Operations and Systems Management Class

Toyota, Ford, Gm, and Volkswagen -- Some Differing Opinions About Working With Suppliers

A) Summarize the case and outline all of the issues

The crux of the case pits how four of the major automobile manufacturers differ in their operations about working with suppliers and their definitions of what constitutes competitive, as opposed to standardized automotive parts between manufactures. Some automakers see their suppliers as partners, such as Toyota. Others see suppliers as mere means to an end and ways of maximizing the value chain of production. GM and Ford tend to see suppliers as part of the mass production process and thus believe suppliers should be used to create components as cheaply, efficiently, and with as great an alacrity as possible, loyalty aside.

In contrast, Toyota sees its suppliers as partners. The ideals of this Japanese company also reflect why Toyota is also much more concerned about the definition of competitive components within cars. For instance, in negotiating a European agreement to standardize parts, Volkswagen believes many components within cars can be standardized without hurting competitiveness between different suppliers, while Toyota disagrees. Toyota considers a wider range of parts competitive or special including the design of the steering wheels and in some cases even wire connectors, and hopes to compete on styling and packaging of vehicles alone. Toyota sees every aspect of its cars as 'special.'

Ford and GM believe that creating a collaboration of the largest online marketplace of standard automotive parts is in every automotive competitor's best interest, thus they believe every car manufacturer should participate in this virtual endeavor. They wish to do so to achieve greater economies of scale, as they are two of the dominant American manufacturing automotive companies. They believe this is in their primary interest, regardless of the interests of their suppliers -- let the suppliers worry about their own profits! The more car manufactures join into this endeavor, the greater the profit all manufacturers stand to make.

These large American companies wish to collaborate with other world automotive manufactures. But as Toyota's view of the supply process, is that suppliers part of the company's efficacy and that the parts procurement process involves not only the price but also the quality, lead-time, and delivery of components, Toyota is interested in making its buying more efficient, and it does not wish to thwart a positive business relationship with its suppliers. Toyota regards its suppliers as unique. It is also hesitant in its negotiations with the German-based car manufacturer Volkswagen to standardize select components for vehicles sold in Europe because Toyota has a more strict definition of what constitutes a competitive part and thus is not 'fair game' for standardization. Toyota believes more of its cars are uniquely 'Toyota' in quality.

B) Prepare a SWOT analysis (strengths, weaknesses, opportunities, and threats)

Strengths: The strength of automotive collaboration in the creation of an online marketplace and a common electronic procurement infrastructure in which hundreds of billions of dollars in goods and services are traded would give the automakers access to more business globally and allow suppliers and manufacturers to slash costs. This is particularly vital, one might add, given the rising cost of oil and the threat to global automakers as a result.

Additionally, more flexible definitions of competitive parts would help automotive manufacturers in the short run cut the supply chain, and help Toyota in Europe. But could irritate individual suppliers, a concern of particular weight to Toyota. GM and Ford, both less tied to their suppliers, have much to gain, as would Volkswagen from a more flexible component definition in Europe of parts. Toyota has more to lose with its suppliers and more to lose in its reputation for uniqueness, it believes -- although this is of more questionable value in its weaker European market.

Weaknesses: Toyota fears putting parts on the open market pits suppliers in an adversarial relationship against one another and having too flexible a definition of standardized parts will also create an unfriendly source of tension in a preexisting positive business relationship. It is stronger than both GM and Ford. Ford and GM have more to gain from the relationship at present. But if Toyota does not do anything, it could be left behind. Thus it wishes to leverage its power, and pick and chose the aspects of its potential online supply-chain relationship. Toyota wishes to retain the integrity of parts, like its steering wheel, for example, and not have too much standardization. But it needs to be flexible with Volkswagen, as it is weaker in this market.