Toyota Motor’s New Procurement Strategy

Toyota will continue to promote the third phase of RRCI (ryohin [quality], renka [low price], cost and innovation) activities in FY2020. Emphasis is placed on communication regarding issues such as costs and factors that hinder competitiveness. Due to the outbreak of the new coronavirus infection, Toyota has suspended or restricted production at factories around the world for about five months from February to June 2020. However, due to parts availability issues production only stopped in parts of Southeast Asia. In other regions, Toyota has succeeded in realizing production continuation through alternative production and other methods. The supply chain information database “RESCUE,” which was introduced based on the lessons learned from the Great East Japan Earthquake, was successful in centrally managing the required number of parts and supplier information.

Toyota has set “strengthening communication with suppliers” as a priority policy in procurement activities, and is working to build trust with the top management of affiliated suppliers in order to transform itself into a mobility company. Although there are concerns about the impact of rapid changes in the business environment on the top management of suppliers, Toyota has a policy of widely sharing technologies in the environment and safety fields with partner automobile companies. In terms of procurement, the company intends to achieve both expansion of economies of scale, which leads to cost reduction, and sales expansion of suppliers. The pandemic has prompted Toyota gather the issues and problems of each parts company via the web. Such strengthening of communication is expected to lead to cost reduction in collaboration with suppliers.

While working on cost reduction in collaboration with suppliers, Toyota is supporting the expansion of sales channels for small and medium-sized suppliers in fields where demand is expected to decline due to the progress of electrification such as engine parts. Since November 2019, Toyota Tsusho has been introducing its Japanese, European and Chinese business partners to suppliers, enabling them to supply automakers other than Toyota and industries other than the automotive industry. In addition, Toyota has been strengthening kaizen activities in the procurement of steel materials for automobiles in the last 1-2 years. In 2020, the procurement standards for steel materials are under revision. Specifically, Toyota plans to change delivery conditions and review excessive quality requirements. The company will relax conditions for scratches that do not affect functionality in order to reduce the burden on suppliers, which is expected to lead to cost reduction and lead time reduction.

Toyota Motor: Recent Major Procurement Trends

Procurement cooperation policy

“Toyota is making friends to transform itself into a mobility company, and the relationship of trust between top management is fostering tremendous momentum. In this, suppliers play a central role. If they can supply the same parts to alliance companies, it will have a great effect. First of all, alliance partners will widely share environmental technologies such as HEV and FCEV. In particular, the first results can only be expected when safety and environmental technologies become widespread. It must be taken into consideration what procurement can do in these fields.” (Executive Officer Shirayanagi Masayoshi, October 2019)

Strengthening kaizen activities in steel procurement

・Since 2020, Toyota has reviewed its steel procurement standards established during the era of continuous market growth. – For steel plates used for car bodies, the weight of roll-shaped coils used was previously limited to 8 tons or less, but will be increased to 10–20 tons in the future. – By removing the restrictions, steel makers can save the trouble of cutting. – There are hundreds of types of steel sheets procured by Toyota, but it has been decided to apply the new standard to about half. Toyota’s plan is to gradually switch to the new standard as the company places new orders. – In addition, the standard for the depth of scratches on steel sheets has also been relaxed. Toyota has concluded that scratched areas will be marked and not used for pressed parts. Toyota is also considering reviewing standards for hard-to-see parts such as roofs, relaxing the conditions for scratches on the back surface of steel sheets that do not affect functionality. – Toyota is also carrying out production consolidation of each part using only the most effective production lines. Regarding special steel, the company has increased the amount of steel bars for production that do not reach specified length. This is expected to improve steel bar productivity by 3%. Toyota has also halved the lead time for orders and has reduced inventory at steel relay stations.

Supporting suppliers due to dropping demand for engine parts

・In November 2019, in partnership with Toyota Tsusho, Toyota began providing full-scale support for expanding sales channels of small and medium-sized suppliers. – With the progress of electrification, the company intends to support the business growth of suppliers who manufacture engine parts whose demand is expected to decline in the future. – Toyota Tsusho will introduce its Japanese, European and Chinese business partners to suppliers, enabling them to supply automakers other than Toyota and industries other than the automotive industry.

Considering diversification of suppliers

・As of June 2020, due to the negative impact of the new coronavirus, Toyota was considering diversifying supply sources and suppliers. “The risk of (production) concentration has become clear again. Therefore diversification is necessary.” (Executive Officer Shirayanagi Masayoshi, October 2019)

Procurement of special steel sheets from China

・In July 2020, it was revealed that some of the electromagnetic steel sheets used for BEV and HEV motors will be manufactured by China's largest steelmaker Baosteel Group. – As a prerequisite, it is necessary to improve the quality of products imported from China. – Toyota has issued quality approval and Baosteel has begun exporting from China to Japan. Imported products will be used in domestically-produced electric vehicles. – At present, the quantity appears to be limited. – It is part of Toyota’s procurement diversification policy.

Postponement and resumption of price reduction requests

・In the first half of 2020, Toyota postponed the request for price cuts from its suppliers (some exceptions). – Requesting purchase price reduction was scheduled for April 2020, but it was postponed until July. However, it was postponed again. – The postponement is due to the growing impact of the new coronavirus. – However, as of July 2020, some suppliers (engines, suspension parts, etc.) were requested to reduce prices. It is unusual to request suppliers to reduce prices in mid-fiscal year, but the request was implemented due to falling prices of some special steel products. ・In September 2020, Toyota decided to request price reductions from suppliers in the second half of 2020. – As production activities are heading toward normalization, continuous improvement activities are indispensable for strengthening competitiveness and preventing the decline of domestic manufacturing. – The extent of improvement is determined based on each supplier’s business situation. – Toyota will keep the supply price of steel products to affiliated parts manufacturers unchanged for two consecutive six months. Toyota has taken into consideration various circumstances such as changes in raw material prices.

Centralized DB management suppresses parts procurement difficulties caused by the pandemic

・Looking at Toyota’s global production suspensions and restrictions between February and June 2020, only some factories in Southeast Asia stopped production due to problems with securing parts. – The supply chain information database “RESCUE” (jointly developed with Fujitsu), which was introduced based on the lessons learned from the Great East Japan Earthquake, was successful in centrally managing the required number of parts and supplier information. – Toyota has shortened information assessment which took two weeks at the time of the earthquake to half a day, and established a system that can immediately arrange alternative production. – In the ongoing pandemic, Toyota has also investigated the cash flow situation of suppliers and tried to assess the state of Tier 2 and lower suppliers through Tier 1 suppliers. – Toyota is gathering the issues and problems of each parts company via the web and has become able to contact more than 10,000 business partners.

Analyzing the optimal distribution route in 30 minutes

・In September 2020, Toyota’s IT subsidiary Toyota Systems and Fujitsu succeeded in creating a system for finding the optimal route for the distribution of automobile manufacturing parts within 30 minutes using actual data from North America. – It uses the approximate quantum calculation technology “Digital Annealer” using digital circuits. we extracted more than 3 million candidates from the huge number of routes by truck delivery, and derived the optimum solution that minimizes the overall cost. From a huge number of truck delivery routes, the system extracts more than 3 million potential routes and selects the optimum solution that minimizes the overall cost. – To improve the efficiency of large-scale distribution networks, Toyota Systems plans full-scale launch of the technology within one to two years. – It is expected to reduce annual distribution costs by 2–5%.

Developing technologies with other companies to reduce cost (one example)

・In February 2020, Flexi-Scram, in collaboration with Toyota and others, completed the development of a technology that extends the lifespan of the mold. The product is planned to be sold to Japanese and Chinese manufacturers. – Friction is reduced by adding a large number of micrometer-sized dents on the mold’s surface with the company’s electric field processing technology, reducing the area in contact with the molded product. – It enables to increase the number of shots until maintenance is required from the conventional 30,000–50,000 shots to an average of 200,000 shots (A shot is the volume of material that is used to fill the mold.). (Created using various media sources)

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