THE TOYOTA CASE

Analysis

Prepared by:
Neha Singh – MBAEx 37/13
Nivedita Kumari – MBAEx 27/13
Mahesh Yadav – MBAEx 28/13
Manmeet Pahuja – MBAEx 30/13
Manish Bujranpally – MBAEx 29/13
 THE TOYOTA CASE

Why is Toyota able to manage and motivate its suppliers in US, to commit to high
performance?

As per our analysis, below are the benefits which motivated the suppliers of Toyota in US to commit to
high performance:

US automotive labor productivity for the suppliers was stagnant since 1970s. In late 1980s, when Toyota
entered the US market, the suppliers had a great deal to learn and improve their productivity by getting
involved in the knowledge sharing network of Toyota. This was one very important motivating factor for
the suppliers to join the knowledge network which ultimately lead to high performance.

Toyota had a reputation of being a great innovator and implementor of cutting-edge solutions. Also,
they held a lot of clout in the world car market. Hence, the high reputation of Toyota in the market
ensured that the suppliers aligned to Toyota’s vision.

Once a supplier joined Toyota’s knowledge sharing network – BAMA – Bluegrass Automotive
Manufacturers Association – it benefitted from Toyota’s knowledge and experience in the field. The
suppliers gained from getting Toyota’s consultants to visit their manufacturing plants. The consultants’
expertise helped the suppliers improve efficiency in their processes and cut costs. The money saved by
the consultants’ advice was a profit for the suppliers. Toyota worked on a model which respected
suppliers’ profits. It did not seek any price cuts from the supplier in the short run.

Toyota consultants also helped to transfer valuable tacit know-how regarding processes at the suppliers’
facilities. The Toyota consultants were the catalysts for creating a norm of reciprocal knowledge sharing
and a feeling of openness within the supplier network. To receive assistance from Toyota consultants
the supplier had to agree to open up its plant to other Toyota suppliers.

Toyota Supplier Support Center (TSSC), which was formed to assist the suppliers develop their own
standard, assisted suppliers in achieving an average inventory reduction of 75 percent and average
increase in productivity of 124 percent thereby improving margins for the suppliers.

BAMA was the catalyst for creating weak ties among network members and it created an avenue for
sharing explicit knowledge. Participation was not threatening to suppliers because they were not
required to share any sensitive information or commit significant resources. When groups of suppliers
were created, it was ensured that the competing suppliers were not in the same group.

As per a senior executive of Toyota, getting suppliers to talk to each other was a key element of the
program. Before BAMA, it was not very natural for supplier executives to share information. Over the
years this has changed significantly as suppliers built relationships at senior levels which ultimately lead
to greater improvement of tacit know-how.

Finally, to ensure the success of the knowledge sharing program, Toyota provided subsidies in the form
of Financials and Valuable knowledge. It was important for Toyota to subsidize network knowledge-
sharing activities early on to motivate members to participate and to ensure that they realized sufficient
benefits from participation.

The points presented above suggest that the suppliers got motivated and committed to high
performance ethics as desired by Toyota.

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 THE TOYOTA CASE

What might be some of the challenge and problems with Toyota’s approach?

From our analysis we could find the below challenges and problems in Toyota’s approach

A network of suppliers along with Toyota as the central node connecting all the suppliers can get very
complicated. Even though the suppliers in US have less dependency on Toyota, the complex network
will most probably result in reduction of the degree to which the suppliers can take independent
decisions. Complex interdependency can only lead to lesser freedom in decision-making.

Interconnectedness and recombining knowledge will eventually lead to diminishing diversity of

knowledge that resides within a network. The current network focuses majorly on sharing existing
implicit and tacit knowledge and not on new knowledge.

Toyota’s approach had a fundamental flaw in that they had a tough time replicating the supplier-to-
supplier knowledge-sharing model in the US, which was successful in Japan. In 1994, Toyota tried to
replicate jishuken concept in the US by establishing Plant Development Activity (PDA) core groups, but
ran into difficulties due to different skills and knowledge of productions methods among suppliers.

Another major problem with the Toyota approach was the fear of knowledge spillover to the
competitors. Toyota was not concerned about knowledge spillover to their competitors even when they
knew that it would happen to some extent. This would eventually result in nullifying the good that
comes from network learning.

Strong network interconnections with numerous redundant ties resulted in a stronger structure with
lesser structural abnormalities. This resulted in suppliers being less reliant on Toyota to facilitate
knowledge sharing. As said by one of Toyota’s executives, “We realize we simply don’t have the
resources or information to help all our suppliers as much as we’d like to.” Due to multiple platforms to
connect within teams, Toyota’s role as an arbitrager of knowledge diminished, resulting in lesser
enforcement of rules by Toyota and lesser control over the network. Leadership role of Toyota was
reduced.

As part of the approach to reduce free rider issue, Toyota made suppliers follow the idea of reciprocal
obligations for sharing knowledge. The problem was that the suppliers had to follow reciprocity to
obtain benefits. Not sharing information was considered as a serious breach of faith and then no
additional business provided to the specific supplier.

Network maturity was also a bigger challenge to the Toyota approach in the US and US suppliers were
not able to identify as closely with the network, as the dependence of suppliers on Toyota was
considerably less than Japanese counterparts, and Toyota did not have any formal agreement with
suppliers.

In conclusion, we can say that the idea behind Toyota’s approach to create an interconnected network
of suppliers with Toyota forming the central node was efficient but ridden with flaws. Knowledge
spillovers could cost them a lot financially and losing the autonomy over the network could mean the
end of Toyota’s leadership in the network.

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