As the world’s second-biggest car manufacturer, with more than six million cars sold as of July 2019, Toyota Motor Corp. (NYSE: TM) has a diverse supply chain to support its business operations. In Japan, Toyota buys directly from 200 component suppliers. Based on data from Toyota’s headquarters, the 200 suppliers account for 2 billion units of which 150,000 types are purchased monthly. The total value of purchased components is pegged at $300 million a month.

Key Takeaways

  • Toyota Motors is the worlds second largest auto maker, with a global presence and a household name.
  • To become efficient on the global stage, Toyota, like its competitors, relies on a complex network of suppliers for its cars.
  • While some suppliers have become integrated into the company itself, many still operate as third-party vendors under contract.

Supplier Costs

The company, founded in 1937, spends approximately $32 billion per year on supplier parts and materials, goods and services in the North American market. The company typically gets much of its component parts from suppliers at the local level, preferring a long-term contract to assure a steady supply of everything from upholstery to tires to windshields.

While supply contracts are never set in stone, maintaining strong ties with its top suppliers is a priority for the Japan-based multinational auto manufacturer. To maintain its relations with suppliers, Toyota hands out awards yearly to suppliers that exceed performance targets. In March 2016, Toyota’s North American operations gave its highest recognition to Fuel Total Systems Corp., OTICS USA, Somic America, Inc., Sumitomo Electric Wiring Systems, Inc. and TAIHO Manufacturing, while 42 other supplier companies also received awards of excellence.

Toyota and its Suppliers

Toyota has a wide range of suppliers that also include the likes of Tesla Motors, which previously signed a $100 million agreement to supply the power train for RAV4 EVs; Samsung Electronics, which created a Car Mode App connecting Samsung smartphones to Toyota radios; Bridgestone Americas to supply tires for the Toyota FJ Cruiser model; and Cypress Semiconductor to provide the touchscreen for the Toyota Avalon.

In Toyota’s Detroit plant, the Camry model alone has suppliers such as Magnuson Products, IPT Performance Transmission, Goodridge Fluid Transfer Systems, MagnaFlow, Autometer, Impact Racing, Goodyear, Nitrous Supply and Optima Batteries. The finishing touches before the Camrys are delivered to dealers are provided by Fast Ed's Interiors and the Polishing Shop.

In some instances Toyota has created downstream industries that were formerly integral parts of the company. The likes of Nippon Denso Co., which manufactures air conditioners, and Aisin Seiki Co., which produces components and systems for automobiles, started out as part of Toyota but later became independent corporate entities. Nippon and Aisin continue to be principal suppliers for Toyota but also manufacture products for other car manufacturers.

The Bottom Line

Since most modern cars have built-in infotainment systems, Microchip Technology serves as a supplier not only for Toyota but for other manufacturers as well, including General Motors. With its efficient supply chain in place, Toyota expects to remain one of the world’s most profitable car manufacturers in the foreseeable future.