This case was prepared by MIT Sloan Professor Charles H. Fine and Senior Lecturer Donald Rosenfield, and Jamie Bonini, Vice President, Toyota Production System Support Center. This case was developed solely for educational purposes. Some names, data, and facts are fictional to protect confidentiality and improve pedagogical use. Therefore, this case may not be used as a source of primary data.

Copyright © 2017, Charles H. Fine, Donald Rosenfield, Jamie Bonini. This work is licensed under the Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 Unported License. To view a copy of this license visit or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California 94105, USA.

08-060 April 24, 2017

Toyota Supplier Relations: Fixing the Suprima Chassis Charles H. Fine, Donald Rosenfield and Jamie Bonini

To say that Walt Bernstein, director of production control for Toyota Motor Manufacturing’s Macon, Georgia (TMMGA) operation, was frustrated in late 2004 was an understatement. “This situation is one of the most challenging I have faced in my 20 years with Toyota,” he admitted to David McDonald, the plant manager with ChassisCo, a Toyota supplier.

We’ve utilized all of our supplier support resources to solve the problems, but we still have not made adequate headway. Not only are the rear suspension cradles for the new Suprima crossover out of conformance, but the entire system for supplying and building this key subsystem for the Suprima vehicle chassis needs much more control and improvement. Your standard production rate is barely 60% of what it’s supposed to be, the parts you are sourcing are frequently nonconforming, and you need to improve your ability to track the problems you do find.

We’ve sent our engineering people, our project management people, our stamping experts, our welding experts, and our automation experts to your plant in Athens. After a year of making these rear suspension cradles, the rate of improvement is not sufficient. If we don’t turn this around, the entire vehicle program could be at risk. Quality could be impacted. We need to indentify and address any potential quality and conformance issues immediately.

Bernstein, responsible for managing relations with ChassisCo’s Athens, Georgia plant, was an expert in Toyota production principles. He was recognized throughout Toyota’s North American production network as one of its most seasoned leaders, with considerable expertise in welding, stamping, and body systems assembly. Bernstein had spent much of his career in Toyota manufacturing, often




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working to improve the performance of suppliers who shipped parts and subsystems to Toyota’s assembly plants.

ChassisCo was a large international automotive supplier that provided a wide range of automotive systems and served many of the largest vehicle producers in the world. ChassisCo’s Athens plant was a 120,000 square foot facility dedicated to welding rear suspension cradles for one customer and one product: Toyota’s Suprima crossover vehicle. The Athens plant’s 350+ person workforce turned out approximately 200,000 rear suspension cradles per year, with 27 shipments per day leaving the plant.

“We’re working as hard as we can,” replied McDonald, ChassisCo’s plant manager.

As you know, we are doing much more on this model compared to what we did on the 1997 Suprima model. Taking Toyota’s lead, we have increased the automation in our plant dramatically. The number of robots has gone from 13 to 102 and the amount of welding on each rear suspension cradle has doubled from the previous model. We have taken responsibility for the development and supply of virtually every one of the 85 parts in the Suprima rear suspension cradle, and we aggressively worked the prices on second tier parts supply to meet the extremely aggressive target price demanded by Toyota. We’ve doubled the amount of value-added work content but are only utilizing about half the factory footprint we had before. We’ve reduced our production cycle times, and we’ve added a second Toyota plant that we service from our factory.

Furthermore, our quality staff has grown from 18 to 90 people, we’ve added two warehouses to store the incoming parts for the Suprima rear suspension cradle, we installed all of the automated equipment specified by Toyota’s engineers, and my staff and I are working 12 hours a day, seven days a week. What more do you want me to do?

“Well, it’s November 2004,” replied Bernstein. “We’ve been in production for 14 months and although there have been process changes and improvements, there are still major quality concerns. We need to take action.”

The Toyota Production System and Just-in-Time

Toyota’s Suprima crossover vehicle was built by Toyota’s vast TMMGA automotive assembly plant primarily for sale in the North American market. The plant had won numerous quality awards over the years and was considered to be one of the best automotive assembly plants in the hyper- competitive North American automotive market. In addition to opening TMMGA in the mid-1990s, Toyota had built a significant network of automotive factories in North America, and was expected to have a total of eight assembly plants and five engine plants by 2007.

Through the latter part of the 20th century, Toyota posted an enviable record of growth, profits, and customer satisfaction. Its market valuation of over $200 billion illustrated how operational excellence




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could be the cornerstone of industry-leading value creation and capture, and its vaunted Toyota Production System (TPS) was the envy of many manufacturing companies around the world. As described on Toyota’s website, TPS was based on two concepts: the first “jidoka” (translated as automation with a human touch), meant that when a problem occurred, the equipment stopped immediately, preventing defective products from being produced; the second concept, “Just-in-Time,” referred to each process producing what was needed by the next process in a continuous flow. (See Exhibit 1 for more detail about the TPS concept.)

Outside observers believed TPS worked as well as it did because it was designed and operated as a system of interlocking pieces. The approach to employee and organization development, factory and job design, product engineering and manufacturing, supplier relations and collaboration, sales strategy and production planning, and quality improvement and inventory reduction were all pieces that fit together and were mutually reinforcing.

While some argued that none of the individual components of TPS were unique, others pointed out that it was the integrated system of practices and policies that was. In that sense, TPS was like a Toyota vehicle. The ride, handling, smoothness, and efficiency of Toyota vehicles were a result of the integrated collaboration of the vehicle’s many subsystems. While no single subsystem necessarily stood out as extraordinary, collectively the subsystems worked together to deliver the overall excellence in performance that was so highly valued by automotive customers.

While TPS was easy to describe, putting it into practice was less so because it required careful attention to many components of the organization. One senior Japanese executive explained it this way:

Learning the Toyota Production System is a little like learning to play golf. In golf, you step up to the tee with the club, and then hit the ball a few times until you get it into the hole. The game can be explained in five minutes. However, mastering the game of golf requires practice, coaching, and persistence over many years. The same is true for TPS – it is simple to explain, but mastering it is a challenge over a lifetime.

TPS grew out of the just-in-time (JIT) system that Toyota developed in the 1950s. Some in the industry originally viewed JIT as an inventory management system in that by synchronizing a group of production and distribution steps, JIT allowed the reduction of inventory in between these steps. This allowed significant savings in overall inventory as well as major improvements in lead-time through any process.

But JIT was much more than an inventory management system for the factory. It was a system that required coordination of the entire production and distribution system, not just what was going on in the factory. Thus suppliers had to be coordinated with the factory in terms of schedule, quality management, product development and other areas. When American companies started to implement JIT in the 1970s and 1980s, many viewed its benefits for their own purposes, namely shifting




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inventory back to their suppliers. But this approach failed to capture the benefits of the systematic use of JIT for the entire supply chain.

Thus, JIT, and the TPS system that grew out of it, was not just a system for managing a factory; rather, its reach extended throughout the entire automotive value chain. The bedrock principles of JIT and TPS were continuous improvement and respect for people. Toyota made every effort to treat all of its stakeholders — employees, suppliers, customers, dealers, and shareholders — with respect. Relationships of mutual respect encouraged stakeholders to feel loyalty to the Toyota enterprise, which, in turn, motivated them to contribute to the continuous improvement of the enterprise. This intensive collective and creative effort aimed at continuous improvement generated superior performance highlighted by Toyota’s lower costs, superior quality, higher sales, and faster product development. Toyota took the fruits of this high performance and reinvested it across the stakeholder body. Employees, suppliers, dealers, and shareholders all received a surplus of value from their interactions with Toyota, further encouraging them to invest in greater enterprise improvement.

There was a second important principle of JIT that the inventory-centric view did not capture. JIT created conditions that enabled inventory reduction, including the reduction of waste and variability in demand and supply (for example, making sure that production steps were consistent, so that little inventory was required for protection against uncertainty).

Most importantly, in order to reduce waste and variability, JIT was about problem solving and being able to adapt to changing conditions. In order to address the wide array of variables that manufacturing companies dealt with, such as changing market demands, process reliability, adapting processes to new market conditions, evolving product design, changing suppliers, and giving suppliers new responsibilities, the system had to be able to solve problems and adapt. Problem solving capabilities were particularly important for new locations. As TPS was implemented at a new location there were frequent routine challenges such as machine reliability or inconsistency, or particular types of defects that might show up periodically. These might be discovered though checklists and standard procedures. But then there were more significant challenges such as major gaps in quality or output or yield. Depending on the degree of the challenge and the skill level of the supplier, Toyota might suggest different levels of support for the supplier. These would involve a much higher level of collaboration. A supplier with relatively advanced TPS skill might very easily have the problem solving skills for routine problems, but without advanced skills, a major challenge could lead to more significant problems.

Toyota approached all members of its value chain, including suppliers, as long-term partners. This was the best way to develop problem-solving capabilities and the process capabilities that were required. Toyota selected suppliers carefully, looking for willingness to adapt just as much as for their technological capabilities. Once chosen, Toyota invested in a supplier organization’s education in TPS and capabilities wherever needed, whether it was in manufacturing, product design, or managing




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its own supply chains. It placed high value on frequent and open communications and expected suppliers to alert Toyota personnel to problems very quickly so corrective action could be taken. Toyota encouraged a supplier’s people to get to know its people. The company expected suppliers to give it low prices because they had low costs, not because they were willing to lose money by doing business with Toyota.

For some companies, adopting TPS required simultaneous changes to many parts of the organization, a level of change that some would find hard to tolerate. Such change typically had to happen gradually, requiring great patience. Nevertheless, many companies had seen great leaps in improvement by creating better systems through learning about TPS and customizing the ideas behind it to fit their own situations. Not willing to become complacent, Toyota continued to improve and maintain a competitive edge from its use and improvement of TPS.

Some observers believed that if Toyota were run with a short term, shareholder value maximization mentality the company could squeeze more surplus out of employees, suppliers, and dealers so as to accrue more short-term profits for shareholders. Such an act, however, might be likened to “killing the goose that lays the golden egg.” Toyota stakeholders put much effort into building “golden eggs” for the Toyota enterprise exactly because they were confident that Toyota would continue to treat them well. Continuous improvement and respect for people were mutually reinforcing pillars of what was called “The Toyota Way.”

The 1997 Suprima Launch

The beginnings of Toyota’s relationship with ChassisCo had all the hallmarks of classic Toyota relationship building. In 1993, when planning for the launch of a new crossover vehicle in North America, Toyota thought long and hard before deciding to outsource the rear suspension cradle assembly to a North American supplier. Building rear suspension cradles was a difficult process; it required heavy parts, was technically complex and physically challenging, and was resource intensive. In Japan, Toyota built all of its rear suspension cradles internally. However, the TMMGA assembly plant, where the new Suprima would be built, was already space constrained. Furthermore, Toyota’s growth and globalization strategy required the development of a strong network of suppliers across all markets where the company had a significant presence. Toyota did not want to be ver