The world’s No. 3 automaker now wants to tear apart its old, monolithic ways. It has put its trust into an e-procurement hub to shore up an inefficient operation. Toyota’s Torrance, Calif.-based U.S. subsidiary is spending about $60 million to completely transform its work with parts suppliers.
"We all came to the same conclusion," said Gerald Braga, Toyota’s corporate manager of procurement for the company’s North American parts operation. "The [existing] system was not going to take us into the 21st century."
The 22-month program, started in January, has broad implications for its parts suppliers. They will be expected to meet Toyota’s yearly demand forecasts, re-evaluated every fiscal quarter, and provide product when it is needed by Toyota’s 1,500 U.S.-based dealers.
Actual delivery dates and lead times will be tracked online and production bottlenecks identified. Suppliers negotiate on parts shipments through e-mail before settling on a manufacturing and sales plan they can live with, Braga said.
Toyota’s e-hub is one of the few among automakers that will remake its aftermarket supply chain, instead of layering an information system over an existing business, said Kevin Prouty, research director for automotive strategy with Boston-based AMR Research Inc.
"It might take longer than they expect, but it probably will work," Prouty said. "You might not see the benefits for one or two years. But they are really taking a hard look at where they want to go."
Dallas-based infrastructure provider i2 Technologies Inc. is building the foundation for the hub, helping Toyota move it from concept to fruition. I2’s Trade Matrix software will be used by Toyota to tear down the walls separating automaker, dealer and supplier, said Don Filipovich, the company’s Southern California regional director.
"Every node of the supply chain can be extremely inefficient," Filipovich said. "Companies operate within silos of their own information. They don’t have visibility outside their own walls."
The e-hub collaboration extends beyond Toyota’s aftermarket system. Toyota and i2 are partners in another joint venture called iStar-Xchange. That start-up company will connect independent parts dealers, such as Napa or Carquest Corp., with suppliers.
The venture, majority owned by Toyota, should launch by year-end, Filipovich said. Both Monarch and iStarXchange use a Web-hosted browser, at a low cost to suppliers, to pass through information.
Other automakers, including General Motors Corp. and Ford Motor Co., are working hard to build similar, in-house aftermarket projects, Prouty said. But most of the others are still embryonic or are not as complete as Toyota’s, he added.
Toyota believes it can save $100 million over three years by increasing the level of accurate ordering and inventory management, Braga said. Toyota spends more than $1 billion a year on service parts. Its top 25 to 30 suppliers represent about 80% of that product flow.
"Along with this goes a sizable change in culture," Braga said. "No longer will we just essentially be order takers and order placers. Now, we can do business inven-tory analysis and understand how much money we’re allocating."
The Japanese carmaker plans eventually to use that e-business system globally, Braga said.
And i2 wants to use its software within dealer showrooms: Customers would order a vehicle online, and the carmaker would then build it to order, Filipovich said.
While the technology for that is available today, the aftermarket presents the first challenge, he said.
"It’s unbelievable the number of [aftermarket] parts that are literally thrown away each year," Filipovich said. "The aftermarket is so dysfunctional."
Joseph Pryweller is a senior staff reporter with BtoB sister publication Plastics News.