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Toyota Motor Corporation: Target Costing System
few years. In 1994, the firm expected to begin exporting vehicles from North America to markets such as Japan and Taiwan. In addition to automobiles, the firm also manufactured and sold forklifts. Toyota controlled 70% of the forklift market in the United States. The same commitment to local manufacture and control was apparent in Toyota’s other major overseas markets. In Europe, two new UK plants began producing engines and passenger cars at the end of 1992. Unit production of cars was expected to reach 100,000 by 1995 and 200,000 units before the end of the century. Altogether, Toyota vehicles were either manufactured or assembled in more than 20 nations. These local manufacturing facilities provided jobs for nationals and business for local supplier firms. The relative importance of the international supplier business to Toyota was increasing. In 1992, for example, Toyota purchased locally approximately 70% of its parts requirements (or $5 billion) for its North American operations. The other 30% was imported from Japan, but this percentage was expected to decrease over time. By 1994, Toyota expected to purchase $6.3 billion of parts from local suppliers worldwide and import $2.9 billion for domestic use. Product design was also international in scope. Calty Research, Inc., a Toyota subsidiary formed in California in October 1973, was responsible for the body styling and interiors of new models scheduled for production in North America. The design styling for European markets was coordinated from the firm's design and technical centers located in Brussels. Third-party suppliers were responsible for approximately 70% of Toyota’s parts and materials. In particular, the cost and quality of third-party supplied parts was considered critical to the firm’s success. In recent years, Toyota’s expansion into international production had required increased interaction with non-Japanese suppliers to raise their efficiency and quality to the same level as that of Toyota's Japanese suppliers. To help non-Japanese supplier firms manufacture acceptable parts, Toyota had developed programs to transfer Japanese manufacturing techniques. At the heart of these so-called design-in programs was joint work by suppliers and Toyota engineers on new components. This joint work began in the early stages of the vehicle-development process, because prospective suppliers cited a lack of involvement in the early stages of vehicle design as an obstacle to winning business in high- value components. In a typical design-in program, several designers competed for a part contract; the firms were evaluated on the prices bid, the technology applied, and their performance. The winning firm was granted a contract for the life of the model. When the next model was developed the contract was once again thrown open for bidding. By 1993, more than 120 U.S. suppliers had participated in design-in programs and successfully managed to design parts that were acceptable to Toyota. Another 200 firms were involved in such programs but had yet to sign contracts for parts. A similar program was in place in Europe. Toyota engineers also helped its overseas suppliers to adopt the Toyota Production System. Many Toyota overseas suppliers had now successfully implemented modified versions of the Toyota Production System. The system contained four key elements: just-in-time production, Kanban, total quality management, and multi-functional work teams. Just-in-time production avoided the build up of excessive work-in-process inventories and increased the firm’s ability to respond quickly to customer demands. Kanban was the driving force behind JIT, tying production closely to customer demand. Total quality management ensured high-quality products and minimized the risk that the reduced levels of inventories would lead to stock-outs because of poor-quality components. Finally, multi-functional workers, capable of performing several tasks, dealt with the increased complexity of the production process. Supplier Relationships
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