Managing Suppliers Chapter 7

1. Managing SuppliersChapter 7 William Roseberry Matthew Haines Taylor Badonsky Joe Aquila

2. Toyota Company Background • 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

3. Measured Performance Differences for Toyota and Suppliers • 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

4. 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

6. Links to Toyota’s Processes • 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.

7. Choosing Suppliers • 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.

8. 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.

9. Toyota Supplier Selection • 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.

10. Tiered Supplier Organization and Managing Relationships • 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.

11. Pressure on Suppliers to Perform • 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.

12. 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.

13. 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.

14. 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.

15. The CCC21 System • Construction of Cost Competitiveness in the 21st Century • The CCC21 initiative focused on cutting the purchasing cost of 170 major components.

16. Toyota Checklist for Supplier Audits • 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

17. v4L Approach in Managing Suppliers at Toyota • “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.”

18. ERP with Toyota Supply Chains • 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.