Toyota Motor Company: Management Accounting Report

Background of the Toyota Motor Company

Toyota Motor Company is one of the largest manufacturers of the automobile in the world. The main competitors of Toyota include the Ford Company, General Motors Company and the Honda Motor Company Ltd.he company has its headquarters in Toyota City, Japan (Hino, 2006, 271). The company started as a small department of Toyoda Automobile Loom Works, Ltd and it has constantly grown over the years to become a multinational corporation.The company has bases in more than 30 countries across the globe. The company was founded 70 years ago and it has remained as one of the most profitable enterprises in the world (Shimokawa, 2010, 276).

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The company has maintained growth and competitiveness as a result of its quality products. The company’s success can be attributed to its lean management practices as well as focusing on execution. As a result of its lean management practices, the company has become financially stable and debt-free. In addition, the employees have been the driving force behind Toyota’s success. Toyota maintains close relationships with its supply base and this has enhanced its supply chain in the United States over the last decades. Besides maintaining a close relationship with its supply base, the company has also financially invested in its supply base. Its success has not been replicated by any automobile company (Hitt & Hoskisson, 2009, 9).

Accounting and management accounting

According to a study by Lunt & Weaver (2005) Accounting entails the process of measuring and communicating economic information for decision-making purposes. Accounting is therefore concerned with the act of providing information that enables the decision-makers to make viable decisions. The users of information are comprised of both the internal users and the external users. Internal users entail the parties within a firm such as the senior leadership team and the staff members. The external users entail the parties outside an organization such as the customers, creditors, supplier’s e.t.c. (Lunt, & Weaver, 2005, 1).

According to Malcom, Coombs, & Jenkins (2005), Management Accounting is a branch of accounting that is concerned with providing and interpreting accounting information to the management at all levels to achieve the following objectives; Management accounting helps to formulate the policies of the firm. The financial policies provide a firm with guidelines for obtaining funds, utilizing funds and controlling funds. This plays an important role in enabling a firm to achieve financial goals. Management Accounting requires financial policies to be based on set objectives. Research which was done by Pizzey (1989), states that the objectives should be predictable in order for them to be adequately implemented. The senior leadership team has the responsibility of determining the financial policies of a firm. The financial policies of a firm can relate to capital structure decisions, sources of funds, capital management, profit distribution, inventory management e.t.c. For instance, a firm that aims at securing funds from outside for financing a part of its future growth is required to consider its future financial policies properly.

A study by Debarshi (2011) shows that Management accounting can help in planning the activities of an organization. With this regard, Management Accounting performs the following two functions; it provides the financial managers with authority to spend and it provides a yardstick that facilitates monitoring of current activities. Planning occurs in three broad types i.e. strategic planning, budgetary planning and operational planning. Strategic planning focuses on the long-term –action plans that enhance the attainment of organizational objectives. Budgetary planning focuses on preparing medium-term plans. Operational planning entails the act of preparing short-term planning processes (Kraten, & Kraten, 2009, 3).

Management Accounting helps in controlling the activities of a firm. Controlling is aimed at ensuring that activities are accomplished as planned. With this regard, this function requires an organization to be divided into smaller segments and a financial officer to be trusted with the funds of each segment. Management Accounting uses such techniques as Standard Costing and Budgetary Costing (Johnson, & Kaplan, 1991, 61).

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Management Accounting is useful in decision making. Management Accounting allows the organizational leaders to choose the best course of action among the various alternatives. Decisions in an organization may include decision to use manual labor or machinery, the decision to invest or disinvest e.t.c. (Hopwood, & Chapman, 2008, 1223).

Also, Management Accounting is used in performance appraisal. Management accounting thus is used as a basis for rewarding employees in an organization (Lucey, 2003, 513).

Review of the nature and role of management accounting in Toyota Company

Over the years, Toyota Motor Company has developed Management Accounting approaches to improve its production processes. The company has embarked on such approaches as just-in-time (JIT) and total quality management (TQM) which helps to improve its production processes and human resources practices. The Just-In-Time approach to Management Accounting was first adopted in Japan. Toyota Motor Company has generally adopted this mode of working. Toyota Company began adopting this production system after the Second World War when the Toyota President urged his staff members to catch up with the United States in a period of three years failure of which the automobile industry in Japan will collapse. Since Toyota Company adopted JIT technique, its productivity levels, as well as quality, have been enhanced. This approach is also deemed by Japanese manufacturers as flexible, rationale and one that ensures continuous improvement in all phases of car manufacturing (Radhakrishnan, 2001, 387).

Just-In-Time approach was developed to achieve efficiency in eliminating all wastes and full utilization of employees’ capabilities. The JIT approach plays an important role in eliminating all wastes relating to time, equipment and parts. With regards to Toyota Motor Company, there are seven types of production wastes which include; delays, processing, motion, defective products, stock, overproduction and transportation. These production wastes are usually unnecessary and the JIT approach helps in eliminating them (Hill & Jones, 2009, 119).

According to Barkley (2006) JIT ensures that efficiency is achieved in utilizing the employee’s capability fully. Employees’ mental and physical capability is well utilized by the use of the JIT approach.

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The other production technique that the Toyota Company has adopted is Total Quality Management. Toyota introduced Total Quality Management in the early 1990s to enable the company to achieve innovative thoughts necessary to compete with other automobile companies across the globe by focusing on the customers. This approach enables the management team to develop a creative mindset that enables them to determine what needs to be done to steer the organization to greater heights. By adopting this approach the Toyota company has successfully developed many vehicles over the last several years.Furthermore, the approach has enabled Toyota Company to produce astonishing productions in the context of environmental technologies and also recover its performance quickly on overseas bases particularly in US (Cali,1993,55).

An analysis of Toyota company information needs, the management accounting techniques it might use and decision it may now take

Toyota Motor Company is faced with the problem of lack of adequate knowledge and familiarity with regards to foreign markets. This challenge is complicated further by the fact that it is more complex and difficult to conduct international market research as compared to domestic research. This problem does not allow Toyota to make timely adjustments with regards to its marketing mix (Stonehouse, G & Campbell, 2004, 219).

Toyota Company should use the value chain management technique to cater to its information needs.

According to Micheal Porter, the value chain relates to production, marketing and exhibition activities that provide an organization with a competitive strength. According to Micheal Porter, the value chain is divided into two broad categories i.e. primary activities and secondary activities (Bidgoli,2010,6).Primary activities are those directly concerned with the creation and delivery of products and services(Weele,2009,5). They are grouped into five as follows;

The first primary activity of the value chain is Inbound include the handling of material, stock control and material transport. The Toyota Company should be concerned about reliability in delivering materials on time to its manufacturing transformation process (Blyth, & Kovacich, 2006, 80).

Operations are the next primary activity of the value chain. Operations transform the various inputs into final products or services. It may include assembling, testing, machining e.t.c. The Toyota Company should derive customer service policies based on the product life cycles since customer service needs vary over the products’ life cycle (Blyth, & Kovacich, 2006, 80).

Outbound logistics is the other primary activity of the value chain. For Toyota Company, this is concerned with warehousing, material handling, transportation e.t.c. Toyota Company should use supply chain management in conjunction with its Just-In-Time operating environment to reduce its levels of inventory. The company should use its JIT operating environment in coordinating and scheduling shipments to ensure that the shipments arrive at their required destinations on time. This Management Accounting concept can be beneficial to Toyota Company as it ensures that the company has less cash tied up in stock and thus the inventory carrying costs are greatly reduced (Iver, Seshadri, & Vasher, 2009, 12).

Marketing and sales relate to activities that drive the demand for a firm’s products. Toyota Company can create awareness about its automobiles by advertising (Sehgal, 2011, 56).

According to Micheal Porter, Service activity relates to all aspects that enable an organization to enhance value for its products. Toyota can thus maintain the value of its automobile by such aspects as provision of spare parts e.t.c. (Blyth, & Kovacich, 2006, 80).

Support services on the other hand are those that enable a firm to achieve effectiveness with regards to the creation and marketing of its products and they include;

Procurement i.e. the processes through which resources are acquired to facilitate creation of new products. Toyota can improve on this by focusing on lean production instead of mass production (Blyth, & Kovacich, 2006, 80).

Technology development refers to the know-how of undertaking an activity. With this regard, Toyota should focus on product design and research and development (Herstatt, 2006, 212).

Human resource management has to do with activities involved in ensuring that employees are recruited, trained and rewarded accordingly to perform their organizational duties effectively.

Infrastructure refers to the structures and routines of the organization which sustain its culture. With this regard, Toyota should make use of quality controls, information management e.t.c. (Blyth, & Kovacich, 2006, 80).

Reference List

Barkley, B., 2006.Integrated project management. New York: McGraw-Hill Professional.

Bidgoli, H., 2010. Handbook of Technology Management: Supply Chain Management, Marketing and Advertising, and Global Management. Hoboken: John Wiley and Sons.

Blyth, A & Kovacich, G.L., 2006. Information assurance: security in the information environment.Berlin: Springer Science & Business.

Cali, J.F.,1993. TQM for purchasing management. New York: McGraw-Hill Professional.

Debarshi, B., 2011. Management Accounting. New Delhi: Pearson Education India.

Herstatt, C., 2006. Management of technology and innovation in Japan.Berlin: Birkhäuser.

Hill, C & Jones, C., 2009. Strategic Management Theory: An Integrated Approach. London: Cengage Learning.

Hino, S., 2006. Inside the mind of Toyota: management principles for enduring growth. Cambridge: Productivity Press.

Hitt, M. A. & Hoskisson, R. E., 2009. Strategic management: competitiveness and Globalization: concepts & cases. London: Cengage Learning.

Hopwood, A.G & Chapman, C.S., 2008. Handbook of Management Accounting Research. Amsterdam: Elsevier.

Iver, A, Seshadri, S & Vasher, R., 2009. Toyota supply chain management: a Strategic approach to the principles of Toyota’s renowned system. New York: McGraw-Hill Professional.

Johnson, H.T. & Kaplan, R. S., 1991. Relevance lost: the rise and fall of Management. Boston: Harvard Business Press.

Kraten, T & Kraten, K., 2009. Business Planning and Entrepreneurship: An Accounting Approach. London: Business Expert Press.

Lucey, T., 2003. Management accounting. London: Cengage Learning EMEA.

Lunt, H. & Weaver M., 2005. CIMA Study Systems 2006: Financial Accounting Fundamentals. Amsterdam: Elsevier.

Malcom, H, Coombs, M & Jenkins, E., 2005. Management accounting: principles And applications. Thousand Oaks: SAGE.

Pizzey, A., 1989. Cost and management accounting: an introduction for students. Thousands Oak: SAGE.

Radhakrishnan, P., 2001. Proceedings of the 1st international conference on logistics and supply chain management. Mumbai: Allied Publishers.

Sehgal, V., 2011. Supply Chain as Strategic Asset: The Key to Reaching Business Goals. Hoboken: John Wiley and Sons.

Shimokawa, K., 2010. Japan and the Global Automotive Industry. Cambridge: Cambridge University Press.

Stonehouse, G & Campbell, D., 2004. Global and transnational business: strategy and Management. Hoboken: John Wiley and Sons.

Weele, A.J., 2009. Purchasing and Supply Chain Management: Analysis, Strategy, Planning and Practice. London: Cengage Learning EMEA.

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