Toyota manages suppliers for the long run

Among the many accolades that Toyota receives, little mention is made of their supplier management. It's strange, given how frequently the press mentions supplier issues at other auto companies--usually in the context of extracting price concessions.

Toyota is very different. As profiled in a recent paper from the Boston Consulting Group, "Getting to Win-Win," Toyota takes the long view with suppliers. For example:

• It spends 3-5 years evaluating a new supplier before awarding an initial contract.
• It understands its suppliers' costs structures in detail and agrees to prices that allow suppliers to make profit. Price concessions must be accompanied by explanations of related supplier cost improvements.
• While it attempts to have more than one source for components, Toyota is willing to give 100% of its business for a part to one company if only that company can meet Toyota's expectations for quality and delivery.
  
• It carefully tracks supplier issues and gets involved in root-cause analysis and resolution of problems--and expects suppliers to learn from mistakes as eagerly as it does. A Toyota supplier is quoted in the BCG report: "Toyota accepts the fact that mistakes do happen. What we need to show is that we have learned from our mistakes and that we will not make the same mistake a second time. Toyota rewards you for that."
  

One hallmark is openness and transparency. And a willingness to invest in a relationship far in advance of an actual purchase. For example, if a company is not awarded business with Toyota, the company will provide "feedback that highlights the areas the supplier should work on to improve its cost, quality and support of Toyota."

In other words, Toyota provides information to losing bidders so that their future bids can have a greater chance of success. Which should be a lesson to all us who sell--don't be afraid to ask why we lost and what we can do to provide better bids in the future.

If it can help Toyota, and its suppliers, it can help our customers and us, as well.

(Thanks to the Economist for the pointer.)

(Photo: a 1981 Toyota Celica by allenp via stock.xchng)

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Toyota excels by revealing hidden problems

While some wags have predicted Toyota's imminent fall from grace, the company's management discipline and long-range outlook remain rare in the business world. In the July/August Harvard Business Review, Toyota CEO Katsuaki Watanabe engages in a wide-ranging discussion of the company's plans for the future.

It's a fascinating article, and a couple of passages caught my eye in particular. In them, Mr. Watanabe frankly confronts problems that Toyota has faced on the quality of its automobiles. Rather than sidestepping questions about the problems, or "bridging" back onto his marketing message, Mr. Watanabe addresses them analytically. An example:

In 1995 there were 26 Toyota factories; in 2007 there will be 63.... I realize that our system may be overstretched.

We must make that issue visible. Hidden problems are the ones that become serious threats eventually. If problems are revealed for everyone to see, I will feel reassured. Because once problems have been visualized, even if our people didn't notice them earlier, they will rack their brains to find solutions to them.

This revealing the hidden problem, not tolerating the "quiet fix," has been discussed in a prior post. But Mr. Watanabe goes on. He immerses himself in the company's mistakes, and gets actively involved in diagnosing and fixing them. Says Mr. Watanabe:

Soon after I became president, as you know, we confronted several quality-related problems. We created teams specializing in different areas and instructed them to analyze the root causes of problems in each area. We found that in several cases the problems had occurred because of design flaws or because of short lead times that didn't allow out engineers to build a sufficient number of physical prototypes. If we had thought about product designs more clearly or had the time to conduct more experiments, we could have avoided those problems.

Can you imagine GM's or Ford's CEO making such an admission in public voluntarily? I can't. Given this degree of candor and clear thinking, I can envision Toyota's quality problems lasting a short time indeed.

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