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.