Toyota Motor Corporation has reaffirmed its commitment to fostering long-term, fair relationships with its extensive supplier network, emphasizing mutual prosperity and transparent pricing practices. This approach, rooted in the principles of Toyota’s Purchasing Staff Handbook authored by company founder Kiichiro Toyoda, guides the automaker’s efforts to balance competitive pricing with stable supplier partnerships.
The Purchasing Division’s mission is clear: delivering “the best possible products at the lowest possible cost, in the most timely manner, on a stable long-term basis.” While “lowest possible cost” typically implies a competitive edge, Toyota defines it as fair pricing that supports sustainable partnerships with its suppliers. This philosophy remains central to Toyota’s purchasing strategy, even as the automotive industry faces criticism for fair trade practices in recent years.
A 60,000-Strong Supply Chain
Toyota’s supply chain is vast, involving around 60,000 suppliers across multiple tiers, from Tier1 to Tier4. With annual orders valued at approximately 7 trillion yen, the carmaker’s supply chain covers everything from primary assemblies like headlights to intricate components like coatings for lenses. While Toyota directly negotiates with around 400 Tier1 suppliers, engaging with Tier2 and beyond is restricted by confidentiality requirements and Japan’s Antimonopoly Act to prevent potential misuse of market power.
Despite these limitations, Toyota is taking steps to strengthen fair practices across its supply chain. Recent efforts include collaboration with the Japan Automobile Manufacturers Association (JAMA) and the Small and Medium Enterprise Agency, addressing challenges in fair pricing, storage, and disposal of part molds.
Collaborative Cost-Cutting for Competitiveness
Toyota’s approach to pricing revisions, typically conducted twice a year in April and October, focuses on tailored solutions rather than across-the-board adjustments. Recognizing the unique business conditions of each supplier, Toyota’s procurement staff work closely with partners to develop productivity improvement plans that maintain competitiveness. This method aligns with Toyota’s founding principle of securing profits by reducing costs rather than increasing prices.
Central to these efforts is the concept of “co-prosperity” with suppliers. The Purchasing Staff Handbook instructs staff to support improvements at supplier plants, helping them optimize performance and efficiency. One initiative under this collaborative framework is the Smart Standard Activity (SSA), which aims to streamline quality standards and performance, ensuring suppliers can deliver optimal results without excessive production costs.
For example, Toyota’s purchasing team reviews areas such as minor imperfections in parts that do not impact vehicle performance, reducing unnecessary inspections and repair costs for suppliers. The company also assists in implementing simple mechanisms, known as karakuri, that improve efficiency in tasks like storage and spare parts management.
Addressing Market Challenges and Decarbonization
As the automotive industry faces evolving challenges, including decarbonization and fluctuations in raw material costs, Toyota is adapting its approach. Price changes are adjusted according to predefined rules, ensuring that suppliers are fairly compensated when market prices shift. In cases where new materials or sudden surges in costs occur, Toyota works with suppliers to adjust terms promptly, minimizing potential disruptions to their operations.
During a press conference in September, JAMA emphasized the importance of fair practices throughout the automotive supply chain—a sentiment echoed by Toyota. Kazunari Kumakura, Purchasing Group Chief Officer, and Deputy Chief Officer Takami Kato highlighted that while Toyota’s efforts align with industry-wide improvements, there is still work to be done, especially in reaching suppliers beyond the first tier.
A Commitment to Long-Term Partnerships
Toyota’s approach to supplier engagement remains rooted in the company’s founding philosophy, balancing competitive prices with mutual growth and sustainability. By maintaining a focus on fair practices and cost efficiency, Toyota aims to sustain its leadership in the global auto industry while fostering enduring relationships with its extensive network of suppliers.
