Toyota - a Success Story of Cost-Minimization

TOYOTA

A success story of cost-minimization

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Coursework, Global Operations and Projects

MSc Management 2016-17

Imperial Business School

Word Count: 2,498

Table of Contents

PART 1: Introduction        3

Toyota Motor Corporation and Car Industry        3

Part 2: Literature Review        4

Part 3: Application of Literature to TOYOTA        6

Part 4: Conclusion        9

References        11

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PART 1: Introduction

The purpose of this report investigates how Toyota outperforms in the automotive industry through the concept of "the complete elimination of all waste." The report discusses Toyota's operating strategy to eliminate the inefficient and redundant parts, and steps taken to effectively allocate scarce resources so as to simplify the supply chain. The key elements of the operating strategy of Toyota in eliminating waste and improving supply chain management – Just in Time (JIT) and Kanban – are also reviewed in this report along with some suggestions on the future development of Toyota production strategy.

Toyota Motor Corporation and Car Industry

Toyota Motor Corporation sold 10.15 million motor vehicles worldwide in 2015 (Kubota, 2016), and was the global leader in car sales with a global share of 11.0% (Statista, 2016). The company has maintained global leadership in car sales since 2008 except in 2011 when it struggled to keep up production in Japan due to a massive earthquake (Kubota, 2016).

The global automotive industry is highly competitive with large firms launching new models on a regular basis to attract consumers. Toyota had to compete against companies such as General Motors and Ford who had greater financial resources. Toyota's size and funds were not enough to compete with other companies in the global car market (Parker, 2016), and thus it faced challenges in developing strategies which would help it to achieve higher market share with limited resources. With limited financial resources to build capacity in the global markets, Toyota had to completely rely on external suppliers for both raw materials and some complex systems, such as brake system. In order to attract consumers in tough markets, such as the US, Toyota adopted the strategy of cost leader - offering quality cars at low prices. This operating strategy relied on reducing costs at every possible stage from design to production. The cost of raw materials accounts for 47% of costs in the production and sale of an automobile (Kallstrom, 2015), and hence saving costs of raw materials through the elimination of waste forms the key component of the cost leadership strategy of Toyota.