BPR_sandeep yadav

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4/20/12

Business Process Re-

engineering

Cost Benefit Analysis Toyota

Presented by :Anirudh Rohit B 42Kartikeya Raina B 45Rahul Ravi B 49Saheb Ali B 53Sandeep 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 1

Cost–Benefit analysis or Benefit–Cost 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 totalexpected benefits



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INTRODUCTION 2

• 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 theinterventions relative to each other and the status

quo• Closely related to

o cost-effectiveness analysis

o cost–utility analysis

o Economic impact analysis



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INTRODUCTION 3

Key Cost–Benefit Indicators :

• NPV (Net Present Value)

• PVB (Present Value Of Benefits)

• PVC (Present Value Of Costs)

• BCR (Benefit Cost Ratio = PVB / PVC)

• NB (Net benefit = PVB - PVC)

• NPV/k (where k is the level of fundsavailable)



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CASE INTRODUCTION

BPR Initiatives inToyota 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 Australia’s origins go back to 1958

• The commercial vehicle business became Thesis Toyota in 1971

• In 1988, Toyota’s local operations were unified toform Toyota Motor Corporation Australia

• Two models—the 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 worldwidein 2003

• Toyota is a people oriented organizationthat sees the development of its staff as a

foundation stone for future businessprosperity

• Toyota has long been recognized as one of the most efficient manufacturers in the

world



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TMCA - SUPPLY

NETWORK The basic of Toyota Australia’s supplynetwork:

o Supplier Association

o Effect of “knowledge sharing network” onsupply chain coordination

o Upstream and downstream entities



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TMCA - CHALLENGES

After a series of research, few criticalfactors were identified:

o Bundled outsourcing

o Logistic challenge

o Import of vehicle components



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OBJECTIVES

• Increase domestic supplier base

• Linear supply chain

• Reduce reliance on forecast planning forproduction

• Increase Vertical industrial relations environment

- Enabled through BPR initiatives & IT Solution

• To Evaluate options using CBA



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ASSUMPTION 1

Valuation

• The costs of an intervention are usually financial

• Evaluating benefits - list all parties affected by anintervention and place a value, usually monetary, on the(positive or negative) effect it has on their welfare as itwould be valued by them

• Putting actual values on these is often difficult; surveys orinferences from market behavior are often used.

Time

• All relevant costs and benefits put on a common temporalfooting using time value of money formulas

• This is often done by converting the future expected

streams of costs and benefits into a present value amountusing a suitable discount rate



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ASSUMPTION 2

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 consideredseparately.

• Uncertainty in the CBA parameters is evaluated using asensitivity analysis, which shows how the results areaffected by changes in the parameters

• The accuracy of the outcome of a cost–benefit analysis

depends on how accurately costs and benefits have been



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ASSUMPTION 3

• Studies indicate that the outcomes of cost–benefitanalysis should be treated with caution becausethey may be highly inaccurate

• Rely on past projects

• Rely on the project's members to identify thesignificant cost drivers

• Rely on very crude heuristics to estimate themoney cost of the intangible elements



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OBSERVATIONS



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SOLUTION FOR TMC

Enterprise ResourcePlanning System

(ERP)



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ENTERPRISE RESOURCEPLANNING SYSTEM

• One of the largest automotive companies in theworld

• 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 RESOURCEPLANNING SYSTEM

• SAP Automotive ERP Suit

• Main means of information flow between Toyotaand its counterparts worldwide

•

Tighter collaboration links• With SAP, gain:

o Outstanding strategic

o Operational

o

Financial

o 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 view information on parts

o checking the prices and availability

o conduct transaction online

o forecasting supply and demand

o delivery cycle

• Improved forecasting

• Enhancing the planning



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SUPPLIER WEBSITE

IMPLEMENTATION OF A

SUPPLIER WEBSITE



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SOLUTIONDESCRIPTION

• Goal : Provide a Comprehensive Domestic SupplierBaseSOLUTION: Implementation of a supplier web site

U.S. version of Toyota supplier web sitewww.toyotasupplier.com



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SUPPLIER WEBSITE



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SUPPLIER WEBSITE

Reason

• Many of TMCA’s car components have to be imported due to thelack of domestic suppliers

o

Application of the “right part at the right place at the right time” conceptor JIT to lack the optimal efficiency throughout the TMCA supply chain.

• The implementation of a comprehensive domestic supplier base isessential.

• Provision of collaborative web site linking current TMCA onlinepresence which provides similar functions to the Toyota supplier’sweb site currently in use in North America

o Allowing TMCA to have comprehensive overview of their currentsuppliers.

o

Also reducing the red-tape involved to be part of the TMCA supply chain;and most importantly



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SUPPLIER WEBSITE

• Web site functions

o Potential suppliers will be able to acquire information on therequirements of becoming part of TMCA’s supplier network

• Potential suppliers need only to download/complete an online formto join the network

• Information such as

o Supplier’s guide

o Community activities; and

o Any core information about TMCA’s current supplier’s network can beobtained from the website.

o Connection links provided to domestic e-Marketplace

• Registered e-Marketplace members:

o 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

o high-end design

o engineering and

o

system integration

• Toyota Australia needs highly focusedcore competency oriented suppliers.

• Small and diverse companies though have the ability todisplay such potential to add

o Innovation

o

Flexibility ando ’



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SUPPLIER WEBSITE

• TMCA first has to open its doors to thedomestic market suppliers

o Invest in their new concept of supply base

• Target: 100% domestic suppliers

• Supplier-centric web site Provide

o

opportunitiesto expand TMCAsupplier 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 demandand supply allocation

• Solution: Real-time tracking function moduleincorporated into the current electronic BEAsystem



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GRAPHICAL OVERVIEW



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GENERAL OVERVIEW

• A complete modular solution,

• reduce the bullwhip effect which causes shifts inorders up and down the supply chain,

• eliminating any stockpiling cause by the currentforecast 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 1

Development Cost :

Team of developers required by TMCA:1 Project Leader

2 System Analysts10 Programmers

SALARIES AND WAGES

Team member Salary/wages for project

Project Leader $50,000.00

Senior system analyst $35,000.00

System analyst $30,000.00

Programmer analysts $60,000.00

Programmers $160,000.00

System programmers $50,000.00

Total salaries and wages $385,000.00



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Development Costs

GraphSUMMARY OF DEVELOPMENT COST

Expenses Amount

Salaries/wages $385,000.00

Software/installation $100,000.00

Trainning $200,000.00

Facilities $120,000.00

Utilities $70,000.00

Miscellaneous $100,000.00

Upgrade Licenses $10,000.00

Support Staff $50,000.00Total $1,035,000.00



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SUMMARY OF ANNUAL OPERATING COSTS

Recurring expense Amount

Connectivity $50,000.00

Equipment/installation $20,000.00

Programming support $80,000.00

Training & ongoing assistance $120,000.00

Advertising $50,000.00

Total recuring costs $320,000.00

Annual Operating CostsGraph



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Sample Benefits

GraphSAMPLE BENEFITS

Benefits/cost saving Amount

Increased localization of parts $300,000.00

Efficiency and flexibility indealing with suppliers. $200,000.00

Reduced shipping costs $250,000.00

Increased sales of cars/parts $1,300,000.00

Other savings $100,000.00

Total annual benefits $2,150,000.00



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Cost Benefit Analysis

Net Present Value

&Return of Investment



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NPV & ROI



COST

Categories of Cost Significant Major Minor

Development/maintenance costs X

Cost to involve Existing suppliers X

Shipping cost X Attracting new suppliers X

Disruptions to staff X

Additional staff to handle the system X

Threats of competitors taking advantage of similar technology and achieving similar efficiency improvements

X



BENEFITS

Categories of Benefits Significant Major Minor

Increased localization of parts X

Expanded sales and customer base X

Efficiency and flexibility in dealing with

supplier

X

Gaining experience that would assist withfuture e-commerce ventures.

X

Increasing the business’ competitiveadvantage

X

Suppliers remain loyal due the range of services offered

X



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IMPLEMENTATION

• NVA showed ROI as 262.54 %

• All steps were put into implementation



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CONCLUSION

A n n u a l S a l

e s



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RECOMMENDATIONS 1

• Project costo Professional constraint programmers + months of

development time

o Willing to invest significant amount

• The need to train internal and external userso Company staff, suppliers, customers, automotive

manufacturers, etc.

• Proper infrastructure needs to be providedo Users need to be capable of operating the system

with minimal technical support

o

Willing to spend significant amount of time and money•



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RECOMMENDATIONS 2

• The need to retain system expertso None of required skills currently available to

develop/support the system

• Preparing for possible outcomes• Toyota should be prepared for project failure

o A contingency plan

• fall-back to other alternatives

• Other methods of CBA to be used

•

CBA assumption must be properly researchedespecially non- tangible aspects



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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BPR_sandeep yadav