Page 307 - The Toyota Way Fieldbook

282 THE TOYOTA WAY FIELDBOOK

For the Big Three, target pricing equals “squeeze the supplier until we are dead.”
I have asked how they have developed the target price. The answer is the following—
silence. It is based on nothing. It is based on the finance guy who has divvied up
money. They have no idea how we will get the cost reductions, they just want them.
Because Toyota has a rational system to set targets for suppliers, work with
suppliers to reach the targets, and is reasonable with suppliers when their best
efforts do not achieve the targets, they are perceived as fair customers. They are
not out to simply control the suppliers or run them out of business. They are out
to work with them for mutual benefit.
We will see in the case of Delphi at the end of this chapter that the backbone
of this target setting system are cost management models. Toyota does not want
to just manage price, they want to manage cost. They want the reality of costs
to be reflected in the target price. If Toyota cuts price by 10 percent, they want
the reality of the supplier to reflect an actual cost reduction of 10 percent.
Toward this end, Toyota has developed realistic cost models that reflect the
costs of raw materials, space, inventory, part processing, and overhead. For
example, they know that processing costs for stamping are proportional to the
number of strokes of the dies in the presses. They have established a relationship
between these and built that into the model. The parameters of the model come
from suppliers, Toyota plants, and public sources. These models allow them to
estimate what the cost of the part should be. It also allows product engineers to
redesign the product and estimate the cost impact. And it allows supplier devel-
opment engineers to make suggestions and estimate the cost reductions of those
suggestions.
Perhaps the most important source of Toyota’s control is the old-fashioned
free market mechanism of competition. But how can Toyota have long-term
dedicated suppliers and get competition at the same time? The answer is some-
times called “parallel sourcing.” Source not from one but not from many. Toyota
looks for three or four top-notch suppliers for a component and keeps the busi-
ness within this family. For any given car model, one of the suppliers will get
this business for the life of that model. But getting it for the next version of that
model is not guaranteed. If they do not perform, or their competitor, like a sib-
ling, does a lot better, they can lose this business.
How are your control systems seen by your suppliers? Are they enabling the
suppliers to get better and reach aggressive targets? Do you have enough
detailed understanding of your supplier’s costs to set realistic targets and
understand if they are achievable?
Compatible Capabilities

These days it is popular to source in low-wage countries like China or India. We
know of auto companies and their suppliers that have set multibillion-dollar