Introduction
Inventory management is the core of operational efficiency in MNCs because its smooth flow and orchestra ensure the maintenance of the necessary resources for continued productivity and customer satisfaction. Leading in this field is Toyota Motor Corporation, a global automotive heavyweight known for its cutting-edge design and supply chain excellence. From its sleek sedans to rugged trucks, Toyota’s product offerings are testimony to the company’s uncompromised adherence to quality and performance (Zhong et al., 2016). As a result, this report will shed light on the innovative capabilities of Toyota in managing its inventory and, therefore, the adeptness of the company to avoid the vagaries of the COVID-19 pandemic. Besides, by looking at the demand volatility, supply chain resilience, and regenerative plans, this report will offer insights on Toyota’s search for operational efficiency under the changing conditions of the world.
Role of Inventory on Supply Chain
Inventory is a key component in the supply chain as it serves as an adaptable and responsive shock that ensures the availability of products when demanded by consumers while minimizing risks of stockouts and obsolescence at the same time (De Martini, 2021). Simply put, inventory is a buffer that enables firms to adapt to transformations in consumer desires and deal with unforeseen disruptions in the supply chain without affecting customer satisfaction or operational efficiency. Also, a fundamental function of inventory in the supply chain is described by Fonseca & Azvedo (2020) as demand-supply balancing. Similarly, Stadtler (2015) notes that companies can leverage stockholding as a determinant for what and when goods ought to be procured. The optimal quantities of inventories would allow businesses to optimize their inventory holding costs while simultaneously maintaining high product availability levels.
Strategic inventory management practices of Toyota Motor Corporation show that inventories are important in effective supply chains. For instance, during Japan’s 2011 earthquake and tsunami, inventories helped to keep operations going through the massive disruptions (MacKenzie et al., 2012). Also, the theory of resilience shows how fast Toyota regains its original position after the disruption (Cohen et al., 2020). The theory suggests that companies must be prepared in a manner that encourages them to be resilient rather than merely reacting towards shocks (Cohen et al., 2020). This is observable in the proactive initiatives taken by Toyota in controlling stocks such as solid stock buffers. In the year 2011, Toyota expected to have a net revenue of 18.6 trillion yen for the fiscal year (Toyota Canada, n.d.). After the earthquake and tsunami on March 11, the company lost 800,000 units of production that were due in the first half of the year, but these would be made up by 350,000 units in the second half, which gives a net loss of 450,000 units (Toyota Canada, n.d.). However, since it was able to recover very quickly due to proactive management in relation to inventories, revenues were not significantly affected thus mitigating against revenue loss arising out of stock outs.
The adoption of the lean management approach, also called just-in-time inventories methodology in Toyota, indicates a commitment to efficiency and customer satisfaction within the supply chain (Batth, 2021). It signifies that inefficiencies must be removed through continuous process improvement as described by Lean principles. Lean Management includes Just-in-Time (JIT), which involves reducing inventory levels while producing according to the demands of customers (Bertagnolli, 2018). Moreover, JIT reduces inventory carrying costs and helps with on time delivery thus improving customer satisfaction while creating operational efficiencies. Toyota is leading as far as industry data for turnover ratios are concerned showing that it has been managing its stocks effectively. For example, in 2020, Toyota had an inventory turnover of about 9.63 when compared to the industry average of 7.2 (Morningstar, Inc., 2024). This demonstrates how much better stock levels are managed or how resources are utilized more efficiently so that there is less risk of stockouts and obsolescence occurring due to poor utilization.
Approaches for managing inventory
Just-In-Time (JIT)
Some of the major strategies used in inventory management include Just-In-Time (JIT), Economic Order Quantity (EOQ), Safety Stock, ABC Inventory Analysis, Demand Forecasting, Inventory Management Software, Barcoding and Radio-Frequency Identification (RFID), Cycle Counting, Kanban Systems, Collaborative Planning, Forecasting and Replenishment (CPFR) (Friday et al., 2021). The lean manufacturing system of Toyota Motor Corporation is based on the Just-in-Time concept. Consequently, it makes only when they are needed by producing exactly what is required with no wastage and minimal cost of holding stocks (Stojkanović et al., 2021). By matching production in units to customer demand figures Toyota could minimize stock-holding costs and ensure timely delivery while maintaining high levels of stock turnover rate which stood at 8.41 in 2023 compared to industry average of 6.8 (Morningstar, Inc., 2024).
Kanban Systems
Kanban systems are visual scheduling systems that complement JIT acting as control systems for work-in-progress inventory flow at Toyota’s factories. These cards used by Toyota represent specific quantities of parts or materials required for the production process. When these parts are used up, Kanban cards become available, giving way for more supplies to take place so as to avoid any eventualities in stocking levels (Soliman, 2020). The system allows Toyota to optimize its inventory levels, hence minimizing incidences where there is too much or less inventory held at all costs possible (Soliman, 2020). Some benefits of JIT and Kanban include reduced inventory holding costs, increased production efficiencies, and improved responsiveness to customer orders or demands made by customers (Friday et al., 2021). Besides, Toyota preference of JIT and Kanban is because EOQ’s theoretical basis may not accommodate the dynamic manufacturing environments, such as Toyota’s (Wu et al., 2023). Moreover, Safety Stock can lead to high inventory costs and low productivity levels as opposed to JIT and Kanban Systems that prevent out-of-stock situations. Conversely, JIT and Kanban Systems help Toyota in balancing production with customer demand, reducing waste, and cutting down on stock levels (Choi et al., 2023). However, challenges like accurate demand forecasting across supply chain networks and disruptions, such as earthquakes, Covid-19 may occur during supply chains. Despite having these challenges like forecast inaccuracy, trust problems, and increased reliance on suppliers, Toyota has been able to effectively mitigate the risks and maximize JIT and Kanban system benefits because of its proactive inventory management practices and strong supplier interrelationships.
Demand Variability Caused by Covid-19 Disruptions
During the COVID-19 outbreak, like other companies, Toyota had to face difficulties when it came to managing its inventory in an effective manner. The disruptions caused by the pandemic revealed that efficient inventory management is the key to tackling demand variability or bullwhip effect in a supply chain operation (Mangan et al., 2012). Inventory, as seen from the firm’s point of view, is usually reported as assets and encompasses all necessary materials throughout the supply chain, including raw materials, semi-finished products, and finished goods at various levels downstream and upstream (Bowersox et al., 2013). For instance, global supply chains were severely disrupted by COVID-19, leading to shortages of essential components such as semiconductor chips for vehicle manufacturing (Ramani et al., 2022). In this regard, Toyota announced production cuts at several plants worldwide across April 2021, resulting in around 60,000 vehicles being made (Ramani et al., 2022).
Inventory management was even more difficult for Toyota due to fluctuations in consumer demand during pandemic times. For example, while there was a 20.1% increase in pickup truck sales in the U.S.A., demand for sedans reduced by 12%, and compact cars declined by 20% (Hirsch, 2023). These shifts in customer preferences were indicative of the bullwhip effect, where small changes in consumer demand lead to much larger variations within inventories further up in their supply chains. Essentially, according to Mangan et al. (2012), even minor disruptions downstream can result in enormous changes concerning stock holdings higher upstream. The context of COVID-19 saw panic buying among consumers, government-initiated lockdown measures, and changes in people’s lifestyles that led to a rise or fall in demand, thereby resulting in overstocking or understocking (Doddanavar & Ramgouda, 2021). Consequently, Toyota had no option but to adjust its production mix accordingly, making it quite hard for inventory managers.
In order to manage this crisis effectively, Toyota adopted a data-driven approach through which they utilized sales data and demand forecasts to implement the Vendor Managed Inventory (VMI) system (Kaur, 2023). This meant that suppliers took charge of their customers’ inventory control matters, often basing such decisions on sales happening at that particular time. In turn, Toyota expected its suppliers to manage its inventory levels in a way that would optimize the amount of stock as well as reduce risks of stock-outs even if it came across difficulties while dealing with supply chain challenges (Doddanavar & Ramgouda, 2021).
There are varied reasons why the choice of VMI was taken. Firstly, VMI was adopted by Toyota so that it could use its suppliers’ expertise and resources better than they would have been able to monitor stocking levels and react promptly to changes in demand (Choi et al., 2023). Again, Toyota employed real-time sales data for more accurate matching between inventory level held and actual customer demand instead of overstocking or understocking (Kaur, 2023). Finally, Toyota streamlined inventory management processes through VMI which freed up internal resources and focused more on core business functions mostly.
Moving forward, Toyota realizes that supply chain integration is critical, and the ECR framework is one of the tools demonstrating this. Although ECR has been traditionally synonymous with the grocery industry, Toyota can apply its principles to build collaboration between manufacturers, suppliers, and retailers in the automotive industry (Fernie, 2023). Through category management, product replenishment, and enabling technologies, Toyota will be concentrating on optimizing the inventory replenishment process and decreasing lead times (Choi et al., 2023). ECR’s emphasis is consistent with this approach which is driven by changed demands that supply chain arrangements should be capable of meeting, integrating upstream and downstream operations for long term purposes to ensure supply chain agility and its responsiveness. This notwithstanding, there might be challenges for Toyota, including unstable demand and the cost fluctuation in the long run that could adversely affect the performance of ECR strategy. To address these problems, Toyota will use sophisticated demand forecasting tools, strengthen relationships with suppliers and retailers, and carry out production process optimization (Fernie, 2023). By this means, Toyota aims to reduce the influence of demand variability on inventory management and stay ahead of the competitive curve in the automotive market.
Resilient Inventory Design
For Toyota, developing a robust inventory design has several considerations that have to be put in place so that the company’s inventory management strategy can survive any unforeseen disruptions and changes in demand. Toyota should start using complicated number-crunching programs plus predictive modeling tools that will help them predict variations in demand and possible supply chains disruptions (Wu et al., 2023). For instance, Toyota relied on up-to-minute sales figures and the latest trends in the market to make immediate changes to production plans and stock volumes thus avoiding excessive inventory or stock outs amid the COVID-19 pandemic (Stojkanović et al., 2021). In addition, Toyota should have identified other suppliers from across the globe hence removing dependence on one source of supply as well as reducing risks associated with single sourcing (Wu et al., 2023). In such a case where there were global shortages for semiconductor chips they could have collaborated with diverse chip makers so as to create new lines of distribution thereby eliminating their vulnerability to any one supplier’s potential disruption (Wu et al., 2023). Moreover, Toyota should consider incorporating blockchain technology to enhance supply chain transparency and traceability addressing problems of fake products and limitations in logistical processes (Stojkanović et al., 2021). For instance, its inventory flows also become more genuine because the company has a stock management system based on block chaining where each product or part is traceable all through the chain. Furthermore, it took proactive steps to minimize vulnerability to such incidents as the Bab al-Mandab Shipping Chokepoint accident or horsemeat scandal which compromised worldwide supply chains (Lott, 2021). As a result, events like Bab al-Mandab Shipping Chokepoint Disaster and Horsemeat Scandal compelled Toyota by virtue of its logistics system’s infrastructure into investing in alternative transit routes that would boost its resilience in business through value chain during emergencies avoiding customer grievances at all times.
Conclusion
In conclusion, Toyota stock management techniques reveal that the company is capable of withstanding demand swings or shocks. The company quickly responded to the earthquake in Japan and COVID-19 by maintaining inventories and using data-driven decisions. Toyota also used JIT in combination with Kanban systems for right stock levels plus reducing waste as well as making sure that it responds to customer orders very quickly. Moreover, ECR promotes supply chain integration/collaboration and reduced demand variation risks. Second, Toyota wants to enhance its inventory management through technologies such as blockchain which is geared towards ensuring transparency in supply chain operations and optimizing stocks with maximum output at a minimum cost. Additionally, proactive approaches are taken against emerging threats to bottlenecks and vulnerabilities for uninterrupted flow of activities at Toyota’s supply chains even when there are unexpected disturbances that satisfy customers.
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