Toyota is investing considerable resources in developing its South African supply chain. VP of purchasing and engineering Nigel Ward explains to Gay Sutton the value of collaborative supplier relations and Toyota’s philosophy of respect for people and mutual trust.
Few companies can have influenced industry and business as deeply and fundamentally as Japanese car maker Toyota. Quietly and intelligently, during a period of national financial hardship, the company evolved a unique set of operational and business philosophies that have revolutionised thinking in the manufacturing sector worldwide, and are now performing the same miracle for organisations in sectors as widely divergent as health, banking and government services. Moreover, Toyota has been open about its philosophies in a way that may seem counter-intuitive to some: it did not grasp these successful business advantages to its chest, but shared them, firstly with its suppliers and then with any company interested in learning.
The basis for Toyota’s operational excellence is the Toyota Production System (TPS), which defines the company’s management philosophy and how this operates throughout the organisation and into its supply chain. It governs everything from interactions with suppliers through to the shop floor and management levels, and finally to distribution to the customer.
Nigel Ward, Toyota South Africa’s current VP of Purchasing and Engineering, has also grown with the company. Beginning as a trainee in the purchasing department in 1982, he witnessed the plant’s migration to the Toyota Way, and now has a very wide remit encompassing purchasing, planning and engineering. His skill set also epitomises everything that is successful about Toyota. “There are two key fundamentals to the Toyota Way: respect for people and continuous improvement. And we use those principles throughout our plant and supply chain,” he says. “I believe the secret to good management is to really interact with people on this basis of respect and trust. Ultimately I’m not here to manage the job, I’m here to manage the people.”
The Toyota philosophy for supply chain management has always been collaborative and people oriented, and the company has spearheaded a remarkable change in global supply chain awareness over the past 20 years. “Historically, purchasing and supply chain relationships have always tended to be—and I use the word loosely—bloodied and confrontational. However, through mutual trust and an open philosophy from both parties, we have ensured it is participative.”
Unlike many OEMs who source parts from around the world, the Toyota way is to localise its suppliers in the area of the Toyota plant, reducing the need to transport parts over long distances and removing a considerable amount of waste from the system. Toyota South Africa has been actively working towards this for many years, attempting to attract some of the world’s top automotive suppliers to set up operations in South Africa. But it was not until two years ago that the company took the step of doing this in collaboration with six other automotive OEMs operating in South Africa.
The reasoning behind this move was, like most ground breaking ideas, surprisingly simple. Setting up a new manufacturing plant is both expensive and risky, particularly when it is supplying into a relatively small business sector—and the automotive industry in South Africa is small in comparison with, say, the coal industry. However, by acting together the car makers believed they would be able to leverage economies of scale, and make it financially attractive for top European and Japanese suppliers to relocate locally.
“We therefore launched an initiative called the South Africa OEM Collaboration Group two years ago,” Ward says. Members include the likes of BMW and VW. “The purchasing heads of each of them have formed an executive committee. Underneath us we have five commodity groups with a total of 45 people from the OEMs working cross-functionally to identify initiatives to localise new parts in South Africa. If, say, three of us can support the initiative, it can become very lucrative for a global supplier to set up here.”
The initiative has seen considerable success so far, and its work will no doubt continue. During the early days, when the Durban plant first began operating purely for Toyota, approximately 80 per cent of parts used in the factory were supplied by true local South African suppliers. That balance has shifted over the years, and today 80 per cent of supplies are produced by leading global automotive suppliers manufacturing in South Africa. This was achieved by facilitating JVs and TAs with the existing suppliers, says Ward.
The Toyota plant in Durban currently employs in the region of 6,000 people and manufactures two models: the Corolla and the Hilux. Of the 104,000 vehicles currently manufactured each year, some 50 per cent are exported: 50 per cent of which go directly to Europe, with the remaining 50 per cent distributed through 30 countries on the African continent.
In South Africa itself, there is considerable brand loyalty to Toyota. In fact, the company has enjoyed market leader position for the last 30 consecutive years—a record only surpassed in the brand’s home nation, Japan. Even the recent product recall has worked to its advantage and has been perceived as a largely preventive initiative, reassuring customers that Toyota will always do everything in its power to ensure its products are built to the highest standards of quality and safety.
As you would expect, the Durban plant operates the full suite of Toyota systems. “The Toyota Production System and kaizen are a way of life for us,” Ward says. However, the number of employees at the plant is probably a little higher than the global average. “This is largely because the level of automation here is not quite as high as you would find in the high labour cost countries like Europe and Japan. Labour costs in South Africa are not exactly cheap, but at the moment we have an unemployment rate of 26 per cent, so we have some social responsibility to the economy and to the government to provide jobs. The same applies to our suppliers too. They do not produce the volume to warrant considerable investment in automation. So for them, it’s a matter of finding the balance that makes them competitive.”
Ongoing training is a fundamental element of the global corporation’s kaizen (continuous improvement) philosophy; and one of its key elements is benchmarking, or learning from other people’s operations. The company therefore makes a considerable annual investment in sending its staff to Toyota facilities in locations such as Japan or Thailand. “We do this for staff at all levels: our team members, middle and senior management. Our team members, for example, will visit these plants and work in the Dojos (the shop floor training facilities), learning all about the systems in operation. They then return and share that knowledge with us in the Durban plant.” This ensures that all plants keep up to date with the latest ideas in operational best practice.
The South African operation also provides a wide spectrum of training through its Toyota Academy for Learning, Africa (TALA), and this is organised into three schools. The first school is aimed at internal employee development, and offers a series of courses ranging from the basics of the TPS and the Toyota philosophies through to team member and senior management development. The second school provides training for the company’s external partners, and is attended by the technical and sales staff from the dealerships.
The third school is for Toyota’s suppliers. “And here we’re trying to promote best practice within our supplier base in areas such as management, HR development, kaizen and the elements of TPS,” Ward says. “This is a very extensive programme, and by working in partnership with our suppliers in this way we can help them to grow with us. We believe that it’s no use us growing and expanding if our suppliers are unable to grow at the same rate.”
The downturn, of course, has significantly affected the automotive sector around the globe, and for Toyota South Africa and its suppliers the story was no different. “We saw a drop in production of between 30 per cent and 40 per cent,” Ward says. “In 2008 we produced 187,000 units and in 2009 we produced 104,000 units—so 2009 was what we think of as a year of survival.
“We did lose a few suppliers who really struggled,” he continues. “We also had to release a number of temporary staff, but we have retained all our permanent staff and this is very much the case in our supply chain too.”
It may have been a hard year, but the company has used that very challenging time positively, to bring about some significant changes and improvements in its own operations, and to help its suppliers do the same.
“To begin with we focused internally, examining our own operations and restructuring our business to perform better and to reduce costs. Then we also worked closely with our suppliers to help them restructure their businesses,” Ward explains. “It sounds simplistic, but one area we worked on was scrap management. We examined how we create scrap in every aspect of the business, not only on the shop floor but also in the offices. From that we were able to change our wasteful processes and behaviours. We then shared this with our suppliers by showing them physical examples in our plant. For example, we showed them how we cut down on the number of forklifts so that we could use less gas.
“In our own plant we also initiated an energy-saving project which we called ‘no work, no watt’,” Ward continues. “We encouraged everyone to turn the lights off and use natural light. In some places, we even took the roof off, replaced it with translucent sheeting and removed the lights.” The initiative has been a great success, and through this alone, the energy costs to the plant have been reduced by 20 per cent. “We’ve also made a big investment in solar heating to heat water for all our ablutions—showers and so on. On a site the size of ours, that has also been a big cost driver.”
Everyone within the organisation has been contributing to this restructuring programme, and Ward is convinced that this type of kaizen activity is the only real route to sustainable business improvement. “You can certainly just slash costs,” he comments, “but simple cost cutting doesn’t bring sustainable benefits in the way that this will.”
In parallel with these internal improvement activities, Toyota invested considerable time and resources in helping its suppliers weather the financial crisis. The effort began with a ‘survival kit for 2009’ aimed at sharing the lessons the company had been learning about business improvement. “This was essentially a roadmap of how our suppliers could study their businesses and look at methods for restructuring,” he explains. “We introduced this to them, and then shared with them the initiatives we had been undertaking in our business.”
Toyota’s VP of Manufacturing, Dave Finch, gave a series of presentations to the suppliers, explaining how the company had been taking advantage of the slowdown to examine and readjust its business, illustrating the changes and improvements that were being made at the Durban plant, and how this was leading to some significant cost savings. The talks were then followed up by visits from Toyota’s technical staff, who spent time helping suppliers identify and implement their own business improvements.
Today there is significant growth in the market and employment rates are climbing. The global automotive sector has undoubtedly evolved, but so has Toyota South Africa and its suppliers. “Our businesses are all a lot leaner and a lot smarter now. We’re well prepared for this upturn and a lot more focused,” Ward says. More than that, the company has cemented the supportive partnership with its suppliers, and this has reinforced the cohesive strength of the business, preparing it well for 21st century operations.
Editorial research by Robert Hodgson
