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SUPPLY CHAIN MANAGEMENT A STRATEGIC APPROACH TO THE PRINCIPLES OF TOYOTA’S RENOWNED SYSTEM ANANTH V. IYER SRIDHAR SESHADRI ROY VASHER New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto To my wife Vidhya and daughters Apsara and Rani, and in memory of my parents Thank you Ananth To my wife Shubha, daughters Padmavati and Sharada, and all my family Thank you Sridhar To my wife Audrey; daughters Jody and Neely; my mother Emma, who at the time of this writing is 105; and all my family All my love Roy This page intentionally left blank Contents Foreword by Hau L. Lee Acknowledgments Introduction vii ix xi Chapter 1. Toyota Learning Principles and the v4L Framework 1 Chapter 2. Comprehensive Overview of Supply Chain 5 Chapter 3. Mix Planning 25 Chapter 4. Sales and Operations Planning 37 Chapter 5. Production Scheduling and Operations 55 Chapter 6. Parts Ordering 73 Chapter 7. Managing Suppliers 85 Chapter 8. Logistics 103 Chapter 9. Dealer and Demand Fulfillment 121 Chapter 10. Crisis Management 133 Chapter 11. The Toyota Way of Managing Supply Chains 147 Chapter 12. How to Apply Toyota Way Principles to Nonautomotive Supply Chains 173 Chapter 13. The Beer Game and the Toyota Supply Chain 185 Chapter 14. Reflections of Supply Chain Participants 201 Chapter 15. Reflections 215 Appendix Index 219 221 v This page intentionally left blank Foreword F or decades, Toyota’s success in the marketplace has been admired by business practitioners and executives alike. The automaker is the envy of others within the automobile industry, but the company is also considered to be the symbol of excellence in business in general. The firm has been the focus of research in academia. The power of Toyota has been attributed to its two distinct core values: the Toyota Way and the Toyota Production System (TPS). The Toyota Way has created a culture of respect for individuals, promoting innovation and fostering cooperation. TPS has been the engine under which lean manufacturing, kanbans, quality systems, just-in-time, and continuous improvement practices have been developed. Together, they have been the pillars for the foundation upon which Toyota has become so successful. But the Toyota Way and TPS are just foundational pillars. There is another concrete secret to the success of Toyota: the way the company runs its supply chain. The Toyota Way and TPS of course have been part of how Toyota has developed its supply chain principles and how the company has applied such principles to work with its suppliers, dealers, and manufacturers. Based on these principles, Toyota has coordinated the plans across the supply chain—and it has executed them well. Supply chain management excellence is the ultimate way in which Toyota has built its superior efficiency in operations. I am delighted to see this book about Toyota’s supply chain management written by two leading academics and an experienced Toyota executive. This book reveals the powerful way that Toyota runs its supply chain, and it shows vividly how the Toyota Way and TPS have been ingrained in the processes used by Toyota to run its supply chain. I submit that reading about Toyota Way and TPS is only a starting point for really learning the innovativeness and effectiveness of Toyota’s operations. The current book completes the picture. vii viii Foreword While TPS is the central theme of how Toyota runs its factories, the scope of supply chain management is much greater. It spans suppliers to Toyota as well as possibly the suppliers’ suppliers, the distribution channel, the dealers, and ultimately, the consumers. The coordination, planning, and control of this extensive network are a daunting task. The current book well describes how Toyota has been very smart in examining three dimensions of supply chain management: geography, product, and time. This book gives us a treatment on how Toyota has designed and operated supply chains to adapt to these three dimensions. For example, the needs for the Japanese and U.S. markets, the Camry versus the Lexus, and at different points in time of the product life cycle, are different, and so different supply chain processes are needed. I would urge the reader going through this book to keep two perspectives in mind. First, it describes in great details how Toyota runs its supply chain. As a result, there are many innovative ideas that Toyota uses, and many best practices described. So the reader can pick up a lot of useful tips and revelations. Second, the structure of the book is extremely helpful to organize your thoughts and evaluations of your own supply chain. The chapters that follow cover the whole spectrum of what constitutes comprehensive supply chain management. So, going through the chapters gives you a framework to follow. In that sense, even if you extract the Toyota content out of the chapters, the book is a good guideline to develop sound supply chain management practices. One of the most useful conceptual frameworks in this book is the v4L construct. We see how Toyota manages its supply chain to ensure that the 4v’s— variety, velocity, variability, and visibility—can be controlled. In every chapter, for every supply chain operation, the authors describe how this can be done. Again, seeing how Toyota has done it is valuable and informative. But I also think that the reader can benefit from seeing how the authors developed the thought process behind what Toyota did to accomplish the objectives of gaining control of the 4v’s. That knowledge by itself is highly educational. For anyone who wants to learn the true secret of Toyota’s operational excellence, this book is a must-read. In addition, while learning about Toyota’s supply chain management, we also are given a journey of sound supply chain management in general. In my personal research, I have come across Toyota’s supply chain management practices and have been very impressed by how thorough and innovative the company has been since its inception in the 1930s. I must congratulate the authors of this book, as they have done the most comprehensive, insightful, and penetrating treatment of this subject. Hau L. Lee Thoma Professor of Operations, Information, and Technology Graduate School of Business, Stanford University Stanford, CA Acknowledgments T he authors express their appreciation to the management of Toyota Motor Engineering & Manufacturing North America, Inc., for providing access to their executives for interviews as well as for the tour of the Georgetown manufacturing facility. Nancy Banks, manager external affairs, was extremely helpful in coordinating the interviews and arranging for the plant tour. Nancy also spent countless hours reviewing drafts of the book and providing excellent feedback. The interviews with Toyota executives provided deep insights into Toyota’s management of the supply chain. We would like to thank all of the interviewees for taking precious time out of their busy schedules to speak with us. Gene Tabor and Jamey Lykins, general managers in Toyota’s Purchasing Division, discussed how Toyota’s purchasing relationship with suppliers plays an important role to ensure a strong partnership with suppliers at all levels. David Burbidge, vice president of Production Control, provided an excellent overview of Production Control’s role in managing the supply chain. Mike Botkin, general manager of Logistics, shared with us his expertise of Toyota’s Logistics operation. In addition, the interviews with executives from Toyota’s partners enlightened us on how the extended supply chain supports Toyota’s management philosophy. Jeffrey Smith, vice president and general manager for Toyota Business Unit Johnson Controls, Inc., has several years of working with Toyota around the world and was able to provide the supplier perspective. Gary Dodd, former president of Tire & Wheel Assembly, also discussed the supplier’s role and explained the process of becoming a new Toyota supplier. To round out the supply chain we spoke with Steve Gates, dealer principal, Toyota South in Richmond, Kentucky, to obtain an understanding of the dealer operations in the Toyota environment. Steve is also a member of Toyota’s dealer council, so he ix x Acknowledgments was able to provide a comprehensive view not only of the dealer’s operation but also the Toyota dealer network. Achim Paechtner, former senior manager of Toyota of Europe, provided a framework of how Toyota and other automobile companies operate in Europe. Achim’s understanding of the European markets was extremely helpful. We thank the Toyota Motor Corporation for endowing the Term Professorship at the Stern School of Business without which Sridhar Seshadri, the first Toyota Motor Term professor, would never have met Roy Vasher and this joint project would never have been undertaken. Ananth Iyer acknowledges the support of the Krannert School of Management at Purdue University whose Fall DCMME Manufacturing Conference, where Roy was a speaker in 2007, provided a forum for the authors to meet face-to-face for the first time. We thank Mayank Agarwal, MBA student at the Stern School of Business for his extensive research into the automobile business. The research was used in this book to confirm the benefits of Toyota’s supply chain management. The final manuscript would not be complete without the assistance of Leslie Culpepper, who helped copyedit this manuscript. Introduction T oyota uses unique processes to effectively manage and operate the supply chain. These processes span the supply chain and have enabled Toyota to deliver remarkably consistent performance over decades. The authors, a retired Toyota senior executive with hands-on experience and two senior academics, have pooled their combined experience to both describe existing processes as well as understand why they work. By combining the insights of a practitioner with almost 20 years of Toyota’s execution and management experience and two academics with decades of research experience, we hope to provide a unique presentation of the topic that can influence supply chain practices at auto and nonmanufacturing companies. The fundamental thesis of this book is that understanding process details, as well as the logic associated with their success, will enable adoption of these ideas in both manufacturing and service contexts. The material in the pages that follow provides insights into how Toyota uses learning (L) processes to implement practices and principles, both within Toyota’s cross-functional organizations as well as with Toyota’s partners (including suppliers and dealers)—in short, across the extended supply chain. We show how integrated and synchronized processes enable careful balancing of variety, velocity, variability, and visibility (4v’s) across the supply chain. Learning is linked to the 4v’s to form the v4L framework. We will describe the v4L framework in more detail in Chapter 1. In keeping with the “how-to” approach to these complex topics, most chapters provide illustrative examples that both explain details as well as illuminate the logic behind the processes. The choice of topics is meant to focus on essential tactical and operational differences in the way Toyota manages its supply chain. Chapter 1 describes the v4L framework and the Toyota learning principles. Chapter 2 provides a comprehensive overview of processes that are part of the xi xii Introduction overall supply chain. That, in turn, is followed by topics in the sequence of activities in a supply chain. First, there’s “Mix Planning” (Chapter 3) to support production stability and how this is translated into “Sales and Operations Planning” (Chapter 4). We then cover how sales requests are supported by “Production Scheduling and Operations” (Chapter 5), “Parts Ordering” (Chapter 6), and “Managing Suppliers” (Chapter 7). The inbound and outbound “Logistics” processes are described next (Chapter 8), followed by “Dealer and Demand Fulfillment” (Chapter 9) and dealer-related processes, which will complete the supply chain coverage. Finally, Chapter 10 covers how Toyota handles “Crisis Management.” The detailed discussion of Toyota’s supply chain processes will be followed by chapters on “The Toyota Way of Managing Supply Chains” (Chapter 11) and how that has been used to design and improve each of these steps, and “How to Apply Toyota Way Principles to Nonautomotive Supply Chains” (Chapter 12). We have also included a chapter titled “The Beer Game and the Toyota Supply Chain” (Chapter 13), which describes the well-known bullwhip effect in supply chains and examines how following Toyota’s integration of processes across the supply chain enables reduction of the bullwhip effect. Two “Reflections” chapters conclude the book: Chapter 14 examines the reflections of supply chain participants; Chapter 15 reflects on the Toyota experience in general and considers potential future innovations in the automotive supply chain. Although there are several excellent books that describe the Toyota production system, as well as a few that cover principles used in the Toyota supply chain, we believe there is a benefit to understanding process details in order to execute processes consistent with the principles. The sources of material for this book include firsthand experience with applying these processes at Toyota, direct interviews with Toyota-experienced managers and suppliers, existing books on Toyota’s processes, academic research, surveys, and empirical case studies. Chapter 1 Toyota Learning Principles and the v4L Framework T oyota is well known for its approach to problem solving and continuous improvement. Articles by practitioners, researchers, and participants have made the tools and techniques of continuous improvement familiar to every business executive. For example, phrases such as andon, heijunka, and kanban have become part of the day-to-day vocabulary of managers. In an insightful commentary on these tools and techniques, Jeffrey Liker writes that Toyota’s success goes beyond these tools and techniques to what he calls “The Toyota Way.”1 Liker presents the Toyota Way as an all-encompassing method for designing and managing processes. Every student of Toyota also knows that the Toyota Way is unique, not only in its approach to problem solving but also in perpetuating its way of thinking across different types of operations, organizations (including suppliers, logistics providers, and dealers), and worldwide locations. Underlying the success of Toyota is the company’s approach to scientifically examining problems, solving them, learning from the experience, and passing on that knowledge to others. Toyota is a global auto company with many products and markets. The company encompasses markets across the globe with different characteristics (e.g., the United States, Europe, and Japan) that warrant different supply chain configurations. In addition, differences among the Toyota, Lexus, and Scion vehicles warrant different supply chain processes. Although common processes underpin these supply chains, variations across these supply chains provide additional insights. We believe that an understanding of how all these supply chains coexist in one company provides an excellent learning opportunity for a practicing supply chain manager to apply the v4L framework to his or her work. 1 Toyota Supply Chain Management 2 v4L Framework Performance at Toyota is evaluated with equal weight given to both the process used to derive performance and the results achieved. This process focus aims to generate a balance of key supply chain parameters—variety of products offered, velocity of product flow, variability of outcomes against forecast, and visibility of processes to enable learning. The learning follows a carefully documented process that promotes continuous improvement. At the end of every chapter a reflection section will be included that links the chapter to the v4L framework: balancing variety, velocity, variability, and visibility across the supply chain. One way for managers to understand Toyota’s concepts is to first ask how their company’s supply chain achieves this balance. Often, variety is chosen with a focus on marketing benefits with scant attention to supply chain implications, velocity, variability, and the like. This off-optimal choice of variety can have severe repercussions across the supply chain, which is often difficult to untangle. A careful choice of v4L parameters enables superior supply chain performance at Toyota. Learning (L) Principles Toyota has mastered the art of learning and believes that the principles to attain mastery are universal. Moreover, Toyota has spread these ideas throughout its supply chain in its leadership role. We shall review these ideas in later chapters and provide a summary of methods that makes learning a practical and ongoing process at every level and every task in Toyota. Toyota’s way of making learning happen not only conforms to the theory of learning (as we mention in Chapter 11) but can be simply explained (as is often the case with things that are very hard to accomplish!). The following are the main principles: ■ ■ ■ ■ Create awareness. Unless problems are seen, they will not be solved. Systems need to be in place to report ideas, problems, deviations, and potential issues to a direct team leader with no delay. Establish capability. Unless someone is capable of solving a problem that might arise within the system boundaries set for him or her, that person will be unable to contribute to the problem-solving process and will be unable to recognize the need for specialized help. Make action protocols. Actions have to be taken within a set of constraints, and they must conform to certain standards. Doing so will help in the identification of the relation between action and results. It will aid in the codification of the knowledge for future use, with the same language and format used as well as similar content. Generate system-level awareness. As experience with solving problems is obtained, greater awareness of other areas that might be affected Toyota Learning Principles and the v4L Framework ■ 3 by actions or that might impact one’s own performance needs to be created. Produce the ability to teach. As system-level awareness and experience accumulate, the capability to teach others about these methods needs to be in place. v4L Principles The v4L learning principles are combined across all Toyota supply chain management processes to systematically focus on the v4L balance: ■ ■ ■ ■ Variety is carefully chosen to balance market demands and operational efficiency. Awareness of the impact of variety on the market demand and on manufacturing and supply chain costs enables all the entities across the supply chain to be considered when decisions regarding variety are being made. In one sense, variety represents a crucial supply chain design choice that has an impact across all supply chain participants. A key issue when variety is being chosen is the need to have feedback loops to ensure that the selected variety represents the best response to current market conditions. As we will discuss in each of the chapters, this is where the learning features of Toyota’s process enable the constant loop of Plan, Do, Check, and Act (PDCA). Velocity of supply chain flows is the next key concept, and it manifests itself in all processes across the supply chain. A focus on maintaining a steady flow throughout the system enables capacity planning to be synchronized across the supply chain. The detailed process descriptions in the following chapters will highlight how a rate-based approach serves as a linchpin for the planning processes across the system. Variability of orders or deliveries across the supply chain is minimized by how the individual processes are executed. Reducing variability enables all of the supply chain flows to operate with low levels of inventory. It also enables quality improvement processes to operate without interruption, thus enabling continuous cost reductions and quality improvements. Notice that variety, velocity, and variability all interact to stabilize supply chain performance. Visibility of all processes is ensured with use of the right metrics and the requirement that a consensus be reached before plans are changed. At Toyota, performance metrics have a 50 percent weight for results and a 50 percent weight for process compliance. In other words, the goal is to reward not only short-term successes but also ensure that the correct processes are followed. Such an approach ensures that bottlenecks are visible and responses immediate, changes are deliberate, velocity is maintained, Toyota Supply Chain Management 4 variety is synchronized to demand, and variability is minimized. Visibility enables continuous learning and feedback, thus guaranteeing that execution of processes remains synchronized with market realities. We suggest that v4L highlight the intricate balance of all supply chain processes. How each of them is balanced by vehicle type or geography is a business choice that reflects Toyota’s competitiveness in that market. The choice of the v4L and the actions required to implement these choices are guided by the learning principles. All companies should be asking themselves how their current choices reflect the impact of the v4L. A way to remember this concept is to ask, is the supply chain’s v4L engine at my company appropriately tuned for competitive performance? Endnote 1. Jeffrey K. Liker, The Toyota Way. New York: McGraw-Hill, 2004. Chapter 2 Comprehensive Overview of Supply Chain T he Toyota Production System (TPS) is the benchmark used throughout the world as the foundation for “lean” thinking. At Toyota, the TPS practices and principles extend well beyond the factory walls to include the extended supply chain and require some crucial choices to ensure supply chain efficiency. This chapter explains how Toyota plans and operates its supply chains globally. But first, a brief look at the extended global automobile supply chain is in order, which will enable you to understand the processes described in the following chapters. The automotive supply chain is very complex and consists of many processes that, when linked together, form a supply chain from the customer back to the various tiers of suppliers. The physical processes consist of the production of parts at the suppliers, transportation of these parts to the assembly plant of the original equipment manufacturer (OEM), assembly of parts into a completed vehicle, distribution of completed vehicles to dealers, and finally delivery to a customer. In addition to the physical processes, there are both preproduction and day-to-day operational support processes. To fully understand these processes, some background on the auto industry is necessary. The following questions need to be answered: ■ ■ ■ What is the product? Who are the customers? What are the distribution models? What Is the Product? A car or a truck can be described with its specifications. Each OEM uses a slightly different terminology to define a vehicle’s specifications. Toyota uses a 5 Toyota Supply Chain Management 6 Table 2-1. Vehicle Specifications Hierarchy Make Model Body Grade Options Accessories Toyota Camry Sedan Sedan Crew cab Double cab Sedan LE XLE Sunroof Navigation XM Radio Sunroof Navigation Spoiler Floor mats Tow hitch Bed liner Floor mats Tundra Lexus ES350 hierarchical method of vehicle specifications. The typical hierarchy of the vehicle specifications is shown in Table 2-1. The following are some examples of vehicle specifications: ■ ■ ■ ■ ■ ■ ■ ■ Make. Toyota, Lexus Models. Camry, Avalon, Tundra, Sienna, etc. Body style. Four-door sedan, two-door coupe, convertible, crew cab, double cab, etc. Grade. XLE, LE, SE, etc. When a grade is selected, it usually includes several standard equipment items. Typically the higher-grade vehicles include many standard items. Sometimes when the grade is selected, the engine and transmission combination is included as standard equipment. Engine. Six-cylinder, four-cylinder, etc. Transmission. Automatic, five-speed, etc. Factory options. Engine, transmission, sunroof, air-conditioning, navigation, radio, power windows, etc. Accessories. These items are like options, but they can be installed in the factory or added after the vehicle is built. Examples are spoiler, tow hitch, roof rack, and pinstripes. In addition to the above specifications, exterior and interior colors must be included to complete the vehicle build specifications: ■ ■ Exterior color. The outside color is usually one color; however, it could be two-toned. Interior trim/color. The interior colors (e.g., black leather and gray cloth) are usually coordinated with exterior ones, but not all interior colors always will be available with all exterior colors. So each vehicle is built with a unique set of specifications called a “build combination.” If all possible build combinations were produced, then the total build combinations for a model would be in the millions. This variety would make managing the supply chain an extremely complex and costly process; therefore, many automotive companies limit the number of build combinations Comprehensive Overview of Supply Chain 7 offered in each market area. Toyota has been extremely successful in balancing the combinations that are made and sold by sales area. For example, one approach used at Toyota to reduce the build combinations is to include many standard equipment options based on the model and grade that is selected. The methodology on how to choose profitable levels of variety to be offered across market areas is explained in Chapter 3. Who Are the Customers? Automobile companies have several categories of customers that need to be considered. The following is a list of the types of customers and a brief description of each: ■ Retail consumers. The retail segment is the largest segment of customers, and it is also the one in which the automotive companies make the most profits. Although not all retail customers are the same, as yet there are not clear classifications for groups of customers. Figure 2-1 illustrates how various customer types can be plotted along a continuum: at one end is the serious buyer and at the other is the serious shopper. The serious buyer is a person who needs a vehicle within a short time frame. This type of buyer shops for price and value and will compromise on vehicle specifications. Some reasons that this type of buyer is in the market for a vehicle are that a vehicle needs replacement because of an accident, the current vehicle needs major repair, or the lease is expiring. This type of customer wants to walk into a dealership and drive out with a new vehicle. The serious shopper is a person who has done homework and knows exactly what he or she wants. This type of shopper has researched several vehicle models and options prior to visiting the dealership and then proceeds to the dealer with the complete vehicle specification in Just wrecked car “Green” buyer First-time buyer Serious Buyer Serious Shopper Starting family Figure 2-1. Customer continuum Retiree Toyota Supply Chain Management 8 ■ ■ hand. Because the serious shopper is very particular about the vehicle he or she wants, this customer will shop around or perhaps wait until a vehicle can be ordered “fresh from the factory.” Examples of the serious shopper are a consumer who is young, a first-time buyer, and a car enthusiast. The area on the continuum from the serious buyer to the serious shopper is by far where most customers can be found. Indeed, most customers who walk into a dealership have not made up their minds on the exact vehicle specification or even if they are ready to buy a vehicle. Employees/suppliers: Employees. Automotive companies allow employees, relatives, and (in some cases) friends to purchase a limited number of vehicles per year at a substantial discount. The employees must receive prior approval before proceeding to a dealer to make a purchase or place an order. The purchase price is calculated automatically based on the discount allowed. The dealer may also receive some rebate to ensure that the dealer margin is maintained. Suppliers. Automotive companies may offer selected employees of suppliers a vehicle purchase program. This arrangement is similar to the employee purchase program in that the purchaser must get prior approval before proceeding to a dealer to purchase a vehicle. The purchase price is calculated automatically based on the discount allowed. The dealer may also receive some rebate to guarantee that the dealer margin is maintained. Fleet: Rental companies. The rental companies (Hertz, Avis, Enterprise, etc.) negotiate a contract with each automobile company for annual volume of each model. The detailed specifications of each monthly vehicle order are submitted in advance, and the vehicles are scheduled for production based on the delivery schedule requested by the rental companies. Because space at most rental facilities is limited, the rental companies need to minimize the overlap of new vehicles arriving and the used vehicles being shipped out for auction or resale. Commercial fleet. These are private companies that provide a company car for selected employees who require a vehicle to perform their job or for certain executives as a perk. Examples are senior management, sales representatives, taxi drivers, and delivery persons. These smaller fleet customers may negotiate a deal with the automotive company or a dealer. In some cases there may be a long-term contract with multiple automotive companies to provide specific models for a Comprehensive Overview of Supply Chain 9 company vehicle program. The company may offer employees an option to select from a list of vehicles with specified options from multiple automotive companies. Then, either based on a lease period or on mileage, the employee will order a replacement vehicle. Government entities. All levels of government—federal, state, and local—purchase vehicles from the automotive companies. Contracts are usually negotiated with the automotive companies to provide vehicles over a period of time. In many cases, special orders may need to be placed for vehicles with unique equipment such as police cars and fire trucks. Clearly, streamlining the supply chain requires an understanding of the customer types and relative size and profitability of each segment. The following are some examples that show how the customer types affect the supply chain: ■ ■ ■ At Toyota plants in Japan, a large percentage of the production orders are exported to countries all around the world. So these order requirements are fixed and scheduled at least one month in advance for production. Toyota’s advantage is that it can allow its domestic dealers in Japan to change a greater percentage of orders closer to production because the export orders do not change. The export orders create a buffer to absorb the domestic changes in orders. At Dell, about 85 percent of the orders are for corporate customers. Corporate orders are forecast in advance and can be scheduled based on the lead time for each corporate customer. The retail orders coming through the Internet can be fulfilled quickly even if demand is highly volatile, because the corporate orders can be shifted slightly to absorb the variability in retail customer demand. At Ford, when Hertz was a wholly owned subsidiary, at least 40 percent of some models were sold to Hertz. This arrangement enabled Ford to use the Hertz volume to fill in the valleys in demand during the year when retail sales were slow. Thus, customer types and order characteristics can be used to build a more flexible supply chain. What Are the Distribution Models? The term “distribution model” defines the method used to distribute vehicles from the assembly plant to the dealers. There are many variations in the distribution model within the automotive industry. At Toyota, the distribution model is different for various regions around the world. For example, the United States, Europe, and Japan all have different models, and in some cases the models vary Toyota Supply Chain Management 10 within a regional area. Lee, Peleg, and Whang explain that just as Toyota has a set of central core values but allows individual divisions to customize to local conditions, when it comes to supplying to different geographies, different products, or at different times in the product life cycle, “the company adapts the design and control of its demand chain so that it has the right demand chain for the right product, in the right place, and at the right time.”1 In the United States, there are three distribution models: ■ ■ North American production. In this model, vehicles are produced at the North American assembly plants and shipped to North American dealers. Once vehicles are released from the plant, they are moved to a marshaling yard. The function of the marshaling yard is to prepare the vehicles for shipment. Vehicles are shipped via train and truck to the dealerships. If vehicles are shipped by train, then they must be transferred to trucks at a railhead near the dealership. If vehicles are shipped by truck, then they will be delivered directly to the dealership. While the vehicles are in the marshaling yard, some accessories can be added, a final quality assurance check performed, prep performed on selected vehicles, and the price label affixed to the side window. “Prep” is a term that describes the tasks that are normally performed at the dealer just prior to customer delivery. The total time it takes to distribute a vehicle once it leaves the assembly plant can range from two days to three weeks, depending on how far the dealer is located from the factory. In this distribution model, vehicles are typically allocated and assigned to dealers two to four weeks prior to production. The vehicle inventory is stored at the dealerships. Overseas production distributed in North America. With this distribution model, vehicles produced in Japan are shipped via large vessels to ports in North America and then transported to dealerships. The port provides functions similar to the marshaling yards’; however, typically there are several accessories that are installed at the port to enable the dealers to customize the vehicles closer to delivery. It takes three to five weeks to ship the vehicles from Japan to North American ports. It can take another two days to one week to transport to dealers via truck. The reason why this delivery time is shorter than the time it takes to transport vehicles from the North American factories is that vehicles arriving from Japan are shipped to a port that is located geographically close to dealers. The ports are located in cities such as Portland, Oregon; Long Beach, California; Houston, Texas; Jacksonville, Florida; and Newark, New Jersey. The vehicles are normally allocated and assigned to dealers while they are in transit from Japan to the port; however, they must be allocated to a regional area prior to being loaded onto the ships. That Comprehensive Overview of Supply Chain ■ ■ ■ 11 step is necessary because vehicles destined for the East Coast will be loaded onto different ships than ones destined for the West Coast. As with the North American model, vehicle inventory in this production model is stored at the dealerships. Scion model. Scion cars are produced in Japan and distributed in North America in a manner similar to the distribution model described previously; however, there are some significant differences that provide the dealers with much greater flexibility to customize the Scion cars for customers. The first difference is that Scion cars are shipped to the ports with only basic equipment installed at the factory and in limited colors. The second difference is that Scions are allocated but not shipped to the dealers until the dealer makes a request. That arrangement allows the dealer to select a base model and color, and then add accessories to customize it to meet the customer requirements. Most vehicle inventory is held at the port, which allows flexibility for customization. That adaptability is consistent with the key strategy behind Toyota’s introduction of the Scion, namely, to keep a customer for life.2 As stated previously, the vehicle inventory is stored at the port with the exception of a limited number of vehicles located at dealers for display. European distribution model. In Europe, the distribution model is very different from North America, because most dealers are located in urban areas and do not have room for vehicle stock. Therefore, once vehicles are released from the plant, they move to a marshaling yard. The function of the marshaling yard is only to stage the vehicles for shipment. Vehicles are shipped primarily by truck to a consolidation point called a “hub.” Generally there is at least one hub for each country; however, smaller countries may share a hub, and large countries may have multiple hubs. The hub serves to hold the vehicle inventory until a dealer signs a contract with a customer. At that time, an order is sent to the hub for a specific vehicle. Also, the dealer can request additional accessories to be installed at the hub prior to shipment. The transit time from a hub to the dealer averages one week. In Europe, most vehicle inventory is stored at the hub, not at the dealerships. Japanese distribution model. In Japan, the distribution model is similar to that for Europe because most dealer retail outlets have very small storage lots. The difference is that in Japan each dealer has a consolidation center where the vehicle inventory is stored until one of the dealer retail outlets sells a vehicle. At that time an order is sent to the consolidation center and the vehicle is shipped to the dealer retail outlet. Again, as in Europe, most vehicle inventory is kept at the consolidation center, not at the dealerships. Toyota Supply Chain Management 12 Supply Chain Overview The supply chain has both physical components as well as operational and planning processes. Physical Flows The physical flow of the supply chain is shown in Figure 2-2. Parts are produced by suppliers and transported by inbound logistics to the assembly plant. At the assembly plant, the vehicle begins in the body shop, moves to the paint shop, then to assembly, and finally to inspection. Once the vehicle is produced, it is transported to the dealerships via outbound logistics. On paper this process looks very simple; however, it is complex because a vehicle is very large and bulky, it is assembled from thousands of parts that are produced by hundreds of suppliers, and there are thousands of vehicle combinations that could be produced. Suppliers Suppliers provide thousands of parts and components that go into the vehicle. These parts and components are received via the inbound logistics network from hundreds of tier 1 suppliers. Tier 1 consists of the first-level suppliers that make parts and ship directly to the assembly plants. Because suppliers also have suppliers, and those suppliers have suppliers, the supply chain contains several levels that are referred to as tier 1, tier 2, tier 3, and so on. So you can imagine how complex the inbound supply chain is for an automobile assembly plant. In addition, because suppliers are located in various geographic areas, the time for parts to arrive from each supplier to the assembly plant can vary greatly. Local suppliers may be only one or two days away from the assembly plant, whereas suppliers located overseas may require several weeks of transportation time. Inbound Logistics After parts are produced by the suppliers, they are shipped to the assembly plants. The process to ship these parts from the many suppliers to each assembly plant is referred to as “inbound logistics.” At Toyota, parts are delivered in two ways. Overseas parts coming from Japan are shipped via vessel Suppliers Inbound Logistics Body Figure 2-2. Physical flow Factory Paint Assembly Inspection Outbound Logistics Dealers Comprehensive Overview of Supply Chain 13 and then by railcar to the assembly plant. Once the railcar arrives at the assembly plant rail yard, the container is offloaded onto a truck and driven to the assembly dock. Local parts produced in North America are shipped by truck using a dedicated logistics partner. Toyota takes complete responsibility for pickup and transportation of parts from the suppliers to the plants, because Toyota’s just-intime parts inventory practice requires extreme reliability of inbound logistics. Toyota organizes the suppliers into clusters based on geographic proximity. The truck routes are designed for parts to be picked up from multiple suppliers and delivered to a regional cross-dock. To improve efficiency, the same truck will pick up parts not only from multiple suppliers but also from each supplier destined for different Toyota plants. Once trucks arrive at the cross-dock, the parts are unloaded and staged for each assembly plant. They are then loaded onto trucks that take parts directly to each plant. Trucks are unloaded at the plant based on the progress of production. If the plant is operating on schedule, the trucks will wait only a few hours in the plant yard. After the parts are unloaded, the truck is reloaded with the corresponding empty returnable containers. These returnable containers flow in reverse through the cross-dock and back to the supplier to be reused for a future shipment. Production Vehicles are produced at the final assembly plant from the parts provided by hundreds of suppliers. A typical assembly plant will have one or more separate lines on which vehicles are assembled. The plant is subdivided into shops. The vehicle is born in the body shop where the frame and body are formed. The body parts are stamped in the stamping shop by presses. The body shop is where numerous robots are used to weld the body parts together. Once the body is assembled, then the vehicle moves to the paint shop and its exterior is painted. After the vehicle is painted, it moves down the line into final assembly. At that point most of the supplier-provided parts are installed to make a finished vehicle. Each part is assigned a line location so that parts can be delivered from the dock to a line address based on a bar code label affixed to the parts container by the supplier. After the vehicle is assembled, fuel is added and the vehicle is driven off the assembly line. But at that point the process is not yet complete because the vehicle still needs to go through several quality control steps along with final inspection. Once the vehicle completes the final inspection, it is released from the factory for shipment to the dealer. Outbound Logistics Vehicles that are produced at an assembly plant must be transported to each dealer. This process is commonly referred to as “outbound 14 Toyota Supply Chain Management logistics.” In the United States, vehicles are transported by two modes: railcar and truck. Because of the long distances that vehicles must travel, about 75 percent of the vehicles travel via railcar and are then loaded onto trucks for delivery to the dealers. The remaining 25 percent are delivered by truck to dealers that are located within two to three days’ drive from the factory. In Europe, most vehicles are shipped by truck; however, sometimes ships must be used when there is a large waterway that must be crossed. Just outside the assembly plant, there is a large yard that is used to stage the vehicles prior to shipment. At Toyota, these yards are referred to as “marshaling yards.” In the United States, these yards perform three functions. Team members install accessories, perform final quality assurance, and stage vehicles for shipment. Once the vehicle is ready for shipment, it is driven to either the railcar staging area or the truck staging area. For railcar shipments, there are two types of railcars: bi-level and tri-level. “Bi-level” means vehicles are loaded onto two levels within the railcar, and “trilevel” means vehicles are loaded onto three levels. The capacity of a bi-level railcar is 9 to 10 vehicles; a tri-level, 14 to 15 vehicles. Therefore, vehicles are staged in lanes according to the capacity of the railcar and the destination. Vehicles shipped by truck are identified by the dealer and parked in a truck staging area. The trucking company is responsible for selecting the vehicles to be loaded onto each truck based on the route plan for that truck. The trucking companies have a delivery performance objective to deliver all vehicles within two days. To ensure that both the trucking and rail companies have adequate capacity to ship vehicles, the assembly plant needs to provide a day-to-day forecast of volume by destination. Dealers Dealers play a key role in the supply chain because they are the face of Toyota to the customer. They are responsible for selling the vehicles produced by the manufacturer to the retail customers. In addition to selling vehicles, dealers have an extremely important influence on customer satisfaction. Independent customer surveys such as the “J.D. Power survey”3 measure customer satisfaction in various categories. The two prime categories are (1) initial vehicle quality and (2) customer satisfaction regarding the selling process. Customers that score the selling process low also tend to give lower scores on the initial quality survey. A high J.D. Power score can be a valuable marketing tool for an automobile manufacturer. Therefore, it is critical not only that the vehicle quality itself be high but also that the customer buying experience be positive—or at least not negative. Two reasons that the Lexus vehicles always score high in the J.D. Power survey are that the vehicles are assembled with extreme attention to detail and that the customer is also pampered by the dealer. Comprehensive Overview of Supply Chain 15 It is imperative that a dealer invest sufficiently in a facility so that it can operate efficiently and at the same time meet or exceed its sales objectives. A key factor in a lean supply chain is the optimum level of dealer stock. It is also critical that a dealer have an adequate mix of stock so that most of the customers can be persuaded to buy from stock and the dealer does not end up with too many aged stock units. (Mix planning is discussed in Chapter 3.) Vehicles are shipped to dealers from the assembly plants or from the port of entry. They are delivered by truck. The delivery time window will vary by dealer depending on dealer location and operating hours. Most dealers will accept vehicles only during business hours; however, a dealer may not want to be interrupted during very busy times. Therefore, the trucking company must understand the dealer’s delivery time windows and schedule its deliveries accordingly. Most trucks will deliver a load of vehicles to multiple dealers, so the loading sequence must be planned based on the delivery route. One of the key responsibilities of the salesperson is to guide customer demand. Toyota’s sales model is designed so that a high percentage of vehicles is sold from a relatively low level of dealer stock. The objective is to stock 20 percent of build combinations that represent 80 percent of the sales for each market area. Some of the techniques that a dealer uses to achieve this end are to advertise and promote only the popular models and display these models in the showroom or in an area that is easy for the customer to see. Once a vehicle is sold, the dealer must “prep” the vehicle for customer delivery. That usually means the dealer has to install wheel covers, wash and clean the vehicle, fill the tank with fuel, and inspect the vehicle to ensure that there are no defects. In addition, the dealer needs to prepare appropriate documents. At the time of delivery, the dealer will instruct the customer on how to operate various features of the vehicle, complete the paperwork, accept payment or arrange financing, and in some cases take possession of the trade-in vehicle. After the vehicle is delivered, the dealer submits a sales transaction to the manufacturer, which will relieve the stock, provide the dealer with credit for the sale, and start the customer warranty date. Various operational processes are necessary to operate the supply chain; Figure 2-3 provides another view of the transformation process that takes place from parts produced by suppliers to vehicles ready for sale at dealers. What is the difference between the supply chain of most car manufacturers and of Toyota? Visualize the Toyota supply chain operation as a giant Swiss clock. The plant is the main mechanism of the clock. When a clock is opened to expose all of its working mechanisms, there are various-sized movements that are all moving at different speeds but are integrated precisely to ensure that the correct date and time are displayed on the face. This continuous motion repeats itself at numerous intervals: seconds, minutes, hours, days, months, and so on. 16 Toyota Supply Chain Management Figure 2-3. Transformation from parts to vehicles Similarly, inside the Toyota plants, vehicles move down the main assembly line at a constant speed—or “takt time.” Feeder lines are also moving key subassemblies to various stations along the main line, where the correct engine or other subassembly arrives just-in-time to be installed in the exact vehicle that requires that subassembly. In another area of the plant, for example, seats are arriving by truck from a sequenced supplier to be installed in the vehicles, again based on the exact match. In the staging yard just outside the plant, trucks loaded with parts produced by hundreds of suppliers are arriving and are unloaded based on the vehicle sequence and progress of the vehicles moving down the main line. Looking back through the supply chain, the cross-docks and truck milk routes are all operating on repeatable cycles to support the main line’s need for parts. Also, all tier 1 suppliers and their suppliers are operating on a schedule to produce parts based on the scheduled pick-up time. Thus, Toyota’s supply chain functions like a finely tuned Swiss clock. It is synchronized and integrated to perform as a lean supply chain. Nevertheless, it produces sufficient variety and at a sufficient velocity to satisfy demanding customers. Comprehensive Overview of Supply Chain 17 Operational Processes Several operational processes must be performed on a periodic basis to guarantee that the physical supply chain is operating efficiently and effectively. These processes integrate and synchronize the operational processes with the physical processes to ensure a lean supply chain. The key processes are as follows: ■ ■ ■ ■ ■ ■ Mix planning Sales ordering/forecasting Production scheduling Dealer allocation Parts ordering/forecasting Inbound logistics planning For some perspective of what these processes entail, a thorough explanation of Toyota’s practices and principles follows. The detailed processes and the logic used to execute these processes will be described in Chapters 3 through 9. Mix Planning Mix planning is the process of limiting the number of build combinations that are ordered for stock in each market area. As mentioned earlier, “build combination” is a term that defines the unique set of specifications for a vehicle. For mix planning purposes, vehicle specifications are divided into three categories: factory-installed options, color, and accessories that can be installed after a vehicle is built. Mix planning is initially performed on an annual basis prior to new model launch and can be adjusted monthly to reflect changes in demand and/or seasonal trends. For the United States market, the mix planning is done at the region level to ensure that the vehicles ordered for stock closely meet the needs of the geographic area. For example, sport utility vehicles (SUVs) ordered for dealers located in the northern states would almost always be equipped with four-wheel drive, whereas SUVs ordered for southern states would be ordered with two-wheel drive. Another example is vehicles ordered for Arizona being painted with light colors (certainly not black!) because of the heat. In Europe, the mix planning is done country by country because many of the countries have unique requirements. For example, the United Kingdom requires right-hand-drive vehicles whereas the countries on the Continent require left-hand-drive. Also, there are various regulations in different countries, significant climate differences from Norway to Spain, and substantial economic differences between Western and Eastern Europe. Sales Ordering/Forecasting One of the functions of the sales division is to provide a monthly production order and forecast. That is in the form of a rolling three-month plan with the first production month categorized as a firm order and the next two months as a forecast. The firm order requires the sales division 18 Toyota Supply Chain Management to commit to the total volume of units for the month, whereas for the forecast months the volume can change. The content of the order month, however, can change in terms of number of vehicles up to one to two weeks prior to production. The process starts with the sales and production divisions first agreeing to a planned volume of units or vehicles that are going to be produced each month. Sales divisions determine their request by analyzing recent sales and stock levels. Sales divisions will also consider marketing promotions and seasonality changes. Both sales and production divisions collaborate to agree on the total planned vehicle volume for each of the next three months. The total vehicle volume is further broken down by vehicle model and by plant. Next, sales divisions allocate the total volume by model to each region based on sales performance. Then each region uses the mix plan along with the recent sales trends to create the quantity of each build combination for each month for each vehicle model. The mix plan or target is compared to the actual mix of sales and the actual mix of stock to determine which build combinations need to be ordered to maintain the target level of mix for stock. In addition, the regions may need to make adjustments for any special dealer requests and also need to consider any special promotions or seasonal trends; for example, sunroofs and convertibles sell better in spring and summer. Once the forecast is made and the order is completed by each regional office, it is sent to the sales divisional headquarters. There it is checked before it is forwarded to the production divisional headquarters to create a production schedule. Production Scheduling Production scheduling is the process of taking the monthly order and forecast from sales and assigning a production date and sequence to each vehicle. The objective is to create a production schedule that is leveled across each day of each production month using the heijunka principle. Heijunka is a Japanese term that is defined as “smoothing.” The concept is to assign each vehicle option a smoothing weight based on its importance to manufacturing. For example, engines will get a higher weight than color, because if they were not evenly scheduled over the month and there were a change in production of engines, that would have a greater negative impact on manufacturing. The term “production month” is different from “calendar month.” For each calendar year, a production calendar is created. There will always be 52 or 53 production weeks in a year. A week is assigned to a month, based on Monday’s date. For example, if January 31 falls on Monday, then that complete week is considered January production. February production would start with the February 7 week and end with the February 28 week. The only exception to this rule is the week that includes January 1. The week that contains the January 1 production day will always be week 1, even if January 1 does not begin on a Monday, which means it may contain some December days. Each production month will contain an even four or five weeks. Comprehensive Overview of Supply Chain 19 After the production plan is complete, it is sent back to sales with a scheduled build date for each vehicle. A copy is also sent to the parts ordering group at each assembly plant. Dealer Allocation Dealer allocation is the responsibility of the sales regions. The dealer allocation process is usually performed twice each month for two weeks of production at a time. That occurs four to five weeks prior to the scheduled build dates for the vehicles that are being allocated. Prior to the allocation process, dealers can update their profile with specific guidelines on the type of vehicles they either want—or in some cases do not want—to be allocated. For example, dealers in northern cities may want a cold weather kit, and dealers in Arizona may not want dark-colored cars. This dealer profile is important because each region covers a large geographic area of several states that may have different climates and demographics. The allocation process is executed by each region for its dealers. The allocation quantity for each vehicle model is based on a “fair-share method” (sometimes referred to as “turn and earn”) to guarantee that each dealer is treated fairly. The concept involves basing the allocation on how well each dealer is selling its previous allocation compared to all other dealers. Another benefit of this method is that it ensures that the inventory is rebalanced across all dealers. After the vehicles are allocated, they are assigned to the dealer and will be visible to the dealer as pipeline orders. A pipeline order is a vehicle that is in the scheduled pipeline and will be built during the week identified with each vehicle. Each vehicle has a full set of specifications, including color. Therefore, the vehicle will be built as is unless the dealer submits a change request. Parts Ordering/Forecasting The parts ordering process is actually two different processes: one for local parts and another for overseas parts. The local process requires that the vehicles scheduled for each day be placed in the exact sequence that they would be built on the assembly line. The next step, after each vehicle is scheduled by day, is to sequence the vehicles into the ideal sequence in which they would be assembled. The concept used is to consider the impact of the schedule on the factory team members and equipment. It is important to sequence the vehicles so that vehicles that contain high workload or process complexity are not scheduled back to back. Once the vehicles are aligned in sequence for each day, parts calculation is performed for each vehicle. Then the parts installation time stamp is applied to each part for each vehicle. One time stamp calculation follows: ■ Vehicle number 500 of the day is scheduled to line-off the end of the assembly line at 1 p.m. Toyota Supply Chain Management 20 ■ ■ ■ ■ Part A is installed at a workstation 2 hours prior to line-off. Part B is installed 2 hours and 30 minutes prior to line-off. Part A would have a time stamp of 11 a.m. (1 p.m.–2 hours). Part B would have a time stamp of 10:30 a.m. (1 p.m.–2:30 hours). Next each part’s lead time from the supplier to the lineside is determined. That will determine at what day and time the supplier will need to ship the part to arrive at the lineside just-in-time. Other factors, such as lot size, shipping frequency, and adjustments, need to be considered as well when the parts order is calculated. Adjustments are made in two ways. One way is for a vehicle specification to be changed by a dealer after parts have already been ordered from some suppliers. This occurs when a supplier’s lead time is longer than the freeze point for the assembly plant. A freeze point is the last day prior to production on which changes can be made to vehicle specifications. The plant’s freeze point is based on the 80 percent rule (i.e., the point is selected so that 80 percent of the suppliers have a lead time shorter than the freeze point). In other words, if the freeze point specification is five days, then 80 percent of the suppliers’ deliveries should take less than five days. The freeze point will vary by plant but will range from 5 to 10 days. This still leaves 20 percent of the suppliers that are outside the freeze; thus, there is a need to make adjustments based on the dealer’s changes. That is done by comparing the parts calculated each day to the previous day’s calculation, and if there is a difference and the part has already been ordered, an adjustment is made on the next order. A second adjustment is made by comparing the actual usage for each production day and the planned usage. The purpose of this adjustment is to catch any scrap or misused parts. The order is transmitted to the suppliers daily. In addition to the daily order, a weekly forecast is sent to the supplier as a prenotice for the next 12 weeks. It is extremely important for the suppliers to wait for the daily order to prepare the shipments. (The supplier’s role is discussed in Chapter 7.) Logistics Planning Once the parts forecast is completed for the next production month, a determination needs to be made about the most efficient routes for the logistics partner to pick up the parts from all suppliers. A sophisticated software program is needed to simulate the various route options. Some of the inputs needed and constraints are locations of each supplier, quantity of parts by supplier by pick-up time, location of cross-docks, location of assembly plants, and cost per mile. Assurances need to be made that all delivery times for parts will be met and the cost of operating the fleet of trucks optimized. This process may take numerous simulations before a route plan can be finalized. Comprehensive Overview of Supply Chain 21 Relationship of Processes to Physical Flow Figure 2-4 illustrates how these operational processes are integrated and synchronized to support the transformation flow of the physical parts and vehicles. Planning Processes The final processes necessary to complete the picture of the comprehensive supply chain are performed one to three years prior to actual production. These processes are as follows: 1. 2. 3. 4. 5. Product planning and design Plant design for capacity and flexibility Package design for logistics Purchasing Annual sales and operations planning Figure 2-4. Transformation processes Toyota Supply Chain Management 22 Product Planning and Design Vehicle design starts about 36 months prior to production and is completed about 18 months prior to production. During the design phase the physical design and functional design are completed, in addition to all parts and components. The designers and engineers must collaborate with product planning, sales and marketing, purchasing, and manufacturing on the new vehicle design. In addition, many of the suppliers collaborate with the engineers on selected components. One of the factors to be considered during the vehicle design is the impact on the supply chain. For example, the more parts that can be shared by multiple vehicles, the greater the efficiency, as there will be fewer part numbers and a higher volume of parts produced per part number. The result will be improved economies of scale and the ability to source high-volume parts to multiple suppliers. Another example is to reduce the number of parts that is directly associated with an option or color. That arrangement will increase the dealer’s flexibility to change options or colors, because fewer parts will be impacted. Plant Design for Capacity and Flexibility At Toyota, most final assembly plants are designed to produce multiple vehicle models on multiple assembly lines. That design provides flexibility to shift production volume from a slow-selling model to a faster-selling model to ensure that each plant maintains a stable production volume. In the event that the total volume needs to be adjusted either up or down, then the average time allowed between vehicles that come off assembly (the “takt” time), can be adjusted to increase or slow down the line speed. Line speed adjustment can be planned and implemented with one to two months lead time. In effect, this type of flexibility allows Toyota to change production capacity to meet market demand quickly. Package Design for Logistics Inbound logistics must also be lean to support Toyota’s supply chain. Therefore, when parts packaging is designed, careful consideration must be taken to make sure that parts can be moved efficiently through the logistics network. In addition, Toyota has a strong “green” policy, so almost all packaging uses returnable containers. The following are some of the major packaging considerations: ■ ■ ■ ■ Don’t “ship air.” Ensure that parts can be arranged in the container so that cubic space utilization is optimized. For example, a part shaped like a hockey stick cannot be packaged efficiently. Stackable. Design containers so that they can be stacked with many other parts containers and can be interlocked so containers will not shift during transit. Lot size. Order parts in small lots with frequent shipments. Quality. Guarantee that parts will not be damaged because of movement during shipment. Comprehensive Overview of Supply Chain 23 Purchasing Purchasing is responsible for parts and component sourcing and must work closely with engineering and quality. Purchasing considers many factors when selecting suppliers such as supplier capability and capacity, current supplier base, price, location, local content targets, and minority supplier objectives. In addition to these more obvious criteria, purchasing should also consider the impact on the supply chain. Again, the focus should be on understanding the relationships of options and colors to parts. One way to enable flexibility to change options closer to production is to purchase these option-related parts from suppliers located close to the assembly plant. Managing suppliers requires Toyota to choose how to operate the assembly plant to stabilize supplier orders. That role requires implementation of all of the processes described earlier. But it also requires leveraging the benefit of order stability to provide a competitive product to the customer. Annual Sales and Operations Planning Sales and manufacturing must collaborate on the annual plan for all vehicles sold and produced within a market (e.g., North America or Europe). That process can be a very contentious one because manufacturing and sales goals naturally conflict. The manufacturing objective is to operate all plants at full capacity with stable volume and to minimize interruption during model changeover. The sales objective is to maintain flexibility in order to change production volume as market demand shifts and to avoid producing too many vehicles of old models when a new model is scheduled to be introduced. One common objective is to maximize profits; however, that is easier said than done. (This topic will be discussed in detail in Chapter 4.) Reflection Points Toyota has effectively implemented the Toyota Production System across the extended supply chain and has demonstrated its capability to be a learning organization by the following: ■ ■ ■ Viewing the supply chain as a very broad and comprehensive set of processes that must be designed to function cohesively Promoting cross-functional teamwork to ensure that all internal and external parties are collaborating to kaizen both processes and operations Streamlining the supply chain to be synchronized and integrated so that it functions like a fine-quality Swiss clock Although there are many examples of the v4L principles in this chapter, we will wait and highlight them at the end of each of the chapters that discuss them in detail. 24 Toyota Supply Chain Management Endnotes 1. Hau Lee, Barchi Peleg, and Seungjin Whang, “Toyota: Demand Chain Management,” Case GS-42, Stanford Graduate School of Business, Stanford University, Stanford, CA, 2005, p. 18. 2. The thinking goes something A twenty-something person starts out purchasing a Scion, then gets married and moves up to a Camry, then starts a family and adds a sports utility vehicle or van, and then as an empty nester moves up to a Lexus. 3. J.D. Power and Associates Ratings, www.jpower.com/autos/car-ratings/, October 11, 2008. Chapter 3 Mix Planning M ix planning is an important process for companies that manufacture and distribute products to retailers in multiple market areas. For vehicle manufacturers, this decision is extremely important because of the complexity of a vehicle. This complexity creates millions of possible vehicle build combinations or variants. The objective of mix planning is to reduce the variants of each vehicle manufactured by several orders of magnitude, from millions to hundreds. Mix planning is a process that is undertaken during major model change preparation. It can also be adjusted annually during minor model change and to a lesser degree during the model year. The model change mix planning is completed about 12 months prior to new model introduction, to enable the following to happen: ■ ■ ■ Marketing strategies for each region to be synchronized with product offerings Manufacturing to fill the supply chain pipeline with parts Sales regions to order vehicles to have in stock in time for new model introduction Mix planning at Toyota deals with choosing the specific mix of vehicles that will be offered at sales regions across the country. The goal of mix planning is to carefully manage dealer-level product demand so as to enable stable production at the manufacturing plant. That also translates into stable orders to suppliers. In other words, the aim of mix planning is “to nip some of the demand variability in the bud” through careful planning. The associated upstream stability because of mix planning permits a focus on improved quality, cost reduction using kaizen, and ultimately higher value to customers that enables higher customer satisfaction and retention. Studies suggest that Toyota cars offer approximately $2,500 in additional value to the customer compared with competing midpriced, high-volume cars. 25 Toyota Supply Chain Management 26 That additional value translates directly into a higher resale value that customers receive for their Toyota cars compared to most manufacturers in the auto industry. We attribute this higher value to variety reduction, variability control, improved visibility across the chain, and higher velocity. Thus, in order for the v4L strategy to be viable it must generate significant value enhancement to all players. We will cover this topic in later chapters, but first we focus on how Toyota does mix planning. Mix Planning Objective Mix planning at Toyota means that the planned variety offered in a sales area is chosen carefully to be primarily the 20 percent of product range that represents around 80 percent of the demand in that region. Thus, planned offerings in a region are frequently a small subset of all available product types or even of all product types offered in the national market. That simple decision enables synchronization of all activities in a region, from TV advertisements focusing on the specific colors and options available in a region to newspaper and periodical pictures and dealer brochures, all suggesting offerings that synchronize with the product available at the dealer. In addition, the smaller range means that most dealers carry similar products, thus both enabling customers to decide where to buy the car and keeping dealer margins competitive. Availability of the same set of products among dealers increases retail availability without the need for high levels of dealer stocks. Similarly, a focus on offerings with high-demand velocity also decreases dealer inventories and thus increases inventory turns. That is one of the reasons that Toyota’s average incentive cost per vehicle is typically about $1,000 compared to the $3,000 average for the industry as shown in Table 3-1. A key risk to be managed in the selection of a subset of items is that that supply has to remain synchronized with current demand trends. Also, there is a Table 3-1. Incentives Offered by Six Automakers Automaker June 2007 June 2006 Chrysler Group Ford General Motors Honda Nissan Toyota $3,962 $3,187 $2,830 $1,397 $2,218 $1,308 $4,045 $3,648 $3,135 $770 $2,677 $961 Source: Edmunds.com. Reference www.autoobserver.com/2007/07/june-sales-gmhits-all-time-low-market-share.html (downloaded on 7/10/08). Mix Planning 27 natural tendency for the sales organization to attempt to justify why more is better. In other words, it is tempted to keep adding variants because doing so will help create incremental sales. That effort requires the need for thorough analysis of selling trends by product type and features, as well as monitoring of competitor offerings, in order to determine the optimum mix of variants. The key is that it is easier to add complexity or variants after the vehicle is introduced than it is to remove them. Therefore, it is important to start out by erring on the lean side and if necessary adjusting variants on a periodic basis after several months of sales history and trends can be evaluated. This method of adjusting mix during the monthly ordering process will be discussed in Chapter 4. Complexity Reduction Before mix planning can be undertaken, the product complexity needs to be reduced. That effort requires collaboration among design, sales and marketing, and manufacturing groups. The following is a summary of some methods that are used to achieve complexity reduction. Product Planning, Design, Sourcing ■ ■ ■ Look for opportunities to use common parts across products (i.e., share radios). This step focuses on studies that suggest that over 80 percent of manufacturing costs are fixed at the design stage.1 So, preventing designers from adding variety when none is warranted is the first step. In addition, part commonality permits higher inventory turns for original parts as well as spare parts, production flexibility for suppliers and the assembly plant, and economies of scale in purchasing, design, and production. Consider making high-volume options standard (e.g., if air-conditioning is sold in 95 percent of all vehicles, it should be made a standard feature). Such a step focuses on trading off the forecasting difficulties when choices are left to consumers against the enhanced value perceived when customers are offered standard features. For example, antilock brakes and other standard safety features may not be valued by customers if offered as separate choices but may well enhance the product preference if offered as standard. In addition, the forecasting of individual variants is often more difficult than forecasting the total demand for a product. This gain in forecasting accuracy as well as improvement in perceived value may well offset the lower margins because some features are discounted to customers who may not want them. Eliminate options that do not sell well (e.g., if ashtrays are only ordered in 5 percent of vehicles, eliminate them as an option). This approach Toyota Supply Chain Management 28 ■ ■ ■ focuses on simplifying designs even at the cost of losing some customers in order to make demand more predictable. Minimize parts that vary by option and color—for example, does the window washer nozzle on the hood have to match the color, or can it be black? In our example, supplier-part orders for the window washer nozzle will be kept standard even if customer vehicles vary by color. Because the same supplier component may be used in many car types, it is a great example of assembly postponement applied to stabilize supply while providing variety. Attempt to source optional parts to local suppliers to shorten lead time. Such an approach focuses on decreasing safety stock by lowering lead time for difficult-to-forecast parts. In addition, because the forecast error for some options may be higher than for standard equipment, the lead time impact on safety stock inventory for optional parts is higher than for standard equipment parts. Thus, a more responsive supplier for option parts may well generate lower overall costs compared to an efficient long lead time supplier. Design accessories that can be installed after the vehicle leaves the factory at a hub or at a dealer to minimize impact on the factory and supply chain. Such a practice moves some accessorizing tasks to the point of sale or close to the point of sale and permits last-minute customization for the customer. It is particularly relevant for cars like the Scion. The Scion is produced in Japan with almost no options or accessories. The vehicles are then kept in stock at the ports until the dealers submit an order, at which time the accessories are installed and the vehicle is shipped to the dealer. Marketing ■ ■ Limit product offering for a market area. Vehicles sold in Europe and the United States should each offer a subset of products that best reflects local demand (e.g., manual transmission may be offered in Europe as an option but not in the United States). Such synchronization of products offered to local preferences makes demand levels more predictable and thus improves supply chain performance. In addition, such an approach increases the chance that demand can be satisfied directly from dealer stock, thus decreasing retail customer lead time. Combine related options into packages (e.g., the safety package may include side airbag, stability control, and auto window wiper). Bundling of features permits the market segment as a whole to be targeted rather than individual feature choice. This process balances “up-selling” Mix Planning ■ 29 whereby customers end up choosing more than they actually need, with stability on the supply side. In addition, by converting products into, perhaps, three offerings (economy, deluxe, and luxury), with associated option bundles, customer choice is simplified and the number of variants sold at retail reduced. Consider making high-volume options standard, not offering low-selling options, or both. Mix Planning by Sales Region After the complexity reduction activities outlined previously have been completed, the next step is for each sales division to work closely with its sales region to determine which subset of the vehicle mix will be the high-volume sellers in each region. This step is necessary because each sales region may have different demand characteristics. The following are some of the guidelines that are to be considered: ■ ■ ■ ■ ■ ■ Limit stockkeeping units (SKUs). Determine which build combinations will be stocked by a sales region. A sales region within a sales company’s territory could be the southern region of the United States or Italy within Europe. Analyze past sales, competition offerings, and local regulations to predict demand for future sales. Use the 80/20 rule. The 80/20 rule identifies the SKUs that account for 80 percent of the sales. This should be about 20 percent of the possible SKUs. Stock high-volume SKUs. Dealer stock should include only the 20 percent of the SKUs that represent 80 percent of the volume. Target marketing campaigns to support mix planning by region. Synchronizing offerings with marketing plans permits customer preferences to be “guided” whenever feasible. For example, featuring the same subset of colors and features in print ads, TV ads, dealer showrooms, and dealer inventory increases the chances that customers will choose from the available colors and features and thus reduces the customers lost because of unavailability of special colors featured but not offered. Manage demand. Provide guidance to dealers on ways to respond to demand for vehicles that are not in stock: The salesperson can gently persuade the customer to change his mind and take one of the vehicles in stock. This is called “guided selling.” However, this technique could result in negative customer Toyota Supply Chain Management 30 satisfaction. (Note: it is not necessary to sell a vehicle to every customer; sometimes it is better to lose a sale than to have an unhappy customer.) Locate a trade with another dealer. Request an order change from the factory. (This process will be explained in Chapter 9.) Mix Planning Details This example shows how the mix planning process is performed by the Toyota sales company: 1. Determine the volume of vehicles that is expected to be sold by region. For this example, assume that 10,000 cars—specifically, Camrys—are to be distributed across four different regions. The percentage sold in each region reflects the share of the national volume; this is shown in Table 3-2. With this market share, the volume by region is also calculated to ensure that the aggregate mix will be weighted accurately. 2. Next break the planned volume into the volume of sales by vehicle model. This planned mix reflects marketing plans, production volumes, supplier commitments, expected competition and price points, demographics, and so on. Table 3-3 shows such an example. Table 3-2. Allocation Total Volume of All Camrys by Region Regions Camry Allocation West East South North Total Market Share Monthly Volume 25.0% 2,500 30.0% 3,000 25.0% 2,500 20.0% 2,000 100.0% 10,000 Table 3-3. Sales and Production Model Mix of Camrys Model Volume Percent CE LE SE XLE Hybrid Total 1,000 5,000 1,500 1,500 1,000 10,000 10% 50% 15% 15% 10% 100% Mix Planning 31 Table 3-4. Distribution of Model Mix by Region Model West East North South Total CE LE SE XLE Hybrid Total 200 1,400 250 350 300 2,500 250 1,600 500 450 200 3,000 250 1,150 350 500 250 2,500 300 850 400 200 250 2,000 1,000 5,000 1,500 1,500 1,000 10,000 Table 3-5. Model Variants Offered Model B/C No.* VSC CE CE LE LE LE SE SE XLE XLE Hybrid Hybrid CE-01 CE-02 LE-01 LE-02 LE-03 SE-01 SE-02 XLE-01 XLE-02 HB-01 HB-02 X X X X X Sunroof Spoiler X X X X X X X X Nav X X X X *B/C No. = build combination number. 3. Use data from each region to break up the total vehicle volume for a region into a composition by model. That data should be derived through collaboration between the sales headquarters and each regional manager. Table 3-4 shows this breakdown by model by region. 4. Take each car model and decide on the number of different variants that will be offered and the specific features of each variant. An example is shown in Table 3-5. This is the most difficult part of the process, because it is extremely challenging for the marketing staff to limit the number of variants. Note that this example is an oversimplification. In normal cases, there will be hundreds of build combinations that must be considered. That is where the 80/20 rule will be applied. The result will be to select about 20 percent of the variants that will represent 80 percent of the volume. 32 Toyota Supply Chain Management Table 3-6. Mix of Model Variants by Region Mix of Each Model by Region Model B/C No.* West East South North CE CE LE LE LE SE SE XLE XLE Hybrid Hybrid CE-01 CE-02 LE-01 LE-02 LE-03 SE-01 SE-02 XLE-01 XLE-02 HB-01 HB-02 0% 100% 50% 50% 0% 100% 0% 100% 0% 0% 100% 70% 30% 50% 0% 50% 50% 50% 20% 80% 20% 80% 20% 80% 0% 70% 30% 30% 70% 30% 70% 30% 70% 100% 80% 20% 100% 0% 100% 40% 60% *B/C No. = build combination number. 5. Decide on which of these variants will be sold in each region, and determine the mix of variants by region (Table 3-6). The mix by region will then be used to calculate the volume of each variant by region during the monthly ordering process. (This process will be discussed in detail in Chapter 4.) Note that in this example not all regions will decide to order stock for all variants that were preselected by the sales division for the entire national market. However, they will still be able to make daily order changes or submit special orders for variants that appear on the national list. 6. Finally, take each of these quantities and decide the colors that will be offered in each region and thus the specific quantities by color of each of these variants that is expected to be shipped to each region. Toyota processes reduce complexity and limit the mix sold within sales regions. The metrics for mix planning are the number of build combinations by region or country by model. Next we will examine how a mathematical model can be used to evaluate various mix planning strategies. A Simulation Model Although Toyota’s success may be proof that the 80/20 rule is valid, another issue that deserves focus is the empirical observation that SKUs that have lower sales volume have higher demand variability. In addition, the identity of these SKUs might not be the same from region to region. Thus, staying with the top 80 percent limits the variability seen by the plant; it also reduces inventories at the dealer. That reduces cost, improves forecasting, and further contributes to Mix Planning 33 reducing variability. Moreover, it focuses selling effort on a small set of models and thus can drive demand in the right direction. Given these different possible reasons for mix planning, we will focus on one such reason to understand details. The Appendix will provide a specific example; here we refer to the learning points from that example. Increasing product variety potentially attracts new customer segments to purchase the product and may thus increase the mean demand for the product. This increase in customer segments, however, may make the specific composition of demand for products in a period less predictable. Such a decrease in predictability may be understood (intuitively) as arising from the inability to predict the demand process for each customer segment. So the benefit associated with attracting more customers to the product has to be balanced with the increased forecast error for individual products offered. In such a context, it may be better to offer a narrower range with more predictability. A more limited, more predictable demand stream may then enable a stable supply chain to be created, which offers the opportunity to increase customer value associated with a product. A key question is, how much of the demand can be retained when variety is decreased? If, instead of 50 percent of the potential being captured, the demand drops to 30 percent, then it is worth considering how profitable this lowered variety is relative to increased variety. What is the fundamental message of this model? Increasing product variety may increase demand forecast error because of difficulties in forecasting demand. It is the difficulty in understanding the composition of customer demand that creates significant forecast error—that is, it is easier to forecast aggregate demand but quite difficult to forecast the variety. Thus, careful targeting of customers and choice of product offerings can stabilize the system if the demand is not affected significantly. The trade-off between stability and sales volume has to be made prior to determination of the mix planning strategy. Non-Toyota Examples of Mix Planning A paper by Chan and Mauborgne on the “Blue Ocean Strategy”2 describes the process of pursuing differentiation and low cost. They describe a company that “generates cost savings by reducing factors that an industry traditionally competes on. Buyer value is lifted by raising or creating elements the industry never offered. Over time, costs are reduced further as scale economies kick in, as sales volumes increase due to superior value provided.” An example that is provided focuses on the choices by Casella Wines, an Australian wine company that entered the U.S. wine industry in 2001, when the industry had over 1,600 wine choices in the market. Unlike existing strategies, Casella decided to focus on simplicity and on attracting new customers who were not traditional wine drinkers in the United 34 Toyota Supply Chain Management States. The company thus decided to use one bottle type for red and one for white wines and offer only two types of each wine, simplify packaging, eliminate promotions, and go after nonwine drinkers with a fruity flavor. It eliminated all technical jargon from wine bottles and used simple, bright colors. Retail employees were encouraged by its ease of description to recommend it to customers. By eliminating a lot of the wine reputation–building costs faced by traditional wine companies, Casella focused on new tastes that made it easy to purchase, while simultaneously lowering production costs. At the same time, Casella managed to charge more than budget wines while growing the market significantly. The narrowing of choices and simultaneous raising of satisfaction permitted a significant increase in the volume sold and enabled the company to emerge as the fastest-growing brand in U.S. wine history, surpassing the wines of France and Italy. In 2004, the company sold more than 11.2 million cases in the United States. In the book Conquering Complexity in Your Business,3 Michael George and Stephen Wilson discuss the impact of adding low-volume, less predictable offerings mixed with higher-volume products. If the low-volume products have greater variability relative to the mean, while the high-volume products have a lower variability relative to the mean, then offering all the products when their manufacture involves setups can decrease production cycle time efficiency for all products. Process cycle efficiency thus drops for all offerings when low-volume offerings are added in the presence of setup costs. George and Wilson suggest the need to identify the requisite level of variety that will optimize profitability by trading off the cost impact with revenue consequences of different levels of variety. Titleist is the world’s leading golf ball manufacturer. The key to becoming a successful golf ball manufacturer is to achieve remarkable consistency in the plastic polymer used around the ball. Because all balls of the same type have to maintain equal performance to enable competition to focus on golfer ability, the company strives to carefully control quality. At the same time, there is the need to offer golf balls for a range of golfer preferences. The company thus has an appropriate range of golf balls but constantly works to keep the range as narrow as possible and still fulfill needs of golfers of all skill levels as the world’s leading golf ball manufacturer.4 Narrow variety, consistent quality, and economies of scale through appropriate pricing for performance all combine to enable Titleist to maintain its position as the leading golf ball manufacturer. Reflection Points How does increased variety hurt a company? When variety is increased while customer service must be maintained, the forecasting of demand and the adjustment of the supply chain become key issues. At the same time, greater Mix Planning 35 variety permits products to appeal to a larger set of market segments whose preferences are now met by the new SKUs. If this new segment can be predicted and incorporated into existing processes, there is an opportunity to increase profitability. However, if the new market segments introduce fickle consumers and confuse existing customer segments, then adding SKUs may increase forecast error substantially, thus significantly increasing supply costs. Toyota has demonstrated its strength as a learning organization by continuously refining its capability to manage vehicle complexity and the model mix sold in each sales region and by spreading these processes across the global organization. Specific examples are linked to the v4L: ■ ■ ■ ■ Variety is selected by region to represent the popular mix demanded at a point in time. That permits wide availability of offerings among dealers for customers and thus keeps dealer markups low. Velocity of sales is maintained by choosing to order for stock a few variants in each region. Those variants account for over 80 percent of the demanded offerings. That improves inventory turns at dealers and reduces days of inventory in the dealer lot. Variability of sales is decreased by synchronizing sales and operations planning to focus on a few variants by region. Those choices are adjusted in response to observed sales. Thus, supplier and production quantities are stable in the aggregate. Visibility of the planning process across sales and operations enables buying at the regional level. The push system of allocating cars to dealers enables fast turns and thus low dealer inventories. The thesis of the chapter is that optimal choice of the v4L enables Toyota to increase value. The learning methods of Toyota are applied throughout the process to enable value creation, specifically: ■ ■ ■ ■ Create awareness. The quantification of variability makes planners aware if they are not meeting the 80/20 guideline. In some instances, Toyota prefers to wait and see if the trends are permanent; for example, Toyota studies trends to see if mix changes are permanent. Establish capability. Limiting variability where it occurs—at the dock in the case of the Scion, or at the design stage when it comes to limiting variety—makes the system more capable of handling variation. Make action protocols. The quantification of the variety and the careful sequencing of planning steps, some top-down and some bottom-up, enables coordination. Generate system-level awareness. The goal of mix planning is system-level optimization, where the system includes the customer and the entire supply chain. 36 Toyota Supply Chain Management Endnotes 1. D. E. Whitney, “Manufacturing by Design,” Harvard Business Review, vol. 66, no. 4 (1988), pp. 83–91. 2. Renee A. Mauborgne and W. Chan Kim, “Blue Ocean Strategy,” Harvard Business Review, October 1, 2004. 3. Michael L. George and Stephen A. Wilson, Conquering Complexity in Your Business. New York: McGraw-Hill, 2004, p. 80. 4. Conquering Complexity, p. 37. Chapter 4 Sales and Operations Planning S ales and operations planning (S&OP) is a critical component of the supply chain planning process. It is linked upstream to the mix planning process and downstream to the production scheduling process. The goal of S&OP is to generate a production plan that balances demand and supply in a profitable way. The end point of this process is an order for vehicles with full specifications that will be scheduled for production (see Chapter 5). To understand the Toyota approach to sales and operations planning, an understanding of which entity in the supply chain submits the vehicle order is necessary. Simply put, it is not the dealers. At Toyota, the regional offices submit the vehicle orders once each month. Toyota uses a monthly allocation process to allocate the vehicles planned for production to each dealer—in other words, it uses a top-down approach. Many other automobile companies create production plans from the bottom up; that is, they collect the orders submitted by dealers and then create a production plan. There are pros and cons to both approaches; however, the top-down approach works well for Toyota because it enables Toyota to ensure that the resulting production plan is stable. Sales and operations planning processes at Toyota are performed in two stages: annual planning and monthly ordering. Annual Planning The objective of the annual planning process is to establish a rolling three-year sales and production forecast. The process is repeated semiannually so that the forecast is updated based on the latest market and economic conditions. The annual forecast is used throughout the company to project profits, establish capital and operating budgets, evaluate plant and supplier capacity requirements, conduct annual price reviews with suppliers, and influence marketing strategies. 37 Toyota Supply Chain Management 38 Annual Planning Process The annual planning process is a collaborative process between the sales and manufacturing divisions. The responsibilities of sales are to grasp the market and economic conditions, predict competitive product plans and strategies, and understand new product launches and marketing plans to create a sales forecast for each model for each month and year. Manufacturing’s responsibilities are to determine the operating capacity for each model and each plant, evaluate various model mix scenarios, and identify peaks and valleys in the production calendar that are created by model changeover schedules. The process is executed over a period of several weeks twice a year. There is a push-pull momentum: sales submits its request for each model by month and year, while manufacturing simultaneously attempts to mix and match the model volumes across the plants. Collaboration is required because typically the sales request is different from manufacturing’s capabilities and/or objectives. Typical sales objectives are to remain flexible to respond quickly to market changes and to limit the use of incentives to sell vehicles. Some of manufacturing’s key objectives are to operate at full capacity and to produce high-profit vehicles. Because most plants produce multiple models and many models are produced at multiple plants, numerous scenarios must be considered. Some significant conflicts may need to be resolved, which results in the push-pull momentum, or the give-and-take exchange, between sales and manufacturing. The collaboration process focuses on adjusting the variables that can be used to bridge the gap. Some of these adjustments to the sales and operations plan are as follows: ■ ■ ■ ■ ■ ■ Sales can plan to use incentives selectively to create demand for slowselling models and for models that are scheduled for a major model changeover. Sales can adjust marketing strategies to promote selected models. For example, special-edition models may be created to enhance a model’s marketability. This strategy is used mostly during the later years of a model’s life. (Note: Most automobile models are produced for about five years before there is a major model change.) Manufacturing can upgrade facilities to increase capacity for selected models. Manufacturing can adjust the speed or takt time of the assembly line at a plant to increase or decrease production. Manufacturing can vary the model mix within a plant. Manufacturing can vary the planned overtime by plant (e.g., schedule overtime on Saturdays). Sales and Operations Planning 39 One example of collaboration between sales and manufacturing that generated significant benefits occurred at the Toyota plant located in Fremont, C…

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