What Role Did Toyota's Supply Chain and Keiretsu Structure Play in the Recalls

LAHORE SCHOOL OF ECONOMICS

ADVANCED OPERATIONS MANAGEMENT

ASSIGNMENT NO: 1

ASSIGNMENT TOPIC: Toyota Case Study

MBA 2

SECTION: A

NAME: Qubaa Idrees

SUBMITTED TO: MS. MAHVESH MAHMUD

Q1. What role did Toyota's supply chain and keiretsu structure play in the recalls?

A1. Toyota initially had a unique supply chain different from other competitors. Japan has a closely knit supply base form what is known as the “Keiretsu” system, dealing with interdependence and vertical integration, forming a huge supply chain network.

Toyota had a three tier system; tier one suppliers supplied large, integrated systems, tier two dealt with individual or assembled parts and tier three provided with single components. ` Toyota didn’t treat suppliers "as suppliers" but as partners because about 70% of the vehicle cost can be controlled by an effective supplier base and inbound logistics. This helped Toyota have a great relationship with its supplier but what led to the recall crisis was the change in suppliers as they switched from this system to suppliers outside the system.

As their agenda changed and their focus was now on to reduce costs, there were new suppliers involved. This led to the quality being compromised upon. Toyota had cross docking and JIT taken to the extreme level providing shortest time, with parts being picked up y the suppliers every 15 minutes. The supplier competitiveness was also enhanced by having them provide with all the specifications through a request and designing and developing with a specific cost target to be achieved. The suppliers made many of the parts as blackbox parts so as to provide competitive advantage to Toyota.

The focus on cost came with a detoriation in quality of the product. Keretsu system was compromised upon. New suppliers with which Toyota had no previous working experience, were now part of the supply chain. Monitoring of the suppliers was another unresolved issue and the management had no clue how to go about it.

The recalls were mainly due to poor quality of the parts that were now purchased from unreliable new suppliers. Deveation from its prior structure, keiretsu, came with a huge price. Huge losses were incurred causing not only reimbusements to the customers but also costing their loyalty. Supply chain is one of the main part of oerations, and compromising upon it can result in huge losses and thus failure.  

Q. Did Porter have Toyota in mind when he said that Japanese firms rarely have strategies because operational excellence is not strategy? You may agree or disagree. (10 Marks) 

A. Porter talked about strategy being different from operational effectiveness or excellence because strategies deal with the performance of entirely new activities or similar activities being performed in different ways. There’s a new element attached to the activities that make it unique hence shedding it in a new light. At times, there might be a need for a trade off depending on the competitive advantage chosen. This could be a debate about quality and quantity because strategies deal with specialization and polishing existing capabilities to achieve the best while Japanese focus on collective values to achieve the best. Japanese focus on capitalism while Porter talks about collectivism.