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    EVALUATING OPERATIONAL EFFICIENCY AND IT/IS SYSTEMS ATTOYOTA

    ZUBAIR FARHAT (A4028886) Page 1

    EVALUATING OPERATIONALEFFICIENCY AND IT/IS SYSTEMSAT TOYOTA

    ZUBAIR FARHAT

    A4028886

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    Content List

    1. Executive Summary

    2. What is Systems and Operations Management?

    3. Introduction to the Company

    4. Operations at Toyota

    5. Operational Strategy

    6. Operational Strategy at Toyota

    7. Process Design

    7.1 Volume, Variability, Visibility, Variation

    8. Influence of IT/IS on Business Processes

    9. Supply Chain Management

    9.1 Bullwhip Effect

    9.2 Impact of IT/IS on Toyota Supply Chain

    10. Capacity Planning

    11. IT/IS in relation to Effective/ Efficiency

    12. Conclusion/ Recommendations

    13. References

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    1. Executive Summary

    Toyota Motor Corporation is known in the automobile industry for its operationalbrilliance, the company is one of the largest automobile manufacturing companies in theworld. It has its operations spread throughout the world and has an extensive network of supplier and distributors.

    In order to understand the operations of Toyota in this report, a number of operationalmod els are used, for example the Porters Value Chain Model is used in order tounderstand how the company transforms its products and what processes the companyuses in order to complete the transformation. Toyota uses JIT techniques of productionthus the company keeps its inventory to a minimal level. For the efficient use of thetechnique IT/IS systems have been in place at Toyota for the smooth running of theprocess.

    By considering the whole report it can be judged that Toyota has superior processes inplace in order for the smooth running of its operations.

    2. What is Systems and Operations Management?

    Operations management is the activity of managing the resources which produce anddeliver products and services (Slack et al 2010). Operations can be seen as one of many functions (personnel, finance, and marketing) within the organization.

    The operation function can be described as that part of the organization dedicated tothe production or delivery of goods and services. This means all organizations makeuse of operations as every organization produce goods or services whether it is amanufacturing organization or a service organization. To put it in a simpler meaning,every organization which produces goods or services and uses resources to do it must

    have an operations system.IT/IS systems are also vital to an organization especially for the operations of theorganization as they act as a support system. The role of the information systems is toprovide information to management which will enable them to make decisions whichensure that the organization is controlled (Bocij 2008).

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    Information technology infrastructure is the shared technology of resources that providethe platform for the firms specific information system applications. (Laudon et al 2012)

    This report will focus on the operations of Toyota Motor Corporation and evaluate theefficiency and effectiveness of the concepts discussed above in detail.

    3. Introduction to the company

    Toyota Motor Corporation abbreviated as TMC is a multinational automobile maker founded in 1937 and has its headquarters in Japan. The company is one of the largestautomobile makers in the world and had an 11% share of the global market in 2010(OICA 2010). The company provides two products, automobiles and financial services.

    This report shall focus on the automobile section of Toyota Motor Corporation.

    The reason for choosing Toyota for this report is because of its operational brillianceand strategies, for e.g. the just in time production systems that Toyota uses has provento be one of the most successful techniques in automobile manufacturing as it reduceswastage and increases productivity

    One more reason is the management philosophy of Toyota which is globally recognizedand critically acclaimed.

    4. Operations at Toyota

    Toyota is the pioneer of modern manufacturing systems and philosophies. Theoperations at Toyota can be best understood by the Toyota production systems,abbreviated as TPS .

    TPS comprises of two components which are; Jidoka which is Japanese for highlighting/visualization and Just in Time production techniques which is used for theimprovement of the production process. (Toyota-Global)

    Jidoka is for the improvement and continuous checks for quality within the productionprocess and just in time method is used for making only what is needed, when it isneeded, and in the amount needed as this reduces waste within the production process

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    To understand the operations at Toyota i t is better to analyze the Porters Value Chainmodel as it will give a clear picture about the companys operations.

    The idea of the value chain is based on the process view of organizations, the idea of seeing a manufacturing (or service) organization as a system, made up of subsystemseach with inputs, transformation processes and outputs. (Grocutt 2004)

    4.1 Porter Value Chain

    The value chain consists of primary activities and secondary activities.

    The primary activities in regards to the value chain at Toyota are:

    Inbound Logistics: This involves relationships with suppliers and includes all theactivities required to receive, store, and circulate inputs. At Toyota this stage is thebeginning of the production process as over here raw materials like steel, iron ore, glassare received from suppliers and as soon as the material or components are receivedthey are transferred to the production line. This is where Toyota is unlike other automobile manufacturers; as the company does not believe in the storage of rawmaterials because it increases costs.

    Toyota is extremely efficient at this technique; the reason being that it has excellentrelationship with their suppliers, which is the reason why there are no delays in theproduction processes.

    Operations: This part is the key of the production process as raw materials or partly

    finished goods like car fenders or bumpers are assembled to make the finished productwhich is the Toyota car. This is where the Toyota concept Kaizen comes into play.

    Like all mass-production systems, the Toyota process requires that all tasks, bothhuman and mechanical, be very precisely defined and standardized to ensure maximumquality, eliminate waste and improve efficiency.

    Outbound Logistics: The transformation process has now been completed and thecars are now ready to be dispatched into markets for consumers to purchase. Toyotamanages its own company showrooms and has a vast dealer network through whichcustomers can purchase the cars which suit their affordability and need.

    Marketing and Sales: Operations are not just about production but it is the wholeprocess in which a product goes through different stages before reaching the final

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    consumer. Marketing and sales is one of those important stages of the process.(Grocutt 2004). At Toyota this is the stage where the company effectively markets itscars by effective marketing techniques and by the use of the marketing mix.

    Service: Toyota values its customers and their satisfaction is the primary aim of thecompany (Toyota Global). This part relates to the after sales services that Toyotaprovides to its customers in order to keep them satisfied.

    Secondary activities are Procurement, Human Resource Management,Technological Development and Infrastructure .

    As previously mentioned that these activities act as a support system to the primaryactivities; so to best understand them is to link them with primary activities.

    Procurement can be linked to Inbound Logistics, At Toyota; procurement is the functionwhich is responsible for the purchasing of goods and materials for the productions of cars, the aim is to acquire the highest quality of materials at the lowest possible price.(Toyota Industries). IT/IS also plays part in this function, as Toyota uses Just in timeproduction techniques so dedicated system are in place which inform productionmanagers when the stock gets lower than the buffer level. Technology development

    supports operations, as effective use of technology reduces costs during the productionprocess.

    Other technological developments at Toyota include lean manufacturing, customer relationship management and internet marketing activities.

    Toyota takes prides in its culture and its employees; Toyota recognizes its employeesas Human Capital and gives them the best of training and development in the

    Automobile industry (Toyota HR). HR supports the primary function of service accordingto the value chain.

    Toyota implements dedicated management information systems for the firmsinfrastructure. This involves knowledge management systems, total qualitymanagement etc. These systems provide managers and employees a platform to shareknowledge and improve quality within the production and other processes. Put all thistheoretical view of the operations at Toyota in regards to the Porter Value Chain, belowis a diagram which puts the theory into picture.

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    (Porters Value Chain at Toyota) BPP 2010

    5. Operational StrategyStrategy is the way in which decisions are made in organizations which havewidespread effect on the organization and thus strategy is used in the context of beinglong term. Operational on the other hand is the day to day and detailed activities.

    Purchasing materials when indicated by IS/IT systems (Procurement)

    Lean Manufacturing, Automation ( Technology Development)

    Human Capital Management (Human Resources)

    Knowledge Management Systems, Management Information Systems ( Firm Infrastructure)

    Raw materials for example iron ore,steel received for production

    Just in timeproductiontechniquesapplied as thematerials receivedare transferred toproduction

    Inbound Logistics)

    By use of automaton theraw materials andsemi finishedgoods aretransformed intocars

    (Operations)

    Once the carshave beenproduced theyare ready to bedispatched to besold in markets.

    Toyota sells their cars through

    showrooms anddealer networks.

    (Outboundlogistics)

    In its marketingtechniquesToyotaemphasizes on itsproducts andcatches thecustomersattention byportraying their

    cars as low costand efficient

    (Marketing andsales)

    Toyota provides topclass after salesservices to itscustomers by way of dedicated car repair centers.

    (Service)

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    Operations strategy concerns the outline of strategic decisions and actions which setthe role, objectives and activities of the operation. Operations strategy has content andprocess. The content concerns the specific decisions which are taken to achievespecific objectives. The process is the procedure which is used within a business to

    formulate its strategy (Slack 2010).The operations of an organization can contribute as little as nothing or they can beresponsible for the complete success of the business. So in order for operationalstra tegy to succeed its important for the business to first implement, support and driveoperations strategy.

    To achieve competitive advantage at Toyota an operational strategy should be analyzedin regards to the competitive priorities of the company. According to Hayes andWheelwright (1986) there are four stages of operations contributions; Internal neutrality,External Neutrality, Internally supportive and lastly being externally supportive.

    In regards to Toyota, the company can be seen at the third or fourth stage as operationsat Toyota are innovative and the business strategy of the company is linked to theoperations of the company which is to provide high quality cars to customers atcompetitive and lower prices; the lower prices are achieved by smooth operationalefficiency and effective production techniques like JIT and Kaizen (ContinuousImprovement) which in turns means lower production costs.

    Michel Porter (1985) extended these competitive priorities into wider dimension andsuggested that there are three fundamental approaches through which an organization

    can achieve sustainable competitive advantage; cost, differentiation and focus. It shouldalso be kept in hindsight that competitive advantage and scope of activities both play apart in the firms strategy. (Porter and Millar 1985)

    According to Porters Generic strategy, Toyota gains competitive advantage throughcost leadership. The reason for this is the companys presses production costs toincrease profits as increasing the prices will lead to customer loss. Toyota achievescompetitive advantage thorough its supply chain, Toyota rigorously screens its suppliersfor quality and financial health, and then spends time and money to ensure their efficiency and survival, sometimes taking minority stakes. (The Economist).

    The other ways in which Toyota achieves competitive advantage is the way in whichthey shorten the lead times. Toyota Lean manufacturing techniques provides it with anedge over competitors; the company can produce more cars than its competitors for example Ford or General Motors. In 1998 it took Ford and GM 50% more hours to makea car than Toyota - and the difference was so great that GM did not make a profit onany of its cars. (BBC News).

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    6. Toyota Operations Strategy

    An operation strategy must be created after the development of the business strategy.This is done to provide a plan for the design and management of the operationsfunction, in ways that support the business strategy. The operation strategy is the onethat links the business strategy to the operations function. The focus lies on theoperations particular capabilities that give a competitive edge to the company. Thesecapabilities are referred to as competitive priorities. By means of excelling in any one of the said capabilities, there exists the possibility for the company to become thefrontrunner in its specific market. (Slack 2010)

    Toyota is a global company with its factories and operations spread throughout theworld. The company follows the Top-Down operations strategy as the operations dowhat the business wants them to do.

    Toyota competitive priorities lies within the company being low cost, producing highquality cars, speed of production and to cater for excess demand as well.

    Toyota keeps its costs low by way of reducing waste during production; the ToyotaProduction System identifies what the customer values the product for and does not goin over production as it just a non value adding waste. As previously mentioned the JITproduction techniques keeps the inventory cost to bare minimal thus the reduced costare in effect transferred to customers. (J Cast Business Reviews)

    Speed is also a distinguished quality of Toyota, the standardization of work at Toyotahas led the company to develop and produce automobiles faster than their competitors.It takes the company less than 4 years to develop a car and to produce it in the factory ittakes just 20 hours. (Toyota).

    Toyota is renowned for its high quality cars; the reason for this high quality lies back inthe companys production l ines; At Toyota every stage of the production process isaudited and checked and then send to the other stage. In this way quality and time bothare not compromised. (TQM)

    Toyota not only gets their supplies on time but also delivers automobiles to customerson schedule. This shows that that Toyota has an efficient supply chain and an efficient

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    network of delivery systems as well. According to Toyota Manufacturing North Americathe company aims to cut down custom vehicle lead time from 77 to 12-16 days(WardsAuto)

    At Toyota production of cars is not subject to the orders of customers, the companylevels its productions on timely basis and caters for the demand accordingly.

    7. Process Design

    The design of product and processes are interrelated and should be treatedaccordingly. (Slack 2010). The reason for this is that if the product has been designedand evaluated thoroughly but the organization who has designed the product has noidea how to produce it then it is simply a waste.

    In regards to Toyota the company recognizes this, and has dedicated systems anddepartments for designing the products; but the departments also keep in mind theprocesses which they have to go through to actually produce the designed product;which in this case are Toyota automobiles.

    The research and designing of Toyota automobiles takes place in the companys headoffice of the Toyota Technical Centre in Japan, and the product planning and vehicleevaluation takes place at Toyota Motor Engineering and Manufacturing North America,although some planning is also held in Japan as well (Toyota-Global)

    The operations performance objectives also have an impact on the process designobjectives which is also related to the competitive priorities of the organization, for example if an organizations typical operations objective is quality then its processesshould be designed accordingly. For instance in the case of Toyota, quality is one of thekey operations objective so the company has to see if it has the appropriate resourcesto achieve that requirement or if there are any defects or obstructions in the productionlines.

    Below is a table which states Toyotas operational objectives and their process designs objectives respectively.

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    Operations Objective Process Design Objectives

    Quality In regards to quality, Toyota has totalquality management systems embeddedin its production techniques which keep acheck on quality on all stages of theproduction process.

    Cost Toyota eliminates waste during itsproduction process by way of its leanmanufacturing techniques which ineffects keeps cost low.

    Speed The speed of the process relates to thethroughput time. In the case of Toyota ittakes on average of about 20 hours to

    produce a car

    Flexibility The JIT techniques at Toyota make thecompany flexible in what, how or howmuch is being processed.

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    7.1 Volume, Variety, Visibility and Variation:

    Operations processes transforms inputs into outputs and are quite similar to each other.

    However the processes differ with each other in some aspects which are:

    Volume: It has important implications for the way Toyotas operations are organized.Toyota is a large manufacturer and thus has automation and standardized processes inplace which in effect gives low unit cost. If talking about any other organization whichdoes not have such a high product volume in comparison to Toyota then unit cost wouldbe higher but there would be less repetition of work.

    Variety: It means being flexible, this should be carefully considered to balance theoperational efficiency and market demands. The responsiveness towards the impact of

    variety on the automobile market demand as well as on supply chain and manufacturingcost ,this enables all the units across the supply chain which will be considered asdecisions regarding the units are being made.

    Variation: This refers to the demand of the consumers and how processes are affectedby it, in some time of the year demand will be high and all the resources shall be utilizedresulting in minimal under capitalization of resources. In the case of Toyota, variation inproductivity is not a significant aspect for Toyota as the company does not build cars oncustomers orders but does so by leveling of production by both volume and pr oductmix.

    Visibility: It refers to the degree of customer involvement in the operations of theorganization. (Slack 2010). An organization with high visibility will have high customer involvement and the feedback from customers could be instant. At Toyota the degree of visibility is medium as there is little or no customer involvement in the productionprocess, but when the cars are finally produced and transferred to Toyota showrooms tobe sold then it is where customer involvement takes place. As customers can choosethe cars according to their needs; if they cannot find the car which suits their needs theycan ask the sales person to help them to look for it, this is called high received variety.The customers can also provide feedback to Toyota on one of their sales person at the

    showroom. The feedback can help Toyota in making their operations more feasible tocustomers and adding more value to it.

    So according to the 4vs model, the operations at Toyota are designed in such a way tokeep costs to a minimal level, yet not hindering the value of its products.

    The summary of this model is provided below in this illustration.

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    Volume (High)

    This is because of the automationprocesses and the level of standardization at Toyota

    This in effect keeps operations cost low.

    Variety (Medium)The operations at Toyota are routine andstandardized but on the other hand areflexible and cater for the needs of thecustomers.

    Variation (Low)

    The operations at Toyota are stable androutine and there is high utilization of resources

    Visibility (Medium)

    The reason for this is the variation of customer involvement in the processesat Toyota. For e.g. the difference of customer involvement at factory andshowroom.

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    Source: Slack 2010 (Adapted)

    8. Influence of IT/IS on Business Processes:

    Information systems and organization influence each other. Information systems arebuilt by managers to serve the interests of the business firm. At the same time, theorganization must be aware of and open to the influences of information systems tobenefit from new technologies. (Laudon 2012)

    The interaction of IT and organization is quite complex and is influenced by factors likeorganizational structure, business processes, politics, culture, surrounding environment,and management decisions.

    Toyota has a strong corporate culture and philosophy. At Toyota if there is any newtechnology to be introduced then first, it will examine firsthand the nature of the value-

    added work being performed by the workers for the particular process. Then Toyotawould try to improve the process with the existing resources and technology, if they findout that there is room for improvement then the company shall introduce the newtechnology, yet keeping in mind the corporate culture and philosophy of Toyota. (JefferyK Liker).

    Information systems compliment the business processes of the company. In regards toToyota, the company has different functional processes which use information systemsto for its smooth functioning.

    The human resources department at Toyota makes use of information systems andtechnology in hiring new employees or to maintain records of current ones. Thecompany has a dedicated website for this purpose which helps graduates or professionals to apply online for a position at the company. Once when the candidatehas applied for the role he/she shall get an automated reply for the confirmation of theapplication via email (Toyota Careers).

    Toyota makes use of information technology in its Just in time methods of production,for example if the stock of raw materials like glass or steel is running out then the ITsystems at Toyota shall detect this and order for these materials from its list of suppliers.

    Above In the report, Porters Value chain had been discussed in order to understand theoperations of Toyota, below is a similar value chain but in regards to the informationsystems that Toyota uses to compliment its primary and secondary activities.

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    Electronic messaging Systems (Administration )

    Careers Portal, Workforce planning systems (Human Resources )

    Computer aided design systems ( Technology)

    Computerized ordering systems for JIT (Procurement )

    AutomatedWarehousingSystems.

    Automatic ordering

    systems for JIT

    (Inboundlogistics )

    Computer controlledmanufacturingtechniques( LeanProduction)

    Systems for Kaizen( one flowprocess)

    (Operations )

    Computerizedordering systems

    Websites used for ordering custom

    vehicles

    (InboundLogistics)

    Equipmentmaintainingsystems

    (Service )

    Automatedshipmentschedulingsystems

    (Outboundlogistics)

    Source: Laudon 2012 (Adapted)

    In the context of the relationship of IT/IS to the operations of Toyota, the relationship isquite important for the smooth running of the company. For example informationsystems are essential for the Human resources department at Toyota as it is will bequite difficult to manually handle all the records of all the current or future employees.

    Secondly, as it is already mentioned before that Toyota uses JIT production techniquesin its factories, so it will be harder to use the system without IT/IS systems.

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    9.2 Impact of IT/IS On Toyota Supply Chain:

    Information systems have become essential for supply chain management, withoutappropriate information supply chain managers cannot make decisions which areneeded to maintain a flow within the supply chain.

    Toyota sources it materials from a range of suppliers throughout the world to itsfactories and production lines where they are then converted into automobiles byproduction facilities at Toyota. If it wa snt for the information systems then theprocurement managers shall not have the appropriate information about the deliverytimings of the materials arriving; and most importantly the need of information systemsat Toyota is significant because the company follows JIT technique.

    Toyota uses the B2B model in selling its automobiles, the company produces its carsand then sells its to dealers which then in effect sells the cars to the customers.

    Below is an illustration of the Toyota Supply chain.

    Suppliers Manufacturingunit

    Warehouse Dealers Customers

    In order to maintain the flow of supply chain companies use software applications likematerial resource planning (MRP) or enterprise resource planning (ERP)

    MRP is a software, based on production planning and inventory control system usedto manage manufacturing processes. ERP is used for expanding efforts to integratestandardized record keeping that will permit information sharing throughout theorganization. Toyota has its operations throughout the world and thus uses suchsoftware application in order to be efficient in its operations.

    10. Capacity Planning

    Capacity is defined as the potential of the value added system to allow physicalmaterials to be transported and handled (Novack et al 1993). Capacity therefore impacts

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    on the speed and distance of materials movement, while materials movement impactseffective capacity levels.

    At Toyota capacity planning is achieved through Heijunka, it is the leveling of productionby both volume and product mix. Toyota does not build products according to the actualflow of customer orders, which can swing up and down wildly. The total volume of orders in a period is leveled out so the same amount and mix are being made each day.

    Where demand fluctuates significantly, Toyota will often keep at least a small inventoryof finished goods. This seems to contradict lean thinking. But the small inventoryprotects the production schedule from being upset by sudden spikes in demand. Byliving with the waste of some finished goods inventory, companies can eliminate far more waste in their entire production process and their supply chain.

    11. IT/IS In Relation To Efficiency and Effectiveness:

    Information systems have become integral, online, interactive tools deeply involved inthe minute-to-minute operations and decision making of large organizations . IT/ISsystem prove to be efficient for organizations as they bring speed into the operations if compared to work done manually. However there are effects of introducing IT/IS ontoorganizations, which are automation, rationalization, re-engineering and paradigm shift

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    At Toyota automation can be seen as an effect of introducing IT/IS systems as it the

    common kind of change an organization deals with; the reason being it is low in bothrisk and return

    However rationalization is one step ahead of automation as it is both higher in risk andreturn. At Toyota rationalization is dealt with because rationalization of procedures isoften found in programs for making a series of continuous quality improvements inproducts, services, and operations, such as total quality management (TQM), (Laudon2012). At Toyota TQM is one of the fundamen tal philosophies of the Toyota way.

    12. Conclusion/Recommendation:

    Operational efficiency and effectiveness is the main aim of operation managers aroundthe world. Although Toyota has set the bar high for its operational tactics, the questionto be asked is whether this is the saturation point or is more to be achieved?

    Secondly does the implementing of IT/IS systems always result in efficiency andeffectiveness? Not necessarily as some companies do not take the change well;sometimes because of the culture of the company or the organizational structure of thecompany. Although it does bring speed and accuracy in the operational functions

    Moreover it is worth mentioning that, why do businesses go towards businessesprocesses redesign and paradigm shifts, as both of these usually result in a failurebecause of the extensive change the business has to coordinate. Is it because therewards are equally high? Or has the business has run out of ideas to improve the

    existing processes?

    To conclude it can be said that Toyota has superior operation systems in place whenconsidering the automobile industry; however it can be recommended that the companyshould use more of IT/IS systems in order to become invincible in their respectiveindustry.

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    13. References:

    Novack et al (1993) Novack, R.A., Rinehart, L.M., Fawcett, S.A. (1993), RethinkingIntegrated Concept Foundations: A Just-in-Time Argument for LinkingProduction/Operations and Logistics Management, International Journal of Operations & Production Management , Vol. 13 (6), pp.31-43.

    Slack et al 2010, Nigel Slack, Stuart Chambers and Robert Johnston (2010),Operations Management. 6th Edition pg 36 -40, pg 86-90, pg 297-309.

    Laudon et al 2012, Kenneth C Laudon and Jane P. Laudon 2012, Managing InformationSystems 12 th Edition. pg 161-163, pg 489-493

    Grocutt 2004, Jonathan Grocutt , Foundations of Marketing (2004). pg 279

    Bocij et al 2008, Bocij P., Greasley A. & Hickie S., (2008) Business InformationSystems: Technology, Development and Management for the e-business . 4 edn,London: Financial Times and Prentice Hall.

    BPP 2010, P3 Business Analysis 2010, BPP Publishing Media

    Harvard B usiness Review 1997, Efficient Supply chain By Marshall Fisher retrievedfrom http://www.computingscience.nl/docs/vakken/scm/Fisher.pdf

    Toyota Careers, Human resources systems at Toyota, retrieved fromhttp://www.toyota.com/about/careers/tema/coops_and_internships.html

    J Cast Business Review, Toyota cut costs. Retrieved from http://en.j-cast.com/2006/04/07000962.html

    Toyota Global, Toyota Production Systems , retrieved from http://www.toyota-global.com/company/vision_philosophy/toyota_production_system/

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    EVALUATING OPERATIONAL EFFICIENCY AND IT/IS SYSTEMS ATTOYOTA

    ZUBAIR FARHAT (A4028886) Page 21

    (Jeffery K Liker), McGraw Hill International 2004