The toyota way

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Both supply chain and demand chain management at Toyota give rise to a highly efficient network for Toyota to manufacture and distribute its new vehicles. The long-term success of the company, however, depends also on loyal customers who buy and consume services from Toyota, and who would continue topurchase future vehicles from Toyota. The management of this third “chain” is what Toyota has not forgotten, but in fact, excels in. This is the “service
This case was prepared by Hau Lee, Barchi Peleg and Seungjin Whang as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. The authors gratefully acknowledge the support ofToyota in carrying out this study.


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Toyota’s demand chain management, defined as the coordination of information, material and financial flows in the distribution of vehicles through the distribution channel, is also a powerful asset of the company. Toyota designs and operates the right distribution process for the right geography (different markets suchas Japan versus the US), product (different products such as Camry, Prius, and Scion), and time (product introduction phase versus mature phase).


Toyota is well known for its world-class supply chain management. It pioneered innovative lean manufacturing concepts such as Kanban, Just-In-Time, and Kaizen (continuous improvement). The “Toyota Production System” (TPS) has been studied andimitated by leading manufacturers worldwide. In addition, Toyota’s supplier management practices, emphasizing strong long-term relationships, integrated planning, and deep collaboration, have also been the envy of the competition. Combining TPS with supplier management, Toyota’s supply chain management is one of the competitive strengths of the company.

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The Toyota Motor Co. Ltd (TMC) wasfirst established in 1937 by Kiichiro Toyoda. By 2004, Toyota was the world's second largest manufacturer of automobiles, with combined sales of 6.78 million units in the 2003 calendar year (see Exhibit 1), and by far the largest Japanese automotive manufacturer (Exhibit 2). Together with its subsidiaries, Toyota produces a full range of model offerings!from mini-vehicles to large trucks.Automotive business, including sales financing, accounts for more than 90 percent of the company’s total sales, which came to a consolidated ¥15.5 trillion in the fiscal year to March 2003 (Exhibit 3).

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CASE: GS-41 DATE: 03/18/05

Toyota: Demand Chain Management GS-41

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Toyota’s service chain management is based on establishing strong links with its customers, both through thedealer channel and directly. Since most customers are served by dealers in aftersales service needs, Toyota created an efficient network to provide reliable supply of service parts to dealers, and proactively helped dealers to provide excellent service to the end customers. Toyota also made use of advanced technologies, such as e-commerce and telematics, to build a strong relationship directly with...
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