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The New,

Improved Keiretsu

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Abhinav Maingi
Divya Jaiswal
Fern Sharma
Gautam Bansal
Neha Nupur
Nishtha Khandelwal
Prateek Sekhani
Ekta Roongta

Keiretsu
A Japanese term that refers to small, integrated supplier group
Japanese companies have long practiced keiretsu, the linking of

companies into industrial groups

Uniquely Japanese form of corporate organization


System of mutual alliances and cross-ownership
Company stock is held by allied firms
Lowers need for short-term profits
Two types: horizontal and vertical

Vertical Keiretsu

Horizontal Keiretsu

(Tate-pronounced as ta-tay)-is
a pyramid structure, made up
of one very large company and
thousands of small companies
subservient to it.
Links manufacturers, suppliers,
distributors, & lenders
Partnerships extend across
entire supply chain
Primarily cars and electronics
industries
Ex. Toyota, Nissan, HondaMatsushita, Hitachi, Toshiba,
Sony

(Yoko)-is a group of very large


companies with common ties
to a powerful bank, united by
shareholdings, trading
relations and so on.
Links sister firms of the same
parent company.
Cross holding pattern adopted
Ex. Mitsubishi

The Toyota group


The Nissan group
The Honda Group
The Matsushita group
The Hitachi group
The Toshiba Group
The Sony Group

Benefits

Risks

Suppliers receive larger


portions of the companys
business and are hence more
committed.

JIT companies are more


exposed to work stoppages or
product shortage if the
supplier fail to deliver on time.

JIT companies have stronger


control over their suppliers
and supply chain, thus JIT
production is possible.

For example, the earthquake


in western Japan in 1995 and
the fire at one of Toyotas
suppliers caused production
disruptions to Toyota.

TYPICAL JAPANESE VERTICAL KEIRETSU

A visual system to control the logistic chain from a production point of view.
Kanban system originally came from the supermarket, where the supply is

driven by the demand. It is a Pull system.

Just-In-Time (JIT): A production strategy to improve a businesss return on

investment by reducing in-process inventory and associated carrying costs.


Simply as a strategy to eliminate source of manufacturing waste by
producing the right part in the right place at the right time.

Instead of buying exclusively from companies they have long-term

relationships, Toyota also sources from the global market.

When setting target prices for long-term suppliers, Toyota looks at the

prices offered by multiple global companies too.

Instead of buying individual parts, Toyota tends to buy integrated

components.

Toyota encourage their suppliers to be more involved in product

development at the early stage.

Despite the automakers tough demands, its relationships are still based on

trust, cooperation, and educational support for suppliers.

The level of mutual commitment and assistance is perhaps even greater

than in the 1980s.

Contracts governing the relationships are ambiguous, consisting of general

statements and nonbinding targets.

Toyota counts on its suppliers to go the extra mileto learn about and

meet customers demands, help develop innovative processes, find and


correct errors, and do whatever it takes to meet deadlines.

Toyota aims to build up suppliers stores of tacit knowledge through long-

term sharing of work experiences, including attempts to solve problems


together through trial and error.

Toyota always examines the physical workplaces and productsthus the

expression genchi genbutsu, which speaks to the importance of being


present when problems arise.

It expects systems suppliers to help improve product design by, for

example, figuring out how to incorporate lighter materials without


sacrificing strength.

Toyota provides physical spaces that facilitate cooperation with and among

suppliers

Vendors may be invited to a meeting known as anobeyaliterally, a big

roomwhere they work with Toyota representatives from several


departments, including design, engineering, production, quality, and
purchasing

Obeya meetings help Toyota avoid a pitfall common in other companies


In Toyotas system everyone is in the big room making decisions together
Suppliers that demonstrate a willingness to understand the root causes of

mistakes are the most likely to improve

Toyotas supplier relationships are closer to old Keiretsu


Developed Keiretsu-like relationships overseas
Created Toyota Supplier Support Center to help U.S. vendors learn

the Toyota Production System


Established the Toyota Europe Association of Manufacturers, a group
of about 70 companies that join together in study groups
Overseas, the company tends to be more explicit in its
communications than it is in Japan, providing clearer rules and
more-detailed specs
Toyotas Keiretsu-like practices is a program in which its engineers and
those of its suppliers take up process-improvement projects in the
suppliers factories