The Principle: Find Solid Partners and Grow Together to Mutual Benefit in the Long Term

April 11, 2009 - Tags:

Go to a conference on supply chain management and what are you likely to hear? You will learn a lot about “streamlining” the supply chain through advanced information technology. If you can get the information in nanoseconds, you should be able to speed the supply chain to nanosecond deliveries, right? What you are not likely to hear about is the enormous complexity of coordinating detailed, daily activities to deliver value to the customer. You are not likely to hear about relationships across firms—about how to work together toward common goals. Yet, this is the heart of what has made Toyota’s partnership with suppliers a global benchmark.

When Toyota started building automobiles, it did not have capital or equipment for building the myriad of components that go into a car. One of Eiji Toyoda’s first assignments as a new engineer was to identify high-quality parts suppliers that Toyota could partner with. At that time they did not have the volume to give a lot of business to suppliers. In fact, some days they did not build a single vehicle because they did not have enough quality parts. So Toyoda understood the need to find solid partners. All that Toyota could offer was the opportunity for all partners to grow the business together and mutually benefit in the long term. So, like the associates who work inside Toyota, suppliers became part of the extended family who grew and learned the Toyota Production System.

Even when Toyota became a global powerhouse, it maintained the early principle of partnership. It views new suppliers cautiously and gives only very small orders. They must prove their sincerity and commitment to Toyota’s high performance standards for quality, cost, and delivery. If they demonstrate this for early orders, they will get increasingly larger orders. Toyota will teach them the Toyota Way and adopt them into the family. Once inside, you are not kicked out except for the most egregious behavior.

This is not to say that respect for the extended network of supplier partners is analogous to being soft and an easy target. Toyota’s view is that, just as it challenges its own people to improve, it needs to challenge its suppliers. Supplier development includes a series of aggressive targets and challenges to meet those stretch targets. Suppliers want to work for Toyota because they know they will get better and develop respect among their peers and other customers. But no supplier I know that has Toyota as a customer believes it is easy to please. From Toyota’s perspective, having high expectations for their suppliers and then treating them fairly and teaching them is the definition of respect. Treating them softly or beating them up without teaching them would be very disrespectful. And simply switching supplier sources because another supplier is a few percentage points cheaper (a common practice in the auto industry) would be unthinkable. As Taiichi Ohno said:

Achievement of business performance by the parent company through bullying suppliers is totally alien to the spirit of the Toyota Production System.