SPECIAL ISSUE: GLOBAL SUPPLY-CHAIN PARTNERSHIPS - Toyota: Just-in-Time vs. Just-in-Case

Even the world's most efficient supply chains need a backup plan when Murphy's Law kicks in.

Few are more efficient than that of Toyota in Canada. The Japanese automaker's plant in Cambridge, Ont. operates under a "next-generation" just-in-time model. Parts shipments are triggered by actual demand, not a producer's best guess. Delivery windows are narrowed to a matter of minutes.

With the help of Transfreight Inc., the third-party logistics provider formed to service Toyota's Canadian plant, things run smoothly most of the time. Invariably, though, a part will be late, an order improperly filled, or bad weather will threaten to disrupt the whole operation. That's when Transfreight calls upon another 3PL, TST Expedited Services Inc.

TST steps in when parts must be rushed to the assembly line in order to keep it running. The Windsor-based provider utilizes a combination of truck and air to meet delivery commitments, often within the hour. Parts are rushed across the border without the luxury of pre-clearance through Canadian customs. And customers pay a premium for the service. "We're a last resort in the shipping chain," says TST Account Manager Carlo Matulich.

TST is in the odd position of supplying a highly valued service that its customer would rather not use. Yet for all its success in crafting an efficient supply chain, Toyota still must allow for the kind of emergencies that only a carrier like TST can alleviate. Its reliance on the expediter has gone up and down over the years, says Matulich, rising when Toyota opened a second plant in 1997, and falling since then.

No 3PL is in a better position to serve Toyota than Transfreight, which was created expressly for that purpose when the Cambridge plant opened in 1989. The 50-50 joint venture was between Japanese conglomerate Mitsui & Co., a longtime partner of Toyota, and TNT Logistics. In addition to delivering parts with its own fleet of 600 trailers, Transfreight is closely involved in route planning on the automaker's behalf.

Having mastered the Toyota Production System (TPS), Transfreight went on to specialize in Japanese-style auto plants in North America. Additional customers include the parts supplier Canadian Automotive Manufacturing Inc. (CAMI), whose plant in Ingersoll, Ont. is a joint venture between Suzuki and General Motors, and another Toyota plant in Princeton, Ind.

	TST is in the odd position of supplying a highly valued service that its customer would rather not use.

The idea behind Transfreight and TPS was to get away from traditional "push" systems, whereby manufacturers base production on a forecast that can vary widely in either direction. Often they will stockpile too much inventory out of a desire to maximize economies of scale. Deliveries to the plant are usually by appointment.

Through strict quality controls and better communication between partners, Transfreight successfully implemented the "pull" model of production keyed to consumer demand, says Operations Manager Darryl Brown. Now, through TPS, Transfreight ships parts only when they are called for by the assembly line. A consignment is likely to last no more than a couple of hours before another one is needed. The arrangement is a closed loop employing multiple delivery trucks - one picking up from the supplier, another en route, and still another at the plant door.

Sourcing is from nearly 300 suppliers, 70 percent of whom are located in the U.S. Yet despite the distance, inventory consists mostly of product in motion. Toyota builds in only a few hours of safety stock, which might increase during winter or when a supplier is located farther away, Brown says.

The closest thing to a warehouse in the TPS system is a pair of cross-dock facilities in Kentucky and Michigan. They receive full truckloads, which are split into small lots, usually no more than a day's supply, for movement to the Canadian plant.

The lack of standing inventory ensures that TST's services will be required from time to time. Planners might have failed to order enough stock, or an order didn't get through to the supplier. "We're not in the expediting business," says Brown. Still, with continued improvements to the Toyota supply chain, Transfreight has managed to reduce its reliance on the premium carrier.

TST Expedited also has family ties to Toyota's Canadian supply chain. Its parent company, TST Solutions Inc., was formerly part of TNT, which also held a half-interest in Transfreight. When the worldwide TNT organization was purchased in 1996 by KPN, the Dutch telecommunications giant, five executives of TNT North America bought out the trucking operation and renamed it TST.

Because of the company's prior connection to TNT, as well as its established position in the North American market, "we were able to gain [Transfreight's] confidence from the beginning," says Matulich.

TST maintains a fleet of 250 to 300 trucks, depending on the time of year. (Business is heavier in the second half, Matulich says.) Assets are scattered throughout the automotive supplier core of Ontario, parts of Quebec, and most U.S. states east of the Mississippi River. TST also serves at least two Toyota operations independently of Transfreight: a Toyota plant in Kentucky, and an engine plant in West Virginia.

In recent years, TST has expanded its services to include non-automotive manufacturers with JIT supply lines, such as high-tech and pharmaceuticals. Automakers still account for around 75 percent of the expediter's business, although the number is coming down, Matulich says.

The overwhelmingly international nature of the Toyota supply chain can still pose problems. While few borders process commercial traffic as efficiently as the one between the U.S. and Canada, there are still fundamental differences in customs rules, Brown says. Hours of service are longer in Canada, and paperwork requirements vary. In addition, there are limits to what U.S. drivers can do in Canada.

The process of moving freight over the border is generally a smooth one. Assuming shippers supply proper certificates of origin, and adhere to the terms of NAFTA, "it's not a significant event," says Matulich. "It's almost like paying a tariff."

Things aren't quite so simple from a business standpoint. TST must compete, both in pricing and service, in two distinct markets. In addition, the company is in the midst of internal change, with the recent announcement of its acquisition by TransForce Inc. Based in Saint-Laurent, Quebec, the new parent has interests in LTL, truckload and specialized transportation. TransForce executives have promised to retain the TST Expedited Services name, as well as the unit's long-term business plan.

As for the Toyota operation in Canada, Brown sees room for improvement on the communications front. Transfreight plans to unveil "huge improvements" in the form of a satellite link by fall of this year, he says. Currently drivers are tied into the system through cell phones and multiple status checks at the cross-docks and plants.