Get it right and every unit up to the last car rolling off the line is better quality
and yielding higher margins. And even for years after the last car is produced,
warranty costs can kill a company if there were mistakes in engineering before the
first car was ever produced. Since suppliers are manufacturing the components,
high quality design and manufacturing can be best done in close concert with
or even by the suppliers. Integrating engineering between Toyota and its sup-
pliers, and integrating the engineering of the product and process of the supplier,
is a critical success factor, and it takes many years of investment to get right.
Third, there is the precision and delicacy of the just-in-time system. As we have
learned, JIT is not just about reducing inventory. It is about exposing problems
so that people will solve them. It is a “fragile” supply chain system. Toyota extends
that system and its underlying philosophy to suppliers. Suppliers are simply
extensions of the assembly line, and waste anyplace in the value stream from raw
materials to delivery to the customer is still waste. It must be driven out. Toyota
has worked since it was founded to learn how to eliminate waste. Having sup-
pliers who do not have this capability creates weak links throughout the value
chain. Toyota wants every link to be equally strong and capable. Remember,
lean is about connected flows between stable processes. The supplier needs to
be stable and connected to your stable plants.
Fourth, Toyota wants innovation. The core of their long-term success has
been innovation—in products, processes, and countless small improvements
throughout the enterprise. Toyota sets specific targets for innovation by its sup-
pliers. For example, Denso has done projects in radiators and alternators with
the goal of putting those products at the forefront of performance relative to
cost in the industry for 10 years.^1 As they approach the 10-year mark, they come
up with more radical improvements to keep them ahead for the next 10 years.
Toyota works with suppliers to set specific plans for investment in R&D to put
innovative technologies on the shelf that will maintain Toyota as a leader in the
technologies of tires, batteries, climate control systems, exhaust systems, lubri-
cants, and so on. “On the shelf” means the technologies are proven and ready
for chief engineers to pick off the shelf to design into mass-produced vehicles.
Fifth, Toyota realizes that the overall financial health of the Toyota enter-
prise depends on the overall financial health of each part of the enterprise.
While a weak supplier may be able to inspect and build inventory and ship
good parts just-in-time and provide price reductions, at some point the weak
supplier will be driven out of business. Toyota wants suppliers that are strong
and capable of contributing to the entire enterprise.
There is probably a sixth, seventh, and eighth reason as well. The point is,
there’s a huge amount of work involved to align the capabilities of suppliers
272 THETOYOTAWAYFIELDBOOK
(^1) A. Ward, J.K. Liker, D. Sobek, and J. Cristiano, “The Second Toyota Paradox: How Delaying
Decisions Can Make Better Cars Faster,” Sloan Management Review, Spring, 1995: 43-61.