with your own internal capabilities. And the huge benefits to doing so go
beyond immediate savings based on undercutting price.
The best way to describe the situation facing companies today is that many
are confused. Is there a payback to investing in supplier partnering? Does “part-
nering” truly lead to the best quality and ultimately a competitive advantage?
Is partnership another way of saying we will be soft on our suppliers and they’ll
take advantage of us? Does supplier partnering lock companies out of opportu-
nities to find the lowest costs globally? What does it actually take for supplier
partnering to yield competitive advantage for the long term?
To address these questions, let’s examine Toyota’s supplier management up
close. Toyota provides an object lesson in the benefits of supplier partnering.
For example, working closely with their suppliers, they were able to reduce the
total cost of manufacturing the Camry by over 25 percent in the mid-1990s. To
deal with competition from companies in low-wage countries, Toyota asked its
suppliers to reduce cost by about 30 percent by the next new model introduction
in its CCC21 program. The suppliers worked hard and mostly accomplished the
goal. This seems brutal, yet in the end, suppliers tell us they prefer working
with Toyota (and similar customer Honda) over any other car companies.^2 How
have they done it?
Supplier Partnering the Toyota Way
When Toyota first set up shop in North America there were questions about
whether they could reproduce the supply system that contributed to their phe-
nomenal success in Japan. There were many reasons to prefer local sourcing:
pressure from the U.S. government, the operating philosophy of just-in-time,
and a philosophy of contributing to the communities that buy their cars and
trucks. Relationships built up over decades in Japan had to be developed in
years in North America. In response, Toyota began to develop local sources
through a combination of joint ventures with traditional Japanese suppliers and
carefully selected local suppliers.
What made this task so challenging was that Toyota was not satisfied with
simply finding companies that could build parts. Supplier partnering meant
much more. When we began to examine the essential features of the elaborate
system of supplier relations Toyota needed to establish, a picture emerged of a
complex set of systems, controls, and in fact a cultural connection. Many articles
written about supply chain management emphasize the use of a particular tool
like target pricing or the use of kaizen workshops or inventory reductions
Chapter 12. Develop Suppliers and Partners 273(^2) According to the Planning Perspectives benchmark survey of 223 suppliers in 2004, Toyota and
Honda continue to be rated as the most preferred to work with. Toyota and Honda led in every cat-
egory, including more trustworthy, better communication, and concern about supplier profitability.