Answer to Question #182863 in Management for Shaun

Question

Toyota uses a principle that ensures that inventory arrives exactly when required. Identify and discuss the principle that Toyota uses.

Answer 1

Toyota Inventory Principle

Toyota produces vehicles through a system which makes vehicles ordered by customers in the most efficient and quickest way so that to deliver vehicles as swiftly as possible. The automaker utilizes Toyota Production System (TPS) which has an integral inventory principle known as Just-in-Time (JIT). Utilizing JIT as a strategy enables Toyota to produce vehicles based on the dealers’ received orders and the process involves the company using its supply chain in a way that only the needed parts for manufacturing vehicles are received on time.

By using JIT, Toyota orders inventory on an as-needed basis which translates to the company not holding any safety stock therefore operating with continuously low-level inventory. This strategy is helpful especially in lowering Toyota’s inventory carrying costs and decreasing waste while increasing production efficiency. The JIT inventory principle has provided Toyota with a shift away from the “just-in-case” strategy which requires carrying larger inventories for cases when there is need to produce more units due to demand. As a result, Toyota minimizes vehicles parts inventory and emphasizes the significance of work efficiency which means that cars must be built to order and every component should perfectly fit first time because no alternatives are available.

JIT as an inventory principle offers Toyota the ability to keep production process short and if needed move on to new products easily and quickly. As a vehicle manufacturing company, it does not require to spend more money on raw materials because it only orders the exact production materials which frees up money flow for other uses.