Toyota's supplier strategy compared to American automakers' online marketplaces

Toyota, Ford, Gm, and Volkswagen -- Some Differing Opinions About Working With Suppliers

Treating suppliers are part of the process, as collaborators rather than adversaries, is part of Toyota's philosophy. Toyota's major American competitors, GM and Ford, have both asked the Japanese automaker to become a part of an Internet-based marketplace that is designed to act as a virtual meeting-place where automakers and the industry's suppliers can do business. This will presumably create more competition and drive down prices at the exchange. Although the American companies are rivals with Toyota, the more companies present the exchange, the greater the chance to create economies of scale. The American companies hope to do business more efficiently and cut costs. Ford and GM are in competition to build the largest online marketplace to achieve greater economies of scale, and both are trying to woo other automakers, particularly Toyota.

Strengths

At present, Toyota is at the 'top of its game.' Unlike the major American automotive firms, it has not been plagued with problems of financial solvency, over-production of gas-guzzling and outdated behemoth SUVs, union negotiation problems, and exorbitant pensions to retired workers. In short, relative to its competitors, Toyota is in a position of strength. It can dictate what it wants to do and what will give it an advantage in the context of its specific needs and company philosophy.

Toyota has traditionally viewed its suppliers as partners, and cultivated a close relationship with a core constituency. Furthermore, it recognizes that cost is not simply about the price of parts. Cost also must take into consideration quality, lead-time, and delivery.

In the interest of those close supplier relationships, Toyota does not want to put competitive components on an open market and thinks it is better to help suppliers cut costs through long-term contracts. American companies seem to have a very narrow view of immediate profits, but by putting unique and competitive parts on the open market Toyota's friendly and conciliatory relationship with its suppliers could be transformed into an adversarial relationship. The harmony and supportive service Toyota has from its suppliers is a strength its competitors do not enjoy. Toyota is not being old-fashioned, it is pursuing an effective and unique strategy that the American companies cannot or refuse to adopt.

Opportunities

As well as the opportunity to become a part of the online marketplace, Toyota also has an opportunity to cut costs in one of its weaker markets where it still wishes to retain a visible presence. Toyota is in negotiations with the German automaker Volkswagen so it can standardize more components and cut operating costs in Europe. But there is a problem of defining what constitutes a standardized product.

VW thinks that 20-30 parts may be standardized, but unsurprisingly Toyota considers a wider range of parts competitive, such as steering wheels and wire connectors.

Threats

Steering wheels and wire connectors on the surface do not seem to be competitive components, although Toyota sees competition as taking place on a part-by-part basis, as well as on a holistic basis. Every crucial aspect of design at Toyota is given consideration and attention. Yet without some compromise it could lose its ability to cut costs and remain competitive in Europe, and also lose out in the potential cost-savings of participating on the Internet marketplace.

Best Option

The best option seems to allow for more standardization in Europe, but to hold fast to the negotiating position in the U.S.

Defend the option or recommendation selected

Toyota is currently at the top of the market in the U.S. so it might be best not to concede too much to rivals, given that it has more to lose from the Internet site (such as its good relations with suppliers) than either Ford or GM. The American companies have more to gain by weakening Toyota's unique strengths. Some agreement on standardization might be wise in the European market, where it has less dominance. But regarding its negotiations with GM, since it is operating from a position of strength, conceding too much to the American auto manufacturer would be unwise and unnecessary, given the quality relationship Toyota has with its major suppliers.

Summary comments

Although a cost savings through competition would be nice, Toyota ultimately has more to lose than to gain by alienating itself from its currently strong relationships with suppliers. Its component parts in Europe may be less unique that it might believe, but this attentiveness to detail is part of its company philosophy.

Conclusion

Toyota has been a mold-breaker since its inception, and has won market dominance by thinking outside of the American box, using the Japanese strategy of cultivating relationships rather than conventional competition to gain its current market dominance. Suppliers cut costs out of a desire to maintain contracts with this number one company, rather than fear of competition. Instead of trying to follow an older American model of competition at all costs, Toyota should continue to do what it does best, and perhaps consider reducing its focus on Europe, or totally rethink its marketing approach in other areas, than accept its rival's conceptions of quality, supplier relationships, and the unique nature of its car components. Some agreement with VW would be nice, but there are other ways it might consider exploring to cut costs before even making a few concessions.