Professional Documents
Culture Documents
Toyota's Business Model
Toyota's Business Model
To hear American car makers and the United Auto Workers tell it, government
assistance is non-negotiable. Cash infusions courtesy of the taxpayer are
necessary to protect a vital industry, keep people employed, and maintain
Detroit’s place as one of commerce’s "shining beacons." Yet the world’s largest
car company manages to not only survive without help but generate $272 billion
in revenue for FY2019. Toyota Motor Corp. generates revenue through three
primary operations: automotive, financial services, and other business, including
the manufacturing of non-automotive machines and various other activities.
Headquartered in Japan, Toyota began in the 1920s as a loom manufacturer.
After developing and selling the patent for an automated loom, founder Sakichi
Toyoda entered into the automobile business. The first Toyota vehicles were built
in the early 1930s, while the Toyota Motor Company was established in 1937.
First focusing on compact cars, Toyota eventually expanded to produce pickups,
SUVs, trucks, sports cars, and other vehicles as well. Along the way, the
company developed into one of the largest automotive manufacturers in the
world; indeed, as of 2017 Toyota is the largest manufacturer globally.
Toyota generates the large majority of its revenue from its automotive business,
which can be further divided into separate subsegments based on brand and
geographic focus. In total, the company sold just under nine million vehicles in
FY2019. The company also earns revenue from its financial services branch and
through a third, much smaller wing that focuses on miscellaneous business.
One method that Toyota can consider is using the price elasticity of
demandto determine whether to increase or decrease the sale price of their
automobiles. The responsiveness or sensitivity of consumers to a price
change is measured by a product's price elasticity of demand (McConnell &
Brue, 2004). Market goods can be described as elastic or inelastic goods as
change in quantity demanded for that good. If demand is elastic, a decrease
in price will increase total revenue. Even though a lower price would generate
lower sales revenue per unit, more than enough additional units would be
sold to offset lower price (McConnell & Brue, 2004). In a normal market
condition, a price increase leads to a decreased demand, and a price decrease
leads to increased demand. However, a change in income affecting demand is
more complex.
Types of goods will help us determine whether demand for cars is elastic or
inelastic. If a good is considered to be a luxury rather than a necessity, the
greater is the price elasticity of demand (McConnell & Brue, 2004). Cars can
be deemed as necessary due to a need for transportation. Other types of cars
can be classified as luxury. A person who needs to be able to get from one
place to another will have the need for a car. An old vehicle may suffice. In
such a scenario, buying a brand new car is more likely to be a luxury rather
than a necessity. If car prices go up, people are more inclined to just keep
driving their old vehicles. In essence, the cars already on the road would serve
as substitutes for new cars. However, over a longer period of time, old cars
tend to wear out and the elasticity of demand for vehicles is less.
Based on data from Toyota’s headquarters, the 200 suppliers account for 2
billion units of which 150,000 types are purchased monthly. The total value of
purchased components is pegged at $300 million a month.
While supply contracts are never set in stone, maintaining strong ties with its top
suppliers is a priority for the Japan-based multinational auto manufacturer. To
maintain its relations with suppliers, Toyota hands out awards yearly to suppliers
that exceed performance targets.
In Toyota’s Detroit plant, the Camry model alone has suppliers such as
Magnuson Products, IPT Performance Transmission, Goodridge Fluid Transfer
Systems, MagnaFlow, Autometer, Impact Racing, Goodyear, Nitrous Supply,
and Optima Batteries. The finishing touches before the Camrys are delivered
to dealers are provided by Fast Ed's Interiors and the Polishing Shop.
Apple’s total net sales amounted to 260.17 billion U.S. dollars in their 2019 financial year, a
slight retreat from the historical record of 265.6 billion U.S. dollars in FY2018. Apple’s
annual revenue quadrupled in the last ten years.
That new direction is going to be thrust into the spotlight next week at Apple’s
“It’s Show Time” event, where the company is expected to unveil two big new
subscription services: a TV service for original shows and movies, and an
Apple News service that will bundle together premium news sources and
magazines.
Apple’s services business brought in over $10.9 billion during the most recent
quarter, setting records in “every geographic segment” in the process,
according to Apple CEO Tim Cook. Cook also said that Apple is on track to
double its services business from 2016 to 2020. Last quarter saw a 19 percent
increase year over year. It’s a substantial figure compared to Apple’s other
business segments: services already brings in more per quarter than the Mac
($7.4 billion last quarter), iPad ($6.7 billion), or the collected “Wearables,
Home, and Accessories” group of products ($7.3 billion). And that balance will
likely only continue to shift as Apple starts to push services harder and
introduces new services to which people can subscribe.
By today's standards Apple is clearly a manufacturer. They design and specify each element
of their product so it is completely theirs and theirs alone. Meanwhile, there is a large
industrial base of OEM and ODM manufacturers around the world, but each of their
customers is also generally a manufacturer as they too specified what they wanted and had
it made for them. With such large global markets there are few manufacturers who own all
their own production. Even automobile companies use many subcontractors to make their
parts even if they assemble their own product. Like many things, the lines have blurred, but
if your product is yours alone then you are a manufacturer.