SUPPLIER DEVELOPMENT

A company’s undertaking to improve its supplier capability.

TWO CONCERNS

Companies’ organizational capabilities to develop their suppliers

Organizational capability as a subject taught to suppliers

KEY QUESTIONS

What factors facilitate and a constrain a company’s attempt to replicate its organizational capabilities at suppliers?

How to prevent leakage to competitors?

3 LEVELS OF CAPABILITY

Maintenance Improvement capability Evolutionary capability

SCOPE OF ACTIVITY

Model-specific components Whole factory Whole company

EVOLUTIONARY

Key suppliers Consistent set of incentives to learn Suppliers benefit

Relational Obligational Trust-based Voice-based

LONG TERM RELATIONSHIP

Joint problem-solving in developing “Black Box”

Clear rule for sharing gains between customer and supplier

Customer requirements Resources Organizational support structure

OBSTACLES

3 obstacles to the replication of organizational capability by suppliers Tacit nature of knowledge

Class room training Expensive “We know more than we can tell.”

It may take other groups than Supplier Development

Supplier corporate governance

TOYOTA CASE STUDY

Toyota’s Production System and Toyota Quality Control are taught by two groups Capability for capability building Lower level of capability

Jishuken (Self study groups) Lateral learning between suppliers

ORIGEN OF SUPPLIER DEVELOPMENT

Toyota 1939 Purchasing rules “once nominated as Toyota suppliers, they

should be treated as part of Toyota (as branch plants); Toyota shall carry out business with these suppliers without switching to others and shall make every effort to raise the performance of these suppliers.”

KEIRETSU SHINDAN

Post WWII Suppliers evaluated by:

Existence of management policy Productivity improvement Quality Improvement Fulfillment of production plans

SUPPLIER DEVELOPMENT STRUCTURE

Toyota

Purchasing Planning Division

Operations Management

Consulting Division

Diffuse Total Quality thru:•Toyota QC Award•Management Kaizen plan•Supplier association

Diffuse Toyota Production System thru:•Individual Assistance•Jishuken

TPS

Relentlessly focused on the elimination of waste, exposes quality problems through line stoppages and forces management to fix the root cause of the problem.

Teaching of TPS to suppliers Maintenance capability Improvement capability

TQC

Quality control techniques Hoshin Kanri (policy deployment)

Links shopfloor processes to policies of higher level management

Evolutionary capability

OPERATIONS MANAGEMENT CONSULTING DIVISION (OMCD)

Charged to implement TPS Within Toyota Core suppliers Same training Same procedures Same engineers

KOJO JISHUKEN

Autonomous study group Culmination of education and training

Middle Managers First-Line Supervisors

Most important repository of Kaizen

JISHUKEN GROUPS

Helping suppliers improve their shopfloors

Refining applications of TPS 56 factories apart of 52 enterprises

80% of Toyota’s spend Suppliers are cascading TPS to their

sub tiers Annual supplier selection

2 month critical focus

IF AND WHEN NECESSARY

Individual assistance given Quick results

Drivers Suppliers profits plummet rapidly Not meeting launch targets

TQC

Purchasing depart diffuses Responsible for Kyuohokai (Supplier

Association) Forum for sharing information

Regular seminars Study group meetings Training courses Exhibitions Member achievement

Cost, quality, delivery and development

TOYOTA QC AWARD

Motivate suppliers to adopt TQC Purchasing Dept. offers hands-on

quidance Hoshin Kanri Quality Assurance Cost Control Genba kanri Delivery management

TAISHITSU KYUOKA

“Strengthening of one’s constitution” Long-term

Marketing Cost and investment planning Cost control Process improvements Quality improvements

KAIZEN

To address major suppliers declining revenues and profits.

Major task to help suppliers secure profits in the short term Short term recovery of loss making

suppliers Longer term capability enhancement

REMOVING FEAR

OMCD does share with Purchasing Planning Department

All productivity gains between OMCD and Suppliers is kept confidential

Suppliers would not participate in Kaizen

Suppliers keep all gains Toyota expect benefits from improved

supplier performance

SUMMARY

OMCD separate existence from Purchasing Facilitate know-how between internal

factories and supplier factories Suppliers have incentive to enhance their

evolutionary capability Short term fixing of problem and long

term capability enhancement Suppliers taught TPS & TQC at the same

time.