Comparison between Toyota’s and Volkswagen’s Supply Chain

In the current automobile business, a lot of competition has arisen due to innovation and technological advancement. To have a competitive edge industry players are now looking into an efficient and lean supply chain management so as to cut costs. Supply chain management is the process, within a firm, of overseeing the cash flows, information, and raw materials as they move from supplier to manufacturer to wholesaler or retailer to the final consumer. Supply chain management involves consolidating the entire process to ensure that the firm runs smoothly. Supply chain management is divided into three categories. Financial flow. Deals with the cash flow either in or out of a concern. There is also the information block. This sector ensures that there is constant communication between the firm, its suppliers, and the market. Finally, there is the resource flow CITATION Joh11 l 1033 (Mangan & Lalwani, 2011). At this division material input and output is overseen. In this paper we are going to focus on two companies Toyota and Volkswagen. Both are giants in the automobile company reporting revenue returns worth billions and having branches almost in every continent. Their supply chain management then needs to be top notch to keep the business running smoothly. With an efficient business plan Toyota has, of the two companies the leanest supply chain.
Started in 1937, Toyota Corporation is a car manufacturing, assembly, designer and seller of both commercial and personal cars. It has over the years acquired a lot of brands to its name.

Some of these brands include; Lexus and Hino. It is the largest manufacturer of automobiles and the eighth largest company in the world. With respect to the financial period, 2012/2013 Toyota had about 213 billion in form of revenue. In the same year, it is approximated to have employed over 333497 employees. The company has branches in most parts of the world including the USA, South Africa and India. It has over 70 brands attached to its name and also a variety of vehicle models and types. These range from hybrids to normal saloon cars CITATION Roy09 l 1033 (Vasher & Lyer, 2009).
Volkswagen Group abbreviated as VW group, is a German car manufacturer, designer and seller. In a report by a research company in 2009, the Group was declared the largest vehicle manufacturer. The parent company of the group manufactures automobile parts for the entire group. In terms of structure the company is divided into two divisions. The first is the financial service division. It specializes in handling the company’s business side. Then the automotive division which is left to handle the vehicle manufacture, assembly and design CITATION Dav12 l 1033 (Jolly, 2012).

Toyota Group of companies is the master of lean Supply Chain Management. In its principle, it integrates efficiency and cost minimization.
The Toyota Group focuses on a partnership with its suppliers. Most of whom are within a 56-mile radius from the manufacturing plant. Suppliers are organized in a tier system. The first tier supplies car manufacturing parts while the second tier supplies component parts and other services. The company encourages cooperation among the suppliers and even involves itself in staff sharing CITATION Jef041 l 1033 (Liker, 2004).
In its manufacture, the company has developed a system of Just in Time method (JIT). This is where the company only produces when an order is made. As such the company has to ensure that there is the right amount of resources available to complete an order efficiently and speedily. To further minimize costs the company has drawn upon outsourcing to manage proper inventory levels and reduce holding costs. The Toyota production system is also aimed at reducing waste. In this terms, waste is any residual that is left behind after the process of improving on a product is completed CITATION Jef041 l 1033 (Liker, 2004).
The retail market with Toyota offers the largest profit for the firm. As such they have a strict policy of ensuring that the lead time between an order being made and the product being received is as short as possible. Proper transport systems are the major anchor to achieving this goal.
With the advanced technology Toyota Group uses specialized IT systems to ensure productivity. The Toyota system is aimed at ensuring that when an error is detected the system stops to prevent the manufacture of more defective parts.
Volkswagen Group has a tier system to its supply chain as well. Only for this car manufacturer mogul, the closest relations are maintained with its first tier. Some of the suppliers include BASF Coating. This company supplies the Volkswagen plant with all the surface coating. DHL also works in close partnership with the group and manages in-house logistics for over 50% of the plants. The services that DHL provides include storage and putting away, receiving inbound transfers and deliveries, picking and kitting and finally there are deliveries directly to and from Volkswagen production plants.
For its technology needs, IBM Company is used. It provides technology that improves the vehicle manufacturer’s material requirements. It does this by use of sensor technology. This system will see to the improvement of the day to day operations of the concern. VW has also introduced a modular platform across all its brands. This platform will improve the already vertical integration system the company uses in the acquisition of resources.
In a quest to lower costs further, VW will, instead of purchasing, manufacture some components in-house at cheaper costs. This insourcing strategy will yield cheaper investments and build up on the expertise of the staff. Procurements division for the firm is divided into two to deal with suppliers better CITATION Dav12 l 1033 (Jolly, 2012).
Volkswagen Group carries out supplier risk assessments to ensure that all suppliers comply with the standards of the company. In 2014 alone over 14725 suppliers has taken the assessment and passed the first stage.
Volkswagen has its biggest market in Europe but is further building branches in other parts of the world including India and China. There are various dealers and retailers globally. Apart from direct sales to wholesalers the company also takes individual orders which are mostly custom made cars. One of its guiding principles in customer relations is efficiency, delivery speed and processing CITATION Dav12 l 1033 (Jolly, 2012).
The structural differences between the Toyota and the Volkswagen group include their inventory management process. Whereas Volkswagen mass purchases its inventory Toyota just takes enough to facilitate an order. This has led to manufacturers cutting costs greatly in terms holding costs and economies of scale.
Another structural difference between Toyota and Volkswagen is their choice of supplier. While Toyota prefers a close-by relation with its suppliers, who are normally within a 56-mile radius Volkswagen takes its suppliers based on an assessment that they all do.
The other structural difference is on the optimization of the supply chain. This involves manipulation available resources or the negotiation of cheaper raw materials, removal of virtual and physical bottlenecks and reduction in inventory. Annually Toyota obtains from its suppliers a reduction of 1-4% of the price of raw materials. This has led to cheaper yet quality automobiles. The cost of raw material in VW Group is dynamic. This is because it depends on a procurement system CITATION Roy09 l 1033 (Vasher & Lyer, 2009).
Though both companies have untold potential, Toyota is the strongest and most likely to prosper. With almost 213 billion in revenue in the past and record growth spans of 4% annually the company has just achieved an all-time record in the world of business. Toyota has managed to stay strong in the industry because of the following. For instance the JIT method of manufacture, that it has perfected and properly integrated into its system, prevents and saves on the costs associated with inventory management such as holding costs. The company also has a policy of no waste and thus minimizes the loss of inventory. Apart from previous recalls that it had to make Toyota has an almost flawless manufacturing system. Management of the company is also a strong factor in the success of any business. For Toyota the hierarchal management of the company has seen it move to success. Toyota as a brand is well known and this due to the proper relations between the company and its suppliers, dealers and customers. Unlike its companion Volkswagen Group, Toyota has diversified its business and ventured into other sectors as well, such as communication in Japan. With this diversification in its portfolio then the company is made stronger. The Toyota Way, as it is called in the industry is by far the most effective CITATION Jef041 l 1033 (Liker, 2004).
References
BIBLIOGRAPHY l 1033 Jolly, D. (2012, February 24). Volkswagen Reports Record Profit. The New York Times, pp. 23-32.
Liker, J. K. (2004). The Toyota Way: 14 Management Principles from the World’s Greatest Manufacturer. Chicago: Sage Publishers.
Mangan, J., & Lalwani, C. (2011). Global Logistics and Supply Chain Management. New York: Havard Press.
Vasher, R., & Lyer, A. (2009). Toyota Supply Chain Management. Chicago: Sage Publishers.