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Incoterms and their importance

Question:

Discuss about the Toyota Transportation and Distribution for Respect.

Toyota is a Japanese automobile company founded in 1937. The company is currently operating around the globe with it’s headquarter situated in Tokyo. The focus of the company is to produce and sale vehicles in the process of contribution towards a more prosperous society. Toyota believes that the company built on a loose soil will eventually fail to hold the interest of its stakeholders in hard time. This led the company to form a solid base of stakeholders by manufacturing quality products and solid supply chain. Long-term partnership, growth through harmony, maintain corporate culture, respect other culture and languages and develop advanced technology and environmental friendly products are the key principles Toyota follows in their international venture. The code of conduct of the company successfully synchronies with their guiding principles and narrates every steps in the business (toyota-global.com., 2017).

The products offered by Toyota to their international customers ranges from passenger vehicles, Welfare vehicles, components or aero parts, automobile parts to powered wheelchair (Toyota-ej.co.jp, 2017). They are currently competing with some of the major competitors like Volkswagen, BMW with their product line. The goals Toyota set for competing in this competitive market are to produce better environmental friendly better car with better manufacturing to enrich the lives of the target communities. These goals are in accordance with their ultimate goal to obtain zero causality.

This essay aims to understand the intercom utilized by the company in their transportation and distribution. The study extends to identify the best possible incoterm that will be effective for Toyota in their transportation and distribution process. The later part of the essay identifies the significant carrier selection considerations for Toyota and the relationship type beneficial. In other words, this essay will suggest incoterm, carrier and type of relationship with the carrier best suited for Toyota in order to increase company’s overall profitability.

Incoterm or International Commercial Terms was introduced in the year 2010 by the International Chambers of Commerce, which is narration of a number of terms. This categorizes the import and export system utilized by the manufacturers and the buyers. In other words, these terms states the possible relationships between the manufacturer, logistics, and the buyers (Cook, 2011). Toyota Company in its initiation days used to deliver the completed cars individually. In other words, they used to drive individual completed cars to their customers’ doorsteps. This led them to launch their first ever truck Toyota G1 truck in the year 1935 to deliver multiple cars at the same location at the same time. However, their transportation and delivery has considerably expended every since. This can be attributed to their market expansion they are now operating not only in the boundaries of Japan, but also overseas. They have expanded their transportation and delivery services and now have diversified transportation services that include rail, plane, ships, and ground transporters to reach out their customers. They have separate department for handling these for completing these transports. They have domestic transportation department for delivering their vehicles in the domestic market, overseas transportation department for overseas transportation and Parts supply, and transportation department for handling spare parts and accessories (Toyota-global.com, 2017). They are now seeking more compatible and environment friendly transportation system to increase the efficiency of their transport and delivery system and address the largest portion of their target market directly from their production facilities around the world.

Toyota's Transportation and Distribution

FCA

FCA or Free Carrier

This can be considered as the best possible incoterm for Toyota in delivering both their completed vehicles and parts to their buyers. According to this incoterm the responsibility of the supplier last until they handover the products to the carrier nominated by the buyers. The seller delivers the products to the nominated products and loads it in the carrier. Expenses and responsibility till the loading is carried out by the seller, which thereafter move to buyers. The buyer will be responsible for any damage occurs after the products are loaded in the carrier’s shipment (Stapleton, Pande & O'Brien, 2014). It is considered as the safest and cheapest incoterm in case of the sellers as it considerably reduces the risk of transporting the goods overseas that is both risky and costly.

CPT

Figure 2

CPT or Carriage Paid To

CPT is another incoterm that can bring possible benefit for Toyota as it considerably reduces the risk incurred by the supplier. The supplier is responsible for the security of the goods till the first pick up point that is the first carrier. The responsibility of the goods thereafter lies with the buyer. However, the supplier has to cover the costing of the package until it reaches to the final destination that is the home country of the buyer. The costing thereafter falls to the buyers and they are liable for unloading and taking the products in their warehouse. However, the buyers have to take responsibility of the goods from the moment the package is loaded on the carrier (Bergami, 2013).

The company seeks to deliver the products to their buyers availing the most secured mode of transportation. Moreover, the costing of the transportation is naturally considered with the priority basis. Hence, the factors that a company like Toyota needs to consider at the time of carrier selection are equipment availability, reliability average, transit time, technical capabilities, product protection and safety, costing and geographic coverage (Choudhary & Shankar, 2014). However, some of the mentioned factors need extra attention in the selection process of the carrier that is geographic coverage, transit time, reliability, and technological availability.

The first factor the shipper must consider while selecting the carrier is the geographical coverage. It means that the shipper must consider the area of operation of the carrier and how much area coverage the carrier provides to the shippers. More the area covered by the carrier service, more efficient that will be for the shipper. Failing for cover all the target market with a carrier will lead the shipper to consider for another carrier, which is not preferred for any shipper. It will both increase the costing and reduce the efficiency in delivering the products in the overseas markets. Toyota being an international company needs to consider the geographical coverage offered by the third party logistics before collaborating as they needs to deliver their products almost every corner of the globe (Lammgård & Andersson, 2014).

Carrier Selection Considerations

Transit time refers to the time taken by the carrier to transport the products to the destination market. This can be considered as one of the most important factor at the time of finalizing the selected carrier. As Toyota seeks to deliver their completed cars and other automobile part to its buyer on mentioned time, the carrier selected for the deliver should be punctual and less time consuming (Dekker, Bloemhof & Mallidis, 2012). It will increase the efficiency of the transportation and delivery service of Toyota. 

Toyota should also focus on the reliability of the carrier. This means the carrier should safely deliver the products to the destination point in the prior mentioned time. The safety of the products being delivered in the containers should be one of the primary importances of the carrier while in transit. Moreover, the carrier should pick up the products on time from the nominated place and deliver it to the exact place mentioned in the contract. This increases the reliability of the carrier. Moreover, the theft is another important factor that reduces the reliability of a carrier. The exact amount of products should be delivered to the destination to increase the reliability of the service (Aguezzoul, 2014).

The carrier has to be technologically updated to compete in this competitive market. This means that the carrier should have sufficient technology to communicate their position with the shipper company. In other words, technologically updated carrier enables the shipper to track their parcels’ real time position. Moreover, it will also provide extra care to the product s being delivered. Toyota should consider technological advancement of the carrier company before going for partnership (Govindan & Murugesan, 2011).

Vision and mission of Toyota is to provide the customers with advanced automobiles that is environmentally sustainable. Moreover, they seek to deliver the quality products in low cost. For maintaining the low cost of the products, it is necessary for them to keep the production and distribution cost within the limit. Hence, they seek a transport and distribution channel that is of low cost and safe at the same time. It will in turn ensure the maximum revenue generation for the company. Hence, it is important for Toyota to have a third party logistics that fulfils the criteria. Moreover, they need to build healthy relationship with the carrier to avail this facility.

The facility Toyota seek can only be availed using the long-term relationship with their third party logistics. It is possible to point out a multiple reasons for claiming the efficiency of this particular type of relationship. They are as follows:

  • Changing Logistics Company in a frequent basis cost the manufacturing facility a lump sum. Moreover, the rate is always changeable and increase over time. Sticking to one particular logistics will save them this change in price and ensure the low costing in the transportation.
  • Frequent change in logistics will push the company in danger, as they will not be able to build trust. Trust is a major concern in this field of business, because it helps in increasing reliability and ensures safety and security of the process. Hence, it is important for Toyota to go for a long-term relationship with their logistics service for ensuring the safety and security of their delivery process (Ashby, Leat & Hudson-Smith, 2012).
  • Last but not the least, changing logistics more frequently will interrupt the business process and put the business in insecurity. It is necessary for Toyota to ensure a long-term relationship for having an uninterrupted transaction (Carter & Liane Easton, 2011).

The Importance of Geographical Coverage

Conclusion

Conclusion can be drawn from the above discussion that transportation is one of the essential parts of delivering the products to the international market. Negligence on this factor can potentially increase the risk and cost for the company. As Toyota has a broad international market, it is important for them to make partnership with a third party logistics for ensuring their smooth hassle free distribution of their products in all their target market. Hence, CPT and FCA are the two potential incoterm that can get them success in case of transportation and distribution. Moreover, it is important for Toyota to consider a number of factors before hiring a carrier service for the delivery of their products. Some of the important ones are discussed above, which can ensure their success in the overseas market and decrease the risk and costing of transportation. Finally, the relationship necessary to build with the third party logistics is discussed in the final part of the study. It reflects that Toyota requires a healthy long-term relation with their logistics to keep the costing under the radar and to ensure the security of their products.

References

Aguezzoul, A. (2014). Third-party logistics selection problem: A literature review on criteria and methods. Omega, 49, 69-78.

Ashby, A., Leat, M., & Hudson-Smith, M. (2012). Making connections: a review of supply chain management and sustainability literature. Supply Chain Management: An International Journal, 17(5), 497-516.

Bergami, R. (2013). Incoterms 2010: The newest revision of delivery terms. Acta Universitatis Bohemiae Meridionalis, 15(2), 33-40.

Carter, C. R., & Liane Easton, P. (2011). Sustainable supply chain management: evolution and future directions. International journal of physical distribution & logistics management, 41(1), 46-62.

Choudhary, D., & Shankar, R. (2014). A goal programming model for joint decision making of inventory lot-size, supplier selection and carrier selection. Computers & Industrial Engineering, 71, 1-9.

Cook, T. A. (2011). INCOTERMS, Revenue Recognition and Transfer of Title. Managing Imports & Exports, 1-4.

Dekker, R., Bloemhof, J., & Mallidis, I. (2012). Operations Research for green logistics–An overview of aspects, issues, contributions and challenges. European Journal of Operational Research, 219(3), 671-679.

Govindan, K., & Murugesan, P. (2011). Selection of third-party reverse logistics provider using fuzzy extent analysis. Benchmarking: An International Journal, 18(1), 149-167.

Lammgård, C., & Andersson, D. (2014). Environmental considerations and trade-offs in purchasing of transportation services. Research in Transportation Business & Management, 10, 45-52.

Stapleton, D. M., Pande, V., & O'Brien, D. (2014). EXW, FOB OR FCA? Choosing the right Incoterm and why it matters to maritime shippers. Journal of Transportation Law, Logistics, and Policy, 81(3), 227.

Toyota-ej.co.jp. (2017). TOYOTA MOTOR EAST JAPAN, INC. | ProductsTop Page. Retrieved 16 November 2017, from https://www.toyota-ej.co.jp/english/products/index.html

Toyota-global.com. (2017). TOYOTA MOTOR CORPORATION GLOBAL WEBSITE | 75 Years of TOYOTA | Product Logistics | Completed Vehicle Logistics.  Retrieved 16 November 2017, from https://www.toyota-global.com/company/history_of_toyota/75years/data/automotive_business/production/logistics/product/completed_vehicle.html

toyota-global.com. (2017).  Toyota Motor Corporation Global Website. Retrieved 16 November 2017, from https://www.toyota-global.com/company/vision_philosophy/

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