Value Chain

Posted: August 29th, 2013

Value Chain Analysis

Unit 4 Individual Project Assignment

Student Name

GB570 Managing the Value Chain

Professor Name

Kaplan University

Month Day, Year

Value Chain Analysis

Introduction

‘Value Chain’ is a term that was coined by Michael Porter in his book “Competitive Advantage: Creating and Sustaining superior Performance”(Porter. 1985). The value chain refers to the chronological order of activities required for the delivery of a service or making of a product. Value chain analysis in Toyota refers to the ordering of supplies, operation process, management process and the delivery of the finished goods to the market. It also shows how they add to the competitive advantage of an organization. The main activities in production can be categorized into primary and supporting activities (Schmitz. 2005). Primary activities are those activities mainly concerned with the creation of products and services. Primary activities are classed into five groups: inbound logistics, marketing and sales, operations, outbound logistics, and service (Porter. 1985).

Primary activities are linked together with a supporting activity so that the can work efficiently. The support activities are derived into four main groups: procurement, technology development (including research and development), human resource management, and infrastructure (Schmitz, 2005). Therefore, value chain analysis evaluates the value each particular activity adds to the organizations products or services. Some activities in Toyota in its chain of production are lucrative than others as they add more value to the entire production process such as production of luxury vehicles, such as the high-end Lexus model, Mark X, and Sports Utility Vehicles(SUV’s) (Toyota  Motors. 2007).. This concept was founded on the view that, an organization is more than a random compilation of machinery, equipment, people and money. If the main production elements in an organization are arranged in a systematic manner, then it becomes possible for customers to pay adequately for the value added to the product. The ability to perform particular activities and to manage the relationship between these activities is a source of competitive advantage (Porter.1985).

Primary activities:

The primary activities are the main sources of competitive advantage of a firm as they determine the attractiveness of a firm to the potential or already existing customers. The ability of the firm to adjust and fulfill the consumer specifications adds value to the entity. In the logistical settings of a company, inbound logistics consist of all systems that enable the company to receive supplies from its suppliers. In Japan, they operate on a model known as Just-in Time delivery. It involves in the delivery of goods before the onset of production (Porter. 1985). This has helped many firms in Japan to reduce their costs of storage for the supplies. However, for Toyota, delivery of their relevant supplies is done well in advance to avoid any deviations from the production plan, which can be caused by late delivery of supplies, or in worst-case scenarios, no delivery is made. To avoid such events, Toyota makes orders for their supplies well in advance and maintains reputable relationships with their suppliers. This enables Toyota to maintain an advantage against its competitors, as they are able to negotiate for discounts on supplies, thus, reducing their purchase costs (Toyota .2007).

Operations

This involves the whole systems in manufacturing or assembly of motor vehicles. Specific operations in the manufacturing of the motor vehicles involve the systematic process of manufacturing: assembly of the parts, the evaluation of the supplies to ensure that they conform to the current international standards (Schmitz. 2005).

Outbound Logistics

After the final production process, the motor vehicles pass through the supply chain from wholesalers to retailers and finally the consumers. Toyota motors manage their own Showrooms in different countries to enable availability of their products in good conditions. Toyota motors make their product easily accessible through vigorous sales and marketing (Toyota. 2007) .The inclusion of overseas production sites enabled Toyota to meet all its target demands in specific regions.

Marketing and Sales

In true customer taste and proffered fashion, at this stage, Toyota Motors prepares the vehicles ensuring they meet the needs of targeted consumers. This area deals with the production mix and the communication skills of the product. The mode of communication adds appeal to the products (Porter 1985).

Service

This includes all activities involving services such as final checking, testing of all units intended for shipment, after-sales service such as deliveries within certain areas, complaints handling, and training of the customers on how to use the products (Toyota 2007).

Support Activities:

This function is accountable for all activities that entail the purchase of goods and services. The main objective of this activity is to ensure that the goods and services are purchased at the lowest price possible and they are of high quality. Toyota Motors will be responsible for outsourcing (components or operations that are normally done in-house are done by other organizations), and e -Purchasing (using information technology and web-based technologies to achieve procurement aims) (Toyota, 2007).

Technology Development:

Technology is a vital aspect for attainment of competitive advantage in the digital age. It also includes Research and Development. This has enabled Toyota to stay relevant in the rapid changing automotive market .Companies are required to be create measures for the purposes of cutting costs to safeguard and sustain their competitive advantage. Toyota motors implemented production technology, to come up with competitive products that appeal to customers and to keep in pace with the ever-changing market .Internet marketing activities, and Customer Relationship Management.

Demand Chain Analysis:

This is part of value chain drives demand for the products. In Toyota Motors, they have incorporated a demand chain that is efficient, flexible, focuses on customer needs and product specific to cater for the ever-growing demand. This was addressed by increasing production sites to include overseas plants to cater specific markets that have huge demand for Toyota products. As at the year 2002 Toyota had 45, manufacturing plants in 26 countries (Toyota 2007). Toyota is able to cater for demand for all types of products and thus the need to make different types of products: minivans, trucks, saloon cars and luxury cars. Optimum co-ordination was needed to address any problems that might be brought about by overproduction in the various overseas plants, thus, adequate planning was adopted to counter such issues.

Identification of customer, market, wants and Needs:

Toyota has been able to identify the customer needs for all consumers of its products by increasing their production sites to include overseas plants to cater specific markets that have huge demand for Toyota products. As at the year 2002 Toyota had 45, manufacturing plants in 26 countries (Toyota. 2007). Toyota is able to cater for demand for all types of products and thus the need to make different types of products: minivans, trucks, saloon cars and luxury cars.

This identification of the customer preferences has enabled Toyota to be able to diversify to specific products such as minivans, trucks, luxury cars, which appeal to certain groups of consumers who at times vary from one region to another. In addition, Toyota has been able to lay emphasis on improving their products to appeal to their customers while incorporating innovation and technology. Models such as the Toyota Prius, Scion have had a lot of demand due to their levels of efficiency and environmental friendliness (Toyota. 2007).

Market Opportunity Analysis:

Toyota uses regular forecasting methods to survey potential markets or production options. Toyota has been able to analyze its target market for its products since it began its operations. Its growth has prompted for more analysis to diversify into different products that are better than those produced during other periods. Its analysis has been focused mainly on demand for the product, market share commanded by competitors using different forecasting techniques (Schmitz 2005). The main aim for market analyses has been to establish viability for the markets in question.

Identification of Value Drivers:

Toyota has a very large customer base all over the world due to its diversification into different markets and products. Its growing financial base has been attracting potential investors seeking to put their monies into the business. Its growth can be attributed the presence of solid and motivated management over the years since its inception. The improvement in operating systems to include its own system, Toyota Production System (T.P.S) (Toyota. 2007).All these aspects of the business have largely attributed to the growth in value of Toyota Motor Corporation as an entity and its products

Value Proposition:

Toyota has mainly addressed the need by consumers to have fuel-efficient motor vehicles. This prompted the company to produce hybrid models such as the Toyota Prius and Scion that generally use electric cells or hydrogen gas to function, which consume less power for whatever distances covered. In addition, new models have been equipped with lesser and fuel economical engines in the presence of high-energy costs. This has also contributed to reducing air pollution as opposed to using diesel-powered engines .Performance has also been a major attraction for many customers of automobiles, this has prompted Toyota to invest more in the incorporation of high performance engines in many vehicle models using the latest technology, at the same time putting fuel consumption into mind (Toyota 2007).

Value Proposition as Related to Demand Chain:

The need for Toyota to produce high performance vehicles has been necessitated by the high demand for high performance fuel-efficient vehicles. This has enabled Toyota to stay relevant in the automobile industry, ward off fierce competition from rivals, and attract more customers for their products. High performance vehicles were only a preserve for specific manufactures, this lucrative market niche was prompted by customers’ queries for high performance vehicles that fuel-efficient (Toyota. 2007).

Value Proposition as Related to Supply Chain:

Toyota operates numerous subsidiary plants across the world, thus, it is able to meet its supply targets to its respective customers. The presence of plants across different regions of the world enables Toyota to make their products according to their specifications or preferences. Demand for mainly fuel economical motor vehicles has been met by adequate production in the respective countries or regions. This has enabled Toyota to supply the needs for the consumer with fuel-efficient motor vehicles that cost less to operate.

Supply chain Analysis:

            Supply can be described as delivery of goods and services at the correct time with a considerable price. Therefore, supply chain is the process of delivering the goods to the customer at the lowest price possible. In this case, it is the analysis of the supply chain of Toyota Motors that is being evaluated. A supply chain consists of three main elements: the customers, the producer and the producer’s supplier (Bolstroff and Rosenbaum.2011) .The customer is the end user of the product, the producer is mainly who creates the products, and finally the suppliers are the ones who deal with transport the goods and services at the correct time. With the existence of overseas plants, Toyota has been able to maintain a stable supply of its goods to its respective markets (Toyota 2007). This overseas plants help reduce, the otherwise, would have been huge expenses of operating. This has enhanced the vehicles being taken closer to the customers. Henceforth, they have a good supply chain.

Value Production and Co-ordination:

Most consumer products flow through a pipeline that begins with production at a plant, followed by transportation to a retail outlet for consumer purchase, perhaps passing through a distribution center on the way (Schmitz. 2005). Most companies manage these two functions independently, with little or no coordination between production scheduling and distribution planning (Grant 2005). This decoupled approach works relatively well if there are sufficient finished goods inventory to buffer the production and distribution operations from each other. However, the cost of carrying inventory and the trend to just-in-time operations is creating pressure to reduce inventories in the distribution channel. The result of this pressure, led to Toyota exploring closer coordination along the   manufacturing and distribution channels.

Value Delivery:

Demand for specific Toyota products enabled the pursuit for production of new and customer specific products to maintain a good relationship with the customers. In light of such relationships, Toyota is able to utilize advice or recommendations it gets from its clients. This helps in creation of products that are better and more appealing to customers from all around the world. To make sure that the products produced conform to production standards they are verified by the authorities to ensure regulation are followed to the latter.

Value Servicing:

The production of customer specific products has enabled creation of a trust bond with the consumer who may eventually bring in more friends or family to purchase similar products. After purchase of Toyota products, the buyers are entitled to benefits such as service for a specified period .However this only applies to specific brands and regions (Toyota .2012). Additionally, the creation of high quality vehicles creates additional value to the company. This attracts more customers to the company from all over the world, thus the company and its products gain a lot of value. These services are meant to add value to the company thus creating a good image and reputation to the company.

Enterprise Value:

This refers to the measure of a company’s value. Toyota has gained significant value in levels of capitalization due to its significant growth in size of the clientele base, which necessitated the increase in production levels. As at the year 2007, Toyota had recorded more than 23.948 trillion Yen in net incomes (Toyota .2007).With the recent earthquake in Japan, that occurred in early year 2011, Toyota had to halt its operations in Japan, where it main headquarters are located .This led to halting of any major decisions that were to be made. The share value of Toyota tumbled, as there was no production.

Industry Drivers:

The main drivers in a healthy and growing manufacturing company include a stable and dedicated management team, Operating systems that improve the sustainability of cash flows, a solid and diversified customer base, a realistic growth strategy, effective financial controls and good and improving cash flow (Grant 2005). The adoption of Toyota Production System enabled Toyota to reduce it operating costs and to better its whole production process, by stopping production in the event a defect in any brand being produced was spotted (Walters and Rainbird 2007). Toyota’s growth has been driven mainly by the sale of smaller motor vehicles. Demand for vehicles due to the relatively affordable prices has enabled quick and reliable growth to become one of the largest automobile manufacturers in the world. The Toyota products have granted many customers the satisfaction they expected after purchase of the motor vehicles. This has granted Toyota motors the consumer goodwill that heir products are reliable to use and conform to the international standards during and after production.

Competitive Advantage:

This refers to the main factor that has attributed to the successful growth of Toyota. Toyota has had many aspects that give it its competitive edge. Production of affordable motor vehicle has brought on board a large number of potential customers who can only afford vehicles at considerate prices. This class of people has contributed to most of the sales of Toyota products that are sold at considerable prices. The incorporation of technology has enabled Toyota to curve a competitive edge for itself to create unrivaled brands that appeal to a wide range of consumers, such as the hybrid models that are being used widely across major countries in the world (Toyota .2007). The manufacture of the luxury models, such as Lexus, contributed to giving Toyota the much-needed competitive edge. Such models have a very high appeal to the affluent people in the society.

Customer Delight:

Toyota products are consumer friendly, environmentally friendly, fuel efficient, cost effective and reliable .Thus, the reason for Toyotas presence in major countries around the world. Customer satisfaction has been one of the main strengths of Toyota motor products. This has facilitated the spread of goodwill of Toyota products and brought in more customers from new regions around the world. Without customer satisfaction, it may prove impossible to maintain a large clientele base from all corners of the world. This is evidenced in how new brands of Toyota are received by consumers from around the world (Toyota. 2007)

Conclusion:

Toyota Motor Corporation has been mainly driven by, customer satisfaction, innovation and specific focus on the customer needs and wants (Toyota .2007). Thus, it is evident that the addition of value to elements in a chain of production would result in success of the products in various markets around the world. Value chain analysis should aid in the review of production processes to ensure that the company stays relevant in an ever-changing world at the same time addressing consumer needs and preference (Grant 2005).