Saving “Sick” Suppliers Through TPS

The TSSC by design is not part of the business relationship with suppliers. It is there to educate through projects. Toyota purchasing has its own quality and TPS experts to work with suppliers when there are problems, the most severe of which is when a supplier shuts down the Toyota assembly plant because of a quality or production problem. Don Jackson, who later became vice president of manufacturing in Georgetown, Kentucky, was a quality manager in purchasing and created a system of evaluating and classifying suppliers.

Before joining Toyota, when Jackson worked for a supplier to the Big Three American automakers, he was shocked at how little hands-on assistance or monitoring was provided. He recalls, “I was successful in shutting down Ford for a day. No one ever visited my plant—even though I shut down the plant for a day.” He was determined that would not happen at Toyota. Suppliers are rated from one (like when a plant burns down) to five (exemplary TPS supplier). If a supplier puts a Toyota assembly plant in danger of shutting down, it will be a two. Toyota will then send a team of people swarming through the supplier’s plant and the supplier must develop an action plan to address all of their concerns. A level two typically means severe probation for a year.

Jackson came up with a “supplier improvement committee” in 1998 to work on problem suppliers. He explained:

I didn’t realize it stood for SIC. The Japanese called it the “sick supplier club.” It was funny, but it was sort of true! We had some real successes and one of the suppliers is going to get the outstanding quality award from the NUMMI plant this year. I am especially proud of that.

It is interesting how the “help” Toyota provided spread beyond technical issues to a human resource audit. As Jackson explained:

My Human Resources department approached me and said, “We’d like to support you in the supplier improvement committee.” At first I rejected the offer. I said a quality audit is all we need. But after I went on several visits to local suppliers I realized the issues were much deeper than quality of the process or the tooling of the process. It was a lot of the human side. You know, salary was too low or overtime was too high, working conditions were poor, there was no training or development plan. There was not good management. So I went ahead and had HR join me on audits of a couple of these critical suppliers. We did a very deep analysis of their organization. We looked at the turnover ratio, what they paid people, how they decide what the pay scale should be in the area. The HR team would investigate training, development, did they have an opinion survey? Etc. So for “SIC” suppliers, HR would do the HR investigation, quality would do a quality audit, production engineering would examine the manufacturing side.

Another example of Toyota’s approach to “SIC” suppliers is the case of Trim Masters (TMI) and its just-in-time Nicholasville, Kentucky, seat plant, which makes about 250,000 seat sets a year for Avalon and Camry. (See the case study at the end of the chapter.)

In 1995, one year after the Nicholasville plant was brought on line, Steve Hesselbrock took over as Director of Operations for all TMI plants. His first year was anything but a honeymoon. Nicholasville was completely dependent on its computer technology to get the vehicle sequence from Toyota and convert it into a sequence for the plant’s seat assembly line. They had a manual backup system, but it never worked. The computer system went down one day for only three hours, but with TMI’s very lean system it was enough to shut Toyota’s assembly line down. Immediately a crew of supplier quality experts from Toyota descended on the TMI plant and swarmed through it daily for two weeks. TMI was given a level-two designation in Toyota’s purchasing supplier rating, which meant they were put on watch and had to report monthly on improvements based on a true root cause analysis and clearly defined countermeasures. The Toyota experts ended up visiting the plant a few times a week for six months, then monthly.

A typical response to this problem might be “The computer went down, for heaven’s sake—fix it and implement a true manual backup system and be done with it.” In fact, TMI had delivery problems in the past and Toyota considered this to be yet one more symptom of a deeper problem. Toyota’s solution: analyze every aspect of the business, including quality planning, employee selection and training, team structure, problem-solving processes, pull systems, standardized work, supplier management—basically recreate the business.

TMI did just that and now J.D. Power routinely rates it as the top automotive seat supplier in the country on quality, a model TPS supplier exceeded only by its parent company in Japan. TMI also runs a manual system every month to be ready for any computer malfunctions. In a very big way, TMI’s crisis and level two rating was the best thing that every happened to it. Whereas other companies would threaten problem suppliers—“Fix the problems or we will drop you”—Toyota nurses them out of their “sickness” in a very holistic way.