How Toyota Suppliers Interact with Toyota

February 11, 2010 - Tags:

Interview on August 20, 2008, with Gary Dodd, Former President of Tire & Wheel Assembly and Former Executive with Toyota

The purpose of the interview was to discuss how Toyota suppliers interact with Toyota and to understand Toyota’s supply chain management from the supplier’s viewpoint.

Gary was one of the first general managers hired by Toyota. He worked in a matrix structure within Toyota from the very beginning, from the construction of a project to the coordination of ongoing production operations. He was with Toyota for 12 years. He was interested in starting a company and had conversations with Toyota Chairman Fujio Cho regarding this goal. Gary left Toyota and started a supplier company, Tire & Wheel Assembly (T&WA), which delivers tire and wheel assembly—a sequence part. The supplier built a facility in Indiana and supplied the Toyota plant in Princeton, Indiana. The company mounted tires on wheels with the variety suggested by Toyota. There was no room for downtime; modest inventory was on hand to ensure enough parts to match takt time or line speed. T&WA has a record with Toyota of never creating a downtime.

When asked about the specific actions Toyota took to make life better for the suppliers, Gary mentioned that there are huge differences between supplying to Toyota and supplying to other automakers. The main differences are the high level of support Toyota provides to suppliers, the high level of collaboration, and, when good things are done and all key performance indicators (KPIs) are in alignment, there is a lot of recognition and celebration. Toyota takes its key suppliers to a resort and they all have an annual meet to play golf or tennis. In contrast, many other OEMs have a demanding approach with a lot of confrontation. Most other OEMs leave it to the supplier to fix problems, but Toyota assists with fixing problems, and suppliers are comfortable with Toyota’s assistance in fixing problems.

When Gary was in the original management team with Fujio Cho, they used to have meetings twice a week. During the original period, management team members presented their accomplishments against goals. Mr. Cho told them they were selected because they were good, so he would assume that everything was fine but wanted to hear problems first so that they could be fixed. That approach was carried forward to suppliers; as they came onboard, they were also told to talk about problems—problems were expected, and suppliers would get Toyota’s assistance to fix them.

How else does Toyota keep the pressure on suppliers to be competitive? The other OEMs demand output. At Toyota too the pressure is maintained—every supplier understands that Toyota want costs to decrease. But at Toyota the question is how to squeeze the waste by removing unnecessary costs. Several times a year there is an exercise between the supplier and Toyota to reduce costs and thus reduce costs to Toyota and the supplier. It is very effective because everyone is pulling in the same direction.

Usually the group that helps decrease costs is different from the purchasing group. Sometimes, even after a lot of effort, there may not be any cost savings. If so, Toyota would be willing to let the costs stay as is. There is a lot of open book reconciliation—for example, Toyota might accept a 1 percent cost reduction one year and expect to do better another year.

The KPIs that Toyota uses to evaluate suppliers are on-time delivery, quality, and cost targets. The same KPIs are used internally to be compatible with Toyota’s expectations. These KPIs are looked at daily at the supplier organization and shared. In the beginning, suppliers were anxious about doing that and sharing a lot of information. Over a period of time, a level of mutual respect developed, and suppliers realized that that involvement was beneficial.

Toyota provides a great deal of visibility to the supplier for planning purposes. The annual supplier meeting provides a feel for Toyota’s plans for the upcoming year. After that, for all suppliers, there are individual meetings to relate the overall plan to the supplier’s volumes. The meeting is the time for such handoff discussions—to analyze the plans and understand their impact.

The supplier also gets a good sense of the volume and mix. If there are market changes, Toyota does some modest adjustments. There have been no instances where major changes were made that could cause havoc with the supplier. When asked if this process would work now when there are large product mix changes, decreases in volumes, and the like, Gary replied that he did not expect a change. He anticipates a shortening of time frames and expects Toyota to be working much harder to communicate with suppliers, working more closely with them. On a day-to-day basis, all of the Toyota data are received electronically and there are meetings to discuss the plans and operations. If there are any issues—for example, if the plans are more aggressive than can be accommodated due to equipment changes—the supplier is compensated. At the operational level, based on the T&WA takt time, the supplier gets a two-hour advance notice. An electronic order is sent to the supplier by Toyota when the vehicle body leaves the paint department. T&WA has to assemble and supply the tire and wheel assembly just-in-time for it to be mounted onto the correct car.

Gary believes that the way Toyota deals with suppliers needs to be examined more closely to understand what leadership in a supply chain really means.