Business Process Reengineering

Cost Benefit Analysis Toyota

Presented by :
Anirudh Rohit B 42 Kartikeya Raina B 45 Rahul Ravi B 49 Saheb Ali B 53 Sandeep Yadav B 55

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SCOPE

Introduction to the topic Introduction to case Objective Assumptions Observation Analysis of collected data Implementation Conclusion Recommendations Bibliography
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INTRODUCTION

CostBenefit analysis or BenefitCost analysis

Economic decision-making approach Used in government and business Assessment of whether a proposed project, programme or policy is worth doing OR - choose between several alternative ones. Compares total expected costs against the total expected benefits
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INTRODUCTION

Benefits and costs are expressed in money terms, and are adjusted for the time value of money All flows of benefits and flows of project costs over time are expressed on a common basis in terms of their "present value The aim is to gauge the efficiency of the interventions relative to each other and the status quo Closely related to
o

cost-effectiveness analysis costutility analysis Economic impact analysis 4/20/12

INTRODUCTION
Key CostBenefit Indicators : NPV PVB PVC BCR NB (Net Present Value) (Present Value Of Benefits) (Present Value Of Costs) (Benefit Cost Ratio = PVB / PVC) (Net benefit = PVB - PVC)

NPV/k (where k is the level of funds available)

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CASE INTRODUCTION BPR Initiatives in Toyota Motor Corporation Australia (TMCA)

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HISTORY OF TOYOTA AUSTRALIA

Toyota Motor Corporation Australia (TMCA) is a subsidiary of Toyota Motor Corporation (TMC) Toyota Australias origins go back to 1958 The commercial vehicle business became Thesis Toyota in 1971 In 1988, Toyotas local operations were unified to form Toyota Motor Corporation Australia Two modelsthe Camry and Avalon series

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TOYOTA AUSTRALIA BUSINESS SCENARIO 2004-05 Second largest vehicle manufacturer in Australia Exports - over 60,000 cars to over 20 different commercial locations worldwide in 2003 Toyota is a people oriented organization that sees the development of its staff as a foundation stone for future business prosperity Toyota has long been recognized as one of the most efficient manufacturers in the world 4/20/12

TMCA - SUPPLY NETWORK

The basic of Toyota Australias supply network:
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Supplier Association Effect of knowledge sharing network on supply chain coordination Upstream and downstream entities

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TMCA - CHALLENGES
After a series of research, few critical factors were identified:
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Bundled outsourcing Logistic challenge Import of vehicle components

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OBJECTIVES

Increase domestic supplier base Linear supply chain Reduce reliance on forecast planning for production Increase Vertical industrial relations environment - Enabled through BPR initiatives & IT Solution To Evaluate options using CBA
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ASSUMPTION
Valuation

The costs of an intervention are usually financial Evaluating benefits - list all parties affected by an intervention and place a value, usually monetary, on the (positive or negative) effect it has on their welfare as it would be valued by them Putting actual values on these is often difficult; surveys or inferences from market behavior are often used.

Time

All relevant costs and benefits put on a common temporal footing using time value of money formulas This is often done by converting the future expected streams of costs and benefits into a present 4/20/12amount value using a suitable discount rate

ASSUMPTION
Risk and uncertainty

Risk associated with the outcome of projects is also usually taken into account using probability theory. This can be factored into the discount rate (to have uncertainty increasing over time), but is usually considered separately. Uncertainty in the CBA parameters is evaluated using a sensitivity analysis, which shows how the results are affected by changes in the parameters

The accuracy of the outcome of a costbenefit analysis depends on how accurately costs and benefits have been 4/20/12

ASSUMPTION

Studies indicate that the outcomes of costbenefit analysis should be treated with caution because they may be highly inaccurate Rely on past projects Rely on the project's members to identify the significant cost drivers Rely on very crude heuristics to estimate the money cost of the intangible elements

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OBSERVATI ONS

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SOLUTION FOR TMC

Enterprise Resource Planning System (ERP)

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ENTERPRISE RESOURCE PLANNING SYSTEM

One of the largest automotive companies in the world Total of 51 overseas manufacturing companies in 26 countries / locations Overseas network consisting of more than 160 importers / distributors and numerous dealers

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ENTERPRISE RESOURCE PLANNING SYSTEM

SAP Automotive ERP Suit Main means of information flow between Toyota and its counterparts worldwide Tighter collaboration links With SAP, gain:
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Outstanding strategic Operational Financial Marketing positions

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E-MARKETPLACE

iStarXchange Initiative with i2 Technologies Inc. Allow subscripted members able to view a single catalogue to:
o o o o o

view information on parts checking the prices and availability conduct transaction online forecasting supply and demand delivery cycle
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Improved forecasting Enhancing the planning

SUPPLIER WEBSITE IMPLEMENTATION OF A SUPPLIER WEBSITE

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SOLUTION DESCRIPTION

Goal : Provide a Comprehensive Domestic Supplier Base SOLUTION: Implementation of a supplier web site

U.S. version of Toyota supplier web site www.toyotasupplier.com

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SUPPLIER WEBSITE

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SUPPLIER WEBSITE
Reason Many of TMCAs car components have to be imported due to the lack of domestic suppliers
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Application of the right part at the right place at the right time concept or JIT to lack the optimal efficiency throughout the TMCA supply chain.

The implementation of a comprehensive domestic supplier base is essential. Provision of collaborative web site linking current TMCA online presence which provides similar functions to the Toyota suppliers web site currently in use in North America
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Allowing TMCA to have comprehensive overview of their current suppliers. Also reducing the red-tape involved to be part of the 4/20/12 TMCA supply chain; and most importantly

SUPPLIER WEBSITE

Web site functions

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Potential suppliers will be able to acquire information on the requirements of becoming part of TMCAs supplier network

Potential suppliers need only to download/complete an online form to join the network Information such as
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Suppliers guide Community activities; and Any core information about TMCAs current suppliers network can be obtained from the website.

Connection links provided to domestic e-Marketplace

Registered e-Marketplace members:

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Able to enjoy the privileges on what the e-Marketplace is offering

To be discussed in Solution 2

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SUPPLIER WEBSITE

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SUPPLIER WEBSITE

TMCA focused on core competencies in

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high-end design engineering and system integration

Toyota Australia needs highly focused core competency oriented suppliers. Small and diverse companies though have the ability to display such potential to add
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Innovation Flexibility and

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SUPPLIER WEBSITE

TMCA first has to open its doors to the domestic market suppliers
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Invest in their new concept of supply base

Target: 100% domestic suppliers

Supplier-centric web site Provide

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opportunities to expand TMCA supplier network.

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REAL TIME INVENTORY TRACKING MODULE

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SOLUTION
Real Time Inventory Tracking Module Why did introduce this module?

GOAL : Provide real-time updates on demand and supply allocation Solution: Real-time tracking function module incorporated into the current electronic BEA system
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GRAPHICAL OVERVIEW

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GENERAL OVERVIEW

A complete modular solution, reduce the bullwhip effect which causes shifts in orders up and down the supply chain, eliminating any stockpiling cause by the current forecast method of determining the quantity of components needed for the productions.

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Analysis Of Collected Data

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FINANCIAL ANALYSIS
Development Cost :
Team of developers required by TMCA:
1 Project Leader 2 System Analysts 10 Programmers
SALARIES AND WAGES Team member Project Leader Senior system analyst System analyst Programmer analysts Programmers System programmers Total salaries and wages Salary/wages for project $50,000.00 $35,000.00 $30,000.00 $60,000.00 $160,000.00 $50,000.00 $385,000.00

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FINANCIAL ANALYSIS
Development Costs Graph

SUMMARY OF DEVELOPMENT COST Expenses Salaries/wages Software/installation Trainning Facilities Utilities Miscellaneous Upgrade Licenses Support Staff Total Amount $385,000.00 $100,000.00 $200,000.00 $120,000.00 $70,000.00 $100,000.00 $10,000.00 $50,000.00 $1,035,000.00

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FINANCIAL ANALYSIS

Annual Operating Costs Graph

SUMMARY OF ANNUAL OPERATING COSTS Recurring expense Connectivity Equipment/installation Programming support Training & ongoing assistance Advertising Total recuring costs Amount $50,000.00 $20,000.00 $80,000.00 $120,000.00 $50,000.00 $320,000.00

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FINANCIAL ANALYSIS
Sample Benefits Graph
SAMPLE BENEFITS Benefits/cost saving Increased localization of parts Efficiency and flexibility in dealing with suppliers. Reduced shipping costs

Amount $300,000.00 $200,000.00 $250,000.00

Increased sales of cars/parts $1,300,000.00 Other savings $100,000.00

4/20/12 $2,150,000.00 Total annual benefits

Cost Benefit Analysis

Net Present Value & Return of Investment

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NPV & ROI

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COST
Categories of Cost Development/maintenance costs Cost to involve Existing suppliers Shipping cost Attracting new suppliers Disruptions to staff Additional staff to handle the system Threats of competitors taking advantage of similar technology and achieving similar efficiency improvements X X X X Significant X Major X X Minor

BENEFITS
Categories of Benefits Increased localization of parts Expanded sales and customer base Efficiency and flexibility in dealing with supplier Gaining experience that would assist with future e-commerce ventures. Increasing the business competitive advantage Suppliers remain loyal due the range of services offered X X X X Significant X X Major Minor

IMPLEMENTATION

NVA showed ROI as 262.54 % All steps were put into implementation

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CONCLUSION

Annual Sales

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RECOMMENDATIONS

Project cost
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Professional constraint programmers + months of development time Willing to invest significant amount

The need to train internal and external users

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Company staff, suppliers, customers, automotive manufacturers, etc.

Proper infrastructure needs to be provided

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Users need to be capable of operating the system with minimal technical support Willing to spend significant amount of time and money 4/20/12

RECOMMENDATIONS

The need to retain system experts

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None of required skills currently available to develop/support the system

Preparing for possible outcomes

Toyota should be prepared for project failure
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A contingency plan

fall-back to other alternatives

Other methods of CBA to be used CBA assumption must be properly researched especially non- tangible aspects 4/20/12

BIBLIOGRAPHY

http://www.toyota.com.au/about/key-facts http://www.toyota.com.au/toyota/promise http://en.wikipedia.org/wiki/Toyota_Australia http://en.wikipedia.org/wiki/Cost_benefit_analysis Report by Flyvbjerg, Holm, and Buhl, 2002 http:// www.toyotasupplier.com
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