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Toyota Wants Suppliers To Cut Costs By 30%

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Toyota’s stellar profitability record took a major beating this year thanks to the affects of the global financial crisis and in response the automaker is looking to cut costs at every possible point.

The savings will come from improved quality, reduced waste and human resources development, but mostly from reduced costs from suppliers.

According to latest reports, Toyota wants a reduction in the price of its parts by as much as 30% over the next three years in an effort to return to profitability. Toyota has asked its suppliers to cut prices of some parts by 30-40% for cars that are set to go on sale by 2013, reports the Asahi daily. Furthermore, the Nikkei business daily is also reporting that Toyota plans to switch to less expensive materials and parts.

The only official word from the automaker is that it has made various suggestions to suppliers, which included cost reductions.

The need for cost cutting is growing as new environmental and safety standards push new-car requirements ever higher while parts costs climb and consumers move toward smaller (and hence lower-margin) cars.

Interestingly, Toyota has forecast a second operating loss for the next financial year.



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Comments (3)
  1. The American car companies have finally figured out how to pull up quality and materials, improve their balance sheets and supplier relations and this is the biggest Christmas present they could ever get. There's always some low hanging fruit but good product costs money. Looks like Toyota is headed down the same cost cutting road to oblivion that ruined American product and supplier relationships in the 80's and 90's. It'll be interesting to see how friendly (and high quality) Toyota's suppliers stay when they see their margins under attack. Cost cutting $1,500 off material cost is never worth it in the big scheme of things if it means you need to put a $3,000 incentive on the hood to move the metal. You can only take so much out at a time when the others around you are putting in.

  2. American companies forgot about styling while they were too busy chasing costs and market share the past 25 years. Toyota, which has never been known for styling, is backing down that same path. Will be curious to see where they cut costs on models like the FT-86 (which seems to have the possibility of an attractive design). I can imagine Toyota management completely perplexed by pony cars, because they don't fit the Toyota equation for a sound business case.

  3. I agree with #1 and #2. I was there when GM was improving profit the same way in the 1960s. I think the new Toyota brass forgot what Deming told them about quality about that time.

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