Supplier Management: Is the "Toyota Way" on the Way Out?

I'm pleased to report that after a weekend driving around in a Toyota Avalon, a model impacted by the recent acceleration recall, I'm alive and well. The same can't necessarily be said about Toyota's supply chain. According to a recent article in SupplierBusiness.com, "The global quality crisis now hammering Toyota has launched a debate about whether the blame should be placed squarely on the company's renowned system of supplier relations." The article considers the notion that perhaps "Toyota's deeply integrated ties with its parts makers actually permitted the problems with the pedal modules to occur" by suggesting that "Toyota can no longer maintain sufficient support and quality control, especially as it adds new suppliers around the world … Yet it still governs the design of key components." Moreover, "By relying so heavily on sole suppliers and using parts across multiple platforms and vehicles, the automaker increases its risks."

Personally, I'm a firm believer in the Toyota way. Developing close supplier relationships for strategic parts and commodities is almost always a better long-term decision than simply hammering a supply base on price. But I do agree with the article's point that aggressive part rationalization -- not to mention buying primarily finished assemblies rather than individual piece parts -- may have contributed to the problem. In this regard, "Toyota's recalls have involved fantastically large numbers of vehicles, which some critics say is the result of reliance on single suppliers that provide common components for many platforms and vehicles." Still, the article is wrong when it suggests that "the lack of a second supplier means it can't easily switch sources." Toyota, like Honda, is a strong proponent of a split-of-business approach that in many cases provides either an 80/20 or 60/20/20 split of business among suppliers, rather than executing a sole-source strategy.

I had the chance to play golf with a seventy-something litigator who has done quite a bit of work in the automotive industry last weekend. He suggested to me that Toyota's biggest challenge here is not its sourcing or supplier management strategy, but rather a cultural (read: Japanese) inexperience with owning up to massive-scale PR crises in foreign environments. Ford, GM, and Chrysler have all been in this type of situation before; they know how to respond. But because of the Japanese way which, like other Asian cultures, emphasizes "saving face" versus owning up to underlying issues or being confrontational when confrontation is needed, Toyota may have not only exposed its quality flank, but also have damaged its PR responsiveness. Perhaps this will teach Japanese OEMs about the need for more independent in-country management vs. in-country figureheads.

- Jason Busch