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Ward's recently spoke with Osamu “Simon” Nagata, vice president-purchasing for Toyota Motor Mfg. North America Inc., as part of its annual interviews with OEM purchasing executives.

In the interview, Nagata discusses the supplier park being constructed for Toyota's new pickup assembly plant in San Antonio, TX, as well as the auto maker's efforts to address complaints from its supply base.

Joining Nagata in the interview is Sig Huber, assistant general manager-purchasing for the new Supplier Relations division within TMMNA purchasing.

Interviews with GM's Bo Andersson, Ford's Tony Brown, Chrysler's Peter Rosenfeld and Honda's Larry Jutte already have posted on Stories also can be found in the July issue of Ward's AutoWorld. This is the last installment of the series.

Ward's: Fuel prices have been high. Are suppliers trying to pass on that cost, too?

Toyota's Nagata: “Suppliers requested we be accurate and fair” when counting defective parts.

Nagata: There are several logistics companies who requested Toyota consider some price adjustment due to higher gas prices. We had some price adjustment, especially for logistics companies with lots of trucks. But in cases of component and material suppliers, I don't think we had similar adjustments. We have our own logistics suppliers who go to pick up parts. Between Toyota and the logistics companies, we are jointly responsible.

Ward's: Last year, you made it clear Toyota is less enthusiastic about low-cost global sourcing than are Detroit's Big Three. Has your opinion changed in the past year?

Nagata: My opinion has not changed. Of course, within North America, we have been pursuing opportunities for us to have the best location for our suppliers. In the case of our new Texas plant, we have picked up a couple new Mexican suppliers (including frame producer Metalsa S. de R.L.). It is our intention to find competitive suppliers within North America first. That doesn't mean we don't have overseas suppliers. We have Tier 1 suppliers (locally), and they frequently have several Tier 2 suppliers overseas.

Ward's: The San Antonio Tundra plant will have a supplier park nearby, which is a new concept for Toyota. How is that relationship shaping up?

Nagata: All the suppliers have started plant construction. I think we are on schedule. We have been discussing many issues with the suppliers because this is a new program - how to transport (parts) from their plant to ours, what is the best combination. Many minority joint ventures are being set up for San Antonio. Eleven of them already have been formed.

Ward's: How do you know when your purchasing agents are doing a good job? How do buyers earn bonuses and promotions?

Nagata: For the past several years, we have been encouraging people to listen to suppliers. Suppliers are the people who could evaluate our performance as well as our inter-corporation customers. We have been trying to listen to suppliers, and we have been encouraging suppliers to tell us their positions and their complaints – not only related to our plant side but all purchasing activity.

One proposal I made was to the Bluegrass Automotive Mfg. Assn. (a group of 94 Toyota suppliers, formed in 1989). I suggested BAMA develop some system within their association to raise concerns about Toyota's performance and its purchasing agent performance. They came up with the idea for a special committee activity, the Voice of the Supplier Committee.

Through this activity, our suppliers have raised several issues. We are not evaluating ourselves by ourselves. We are asking our internal divisions and our suppliers for their feedback. We recognize we have many things to do to improve our performance. (See related story: Toyota Gives Voice to Suppliers)

In another important program, I established the Supplier Relations division within TMMNA purchasing to evaluate ourselves. We needed an internal system to eliminate unnecessary burdens (on suppliers) caused by Toyota. Sig Huber heads the division.

Huber: We want to focus on collaboration and empower suppliers to achieve our mutual goals. The Supplier Relations division has been in place since January. Through increased collaboration and fair dealing, we want to be the favorite customer of our suppliers.

Ward's: Some would say Toyota already is the favorite customer for most suppliers. How is this new?

Huber: The culture has evolved over time, with an emphasis on long-term relationships and respect. It was never focused internally. The relationship just happened because of the culture. This new group focuses on different areas to enhance relations with suppliers.

One thing we are doing is increasing the ability for suppliers to have their voice be heard through the Voice of the Supplier Committee. Once you hear that voice, you see that you need to drive change through the organization.

One example is the Supplier Representative Quality Committee, which consists of Toyota and supplier representatives. There are 18 suppliers on the committee. The committee members discuss problems that have been raised and come up with solutions.

Ward's: Can you give us some examples?

Huber: Yes. There are different methods for counting PPMs (defective parts per million) for different plants. It caused conflict and confusion. We had been in negotiations with suppliers, and some of them were protracted and took a long time. It created some bad feelings. This committee created a best practice and a standard PPM methodology that should result in PPM reduction. It hasn't been rolled out to all plants yet.

Nagata: Suppliers requested we be accurate and fair when counting defects.

Huber: It's easy to play by the rules if you know the rules.

Ward's: But how much change is really necessary for Toyota purchasing?

Nagata: We shouldn't spoil ourselves, even though there is lots of good news about Toyota. There are many areas for us to improve. (See related story: Big 3 Respond to Supplier Study)

Huber: There's a right way to do business, and we want to sustain the supply base over the long-term. We think it's important, and we hope we are setting the right example for the rest of the industry.

Ward's: Can you point to other examples of change?

Huber: Returnable packaging. Toyota was not always perfect on returning packaging back to suppliers. Sometimes they (suppliers) would get boxes with no lids, or vice versa. So we have another committee focusing on packaging logistics. It's an unnecessary burden for the suppliers by us not returning packaging properly.

Ward's: Suppliers are struggling, with many in bankruptcy. What is the impact on the landscape for purchasing automotive parts?

Nagata: When a supplier is bankrupt, based upon the guideline for bankruptcy court, we discuss how to help this company overcome a difficult situation. Toyota has had several cases when our suppliers were bankrupt, and we were involved in discussions.

Ward's: Have any of the cases disrupted vehicle production?

Nagata: No, not due to bankruptcy recently. We have been maintaining good communication with Tier 2 suppliers. I think throughout the whole industry, we have been trying to avoid a huge disruption due to Tier 1 bankruptcy.

Ward's: Does Toyota back off on pressure to reduce prices if a supplier is in bankruptcy?

Nagata: In the case of Toyota, we evaluate the impact of raw material prices. Each supplier has a different degree of impact. Within the Toyota purchasing organization, we carefully review the impact. When negotiating contracts, we consider price relief for material price increases. Also, we are trying to increase our (steel) resale program. We have made a centralized purchasing system, and we will become responsible for steel.

Ward's: Toyota says it is now spending at least $1 billion with minority suppliers in the U.S. Could any of these suppliers be Japanese-owned, or are they all U.S. suppliers?

Nagata: They are all U.S. suppliers. We are spending $1 billion with both minority- and women-owned suppliers.