Tight Network of Suppliers Provides Key Support for Japan’s Auto Makers : Competitiveness: Parts makers deserve much of the credit for constant improvements in quality. Their close links with manufacturers have been critical.

Laden with mufflers destined for new Honda Accords, Preludes and Acura Legends, the small truck from Sankei Giken Co., one of Honda’s many outside suppliers with a nearby factory, chugs up the ramp at the auto maker’s massive Sayama assembly plant.

After pausing briefly to find its place in a line of traffic, the truck rolls right into the building, down a road--built expressly for supplier trucks--that actually runs alongside the assembly line inside the plant.

After weaving its way down Sayama’s seemingly endless aisles, the truck finally coughs to a halt next to an assembly work station, less than 10 feet from the car bodies that are snaking down the line at a rate of one every 47 seconds.

Quickly, the driver scrambles to pull back the truck’s canvas side and unload the mufflers, neatly stacking them next to a team of assembly-line workers.

Without even glancing down to inspect them, the line workers, constantly on the move, immediately start slapping the mufflers on the Accords and other models passing by. Emptied, the truck heads out the far end of the factory, back to Sankei Giken’s Sayama plant for another load.

“Having the trucks come in the plant was a good idea . . . but now I’m starting to get worried about air pollution in here,” Sayama plant manager Kaname Kasai said with a sigh.

Yet even with the in-house smog, that unchecked flow of trucks through Sayama provides graphic evidence of the astonishingly close relationships that exist between the major Japanese auto makers and their key parts suppliers.

Such intimate links--far closer and longer lasting than is the case in the United States--have been critical in helping Japanese auto makers retain their competitive lead over Detroit, in terms of basic quality and overall customer appeal, throughout the 1980s.

In many ways, in fact, it has been Japan’s suppliers, rather than the auto companies themselves, that have borne the brunt of the nation’s obsessive drive for kaizen-- constant improvement--in the face of rising costs and mounting competition from both the United States and Europe.

After all, the Japanese auto makers rely far more on their suppliers than do the U.S. Big Three. Toyota, Nissan, Honda and Mazda all buy 70% to 80% of their parts from outside suppliers; General Motors, by contrast, buys just 30% and makes the rest of its parts in-house.

“We have a high dependence on our suppliers, and therefore we do have high expectations of them as well,” said Koichiro Noguchi, general manager of international purchasing for Toyota. “The role they play in our success is very big.”

To be sure, those cozy relationships have become a major source of trade friction between Japan and the United States, with U.S. auto parts manufacturers complaining that they are effectively shut out of the Japanese parts market--a charge the Japanese deny.

“Many personal relationships do exist between people at Nissan and at our traditional suppliers, but I have never felt any pressure to buy only from them,” insisted Nobuo Maruse, a top purchasing manager at Nissan.

Of course, as the Japanese have moved more of their auto production to the United States, they have been forced to modify their supplier system and have become more willing to buy American components for their U.S.-built cars and trucks.

Some American firms now selling to the U.S. operations of the Japanese have even broken through to supply parts for cars built in Japan. Cleveland-based TRW, for instance, has become a major supplier of air bag components for several Japanese-built cars. And, through a joint venture with a Japanese parts maker, TRW has become the first American company to gain entry to Toyota’s keiretsu, the auto maker’s closely knit “family” or trade association of Japanese parts makers that are either partly owned by Toyota or are heavily dependent on Toyota for its business.

This system of keiretsu groupings around each major auto maker in Japan has prompted sharp protests from the United States, which has argued that the keiretsu system acts as a barrier to free trade in auto parts. That pressure may have played a part in helping TRW gain admittance at Toyota.

Yet the fact is that the Japanese are loath to give in to pressure from American trade negotiators to fundamentally alter their supplier system--because the system works.

Perhaps the best proof of its effectiveness is that the Big Three are trying to copy it as fast as they can. Indeed, all of the significant innovations in the U.S. auto industry’s supplier system over the past decade--most notably the “just-in-time” delivery of components--have been borrowed wholesale from Japan.

But even after years of talk in American industry about switching to the Japanese system, the Japanese still do it better.

One critical advantage the Japanese have maintained is that virtually all of their parts are produced in factories bunched within minutes of each major assembly plant in Japan.

At Mazda, for instance, 120 parts plants are situated right around the auto maker’s massive Hiroshima assembly complex, making it possible for 80% of all components to be delivered within 30 minutes of the time they are needed on the assembly line, according to Masami Ishihara, Mazda’s manager of final assembly in Hiroshima. As a result, “We don’t have any inventory,” of expensive parts backing up in storage, Ishihara said.

In addition, many of those supplier plants are producing critical parts that American auto companies would never trust to be farmed out. Nissan, for instance, relies on longtime supplier Aichi Machine Industry Co. to produce complete engines--the heart and soul of an automobile.

The Japanese thus place enormous trust in their suppliers. In fact, parts arriving from the outside are almost never inspected, and the auto companies do not even impose their own quality guidelines on parts makers.

Unlike the Big Three--who, in a frantic effort to compete with the Japanese have set rigid quality guidelines for their parts makers to meet--the Japanese let their suppliers set their own quality standards. They assume that the people who make the parts are in a better position to figure out how to judge the quality of their own work. If any parts are bad, they are immediately shipped back to the supplier, who then analyzes them to see what went wrong.

“We ask our suppliers to establish their own quality standards, and that is very different from the way it is done in the United States,” noted Naoya Hasegawa, Nissan’s deputy general manager of quality assurance, who previously worked at Nissan’s U.S. assembly plant in Tennessee.

“Here, we tell our suppliers what we want in a part, but then how they do that with high quality is up to them.”

The Japanese feel comfortable relying so heavily on outsiders because their supplier base is streamlined to include only the largest and most powerful parts manufacturers in Japan. While they do use at least two suppliers for each critical part to hold down prices, the major auto makers deal only with firms with which they have developed longstanding ties and which have the resources to handle their own quality control and research and development work.

Nissan and Toyota, for instance, deal directly with 200 to 300 makers of key components for their cars and have intimate ties with almost all of them. Of Toyota’s 270 suppliers, 176 are in its keiretsu, including several dozen companies of which Toyota is at least part owner--most notably Nippon Denso, the largest auto parts maker in the world.

Smaller suppliers of less critical parts work through these 200 to 300 large, “tier one” suppliers and do not have direct contact with Toyota or Nissan.

By contrast, General Motors--which is moving to consolidate its supplier system along the Japanese lines--has traditionally dealt directly with 5,000 suppliers, both big and small.

The Japanese system has clearly led to much higher quality levels in automotive parts than in the United States. At Toyota, for instance, Japanese-built parts have a rejection rate of only 25 parts per 1 million received; by contrast, 3% of all American parts that Toyota buys are rejected.

Meanwhile, their reliance on outside suppliers has helped the Japanese auto makers to dramatically lower their production and labor costs.

For one thing, it lets the auto makers get by with far fewer employees than the Big Three. Toyota, for instance, has 68,000 employees in Japan building nearly 4 million cars and trucks a year; General Motors’ automotive operations, by contrast, has an American labor force of 443,500 making roughly 5 million cars and trucks a year.

With leaner organizations unburdened by large, Detroit-style parts-making operations, the Japanese auto makers thus seem better able to focus on their proper job--designing, engineering and assembling high-quality cars.

In fact, a much higher proportion of the labor and other resources at the Japanese auto companies goes directly into engineering and developing new cars than in Detroit. Nissan, for example, with just 52,000 employees in Japan, has 8,000 engineers on its staff; Ford, with 160,401 workers in its U.S. auto operations, has just 6,000 engineers. At Nissan, between 5% and 6% of annual revenue is spent on research and development, compared to 3.6% at Ford.

The Japanese auto makers can also pour more of their R&D; resources directly into their cars, since their suppliers handle so much research work on parts that Detroit’s Big Three must do themselves.

Because of their critical research role, Japanese suppliers are treated more like members of the auto maker’s internal product-development team. They get involved in new car development at the earliest stages--frequently before a proposed new car has even been approved for production.

Suppliers are given the basic specifications for new parts and then are told to do the design work for the parts themselves. “We bring in suppliers at the clay model stage,” the first major step in the car design process, Nissan’s Maruse said. “With critical suppliers--like Aichi on engines--we will bring them in even before that.”

Given such an early look at new car projects--still rare in Detroit--parts makers in Japan are able to move quickly on the development of new components and can also help the auto makers avoid mistakes early in the design process and, thus, build better cars.

“We want suppliers,” observed Toyota board member Junichi Yoshikawa, “who can build in quality from the start.”