Toyota Motor Corporation is a leader in the automobile industry with a reputation for reliability and outstanding customer service. The firm attributes much of its success to the Toyota Way, which is the foundation of its famous Toyota Production System, or Lean manufacturing techniques. Information technology is an invaluable tool in Toyota's ongoing efforts to be Lean. One example of Toyota's further realization of Lean is Toyota Motor Europe's new Oracle-based vehicle-order-management system. Ludo Vandervelden, Toyota Motor Europe's vice president of Finance and Accounting for the Information Systems Group and Vehicle Logistics Group, contends that the basic principal of Lean is to avoid waste in order to gain time and reduce costs. If an organization is Lean, then it has opportunities for continued improvement. Toyota decided that Oracle E-Business Suite would be at the heart of its new vehicle management system because of Oracle's technology and applications, as well as its flexibility and ability to adapt quickly to change. Learn how the new vehicle management system helps Toyota maintain Lean management and Lean operations while maximizing customer satisfaction.

As Published In May 2006

Ready to Roll
By Katheryn Potterf

Lean is driving more than manufacturing at the company that created the Toyota Production System.

No wonder Toyota Motor Corporation is the envy of other manufacturers. The quality and reliability of its vehicles are the gold standard of the industry. Customer loyalty is so high that Toyota can make money without offering extreme discounts. Globally, the company's net income for fiscal year 2005 (which ended March 31, 2005) rose to US$10.9 billion—more than the profits of GM, Ford, and DaimlerChrysler combined. But, arguably, the crown jewel of Toyota is neither its products nor its profits. Rather, it is something less tangible but more essential. Called the Toyota Way, it is the foundation of the Toyota Production System, or Lean manufacturing techniques. In the largest sense, it is a mindset or management philosophy that becomes apparent when you talk to Toyota executives such as Ludo Vandervelden, who practically lives and breathes it.

Covering a Lot of Turf

It's a good thing that Ludo Vandervelden, who is based in Brussels, Belgium, is in the car business. He has lots of territory—and kilometers—to cover. As Toyota Motor Europe's vice president of Finance and Accounting, Information Systems Group and the Vehicle Logistics Group, Vandervelden travels frequently, supporting the activities of 26 national marketing and sales companies (covering 48 countries) and a pan-European network of 2,988 dealers. Most of these dealerships are independently owned.

Altogether, Toyota Motor Europe employs more than 55,000 people either directly or indirectly through its dealerships. Toyota Motor Europe's head office in Brussels houses key activities for both Toyota and Lexus, serving as the nerve center for all European operations, including manufacturing and engineering, marketing and sales, network development and brand management, strategic and product planning, logistics, and customer service.

Now in his eighth year at Toyota, Vandervelden was initially hired to coordinate and improve Toyota and Lexus distribution in the European market, including increasing the timeliness and quality of delivery, improving safety during the transport of vehicles, and reducing the space needed for storage. It wasn't long before Vandervelden's role expanded to include information technology—basically to ensure that Toyota Motor Europe's Information Systems Group would support and enhance the company's delivery and logistical capabilities. Since the beginning of this year he also oversees the finance and controlling activities of marketing and sales.

Considering the large number of vehicles, organizations, and stakeholders involved, coordinating logistics is no easy feat. In 2005, Toyota Motor Europe sold 964,208 vehicles, an increase of 5 percent over the previous year. And the company aims to sell more than one million vehicles in 2006. Somehow all these vehicles have to find their way from the factory to the customer—and in the fastest, safest, and most efficient way possible. That's where Vandervelden and his team must work their magic.

Promoting a Win-Win Philosophy

"We want the customer to receive the car they want, when they want it, without additional delays or quality issues. My philosophy has always been that you can increase customer satisfaction while at the same time reducing costs," says Vandervelden, who defines a satisfied customer as one who returns. "I believe that is what really makes Toyota unique among manufacturers—namely, that we have a primary focus on making the customer happy, and this is the long-term perspective for all our actions. At the same time, we plan for the needed profitability and reasonable payback on all the projects we undertake—but without losing the ability to come up with creative ways to make customers happy."

For Vandervelden, it's all about win-win, not only for the company but also for the customer. "People might be astonished by this: Very often in Europe, manufacturers believe that you need to spend more if you want to make your customers happy," notes Vandervelden. "But we have proven quite to the contrary that you can achieve cost reductions and, at the same time, make your customers happy—through the implementation of smarter business processes."

Vandervelden also takes a holistic and long-term view of the way processes work, rather than looking at things from the viewpoint of a single functional area or with the aim of achieving only short-term gains. "We have a vision for logistics that integrates the total selling process, from the customer, to the retailer, to the national marketing and sales companies, to the European headquarters, to the factories—then back into the supply chain, from the factories, to the retailers, and so on," says Vandervelden. He looks at business flows throughout the extended enterprise, including the web of interrelationships between customers, retailers, and distributors, with an eye toward managing the whole process in a way that maximizes value to the customer.

Fostering an Environment of Respect— and Respect for the Environment

Being customer-centric is part of the Toyota Way, which is based on "pure logic and pure respect," according to Vandervelden. "We define respect in the broadest sense—respect for customers, respect for colleagues, respect for the community, and respect for the environment."

Toyota positions itself as an environmentally conscious company, and it has the track record to prove it. In 1997, Toyota created the Prius, the world's first mass-produced hybrid car. (A model is called a hybrid when it uses at least two types of energy sources; the Prius has both a gas engine and an electric engine.) The Prius is fuel-efficient and made of 90 percent recyclable materials. Toyota is driven by the vision of a sustainable future. If the typical company thinks ahead in terms of the next fiscal year, Toyota thinks ahead 5 or even 50 years, in terms of its commitment to preserve the environment for future generations. Progressive companies like Toyota have discovered that Lean initiatives and green initiatives can work together to reduce waste and conserve resources. Increasingly, the "industrialist versus tree hugger" mentality that has typified many manufacturers is starting to become a relic of the past. Indeed, with worldwide material shortages and record-high fuel prices, thinking "green" or "clean" may be the only way that companies will be able to achieve long-term sustainability. (See "Running Lean and Green".)

"Aside from respect for the community and the environment, the idea of respect as part of the Toyota Way is also valid and applicable toward the way that we work internally with our colleagues on projects and on activities," says Vandervelden. He adds that the Toyota Way is based on "clear and open communication, but with a challenging spirit." For example, Toyota highly values the input of its employees, all of whom are trained in the Toyota Way. "We have to get 100 percent consensus on all projects, including IT projects, thoroughly considering all options." And, what's that about a "challenging spirit"? For one thing, it means that Toyota employees are continually challenged to find new strategies for reducing waste.

Employing technology in the Quest for Excellence

Fullspeed Ahead Favorite car (make & model): Lexus RX400h, the power hybrid car for all purposes Favorite travel destination: Greece and Turkey. "Both countries are the historical center of our civilization. They are a perfect example of how a fusion in thoughts can generate over time the basis for a more civilized world whilst simultaneously demonstrating how separation can be the origin of long-lasting conflicts." What you love about Tokyo: "The cleanliness of Tokyo, combined with the care of people whilst they are moving en masse, is surely something to appreciate. But what I really love is the superb sashimi that you can eat in small restaurants close to the fish market." Hobby or favorite activities: Reading—mainly histories and books on sailing. "Cooking is my most relaxing hobby. I really enjoy preparing a nice meal for my friends and enjoying it with excellent wine." What you carry in the car trunk: Mostly paperwork Education: Commercial engineer degree from Brussels University and a Master of Science in management from Boston University Favorite wine: Opus One, Château Haut Marbuzet Book on the nightstand: Collapse: How Societies Choose to Fail or Succeed, by Jared Diamond Favorite musician: Mozart Languages spoken: Dutch, English, French, German

"The basic principle of being Lean means that you avoid waste. By eliminating waste, you can gain time or reduce costs or avoid wasting other people's time," explains Vandervelden. "If you apply this basic principle vigorously and logically, then your organization becomes Lean. And once you're Lean, you still have opportunities for improvement." That's what Toyota means by Kaizen, or continuous improvement. "It is an ongoing drive for excellence," he says. "You're never finished."

Toyota views IT as an indispensable tool. "In all our activities, we look at IT as an instrument for the further realization of Lean," says Vandervelden. One clear example of this is Toyota's Oracle-based vehicle order management system: "You cannot deal with the complexity or the number of product models that we have on the European market—with so many different spec codes and different pricing levels—without having an appropriate IT system."

With the vehicle order management project, Vandervelden's goal was to reduce the time it took between placing a customer order and delivering the vehicle to that customer. At the same time, he sought to reduce errors resulting from inaccurate creation of data in the planning or ordering processes. Errors, after all, are another form of waste that must be eliminated. "If you have an inaccurate planning or ordering process, then you have a big risk of ending up with a yard full of vehicles for which you have no customers. That yard might be very vast, but it will need to be expanded every time you make an error," he elaborates. "Now, if you have better control of the planning data and better transparency into the delivery data, then you can avoid waste by reducing the space that is required to store the vehicles in the intermediary step in the delivery to the customer." Ultimately, the idea was to provide the distribution channel with the most-accurate availability information to aid retailers in ordering and selling.

What kind of system would allow Toyota Motor Europe to accomplish this?

Rolling Out the Vehicle Order Management Solution

After considering solutions by other applications vendors, Toyota Motor Europe's project team arrived at a consensus. It would go with Oracle E-Business Suite as the center of its new vehicle order management solution. Why Oracle? The key differentiator of Oracle technology and applications, according to Vandervelden, is flexibility, or the ability to adapt to change rapidly. It also helps that Oracle technology and applications can be easily integrated with legacy and third-party systems. Both capabilities are critical when you're dealing with so many independent dealerships and national marketing and sales companies, all of which still maintain separate IT systems, running on a variety of platforms. Toyota, with the help of Oracle Consulting, defined and refined a plan during an extensive proof-of-concept period. Then Toyota worked with Oracle to build the "European footprint," or the core of the solution, aiming to cover at least 80 percent of all solution requirements while still allowing the different countries the flexibility to configure 20 percent of the solution to their specific needs.

Toyota Motor Europe's Oracle-based vehicle order management system encompasses several business processes. It all starts with the customer choosing a car and considering all the various options, such as tinted windows, air conditioning, and a navigation system. The dealer configures a car with all its possible options in front of the customer, prices the car and options, and locates the best available car and options in the supply chain—extending, if necessary, to future production—and places the order through the national distributors. The national distributor consolidates the order with those of its other retailers and, in turn, places an order through Toyota Motor Europe, which, after other levels of consolidation, places an order with the factories. The national distributors can also manage their supply chain against the orders of different dealers and can, for example, "swap" cars with their various retailers.

Snapshot Toyota Motor Europe www.toyota-europe.com Headquarters: Brussels, Belgium Oracle products and services: Oracle9i Database; Oracle E-Business Suite, including Order Management, Financials, Quoting, Advanced Pricing, Inventory, Configurator, Bill of Materials, Advanced Product Catalog, Master Production Scheduling, Installed Base, Workflow, Sales Online, Customers Online, Trading Community Architecture, CRM Foundation, Marketing Online, and Costing; Oracle XML Gateway; Oracle InterConnect; and Oracle Consulting. Other products: IBM RISC servers

The car is then shipped and invoiced—factory to HQ, HQ to national distributor, national distributor to retailer—and all accounting processes are automatically triggered. This is possible because the vehicle order management system is integrated with the financial applications of Oracle E-Business Suite. Beyond that, the system also tracks the car and its history, throughout the entire lifecycle. Plus, it supports the monthly planning and forecasting cycle.

With the assistance of Oracle Consulting, the pilot was successfully launched in Sweden last year. Already, according to Vandervelden, the solution is making "a good contribution in terms of net present value." Toyota plans to roll the system out to the other European countries, so that it will eventually support the sale and management of a stock of more than a million cars per year through the pan-European network of 3,000 dealers.

Always Looking Ahead: Aligning Production with Demand

For Toyota, aligning production with customer demand is critical. Its "just-in-time" supply chain concept has revolutionized the entire manufacturing industry. The Toyota Production System calls for the end product to be "pulled" through the system, starting with the customer order. The idea is to eliminate the large product inventories required by conventional "push" systems. But to produce the right product in the right quantity at the right time requires good planning.

Vandervelden, in fact, plans to use the vehicle order management system for enhancing the planning process. "Basically what we do is ensure, through a planning process, that we know what is happening in the market and that we correct—constantly, if possible—the supply situation in alignment with the market situation. The biggest waste that you can have is a vehicle that is built for which you do not have a customer, because that vehicle has the risk of ending up on the yard without ever finding a customer. So, as part of the Toyota philosophy, we have to make sure that we only build vehicles for which we have customers."

How can you do that? According to Vandervelden, "It requires a very strict alignment process in planning and collecting customer contract data. Based on that, you need to make a fair assumption about the trends in demand, in the months and years to come. Now, the vehicle order management system, as we have developed it, will be a tool through which we could manage that part of the process, in a better, more structured way than we have done up to now, which would then in turn help in our activities, allowing the manufacturing units to plan better for what would be required."

Not only that, but the vehicle order management system will also lead to better allocation, Vandervelden asserts. "With improved information transparency, we would be able to better readjust, on a short-term basis, our allocation of available product to the markets that would be in high demand, as compared to those that would not be so interested in receiving additional production of a specific model type. It will also allow us to reduce stock by helping us do a better job at sharing stock in the allocation process."

"Our new Oracle-based vehicle order management solution is the vehicle management system that is comparable to the Toyota Production System for ensuring Lean management and Lean operations while maximizing customer satisfaction," says Vandervelden.

And, given Toyota's standards of excellence and its relentless pursuit of perfection, those words speak volumes.