Toyota Manages Suppliers for the Long Run

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by: John Caddell


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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