An article in the New York Times (Sept 23, 2011) describes customization of the Toyota Prius, manufactured in Japan, at the Newark port. Cars are tailored to customer requirements such bluetooth, accessories, quality touchup, satellite radios, alloy wheels etc. This assembly postponement enables vehicles to be built standard in Japan yet cater to customer tastes in dealerships. Why is it optimal to customize at the port rather than at the dealer – is the supply chain better off this way or is it an attempt by Toyota to prevent dealers from installing generic options ? How far can this customization go before it impacts quality ? Given the fluctuating demand for hybrid cars – does this postponement enable pooling of demand uncertainty across regions ?
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Global Supply Chain Musings 
I think this is an excellent way for Toyota to improve the efficiency of its supply chain. By delaying the final assembly of optional features it allows Toyota to delay the final manufacture of the cars until closer to the realized demand resulting in lower lost sales and costs. Generally, there are certain features that most people want standard in their cars and these trends tend to change slowly (for example think how long it took for power windows to go to a standard feature). So Toyota can take advantage of producing in large batch sizes of ‘cookie cutter’ cars and then customizing for the customer once the car is sold. This reduces costs and provides faster response as well as customization to the customer. I think the main limitation to this efficiency is ensuring staying ahead of trends in automobile features and ensuring that the generic template they are producing before shipping has the features that the ALL customers want.
Adam,
Do you think the ease of this installment is actually bad for Toyota? Do you think that more customers will order generic cars and add these features later if it is more cost effective? How can Toyota ensure that this is done at a cheaper cost?
Hi Adam & Mark,
I think the ease of installing parts at dealer networks isn’t actually bad, rather it opens up a business opportunity (part modifications, customization, service charges etc.) for Toyota’s dealer network, which further facilitates Toyota to exercise better control over its after sales channel. I am assuming the dealer network is technically capable to make small modifications in interior and exterior accessories. In times of introducing strategic product launch campaigns, a motivated network close to customers can be very successful.
However, the problem i believe is ensuring the supply of custom items as per the realized demand or the forecast, which can be highly uncertain depending on the models, age group, location etc.
If you guys think the modifications at dealer networks is a viable option, how can this be integrated with current spares or product supply chain?
This idea of postponement is not new and has been done by many companies before. In fact, many companies think of it as a business strategy in order to improve their competitive standing. This strategy leverages the characteristics of demand forecasting by being able to improve the accuracy of forecast as its closer to the actual demand. For Toyota, it effectively reduces “inventory obsolescence” and eliminates risk and uncertainty costs associated with having undesirable cars and gives the company more flexibility and responsiveness. However, Toyota needs to continue having an integrated and agile supply chain to ensure that the latest demand forecasts can be repeatedly created and passed through the supply chain to allocate the right cars for their customers. I think quality would not be affected as long as the standard primary parts are still pre-installed and only the options that have a lesser chance of being affected by quality are offered for customization.
Peeyush,
Do you think that less skilled workers could be employed at the docks that place the accessories in the car and allow final installation at the dealership? I am assuming that dealership mechanics are trained, since they add these accessories for customers as well. This could allow for last minute changes and allow for continued import tax/tariff advantage while not adding transportation costs. Also, this would allow for removed tires and wheels to be resold by the maintenance departments to customers.
Hi Mark, I think adding workers at the Port and then installing it at the dealership would just make the process longer as any average skilled worked would be able to install those parts at the Port. That’s why I pointed that as long as these parts are not high-profile and the standard parts come pre-installed, it can be done at the Port itself. However, if you are talking from an employment boosting standpoint, then I feel your first comment could be a good option.
Peeyush,
I see what you are saying about reducing the miss of the forecast in terms of total cars produced but i dont agree that they will be able to have less inventory go bad. They will need to have so much spare inventory of all the different customization that could go on the car. Do you think that that will create even more of an issue?
Sincerely,
Logan Aven
Logan,
I believe the manufacturer will actually have lower inventory levels because of the flexibility to communicate the message to customers upfront regarding as possible delays due to customisation. This will give the manufacturer enough time to have these parts custom made rather than maintaining higher levels of each part in inventory.
Japan is known for producing in mass quantities and at cheaper costs. Postponement is a very effective option when it comes to achieving economies of scale as well as fulfilling different customer needs. Many brands like Benetton and Asian Paints have followed this postponement strategy to differentiate their product offering in the market as well as achieve production efficiency. As long as the critical parts of the product are manufactured at the dealer’s end it is unlikely that the product quality would be compromised due to postponement.
I think from a quality standpoint, this approach ensures Toyota has more control on the installation quality. This approach is also allowing them to take advantage of lower import duties based on the value of the car prior to the modifications. I would be interested to know how they handle the reverse supply chain with then replaced items such as tires. I do think that quality starts to be impacted when the concept is expanded beyond simple accessories. If Toyota still adds these accessories at the deal, I think this is less then optimal. While it may allow for pooling uncertainty, it could be further reduced if done by the dealer. This also highlights a possibility that if these accessories are very simple to install, customers may choose to add them after purchase.
Hi Mark, I really liked your comment on reverse supply chain aspect and I hadn’t thought of that. Regarding your last comment, do you really think customers would like to have an option to install those parts on their own even if the installation may be extremely easy? I feel this could work if it turns in some sort of cost-saving option for the customer. Otherwise, as a customer, I would rather have the car completely installed with my chosen parts than me having to install them myself. What do you feel?
Peeyush,
Considering the popularity of aftermarket parts, I believe there is a higher possibility for a “do it your self” customer or even auto shop’s to provide this service. I think the ease of adding the accessories decreases the barrier to entry to outsiders if they discover this. I would suspect that something like a better quality or broader capability GPS could fall into this area. While I agree some customers would want a turn-key car. But, if more expensive accessories or options are developed/added this market could only expand and grow. Do you think customers would be more likely to do this based on accessory expense or capabilities/quality?
I think it is optimal for Toyota to customize at port rather than at a dealer mainly because of cost. According to me it is very similar to the centralized idea of warehousing. By centralizing the installations at port Toyota is ensuring comparatively less infrastructure (assuming that customization is not simple and require various tools) and manpower cost required for customization. Rather than deploying the resources at each dealership it is cheaper for Toyota to deploy the same at one place. Because of this reason alone I think quality can also be kept in check for as long as they want because they will have specialized skilled and trained people doing the job.
The postponement as well as installations at one port rather than at dealership enables pooling of demand uncertainty. The variability is reduced due to aggregation of demand across multiple locations mainly because high demand from one location will be offset by low demand from another. Not to mention the aggregation will result in better forecasting as well.
Customizations always come with subtle risks and is a question of finding the right balance. Toyota’s move indicates moving downstream in the supply chain the success of which again depends on the scale of its operations and demand. The installations at the port are done largely by the manual workforce and not by robots. This affects quality control and resource management. Adhoc decisions have to be taken to decide the manpower required for the loads arriving on a particular day and the level of customization required. An article in the New York Times(May 3, 2012) described how the iPhone-specific shortcoming of Prius V wherein the wireless connectivity fails while connecting with iPhones. The traceability of such bugs and the time to fix such bugs will improve as we move as close to the customer as possible. Going forward, the success of this move depends on the communication with the customers.
On the one hand, the unified management of the auto parts required for the custom orders generated in the port construction warehouse will help reduce costs, and Toyota can respond quickly to changes according to customer demand. On the other hand, customizing at a dealership may not be able to strictly control quality, and each dealer will incur large inventory costs due to uncertain demand. Therefore, the supply chain should work in this way to achieve better results, and Toyota’s decision makes more sense to some extent.
And for example, Airbus has an assembly plant all over the world. The parts it needs are distributed by manufacturers around the world and assembled in the assembly shop for integration, which integrates the functions to meet the customized needs of customers. Therefore, the impact of such customization on quality should be within the controllable range.
This kind of postponement can meet the unstable demand to a certain extent, because this kind of customized assembly production will have inventory to deal with the unknown demand, but the inventory will generate costs, and Toyota needs to further consider how to minimize the cost.
I think the way Toyota is working currently is a win-win situation for both the company as well as the customers. With the advent of the recent technological advancements, customers have become more and more demanding and want to customize the products according to their own taste and requirements. Also, it has been generally observed that the people of one geographical region (In this case a country – USA) have a similar requirement for eg. mileage of the car and the ground clearance of a vehicle are very important factors which a customer considers while buying a car in India. Furthermore, it is beneficial for the company to locally source few of the items which are cheaper in a particular region eg. it would be cheaper for a company to assemble the leather products in China than in the USA. This geographical postponement also reduces the inventory levels as well as reduces the lead time to the customers and improves the responsiveness of the company. Quality can be controlled at the Newark port as well. Eg. Amul in India is checking the quality of milk at Farmers’ level, from where the milk is collected from the farmers and is transported to the factory later for further processing. It’s optimal to have an assembly plant at the port rather than at dealer’s end as economies of scale can be achieved and the quality can be controlled at the port where the plant is catering to the demand of the whole country. It is also beneficial to have this postponement at a country level as during peak demand the company can be prepared in an efficient way by already producing the vehicles earlier and thus the manufacturing plant would not be a bottleneck at the time of peak demand.
After reading the article, it immediately occurred to me that this mode of Toyota Prius assembly is kind of customization production, just like Dell business model, or in other words, it’s kind of assembly postponement, which manages to reduce or control inventory level. While, after further thinking, I believe that this mode is more like a strategy to improve efficiency by letting Newark port predict customers’ demands instead of dealers and shortening assembly time by scale assembly. To be more specific, assembling large number of cars together can achieve economies of scale by gathering assemblers equipped with professional skills, just like Dell Mass customization, which makes the assembly process more like a ‘assembly line’ and each person just be responsible for particular parts. What’s more, the pressure of forecasting customers’ demands and determine inventory level is transferred to Newark port from dealers. And compared with single dealer, Newark port has higher predictive ability and maybe lower predictive costs because of easier access to massive data.
If demands of customers are stationary and have little fluctuation, obviously, this mode can last and guarantee quality. While, for hybrid cars or other new types of cars, demanding forecast will be extremely difficult because of lacking previous data. Even if previous data are ample, seasonal fluctuation or regulations and laws may increase fluctuation as well. Therefore, to keep advantages of this mode, corporation between Newark port and manufacturers becomes more important. In my opinion, information sharing and VMI may be useful methods to help reduce demand uncertainty.
I think this is an interesting thought. I have never thought about it. However, from my points of view, by postponing it, it can better understand customers’ demand and produce better quality of the products. Nevertheless, by doing so, this will slow down the efficiency of the supply chain since it would have to wait until knowing the customers’ demands. Therefore, this became a trade-off problem. I think, the best way is to observe the analyze the demands and forecasting it. By doing so, the supply chain can raise efficiency yet this would be able to cater to the customers’ demands.
In my opinion, this way it’s easier for Toyota to forecast the demand for certain items. Toyota has control over the manufacturing of the car – which is its core competency and does not have to deal with forecasting the demand for accessories. Most of the time, the demand for the items mentioned is erratic and accurately forecasting it upstream becomes a challenge. Basically, with more customisation options, the number of SKUs multiplies and SKU-level forecasting is difficult. Postponement of customisation/differentiation facilitates the upstream forecast at an aggregate level. With time, i.e. as and when orders begin to arrive, forecasting for these items becomes easier and possibly more accurate. Therefore, this helps counter demand uncertainty.
On the point of quality, Toyota still has full control over its core competency which has differentiated it in the market all these years. As long as reasonable quality standards are maintained at the Newark port, Toyota should not have a cause for worry.
I think Toyota’s move is a strategy to adapt to large-scale customer custom production requirements.
Market globalization, diversified customer demand and accelerated technology upgrades have led to a proliferation of product categories. This phenomenon can have multiple negative effects. First of all, for forecasters, predicting the needs of multiple versions is mission impossible. Predictive errors lead to too many product or too few predictions, with the result that some products are overstocked while others are out of stock. Second. Under the high pressure of maintaining a certain level of customer service, many operations managers will do their best to store finished products in case of emergency. Due to the rapid technical update, hundreds of millions of inventories are obsolete each year due to obsolescence.Besides, another negative impact brought about by the surge in product variety is the high administrative overhead required for companies to manage a large number of product offerings. The high complexity of product supply also means higher manufacturing costs due to the need for more specialized processes, materials, preparation conversion methods and quality assurance methods. At the same time, because different products require different support materials and technologies, it will be more difficult to maintain effective overall product support or high-level customer site services.
In addition, the port acts as a node and hub in the integrated transportation network, and at the same time serves as a gateway and window for trade transactions. Most of the import and export materials are realized by sea transportation through the port, so the port hub can be regarded as a key node of supply chain. In summary, I think the reason why Toyota is assembling in the port.
In my opinion, the concept of “Delayed Differentiation” opted by Toyota is a great move to combat situations wherein there are a high demand uncertainty and huge demand forecast errors, specifically in mass markets. In a highly competitive industry such as the Automobile sector, this is an excellent way to be customer-centric and be closer to their needs, thus giving the customer a sense of satisfaction of getting to choose the desired features and subsequently-higher brand loyalty. At the manufacturer side, this frees up a considerable amount of time for other activities such as product innovations, improving efficiency etc., along with lesser risk and associated costs of carrying a huge inventory. Considering the facilities Toyota has set up at Newark for these customization operations, I do not think product quality would be compromised, provided proper Standard Operating Procedures and meticulous quality checks are in place.
I think this is the best way to go for Toyota and for all companies who are not sure of the demand beforehand for two reasons. First, it reduces the probability of leftover inventory had the cars were manufactured completely in Japan, thereby reducing cost. Second, dealers in the US can manufacture different models of cars from the basic model based on the real-time demand. As mentioned by Jimlee in one of the above comments, this strategy is also followed in the clothing industry by United Colors of Benetton, wherein a basic white shirt is produced initially and then based on the demand, the variants are created with different colors. However, as far as reverse logistics, in this case, is concerned, one of the points raised by Mark, I guess the company would definitely not ship the cars back to Japan unless there is a significant quality issue in the critical parts such as the engine of the car. Moreover, the company may be selling the cars at a discount if there are minor quality issues. Customizing at the port essentially pools the demand uncertainties in a) different regions b) different kinds of variants of car models.
The strategy of Postponing Assembling at the port provide customer with personalized products, will not only increase their competitiveness among those identical cars, but also save the transportation cost and labor cost. Because the supplier could centrally ship the vehicle accessories into the port instead of to various areas, not to mention that different area has different policies about tax or something else. Besides, each car distinguishes from others and meets the requirement of each customer with a reasonable price, which benefits from optimizing the structure of supply chain. In this way, Toyota Prius could easily maximize its share of the market.
On the other hand, it can improve the efficiency of supply. According to different requirements of different regions, it is possible to make a survey in advance in order to forecast the supply level. For example, the California region has higher requirements of car configuration (more people have higher income), and people in Illinois or Indiana may care about the performance of the cars so they could get more mileage. By providing more related products for different regions, they can improve the quality of the car more accurately in an efficient way. What’s more, the level of inventory could be reduced by the data access in the long term, but in this case, only the Toyota has the capacity to collect such a huge amount of data and predict the future needs. Dealers with limited scale cannot guarantee the accuracy of both information and quality.
Analyzing the situation from Toyota’s perspective, customizing at Newark port rather than at dealers would ensure their supply chain is efficient. The Japanese based automotive manufacturer would incur more cost if he is to monitor the quality of customized assembly at each of the 500 dealer locations across the east coast of North America; whereas in this case, they have to assign personnel for just one location. Moreover, customizing at dealers would not be a viable option because this increases the risk of over-forecasting/under-forecasting. In such a scenario, it would just add more to the transportation costs from one dealer to another so as to compensate for the fluctuation in demand.
For your consideration,
This is a classic push pull system. This allows Toyota to have less accurate forecasts when it comes to the long view. This becomes important as the more granular you become the less accurate your forecast, meaning that they might not know how many people want shinny spinning rims but they have a good idea of how many people are going to buy the RAV4. Then as it moves through the supply chain they can get a better idea of what they need to put on the car to make it sell. This is the same principal that dell uses when it is creating a computer. They have all the same standard Box’s and then just add on anything extra that the customer wants. Same thing is happening here, when the dealership wants shinning spinning rims the put in on the box car. This allows for a more streamlined approach upstream at the manufacturing and creates more complexity at the port. I do think this is a batter approach than a pure pull or pure push system as this allows them to focus and become really good at different things at each point through the supply chain.
sincerely,
Logan Aven
It is an optimal approach what Toyota is doing. Postponement has not just worked to reduce lead time but also help differentiate from competitors. As observe from the example of BMW, Toyota is making sure all its process during this postponement period and customization is being done efficiently. This postponement impacts Toyota also in a good way by meeting the demands of the customers in certain regions that ask for different parts, for example warm weather vs cold (snow) weather gears, mountain vs plain terrains, etc. At some point leaving customization till the last minute can impact quality and thats for sure. The resources at the NY port are not the same as the ones in the manufacturing plant overseas and this might affect in a negative way Toyota. A good question is how long will it take to competitors to imitate this same way of operating or even improving it? BMW is near and probably a bunch others are there too.
Carlos Pelaez
This strategy of geographical postponement of assembly adopted by Toyota helps to increase supply chain efficiency, reduce lead time, reduce forecasting error and yet provide a variety of customizations without really compromising on the quality of the product. The assembly postponement also reduces the need to have inventory of finished goods of different customizations thereby reducing inventory holding costs. As mentioned in the article the demand for hybrid cars is random, this strategy can help pool the orders.
By postponing customization to the NJ port, Toyota will not compromise on quality.
And by doing so, it is consolidating the customization at one place rather
than at all the dealer locations.
People should be trained at all the dealer locations if customization is done at there. This way Toyota incurs lot of costs.
Both the cases take care of demand uncertainty.
Assembly Postponement in this case is a good example of optimizing the supply chain. At the manufacturing facility, Toyota can achieve lower operating costs due to economies of scale. Additionally, customization at the port allows risk pooling in case there is a significant mismatch between demand and supply at the dealerships. If customization is done at the dealership, the cumulative inventory holding costs would be much higher, without any significant improvement in the lead time. Customization at the port further allows Toyota to exercise better process and quality control, before the car is sent for sale at the dealership.
I agree with you Tanya, “you took the words right out of my pen.” This postponement would also enable pooling of demand uncertainty across regions in addition to smoothing the demand and supply mismatch.
To answer the question of how far customization can go before it impacts quality, I believe it would depend on the level of influence or control Toyota can exert on the customization stage. The less control or influence Toyota has, the higher the possibility of a reduction in the quality of the customized cars.
Hi Tanya,
I like that you bring up inventory management in this discussion. Since the customization is being done for the American market, it will be easier to forecast at port level as opposed to dealer level. As you mention, this will help them achieve economies of scale. We’ve seen how completely delayed customization has helped certain companies like Dell, but in this case, retaining the customization at port level seems to be ideal in terms of utilizing the pros of both push and pull systems.
There are several advantages of postponing customization. Firstly, large amount of repeatable assembly processes not only increase the effiency of workforce but also reduce the costs, which means Toyota can give customers better price compared with competitors. Secondly, having postponement helps Toyota reduce its forcasting error to almost zero, becasue they assemble cars after receiving orders from customers directly. Knowing customers’ demand well does help Toyota gain competitive advantage in automobile industry. Thirdly, this strategy let Toyota avoid keeping too much inventory in their warehouse, because once they finish assembling cars, they ship to custmers immediately instead of stocking finished goods with many variaties. However, Toyota should pay more attention to the design of standard cars. Doing some researches about tastes of general custmers ensure that they like these accessories.
I think this action is caused with many aspects. First, Japanese treat their products and service very restricly and assembling in country would make them more easily to control the quality. Second, Japan does not just transfer products to one country but to many countries in the would. Assembling in country would be pooling model in which all orders from different country can be assembled at one time in one place, which dramatically improves the efficiency and standarization leading to quality increase. The last but not least, I do think Japanese has discussed the alternatives and did the analysis considering many aspects. There is no practicle materails with data to be talked right now so I bielive there are many underlying reasons why they are doing this way.
Postponing the customization from manufacturing plant to Newark port is a good move as it will enable the manufacturer to better forecast the demand of cars. However, the question is whether the customization should be done at Newark Port or at individual dealer workshop.
Some benefits for doing it at Newark port
1) Better forecasting can be done which will reduce the inventory in value chain of Toyota.
2) Standardization of work: as it is easier to train a small group of workshop employees and then the same set of hands will work on all those, or alternatively at the port an automated assembly line can also be set up which will speed up the process and will result in improved operating cost.
However, Toyota needs to look into several more questions to take a stand for this like
1) Is the same toolkit required and the expertise required to fit the custom parts already available with the dealer, if yes then Toyota should consider opening a centralized warehouse for stocking custom part. The lead time for supplying a car or a set of part to a dealer will be same and this way the cost of Assembly line, skilled workforce can be saved.
2) Is preventing the dealers from installing generic options that big a damage to decreasing revenues of Toyota? If yes, then an online demand form can be introduced wherein the customer can monitor the availability at the nearest dealer or book a car at a down payment and then Toyota can make the parts available at the dealer.
My opinion is to introduce a centralized system which will take in the customer needs and forward it to dealer as well as the central warehouse and then Toyota can focus on improving the lead time to make those parts available at the dealer workshop.
By customizing at the port rather than at the dealer, the supply chain is better off because the customization is occurring closer to the actual customer. Because of this, there is less forecast error in terms of determining how to best meet customer needs. Additionally, I do not believe that product quality would be negatively impacted by this form of geographical postponement to the point where it would seriously hurt Toyota’s business. There may be differences in the customization-based resources that the manufacturing plant has compared to those possessed by the port, but I do not think this is a serious concern. This postponement also enables pooling of demand uncertainty across regions. Toyota can combine multiple regions together to reduce aggregate variability and better match supply with demand.
As for the cost efficiency consideration, it is reasonable for the Toyota to implement the assembly postponement. I believe that it is because doing so is better for the supply chain, which means the products are designed to reduce the supply chain cost. As we learned in the class, the products will be finished only after the unique and different orders are made. In this way, the cost of transferring the products will be reduced.
Actually, I do not think the fluctuating demand for hybrid cars should be an issue because the uncertainly demand is better for the large amount of order, which will add more uncertainty to the demand and affect the quality of cars.
For Toyota, it is definitely a competitive strategy. To begin with, customization in port can of course save cost in supply chain. It is easy for Toyota to manage and forecast the supply chain although Toyota transfer most cost to dealers. However, customization in port is also a limit of customer’s requirement. In some degree, car is still a standard product which cannot fully reach the mixed demand. Transferring customization into dealers sometimes will hurt Toyota due to their ideas of reaching everyone’s flavor. On the other hand, I believe quality of cars will be decreased in this way.
It is easy for customers to fix or find the problem if customization is in dealers. Dealers will responsible for the quality and do their best as the fierce competition in different dealers. But this does not mean the quality will drop a lot as cars are tailored in port. Strategy is still changing as the time going. But from the aspect of supply chain, it is definitely a great strategy.
I will basically answer the first question, why is it better to install all the customized appliance in the port rather than from the dealers. My knowledge hints that this strategy is decided by the business model that automobile industry use. In automobile industry, usually, the dealers have no belonging relationship with the automobile companies, they are individual entities. And, the dealers actually borrow the car from the automobile company and they need to pay the interests, follow the prices given by the company and sell the car before a particular date, which means dealers won’t earn much simply by selling cars. So the main profits of a car dealer comes from auto- finance or repair service or bespoke upgrade services. The issue is, when there is heavy pressure on making profits in these sectors, dealers tend to use cheap and inferior material to realize the service, which will jeopardize the car brand’s reputation. And I think that is one of the reasons why Toyota insist that the bespoke service needs to finish in the port.
In my opinion, I consider that it is optimal to customize at the port rather than at the dealer. I support the argument that it is an attempt by Toyota to prevent dealers from installing generic options. Toyota wants to control the quality to a certain level. If Toyota let dealers customize the models, there must be something out of control which Toyota doesn’t want to see. Stable and consistent quality across the world should be the first-line strategy to promote one model fully. As for the question of how far the customization could go, I support that customers can only decide those features which are not the focus Toyota mainly promote. Also, customers can determine whether or not to install specific equipment. Customers are not allowed to change the brand of particular equipment. The postponement helps Toyota pool the demand uncertainty across regions since they can finalize the product when they have demand. Equipment or material inventory can be managed better than a final product.
I think this is a very efficient way for Toyota to customize their vehicles. There are certain features and add-ons that are popular in some countries but not in others. By allowing for the customization in NJ for the US market, it makes for a more efficient and competitive environment for Toyota. I don’t agree with the dealers being able to customize the vehicles, because that could lead to an overall erosion in the nationwide quality of the vehicles. It also would incur a cost that the dealers would be more than happy to pass on to the consumer, leading to trust issues between the customers and Toyota. I know it is common practice for the corporation to assess the level of service at their dealers and in some cases, revoke their authority to run the dealership. So, by taking this decision to the national level, I see higher customer satisfaction, and a more consistent sales price.
I think this is a good move for Toyota to delay customization for not only the obvious reasons such as risk pooling, but I think it will enhance quality of cars by doing customization at a single port rather than letting dealers across the country customize. It is much easier to monitor quality at one site than at locations all across the country. Any errors can easily be tracked and corrected. When customization is done at dealers it involves a much more extensive training process to ensure the quality of the cars is the same at every dealership nationwide. The main risk for Toyota to monitor is to be sure that the generic models they are producing contain all of the core features that customers want and that customers are not left with features they can no longer access. Also, Toyota will have to update the generic to make sure as technology becomes more updated and mainstream in vehicles, that their generic models do not seem archaic and make customers unnecessarily select features that should already be standard.
Assembly postponement is practiced in many companies across various industries. It reduces the number of base models that can be further enhanced with various permutations and combinations of additional components. It helps address the issue of variability in demand for different final models. The products can be customized once the demand is realized. Doing so at a later stage in the supply chain will reduce the lead time while fulfilling the orders for a variety of end products.
But, postponing at a later stage, for example, at the dealer (for n dealers) will require n*number of resources required at just the consolidation port. Similarly, additional quality check measures will have to be taken at each of these locations, failing to do so can affect the brand of the product and company, thus resulting in an overall loss.
Postponement has always helped the organization in better forecasting and reducing inventory.
The postponement here is not related the critical part but accessories,its a smart move as in doing so the product quality is assured and at the same end users get the option to customize.
Here, customization is done at ports that helps to have consolidation of inventory, rather then keeping inventory with multiple dealers. It also helps in quality control, where in monitoring multiple dealers and ensuring their service will be challenge.Definitely it has supply chain advantages in terms of inventory cost, lesser damages etc. at the same time it gives a better control on the process.
Assembly postponement is a very popular way for achieving customization along with mass production which increases the efficiency of the supply chain. This process helps Toyota reduce the risk of forecasting the demand. But I think quality is better enhanced by doing customization at a single port rather than letting dealers across the country customize because it’s easier to adopt a standard procedure and train people at one location which achieves consistency and enhanced quality.
The prime reason to customize at the port is that it is easier to forecast and plan for demand closer to the customer location. This could translate into lesser inventory holding costs and lesser procurement costs. Moreover, from the marketing standpoint, customer requirements change depending on the geographic location. Thus tailoring the product to the requirements can avoid inclusion of features that customers may not be willing to pay for. This could result in lowering the price of the final product depending on customer needs versus a standardized product with certain features that are not valuable from a customer’s standpoint. This push-pull strategy results in lower product shortages which would otherwise arise out of a pure pull system.
The strategy of postponement by Toyota will not only help to cater to differentiated demand of customers but will eventually help the company in reducing the holding cost of finished goods at inventory and will help in optimising their forecast methodology.The geographical postponement would contribute towards the right customisation to right customer at efficient cost. The whole process will bring down the lead time
Toyota’s postponement of customization done at ports is a brilliant strategy to cater to customer demand fluctuation and reduced inventory costs (for the customized parts) at the center. The impact that this business idea creates is huge in terms of capturing a sizable market share. Customization parts at ports could be sourced locally and would vary based on the region of the port globally. In doing so, the lead time is substantially reduced.