Kanban System - Parts Procurement : Toyota Motor Thailand

Credit : http://hdl.handle.net/10086/19161
Title : Milk-run logistics by Japanese automobile manufacturers in Thailand
Author(s) : Nemoto, Toshinori; Hayashi, Katsuhiko; Hashimoto, Masataka
Citation : Procedia Social and Behavioral Sciences
Issue Date : August 2010


Profile of Toyota Motor Corporation :

Toyota Motor Corporation is one of the biggest automobile companies in the world with sales of about 26 trillion yen and with an operating profit of about 2 trillion yen (as of March 2008). The total number of vehicles sold worldwide has already reached 8.91 million, with about 2.19 million vehicles sold in Japan and 6.73 million vehicles sold in foreign countries. If we look at the breakdown of vehicle sales by region, North America has already surpassed the total vehicle sales of Japan with about 2.96 million, while Europe and Asia have total vehicle sales of 1.28 million and 0.96 million, respectively. However, the growth of vehicle sales in the Asian region has been increasing rapidly and growth rates are now relatively higher than that of Japan, the U.S. and Europe.
Toyota Motor Corporation is rapidly increasing its overseas production bases to cope with the expansion of the overseas market, and in fact, now maintains 52 production bases located in 27 countries. And because it is important to procure parts, in particular low-value added or bulky ones, from the surrounding areas of these production bases, they encourage potential local manufactures to provide the parts and develop efficient pickup network to connect the suppliers in different urban traffic conditions, which is called Milk Run logistics.

Method of Production and Procurement :
The Toyota Production System (TPS) is developed as a systematized production method employed in a manufacturing plant. In Toyota view, however, TPS covers parts procurement and then parts pickup in urban areas as well.
An important concept in Toyota Production System (TPS) is Just-in-time (JIT) production which eliminates, as much as possible, wastes resulting from waiting, stock reserves, and defective parts (Monden, 2006). For example, if only necessary parts are produced in a small lot and transported to the assembly lines, they could reduce the stock beside the assembly lines which also minimizes the number of defective parts produced. Another important concept is production leveling which means to minimize the difference between the amount of production and the demand. If they produce different vehicle models one-by-one in the same assembly line in order to reflect the demand, the volume of necessary parts per hour is leveled and then each truck is expected to pick up the same amount of parts regularly in the Milk Run.

This type of leveling has become a mechanism to synchronize the entire process with the takt time (production speed) determined from the number of vehicle units of each model as specified in the monthly production plan and the monthly operating time. The sequencing, work procedure, and planning of personnel according to vehicle model are drawn up to complete each work process within the calculated takt time.Stock items of parts necessary for the related process are put on a shelf (called a “store”) located at the line side of the assembling process.
The replenishment of parts in the store is linked by instruction information through a “kanban”. The “kanban” has accomplished to move the process always in union with the items, completing each work process within the takt time, and making the entire lines synchronized. This mechanism is also similar between suppliers. The required parts must be supplied only at needed amounts coupled with necessary timing, and must neither cause any excessive parts inventory nor create any stock out in each work process. From the viewpoint of stock reduction, the ideal situation is to decrease the number of “kanban” cards and quickly replenish the previous process as soon as parts inventory in the assembly line becomes zero. In cases when suppliers are near the assembly base such as in Japan and the scale of production for each supplier is large enough, it becomes possible to perform frequent parts delivery (i.e. JIT Just-in-time delivery) with the required amount and necessary timing from each supplier.

Toyota Logistics in Thailand :
Thailand is one of the centers of Toyota Motor Corporation’s global bases that exert efforts to the production of automobiles employing global strategies. Although some strategic parts used to assemble the global car are imported from the ASEAN region in which a system of mutual supplementation is already established, parts that are procured in Thailand account for about 80% (monetary base).
In Thailand, some original parts procurement systems are being constructed and one of the systems in recent years is the Milk Run logistics. The Milk Run logistics is becoming one of the standard systems of an overseas version of JIT (Just-in-time) distribution. At overseas production bases, the Milk Run logistics in the local country and the above-mentioned international distribution system are combined, and a global procurement logistics system is formed. The following discusses the operations of the Milk Run logistics through an analysis of the interview surveys conducted at TMT (Toyota Motor Thailand) and the 3PL provider TTKL (TTK Logistics) (Thailand).

Overview of Parts Procurement :
Toyota Motor Thailand (TMT) maintains three assembly bases located in Samrong (including TAW), Gateway, and Ban Pho, and produces 490,000 vehicles a year (in which about 200,000 are for export). This study investigated parts procurement logistics in the Samrong plant.
TMT Samrong plant manufactures Innovative and International Multi-purpose Vehicles (IMV) having variations of minivans, SUVs, and trucks (two-seaters, four-seaters, and four-door types) adjusted for the market needs in each country while they share a common platform and the other major important parts are common. Moreover, the Samrong plant serves as a packaging/shipment base for
export to bases outside Thailand.
At TMT, parts are procured from about 120 suppliers. These suppliers are allocated throughout Thailand following a division of five zones in which the Milk Run logistics is performed (one run made in a range of 4 hours). Two logistics service providers undertake the Milk Run logistics which is implemented using about 600 trucks. One of the larger companies undertaking the Milk Run logistics is TTK Logistics (Thailand)which is the focus of this survey.

The article discussed the current state of logistics procurement of TMT in Thailand which focused on the Milk Run logistics. It was revealed that TMT (Toyota Motor Thailand) has established an advanced procurement system that synchronizes with the production process based on the Just-in-time (JIT) concept. This was accomplished even when faced with conditions that are totally different from that of Japan, especially the more serious problem of road congestion. The features of the Milk Run logistics are enumerated below.

First, they established a system which synchronized production processes owing to close coordination with logistics companies. In the Milk Run logistics, high reception frequency of goods (4 times a day) is performed to maintain small-lot frequent delivery to the assembly lines as much as possible (36 times a day). In addition, a P-lane (Progress lane) has been installed in order to reduce the gap between transport frequency and production leveling. Rather than saying that this permits buffer stocks between procurement and production, this works as a mechanism to make stocks visible and to conduct manage the production processes.

Second, in order to synchronize the parts procurement process and the production line operations, the actual operations and the progress of the Milk Run logistics are monitored real-time through the use of a GPS installed in the vehicle. In addition, the synchronized procurement results in eliminating waste and maintaining speed as much as possible. A transport system related to modularization which considers container size and truck’s space dimensions is also being developed to increase transport efficiency and transport quality.

The automobile industry has been leading globalization efforts for a long time now and the Toyota Motor Thailand (TMT) case explained a state-of-the-art logistics in which the JIT (Just-in-time) concept was tailored to suit the conditions of foreign countries. In foreign countries where the density of parts suppliers is low, Milk Run logistics has expanded, spreading also in Europe, the United States, and even China. Moreover, the Milk Run logistics has spread not only in the automobile industry but also in the consumer electronic and electro-mechanical industries.

The Milk Run, which puts the assembly plant at its core, is a frequent parts procurement system implemented in a comparatively small urban region, or a virtual expanded factory yard. Its implications for city logistics are:

First, Milk Run logistics has been planned to improve loading rates at possible levels and reduce the number of trucks and travel distances. As a result, it is an excellent transport method in which exhaust gases from trucks can be controlled. Therefore, the promotion of Milk Run logistics can be highly evaluated from the viewpoint of environmental policy.
Second, because the Milk Run logistics requires accurate management based on the operational plan, we could introduce an urban logistics policy to increase transportation reliability. For developing countries, a road infrastructure that can make scheduled operations possible and a road quality that does not cause damage to the transported goods are required. For developed countries, policies such as road-use control systems could be introduced to prioritize vehicles with high loading factors which are being implemented in Amsterdam for example.
Third, consolidation using standardized returnable boxes and containers are implemented to increase transport efficiency in Milk Run logistics. TMT (Toyota Motor Thailand) provides standardized containers adjusted to truck dimensions in Thailand, while the sizes are not standardized even among the automotive companies in Bangkok.
Fourth, the paper clarified that the Milk Run logistics plan is an offshoot of the production plan. Hence, when performing urban logistics analysis and establishing city logistics policies, it is important that factors that affect production plans of the company are adequately considered.

Finally, Milk Run logistics is performed through close coordination and linkages between the automobile manufacturer, parts supplier, and logistics service provider, and its influence on regional transport becomes more significant if the scale of the Milk Run logistics becomes larger. In other words, Milk Run logistics is purely private efforts with economic motivation, but it has positive external effects in society as well. For this case, public involvements may be required for planning Milk Run logistics which include the cooperation of related local governments and affected residents.