Toyota Advances With ‘Onsite’ Suppliers in Texas

Ward’s spoke in early June with two top Toyota Motor Corp. executives as part of its annual U.S. purchasing interviews.

In the interviews, Andy Lund, program manager-development and planning operations at Toyota Technical Center, discusses supplier contributions on the new Sienna minivan, while Osamu “Simon” Nagata, vice president-purchasing, discusses sourcing plans for the upcoming Tundra pickup truck plant in San Antonio, TX.

An interview with General Motors Corp.’s Bo Andersson appeared June 30, Ford Motor Co.’s Tony Brown July 1 and DaimlerChrysler Corp.’s Peter Rosenfeld July 2.

The transcript of the interview with Honda Motor Co. Ltd.’s Larry Jutte will appear July 7. Excerpts from all five are in the July issue of Ward’s AutoWorld.

Ward’s: When you switched Sienna production from Georgetown (KY) to Princeton (IN), was it difficult for suppliers to adjust? Did many have to relocate from Georgetown to Princeton?

Toyota’s Andy Lund led development of new Sienna minivan.

Lund: For major suppliers, they located closeby. I mean those that will supply just-in-time, based on our production schedule. The seat supplier basically built their factory one mile down the road. Our headliner supplier, Johnson Controls (Inc.), located a half mile away – even closer. They deliver just-in-time.

Our instrument panel supplier, Vuteq, is also located in the same general area and supplies the module JIT. Some suppliers located close to us because of the sheer volume of it. However, many of our Georgetown suppliers are in the Kentucky area, and it's not that far – basically a 3-1/2-hour drive from the Cincinnati region to Evansville. They could still supply JIT – maybe not on an hourly or minute basis, but maybe on a several-times-per-day basis.

Ward’s: Is the headliner still the same material as in the previous Sienna?

Lund: Headliner is similar material, but what's very different about the two vehicles is the assembly. Toyota employees used to do it (headliner assembly) online (at Georgetown). Because it is a labor-intensive effort for them to have to be in the vehicle and putting parts on, it's something the factory would always like to avoid for ergonomic reasons and employee health.

We went to a new headliner from JCI, and it's a modular construction. By putting the headliner on a table, the workers at the factory are working down, ergonomically much better. All the attachments are put on at the factory and supplied to us as one unit, so our assembly is much quicker online.

Ward’s: Was there a cost savings, too?

Lund: Yes.

Ward’s: Can you quantify the cost savings?

Lund: We've been able to reduce the price of the vehicle and pass that on to our customers. In a similar equipped vehicle from the previous generation to current generation, the cost savings we have reported to be in the neighborhood of $1,000 on an equalized value basis.

Ward’s: From the previous-generation Sienna to the new model, did you switch a lot of suppliers or retain a lot?

Lund: I can't quantify how many we retained and changed. By and large, we keep our same supplier base.

Ward’s: So the bulk of the suppliers made the transition between generations?

Lund: Yes. We have core suppliers to Toyota North America vehicles, and they may switch between vehicle to vehicle based on programs, but we have very few brand-new suppliers for key components. We try to utilize a supplier’s expertise that's already there and the relationship that's already built up. It's always hard to start a new relationship. It's better to work with an existing relationship.

Ward’s: How’s the audio system in the new Sienna?

Lund: It has a much better surround-sound system. Of course, our audio supplier Panasonic is working on the next-generation surround sound, which is to go to DVD-Audio, which is even more separation and more compartmentalization of each sound component.

Ward’s: So will you have DVD-Audio on Sienna in the future?

Lund: We will consider it for future models.

Ward’s: Will you consider it beyond Sienna, perhaps for other Toyota vehicles?

Lund: My responsibility is Sienna, but I believe there are also other programs looking at it as well.

Ward’s: What do you think of Chrysler new Stow ’n Go second-row seats?

Lund: Very nice. Very good idea to put it in a second row like that. They had to forego their all-wheel drive, something that we don't want to do. We have all-wheel drive in all of our future seating ideas that we're going to do. We want to make sure that we are able to keep our AWD. We have had very good feedback from our customers in Canada and in New England that AWD is a very popular feature, so we certainly want to keep that.

Ward’s: What’s your take rate on AWD for Sienna?

Lund: Eight percent is where it was around launch, but we've been through another winter now, and we'll see where it goes for the next winter.

Ward’s: Do you think it's possible to do AWD and have second-row seats that fold flat into the floor?

Lund: It will take some creative design, creative engineering. But certainly we are looking to the future in many different ways to drive vehicles and powertrains. We'll have to figure out a way.

Ward’s: Toyota has a hybrid vehicle with AWD.

Lund: The Lexus RX 330 does have the hybrid, which basically has electric power in the back. And certainly that does not require a drivetrain (driveshaft to rear wheels), so that would be one way.

Ward’s: Is that something you're looking at, a hybrid minivan? It seems like a natural marriage.

Lund: In Japan we already have two hybrid minivans. And Jim Press (executive vice president-Toyota Motor Sales) has already made a public announcement that we're basically going to be looking at rolling out hybrids on our future vehicles. I can say that the decision is not firm and fast as to what we will be doing with hybrids on Sienna. (See related story: Toyota Hybrid Could Solve Minivan Dilemma)

Ward’s: GM is outsourcing complete interiors to Johnson Controls, Lear Corp. and others. Does this strategy seem attractive to Toyota?

Lund: We'd have to go back to the basics and ask the question, ‘Why?’ Anytime we make any decision, we ask, ‘What improvement do we hope to see.’ If we did the study and we found we could improve cost, maintain competitive capability, etc., then there's no reason why we would not consider that.

Right now, we have chosen to work with suppliers on a component basis and adopt those into the vehicle. And it has worked well for us. I can't say that will work well for us indefinitely in the future. We're always looking for ways to improve. We are always in a dialog with these suppliers to see what we can achieve.

Ward’s: How are sales for the Sienna Ramp Vans, the conversion vans for the disabled? I see the expectation was to sell 700 in the first year.

Lund: I heard from Toyota Motor Sales Mobility Team that we are actually over that. In the first year, sales were up over 900. The mobility Ramp Van, which is being aftermarket treated by IMS, Independent Mobility Systems, is doing very well.

Ward’s: How is that work done? IMS is in New Mexico, and you're assembling Sienna in Indiana. Do they ship ramp kits to the assembly plant, or do you ship the vehicles to them?

Lund: IMS purchases the vehicles, and we ship them (to New Mexico). They make their modifications and then resell the vehicles. IMS has their own service network of dealers.

Ward’s: What is your impression of supplier parks, in which many of your key suppliers are grouped in a complex next to your vehicle assembly plant?

Osamu “Simon” Nagata is vice president-purchasing for Toyota in North America.

Nagata: We call it onsite suppliers. The onsite supplier concept is to establish a good balance between logistic cost savings and additional investment. We can also expect much closer communication with suppliers and quality improvement. By putting suppliers onsite, we can eliminate internal transportation.

Ward’s: You’re setting up an onsite supplier park in San Antonio for the Tundra program?

Nagata: In Texas, we expect to have suppliers closer and shorter communication lead time. Once Toyota members find some defect, we can quickly inform the supplier of that defect. The pipeline is much shorter, so the negative impact will be minimized. (See related story: Toyota Looking at Supplier Park in Texas)

Ward’s: Could the San Antonio model be replicated at other Toyota facilities?

Nagata: I don't know. At other plants like Georgetown or Indiana, the supplier base is already established.

Ward’s: Why did Toyota make this decision?

Nagata: It was an opportunity to have suppliers onsite, and we would expect suppliers could save money in terms of facilities or land. Let's say the plant site preparation will be done by Toyota anyway. The supplier can utilize some part of our site. They (suppliers) don't have to investigate energy supply or property or infrastructure supply. Suppliers can save time and money by using Toyota’s facility.

Ward’s: Will Toyota own the park, or will suppliers?

Nagata: That’s not yet finalized. Maybe the land is ours. If suppliers have no problem with it, perhaps Toyota could own the building.

Ward’s: Does the presence of onsite suppliers suggest Toyota is more interested in modules?

Nagata: I don't think Toyota has any simple, clear direction with regard to modules. We have been investing case by case and on a commodity basis. Some assembly jobs can be outsourced to suppliers.

Ward’s: How many suppliers would you expect to have in the complex?

Nagata: Around 10, mainly suppliers of bulky parts.

Ward’s: When will these plans be firm?

Nagata: Within the next several months.

Ward’s: How does China look to you as an automotive market, especially one Toyota could buy parts from?

Nagata: Toyota is trying to establish a very good supply base in China. My colleagues working in purchasing are responsible for developing Chinese local suppliers, whether owned by Chinese, American or Japanese companies. I'm not forcing our suppliers to go to China. It's purely up to the suppliers, but I share my personal concern. We prefer a shorter supply chain within NAFTA hopefully.

Several problems already have been experienced. In the case of electronic parts suppliers, they have several Tier 2 suppliers in Southeast Asia, including China, but the supply chain is getting longer and longer. One example is the lead time from order to delivery of components. Place an order with a Tier 2 supplier in Southeast Asia, and the delivery sometimes takes several months. Sometimes there are mistakes. There is some risk for Tier 1 suppliers. The longer their supply chain becomes, the more problems they may face.

Ward’s: United Auto Workers employees at Delphi Corp., Visteon Corp. and American Axle & Mfg. have accepted significant pay cuts with adoption of 2-tier wages. Does that new cost structure make those suppliers more attractive to you for future business?

Nagata: It’s hard to tell, whether there is a direct correlation between overall competitiveness and cost. When we select suppliers, we evaluate many factors: piece price, tooling cost, our logistics costs and quality level. So I don't know to what extent that agreement will help these suppliers to improve overall competitiveness.

Ward’s: GM and Ford have amended their ‘terms and conditions’ with regard to supplier contracts. When was the last time Toyota amended its terms and conditions, and how did they change?

Nagata: A couple years ago we clarified the role of Toyota and its suppliers, with regard to warranty. We recognize the need for a better agreement between Toyota and suppliers to identify a responsible party, to share warranty costs and implement counter measures. We added small modifications from that viewpoint.

We would not consider changes similar to what other auto makers have done.

De-sourcing (of a supplier) may not be the perfect solution for auto makers. As long as suppliers are committed to improve themselves or their management, as long as suppliers are capable of executing countermeasures, car manufacturers should consider what kind of support they should provide (to suppliers). Every supplier should have some resources to reinvest in any area where they need to – for technology, improving quality, reducing cost or considering environmentally friendly systems or materials.

Ward’s: Are suppliers helping pay for Toyota’s warranty costs?

Nagata: Just getting money back to Toyota is not our goal. More important is to detect warranty in field issues, so we can implement and fix problems earlier.

(See related story: Sienna Brought Extensive Sourcing Changes)