OPENING VIGNETTE: TOYOTA USES BUSINESS INTELLIGENCE TO EXCEL

PROBLEM Toyota Motor Sales USA (toyota,com) is the U.S. distributor of cars and trucks built by Toyota (i.e., it is a subsidiary of Toyota). The company buys the cars at the Toyota factories in Japan and elsewhere, takes ownership of the vehicles, and then sells them to Toyota dealers across the United States. An average vehicle costs $8/day to keep while in transit. Because it used to take 9 to 10 days in transit, the financial charge was $72 to $80 per car. For 2 million cars per year, the cost to the company was $144 to $160 million per year. This was too much. In the late 1990s, the company faced increased problems in its supply chain and its operations, and its car-keeping costs mounted. Also, the inability to deliver cars to the dealers resulted in unhappy customers purchasing cars from competitors, such us Honda. This became extremely important in 2003 and 2004, when hybrid cars were introduced and the competition with Honda intensified. In the past, managers used computers that generated huge number of directionless reports and data. Managers were unable to use such data and reports strategically. Furthermore, internal departments regularly failed to share information, or they did it too slowly. Actionable reports were often produced too late. In addition, overlapping reporting systems provided data that were not always accurate. Managers were unable to make timely decision because they were not certain what portion of the data was accurate. The situation was especially dire in the Toyota Logistic Services (TLS) division, which manages the transport of vehicles. The managers of TLS require precision tracking and supply-chain management to ensure that the right cars go to the right dealers in a timely manner. Manual scheduling and the other related business processes that were conducted with incorrect information caused additional problems. For example, if one individual made a data entry mistake when a ship docked, the mistake would endure throughout the entire supply chain. (For example, some data indicates to managers that ship never made it to a port week after the ships had safely docked). The information technology (IT) organization was unable to respond the growing needs of the business. Finally, a new chief information officer (CIO) was hired in 1997 in order to fix the problems. SOLUTION Barbara Cooper, the new CIO of TMS started by trying to identify the problems. Cooper realized that a data warehouse was needed. A data warehouse is a central repository of historical data, organized in such a way that it is easy to access (using Web browser) and it can be manipulated for decision support. (See the discussion of data warehousing later in this chapter and in Chapter 5) Cooper also saw that software tools to process, mine and manipulate the data were needed. A system was therefore set up to provide real-time, accurate data. Unfortunately, the system included years of human errors that had gone unnoticed, including inconsistent duplicated data as well as missing data. This resulted in erroneous result and analysis. In addition, the new system lacked capabilities to provide what managers needed. By 1999, it had become clear that the solution did not work. It was the right concept but used the wrong technology from the wrong vendors. In 2002, Toyota switched to a better technology. The

new TLS system used Oracle s data warehouse and Hyperion s business intelligence platform. The system also included Hyperion s dashboard feature (discuss in Chapter 6 and 9), which allows executives to visually see hot spots in their business units and investigate further to identify problems and their causes. With the new TLS system, which uses color meaningfully (e.g., red for danger), a business manager can see in real-time, for example, when delivery times are slowing and can immediately find the sources of the problems and even evaluate potential solutions by using what-if analysis. RESULTS Within a few days, the new TLS system started to provide eye-popping results. For example that Toyota, the system helps managers discover that Toyota was getting billed twice for a specific rail shipment (an $800,000 error). Overall, Toyota USA managed to increase the volume of cars it handled by 40 percent between 2001 and 2005, while increasing head count by just 3 percent. In addition, in-transit time was reduced by more that 5 percent. Word of the success of TLS s new BI quickly spread throughout Toyota USA and then all over the company, and many others areas of the company started to adopt BI. For example, the former manager of TLS, who now runs the Toyota Customer Service Division, uses dashboards in his office, as do chief financial officers (CFOs) and other top executives throughout Toyota (e.g., to better manage expenses, purchasing, and so on). It is clear now that the more people who use data analysis tools, the more money Toyota can earn. The TLS system was upgrade in 2003 and 2005, and tools are continuously added as needed. Thanks to the new TLS system and other BI, the parent company, Toyota Motor Corporation, reached the highest profit margin in the automotives industry in 2003. Also, Toyota s market share has increased consistently. (Incidentally, Toyota, which is an agile company, will start to produce consumer-helping robots-that is, service robot for the elderly-in the year 2010.) Finally, an independent study by IDC, Inc., about the justification of business performance management (see Chapter 9) and BI system indicates that Toyota achieved a 506 percent return on its BI investment. The median return on investment [ROI] for the 43 other Fortune 500 companies that participated in the study was 112 percent. Question for the Opening Vignette 1. In what ways did the old information systems create problems for Toyota? Managers were unable to use such data and reports strategically. Furthermore, internal departments regularly failed to share information, or they did it too slowly. Actionable reports were often produced too late. In addition, overlapping reporting systems provided data that were not always accurate. Managers were unable to make timely decision because they were not certain what portion of the data was accurate. What information needs of managers are satisfied by the new BI system? What decisions are satisfied by the BI support?

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A system is therefore set up to provide real-time, accurate data. The new TLS system used Oracle s data warehouse and Hyperion s business intelligence platform. The system also included Hyperion s dashboard feature, which allows executives to visually see hot spots in their business units and investigate further to identify problems and their causes. With the new TLS system, which uses color meaningfully (e.g., red for danger), a business manager can see in real-time, for example, when delivery times are slowing and can immediately find the sources of the problems and even evaluate potential solutions by using what-if analysis. 3. Relate the TLS problem to the supply chain (from factories, to dealers, to consumers). Toyota U.S.A. takes ownership of the vehicles from the moment they leave the factories until the moment they reach the dealers essentially purchasing the vehicles from its corporate parent in Japan and then reselling them to dealers across the country. TLS require precision tracking and supply-chain management to ensure that the right cars go to the right dealers in a timely manner. Manual scheduling and the other related business processes that were conducted with incorrect information caused additional problems. For example, if one individual made a data entry mistake when a ship docked, the mistake would endure throughout the entire supply chain. (For example, some data indicates to managers that ship never made it to a port week after the ships had safely docked). List the decision support tools cited here. 1. Oracle s data warehouse 2. Hyperion s BI platform included Hyperion s dashboard feature. What strategic advantage can Toyota derive from this system? - The system helps managers discover that Toyota was getting billed twice for a specific rail shipment (an $800,000 error). - Managed to increase the volume of cars it handled by 40 percent between 2001 and 2005, increasing head count by just 3 percent. In addition, in-transit time was reduced by more that 5 percent. - The parent company, Toyota Motor Corporation, reached the highest profit margin in the automotives industry in 2003. Also, Toyota s market share has increased consistently. - Toyota achieved a 506 percent return on its BI investment. The median return on investment [ROI] for the 43 other Fortune 500 companies that participated in the study was 112 percent. Relate Toyota s decision to make consumer-helping robots to the changing business environment. In the midst of such major societal fluctuation as an aging society with a low birth rate and changes in population dynamics, the need for robot development is rising. With the philosophy of contributing to the world, and to its people by enriching society through manufacturing. Toyota marries cutting-edge technology from various disciplines including the automotive and IT industries in development of partner robots with the goal of practical use at an early stage in the decade after 2010.

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Intelligence and kindness take center stage in the Partner Robot concept, which is predicated on contribution to people and society. Specially, Toyota is aiming for practical use in four areas: the support of personal mobility, nursing and medical care, domestic duties, and manufacturing. WHAT WE CAN LEARN FROM THIS VIGNETTE This vignette illustrates a typical case in which information flow could not meet the needs of manages. Information was late, sometime inaccurate, and not shared by all. The old system did not meet the needs to make fast decisions, evaluate large amount is a technology called business intelligence, which is based on a data warehouse and provides a strategic advantage. The major objective of this book is to show how it is done. In this chapter, we provide a preview of the book.