Business Model Generation
Toyota seeks to reduce its cost of production by outsourcing most of the parts that are used in the assembling of its vehicles. For this purpose, Toyota has various key partners from who it outsources its various parts. Simchi-Levi, Kaminsky & Simchi-Levi (2008) argues that Toyota produces 30% of the automotive parts in-house while the remaining 70% of the parts are outsourced. All the engines of the company are produced in-house because the company possesses the capacity and knowledge, and would also want to exercise all the control with regards to the quality of its engines (Simchi-Levi, Kaminsky & Simchi-Levi, 2008).
The company also relies on its partners for the transmissions. Toyota uses its knowledge in the design of the components. However, the production of 70% of the transmissions is outsourced to other companies (Simchi-Levi, Kaminsky & Simchi-Levi, 2008). The design and production of the electronic systems used in the vehicles are outsourced to its partners. Some of the partners include Araco who produce all the seats, roof linings, and door trims (Bloomberg, 2017).
Cost Centers
Figure 1 showing the cost drivers in the automotive industry
Source: (Kallstrom, 2015).
The biggest cost driver in the automotive industry is the raw materials for the various parts of the vehicle. At 21%, the direct labor in the manufacturing and assembling of the vehicles contributes less than half of the total costs attributed to the raw materials (Kallstrom, 2015).
Revenue Streams
The main revenue stream for Toyota is the sale of the vehicles that it produces. The company has various markets in which it operates. The company also draws revenue from the sale of spare parts to various dealerships and mechanic shops in different markets. The company also seeks to enhance its revenue by reducing wastages in labor and raw materials, the two biggest cost drivers in the industry (Kallstrom, 2015). Additionally, the reduction of costs is also seen as a strategy to enhance revenue at Toyota (Harper, 2014).
Channels
The success of Toyota is dependent on among other factors, its distribution channels. The company operates a network of dealerships in various markets around the globe. The dealerships sell the manufactured cars on behalf of the company (Parker, 2016). The company also uses four sales channels namely Netz, Toyopet, Toyota, and Corolla (Parker, 2016).
Key Resources
The key resources at Toyota include the principles of long-term management adopted by the company, the mutually beneficial relationships with key partners and management principles adopted by the company including the just in time system, total service management system and total production system. The Toyota value is another key resource of the company (Toyota, 2004).
The value in the company is created around the customer. The first element of the Toyota value is the research development and the manufacturing philosophy adopted by the company. The company emphasizes on the quality, durability, and the reliability of the vehicles manufactured by the company (Toyota, 2004). The manufacturing philosophy also encourages value for money, environmental consciousness, safety, and convenience for the customer (Toyota, 2004).
The other element of Toyota value is the company’s philosophy for sales and marketing. The company ensures that there is a close engagement of the customer to determine their needs, employing measures to meet the diverse needs of the customers, and also ensuring that the products beings sold and the services offered are of high quality (Toyota, 2004).
The final element of the Toyota value was its corporate attitude. The biggest element of the corporate attitude is that the customer comes first. This element is featured in the two other aspects discussed above, and it influences many of the processes at the company. Part of the corporate attitude also revolves around good corporate citizenry. This calls on the employees at the company to employ responsibility and diligence in their duties.
Key Activities
One of the key activities at Toyota is the production of the vehicles. This is the core activity around which the business is based. The company also engages in the automation of processes. The company seeks to reduce the cost of production in order to increase its bottom lines. The automation of the processes at the company helps reduce the direct labor costs, which as reported by Kallstrom (2015), is the second most significant driver of costs. In keeping with the Toyota value, the company also engages in the management of customer relationships.
Value Propositioning
Toyota offers value to the customer in different ways. The first element of the company’s value propositioning is the high quality of its vehicles and the affordable prices for which they are sold. Additionally, the rate of depreciation of the vehicles that the company sells is low. This means that the vehicles hold their value for a long time. This is important for a customer who wants to resell his vehicle. The just in time delivery system that the company uses also ensures that the cars are delivered to the dealers and the customers promptly without the company incurring the costs of inventory.
Relationships
As highlighted before, the customer is very important to the company and the Toyota value is designed around meeting the needs of the customer. As such, it is important to manage the relationships with its customers. Toyota achieves this feat at the peripheral level as well as the direct and personal level. At the peripheral level, the company manages its customer relationships through communication over the telephone and other virtual communication means. At a direct and personal level, Toyota uses company-run service centers to meet the needs of the customers.
Clients
Toyota uses market segmentation to determine the needs of the customers in various market segments so as to design the vehicles to meet their needs. Through its differentiation approach, Toyota designs vehicles to be used by customers with different needs and in different market segments
Common Problems at Toyota
In the recent past, Toyota has been faced with quality problems where it had to issue numerous product recalls to make remedies for various problems with different parts of the vehicle. As highlighted earlier, 70% of the parts used in the manufacturing of the vehicles are outsourced to other companies. The only component that is designed and produced in-house is the engine that is used in the vehicles (Simchi-Levi, Kaminsky & Simchi-Levi, 2008).
Figure 2 showing the revised business model canvas
The business model canvas generated earlier represents the Toyota way. The model does not need to be changed significantly in order to solve the prevailing problems at the company. However, the model needs to include the management of outsourcing providers as one of the key activities. It is important because the biggest proportion of the components for the car assembly are outsourced. The management of the outsourcing providers entails the sourcing of new partners who can guarantee the quality of the products, assessing the processes to ensure that are flawless, and devising contacts that hold the outsourcing providers partially responsible for any foreseeable quality products.
References
Bloomberg. (2017). Company Overview of Araco Corp. Retrieved from http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=6417117
Harper, G. (2014). The role of Business Model Innovation: in transitioning ULEVs To Market. Retrieved from https://orca.cf.ac.uk/71735/1/Gavin%20Harper%20PhD%202015.pdf
Kallstrom, H. (2015). Raw materials – the biggest cost driver in the auto industry. Retrieved from http://marketrealist.com/2015/02/raw-materials-biggest-cost-driver-auto-industry/
Parker, J. (2016). Overview: All You Need to Know about Toyota Motor Corporation. Retrieved from http://marketrealist.com/2016/05/overview-need-know-toyota-motor-corporation/
Simchi-Levi, D., Kaminsky, P. and Simchi-Levi, A. (2008). Procurement and outsourcing strategies. In Designing & managing the Supply Chain. New York. McGraw-Hill Companies, Inc.
Toyota. (2004). Cooperating with business partners. Retrieved from http://www.toyota- global.com/sustainability/report/sr/04/pdf/p70_71.pdf
