Toyota Prioritizes Partnership Over Subcontracting: Embracing Mutual Prosperity with Over 60,000 Companies
## Toyota's Strategic Approach to Supplier Management
Toyota Motor Corporation (TMC) has established a distinctive supplier management approach, ensuring high-quality standards and operational excellence across multiple tiers in its supply chain.
### Supplier Expectations and Compliance
TMC sets stringent expectations for its suppliers in areas such as quality control, inventory management, shipping, supply chain reliability, and adherence to best practices. These expectations are designed to maintain Toyota's reputation for consistent quality and operational excellence.
### Supply Chain Structure and Tier Engagement
Unlike some companies that delegate lower-tier supplier management to first-tier partners, TMC follows a **directed sourcing** strategy, often referred to as the "supply-chain make" model. This approach involves Toyota directly contracting with select second- and third-tier (Tier2 and Tier3) suppliers and mandating that its first-tier suppliers work with these designated partners.
This strategy allows TMC to maintain direct oversight over critical components and processes within the supply chain, ensuring tighter control over quality, sustainability, and compliance. While the number of companies involved can be extensive, TMC's directed sourcing means a significant portion of the supplier base is actively managed or influenced by TMC itself, rather than being left solely to first-tier suppliers.
### Relationship Building and Continuous Improvement
TMC is known for investing in long-term relationships and continuous improvement (kaizen) with its suppliers. While specific details about programs targeting Tier2 and beyond are limited, the directed sourcing practice suggests a level of engagement and support that goes beyond transactional relationships.
Collaborative problem-solving, shared training, and joint development initiatives are hallmarks of TMC's supplier relationships, though these are more extensively documented with first-tier partners. The company's corporate governance emphasises earning trust and enhancing long-term value, which would logically extend to all supply chain partners.
### Comparison to Industry Practices
TMC's supplier management approach differs significantly from the more common "hands-off" model, where lower-tier supplier management is entirely delegated to first-tier partners. In the "hands-off" model, quality/sustainability oversight is limited, relationships are transactional, and the number of suppliers is very large with less direct oversight.
### Addressing Challenges and Adapting to Change
TMC's purchasing team addresses unique challenges, such as adapting to new materials required for decarbonization or passing on surging materials prices to avoid a major impact on suppliers. They work closely with suppliers to address needs such as implementing karakuri (simple mechanisms that make tasks easier) and devising better ways of storing spare parts.
### Fair Trade Practices and Regulations
The auto industry has faced criticism for violating fair supplier transaction regulations in recent years, and the Japanese government has raised concerns about pricing methods, fair standards for part mold storage and disposal. TMC is working to promote fair trade practices, but challenges remain, particularly in reaching suppliers in Tier2 and beyond due to confidentiality and the Antimonopoly Act.
### The "Lowest Possible Cost"
For TMC, the "lowest possible cost" is not solely about competition, but rather about establishing fair prices for stable long-term business relationships. One joint cost-cutting effort with suppliers is Smart Standard Activity (SSA), which optimises quality and performance standards.
In summary, TMC's supplier policies are characterised by strict expectations, a directed sourcing model that extends its influence deep into the supply chain, and a culture of continuous improvement and relationship-building. This approach supports both operational excellence and the development of trusted, long-term partnerships across all tiers of the supply chain.
- Toyota Motor Corporation (TMC) not only sets strict expectations for its suppliers in areas such as finance, business, and quality control, but also actively manages or influences a significant portion of its supplier base through its directed sourcing strategy.
- In contrast to some companies that focus solely on the "lowest possible cost" in their supplier relationships, TMC emphasizes establishing fair prices for stable long-term business relationships, investing in long-term relationships and continuous improvement (kaizen) with its suppliers.
