Toyota Plant Case – Lexus RX 330 Line Plant Location

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Table of Contents

Introduction
Weighting and choice of location
Examples of factors
Calculations and results
Conclusion and recommendations
References

Introduction

This paper looks into factors that will determine the Lexus RX 330 Line plant location. The plant can be located either in Canada (Toyota Motor Manufacturing Canada) or in the United States (North American plant in USA).

The team asses the location decision using a Weighting Model. The team tasked with the work of determining the location develops a list of factors, which are weighted using different weights, and the location with the highest score is chosen.

Weighting and choice of location

The team develops several factors that will be influential in the company’s decision to find the plant’s location. The following are the factors. The factors are categorized into exogenous and endogenous typologies.

The exogenous factors refer to external factors that a company is not in control of while endogenous factors are factors within the control of the company. For example, a company can control salaries and wages but cannot control the availability of markets.

Endogenous

Salaries and wages
Internal Infrastructure

Exogenous

Laws and Regulations
Industry Competitiveness
Infrastructure external
Human Resources Availability
Taxation
Cost of Expert Expatriation
Regional Growth potential
Plant Expansion possibility
Cost of leasing
Market availability

After that, the team develops weights for each criteria depending upon the hierarchy of importance to the company operations (Schwalbe, 2012). The following weights and scores are assigned to each factor.

Examples of factors

Economic Conditions

The motor industry is quite unpredictable. The industry had been recording slumps in profits intermittently since 2000. For example between 2001 and 2006, the industry recorded cumulative losses amounting to $42 billion. Toyota tries to operate in predictable markets to avoid such losses.

It had been making profits even in a time when the industry was recoding losses. For example, it has signed exclusive contracts to operate in particular countries (Toyota in US, Canada etc) to increase profitability and enhance predictability.

For the past decade, the prices of crude oil have been unpredictable because of terminal wars and global economic crises. This makes the industry to operate at a state in which it cannot accurately predict costs.

Additionally, in 2008 the world plunged in an economic crisis emanating from the finance systems of United States. This has led to a situation where world customers and businesses have cut spending spelling doom to an industry that mostly targets business and leisure customers.

Role of Government

Competitors and critics have constantly complained that success of Toyota is not attributable to its strategies. They have painted a picture where environmental forces, specifically governments, play a key role in the success of Toyota.

The industrial climate in those countries is favorable compared to other nations. That is why the company has invested in few different countries since inception and subsequently written off those investments. Critics argue that this indicates Toyota can only succeed in its own country.

However, this is untrue, according to management and Toyota proponents, as the company operates in a similar environment as other competitors and they have not matched Toyota’s global success.

Scores
Criteria	Weights	North USA	TMMC
Laws and Regulations	0.2	61	93
Industry Competitiveness	0.05	69	69
Salaries and wages	0.08	85	71
Infrastructure	0.09	90	61
Human Resources Availability	0.15	52	59
Taxation	0.1	95	66
Cost of Expert Expatriation	0.05	58	50
Regional Growth potential	0.05	69	58
Plant Expansion possibility	0.12	53	56
Cost of leasing	0.06	91	51
Market availability	0.05	90	63

Calculations and results

The team finds that Toyota Motor Manufacturing Canada is the ideal location for the new plant. The plant meets the criteria of having the highest score. The score is obtained by multiplying the respective weight with the respective score for each factor (Jacobs & Chase, 2013).

The resultant figures are added together to obtain the final score. The scores are compared and the location with the highest score is chosen. In this case, USA obtained a score of 67 while Toyota Motor Manufacturing Canada obtained a score of 70.

The results are summarized in the Excel file attached and the grid analysis attached. The pie charts indicate the score for individual factors as percentages.

Conclusion and recommendations

The results indicate that the North America option obtains a higher weighted score of 70 than Toyota Motor Manufacturing Canada, which scores 67.

This indicates that the location of the plant in USA will be beneficial to the company’s operations more than, if it is located in Toyota Motor Manufacturing Canada.

Hence, it is prudent for the company to operate in USA since it will enjoy higher potential for growth, an available market, better taxation regime, stable laws, and regulations among others. However, it crucial to note that the difference between the two scores was quite small.

This indicates that the difference may be down to small factors such as difference in laws. Additionally, the team should understand that these small differences can lead to catastrophic outcomes in the operations of the firm and should be taken into account in decision-making.

References

Jacobs, R. & Chase, B. (2013). Operations and supply management: The core. New York, NY: McGraw-Hill Higher Education

Schwalbe, K. (2012). An introduction to project management. Minneapolis: Kathy Schwalbe LLC.

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