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dismantling Daihatsu Toyota Way as the market changes.
IKEDA, OSAKA When Daihatsu Motor Co launched the Mira e S minicar in 2011, the Toyota subsidiary thought he had found a model for emerging markets Mira e S e eco, S for smart was able to go 30 kilometers on a liter of petrol 72 mpg for a sticker price of only 6637 or 795000, and in fact, the car was successful, super-charge of Daihatsu gains.
A number of improvements in manufacturing, engineering, procurement entered the car but the real secret to success, said Kosuke Shiramizu, president of Daihatsu at the time, was to take something from the model business, the keiretsu system vaunted company.
Shiramizu, now adviser Daihatsu, said Daihatsu razed about 1,000 in car manufacturing costs by removing its keiretsu business relationship interlocking informal but close between a manufacturer and its suppliers, cemented by cross-shareholdings and trade in staff.
The automotive keiretsu system, developed by parent Toyota Motor Corp. and widely adopted by its rivals, has been acclaimed around the world in the 1980s and 1990s as an ingredient in Japan success Inc Keiretsu, priests preached, defused the conflict relations between assembler and supplier, enabling them to share information and create a better quality of Japanese automotive products where could jump ahead with vehicles such as the Toyota Corolla, robust and reliable famous family car .
Today, after two decades of stagnation in Japan, the dramatic changes in growth in emerging markets and revolution in automotive technology, Shiramizu said that the days are numbered keiretsu companies, he says, are competing for the price and value using market mechanisms instead of arrangements based on relationships while analysts have predicted the system's disappearance years, Daihatsu and Nissan Motor Co has gone further than any Japanese automaker in this case.
The way Toyota is the high-cost route, said Shiramizu, 74, in an interview with Daihatsu headquarters in suburban Osaka Ikeda Keiretsu doesn t work more if we stick with it, Daihatsu won t survive Toyota could the same fate too.
As reforms Shiramizu how Daihatsu develops and buys components, Toyota, which has retained a 51 percent majority stake in Daihatsu since 1998, observes experience Shiramizu with interest, he said.
This is because Akio Toyoda, scion of the founding family aged 58, who became president of Toyota in 2009, has struggled to cope with the global auto market seismic shift to emerging markets.
In China, Toyota blames those rivals like General Motors Co and Volkswagen AG Toyota lack cars without frills such as the Wuling Hong Guang, a 43800 yuan 7050 warhorse van GM designed and marketed in collaboration with its Chinese partners cheapest model Toyota is 69,800 yuan Yaris subcompact.
In India, the car strategically volume of Toyota, the Etios, failed to ignite demand, mainly because of its relatively high price of 570,000 rupees 9,118, even as rivals such as Suzuki Motor Corp. sell cars for as little as 240,000 rupees.
Daihatsu Toyota could offer a number of important lessons about how to effectively use suppliers to find a viable low cost small car for markets such as India, said Shiro Sakamaki, Daiwa Securities analyst in Tokyo.
And not only lessons, but the real cars Struggling to break the no-frills end of the car market in India, Toyota earlier this year called Daihatsu to help design an affordable car that could be sold under the name Toyota and through Toyota's sales channels in India a similar arrangement to that of two companies in Indonesia.
Shiramizu, who became adviser to Daihatsu advice and technical direction after his resignation as President ago 3 years, says its reform of parts supply is not meant to be a model for Toyota, but it is taken seriously here over there, he said.
M. Toyoda is well aware of what we do, Shiramizu said, when asked if Toyoda plans a similar reform He considers reform of our parts supply as an experimental medium.
Toyota made the first moves towards a post-keiretsu system on its own Toyoda, for example, said affiliated group of providers, such as Toyoda Gosei and Toyota Boshoku, not always rely on the business of Toyota, he gave them the green light to do business with Japanese and foreign competitors Toyota, according to two members of the Board who spoke on condition of anonymity Toyota also began encouraging corporate keiretsu suppliers working on similar technologies to merge or combine resources to help them better compete with major global suppliers such as Robert Bosch GmbH and Continental AG.
Ryo Sakai, Toyota spokesman based in Tokyo, declined to comment In politics, we do not disclose the details of our individual relationships with suppliers or our purchasing strategies in general.
Two major changes over the past two decades in the competitive landscape have worked against Japanese automakers and their keiretsu systems.
First, Western rivals dramatically closed the gap with Japanese This is due in part to the cars that have become easier to design and manufacture, as they are less mechanical and more are controlled electronically competition so moved that might offer more value to the customer the highest fuel economy, the sexiest aspect, and the most compelling features for the lowest price.
Another change came competitive in the emerging world.
Keiretsu worked brilliantly for Toyota because an overwhelming majority of finely designed cars, was sold in developed markets high-priced United States, Europe and Japan.
This began to change in the early 2000s, with the rise of emerging economies such as Brazil, Russia, India, China, Indonesia, South Africa and Turkey These savings already collectively buy half auto sold in the world today, they account for an estimated two-thirds of overall global demand by 2020, when sales are expected to reach 100 million cars per year.
Daihatsu, whose business is mainly at the lower end of the market both in Japan and markets in South Asia, the keiretsu system was particularly expensive As he started buying more components from Toyota groups such suppliers as Denso and Aisin Seiki over the years, it has also been made with high quality standards of Toyota Shiramizu said Toyota specifications are often too high for vehicles that some Daihatsu officials describe as sandals, as opposed to dress shoes Toyota did.
Do we need parts and cars that withstand the desert heat in Arizona Shiramizu request.
Consumers in key markets Daihatsu outside Japan Indonesia and Malaysia are also used for driving in harsh road conditions, which often require them to replace parts quickly They do not expect the parts to last five to 10 years, they are more willing to sacrifice sustainability for the price, he said.
Shiramizu is unlikely scourge of Toyota Toyota tradition A career man, he was known in society as emperor because of his command of the company and its imperious nature, he reached the post of top executive vice president before being sent on to run Daihatsu as president in 2005, but now, he says, he came to the keiretsu as a high cost, inefficient load Shiramizu said his mantra to dissolve the Daihatsu was the keiretsu, or die.
Shiramizu reform began in 2009 with a decision to end a routine overhaul of its Mira minicar recast as a strategic car Mira e S Shiramizu said the trigger was gaiatsu or foreign pressure, he said threatened kill the special category of vehicles in Japan called kei, or light, Daihatsu specializes in cars.
Washington and Detroit regarded as kei cars Mira to be a trade barrier limiting the activity of global automakers in Japan The Japanese government offers a low annual vehicle tax rates for kei cars small vehicles powered by motors 660 cu centimeters or smaller than Detroit doesn t make they represent 40 percent of the Japanese auto market.
But the US ally and main trading partner, was unhappy that kei cars were increasingly indistinguishable from other economy cars at low cost with larger engines in Japan The redesign of the micro-mini Daihatsu and new e behalf of the S model, aimed at making the kei car a unique class of high fuel economy and light on the wallet.
An effort to find a car at a price of 8000 or less was far, far long overdue for Daihatsu, Shiramizu said US trade pressure was simply the last straw, he said.
By redefining the Mira design direction Shiramizu unleashes keiretsu destruction program that is still being played in Daihatsu.
His first act was to send agents of change manufacturing engineers as Saburo Yagi, Fumiaki Fukunaga, and Yoshiki Inoue in the supply of the business office.
Until then, the Daihatsu buying office was staffed types nontechnical with little knowledge of how the components are designed and manufactured, and said Shiramizu, not the ability to assess the actual cost instead of attacking the costs, purchasing managers put a priority on their relations with suppliers and dined and wined showered with gifts in the process, said Shiramizu.
Shiramizu then launched another movement abolishing the account system that governed public procurement offers the status quo, he said, has made it almost impossible for new, non-Toyota Group suppliers to do business with Daihatsu, even when they offered better quality and price.
As part of the account system, only existing suppliers with Daihatsu accounts could provide Daihatsu in pieces These so-called account holders tend to be more stable group financially suppliers any new contender supplier had to ask an account holder for sale through its account Shiramizu said the system tended to inflate costs because account holders often pay 10 percent fee to let newcomers use their accounts.
These back-to-back movements down the two biggest obstacles Daihatsu look beyond the Toyota group for parts.
More importantly, it allowed Shiramizu to deploy its new leaders of supply in the hunt for parts cost across Japan and beyond China, Indonesia and India.
Inoue, who was plucked from the engineering division of production by Shiramizu and his team focused on China The team found quickly Chinese suppliers of windshields, mirrors, speakers and aluminum wheels save up to 50 percent.
One of the most critical discoveries of the team is not a new supplier, but it was the discovery that certain account holders slapped a hefty margin on components they procured cheap in China.
Shiramizu was furious In February 2010, Inoue's team had found two new suppliers, one near Shanghai and the other in the city of Qinhuangdao in Hebei Province, capable of supplying aluminum wheels for such a low price 150 yuan to 200 yuan per piece about half of Toyota Tsusho price charged for a comparable wheel of another supplier Daihatsu bought last year about 1 $ 3 billion aluminum wheels in China without going through intermediaries .
We have too many middlemen skimming, Shiramizu Says Getting rid of these intermediaries is the shortest cost savings.
Akitomo Inagaki, spokesman of Toyota Tsusho, said his company aims to provide customized services that emphasize fast delivery, secure payment and good equipment maintenance we handle.
We do not charge t consider ourselves as a stereotypical commercial company, he said.
This experience quickly led to all-out drive to eliminate intermediaries from an array of contracts A key objective was Toyota Tsusho, a leading supplier of manufacturing equipment used Daihatsu to produce cars in Japan, Indonesia and Malaysia.
The procurement specialists Daihatsu went to a factory in Japan, and enlisted Komatsu Ltd. Trinity Industrial Corp. Toshiba Machine Co Meidensha Corp and Toyota subsidiary JTEKT as direct suppliers, cut Toyota Tsusho.
Buying directly from these suppliers did the work of more complex procurement specialists they must ensure that the logistics for the delivery of parts are solid, making sure the equipment orders are delivered to plants in time it's worth it, officials Daihtsu say, for example, the company says it has saved about 10 percent on milling machines he bought JTEKT which cost up to 30 million each.
Inagaki, the spokesman of Toyota Tsusho, said that if companies like Daihatsu have the resources to enable them to do all the logistics for the safe and prompt delivery, they might not need a trading company as Toyota Tsusho But in many cases, few companies have such capabilities on their own, he said.
new Daihatsu supply system is crucial to the success of the S e Mira, Shiramizu said, describing the new car design as the beginning of a much broader initiative to help Daihatsu adapt to the rapidly changing global market and Of the industry.
We still need to shave another $ 100 000 to 200 000 in lower even lower, in the 500,000 to 600,000 range in price from retail car if we want to survive, he said.
The ultimate 5000 car would watch Daihatsu s and perhaps Toyota's success in emerging markets, he said.
Shiramizu resigned as president in June 2011 and the Mira e S launched in Japan later this year, the lessons of the new design of the car triggered a wave of other movements now pursued by Shiramizu trained talent .
In this initiative, Daihatsu has opened an office in Shanghai Its staff of 20 people now looking across China for parts at low cost, an effort that has included 3 billion pieces by 2013.
The push last year went into hyperdrive when the team discovered China factory centers in the province is China's Zhejiang generic auto parts for dirt cheap or like a Daihatsu leader said, fakes.
Daihatsu discovered these generic parts in a roundabout way on the shelves of parts dealers and repair shops in Indonesia that the stock for drivers of all the penny-pinching days.
A quality engineer who noted the widespread use of these parts in Indonesia Shiramizu said of his discovery, and a major boost in search of usable parts ensued.
The results were mixed by the generic designs parts producers are often strong, but the production quality is unreliable, according to Daihatsu Daihatsu n responsible not give up China, but officials say it is now be a time of stress.
A solution is now continued to produce himself a lot of heart, high ticket Daihatsu parts Toyota currently buys from suppliers include air conditioning systems and steering, drive shafts and cable harnesses.
Toyota suppliers aren t going to love, official they say, but our core philosophy is to go home and that means more intermediaries.
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