutter and the iron plough, which competed with the British products.

Role of Logistics in Supply Chain at Toyota Kirloskar Motor Bidadi, Bangalore

Page 4

IBMR-Chapter 1
KBL also manufactured groundnut sellers, sugarcane crushers and pumps, which were to usher in a new economic order in the Indian industry. To power these machines, diesel engines, coal gas generators and electric motors were developed at Kirloskarvadi. In a display of great versatility, KBL then shifted its focus to fluid handling and control. As India's largest manufacturer of pumps and valves, and also the group's flagship company, KBL lends its strength and expertise to every new venture of the Kirloskar Group.

Playing a part in the War
The intensified boycott of the British goods and the approaching World War threatened to stop imports of machine tools into India. The Kirloskar, with characteristic foresight began making machine tools. This paradigm shift of sorts, from farm implements to machine tools, created a new company - The Mysore Kirloskar Limited. This company, situated in Harihar, benefited greatly from the patronage of yet another Raja - the Maharaja of Mysore. In the first month of production, Mysore Kirloskar sold all of manufactured seven lathes.

The new generation -Innovation, creation, tradition from colonialism to Independence
An important change for the country and for one of its premier industrial houses was the Kirloskar Group. The altered political climate of the 1940s heralded the end of the princely patronage for enterprise. The policy shifts and changes in authority were the order of the day. This marked a turning point for the group. Shantanurao Kirloskar, the eldest son of the founder travelled to Pune to initiate a new aspect of the group's activities - diesel engines. His experience of trying to secure the land for his factory in Pune was quite different from his father's in Kirloskarvadi. There was no benevolent ruler here to bestow acres gratis. Shantanurao had to face the tangle of red tape and public resistance to acquisition of land for industrial purposes. Finally, after arguing that factories have a longer life than human beings Shantanurao Kirloskar won a place for Kirloskar Oil Engines Ltd. (KOEL), twelve months after signing an agreement of collaboration with Associated British Oil Engines Export Ltd. of UK. This collaboration, incidentally, was the first of its kind between an Indian and a foreign company, and signified a bridging of the technological gap between east and west. The KOEL factory was incorporated in 1946, and soon after that gave India her first vertical high-speed engine. Brijlal Sarda, who reported its satisfactory running for over 4 decades, bought this first engine!

A new direction – services
The phenomenal success of the Kirloskar name prompted entrepreneurs and businessmen of the time to approach the group for guidance and expertise. This gave birth to the concept of formalized engineering consultancy and a new company - Kirloskar
Role of Logistics in Supply Chain at Toyota Kirloskar Motor Bidadi, Bangalore Page 5

IBMR-Chapter 1
Consultants Limited (KCL) in 1963. Marking an extension of the group's repertoire from manufacturing to services, KCL, in its 25 years of operation, has contributed to critical areas such as defense, irrigation, roads and environment. This paradigm shift saw the , setting up of yet another service company – Pune Industrial Hotels Limited in 1964, the Kirloskar Group's first foray into hospitality. This company set up Hotel Blue Diamond in Pune and began to manage Hotel Pearl in Kolhapur. The Baker's Basket confectionery e chain and the Hotel and Catering Consultancy Services (HOCON) were also set up.

The dawn of a new millennium
To meet the changing demands of a global business environment and emerging economic trends, the Kirloskar Group has refocused and restructured its direction by concentrating on its core segment of agriculture, water supply, power, and air conditioning. By consciously opting out of hospitality, advertising and unreal services, the Group has channeled its potential in these core sectors. The Group aims at unlocking the strength and value in the Kirloskar brand and distribution to enhance returns for its stakeholders. It has identified and is implementing processes that would bring greater customer focus and competitiveness. Today, the Kirloskar Group is a conglomerate with interests across a diverse range of industries. It is still spurred by the simple yet profound ethic born with Laxmanrao Kirloskar.

Toyota Kirloskar Motor
• Background
Established in 1997 as a joint venture between the Kirloskar Group and the Toyota Motor Corporation (TMC), Toyota Kirloskar Motor Private Limited (TKM) has grown rapidly to emerge as a significant player in India’s passenger car and MUV market segments. car The company has a long-term goal in India and aims to play a major role in the long term development of the automotive industry and the creation of employment opportunities, not only through its dealer network, but also through ancillary industries. Toyota had a turnover of USS 587.5 million last year, and the company has started making profits from last year. Toyota has brought in US$ 152 million in equity, and has invested another US$ 40 million from internal accruals. Toyota employs 2, 2,300 people in India.

Role of Logistics in Supply Chain at Toyota Kirloskar Motor Bidadi, Bangalore

Page 6

IBMR-Chapter 1
TKM, along with its dedicated dealers and suppliers, has adopted the “Growing Together” philosophy of its parent company, TMC, to create long-term business growth. long term In this way, TKM aims to further contribute to progress in the Indian automotive industry, realize greater employment opportunities for local citizens, improve the quality of life of its team members and promote robust economic activity in India. ched generat TKM has also launched its premium luxury sedan – the 6th generation Camry and the premium SUV – the Land Cruiser Prado to cater top end customers. The comp company has established 56 state of- the-art 3S (Sales, Service and Spare Parts) dealerships throughout thr the country, to provide maximum customer care and satisfaction.TKM is owned in the er ratio of 89:11 between TMC and the Kirloskar group. Total paid-up capital has been io up Rs.700 crores and the production capacity is 60,000 units per annum. pr

• Well-established in the MUV and passenger car segments established
Toyota first entered the Indian automotive market in the MUV segment with the launch of the Qualis model in 2000. The model was instantly popular and quickly grew within a short span of 2 years to capture 20 per cent market share from established players like M&M and Tata Motors. Quick on the heels of Qualis’ success, TKM launched two passenger car models – Camry in 2002, in the high-end luxury segment and Corolla in end 2003, in the luxury segment. Both cars have again proved popular and registered impressive growths – Corolla sold 9,546 units in 2003 04, capturing 40 per cent of the 2003-04, segment share, while Camry has also grown at 140 per cent to 1,117 units during the last year.

TKM Establis 1997 hed in India


Launch of Toyota Qualis


Launch of Toyota Camry


Launch of Toyota Corolla


Launch of Toyota Innova

Fig. 1.1: Brief History of Toyota in India

Role of Logistics in Supply Chain at Toyota Kirloskar Motor Bidadi, Bangalore

Page 7

IBMR-Chapter 1

• Factors for success
Toyota’s success in India has been due to several factors – a renowned brand, world-class world manufacturing processes and practices, in-depth in market analysis, superior product quality and committed employees. Leveraging brand strength Even before its entry into India, the Toyota brand was well known in India and had a strong aspiration value. Toyota also reinforced its technical strength and trong customer care through innovative ad campaigns. In-depth market analysis depth Despite strong growth in the passenger car market in the 1990s, Toyota decided to enter India through the MUV segment. This was based on an extensive market study and analysis that indicated the potential for a world class MUV that would offer the driving experience of a car, at an affordable price. The MUV segment at that time had two major players – Tata Motors and M&M, whose products, while rugged and reliable, were not seen as substitutes for a car. Thus, while other MNCs were competing for share in an increasingly crowded passenger car market, Toyota was established itself in the MUV segment. World class manuf manufacturing processes and practices

The Toyota Production System (TPS), originally a means of achieving massmass production efficiency with a small production volume of a few thousand vehicles per year, has become a sought after best practice for achieving highly efficient ‘lean manufacturing’ for manufacturing industries worldwide. Just Just-in-time (JIT) production and in process quality assurance are hallmarks of the TPS, which is in-process applied throughout the company’s global production structure. Also, Toyota’s world class research and development has made possible technological ld advancements in quality manufacturing, safety, efficiency and environment preservation, all of which contribute to enhancing customer satisfaction. Committed employees
True to its belief that the employees are the main source of strength for an organization, that Toyota seeks to create a corporate culture where values such as “Continuous Improvement” and “Respect for People” are fully reflected in all actual corporate and Role of Logistics in Supply Chain at Toyota Kirloskar Motor Bidadi, Bangalore Page 8

IBMR-Chapter 1
individual activities. The company takes maximum care to ensure stability of The employment and strives to improve working conditions. TKM’s young team members are regularly sent to Japan, Indonesia and Taiwan for training. More than 400 team members have benefited from such programmers at various programm Toyota plants worldwide. The company also has an ongoing suggestions scheme that seeks to increase and reward employees’ commitment and involvement.

Unparalled service support TKM provides a wide selection of innovative, reasonably priced and high quality products through an exclusive dealer network with the best sales and after-sales after service matching global Toyota standards. Timely customer feedback through the service network also allows the company to respond to emerging customer needs and introduce new product tailored to the Indian market.TKM has developed a 3S (3S is Sales, Service and Spare Parts) dealer network comprising 56 dealers in 45 major cities in India integrating sales, service and spare parts. Placing customer satisfaction first, the service network features moder showrooms and speedy and efficient service centers, allowing modern customers to experience the convenience and pleasure of owning a Toyota vehicle.

• Leveraging the India Advantage
Availability of technical manpower
Availability of technical manpower is critical to Toyota’s strategy of manufacturing locally as opposed to imports. One of the key strengths Toyota sees in India is the availability of technical manpower from premier engineering, diploma and ITI institutions. In addition this, manpower comes at an attractive wage providing good at return on investment.

Developing India as a global source for auto parts
Toyota has set up Toyota Kirloskar Auto Parts Limited, to produce transmission components (gear boxes) for its global operations. Apart from this, it also made fresh investments last year into its JV Kirloskar Toyota Textile Machinery Limited (KTTM), to build capability for producing auto components there. Toyota officials say, “The venture has been making textile machinery in India. But with the global gl automotive business expanding, we now intend to utilize this venture for also making low cost components in India to complement our transmission venture here”. Both plants are 100 per cent export oriented units, and reinforce Toyota’s commitment to developing India as a sourcing hub for auto veloping components. Role of Logistics in Supply Chain at Toyota Kirloskar Motor Bidadi, Bangalore Page 9

IBMR-Chapter 1 • Corporate Social Responsibility
Some projects that have been funded by the Toyota Environmental Activities Grant Program (Toyota Motor Corporation) in India are as follows: • Implementing community based decentralized system of safe drinking water supply in India. • Biodiversity conservation through steps such as scientific harvesting, domestication and propagation of medicinal plants in tribal Ghughari Block of Mandla District of Madhya Pradesh. • Project on environmental education leading to awareness and capacity building for sustainable development in rural areas of Haryana. • Green and Clean Himalaya: An integrated environmental education program for better environment and eco sustainability. Toyota Kirloskar Motor has been committed to manufacture technically advanced and environment friendly products. The plant at Bidadi, surrounded by a greenbelt, meets high environment standards and has obtained ISO14401 certification from the first year of operation itself. As a progressive company, TKM aims at involving suppliers and dealers in its commitment to environmental protection.

Role of Logistics in Supply Chain at Toyota Kirloskar Motor Bidadi, Bangalore

Page 10

IBMR-Chapter 1

Table 1.1: Company Profile
Company Name Establishment Share Holders Products No. of Employees Average age Land Area Toyota Kirloskar Motor Pvt. Ltd. 6th October 1997 Toyota Motor Corporation : 89% Kirloskar Group : 11% Corolla Altis, Innova, Fortuner Aprx. 3270 27 Years 432 acres

Toyota Kirloskar Motor Vision
1. Delight our customers through innovative products, by utilizing advanced technologies and services 2. Ensure growth to become a major player in the Indian auto industry and contribute to the Indian economy by involving all stake holders 3. Become the most admired and respected company in India by following The Toyota Way 4. Be a core company in global Toyota operations

1. Practice ethics and transparency in all our business operations 2. Touch the heart of our customers by providing products and services of superior quality at a competitive price 3. Cultivate a lean and flexible business model throughout the value chan by continuous improvement 4. Lead the Toyota global operations fo emerging mass market 5. Create a challenging workplace which promote sense of pride, ownership, mutual trust and teamwork 6. Create an eco-friendly company in harmony with nature and society THROUGH THESE ACTIVITIES ESTABLISH SUPERIOR BRAND IMAGE IN INDIA.
Role of Logistics in Supply Chain at Toyota Kirloskar Motor Bidadi, Bangalore Page 11

IBMR-Chapter 1

TKM- Organization Structure
MD DMD/Dire ctors Vice President General Manager (Grade 2) Deputy GM (Grade 3)

Manager (Garde 4)

Deputy Manager (Grade 5)

Assistant manager (Grade 6A)

Sr. Officer (G6B)/Group Leader (G6C)

Officer (G7)/ Team Leader (G7)

Team Members (Grade 8)

Fig. 1.2: TKM Organization Structure

Role of Logistics in Supply Chain at Toyota Kirloskar Motor Bidadi, Bangalore

Page 12

IBMR-Chapter 1 • Present market scenario of Indian Automobile Industry
Among the two-wheeler segment, motorcycles have major share in the market. Hero Honda contributes 50% motorcycles to the market. In it Honda holds 46% share in scooter and TVS makes 82% of the mopeds in the country. 40% of the three-wheelers are used as goods transport purpose. Piaggio holds 40% of the market share. Among the passenger transport, Bajaj is the leader by making 68% of the three-wheelers.

Cars dominate the passenger vehicle market by 79%. Maruti Suzuki has 52% share in passenger cars and is a complete monopoly in multipurpose vehicles. In utility vehicles Mahindra holds 42% share. In commercial vehicle, Tata Motors dominates the market with more than 60% share. Tata Motors is also the world's fifth largest medium & heavy commercial vehicle manufacturer.

• Overview of 2007-08 (Source: SIAM)
Domestic Sales The cumulative growth of the Passenger Vehicles segment during April 2007 – March 2008 was 12.17 percent. Passenger Cars grew by 11.79 percent, Utility Vehicles by 10.57 percent and Multi Purpose Vehicles by 21.39 percent in this period. The Commercial Vehicles segment grew marginally at 4.07 percent. While Medium & Heavy Commercial Vehicles declined by 1.66 percent, Light Commercial Vehicles recorded a growth of 12.29 percent. Three Wheelers sales fell by 9.71 percent with sales of Goods Carriers declining drastically by 20.49 percent and Passenger Carriers declined by 2.13 percent during April- March 2008 compared to the last year. Two Wheelers registered a negative growth rate of 7.92
Role of Logistics in Supply Chain at Toyota Kirloskar Motor Bidadi, Bangalore Page 13

IBMR-Chapter 1
percent during this period, with motorcycles and electric two wheelers segments declining by 11.90 percent and 44.93 percent respectively. However, Scooters and Mopeds segment grew by 11.64 percent and 16.63 percent respectively. Exports Automobile Exports registered a growth of 22.30 percent during the current financial year. The growth was led by two wheelers segment which grew at 32.31 percent. Commercial vehicles and Passenger Vehicles exports grew by 19.10 percent and 9.37 percent respectively.

• Future plans
Toyota plans to increase its market share in the MUV and car markets, alongside increasing productivity. Toyota expects to grow 10 per cent per year in the future. Toyota will also plan to continue working with component manufacturers to help/guide them on quality, cost and delivery. Toyota plans to invest US$ 28.3 million to increase production capacity from 60,000 to 100,000.

Role of Logistics in Supply Chain at Toyota Kirloskar Motor Bidadi, Bangalore

Page 14