How Toyota and Suppliers Work Together as Partners

Interview on September 23, 2008, with Jeffrey Smith,Vice President and General Manager, Toyota Business Unit, Johnson Controls

The purpose of the interview was to discuss how Toyota and suppliers work together as partners.

Jeffrey Smith described the forecasts shared by Toyota with Johnson Controls Inc. (JCI), a primary seat supplier, to enable stable orders and thus financial planning and budgeting. The company gets a yearly forecast broken down by months. Every week it also receives a rolling horizon 10-week forecast. Each time, the forecast for the next two weeks is firm, but the following weeks the variation is under 5 percent. Forecasts provided to JCI then cascade to forecasts to their subsuppliers and others. Heijunka at Toyota translates into a mix of seat types such as leather and cloth. That in turn creates smoother workload (due to differing work content of seat types) at JCI.

The role of design leadership for seats varies by model. In the past, JCI has been responsible for rear seats while Toyota has had leadership for front seats for several models. The rear seats vary by automobile model and design choices, but the front seat is quite independent of the rest of the car design. In the future, Jeff hoped that the roles would flip, with JCI taking leadership for front seats and Toyota leading design for the rear seats.

Toyota collaborates to obtain efficiency improvements and provides direct assistance when necessary. Jeff shared a description of what would happen if there were a problem with JCI’s seats with other OEMs. The general manager would be invited into the customer’s plant and subjected to an uncomfortable interrogation. Jeff contrasted that situation with what would happen if Toyota were the OEM. Toyota would send the particular specific plant person who dealt with the problem or, if the problem were more complicated, a team. In Toyota’s case, the team would come to JCI’s plant to assist in determining the root cause and identifying potential countermeasures.

Jeff also described the negotiation process with Toyota’s purchasing managers. A seat would be broken down into specific commodities such as steel, foam, plastics, trim, and assembly. A cost index method benchmark would be used to identify a globally competitive cost point for each commodity. Likewise, details such as welding cost, injection molding cost, and assembly costs would all be considered. At Toyota, the formula is Price Cost Profit; compare that with the traditional formula: Cost Profit Price. Given a target price from Toyota, JCI would have a profit that would be the difference between the price and the cost. JCI’s focus then is how to decrease costs and thus increase profit. JCI has participated with Toyota with some initiatives in this regard, such as CCC21, Value Innovation, Mass Innovation, and Gentani (i.e., recent initiative focused on efficiency improvements, lowest cost sourcing, and flexibility).

Jeff described the recent issues of coordinating with Toyota during a 14-week plant shutdown in San Antonio. JCI has five other supplier locations including plants in the United States and Mexico that will be affected by the shutdown. However, because JCI has been a partner with Toyota for over 25 years and has shared in its growth, he expected that Toyota would end up sharing the pain.

Jeff provided a current example of coordination with Toyota. JCI is scheduled to deliver rear-seat frames for the new Toyota vehicle, the Venza. The seats were to be made at a plant in Cadiz, Kentucky, an old plant built in the 1960s. From December 2007 through July 2008, Toyota’s Quality Development worked with JCI to bring the Cadiz plant welding capability up to Toyota’s latest standards, including a rating of over 90 percent on its prescribed welding audit. The Cadiz plant had initially achieved a welding rating of 44 percent that had improved to 83 percent by June 2008. JCI then decided it would restructure its operations and shut down the Cadiz operation. That announcement resulted in the necessity to move the Venza rear-seat frame manufacturing to its facility in Athens, Tennessee.

Before the move started, Toyota was informed that the new seat frames would be made at a plant that had never supplied to Toyota. The move was scheduled to happen over a one-week period. Toyota immediately sent its team to Athens and observed a weld rating of 23 percent that increased to 75 percent in two weeks and reached 95 percent within five weeks of the move (before the start of the full-scale manufacturing). The Toyota visits to Athens focused on “cut-and-etch” weld dissections and microscopic analysis. The Toyota team also invited JCI to Toyota’s Georgetown plant to understand its systems. So Toyota went into overdrive and provided intense support for Athens.

Jeff also described the process a while ago when JCI decided to consolidate two plants in Georgetown, Kentucky, into one facility. The move involved sharing with Toyota a “high-level” plan/image six months prior to the move followed by a process change request including plans for human resources, IT, production control, equipment moves, building renovations, quality, and plant operations. JCI set up a project room, or Obeya, to manage the effort. The relocation was completed during a one-week July shutdown. Because JCI supplied many of the seats for the biggest-selling car in North America, the Camry, the relocation of the seating operation had to be orchestrated flawlessly and startup had to mirror Toyota Georgetown’s start-up. JCI was able to execute that risky move due to a good and very detailed plan as well as constant management attention and focus. The trust between Toyota and JCI was key to the seamless transition. Jeff’s perspective was that good planning and attention to every detail is something JCI continues to learn from Toyota and practice in many situations.