Integration with Suppliers Leads to Price Drops

Toyota Sends Toyota Employees to Their Suppliers to Improve Enough to Work with Toyota

This sending employees to work with their suppliers is just one of the ways Toyota partners with suppliers. The Toyota partnership with their suppliers has created a business benefit for Toyota and they only have 2 hours of supplier automobile inventory on their docs at any one time. This means that when Toyota builds a car, the materials they aren’t using only experience two hours of unproductive downtime. This is a huge competitive advantage. When Lean Six Sigma discussed wastes they use the acronym DOWNTIMES. The I in DOWNTIMES stands for Inventory. Inventory is a waste in Lean Six Sigma because it is something you are paying for, that is not being used. It is also strategic but at a tremendous cost. Inventory is a strategic waste.

Toyota finds that it can be a more successful company if they partner with their suppliers. What they want from their suppliers is a low cost of inventory while maintaining a constant flow of high-quality parts. Suppliers get a fair price and Toyota’s continued business. Toyota knows which supplies are strategic for them. I would call all suppliers that are strategic and offer just-in-time services, which would be in tier 1. Toyota wants some of their tier 1 suppliers to work so well with them that they will actually send Toyota employees to the supplier. The goal is to bring them to a level of efficiency that works for Toyota’s requirements.

Putting Suppliers into 4 Categories

  • Strategic, Delivering Just-in-Time,
  • Strategic, Future Jus-in-Time deliveries,
  • Strategic, Important but Just-in-Time is not feasible,
  • Non-Strategic, all other suppliers

In Conclusion

Assign your suppliers to a tier level appropriate to their importance to you. A simplified tier level might be: 1) strategic suppliers that support just-in-time, 2) strategic supplies that do not support just-in-time, 3) important suppliers, and 4) supplies that are ancillary to your business such as office supplies. Though, you might consider just-in-time office supplies utilizing a two-bin system. Now that you have assigned tier levels to each of your suppliers have a discussion with your suppliers about what it would take for them to increase the level they operated at. Validate that the tier 1 suppliers not only deliver just-in-time but deliver a quality product that meets your quality requirements. If they do not, then they may be a candidate for help.

Supplier relationships with different systems will be different. Some systems do not rely much on a supplier and for other systems, the supplier relationship may be critical.