By Kevin Meyer
A hallmark characteristic of GM, Ford, and Chrysler was and for the most part still is their propensity to try to bash suppliers into submission on pricing. Forget partnering with suppliers, the primary tactic was to threaten in order to obtain the lowest short-term price. This inevitably led to a reduction in quality and overall supplier performance. In contrast there was Toyota which had a reputation of working with suppliers to obtain mutual benefit.
"Had" is perhaps the operative word. For it seems even Toyota is succumbing to competitive pressure and is changing… and not for the good. From SupplierBusiness:
Toyota to suppliers – reduce prices or face being replaced. Toyota’s stark message to its supply base is a sign that relations between suppliers and OEMs are becoming increasingly strained. In a sign of the increasingly adversarial relationships currently being seen between OEMs and suppliers, Toyota is reportedly now telling parts suppliers in Japan to drastically reduce prices or face being replaced by overseas rivals.
The conditions reportedly came at an August meeting in Nagoya between Toyota and members of its 219 strong ‘Kyoho-kai’ of domestic suppliers, a group that includes Denso and Aisin Seiki.
Times they are a'changing. Unfortunately. Toyota's rapid growth led to a leadership that is not fully steeped in the Toyota culture. This is what created the missteps during the recent quality crisis – a focus on shifting blame and fighting evidence which harmed their reputation. Many of us had thought they had learned a lesson and had gone back to their roots to focus once more on creating value for the customer and quality. Perhaps not.
Toyota has close ties with its Japanese suppliers and has traditionally been loath to threaten them with such action. The company shares cost savings with suppliers, guarantees business and holds stakes in the biggest members of its parts-makers group. The rapid expansion of its supply base overseas is seen as being partly responsible for the quality issues that have affected the company’s reputation in recent years.
Toyota has also suggested that Japan-based suppliers should procure more of their parts from overseas as one way to reduce their prices, according to reports from the discussions. The company has asked some parts-makers to cut prices by as much as half, according to one report.
Bashing suppliers on pricing and encourage outsourcing and chasing low cost labor. Watch out, Toyota. Remember your core values and principles.
Steve H says
I saw this article last week when it came out and I’m reserving judgment because I suspect there is a small case of sensationalism present. We really don’t know all the details but we do know this isn’t the first time Toyota has demanded serious cost reductions from suppliers. I’m hoping to see someone like Bertel Schmitt cover it @TTAC – he always has some inside track.
While that article did seem to hit around every corner of the net, an article titled “Toyota Girds for Strong Yen” over at the WSJ seemed to fly under the radar.
We already knew they were up to something at their new plant in Ohira (read: New plant in high labour cost Japan) but this article gives a little more insight into what that is and goes to show that Toyota still uses creativity, innovation and counter intuitive thinking to stay ahead. This plant uses less automation, not more.
This threat could be another less than subtle attempt to get the attention of their government to swiftly act on the yen. It could be just a blatant threat to force suppliers to chase low cost labour. We really don’t know everything that went on in that meeting, but I’m certain we will find out more in the coming days.
Sadly, I was at a hospital last week where the CEO was bragging about how the CFO sent a letter to all of their top spend suppliers asking (demanding?) for a 10% price reduction. He was thrilled that two or three had actually said yes and he was saying he should have asked for more… goodness gracious…. they aren’t really a lean organization (although they have hired a few people). The CEO and CFO clearly aren’t thinking lean (nor did they describe their price-squeezing as “lean”).
Then again, the government and payers do that to them all the time, unfortunately, just slashing payments. This isn’t the same as real systemic cost reduction or waste reduction, of course.
Paul Todd says
Toyota’s excellent supplier relationships have earned them the benefit of the doubt, but this sounds very much like US companies in various industries being told to “match the China price” in recent years. Is Jack Welch consulting for Toyota?
The yen-dollar ratio appears to be driving this effort, since the same message seems not to have been given to Toyota suppliers outside Japan.
Shrikant Kalegaonkar says
Like Steve H., I’m reserving judgement until more is known. Toyota’s processes are deeply integrated with those of its suppliers. The Toyota Way is all about building a lean enterprise. If one part fails, the whole thing fails. With so much at stake I doubt Toyota has taken to “bashing its suppliers into submission on pricing”. That does appear to be a little sensational phrasing.
It is well known that Toyota demands continuous cost reductions from its suppliers to eliminate waste. While the amount of reduction requested this time around might be high, the request itself isn’t a surprise.
It is also no surprise that as Toyota has globalized its operation, its supply base has increased. Local sourcing is just another part of the Toyota Way. Therefore, competition between suppliers was bound to grow beyond Japan’s borders.
Finally, I doubt Toyota would use the “Big Three”‘s approach to supplier management as best practice after seeing GM & Chrysler implode.
I am still firmly a disciple of the Toyota Way and a supporter of Toyota the company.
Rick Bohan says
Why shouldn’t Toyota take this approach? After all, GM and Chrysler are masters at it.
David M. Kasprzak says
I don’t mind that management at Toyota doesn’t always take the high road, that they occasionally forget what got them here, or that things appear to be going downhill. All of that’s OK, because everyone makes mistakes and is likely to commit errors in judgement – even highly regarded Toyota execs.
What does bother me is when those same folks don’t realize the error and remind themselves of their principles. In my mind, that’s the beauty of Toyota – the willingness to step up to a mistake in judgement, admit it, and correct it.
We’ll watch and see what the rationale is for the supplpier pressure and, if it’s indeed a deviation from the practices we believe Toyota should be following, we’ll also see how the folks at Toyota handle themselves if and when they realize the error.
Steve H says
I think the rationale is to get the Japanese government to intervene on the yen.
Every Japanese automaker has already threatend to move production from Japan. On the topic of Toyota of chasing low cost labour – they’ve actually opened a new plant in Japan that requires more manual labour and have promised 3 million units production in Japan. That’s more than any other Japanese automaker, IIRC. Honda is looking at moving significant amounts of production out of the country and is opening a plant in Mexico for cars that are built in Japan now.
Anyways – I think after threatening to move assembly plants with still no change, they might be getting the idea to threaten to move the entire supply chain. That might get the Japanese government seriously thinking. (not that they can do anything about yen anyways)