University of Wollongong

IACT422

Case Studies in I.T.

Name Student Email

Joseph Baez 2387256 jsb16@uow.edu.au

Nurhazman Abdul Aziz 2666182 naa925@uow.edu.au

Tee Young Chew 2524272 tyc95@uow.edu.au

Hoh Whay Loh 2400431 hwl97@uow.edu.au

Cong Xue 2809217 cx850@uow.edu.au

Course Coordinator: Dr. Aditya K. Ghose

Tutorial: Wed 9:30am to 11:30am

Document: Group Case Study

Date Submitted: 19th August 2005

Executive Summary

The purpose of this case study is to analyse Toyota Motor Corporation of Australia’s

(TMCA) supply chain. It also focuses on how Information Technology (IT) is currently

being utilized to support its operations.

The history of Toyota since its introduction into Australia is covered in detail, followed

by a thorough description of the organisation’s current business and its context. Within

the case detail description the supply network is also analysed. These details include the

description of the upstream and downstream entities, and how procurement and selling

arrangements are done within the organisation. Material and financial flows, logistics and

shipping arrangements are also reviewed. Additionally details on the current

involvements of the organisation with any e-Marketplace are being highlighted.

Within each of the subcategories of the supply chain being discussed, each of them has

been provided with information of how IT is being utilised to support and improve legacy

supply chain operations. The strengths of the supply chain are being highlighted, while

discussing its weaknesses derived from the previous information.

In summation there is no perfect solution for any supply chain, as all legacy systems have

their own weaknesses. With the implementation of IT though, a large scale company can

come close to reaping the benefits of a solution that aims at excellence, but not

perfection.

Table of Contents

Introduction........................................................................................................................ 1 History of Toyota Australia.............................................................................................. 1 TMCA Timeline ................................................................................................................. 2 Toyota Australia’s Current Business ............................................................................. 3 Business Context ............................................................................................................. 5 The basis of Toyota Australia’s supply network .......................................................... 7

Supplier Association .................................................................................................... 7 History of Supplier Association .................................................................................. 7 Effect of “knowledge sharing network” on supply chain coordination.................. 8 Intra-Plant Vs Inter-Firm .............................................................................................. 9 Upstream and downstream entities......................................................................... 11

Bundled Outsourcing ............................................................................................. 11 Logistic Challenge .................................................................................................. 12 Import of Vehicle Components............................................................................. 15 Upstream entities ................................................................................................... 16 Downstream entities .............................................................................................. 17

Internal entities ........................................................................................................... 17 IT solution for Toyota’s overall supply chain operation. ....................................... 18 IT Solution for Toyota Australia’s overall supply chain operation....................... 20 Downstream Sales Arrangements........................................................................... 22

Sales and Marketing Arrangements .................................................................... 24 Financial Management Arrangements................................................................ 24

Procurement Arrangements ..................................................................................... 26 ‘Kanban’ – Card System ....................................................................................... 26

Toyota’s Material & Financial Flow.......................................................................... 27 B2B e-Marketplaces where Toyota Australia participates ................................... 32 Logistic & Shipping Arrangement ............................................................................ 35 Backbone of IT Solutions .......................................................................................... 38

Maximizing Information Exchange ...................................................................... 38 Network Structure................................................................................................... 39 The network is the company................................................................................. 41

Strength & Weakness .................................................................................................... 42 Strengths ..................................................................................................................... 43 Weaknesses................................................................................................................ 46

Conclusion....................................................................................................................... 47 Bibliography ................................................................................................................ 48

Introduction

Significant opportunities are being presented to the Australian automotive industry. Since

Toyota’s introduction, it has continued to make remarkable impacts on the Australian

marketplace. In spite of the size and complexity of the organisation, every minute detail

is transparent across the entire supply chain process. In being able to see these details,

errors become apparent which cause losses in productivity and efficiency, from the early

manufacturing stages right through to end customer satisfaction.

Given these losses, it is critical to fully analyze the supply chain to cite any inherent

weaknesses. What also needs to be determined is whether the implementation of

Information Technology has significantly contributed to the known strengths of the

legacy supply chain, and eliminated its inherent weaknesses.

History of Toyota Australia

Toyota Australia's origins go back to 1958 when Theiss Brothers began importing the

first Land Cruiser models for work on the Snowy Mountains Hydro-electric scheme.

Assembly of Toyota cars began in the Melbourne factory of Australian Motor Industries

(later AMI-Toyota) in 1963 and within a decade the Corolla and Corona (replaced by

Camry in 1987) were well established in the market1.

The commercial vehicle business became Theiss Toyota in 1971 and achieved

commercial leadership in 1979. Meantime AMI Toyota began investing in an engine and

stamping plant to consolidate its position as a high local content vehicle manufacturer.

In 1988 Toyota's local operations were unified to form Toyota Motor Corporation

Australia and work began on restructuring and strengthening the group as a major step 1 Toyota Motor Corporation Australia, (2005), ‘History’, Online, Available:

http://www.toyota.com.au/corporate/articles/0,2862,subId%253D922%2526sectionId%253D880 [Accessed

15 August 2005].

Page 1

towards achieving international competitiveness and building vital export business.

Within two years preceding 1995, Toyota Australia merged its vehicle production at its

new Altona plant in Victoria. The Altona plant began production in July 1994 and was

commissioned officially in March 19951.

Toyota Australia currently builds two models – the Camry and Avalon series. It has

manufactured over 100,000 vehicles and over 80,000 engines at the Altona plant in 2003.

In this same year Toyota spent an estimated $1.6 billion on Australian companies

supplying locally made components for its Australian made vehicles. TMCA has become

a significant contributor to the Australian economy through direct and indirect

employment, capital investment and export revenue. Exports of Altona-manufactured

Camry vehicles have risen steadily and will approach 50,000 this year, making Toyota

Australia the nation's largest export manufacturer2.

TMCA Timeline

Below is a timeline for TMCA from 1958-2004: Time Events Time Events

1958

First 13 Land Cruisers imported for

use on Snowy Mountains Scheme

1992

One millionth locally-built Toyota

produced

1959

First Toyota Land Cruiser sold in

Australia

1994

Corolla is first car built at the new Altona

Assembly Plant. Camry is the last car built

at Port Melbourne

1963 Toyota Tiara assembly starts 1995 Camry enters production at Altona

1964 Corona assembly begins 1996 First Camry export shipments to the

Middle East

1967

Crown assembly starts

1998

Altona plant receives ISO 14001

certification (Environmental Management)

2 Toyota Motor Corporation Australia, (2005), ‘Manufacturing’, Online, Available:

http://www.toyota.com.au/corporate/articles/0,2862,subId%253D878%2526sectionId%253D214,00.html

[Accessed 15 August 2005].

Page 2

Time Events Time Events

1968

Corolla assembly begins at Port

Melbourne

1999

Victorian Parts Distribution Centre opened

at Altona

1978

First engines built at Altona

2000

Avalon production commences at Altona.

Toyota Australia appointed as national

Daihatsu distributor. New National Sales

and Marketing headquarters opened in

Sydney

1981

Altona begins volume production of

body panels

2001

The hybrid petrol/electric Prius launched

in Australia. 100,000th Camry exported to

Saudi Arabia

1987

Camry replaces Corona at Port

Melbourne Assembly Plant

2003

Toyota Australia's 300,000th vehicle

exported. Toyota overall Australian market

leader with industry record sales of

186,370 vehicles

1990

Lexus LS 400 launched in Australia

2004

Two millionth locally built Toyota

produced.

New corporate headquarters in Port

Melbourne opened

1991

Toyota becomes Australian overall

market leader

Source: www.toyota.com.au

Toyota Australia’s Current Business

Toyota Australia is the second largest vehicle manufacturer in Australia and one of

Australia’s largest manufacturing organizations. The main corporate and engineering

headquarters are based in Melbourne are assisted by wide-ranging sales and marketing

operations in Sydney. It has parts and automotive dealerships on mainland locations

nationwide, utilizing over 4500 people and many more employed in its supplier and retail

networks. As well as its locally manufactured models, it imports a wide range of sedans;

Page 3

hatch-backs; four wheel drives and business make vehicles. In fact, it has been

manufacturing automobiles in Australia for more than four decades3.

Toyota has exported over 60,000 cars to over 20 different commercial locations

worldwide, supplying left and right-hand drive Camry vehicles to South East Asia, the

Middle East, South Africa and Australasian markets. This strong overseas sales drive will

supply over AUD$1.4 billion dollars in revenue for Toyota Australia in 2003. To

compliment this, Toyota Australia also distributes and sells the Lexus range of vehicles,

as well as the Daihatsu and Hino series3.

In addition to its Melbourne operations, Toyota Australia maintains a comprehensive

sales and marketing operation in Sydney as well sales and distribution operations. Toyota

continues to make a major investment in the production plant at Altona and its operation

at Port Melbourne. These investments included a new automated press line, e-business

implementation, supplier tooling and equipment, and a new corporate business centre in

Melbourne4.

Toyota is a people oriented organization that sees the development of its staff as a

foundation stone for future business prosperity. In the Toyota Production System, the

manufacturing staffs are frequently encouraged to undergo continuous process on the job

training. As part of a global company, learning opportunities are often available and

encouraged. Furthermore, Toyota also has joint ventures with a number of education and

training institutes in Australia. In short, Toyota is working towards excellence in

organisation learning3.

3 Egan j., (2000), ‘Submission to Productivity Commission Inquiry into Post 2005 Assistance arrangements

for the automotive manufacturing sector’, (Online), [http://www.pc.gov.au/inquiry/auto/subs/sub039.pdf,

Last Accessed 15 August 2005].

4 Toyota Motor Corporation Australia, (2005), ‘Toyota Australia’, (Online), [Available:

www.toyota.com.au, Last Accessed: 15 August 2005].

Page 4

With the support of Australian government policy, Toyota Australia exports a total of

50,000 automobile, representing 55% of total Australian vehicle exports for the year.

This has made Toyota Australia’s largest vehicle exporter, shipping to 33 countries

worldwide and ensuring high quality standards in their products3.

In terms of supply chain, Toyota has long been recognized as one of the most efficient

manufacturers in the world. It has been proactive in working partnerships with its

suppliers to improve capabilities and increase local component sourcing. In addition,

Toyota and its first tier suppliers also have benefits on the introduction of lean

manufacturing into their operation. With a dedicated supplier development team in place

since 1989, Toyota has successfully implemented lean manufacturing, benchmarking

their Toyota Production System process5.

Toyota Australia plays an important role in the Australian automotive industry, as well as

the manufacturing industry. In terms of supplier capability development initiatives and a

major contributor to building skills, Toyota is a leader in the industry. In addition, it is the

second largest volume automobile producer and exporter.

Business Context

The business context of Toyota Australia is actually link to the operating environment

that consists of a number of factors. They are as follows3:

• The global industry operating environment;

• Automotive investment trends;

• Policy environment;

• International market access;

5 Toyota Motor Corporation, Manufacturing, “Toyota Production System”, (Online), [Available:

http://www.toyota.com.au/corporate/articles/0,2862,subId%253D905%2526thirdId%253D1005%2526secti

onId%253D214,00.html, Last Accessed:15 August 2005].

Page 5

• Australian industry operating environment; and

• Government policy environment.

Over the past five years, the global automotive industry has undergone a significant

restructuring in their business context. A number of automobile companies have merged

into six major production groups to benefit in terms of resource availability. The

component supply industry has also seen consolidation by the automobile makers of their

component making subsidiaries1.

In terms of the automotive investment trends, the dominant companies in the industry are

usually the Japanese, German and United States companies. Investment decisions are

usually based of increasing integrated global strategies, as these companies coordinate

brands, product portfolio and supply chains with investments in production, engineering,

R&D and design that are distributed across every continent. Moreover, a recent

development can be seen in the investment of the industry into the China market. This is

due to potentials in its infrastructure, and also to allow important access to international

market opportunities. To provide sufficient volume to vehicle and component

manufacturers and to exploit scale and scope economies though, an export market is

required. Government policy too has had changes over the past five years upon the

Australian automotive operating environment, having a significant impact in the industry1.

In summary, Toyota Australia has to consider these contexts that affect the growth of the

operation here in Australia. It is not just a part as a matter in the current business process

or the mass production, but also the business context that summaries the profitable and

growth of the company, as well as the industry. As an aside point, Toyota too has taken

the initiative to develop many innovative systems from the current Toyota Production

System to compete against other companies. With the rapid increase of globalization and

rapid technology, Toyota Australia has to be up to date with its competitors, from the raw

materials suppliers, right across to the sales of its end products.

Page 6

The basis of Toyota Australia’s supply network

Supplier Association

The key to Toyota’s success would appear to be their highly effective supplier integration

process that over the past 50 years has enabled the excellence of their internal hoshin

kanri strategic management, cross functional process based management and Toyota

Production System to be shared directly with their direct suppliers. In addition, over time,

as the supplier integration system has been taught to their suppliers the excellence in

performance was then outsourced to second and over time lower tier firms6. The primary

method to do this has been the kyoryoku kai or Supplier Association.7

History of Supplier Association

A Supplier Association may be defined as a mutually benefiting group of a company’s

most important suppliers brought together on a regular basis in order to achieve strategic

and operational alignment through the development of awareness, education and

implementation programmes designed to achieve both radical and incremental

improvements. The first Supplier Associations had their roots in the late 1930s Japan and

have from that time on been generically called kyoryoku kai (or Cooperative Association)

in Japan after the original grouping of around 20 of Toyota’s suppliers who formed such

a group in 19397.

During 1970s, the original Toyota group was widened to include tooling and capital

equipment suppliers with a fully developed multi-tier cascading Supplier Association in

place by the late 1980s involving nearly all of the key suppliers to Toyota in their 1st, 2nd

and 3rd tiers of supply. The most recent development in the 1990s has been the creation 6 Dimancescu D., P. Hines & N. Rich (1997) The Lean Enterprise: Designing & Managing Strategic

Processes for Customer Winning Performance, AMACOM, New York

7 Hines, P., Rich, N. Outsourcing Competitive Advantage. (Online)

[http://www.cf.ac.uk/carbs/lom/lerc/centre/publications/downloads/outcompad.pdf#search='Outsourcing%2

0Competitive%20advantage', Last Accessed: 16 August 2005].

Page 7

of overseas Supplier Associations based around Toyota’s overseas facilities such as the

Suppliers Associations developed by the American and English plants and Australia

(Altona)7.

Effect of “knowledge sharing network” on supply chain

m to increase its suppliers’ involvement, share valuable knowledge,

coordination

Toyota has a syste

and prevent free riders in its supply chain8. It was found that in the Toyota system, the

suppliers were developing a “dynamic learning capability” that improved their

competitive capabilities. This type of network – a network where manufacturers and

suppliers are highly involved in the interactions and learning – is referred to as

“knowledge sharing network.”9 The effects of knowledge sharing network on the

coordination of supply chain and product customization forms the basis of Toyota

Production System (TPS). Toyota believes it has much to gain from developing strong

ties amongst its suppliers and creating and sharing new knowledge to increase the

efficiency of the entire TPS. The aim is to have members identify themselves as part of

an interdependent economic network.10

8 Dyer, J. H and K. Nobeoka (2000), “Creating andManaging a High-performance Knowledge Sharing

Network: The Toyota Case,” Strategic ManagementJournal, Vol. 21, 2000, pp. 345-367.

9 Kim, K., Im, I. The Effect of Electronic Supply Chain Design (e_SCD) on Coordination and Knowledge

Sharing: An Empirical Investigation. Proceeding of the 35th Hawaii International Conference on Systems

Sciences, 2002.

10 Fujimoto, T.(1999) The Evolution of a Manufacturing System at Toyota, Oxford University Press, Inc.,

Pg. 10-20

Page 8

Lean Production Plan (Value-Carrying Information Cycle)

Intra-Plant Vs Inter-Firm

Lean production, which was originally introduced by Toyota Motor Corporation

(Womack, Jones, & Roos, 1990), derives its strengths from two sub-systems: intra-plant

(mainly shop-floor) organization and inter-firm relations with key CPA (Components,

Parts, and Accessories) suppliers. Automobiles are highly CPA-intensive assembly-based

products. Many of these CPAs are specific to particular car models, which are highly

differentiated in color and engineering design. Yet, because of a single firm's limited

scale of operations, Toyota cannot afford to completely monopolize their suppliers,

Toyota use the CPA procurement practice called "design-in" or "black-box" supplier

engineering, where they closely collaborate on new model development with their

suppliers from the outset.11 Thus, they in effect purchase their suppliers' soft engineering

capabilities, rather than simply their hard final components.

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

Pg. 129-172

Page 9

Parts Sourcing Systems

Source: Fujimoto: The Evolution of a manufacturing System at Toyota12

Once key CPAs are collaboratively designed and engineered, they are delivered just-in-

time for final assembly. The contracts are long-term, and assembler-supplier transactions

are guided by trust and pursued to the mutual benefit of both parties.

Toyota has its own primary suppliers of key components. But those CPAs which are

more standardized (i.e. lower asset specificity) will be catering simultaneously to all the

local assemblers to gain scale and scope economies. Even if some CPAs are assembler-

specific in design and engineering, flexible production (e.g. multi-purpose robots and

adaptable manufacturing techniques, such as fabricating a variety of differentiated CPAs

on a given assembly line) can still accommodate considerable diversity in upstream

supplier products.

12 ibid

Page 10

Upstream and downstream entities

As previous stated, Toyota’s success appear to be their highly effective supplier

integration process. Although Toyota Motor has created Overseas Supplier Association in

Australia, to enable the development of multi-tier Supplier Association, this move by

Toyota however do not allow the supply network of Toyota Australia to work identical

as the supply chain in Japan, which thus changes the whole supply coordination. After a

series of research, few critical factors were identified. They are as follows:

Bundled Outsourcing

One of the important characteristics of Toyota Japan suppliers system in terms of the

inter-firm tasking portioning is that the outsourcing ratio is high not only in

manufacturing but also in product development. A firm can assign the product

development and production jobs of a given component to one company (e.g. a

technologically capable supplier) or to two or more separate companies.13 One good

example will be the use of black-box system to produce the whole engine before sending

it to the final assembly line. However in the case of Toyota Australia, production of

engines are manufactured in-house, which includes many of the engine parts including

cylinder blocks, pistons, cylinder head covers, exhaust manifold and bearing caps in their

Alton’s Manufacturing plant.. Additionally, bumper bars, door trims, fuel tanks and trim

fabrication are also manufactured by Australia, however by their Port Melbourne plant

which is brought to Alton for assembly of the vehicles. Above the former, parts such as

cylinder block castings, is sourced from external suppliers14.

13 Fujimoto, T.(1999) The Evolution of a Manufacturing System at Toyota, Oxford University Press, Inc.,

Pg. 10-20

14 Toyota Motor Corporation, Manufacturing ( Online)

[http://www.toyota.com.au/corporate/articles/0,2862,subId%253D878%2526sectionId%253D214,00.html,

Last Accessed:15 August 2005].

Page 11

From above mentioned, it can be seen that there is a difference in terms assembly process

and the level of hierarchy in supplier. Without bundled Outsourcing, it has first changed

the internal process of the supply chain and most importantly, the number of first tier

suppliers decreases and many of the suppliers ascended to the higher tiers and the

hierarchy of the parts markers.

Logistic Challenge

In Japan, Toyota’s plants and those of many suppliers have been clustered near ‘Toyota

City’. Even suppliers located greater distances from a Toyota plant have been situated

along a narrow delivery corridor. Thus, in Japan, suppliers made frequent, small batch

deliveries, with orders shipped from individual suppliers typically arriving as often as

once an hour. For large or frequently used parts, trucks hauled supplies directly between

the supplier and the customer. For smaller or less frequently used parts, ‘milk-run’15

trucks followed looped routes, made quick, frequent stops, and picked up small batches

of parts at several suppliers before delivering orders to the Toyota plant.

One advantage of localization is closer relationships facilitate collaborative problem

solving. When a problem is discovered, a problem-solving team comprised of buyer and

supplier personnel comes together to identify the root cause, brainstorm a resolution, and

take action. Joint problem solving also can mitigate the impact of an unexpected disaster.

For example, when one of Toyota’s suppliers in Japan suffered a catastrophic fire that

burned a key facility to the ground, a joint problem solving team was quickly mobilized

to get a critical valve back in production. The factory had been the only source of the

valve and Toyota Japan only kept four hours worth of inventory on hand. As a result of

this joint problem solving, Toyota's auto assembly plants were back on line within a

week.

15 A routine trip involving stops at many places. The ‘milk-run’ approach increased the frequency and

reduced the batch-size with which individual suppliers delivered without compromising truckload

economics.

Page 12

Time taken for Assemble back on line

Source: SMR, WSJ

In Australia, in contrast, Toyota has only one manufacturing plant. Building the network

of 97 suppliers, were geographically dispersed (i.e., some close to Altona plants but some

not). Therefore, direct, point-to-point, daily order-shipments from each supplier the plant

were not feasible, nor were milk-run routings in many instances.

“Kanban”= Card (Japanese)16

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

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

August 2005.

Page 13

The mechanisms for ordering supplies were therefore different, however, because of the

longer travel distances between Toyota’s plants and those of its suppliers. Longer supply

lines required faster order processing, and this was done electronically. Essentially,

electronic kanban cards were identical in function to the physical kanban cards used by

Toyota in Japan. For example, a batch of electronic cards (a) was the sole means of

requesting new parts, (b) was sent for every order shipment, (c) went to a specific

supplier plant, and (d) established the mix and volume criteria for assessing if an order

was correct.

Page 14

SYSTEM

PARTSSUPPLIER

TOYOTA(TMCA)

PlanningPlanning

Despatching

AccountsReceivable

AccountsPayable

Receiving

Material Requirements Forcast

Remittance Advice

BANKING

OrdersForecasts

ProductionLine

Kanban Sorting

Delivery Docket

Delivery Docket

Goods

Kanbans

Kanbans

ANSI X12 830

EDIFACT REMADV

EFTEFT

Electronic Kanban Cards System16

Import of Vehicle Components

Toyota Japan is one of the world‘s leading automakers, offering a full range of models,

from mini-vehicles to large trucks. Global sales of its Toyota and Lexus brands,

combined with those of Daihatsu and Hino. Besides its own 12 plants and 11

manufacturing subsidiaries and affiliates in Japan, Toyota Japan has a massive group of

suppliers, supplying Japan components for its domestic made vehicles. However in the

case of Toyota Australia, only 79 per cent of components are local content, with the

balance relying on imports. This has been highlighted as one of the critical factors in

terms of supply chain due to the fact the it affects the supply chain coordination as well

as the upstream entities.

Page 15

Upstream entities

At current, Toyota Australia has an extensive local supplier base from its 98 component

suppliers and 300 general suppliers. In general, suppliers may be broadly classified into

three categories:

• Parts suppliers (Key component/ low assets specificity component)

• Raw materials suppliers

• Suppliers of equipment and tools

These companies were predominantly manufacturers of tires and rubber parts, glass,

paint, batteries, electronic parts, bearings and brake systems. By contrast, suppliers which

have remained members of a single association tended to be locally based single-

establishment companies in mechanical engineering. Additionally, components such as

bumper bars, door trims, fuel tanks and trim fabrication manufactured at their Port

Melbourne plant are also considered part of the upstream entities as they are brought to

Alton plant for assembly of the vehicles.

Toyota was particularly successful in outsourcing a major part of its competitive

advantage to its network of direct and indirect suppliers. This performance is partially

explained by the supplier associations as previously mentioned. In Toyota Australia,

production relies heavily on sub-contracting. The firm deals directly with their 98

components suppliers and 300 general suppliers who themselves deal in turn with their

lower tier suppliers. Over time these associations have developed to involve almost all

Toyota suppliers in the first, second and third tiers of supply. While encouraging such

associations, Toyota is not necessarily involved in their day to day functioning. Instead,

leadership is delegated to important direct suppliers.

The kyoryoku kai promotes integration activities among members such as top

management group meetings, quality awards and audits, and tries to achieve thereby a

better coordination through information exchanges. Such flows of information were not

present at that scale in other forms of supplier-buyer relationships and should be viewed

Page 16

as the key factor explaining Toyota achievement. As argued by Baiman and Rajan

(2002), the amount of information exchanged among subcontractors is what really

distinguishes supplier networks from more traditional arm's length relationships.

Downstream entities

In general, Toyota Australia has the following downstream entities:

• Warehouse facilities in all major states

• Distributors in all major states

• Dealer network of over 285 outlets across Australia

Additionally, downstream entities comprises parts distribution centre in Sydney and

Melbourne and a storage distribution complex situated at Woolooware.

Internal entities

Toyota builds two models - Camry and Avalon - in Australia. The fully integrated Altona

manufacturing plant incorporates state-of-the-art weld, paint and assembly shops to

produce cars that have been independently recognised as Australia's best quality locally

built vehicles. To build a car, the internal entities of the supply chain which includes all

of the in-house processes used in transforming the inputs from the suppliers are as

follows:

• Production of Engines (Once completed, the engines head straight for the final

assembly)

• Pressing of steel panels and parts

• Welding of car shells

• Painting of car shells

• Final Assembly

Page 17

Altona Assembly PlantsAssembly

Paint Engine

Production

Wielding

Pressing

Raw Material Suppliers

Components Supplier Group

•Key Components

•Low Assets Specificity Components

•Equipments & Tools

•Port Melbourne Plant Manufactured Components

Customers

Dealers

Distributors

Warehouse

Parts/Service

Centers

Overseas Network

Import / export

Legend: Up Stream DownstreamInternal

Supply Chain of Toyota Australia

IT solution for Toyota’s overall supply chain operation.

Toyota Australia’s parent’s company, Toyota Motor Corporation (TMC), is Japan’s

largest vehicles manufacturer and one of the largest automotive companies in the world.

As of December 2004, outside Japan, Toyota has a total of 51 overseas manufacturing

companies in 26 countries / locations. Toyota markets cars worldwide through its

overseas network consisting of more than 160 importers / distributors and numerous

dealers. At current, to support their operation worldwide in terms of building tighter

collaboration links among manufacturers of Toyota Group, OEMs manufacturers,

Page 18

suppliers, distributors worldwide, Toyota is current supported by the SAP automotive

suit17 Enterprise Resource Planning (ERP) system.

With the current SAP automotive suit, outstanding strategic, operational, financial and

marketing position gains have been achieved by Toyota that have embedded the lean

philosophy, principle, practices, tools and methods of the Toyota Production System

(TPS) into their integrated IT systems. Gains ranging from factors of three or more in

sales per employee, profitability, free cash flow and a superior market position, among

other performance indicators, have been acknowledged in Toyota with revenues from

tens of millions to billions of dollars.18 This system hence acts as one of the main means

of information flow between Toyota Australia and its counterparts worldwide.

17 SAP, “Toyota Motorsport Accelerates Formula One Operations with SAP” (Online)

[http://www.sap.com/solutions/businesssuite/plm/newsevents/index.epx?pageview=print&pressid=2462,

Last Accessed: 15 August 2005].

18 Terence, T., Thomas, E., Building the Lean Extended Enterprise Through Adaptive Supply Chain

Networks, The Center for Excellence in Operation, Inc., Special Research Report.

(Online)[http://www.sap.com/industries/hightech/pdf/BWP_AR_Building_the_Lean_Extended_Enterprise.

pdf#search='CEO%20special%20research%20report', Last Accessed: 15 August 2005].

Page 19

Toyota Group Worldwide

Source: Toyota Website

IT Solution for Toyota Australia’s overall supply chain operation

At current, while Toyota Australia has the main SAP Automotive suit ERP system, this

however could not allow them to be connected to their numerous partners in the value

chain via an assortment of systems, including some proprietary technologies.

Understanding that modern production methods, which depends on many independent

suppliers, and just-in-time delivery requires them to manage an increasingly complex

value chain, Toyota Australia commenced a major revamp of its operation, known as the

ebusiness Transformation Program in 200419. This program, designed to integrate the

19 BEA Systems, Inc, Press Release: Toyota Australia Selects BEA WebLogic Integration 8.1 as

Foundation for eBusiness Transformation Program. (Online)

Page 20

systems and processes that connects Toyota Australia and its trading partners, with the

goal of achieving real-time information access, enhanced tow-way visibility and

improved performance through all of its processes and those of its partners.20 To drive

out costs and enable a smooth transfer of data along the entire value chain within

Australia, BEA Weblogic Integration 8.1 was selected due to BEA’s aggressive support

for open standards. Another advantage of implementing BEA Weblogic Integration 8.1

was that it has the ability to implement existing business logic, such as that within the

SAP automotive suit.

The current BEA software has the following function21:

• Electronic proof of delivery

• Online accounts payable status for suppliers

• Fleet management integration

• The Toyota Vehicle Order Processing System (TVOPS)

• Advance Shipping Notice for vehicle deliveries

• Vehicles inventory synchronization

With a mover towards open-standards, the value of data collected is increase because it

can be shared between projects.

[http://www.bea.com/framework.jsp?CNT=pr01121.htm&FP=/content/news_events/press_releases/2003&

WT.si_n=PR1, Last Accessed: 15 August 2005].

20 BEA Systems, Inc. Whitepaper: Toyota Australia eBusiness Transformation Program.

(Online)[http://www.bea.com/content/news_events/white_papers/BEA_ToyotaAustralia_cs.pdf, Last

Accessed 15 August 2005].

21 BEA Systems, Inc. Case Study:Toyota Australia Drives Out Cost and Increase Visiblilty with BEA

Solution for Dealers. (Online)

[http://www.bea.com/content/news_events/white_papers/IDC_ToyotaAustralia_cs.pdf, Last Accessed: 15

August 2005].

Page 21

1st Tier/ 2nd Tier

Suppliers

End Customer

Dealers

Warehouse/ Parts Centers

Manufacturing Plants

International collaboration

Raw Material Suppliers

SAP/BEA

Supply Chain Collaboration with IT Solutions

Downstream Sales Arrangements

Toyota Motor Corporation of Australia’s (TMCA) downstream sales arrangements, in

particular the agreements in place with existing dealerships are done via strict selling

arrangements. No customers, corporate or otherwise, can purchase a new car, or fleet of

cars, directly from TMCA but must purchase from an authorised Toyota dealership; this

purchasing arrangement is also the same for the sale of Toyota Genuine parts.

Another downstream procurement arrangement is the method by which unavailable stock

can be obtained from other vendors. This is done via a method called ‘transfers’. For

example, when a customer wishes to buy a fleet of cars and the required number of stock

cannot be obtained in time by that dealership, they will check the amount of stock that

other dealerships have of the required product and initiate a transfer of the amount of

vehicles necessary to maintain the sale.

Page 22

Internal arrangements can be made for Toyota customers to access disintermediary

resources by allowing them to see where their requested product is located in the internal

manufacturing process. Using a login and password assigned to them by dealership staff,

they can access their confidential product information to see what country, and even the

shipment details of the product being delivered.

These sales and related financial transactions are maintained via a customised BEA

application. This enables any Australian dealership’s financial managers and accountants

to keep track of all purchases and transfers made within the TMCA internal supply chain.

Customised BEA Application

(Courtesy Toyota Financial Services Australia)

Page 23

Sales and Marketing Arrangements

Marketing arrangements such as paid agreements between the purchasing of advertising

space on radio, television and other related media is also monitored via the customised

BEA application. Orders for ongoing promotional material required for maintaining

regular and ongoing flow of customers such as signs and massive advertising banners are

tracked transparently via this application.

Sales and Marketing Functions on BEA Application

(Courtesy Toyota Financial Services Australia)

Financial Management Arrangements

Regular marketing instructions for showroom staff can be broadcasted via this same BEA

system. This covers such information as the arrangement of showroom promotional

material, changes to pricing structures that change with each promotion, as well as

Page 24

information about product recalls and what needs to be told to customers in the event of

such unforseen circumstances.

Financial arrangements between customers and dealerships can also be monitored with

BEA, such as ongoing repayment information that is unique to each client. Credit

checking and other financial assessment tools are also available from this system.

Customised payment options between clients with special needs such as corporations

who purchase fleet vehicles can be modified to suit their needs.

Financial management functions from BEA Application

(Courtesy Toyota Financial Services Australia)

To compliment the ongoing requirements of dealership sales staff, customers have access

to summarised confidential information that is relevant to their purchase. Customers have

access to a web front-end to the BEA’s data via an individual assigned login and

password. These assigned customer details allows a mutual exchange of relevant

Page 25

information for customers for the duration of their purchase as well as extended web

based information services for their duration of the ownership of their Toyota vehicle.

Procurement Arrangements

Procurement for specific upstream components not manufactured in Australia that are to

be added to a car on an Australian assembly line can only be purchased by TMCA via its

parent company Toyota Motor Corporation (TMC). Exporting and importing

arrangements of Toyota genuine parts are government regulated which is considered to

be a barrier to trade22.

‘Kanban’ – Card System

The mechanisms for ordering supplies in Australia are different differ to those of

Japanese plants mainly because of the longer travel distances between Toyota’s plants

and those of its suppliers. Longer supply lines required faster order processing, and this

was done electronically. Essentially, electronic kanban cards were identical in function to

the physical kanban cards used by Toyota in Japan. For example, a batch of electronic

cards (a) was the sole means of requesting new parts, (b) was sent for every order

shipment, (c) went to a specific supplier plant, and (d) established the mix and volume

criteria for assessing if an order was correct.

22 Submission to Productivity Commission Inquiry, May 2002

Page 26

SYSTEM

PARTSSUPPLIER

TOYOTA(TMCA)

PlanningPlanning

Despatching

AccountsReceivable

AccountsPayable

Receiving

Material Requirements Forcast

Remittance Advice

BANKING

OrdersForecasts

ProductionLine

Kanban Sorting

Delivery Docket

Delivery Docket

Goods

Kanbans

Kanbans

ANSI X12 830

EDIFACT REMADV

EFTEFT

Electronic Kanban Card System

Toyota’s Material & Financial Flow

In a related research paper (as paraphrased from the “Managing Material Flow and Cash

Flow in the Value Chain”, Racheal Zhang), the production decisions (e.g., the

production’s schedule and quantity, ordering’s schedule and quantity) and financial

decisions (e.g., the payments) are interrelated in a value chain.23 Here, production is

defined as the core value-added activity of the firm and needs purchased raw materials,

equipment and labour which depend on money, while the finance is responsible for

generating capital and investing the firm's assets efficiently and effectively in the

company.9 Therefore, the production and financial decisions are required to be decided

simultaneously, including the internal material flows as well as material flows through

the supply chain. In the case of Toyota, they have approach both materials and financial 23 Zhang, R (1998), Managing Material Flow and Cash Flow in the Value Chain, (A Research Project By

Value Chain Program University of Michigan), Online, Available:

http://www.engin.umich.edu/VCAP/index.html [Accessed August 17, 2005]

Page 27

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

the industry.

The success of Toyota’s material and financial flow lays in their Just-in-Time (JIT)

system, which is distinctive in applying the concept of the "right part at the right place at

the right time" throughout its manufacturing system and supply chain.24 In another

words, JIT is actually consider a means of controlling material flows through linear

process, as these concept is a result of using the kanban.25 However, from the

understanding of the Kanban’s details, a product is being in place and will follow through

a specified production pathway. In addition, material will be automatically ordered and

travel directly from the suppliers to the customers, without first going through a

centralised store. In short, this explains the core operation of the Toyota Production

System, in collaboration with the Lean Systems Thinking.

24 Liker, J (1998), Manufacturing and Suppy Chain logistic Strategies for Mass Customization, (A

Research Project By Value Chain Program University of Michigan), Online, Available:

http://www.engin.umich.edu/VCAP/index.html [Accessed August 17, 2005]

25 Blakemore J, (2002) Maximising profit with Short Production Runs … Lean Systems Thinking, Online,

Available: http://www.blakemore.com.au/ [Accessed August 17, 2005]

Page 28

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

flows.26

Basically, the objective of the Lean System, adopted by Toyota is to introduce a pull

system with a short lead-time, comprising two main components. They are valued added

and non-valued added time, where value added is run time on a machine and latter is the

storage time, setup time, idle time, breakdown, inspection time etc. Thus, Australian

companies is able to win by being more skilful, flexible in tapping the full creativity as

they apply the rules of Lean to all the processes and system. On the beneficial side, IT

companies, such as SAP and Oracle is able to present an opportunity to help in rectify

this solution further. Moreover, to optimize supply, first establishment agreements with

raw material suppliers have to be set. Software such as Vendor Managed Inventory or

B2B connections will have in this process to minimize inventory and risk, taking in the

consideration for continuous flow matching supply with real demand2 6.

26 Strategos-International, Toyota Production System & Lean Manufacturing, Online, Available:

http://www.strategosinc.com/toyota_production.htm, [Accessed August 17, 2005]

Page 29

In an article report, Toyota Australia has been progressing its eBusiness. This is an effort

to move the company’s main business processes into an extensible online environment.27

For instance, the Melbourne’s manufacturing plant have been using BEA WebLogic

Workshop Technology to build Java and Web services-based applications, that will allow

manufacturing partners (suppliers) to interoperate with Toyota’s. With the aid of the BEA

technologies, Toyota’s system will allow information to flow smoothly between the

integration of it operating system, increasing the functionality of the existing ones. One

of the benefits, is the fleet management integration (the Toyota Vehicle Order Processing

System) notifying for vehicle deliveries and a dealer interface that allow dealers to

receive automatic updates from Toyota‘s SAP system regarding of vehicle production

and delivery.28 Thus, this demonstrates that BEA systems which explained earlier.

Basically, with the implementation system of BEA Weblogic and the SAP’s architecture,

Toyota is able to shift the transition from a mass-production material-handling system to

a lean system. This is more reliable in supplies purchased parts to continuous-flow cells,

small-batch processing, and traditional assembly lines with the plant. The benefits of a

lean material-handling system include28:

• Fewer material handlers

• Fewer equipment (forklift, heavy machines)

• Higher plant inventory turns

• Higher production output

• Less time spent by operators retrieving parts

• Less overtime

• Less expedited delivery costs.

• Less inventory 27 Brace D (2005), Driven to action, Managing Information Strategies, Online, Available:

http://www.misweb.com/magarticle.asp?doc_id=23045&rgid=2&listed_months=0, [Accessed August 17,

2005]

28 BEA Case Study, (2003) Toyota’s Australia eBusiness Transformation Program, Online, Available:

http://www.bea.com/content/news_events/white_papers/BEA_ToyotaAustralia_cs.pdf, [Accessed August

17, 2005]

Page 30

Furthermore, in the developing of the plan for every part to be manufacturing the product,

the basic database will fosters accurate and controlled inventory reduction and

continuously improving of a plant’s material-handling system. The system to will be able

to operate a market that eliminates the waste of hoarding, searching for parts, and storing

inventory throughout a facility. In addition, it is able to design delivery route changing

the plant into an organised community, where operators get the parts they need, when

needed and in the quantity needed.

While the financial flow of the system will consist the methods of payments and other

financial aspect between the suppliers or customers and Toyota, In this case, Toyota

Australia has adopted CommSecure to acts as an intermediary in the direct debit process,

in using of CommSecure method of handling personal and small business lease and loan

payments. This move has motivated a desire to give customer to drive to the Toyota

website to view informational and marketing messages, and cost savings. Moreover, the

system handles the traditional form of direct debit, as well as flexible customer initiated.

The data integrity is also transferred between two companies via a Secure Socket Layers

(SSL) connection with 128-bit encryption. This is another channel of Toyota handles

regular payments from her customers, reducing the number of late payment and is

relatively affordable29.

Another approach that Toyota Motor Sales has moved a milestone, when they started to

be upgraded their Web portal with the assistance of Microsoft Consulting Services. One

of the highlights, it enables dealers to work more closely with other corporate subsidiaries

such as Toyota Financial Services. For instant, when a customer wants to finance a

vehicle, dealerships can submit a loan application based on already captured customer

data through Dealer Daily to Toyota's financing system (which utilizes an Oracle

database running on UNIX). Furthermore, this will enables Toyota to respond with an 29 Wither S, How to integrate hosted applications, Technology Business Magazine, Online, Available:

http://www.zdnet.com.au/insight/business/soa/How_to_integrate_hosted_applications/0,39023749,3916091

7,00.htm [Accessed August 17, 2005]

Page 31

offer in as little as 15 seconds and increasing the chances that Toyota will win the

customer's financing business as well. This system is actually used in the United Stated.

And, in Australia it is towards CommSecure’s products30.

B2B e-Marketplaces where Toyota Australia participates

According to Toyota Australia’s report to the Productivity Commission Inquiry in 2002,

Toyota participates with up to 98 key component suppliers and 300 general suppliers1.

The Business to Business (B2B) e-marketplace has emerged as a means of connecting

buyers and suppliers31. Suppliers are able to look for opportunities to grow their business

and expand their customers’ base on a platform, which is able to provide the abilities to

improve the purchasing processes and the supply demand. Basically, an B2B e-

Marketplace is comprised of three main functions, as defined by Turban32:

• Matching buyers and sellers

• Facilitating the exchange of information goods, services and payments associated

with market transactions

• Providing an institutional infrastructure, such as legal and regulatory framework,

that enables the efficient functioning of the markets

30 Microsoft Customer Evidence, (2004), Toyota Motor Sales, Web Portal Saves Toyota and Dealers

Millions Per Year and Accelerates Delivery of New Business Value, Online, Available:

http://www.microsoft.com/resources/casestudies/CaseStudy.asp?CaseStudyID=14987, [Accessed August

17, 2005]

31 Dubbles. J, Eggebraaten, Nowicki, Jeff, Prentice J. (2001) Connect for iSeries with WebSphere

Commerce Suite, Available: IBM Redbooks, [Accessed August 15, 2005]

32 Turban. E, (2004), Electronic Commerce - A Managerial Perspective, Pearson Education, New Jersey,

USA.

Page 32

With the three main functions above, B2B e-Marketplaces operates similar to a physical

markets, where it in included further an electronic transactions that fetch about a new

distribution of goods and services. In addition, the intermediaries in e-Marketplace has

lead towards two types of services obtain. Firstly, they provide relevant information

about demand, supply, prices, aiding match sellers and buyers, following the second

service to offer value-added services such as consulting and assistance in finding a

business partner. Moreover, these services can be fully automated, providing low

commission services, benefiting both parties.

B. Hub-Based Chain

Supplier

Sub

Supplier

Manufacturer Warehouse

Supplier Service Retailer

Buyer

Electronic

Hub

Other Services Logistic Delivery Technology

Supplier Buyer

Consultant Buyer

Logistics

Sub Supplier Support

Bank Payment

Manufacturers

A. Traditional Process

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

Page 33

In the case for TMCA, a new e-Marketplace, called iStarXchange, was constructed for

the automotive replacement parts industry in 2000 to reach. Toyota has predicted that its

new e-business initiative with i2 Technologies Inc. will revolutionized further the

automotive market reaching all their distributors and suppliers with a vast scope and

setting up as a leader in the B2B e-Market area. Hence, in reality, due to the process for

dealers, installers and independent auto parts shops and service centre are an expensive,

time consuming and often a frustration for both aftermarket business and vehicle’s

owners, who has to wait for the right part to arrive. 33 In addition, this marketplace had

grew out from the existing relationship with i2 to streamline Toyota’s own auto parts

supply chain, unlike Ford Motor Co or General Motors Corp., which are building

marketplace for their suppliers only.

In fact, Toyota has created a market for the entire market industry. This would allow

subscripted members able to view a single catalogue with information on parts, checking

the prices and availability and conduct transaction online, tapping into the tools for

forecasting supply and demand and delivery cycle of a supply chain.34 Thus, by

optimising the inventory through improved forecasting and enhancing the planning,

deployment and replenishment of the inventory.35

Through the venture, with i2, they have choose to used the TradeMatrix system,

providing the software, implementation and support, as well as host and manage the

venture. 36 Further, i2 will streamline the system to automate the site’s inventory

33 Keena, T, (2000), Toyota get set to start the eBusiness parts revolution, WARD’s Dealer Business.

Online. Available: http://wdb.wardsauto.com/. , [Accessed August 15, 2005]

34 Wallace B, Bacheldor B, Markertplaces Bring Order and Efficency To Supply Chains, INFORMATION

WEEK ONLINE,. Online, Available: http://www.informationweek.com, [Accessed August 15, 2005]

35 Enos L., i2 Links Deals with Giant Automakers, TechNewsWorlds, Online, Available:

http://www.technewsworld.com, [Accessed August 15, 2005]

36 Farmer M A, (2000) Toyota revs up strategy with online market place, CNET NEWs,, Online,

Available: www.news.com.com, [Accessed August 15, 2005]

Page 34

management, warehousing and shipping system, enabling equipment manufacturer and

suppliers to conduct. A results, exploiting the under-utilised resources, grow on business,

diversify the business and combat the cyclical demand of the mainstream activities, as

explained by Tidd.37

Logistic & Shipping Arrangement

One of the greatest benefits from the implementation in the Kanban system is the logistic

and shipping arrangement. The external business environment in Australia is a totally

different stage from Japan. A number of factors have contributed to this statement is due

to the range of external forces and other related issues. However, the industrial relation’s

structure and geographic concerns are the most concern in this matter. As for the

industrial relation, the use of the simple Kanban process is still increase the efficiency

and accuracy of the internal logistic process.38 And, in terms of geographical limitations,

this system will reduce logistic barriers and cost through a modified integrated Kanban

system, just for Australia. This is because, due to, Toyota Australia has suppliers

scattered all over the nation, unlike in Japan. The suppliers are located within the radius

of the city. In enhancing the existing system, Toyota Australia has decided to integrate

the system with BEA software, which includes39:

• electronic proof delivery

• online accounts payable states for supplies

• fleet management integration

• the Toyota Vehicle Order Processing System (TVOPS)

• advance shipping notices for vehicle deliveries

• vehicle inventory synchronisation.

37 Tidd J. (2001). Intergrating Technological, Market & Organizational Change, MANAGING

INNOVATION, John Wiley & Sons Inc

38 Olsson J, (2003), Kanban-an Integrated JIT System, Supply Chain Plane, Online, Available:

http://www.supplychainplanet.com/e_article000213392.cfm, Access: 18 August 2005 39 BEA System, Inc (2004), Toyota Australia drive out cost and increases visibility with BEA Solution for

dealers, Online, Access: 18 August 2005

Page 35

The value data of this system will be increase and can be shared with related projects.

Furthermore, it is build toward open standards.

Practically, Toyota’s logistic and shipping arrangement is already well planned and

integrated in Kanban system. That is begun at the right point, when a customer purchased

a car from a dealer. In addition, that application is practice a long time ago by Toyota.

And the latest development, Toyota has decided to integrate that system into the BEA

software, as mention before. This BEA software will sit on top the current SAP software.

This is the only workable solution for Australia’s stage in the logistic and shipping

arrangement.

Value Chain

Source: Porter, Strategy and the Internet

Page 36

Toyota has decided to take this project with BEA, due to the prominent application of the

technology in the value chain. Basically, the technology will be built as a web based

interface that able to be access across the network in Toyota Australia. At the same time,

Toyota Japan too will able to monitor and overview the operation of her subsidiaries

companies. In short, the value chain will allow performing a number of discrete but

interconnected value creating activities, such as operating sales forces, fabricating a

component, or delivering products.40 And, these activities have a connection with the

activities suppliers, channels and customers. In addition, at the fifth stage of the

application, it will involve relatively simple optimization of sourcing production, logistic

and servicing transaction. In other words, in the value chain of the system consists of 5

early stages. Three of them are related to supply chain management, which is inbound

logistic, operations and outbound logistic. The illustration above illustrated the whole

picture of the value chain that Toyota has adopted.

In general, Toyota Australia has enhance their logistic and shipping arrangement

according to the geographical limitations and the industrial relations. With the partnership

from BEA, Toyota has solved a new solution of supply chain, for this logistic and

shipping arrangement using the value chain process.

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

401 Accessed: August 20, 2005

Page 37

Backbone of IT Solutions

Maximizing Information Exchange

The automotive industry is geared towards Just-in-time (JIT) manufacturing. JIT in short

deals intimately with all areas of supply chain to reduce inefficiencies in transportation,

processing, inventory and other business processes. In order to facilitate JIT, the

automotive industry developed a fast and reliable communication network for all the key

stakeholders involved, manufacturers, suppliers, importers and dealers, to share

information. This industry driven initiative is called the Australian Automotive Network

eXchange (AANX). The four major car manufacturers in Australia are involved in the

project41.

AANX provides IP based Extranets for the automotive industry in Australia. AANX

Operates as a virtual point network (VPN), an internet-based infrastructure that allows

users to send date to each other in a reliable and secure manner. It is a platform for

conducting domestic and international business-to-business (B2B) e-commerce activities.

The main components of the project consist of42:

• A network that is based on available Internet technology

• Operated by agreed and standardized service levels.

• Demonstrating proactive management of trading partner connections

• Practice the best standard of security and privacy for transactions and

interoperability between service providers.

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

http://www.thefabricator.com/Articles/Fabricating_Exclusive.cfm?ID=198 [Accessed: 16 August 2005].

42Dcita.gov.au, (2004), “Case Study: The Australian Automotive Network eXchange”, Online, Available:

http://www.dcita.gov.au/ie/publications/2002/july/itol_case_study_australian_automotive_network_exchan

ge [Accessed: 16 August 2005].

Page 38

By connecting to AANX, the benefits reach beyond tangible gains such as cost savings.

Some of the benefits include43:

• Pervasive supply chain communications

• Rapid application deployment across the supply chain

• Lower cost of EDI

• Faster Business Cycles

• Simpler integration into trading partners' and customers' online e-business

systems and strategies

Network Structure

AANX is a multi-provider, virtual private network where service providers compete for

customers and at the same time conform to standard service quality requirements such as

security. Every trading partners share a similar physical infrastructure of the AANX.

Within the framework, all electronic conversations traverse a secure and private

connection between two trading partners42.

43 AANX, (2002), “Benefits of AANX”, Online, Available: http://www.motor.net.au/AANX/a7a8b02e-

10c7-409a-b6ef-161bf40d02a6/ [Accessed: 16 August 2005].

Page 39

TradingPartner

TradingPartner

AANXO Monitor

CASP Keytrust

Community Directory &

Authentication

FirewallHardware Gateway

Router

Permanent Connection

Firewall Hardware Gateway

Router

Permanent Connection

Dialup trading Partner

IBM Compatible

Laptop Computer

Modem

Modem

Software Gateway

ConnectEquant

Exchange Point

AANX Framework

Source:

http://www.dcita.gov.au/ie/publications/2002/july/itol_case_study_australian_autom

otive_network_exchange

As shown in the diagram, Equant and Connect Internet Solutons provide communication

services for the network. Keytrust is the certificate authority and vendor for providing

IPSec security services.

Page 40

Keytrust provides the AANX network with four major security functions42:

1. Secured Data Transmission - IPSec protocol is used to provide secure

communication over publick and private data networks. It is implemented through

encryptions for premenant and dialup connections.

2. PKI Digital Certificates - The use of Public Key Infrastructure (PKI) certificated

within the AANX network enables all particiapants to achieve a high level of

confidence when making transactions on the network;

3. KeyTrust Professional Managed Services - Defines and verify network service

levels and certification criteria;

4. AANX Community Directory - Central policy repository used by security

gateways when sessions between trading partners are established.

The network is the company

Australia's car manufacturers have started to implement major improvements to their

production management systems in order to deliver real-time communications across the

entire supply chain.

With the introduction of AANX, key stakeholders are able to link the company's critical

business systems that will in turn increase efficiencies and cost savings across all

business divisions. Moreover, managers will have real-time visibility into different

aspects of the organization. CommercePlus is the central trading solution for AANX. It

can significantly streamline the supply chain by allowing companies to collaborate and

trade via the Internet44. With this software, documents sent directly from the

44 AAPT, (2002), “40 per cent reduction in data processing costs available for supply chain”, Online,

Available: http://203.14.180.116/news/content.asp?n=57 [Accessed: 16 August 2005].

Page 41

manufacturer's back-end systems are converted to a form readable by the recipient

through an XML (extensible markup language) translation engine45.

Toyota Australia has been working on its eBusiness Transformation Program. It will

move the company's main business processes into extensible online environments that

links up the company's A$10 billion value chain. The company has been using BEA

WebLogic Workshop technology to build Java and Web services-based applications that

enables manufacturing partner's system to interoperate with Toyota's. There are many

projects already online which provide functions such as the Toyota Vehicle Ordering

Procurement System, electronic proof of delivery, online accounts payable status for

suppliers, fleet management integration and automatic update systems that alert dealers

about delivery status and production information46.

Strength & Weakness

Toyota's business is restricted by the factors that affect its supply chain. This includes

available skill base, sophistication and depth of automotive supplier base, industrial

relations system, business environment and the quality of education & research

institutions. Furthermore, its potential is greatly affected by the local demand. The

domestic market is rather limited and is continuously searching for potential export

markets.

45 Jenny Sinclair, (2002), “Gearing up for a new era”, Online, Available:

http//www.smh.com.au/articles/2002/08/03/1028157861627.html&ei=6-0EQ8qrNcyWYNaXkJMK

[Accessed: 16 August 2005].

46 David Braue, (2005), “Driven to action”, Online, Available:

http://www.misweb.com/magarticle.asp?doc_id=23045&rgid=2&listed_months=0 [Accessed: 16 August

2005].

Page 42

Its strengths and weaknesses have resulted in various areas that form its competitive

advantage. They are1:

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

Strengths

In order to improve production efficiency, Toyota Australia has applied lean

manufacturing principles into its Toyota Production System. Since 1990, the application

of TPS and adoption of Just-In-Time delivery by all Toyota Australia Suppliers has

achieved 97% reduction in stock holding at its Altona plant. With the introduction of

Toyota Production System, suppliers have seen great improvements in efficiency. There

has been significant inventory, floor space, and lead time reductions achieved by various

Toyota suppliers due to its usage1.

Toyota holds a major strength in terms of its partnership relationship with its suppliers. A

number of initiatives have been introduced to build trust between Toyota and suppliers.

These include exchange of information, regular briefings on changing technologies,

availability of support services and other opportunities. There have been a range of

supplier development programs offered by the Toyota Supplier Development Department

such as1:

Supplier support initiative Specific program Benefits received

Direct supplier

assistance

Direct application of TPS

principles – interactive

support program

Overall business operating

benefit – cost, quality and

delivery

TPS training

seminars

Formal theoretical & practical

education

Education and motivation

process

Page 43

Supplier support initiative Specific program Benefits received

Supply chain

management

Value chain analysis and

management

Focus on all cost areas, from

raw material to final customer

Supplier structure/

education

Resources and management

structure establishment

Program sustainability &

internal education process

In North America, Toyota has an online website (www.toyotasupplier.com) that is

dedicated to educating suppliers in that area. Potential suppliers can get information on

the company’s purchasing policies, newsworthy articles, and bio information through the

home page. The website also provides information on what products the company needs,

purchasing principles and development efforts, supplier standard and how to become a

Toyota supplier47. This in turn attracts potential suppliers to join with Toyota’s supply

chain network.

Toyota has been using AANX to communicate securely with other subscribers on the

network. It enables closer collaboration between industry players and facilitates

electronic business interchange such as B2B e-commerce and EDI. AANX helps connect

new supplier and customers wherever they are48. It also facilitates private E-marketplace

activities which enables companies to take their existing processes and trading networks

online to gain the connectivity and speed of the Internet, within a secure environment49.

47 Toyota Motor Manufacturing, (2003), “Toyota Supplier”, Online, Available:

http://www.toyotasupplier.com [Accessed: 16 August 2005].

48 AANX, (2004), “AANX Brochure”, Online, Available: http://www.motor.net.au/AANX/ab8500a9-

4526-4256-93c2-ce457e91413b/AANX_brochure.pdf [Accessed: 16 August 2005].

49 Dcita.gov.au, (2004), “Contemporary Developments in B2B E-Commerce”, Online, Available:

http://www.dcita.gov.au/ie/publications/2001/10/b2b_e-commerce/developments [Accessed: 16 August

2005].

Page 44

Toyota Australia is a subsidiary of a top global car manufacturer. Global linkages enable

the car manufacturers to:

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

These global links will in turn develop the Australian's manufacturing base1. Similarly,

Knowledge Management (KM) activities such as organization, creation, sharing and flow

of information50 can be facilitated through AANX.

Australian car manufacturers and component suppliers have strong skills in low volume

production. This is due to the physical and intellectual infrastructure that has been built

up over time to support the automotive industry. Furthermore, there is a diversified

component supplier industry already available1.

The Australian automotive industry possesses design, engineer and manufacture

capabilities of new vehicles. Furthermore, the workforce is able to operate effectively at

high levels of technicality and flexibility1.

The industry is one of the leading sources of business spending on R&D. Local

component suppliers have established their reputation in producing innovate products that

are globally acceptable1.

50 Wikipedia, (2005), “Knowledge management”, Online, Available:

http://en.wikipedia.org/wiki/Knowledge_management [Accessed: 16 August 2005].

Page 45

Weaknesses

Toyota had to cope with the reality of a small domestic market. In Australia, the size of

market places limits the ability of the business to take advantage of economy of scale

production. As a result, number of assembly plants and models produced has been

reduced to achieve greater economies of scale1.

Sometimes there are no local productions of certain components. These parts must be

produced in order to reach full operating efficiencies. However, it is too much for the

Australian market. Therefore, these components are imported from North America, Japan

and Western Europe. In order to increase localization of parts, Australian suppliers need

to develop technology alliances to reach global competitiveness. Currently, some

suppliers do not possess the management ability to develop these relationships and

possibly not even investing in developing them1. Evidently, there is a need for a local E-

marketplace catered to the needs of Toyota Australia. This will support the major

objective of the company to become free of currency exchange exposure by means of

localization. The company will then try to source from Australia first before searching for

components outside of Australia.

The domestic market is rather small, which means car manufacturers and component

suppliers have had to look for export opportunities. Although sold export markets have

been established in Middle East, North America and New Zealand, there are trade

barriers in regional markets in Asia1.

Toyota Australia focuses their market on medium and upper medium size cars. This may

be a major disadvantage for the company if they endeavor to venture into more foreign

markets1. To better understand the market demand, both domestic and foreign, they

should introduce DSS (Decision Support System). A DSS is an interactive computer-

based system or subsystem intended to help decision makers use communications

Page 46

technologies, data, documents, knowledge and/or models to identify and solve problems,

complete decision process tasks, and make decisions51.

While most suppliers can gain access to AANX network through dial-up or permanent

connections, some parties are still without basic Internet access. In order to achieve better

localization of vehicle components, this gap between Toyota and these suppliers should

be remedied.

Conclusion

With the advent of the technology and the development of Information Technology,

computer mediated processes have undoubtedly change the traditional supply chain

management through the Toyota Australia to conduct their supply chain operations in the

automotive industry. The analysis of the supply chain has improved drastically over the

period of time, within the implementation of IT. Nevertheless, the utilization of the IT on

supply chain operation still result weaknesses, in spite of the benefits. It appears that

while the technology is willing or has the intrinsic capability of effecting this utopian

transformation, the reengineer supply chain process simply still need improvement to its

current configuration.

51 DSSResource.com, (2005), “Decision Support Basics”, Online, Available: http://dssresources.com/

[Accessed: 16 August 2005].

Page 47

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