Industry and Competitive Analysis

Chapter 2 : Economies of Scale and ScopeCase Study : PT. Toyota Motor Mfg

Indonesia

PROGRAM STUDI MAGISTER MANAJEMENFAKULTAS EKONOMIKA DAN BISNIS

UNIVERSITAS GADJAH MADA

Kelompok I : Danang Ika Widana Meidi Indah Nurmiati

Content :

1. Company Profile

2. Theory

Case Study on PT. Toyota Motor Manufacturing Indonesia

2.1 Economies of Scale

2.2 Economies of Scope

2.3 Special Sources of Economies of Scale & Scope

2.4 Product Life Cycle

3. Conclusion

1st STEP

TAM(Distributor &

importer)

MULTI ASTRA(Assy Plant)

TOYOTA MOBILINDO(Component

Plant)

TOYOTA ENGINE

INDONESIA(Engine Plant)

TOYOTA ASTRA MOTOR

AI : 100

• Distributor• CBU Importer

• Service-Parts

• Manufacturer

• Exporter

AI : TMC51: 49

AI : TMC5: 95

TMMIN

TAM

2nd STEP (1989) 3rd STEP (2003)

AI : TMC 51: 49

AI : TMC 49 : 51

AI : TMC 43: 57

AI : TMC51: 49

1976

1971

1973

1982

AI : Astra International

TMC: Toyota Motor Corp.

1. Company Profile

MPV PU / Truck

Passenger

Medium

Mediumup

Premium

Loadcapacity

Low

Medium

Small

Sedan

SUV

HILUX

HILUX D-Cab

Avanza

RUSH

LEXUS LX

LEXUS RX

LEXUS LS

LEXUS IS

VIOS

LEXUS GS

Commercial

Production Model

Product Line-up

Nav 1 + Etios

Welding Shop

Utility

Part Painting

Main Office

Test Course( 1 Km)

Painting Shop Press Shop

Commond Yard

Employee CenterEmployee Center

PolyclinicPolyclinic

Domestic Part AreaDomestic Part Area

Final Test Area

West Assy CanteenWest Assy Canteen

Assembly Shop

Painting CanteenPainting Canteen

Plant Establishment Ground Breaking : May 29, 1996 Operation Started : March 10, 1998 Inauguration : April 20, 2000 Investment : USD 60,700,000

1st Capacity Up Start Construction : Jan, 2003 Investment : USD 14,300,000 New Capacity : 75,000 units/year ( 2 shift )

2nd Capacity Up Start Construction : May, 2005 Investment : USD 40,300,000 New Capacity : 100,000 units/year ( 2 shift )

Area : Land 100 HA ( Used 30 HA )

Import Part AreaImport Part Area

Logistic WarehouseLogistic Warehouse

MosqueMosque

Toyota Karawang Plant # 1 Lay Out

2.1. Theory

Economies of ScaleThe cost advantages that enterprises obtain due to size, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.

Source : www.wikipedia.com

U-Shaped Average Cost Curve

L-Shaped Average Cost Curve

- Average Cost decrease by increasing of production quantity.

- Average Cost achieve minimum on specified production quantity and increase.

- Average Cost decrease by increasing of production quantity.

- After achieved minimum efficient size (MES) the average cost would be stable.

Average Cost in PT. TMMIN

SHORT RUN!

LONG RUN!

EXAMPLE:

TMMIN try to expand output run up against capacity constraints.

EXAMPLE:

TMMIN try to expand output by build a new production plant produce efficiently

1st Plant (Current)

2nd Plant (New)

WA T W

T

A

(1,000 Unit/Yr) 1st Plant 2nd Plant TotalProduction Capacity 110 120 230

P

2.2. Theory

Source : www.wikipedia.com

Economies of Scope Reductions in the average cost (cost per unit) associated with increasing the scale of production for a single product type, economies of scope refers to lowering the average cost for a firm in producing two or more products

2.3. Special Sources of Economies of Scale & Scope

1. Economic Density

2. Purchasing

3. Advertising

4. R & D

Spreading Fixed Cost

R&D...

Toyota conduct Regular Research and Development to find out an outstanding automotive technology. Example : Research to find out hybrid car

THS II FCHVTHS

Ultimate eco-car

CNG DPR

DPNR

Common-rail VVT-i

Lean Burn

D-4

EV

Diesel Engine

Alternative Energy

Gasoline Engine

Electric Vehicle

TOYOTA puts big concern in searching for the ultimate eco car with Hybrid Technology as its key technology

What is Hybrid System

+

Fusion between an internal combustion engine and electric motor, achieving different function through

different power combinations to create optimum synergy and output.

2.3. Special Sources of Economies of Scale & Scope

1. Economic Density

2. Purchasing

3. Advertising

4. R & D

5. Physical properties of production

6. Inventories

Inventories...Toyota implement Just In Time (almost No inventories)

ボデー着工

ラインオフ

Paint

PartMaker

M/C ProcessMaker

車体 塗装 総組立プレス

ボデー完

塗装完

Casting

BodyPress

LineOff

FlatSupplier Assembling

Part Forging

Body Painting Total AssyPress

BodyPress

PaintingFinish

Hammering

PartMakerSupplier

Just in Time : Pull System Production by Next Process

Proses Sebelum (Mae Koutei)

Proses Berikut (Ato Koutei)

Line

StrainerTempatShipping

KanbanLeaderKanban

Leader

Box Kosong＋

＋ Part Part Supply

Just in Time Tools : Kanban

2.4. Product Life Cycle in PT. TMMIN

Automotive industry is follow Product Life Cycle

Introduction

Growth Maturity Decline

To prevent declining sales, PT. TMMIN conducted innovation

Like : Minor Change, Big Minor Change, Full Model Change

INNOVATION

Toyota Innova Life Cycle

No Year Phase

1 Sept 2004 Introduction. First period produced in Indonesia

2 Aug 2008 1st Minor Change

3 Aug 2009 2nd Minor Change (introduction of Innova J-Grade)

4 July 2010 3rd Minor Change

5 July 2011 Big Minor Change

6 Aug 2012 4th Minor Change

Case Study

Example of Big Minor Change

3.Conclusion

1. PT. TMMIN implement economic of scale : - Firstly TMMIN implement : U-Shaped Average Cost, however after production is over max plant capacity TMMIN will built new factory and finally implement L-Shape average cost.2. PT.TMMIN also implement special sources of economies scale & scope, they are: - Economic Density - Purchasing - R&D - Inventory3. PT.TMMIN also implement innovation in their PLC