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Toyota Motors – Distribution Strategy Toyota Motor Sales USA Inc. decided that its U.S. distribution network was due for a tune-up. The three-decade-old system of warehouses had been established at a time when the Japanese automaker sourced most of its parts from overseas to serve a small network of U.S. dealerships. But that scenario changed in the '90s when Toyota shifted more of its business to North American parts suppliers and its dealership network exploded. Under the existing system, the Torrance, California based company has been providing U.S. after-sales support of 1,200 car dealerships, 200 Lexus luxury car dealers, and 100 forklift dealers via a two-tiered system. Toyota had not undertaken a strategic network analysis since 1978. But its operation has changed significantly since that time. It also sources differently today, bringing in 55 percent of its parts from North American suppliers rather than from Japan. Finally, supporting its Toyota models, the company has added parts distribution for its Lexus line of luxury automobiles, which were first introduced in 1989. Toyota turned to computer modeling using network simulation software. The automaker decided it would first examine the distribution network used for its Lexus division and then look at the entire network. The results of the software modeling revealed that Toyota could improve customer service to dealers while cutting costs by opening a new distribution center. On top of that, the model indicated that customer service could be improved with faster delivery. Setting SAILS Software The modeling exercise began in December 1998. SAILS software, which models logistics networks and provides analysis, is designed to help companies achieve their customer-service objectives at the lowest cost. Before the SAILS software could be put to work, the team had to feed large amounts of data into the application to develop a model that reflected Toyota's existing distribution network. For instance, a dealer in Cincinnati would order from the Cincinnati PDC (Parts Distribution Center) and you'd capture all the costs. Then the team had to go back to your historic data and say, 'Does this make sense'? And that would make sure the costs lined up and tweak the model. Data categorization and collection proved to be a considerable task for the team, consuming five of the six months devoted to the project's initial phase, which looked strictly at Lexus parts distribution. In that first phase alone, Dexter says, the team had to gather historical demand on 250,000 active parts and feed that information into the model. The frequent need to redefine the data contributed to the slow development of that baseline model. Dexter says the team found that it had to clarify the data--deciding, for instance, what part-sale categories should be included and excluded from the model. "Originally, we had a six-month schedule for this project," she notes. "I told management that wasn't realistic." In addition, Dexter reports, her team had to work closely with the software developers to refine the application itself as they went along. The Lexus Experience When the SAILS model was finally run for the first time, it showed that Toyota needed another distribution center in the Texas area to serve its Lexus car dealerships. The model indicated that opening an exclusive Lexus warehouse would benefit Toyota in several ways. The relocation of Lexus parts from the Kansas City facility would free up space in that warehouse, alleviating the need for expansion. More importantly, a dedicated Lexus parts distribution center would improve service and reduce costs. The model indicated that Toyota could realize $2 million in savings by cutting back on expedited ground transportation and on the emergency air shipments of its Lexus parts. On top of that, a dedicated facility would improve customer service to Lexus dealerships by speeding up parts delivery. At the time the study was run, Dexter reports, the Kansas City distribution center was shipping 40 percent of its parts within one day from the time the order was received and the remaining 60 percent in two days.
Approximate Word count = 2635
Approximate Pages = 10.5
(250 words per page double spaced)
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