Komatsu’s value chain improvements - Areas of opportunity

1. Praveen Kumar
VALUE CHAIN ANALYSIS OF
KOMATSU
An analysis by Praveen Kumar B.tech (mining), MBA

2. KOMATSU
COMPANY PROFILE
Established in 1921 Komatsu is the world’s leading mining, forestry and
construction equipment and spares manufacturing company. Other
businesses include industrial machinery and vehicles, Finance, logistics
and electronics.
Komatsu is Japan based company with regional headquarters and
subsidiaries situated in over 194 countries. As of March 31st 2015
Komatsu group constitutes 177 companies. In New Zealand, Komatsu
has its main distributor in Auckland and has 5 branches.
Main competitors: Caterpillar, Deere & Co, Volvo, Joy Mining.
Praveen Kumar

3. CSR INITIATIVES IN KOMATSU’S VALUE CHAIN
KOMATSU’S VALUE CHAIN ACTIVITIES FOR EACH STAKEHOLDER
Komatsu strives to create value for its customers and society by fulfilling their social responsibility in their
every pursuit.
Praveen Kumar

4. EXISTING VALUE CHAIN AND CRITICAL
NODES OF CONNECTION
PRIMARY VALUE CHAIN ACTIVITIES
Value Chain Activities are divided
into primary and secondary
activities. Komatsu needs to perform
these activities more efficiently or in
a unique way to gain competitive
advantage over its rivals.
Praveen Kumar

5. EXISTING VALUE CHAIN AND CRITICAL
NODES OF CONNECTION
PRIMARY VALUE CHAIN ACTIVITIES
• Inbound Logistics – Komatsu has high power dominance over
its suppliers and therefore can command a better price from
its suppliers.
• Operations – Komatsu products and parts are standardized
globally, which enables it to produce new products at
different plants around the world simultaneously. Except for
some key parts, Komatsu can move production from one
plant to another immediately to manage currency rate
fluctuations, lessen output fluctuations and use the plants
efficiently. This strategy compensated for the decline in sales
volume in Financial year 2015.
Praveen Kumar

6. EXISTING VALUE CHAIN AND CRITICAL
NODES OF CONNECTION
PRIMARY VALUE CHAIN ACTIVITIES
• Outbound Logistics – Costly due to centralized production of
key parts in Japan.
• Sales & Marketing – Komatsu manages price competition by
following product differentiation policy by offering customers
a wide range of services such as machine parts supply,
finance, machinery rental, preowned machine sale and
machine leasing. Komatsu develops its own sales network by
employing local entrepreneurs who have better local
knowledge and opportunities. Komatsu provides 24hrs 365
days service to its mining machinery throughout its life cycle.
Praveen Kumar

7. EXISTING VALUE CHAIN AND CRITICAL
NODES OF CONNECTION
VALUE CHAIN SUPPORT ACTIVITIES
• Procurement – Suppliers are organized into ‘Midori-Kai’ groups where they
are allowed to know each other and develop trust. Komatsu encourages
suppliers to compete with each other. The supplier who gives the best
proposal gets contract and remains with Komatsu till the product
changes. Komatsu is transparent on its production plans with suppliers.
Komatsu follows ‘win-win’ policy with its suppliers.
• Human Resource Management – Komatsu considers its employees as the
most valuable asset and gives utmost importance for their continued
growth. Supplier’s are included in Komatsu’s human resource
development programs. Komatsu recruits in-house personnel who share
core corporate values known as “The Komatsu Way” for top management
positions.
Praveen Kumar

8. EXISTING VALUE CHAIN AND CRITICAL
NODES OF CONNECTION
VALUE CHAIN SUPPORT ACTIVITIES
• Technological Development – Komatsu uses DANTOTSU policy
for its technological development. DANTOTSU relates to
Komatsu’s products to be years ahead from competitors in
terms of safety, ICT(Information and communication
technology), environmental excellence, and efficiency
features.
• Firm Infrastructure – For comparing productivity of different
plants Komatsu utilizes Standard Variable Margin (SVM) which
is then used to control costs.
Praveen Kumar

9. RAW MATERIALS
Parts
Production
Plants
Assembly
Plants
Distributors Customers
KOMATSU’S LOGISTICS AND SUPPLY CHAIN
EFFICIENCY
SUPPLY CHAIN
Komatsu opts lean production techniques with low lead time.
Komatsu uses Just – In –Time supply chain system throughout
suppliers, resellers, distributors and customers network.
Komatsu has different partners in different countries helping in its
logistic strategy.
Praveen Kumar

10. KOMATSU’S LOGISTICS AND SUPPLY CHAIN
EFFICIENCY
INNOVATIONS AND HIGH VISIBILITY
• Komatsu utilizes real time sales figure data of its dealers globally.
• Production and Inventories data at plant, dealers and distributors is
combined with sales data to keep inventories low. All operators
worldwide can view this data real time with the help of KOMTRAX.
• Komatsu’s aim is to reduce distributor inventory to zero which it has
succeeded in most of the countries.
• Komatsu is collaborating with GE to produce IoT (Internet of Things)
to make service and operation of machineries more efficient by
exchanging data with manufacturers and other machines. It will be
first tried in New Zealand - Australia region and then used globally.
Apart from other advantages this system improves mining value
chain by reducing replacements of spares that are not required.
Praveen Kumar

11. KOMATSU’S LOGISTICS AND SUPPLY CHAIN
EFFICIENCY
PRODUCT DIFFERENTIATION
• Cost of Komatsu’s products are higher than most of its
competitor but Komatsu’s ownership costs are cheaper due
to high productivity, minimal downtime & maintenance cost
and better resale value.
• Komatsu customers range from large mining companies to
individuals owning tiny construction firm. Selling to broad
range of customers is high cost but Komatsu makes more
money out of lifetime maintenance than the sale price of that
machinery at a common facility.
Praveen Kumar

12. KOMATSU’S CORPORATE STRATEGY
GROWTH STRATEGIES BASED ON INNOVATION
Praveen Kumar

13. KOMATSU’S VALUE CHAIN STRATEGY -
MONOZUKURI
SEVEN WAYS OF KOMATSU
The culture of Monozukuri was
developed internally by Komatsu.
Komatsu’s ‘strategic market’(54%)
which includes China, former USSR,
Asia, Oceana, Africa, Central and
South America, and the Middle East.
‘Traditional Markets’ (46%) include
the US, Japan, and Europe.
Monozukuri is the Komatsu culture
that encompasses not only every
division of the company but the
entire value chain partners across
the globe.
Praveen Kumar

14. KOMATSU’S SUPPLY CHAIN STRATEGY
ITS ALIGNMENT WITH CORPORATE STRATEGY
Komatsu considers that growing with its customers, distributers and
suppliers is crucial to enhance its corporate value.
Komatsu’s strong focus on innovation and competitive strategy is to
avoid commodisation of its products which creates profit
throughout the product’s life cycle.
Komatsu’s unique supply chain activities have lead to:
Minimum inventories, improved machinery utilization, better after
sale service, better resale value, and enhanced control over
accounts receivable.
Praveen Kumar

15. CORPORATE AND SUPPLY CHAIN STRATEGY
ITS ALIGNMENT WITH CORPORATE STRATEGY
Komatsu’s activities to achieve its competitive strategy are:
• The key components important to product performance are
developed and produced in house.
• Energetic relationship with suppliers.
• Products and components are standardized globally.
• To become most trusted company of shareholders and
stakeholders.
Praveen Kumar

16. KOMATSU’S LOGISTICS CHALLENGES
AND RECOMMENDATIONS
• Interruption in the supply of products in case of natural
calamity – Komatsu need to use its global sourcing capability
to handle continuous supply of its products if any of its
production capacity is hampered.
• Raw material cost fluctuation – Komatsu need to have long
term contract for raw materials supply with its suppliers.
• Environmental Obligation – Komatsu products need to have
highest environmental standards in its products, should strive
for eco-efficiency and share transportation with other
companies.
Praveen Kumar

17. KOMATSU’S OPERATIONAL MANAGEMENT
CHALLENGES
AND RECOMMENDATIONS
• Product Quality– Komatsu follows stringent internal policy to
sustain product quality. In case of unexpected defects in
products, resulting in recall or untoward occurrences Komatsu
need to have appropriate insurance policy to cover it.
• Collaborations and Alliances – Komatsu needs to prudently
use its power dominance over its supply chain partners so that
it positively benefits the entire supply chain.
• Information Security – Komatsu needs to have stringent
security control to prevent leakages of intelligence property
and other confidential information of it, and its partners.
Praveen Kumar

18. KOMATSU’S VALUE CHAIN CHALLENGES
AND RECOMMENDATIONS
• Fluctuations in the currency exchange – Komatsu needs to
have more production facilities outside Japan to tackle this
issues.
• Legal Systems of Different countries – Komatsu need to be
aware of the current legal systems in different countries where
it operates and need to have a robust plan to react in case
of any changes to the law.
• Unforeseen events – Continuously maintaining visibility
throughout the supply chain network to react quickly and
appropriately.
Praveen Kumar

19. KOMATSU’S VALUE CHAIN IMPROVEMENTS
AREAS OF OPPORTUNITY
In only New Zealand and Australia region, Komatsu stocks over
130,000 genuine parts costing over $A1 billion to maintain and
repair Komatsu machineries. While in one-way these readily
available stock of spare parts will reduce the down time of
machinery, an efficient alternate method to reduce this
inventory would be an area to look into.
Developments in 3D printing technology can greatly reduce
Komatsu’s spare parts inventory issue. Komatsu must invest on
improving the 3D printing technology so that spare parts of
desired quality can be printed as and when required at a given
place.
Praveen Kumar

20. KOMATSU’S VALUE CHAIN IMPROVEMENTS
AREAS OF OPPORTUNITY
• 80% of Komatsu’s sales come from outside Japan. Komatsu has 63%
of its factories located in Japan. Komatsu must have more of these
facilities in China and other low cost countries.
• Komatsu’s policy of increasing average product price every year,
may not be a good policy when the economy is in ‘bust period’.
Their pricing policy must be according to the economy instead
they must analyse their value chain in an efficient manner to reach
desired profit.
• Mining Industry is notorious for boom & bust cycle, Komatsu needs
to adjust its production capacity for demands in variety of
businesses such as construction, forestry and others where heavy
machinery is required.
• Insistence on following Komatsu way(Monozukuri) for development
of managerial personnel overseas may require customisations to
the particular country for the sustainability of Komatsu supply chain.
Praveen Kumar