Toyota's Extended Lean Enterprise

December 1, 2004
By David McBride

Many organizations are progressing in their Lean journey with the goal of developing into a true Lean Enterprise. To build a strong lean enterprise companies need to develop a world-class supplier network. Toyota has spent decades investing in their extended network of partners and suppliers, with the principle of challenging and helping them to improve. Most companies seem to focus on new information technologies and price squeezing with their suppliers instead of following the extended lean enterprise model of enabling and partnering with their supplier network.

Auto industry suppliers consistently report that Toyota is their best customer but also their toughest. The US auto manufacturers have a reputation for being tough; however, "tough" is defined as unreasonable or hard to get along with. In Toyota's case, "tough" is defined as having high standards of excellence, with the expectation that their partners will rise to those standards. US companies and Toyota have similar quality methods and procedures with extensive standards, auditing procedures, and rules. What sets Toyota apart is that suppliers view US manufacturers as coercive while Toyota is viewed as enabling.

Over the last few decades Toyota created a strong supplier network in Japan that has distinguished them from other automakers. As they moved to build the same network in North America with US suppliers, their demanding but fair partnership approach has received positive reactions. The principal measure of supplier relations in the American auto industry is the OEM benchmark Survey that is published by John Henke of Oakland University. Suppliers rank auto manufacturers using 17 measures from trust to perceived opportunity. In the 2003 survey Toyota ranked first followed by Honda and Nissan, while Chrysler, Ford and GM were fourth fifth and sixth. The survey also showed that Toyota's scores had improved over 7% over 2002. Another automotive supplier survey published annually comes from J.D. Power. The 2003 survey found that Toyota, Nissan and BMW are the best North American automakers in promoting innovation with their suppliers. Chrysler, Ford and GM were all rated below average.

The rewards for Toyota's investment in building a network of highly capable suppliers are obvious. Their quality that has distinguished them as a leader in the industry is a direct result of their excellence in innovation, engineering, manufacturing, and overall supplier reliability. But the investment can also pay off in other ways as seen in 1997 when a potential crisis threatened to halt Toyota's production.

Aisin is one of Toyota's largest and closest suppliers. Toyota usually dual sources most parts but was using Aisin as a sole source. Aisin produces a part called a "p-valve" which is an essential brake part used in all Toyota vehicles worldwide. In 1997 Aisin was producing around 32,500 parts a day, which was about 2 days of production inventory for Toyota. On February 1, 1997 a fire destroyed their factory and threatened to leave Toyota without any parts in 2 days. Two hundred of Toyota's suppliers self organized in an attempt to get production of the valve started in two days. Sixty-three companies pieced together engineering documentation, used their own equipment, set-up temporary lines to make parts, and as a result Toyota did not miss a day of production. A new information technology system or a coercive environment did not keep production running, but long-term relationships and an enabling environment did. To reach the level of a true Lean Enterprise with suppliers, an enabling environment needs to be created.

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