Critical review of Toyota Buying Behavior

SADIQ

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Table of Contents Introduction Procurement policy of Toyota Fair contest has basis of open door policy Cordial relationship of common advantage constructed upon common trust Green procurement is the basis of environmental friendly products Localization of business paying back to community Open bids policy Background investigation Motivations Value engineering Quality Cost Conclusion and Recommendation References

Critical review of Toyota Buying Behavior

INTRODUCTION

Toyota motor corporation (TMO) which is known is Toyota is the world largest automobile manufacturer by sales by 2010 Toyota have 317,734 employees all over the world Toyota was founded in 1937.(Wikipedia website, 2011)

Toyota industries is a corporation doing business in a waste range of business sectors for example making engines air compressors and different types of cars and other equipment to process material just like forklift trucks and other parts and components which is in these products and even in factories for casting metal. (Toyota-industries website, 2011)

The company is involved in processing different parts, material, and equipment for his other business segments from suppliers of all over the world. They made this standard that their supplier must provide the quality items at a low price and on time they stand along with their supplier to use environmental friendly technology and other requirements of society. They have the policy to establish life long relationship with their supplier which will be based Uphone fairness of business practice and beneficial for both parties. (Toyota-industries website, 2011)

Procurement policy of Toyota

By tradition Japanese firms gave preference to these things while selecting supplier, quality, price, delivery and technology in case of Toyota more things are there to be considered which state the purchasing strategy of Toyota. 2

First Toyota depends upon suppliers of more than 50% of parts which it using in manufacturing its automobile which means that less than 50% operations are done indoors and highly depended on its suppliers. Another thing which Toyota is doing is that Toyota manufactures some models in many countries which is called global models like corolla, spectra platz some for specific countries which again effect its buying strategy.

The Procurement strategy is considered three years prior to a new model production (A case study, Toyota motors Europe, 2011) which is an unrealistic approach as Toyota says that they gave value to local supplier by as to promote corporate citizenship (Toyotaindustries website, 2011) and the they say that they evaluate the suppliers with Japanese engineers to evaluate current and future supplier which be based upon the valuation of Japanese expertise which again is an unrealistic approach.

Fair Contest has Basis of Open Door Policy:

Toyota says that they have open and fair entry policy that allows all potential suppliers, regardless of nationalities, size and experience, (Toyota-industries website, 2011) but most of Toyota businesses in all over the world are with highly established countries like Australia or highly emerging markets like India were they can make their fortune by doing business with suppliers of these countries.as Toyota says that they select their business partner based on economic reasons such as the quality, price, and volume of their products, as well as on their adherence to delivery times.

(Toyota-industries website, 2011) all these thing which Toyota says they keep in their eye while selecting their business partners are only possible when suppliers from developed countries or industrial country like china the company environmental policy is just implanted as they are now following green purchasing guidelines.

Cordial Relationship of Common Advantage constructed upon Common Trust

As Toyota industries says that they believe in work hard to realize an amicable relation of mutual benefits with our suppliers based on mutual trust (Toyota-industries website, 2011) how they make a cordial relationship with their suppliers in each segment as Toyota have such a large segments to focus on every segment and binding relationship is quite difficult thing to manage. If cost is in dispute, Toyota can access suppliers factories/processes to confirm realistic costs. (A case study, Toyota motors, 2011) this means that Toyota is not trusting upon its suppliers and will defiantly do some background investigation.

Green procurement is the basis of environmentally friendly products

Toyota claim that they have aim to procure parts, materials, and equipment that have low environmental impact (Toyota-industries website, 2011) but in real world there is different scenario as G-8 countries hold many meetings on this issue which was initially failed because of countries like America and China and most of Toyota suppliers belongs to these two countries so what they are claiming is not right.

Localization of Business paying back to Community

Most of Toyota business is in overseas countries and they try their best to pay back to that community by giving preference to local supplier of that country which is another issue for Toyota to combine two aspect of their procurement policy as to control on quality and prices and take care of their corporate responsibility which is difficult thing to do and maintain.

Open bids policy

Toyota have policy of open bids every can participate in bids even those suppliers who have bad history can participate in bids for supplying items to Toyota which is not a good policy which Toyota is carrying and Toyota believes in realistic approach mean bids must 4

be at the appropriate cost and which Toyota expect while selecting its potential suppliers for supplying items which it require for its production. Back ground investigation

Toyota track the potential bidders after a thorough background investigation on those who they will select for supplying the components it require for their operations background check will be done through quality engineers of visiting that supplier factory and will have through check on everything either the standard is meeting their requirement or not normally Toyota issue three type of opinion about the supplier which is Acceptable (invited to bid), Some Concern (invited to bid but concerns are raised), Unacceptable (not invited to bid) (A case study, Toyota motors,2011) Toyota motors also keep in mind such thing while selecting the supplier If the suppliers commercial strategy is at odds with Toyotas, there is little point proceeding as the relationship is unlikely to work (A case study, Toyota motors,2011) which again is an unrealistic approach to establish long relationship with supplier as company should focus on what it is getting and meeting its standard or not.

Motivations

As Toyota prefer fixed pricing strategy or Lum Sum basically in large contracts or projects which again is not good policy in buying strategy as prices are moving ups and constantly and either effect the supplier or contractor if the contractor make any changes in the contract it will his own risk Toyota prefer to give bills rather than targeted price to its suppliers which can affect Toyota in making contracts with its suppliers to procure business initiatives.

Value engineering

Toyota prefer value engineering means Toyota like to have a component which do two jobs rather than two components doing to different jobs (Toyota-industries website, 2011) which again is a big hurdle for supplier from least developed countries because they dont 5

have such a developed technology supplier from country like Germany can provide such a technology because they have the potential to provide such components which perform two jobs because they have advanced technology in some cases ideas of value engineering comes from suppliers of advanced countries (A case study, Toyota motors,2011) which again is hurdle for a supplier of least developed countries like India Brazil like the idea for Toyota new corolla 1800 comes from suppliers (A case study, Toyota motors,2011)

Quality

As quality control is a basic principle to satisfy your customer and more than fifty percent of Toyota business is depended upon its supplier so quality control for Toyota is tough job in respect of its supplier as in recent years Toyota recall some of its cars from market which cost Toyota round about two thousand dollars per car which is a serious thing to be considered by Toyota.

Cost

Toyota gave preference in its buying strategy to those suppliers who provide them quality product with least price in market which will be beneficial both for Toyota and supplier because both have to gain from the contract both parties wont have to supper from the contract as this policy of Toyota is not revel event and contradicting its own policies.

Conclusion and Recommendations

Like most of Japanese automobile manufacturer Toyota is also depended on its suppliers as more than fifty percent of its components which Toyota are using in its automobile processing comes from supplier which mean Toyota is highly depended upon on its supplier Toyota should be self-sufficient to make his requirements what he need for his processing which will lower its cost which Toyota is spending acquiring them from suppliers.

Toyota should come out from that traditional Japanese model it should adopt new values though Toyota is a large company in term of sales Toyota can gave better performance if Toyota adopt the modern world principles like American manufacturer adopted. Toyota should gave preference to those countries which are least developed Toyota should train the suppliers from third world countries which will be cost effective in long run for Toyota.

Toyota is basically targeting the middle class and a lot of his models have been developed for the middle class, but the point is that now with the new developments and changes, it is losing its focus and is producing vehicles which cost high and are out of the range of the middle class. Toyota needs to keep up with its focus no matter what it develops. Or at least signify the market segmentation. Toyotas machines have always been known for their durability. The new arrivals lack this quality. This is bringing a gradual loss in the market shares of the Toyota. New models get dents all over with even slightest ding against any of the firm thing.

References:
Honda 2003, supplying Honda2003, Manila, Philipines <www.supplierbusiness.com/uploadedpdfs/Honda_sample.pdf> Toyota-industries2011, Procurement Policy, japan, viewed on 14 may 2011, <http://www.toyota-industries.com/corporateinfo/purchasing/policy/> Toyota 2011, Toyota, Japan, viewed on 14may 2011, <http://en.wikipedia.org/wiki/Toyota> Toyota 2011, Supplier standardards, viewed on 15 may 2011, <http://www.toyotasupplier.com/sup_guide/sup_standards.asp> Toyota 2011, Toyota terms and conditions 2011, Japan <httpwww.toyotasupplier.comsup_guidesup_guide.asp> Toyota 2011, a case study Toyota motors Europe 2011, Japan <www.nao.org.uk/idoc.ashx?docId=B134611F-1E8A-4278-89B3...1> Toyota 2004, Environmental & Social Report 2004, Cooperation with Business Partners, Japan <www.toyota-global.com/sustainability/sustainability_report/.../p70_71.pdf>