Mapping the Toyota’s business model
Toyota Motor Corporation is a multinational automotive manufacturer that is headquartered in Aichi, Japan. The corporate structure of the company is important in the business model because it determines how things are being done in the company. The Toyota Corporate structure was made up of 364,445 employees in the world, and it was the sixth-largest company by revenue by the year 2018 (Nakanishi, 2013).
The Toyota Production System focuses on demand-driven production where they replenish the inventory based on demand, making sure that the internal inventories are reduced to a minimum. The reduction of the internal inventory makes it possible for the company to avoid losses that come with the depreciation of cars. The more cars are stored, the more they lose value due to depreciation. The introduction of the Toyota Production System forced the company to reorganize the entire value chain to reduce the costs and the wastes from the company and the same time maintaining their customer focus and making sure that the products that they manufacture meet the needs of the clients in the market. Toyota faces stiff competition from other companies such as Honda, Nissan, Volkswagen, and other companies in the global competition. The competition makes Toyota come up with cutting edge technology to make sure that they are making products that will meet the needs of the clients. The increase in the competition also leads to a decrease in unit sales and large inventory that may lead to losses as a result of the depreciation of the cars (Chiarini, Baccarani & Mascherpa, 2018).
Toyota manufactures a large number of vehicles, making them have high repeatability in the process. Toyota has managed to systemize its activities, which enables the employees to specialize in areas where they will be able to provide their best services to the company hence improving the quality of the products that are produced by the company. The high volume process makes it possible for Toyota to reduce the costs of production because of the economies of scale. According to Iyer, Seshadri, and Vasher (2009), Toyota makes a variety of products to balance market demand and to ensure operational efficiency. The company is present in all the automotive segments, producing at least 70 different models of vehicles. The wide range of products made by the company enables us to make a great portfolio among the clients in the market. The production of a wide variety enables the company to meet the wider range of demands among the clients in the market hence making more sales, increasing the revenue, and increasing the profit that the company makes. The production of a variety of products will lead to higher unit costs hence making the process much more complex. However, Toyota has advanced its production methods that will help in controlling such aspects through its lean production system (Östlund, 2020).
Toyota has a predictable, constant demand that has made it possible for the company to allocate resources that will make it possible to meet the demand of customers in the market (Ng, Vail, Thomas & Schmidt, 2010). The increase in competition has led to the low variation for Toyota’s products over the last few, which prompted the company to institute the just in time production techniques that will fulfill the demands of the clients in the market. Low variation is important; it gives Toyota the ability to implement routine, predictable, and stable operations processes.
Process visibility is an indication that the processes that are followed by a company are exposed to its customers (Ng, Vail, Thomas & Schmidt, 2010). Most of the operations processes of Toyota is ‘factory like’ meaning that the visibility of the processes is low. The low process visibility affects the performance of the company in the market due to the fact that there is a time lag between the production and the consumption of the products and services that are made by Toyota. However, it gives the company a chance to effectively make use of its staff, reduce the unit costs of its products hence make the products made by the companies affordable to the company.
Evaluation of the business model
Toyota’s business model is a successful one because of several reasons. First of all, the company has become dominant in the world. Toyota had the intention of making a wider variety of products that will meet the demand of the clients in the market. Toyota has managed to make products that are affordable for the people in society despite their economic status. In a nutshell, the company makes cars, targeting both the low class, middle class, and the high class in the society as opposed to the competitor such as Volkswagen that only target the middle class and the high class in the society. Toyota has also managed to keep the operational costs low that has enabled them to make high-quality products at a low price hence meeting the needs of the clients in the market. The demand-driven production system has enabled the company only to produce units that will be on-demand hence reduce the inventory that they have to keep. The demand-driven production system is, therefore, important because it helps the company to improve its profitability in the market by preventing the wastage of resources (Ng, Vail, Thomas & Schmidt, 2010).
The systemization of the Toyota manufacturing processes enables the employees to give their best in the company and to practice their talents, which enables them to produce the highest quality of products. The systemization makes the employees produce high-quality parts that, in the end, make the best cars in the market that are durable and reliable. The reliability of the cars that are made by the company is one of the reasons why the company is trusted by a good number of clients. The fact that the company makes reliable cars also makes them benefit from referrals from clients. For instance, a person will buy a car from the company, and because it is reliable, they will also refer their relatives who want to buy cars to the company. The referrals make the company to make more sales and increase the amount of revenue and profits that they make in the market. The fact that the company makes more varieties of products makes the clients to also buy various cars from the company for various purposes. For instance, if one needs a car for off-roading, he or she will find it from the company; the same person may want a family car that he or she will also find at the company. Such multiple sales enable the company to make more sales among the clients in the market (Chiarini, Baccarani & Mascherpa, 2018).
The business model that Toyota has adopted enables them to deal with the stiff competition that they face in the market because they are able to appeal to the clients more than the other companies in the market. The ability to provide products for all the classes in the society makes the clients to first look at what Toyota is offering before they consider what the other companies are manufacturing. The fact that the company makes reliable cars as a result of its investment in technology makes the company meet the needs of the clients in the market, which puts them in a better position with the clients in the markets. Toyota sells reliable cars that meet the needs of the clients in the market, make the products sold by the company to have a higher resale value. It, therefore, means that a person can buy the cars and still sell at a good price once he or she is done using it. It is, therefore, important to note that Toyota’s business model is one of the best in the market.
Recommendations on the new business models
Toyota should always focus on the quality of the products and recall all the cars that have defects for repair and maintenance. The best thing is to ensure that the products that they make are in pristine condition to avoid recalls. Toyota has built a desirable brand reputation over the years, and having recalls will affect the reputation of the company in the market. Toyota will also have to develop alternative strategies that will enable them to fulfill its demand in the case of disasters such as the COVID-19 pandemic that affected the workplaces. The company can automate most of the operations so that the company can still be in operation even with a smaller number of staff. Failure to meet the demand of the clients in the market during disasters may make the customers move to the other brands that may be providing products that will meet their needs. Toyota should also focus on research and development that will enable them to retain their leadership position in the market. The increase in competition as many companies are trying their best to attract the clients, a company that will meet the needs of the clients in the best way possible, is likely to be the market leader.
A future challenge that Toyota will face is being a market leader in the sale of hybrid and electric cars. Toyota can deal with such a challenge by investing in research that will enable them to come up with electric cars that have a longer range per charge and hybrid cars that are more efficient, comfortable, and convenient. The growing demand in India and China presents Toyota with the opportunity to increase its market share in the countries. KPMG (2013) predicted that the demand for new cars would shift to China. Toyota should, therefore, study the market in China and understand what the clients in the market need from car manufacturers. Toyota should also study the emerging markets and provide the clients with high-quality cars that are within the budget of the clients in such markets. Toyota boasts of state of the art production processes. It is, therefore, important for Toyota to retain its competences and work on its strengths that will enable it to overcome all the future challenges. The company should also deal with the weaknesses that make it not to meet its goals. It is also important to note that the market has many threats that are against the success of the company. Toyota will have to research and find out ways of dealing with the threats and to ensure the success of the company.
The success of Toyota will be pegged on the corporate value of the company. Toyota should, therefore, undertake concerted efforts that will enable them to make their management platform stronger and raise corporate value. The company should also immediately reform it’s cost and business structures that will enable the company to effectively respond to the changing market circumstances. The company should also reduce the fixed costs and maintain the market in the emerging and existing markets which will improve their sales and increase the revenue that the company makes.
Chiarini, A., Baccarani, C., & Mascherpa, V. (2018). Lean production, Toyota production system and kaizen philosophy. The TQM Journal.
Iyer, A. V., Seshadri, S., & Vasher, R. (2009). A gestão da cadeia de suprimentos da Toyota: uma abordagem estratégica aos princípios do sistema Toyota de produção. Bookman Editora.
KPMG, L. (2013). Project star 2012 results.
Nakanishi, T. (2013). Toyota vs. VW: The Strongest Companies Vying to be the Victor in 2020.
Ng, D., Vail, G., Thomas, S., & Schmidt, N. (2010). Applying the Lean principles of the Toyota Production System to reduce wait times in the emergency department. Canadian Journal of Emergency Medicine, 12(1), 50-57.
Östlund, P. (2020). Improving Materials Supply Processes to Assembly Lines Through Toyota Production System and Lean Manufacturing.