Production Planning forToyota North America

Table of Contents• Toyota Production System (TPS) Today

• TPS Advantages• TPS Limitations

• Grid Analysis (Weighted Scoring Model)• Exogenous Factors & Assumptions• Endogenous Factors & Assumptions• Location Recommendation

• Decision Tree Analysis• Supporting Details

• Current Regional Production Strategy• Change Recommendations• Summary

Introduction

Toyota Vision: Lead the way to the future of mobility, enriching lives around the world with the safest and most responsible ways of moving people• Quality• Continuous Innovation• Corporate Social Responsibility• Harnessing the power of human capital• Lexus RX 350 ranked #1 out of 17 Luxury SUVs• US News & World Report, called it, “This year’s

Best Luxury Midsize Crossover”

Toyota Production System (TPS) Today

TPS - More than Tools and Techniques

Manufacturing Culture

Employee Interaction

Scientific Method

Employee Accountability

Halt production

Flexibility

Change from the bottom - Up

Toyota Production System (TPS) Today

Advantages & Limitations

Advantage: Fosters learning and development

Limitation: Implementation process

Exact process of how to physically implement

“Gung Ho” movie

Advantage: Flexible

Start Ups – Healthcare industry – Software developers

Limitation: Rigid

Toyota Production System (TPS) Today

Advantages & Limitations

Advantage: Simplicity

Limitation: Complexity

Advantage: Dedicated to Problem Solving

Limitation: Problem origin

Grid Analysis (Weighted Scoring Model)

Ordinal factor scale: 0 (worst conditions) - 5 (best conditions)Ordinal weight scale: 0 (least important) - 5 (most important)

Exogenous Factors & Assumptions

• Market Saturation • Per Capita Income

• Government Regulation / Interference

• Government Corporate taxes

• Government Labor regulations

Endogenous Factors & Assumptions

•Brand recognition•Distance to market•Distance from critical suppliers• Site infrastructure

Location Recommendation

USA vs. TMMC131 vs. 125

Critical factors: distance to market, distance to critical suppliers, and government interference

USA• Per capita income is 20%

higher• labor freedom

Canada• freedom from

government regulations• low corporate tax

Decision Tree Analysis

Capacity 10,000 Capacity Cost $60,000,000

Profit 2003 2004 2005 2006 2007 Probability Expect Profit Low $30,000,000 $30,000,000 $30,000,000 $30,000,000 $30,000,000 0.25 $37,500,000 Moderate $30,000,000 $30,000,000 $30,000,000 $30,000,000 $30,000,000 0.50 $75,000,000 High $30,000,000 $30,000,000 $30,000,000 $30,000,000 $30,000,000 0.25 $37,500,000 Total $150,000,000 Capacity 15,000 Capacity Cost $80,000,000

Profit 2003 2004 2005 2006 2007 Probability Expect Profit Low $10,000,000 $14,500,000 $19,000,000 $23,500,000 $28,000,000 0.25 $23,750,000 Moderate $55,000,000 $55,000,000 $55,000,000 $55,000,000 $55,000,000 0.50 $137,500,000 High $55,000,000 $55,000,000 $55,000,000 $55,000,000 $55,000,000 0.25 $68,750,000 Total $230,000,000 Capacity 20,000 Capacity Cost $100,000,000

Profit 2003 2004 2005 2006 2007 Probability Expect Profit Low -$10,000,000 -$5,500,000 -$1,000,000 $3,500,000 $8,000,000 0.25 -$1,250,000 Moderate $35,000,000 $44,000,000 $53,000,000 $62,000,000 $71,000,000 0.50 $132,500,000 High $80,000,000 $80,000,000 $80,000,000 $80,000,000 $80,000,000 0.25 $100,000,000 Total $231,250,000 Capacity 25,000 Capacity Costs $120,000,000

Profit 2003 2004 2005 2006 2007 Expect Profit Low -$30,000,000 -$25,500,000 -$21,000,000 -$16,500,000 -$12,000,000 0.25 -$26,250,000 Moderate $15,000,000 $24,000,000 $33,000,000 $42,000,000 $51,000,000 0.50 $82,500,000 High $60,000,000 $96,000,000 $105,000,000 $105,000,000 $105,000,000 0.25 $117,750,000 Total $174,000,000 Capacity 30,000 Capacity Costs $140,000,000

Profit 2003 2004 2005 2006 2007 Expect Profit Low -$50,000,000 -$45,500,000 -$41,000,000 -$36,500,000 -$32,000,000 0.25 -$51,250,000 Moderate -$5,000,000 $4,000,000 $13,000,000 $22,000,000 $31,000,000 0.50 $32,500,000 High $40,000,000 $76,000,000 $94,000,000 $112,000,000 $130,000,000 0.25 $113,000,000 Total $94,250,000

Decision Tree Analysis

Capacity 10,000 Capacity Cost $60,000,000

Profit 2003 2004 2005 2006 2007 Probability Expect Profit Low $30,000,000 $30,000,000 $30,000,000 $30,000,000 $30,000,000 0.25 $37,500,000 Moderate $30,000,000 $30,000,000 $30,000,000 $30,000,000 $30,000,000 0.50 $75,000,000 High $30,000,000 $30,000,000 $30,000,000 $30,000,000 $30,000,000 0.25 $37,500,000 Total $150,000,000 Capacity 15,000 Capacity Cost $80,000,000

Profit 2003 2004 2005 2006 2007 Probability Expect Profit Low $10,000,000 $14,500,000 $19,000,000 $23,500,000 $28,000,000 0.25 $23,750,000 Moderate $55,000,000 $55,000,000 $55,000,000 $55,000,000 $55,000,000 0.50 $137,500,000 High $55,000,000 $55,000,000 $55,000,000 $55,000,000 $55,000,000 0.25 $68,750,000 Total $230,000,000 Capacity 20,000 Capacity Cost $100,000,000

Profit 2003 2004 2005 2006 2007 Probability Expect Profit Low -$10,000,000 -$5,500,000 -$1,000,000 $3,500,000 $8,000,000 0.25 -$1,250,000 Moderate $35,000,000 $44,000,000 $53,000,000 $62,000,000 $71,000,000 0.50 $132,500,000 High $80,000,000 $80,000,000 $80,000,000 $80,000,000 $80,000,000 0.25 $100,000,000 Total $231,250,000 Capacity 25,000 Capacity Costs $120,000,000

Profit 2003 2004 2005 2006 2007 Expect Profit Low -$30,000,000 -$25,500,000 -$21,000,000 -$16,500,000 -$12,000,000 0.25 -$26,250,000 Moderate $15,000,000 $24,000,000 $33,000,000 $42,000,000 $51,000,000 0.50 $82,500,000 High $60,000,000 $96,000,000 $105,000,000 $105,000,000 $105,000,000 0.25 $117,750,000 Total $174,000,000 Capacity 30,000 Capacity Costs $140,000,000

Profit 2003 2004 2005 2006 2007 Expect Profit Low -$50,000,000 -$45,500,000 -$41,000,000 -$36,500,000 -$32,000,000 0.25 -$51,250,000 Moderate -$5,000,000 $4,000,000 $13,000,000 $22,000,000 $31,000,000 0.50 $32,500,000 High $40,000,000 $76,000,000 $94,000,000 $112,000,000 $130,000,000 0.25 $113,000,000 Total $94,250,000

Decision Tree Analysis

Summary Table

Capacity Expected10000 $150,000,00015000 $230,000,00020000 $231,250,00025000 $174,000,00030000 $94,250,000

$231,250,000Optimal Production Capacity:Using Decision Tree Option 1

Decision Tree Supporting detailsNPV IRR

10,000 LOW DEMAND $291,170,788 178.93% 2003 2004 2005 2006 2007 Avg ROI per facility

10,000 MODERATE DEMAND $291,170,788 178.93% 10k 138% 232% 232% 232% 384% 244%

10,000 HIGH DEMAND $291,170,788 178.93% 15k 133% 221% 221% 221% 363% 232%

$291,170,788 178.93% 20k 116% 189% 189% 189% 319% 201%25k 93% 160% 160% 160% 275% 170%

15,000 LOW DEMAND $288,094,960 133.49% 30k 67% 117% 117% 117% 210% 126%

15,000 MODERATE DEMAND $427,802,250 199.16%15,000 HIGH DEMAND $427,802,250 199.16%

$381,233,153 177.27%

20,000 LOW DEMAND $254,141,027 101.51%20,000 MODERATE DEMAND $455,604,526 161.42%20,000 HIGH DEMAND $564,433,712 211.77% X

$424,726,422 158.23%

25,000 LOW DEMAND $220,187,095 79.04%25,000 MODERATE DEMAND $421,650,593 130.79%25,000 HIGH DEMAND $652,718,067 186.90%

$431,518,585 132.24%

30,000 LOW DEMAND $186,233,162 62.13%30,000 MODERATE DEMAND $444,497,806 121.79%30,000 HIGH DEMAND $463,415,526 112.87%

$364,715,498 98.93%

Current Regional Production Strategy

• 15 U.S. Locations• 29,089 - Direct labor positions• $18B - Direct investments • 169,243 -Indirect labor positions• $16B+ - Dealer investments• Established in Mexico 2001

• 63 dealerships, investments of $145M*, 800+ jobs

• Of the Toyota cars sold in the U.S., 70% are manufactured in North America

• Toyota has diversified its operations on the entire continent by positioning itself in all three North American countries

Considerations

• Increase production & staff in MX• Reduce costs are favorable

• Mexican locations will eventually become a major source of production

• NAFTA allows goods to freely move between borders• No tariff costs

Summary

• The grid analysis results comparing TMMC, with a weighted score of 125, and USA, with a weighted score of 131, favor USA

• At the TMMC site, a 20,000 unit plant production capacity is recommended for maximum profit based on decision tree analysis

• Toyota’s North American operations are flourishing in the U.S., and to a lesser extent, Canada