Page 306 - The Toyota Way Fieldbook

Chapter 12. Develop Suppliers and Partners 281

overseas. Toyota suppliers felt they should be following TPS or a similar phi-
losophy and excel at cost reduction more than the average overseas supplier,
which should make up for differences in wage levels and material costs. The
program was called CCC21, and the focus was on becoming the cost leader in
the world for the twenty-first century. This was not a target for existing prod-
ucts, but for new products being developed for the next new model launch. For
TMI it meant approximately a 30 percent price reduction for the next new
model launch (in about three years).
How could TMI cut prices so aggressively when they already were excep-
tionally lean by most standards? They had to start by accepting the fact that this
was their target and it was critical that they work as hard as possible to achieve it.
Next they needed a plan. The approach used was hoshin kanri, also called policy
deployment, in which top management sets high-level objectives and the next
level down comes up with objectives to support these and draws a chart show-
ing the relationships between their objectives and the higher level. And this
cascades down ultimately to the shop floor. Charts for each of the different
departments with their plans and progress toward the plans are prominently
displayed in a “war room.”
The severe price cutting Toyota requested became the focus of this plan, and
everyone knew what they had to do to support that price reduction. The group
of 12 managers who were champions for their functions met weekly in the war
room to review progress and the implementation of specific measures and
countermeasures to achieve the plan. Since there had already been so much cost
taken out of plant operations, the biggest opportunities were in the engineering
of the new product, working with Toyota product development. In this work-
manlike fashion TMI steadily and systematically achieved the goal. They realized
that if Toyota saw a serious effort and they fell somewhat short of the target cost
reduction, Toyota would not punish them. And since Toyota was closely moni-
toring the process, they knew that Toyota knew what kind of effort they were
expending.
Target pricing is a severe form of control. It is well known that Japanese
companies work backward in setting costs for the product. Instead of the typi-
cal American practice of building up costs, adding a profit margin, and setting
the price, they start with the market price and figure out what costs they can
bear to make the profit they want. This leads to target prices for suppliers—the
piece price they can afford to pay to suppliers within the vehicle budget.
American auto companies have all picked up on this practice, setting target
prices, but they lack the sophistication of Toyota and Honda in setting prices
within which suppliers can make a profit, and they lack sophistication in helping
suppliers achieve the target costs required to meet that price. As a brake system
supplier put it: