Interview on August 15, 2008, with Achim Paechtner, Former Senior Manager at Toyota of Europe
The purpose of the interview was to understand the differences of the automobile supply chain in Europe versus North America. Achim Paechtner identified four major differences in Europe:
- With retailers, the major challenge Toyota faces is the heterogeneous environment: 27 countries, different practices, and history. In addition, exclusive and selective distribution was allowed in the past, but now OEMs have to choose one or another distribution agreement. Toyota chose exclusive distribution under which retailers are given a sales territory but retailers can sell to third parties like supermarkets.
- Retailers are reluctant to share data; for example, they do not share actual sales data with Toyota. That reluctance creates a challenge for sales forecasting. Toyota is working to improve the forecasting process. In Spain, retailers send forecasts at N 3 months, the retailer’s forecast is used, and that is what Toyota can expect. In Germany, retailers forecast. If retailers are keen to get cars, they provide more accurate forecasts.
- The car has a unique social status in Europe. The retailers are smaller than elsewhere, so the available choice from the retailer’s lot is limited. However, there is great demand for individualized cars, driven by domestic manufacturers that offer many million combinations. Other manufacturers (e.g., BMW and Mercedes) have many options. Toyota is implementing the “Feature Model” strategy as a marketing and sales strategy to accelerate vehicle turns. The concept is to identify the most popular mix—for example, with the Yaris, the goal would be to identify the combinations that represent 80 percent of sales—then advertise, keep the car in the showroom, and ensure that the retailer has demo cars and the vehicles in stock. That objective is a challenge in Europe because the habit of people is to have a dream car with full spec. As the car becomes a status symbol with individualization, delivery time increases. Toyota has tried to offer packages of options to counteract this impact on lead time and to streamline the mix. The hub also does some accessory installation, which is termed “postproduction options” (PPOs). The hub may change the car to generate a source of profit. So the hub manager may order a car with no radio or CD player, and use a cheaper or better source to install the item. The retailer may do the same to generate an additional source of profit.
- The wait to get a car is longer. How long does a customer wait to get a Toyota? That depends on the model involved, where the car is manufactured, and where it is sold. Certain models of Corollas are made in South Africa, others in the United Kingdom. The time varies depending on where the car is built—six to eight weeks to ship from South Africa, but only three days from the United Kingdom. Toyota tries to centralize stock so that asset swapping reduces time. (When a car is at the hub, it may or may not be allocated to a dealer, depending on what country is involved. The central stock is owned by Toyota, not allocated to the dealer. Though cars would be allocated to dealer orders, there are dummy orders placed so that there is adequate stock.) Delivery time for special orders varies from 10 days to five to six months. The general plan is to supply 50 percent from the hub within one week to 10 days, 30 percent from the pipeline, and the rest individualized—for the minicar and small car segment. One of the causes for long lead times might be Toyota’s global sourcing strategy. The decision to source parts and vehicles everywhere in the world, where prices are the lowest and quality fits, leads indeed to very long lead times (e.g., with parts from Turkey, South Africa, and Thailand for European production or South African vehicle production).
The Toyota supply chain is complex and evolving. That fact is a reminder that the company faces the same set of business issues as many other firms that operate in the same environment. Nevertheless, the leadership provided by Toyota has resulted in a tremendous alignment of supply chain participants excelling at the task of creating value. That feat is in no small measure due to the fact that the supply chain participants feel a sense of identity with the Toyota Way and the v4L principles.