Toyota’s Mom & Pop Suppliers Feel CCC21 Squeeze

Just on the heels of praising Toyota’s supply chain strategy while chiding Boeing’s I came across some articles from earlier this year that give quite a different picture of being a Toyota supplier.

“Best in the World” and No Hope to be Seen

A six-part series titled “At the Feet of Toyota (トヨタの足元)” ran in the Japense newspaper Chinichi between May and June of this year. The first article on May 11, 2008 featured a mom and pop Toyota supplier in the outskirts of Nagoya. Employing fewer than 100 people the owner of this company was forced to violate the “no layoffs” rule of lean in order to meet Toyota’s cost reduction goals.

According to the article, things changed in the summer of the year 2000 with the global competitiveness initiative CCC21 (Construction of Cost Competitiveness 21) that required a sever 30% cost reduction “request” all the way down to the smallest suppliers.

“If we didn’t comply with the request they might take away the business. In fact it was forced. We had no choice but to achieve it,” the president of this supplier is quoted as saying. He was forced to release 20% of his workforce that year. Lower cost foreign workers were used in their place.

With no profit left, and no money for investment, the president of this mom and pop manufacturer sees no future. “I see no hope.” Even no matter how tough things got, he never failed to pay his life insurance premiums. “In the worst case, I want my life insurance money to be used to liquidate my company.”

The CCC21 cost reduction effort was credited with cost savings of greater than 1,000,000,000,000 yen between 2000 and 2003. Some have observed that these aggressive cost cuts across the entire supply chain contributed to Toyota’s quality problems and record vehicle recalls starting in 2004.

Is there a double standard at Toyota? While the urgency to cut costs has clearly seeped down to the smallest suppliers, the highly touted respect for humanity and securing employment through growth and development has not. The article asks, “Is Toyota unable to see the mom and pop suppliers at their feet?”

Don’t Let it Get to Your Head

Toyota CEO Katsuaki Watanabe said in a speech to new employees, “Pride does not come long before a fall,” as a warning not to become arrogant and complacent even as Toyota rose to become the number one automobile manufacturer in the world. In the second article in the series on May 12, 2008 begins with the question, “Is this an example of the pride Toyota fears so much?”

Mr. Gohara is 66 years old and the president of company that supplies Toyota with cardboard boxes. He is a retired Toyota manager who was asked to become the leader of this supplier. One day when he was visiting his customer Toyota, he was shocked by the attitude of a young buyer who presented him with the cost reduction request. Gohara told him, “I’m telling you as a Toyota veteran, come back when you’ve fixed your attitude.”

Gohara was taught by his superiors to remember that the suppliers bow before you not because of your stature, but because of the Toyota name. “These are your seniors who have spent years with sweat on their brow. We exist today thanks to their efforts,” he was taught years ago. In other words, don’t let it get to your head. Yet the young Toyota managers of today summon the senior executives from suppliers and sit back with crossed legs, looking down their noses at them.

Gohara is concerned, “Perhaps Toyota has become too big, and can no longer spare the attention to look after the small companies.”

For Whom Are these Cost Reductions?

“I won’t sign this.” The twice annual cost reduction requests from Toyota have a signature line, and acceptance is largely a formality. The refusal by the president of this Toyota supplier, a man in his 50s, must have come as a shock to the Toyota buyer. When he took this stand, he was aware that he risked losing the Toyota business. According to the article, “pride in manufacturing” gave him the courage to stand up to his customer.

The third article in the Chunichi newspaper series tells the story of this man who was a professional baseball player for a company team who learned the manufacturing craft by chance from a man whom he met at a roadside eatery in his 20s. After three years of apprenticeship he built a company from a 40 square meter space to a company today with more than 70 employees.

“It’s passion and human kindness that make good products,” the article quotes him.
Each part was designed and manufactured by a person and has its own “story”. The article says that cost reductions that are required time after time, as if they are a given, lack any “story” or “philosophy”.

He does not question the fact that, “We have grown thanks to Toyota” and yet he questions why, and for whom are these cost reductions?

Mom and Pop Factories Have Their Reasons

The May 14, 2008 article is a cautionary tale of kaizen and cost reduction efforts taken too far.

A Toyota buyer arrives with stop watch in hand to verify that a supplier can meet their cost reduction targets.

“Why did you lie?” He demanded.

While the supplier had submitted 40 seconds as the process time on the “Toyota watch” was 30 seconds.

“But…” the president of the supplier could only grit his teeth. The time he had submitted was based on building in some slack so processes could help each other out when they were behind and still guarantee top quality. He had his reasons.

Despite the benefits of being a Toyota supplier, including the stable business and the ease of getting bank loans, the article quotes another leader of a supplier in Nagoya saying, “All that connects us with Toyota is money. Any sense that I am ‘serving Toyota’ is gone.”

The article points out that kaizen and cost reduction have become mechanistic, and only a measurement of “efficiency” where in fact the original founders’ intent for kaizen was to build a love for manufacturing and develop human creativity.

Efficiency First, Even for Talent Development

Several more articles follow in a similar vein. The Chunichi newspaper even published a series of reader comments and reactions to these articles as follow-on stories. The reader comment from June 10, 2008 was revealing:

I am a mid-level engineer working for Toyota. The top management speaks loudly about the importance of manufacturing, but in the factories they have started a new talent development policy to train new employees to become fully capable engineers in three years.

Three years is barely enough to get accustomed to the company and get to know the work flow. People are up in arms about this absurd policy.

It takes a long time to learn how to make things, and the focus on efficiency is only reducing our technical capability more and more. Placing greater value on engineering abilities and skills, as well as slowing down the speed of our work is our obligation for the future.

These articles are certainly written from the point of view that Toyota is losing it. Yet Toyota has changed steadily and often drastically for the better over the past half century. Nobody said that being the best was easy. Perhaps these same concerns have always existed at Toyota.

Only today we have the internet, blogs, and the ability to read 2-month old international newspapers from the comfort of home. Perhaps these voices are nothing new and we are only seeing and hearing the struggles that come with constant improvement. Or perhaps Toyota is growing too fast, losing sight of it’s foundation (the mom and pops at their feet), becoming arrogant and spinning out of control.

4 Comments

  1. William Fuller

    August 19, 2008 - 12:28 am

    Why should we not expect that young managers at Toyota, especially those educated in US universities, and those with MBAs in Finance from any university on the planet would not emulate the arrogant young Americans who went on to cripple American industries.
    If an arrogant fool bankrupts a company and there is no one there to report the deed is the company still in business?

  2. Temple

    December 9, 2008 - 8:54 am

    It’s funny, this article was written in August, and a few months later the economic crisis happened. Crushing all automotive manufacturers; Toyota is still making over $5 billion in profit when their competitors are seeking government bailouts. It makes you think if the CCC21 criticisms may have been worth it.
    On the subject of ‘arrogant’ ‘young’ managers, it is a problem if representatives of Toyota are approaching smaller suppliers this way, but it needs to also be understood that in Japanese society elderly people strongly expect respect from younger members of society, and are very sensitive of younger people holding power or senior position over them. “Crossing” their legs, or not giving to right angle bow can be cause of offense especially in a friction ridden environment.

  3. smp

    December 16, 2008 - 5:38 pm

    i’m kinda agree with the writer’s last paragraph…i’ve read somewhere that, around maybe 40 or 50 years ago The japanese communist party had already voiced their concerns regarding the burden that might fall on the shoulder of these vendors/suppliers of Toyota..and the impact should be big (they’re responsible for downtime cost for late delivery, highly vulnerable to high rejection rate) , because they are just small players, while they are being advantaged by g-backed policy for Toyota, they might actually struggle to follow JIT, kanban etc procedures..and for the attitude of the younger generation, i think it is due to the high expectation that leads them for arrogant & unfriendly towards suppliers.

  4. J. Samuel

    January 15, 2009 - 9:32 pm

    I respect toyota and its product. Also I agree with the arguments in the article.
    In every culture a “way of behaving=culture” is followed. If bowing in Japan is the culture the young managers must follow, as much as we follow the American/ European culture when we work there. I think the issue here is not about bowing or follwing the system, but attitue. There arrogance is always shown in the behaviour. Sometimes assertiveness is misunderstood for arrogance. Well, there is a thin line between these two.
    The woes of the American industry can be traced to various things, not just cost of production. So I feel “CCC21 was the best” argument doesn’t stand. As the title said “for whom are these cost reductions”. Focus of any business should be people, not money or product. Have we considered the social implication when we said toyota has made $5Billion forcing the suppliers to lay off many people? I am sure there are other companies also did the same thing.
    In my part of the world the communist has just made people lazy and arrogant in the name of over burdening the laborers. What we need is the ethical allocation of burden as well as resources. Then everybody is a winner. True, the burden has to be there. But overburdening someone under ones feet to book $5Billion profits to ones own benefit is the problem.