Managing

SuppliersChapter 7

William RoseberryMatthew HainesTaylor Badonsky

Joe Aquila

Native Name: トヨタ自動車株式会社 Founded: 1937 Headquarters: Toyota, Aichi, Japan Area: International Products: Automobiles, engines,

motorcycles Services: Banking, financing, leasing Revenue: $18.58 trillion Profit: $283.55 billion Divisions: Lexus & Scion

Toyota Company Background

The Working Relations Index (WRI) ranks the

Original Equipment Manufacturer (OEM) based on 17 Criteria:

Supplier trust of the OEM Open and honest communication Timely information Degree of help to decrease costs Extent of late engineering changes Early involvement in the product development

process Flexibility to recover from canceled or delayed

engineering programs

Measured Performance Differences for Toyota and

Suppliers

The scores are high for Toyota, Honda, &

Nissan They have priorities for quality versus cost

focus

The scores are poor for Chrysler, Ford, & GM They have priorities for cost versus quality

focus

Measured Performance Differences for Toyota and

Suppliers

Key feature of selling strategy is to build in schemes that prevent

unilateral (one-sided) actions to change volumes or commitments.

Toyota strives to reduce variability to ensure stable operations by systematic mix planning, careful sales and operations planning, and sensitivity to the impact of product changes throughout the supply chain.

Toyota must collaborate with suppliers to create value for customers.

Suppliers attain productivity improvements to a level that makes the supply chain competitive.

Toyota suppliers must be flexible so they can respond to daily order changes.

Links to Toyota’s Processes

Choosing a supplier is a long, drawn-out process that

involves verifying whether the supplier will mesh with the supply network.

Both new and existing suppliers are expected to share their innovations with other suppliers that supply similar products.

The goal of the supplier is to maintain delivery performance, high quality, productivity improvements, and so one, over the life of the model.

Choosing Suppliers

Asanuma studied the Japanese industry and found

key features in managing suppliers included independent but closely linked suppliers, long-term relationships, frequent collaboration, exchange of employees between companies over long periods, and cross-linked shareholding.

Published reports show that Japanese auto suppliers won renewal of their contracts 90 percent of the time versus 71 percent for suppliers to U.S. auto OEMs.

Choosing Suppliers

Toyota opened up a plant in England in 1991.

Toyota started with a list of 2,000 initial suppliers.

They evaluated using criteria such as “assessment of management attitudes, production facilities, quality levels, and research-and-development capability.”

They ended their list with a total of 150 suppliers using this criteria.

Toyota Supplier Selection

Auto OEMs, suppliers are organized into tiers, with tier 1

suppliers being assemblers of systems, who manage all relationships with tier 2 suppliers, and so on.

The bottom of the pyramid consists of tier 4 suppliers who form, perhaps, about 40,000 entrepreneurs who own a lot of the intellectual capital that is required to produce excellent components.

Working with these lower-tier suppliers was the key to making the necessary changes in a timely and efficient manner.

Toyota chooses suppliers across multiple tiers so as to guarantee availability of innovative solutions across the supply chain.

Tiered Supplier Organization and Managing Relationships

The pressure on a supplier is maintained by

using a staggered system of model changes, which in turn entails a staggered system of negotiations.

The usual price commitment by Toyota to a supplier is for a one-year period, and prices are reviewed every six months, but the contract award is kept in place over the model life.

Pressure on Suppliers to Perform

Depth to Supplier Relations

Drawings from manufacturer to supplier are handled in various ways: Drawings detail manufacturing product Supplier designs manufacturing process Manufacturer learns details about

manufacturing process. Specifications are given to supplier and they

design the process.

Monitoring Suppliers

Japanese manufacturers keep detailed data about supplier process.

Require information on raw materials and delivery times.

Manufacturer absorbs some of risk of supplier to better control process.

Success to Supplier Relationships

Collaborative tools that have common standards all compatible.

Trust and share of intellectual property.

Modular views of processes and planning serving consumer needs.

Teams specified to solve problems.

Construction of Cost Competitiveness in the 21st

Century

The CCC21 initiative focused on cutting the purchasing cost of 170 major components.

The CCC21 System

The Comprehensive Assessment Tool rates the

supplier of a scale of 0 to 5 on a set of specific performance measures: Mission Reporting structure Involvement of top management Localization and self-reliance Open mind to operation procedures Organization with respect to Toyota interactions

Toyota Checklist for Supplier Audits

“Variety of components produced by suppliers is

consistent with their flexibility.”

“Velocity of the parts flow is matched between the assembly line and suppliers … In short, the supplier velocity is matched to the assembly plant production rate.”

“Variability of orders to suppliers is stabilized through communication through planned volumes in advance.”

“Visibility of supplier operations and of Toyota plants is encouraged by the approach at Toyota to discuss problems first.”

v4L Approach in Managing Suppliers at Toyota

Implementing an ERP system for Toyota will

streamline data in collaboration with suppliers more efficiently.

Currently, Toyota already utilizes SAP and Oracle depending on what region they’re in. Australia uses Oracle. Parts of North America uses SAP.

Toyota keeps all IT in house for enterprise architecture.

ERP with Toyota Supply Chains