As Gady recently posted, Toyota has run into a rough stretch. Not exactly Chrysler-rough but still a lot of folks in Toyota City must be working long hours. The latest wrinkle on this is that Toyota is turning to suppliers to help cut costs (Toyota Accelerates Its Cost-Cutting Efforts, Wall Street Journal, Dec 23).
The world’s biggest car maker by volume told suppliers at a meeting Monday that it wanted them to help the company reach its goal of slashing the cost of auto parts by 30% in the next three years, a person familiar with the matter said.
The Japanese company has set more aggressive cost-cutting targets under a program called RRCI, which combines two cost-reduction initiatives currently under way, the person said. RRCI stands for “Ryohin (quality), Renka (low-price), Costs and Innovation.”
First, one has to admit that it makes a lot of sense that a car manufacturer would look to its cost of buying parts as a way to save money. The figures one usually hears put the cost of purchased parts well north of 50% of the cost of building a car. So while eking out a little labor savings is nice, the real money is in reducing the cost of parts. Second, this starts to sound like a Big 3 move. As I mentioned in an earlier post, GM tried a big squeeze on its suppliers back in the early 90s with mixed results at best. They saved some money in the near term but they certainly antagonized many suppliers in the process. I’ve got to think that Toyota will manage this better. They have traditionally had much tighter relationships with their suppliers. They also have a long track record on working with their suppliers on design and cost reduction so there is reason to believe that they can pull this off fairly smoothly.
At the same time, GM is making some big changes to their purchasing processes (GM purchasing gets a re-engineering, Automotive News, Dec 14) in part by changing where purchasing sits in their org chart:
In its new home under product development chief Tom Stephens, the purchasing division of General Motors Co. has new marching orders: Cooperate.
That means engineers and purchasing decision-makers will work together to weigh quality and cost, sometimes choosing a more expensive part if it gives more to the customer, Vice Chairman Stephens said last week in an interview.
Putting purchasing under Stephens culminates a process that started in August, when GM reorganized purchasing so its units mirrored the divisions within engineering. For example, purchasing has a new interiors/safety unit that aligns with engineering’s setup. Previously, interiors were included in a purchasing division with structures and closures.
“Now they can act as a team so they can have the same objectives,” Stephens said. “Cost isn’t just purchasing’s job. It’s all of our job. But quality isn’t engineering’s job. It’s all of our job.”
One could hold this up as emblematic of GM’s traditional siloed culture. The company has long been known for operating as decentralized fiefdoms. An unwillingness to redo this fast enough is part of what recently cost Fritz Henderson his job as CEO at GM. At the same time, it is a little surprising that they didn’t have the touch points with their supply base better aligned.
GM already has some early wins to point to from this recent reorganization. However, not everyone is convinced that this will really work:
Supplier executives said they haven’t had much of a chance to see whether the new emphasis has made a difference. But GM has promised changes in the past and often hasn’t delivered, they said. “There’s not much they can say that’s going to convince us,” said one CEO, who declined to be identified because his company has business with GM. Evidence of a change could take a long time to surface because GM is so big, the CEO said.
Thus while it is easy to give Toyota the benefit of the doubt while they seek to speed up supplier cost cutting, it is much less certain that GM can turn things around.