Japanese Firm’s Advice Sought for Pursuing Supplier Diversity in U.S.

By Vivian Tse

As an automotive supplier, Takata has seen better times. However, despite the persistent challenges the company currently faces, the company is soldiering through the difficult economic climate with a number of innovative practices.

“This is a challenging time in the economy,” said Frederick Heegan, vice president for purchasing. “The changes are daily. We’re concerned about supplier health and stability, but we’re confident with what we have going on with our direct material suppliers. There are still a lot of great opportunities despite the economy for MBE companies to add value.”

Established 70 years ago, Japan’s Takata, whose Americas operations are headquartered in Michigan, specializes in seat belts, air bags and steering wheels and electronic devices all working in unison as safety systems. Its customers include all OEMs in all major tier one categories. As Robert Fisher, senior vice president for purchasing, engineering and program management, put it, the company’s vision is that one day, there will be no more traffic fatalities with its products.

“It’s a lofty goal, but it’s a passion and vision in our eyes and drives all of us everyday,” said Fisher.

The company is one of the few Japanese enterprises with an active supplier diversity program. Unlike Europe and Japan, where supplier diversity does not exist as an initiative, “In the U.S., we saw the demographics changing,” Fisher said.

“We saw who were going to buy tires in the future,” he added. “The trend was clear that the buying power was shifting from non-minorities to minority groups. Several minority groups were gaining power and thus buying power. We want our supply base to directly reflect that. It’s very unconventional thinking for a Japanese company. We were the first Japanese company to embrace that.”

The company partnered with the Michigan Minority Business Development Council to help it identify minority suppliers that could help it expand its supply base. One example of a successful partnership is Departure Travel. Several months ago, the company brought in new technology to help the company do online booking reservations, streamlining the process and lowering the cost per transaction for travel expenses.

Takata’s partnership with Departure Travel began over 10 years ago. It was unheard of at the time to have a travel agent on the premises, but it allowed Takata to reduce its costs. At the time, one of Departure Travel’s objectives was to set up a brand-new company, but reduce its start-up costs. Takata stepped in and told the company to borrow office space and gave Departure Travel access to its computers, email system and charged nothing. In this way, Departure Travel reduced its expenses and from there, picked up additional clients and grew. “It’s a win-win. They brought this to us and we’ve been doing business with them for years. It’s a success story,” said Fisher.

Takata’s success in partnering with MBEs has led other Japanese OEMs to ask it for help in bringing in their Japanese suppliers and to encourage their Japanese supply base to do what Takata has done, or “leading by example,” as Fisher puts it.

“We’ve helped other OEMs work with their supply base to show them the path to proceed down in order to identify quality MBEs and incorporate them into their supply base,” said Fisher.

Although it may seem Takata’s involvement in supplier diversity is innovative as a Japanese company, Takata is actually emulating its parent company’s purchasing philosophies in Japan: building long-term relationships. “We are careful who we choose,” said Fisher. “Once you’re in, you’re in for as long as you’d like to be as long as we make each other happy.”

Takata engages a unique strategy in the mentoring agreements it has established with key suppliers. With one IT company, the firm later had staff onsite. As its business grew with Takata, it expanded into other fields, namely maintenance, repair and operations (MRO) procurement involving indirect materials essential to running a factory.

“They had a unique model that would guarantee us savings of at least 10 percent the first year by them managing our MRO spend in Mexico for our eight plants,” said Fisher. “They used their IT systems, which were much stronger than what we had, and the skills of the smart people they hired. They are negotiating deals now and using systems to create much more powerful tools that we didn’t have.”

Takata also introduces suppliers that successfully deliver to its direct material supply base.

I’m making introductions and playing matchmaker in our commitment to grow our minority partners and offer them opportunities with our direct material suppliers,” said Heegan.

Added Fisher, “When you establish a partnership with an MBE, you talk about what you want to gain out of the relationship. Both parties have responsibility. After one or two discussions, we realize what the MBE needs to be successful and to grow. In turn, they realize what we need as a supplier.”

After both parties sign an agreement, both the MBE and Takata touch base quarterly to ensure objectives are met.

“We’ve helped other suppliers with capital equipment, where we would have a piece of equipment that would be fully depreciated on our side, give the equipment to the MBE and let them produce parts off it. They keep the costs of acquiring new equipment down in this way,” said Heegan.

In addition, “Each mentoring agreement’s different,” said Fisher. “They do have to be adjusted over time for new goals, but it’s a really great way of walking into a relationship and knowing what both sides need to deliver and prosper.”

The company’s long-term views help it plan past tough economic times. “We’re in the perfect storm of decreasing volumes and increasing raw material costs, government interference and interaction now we never had before,” said Heegan. “Takata’s taking drastic steps it’s never done. We’re closing two manufacturing plants in Mexico and integrating them into the other six. We haven’t had raises in two years and have had 401(k) and head count reductions, as well as travel restrictions.”

He added, “We’ve taken drastic steps internally to reduce our costs, to lower our break even point, in order to survive as the volumes decrease. That’s the exact same message I tell suppliers. They have to lower their break even points and operate at 60 percent utilization on their capital equipment. Right now, they have to lower their expenses across the board in order to weather this storm. Everyone is doing that.”

Takata takes its cue from auto industry giants. “General Motors, Ford and Chrysler started working on MWBEs long before us, as well as Johnson Controls, in terms of supplier diversity,” said Fisher. “We use the best pieces of their programs and share those with other suppliers and customers. It’s an exchange of ideas that ends up helping everyone.”

To Takata, endorsing supplier diversity is not simply a purchasing activity. “At the executive level, there’s an understanding of how a diverse multicultural supply base can help us be more competitive and better reflect the customers that are buying our cars,” Fisher said. “It’s not just two purchasing guys out there pushing this. It’s a group of executives saying, ‘We collectively endorse this because we know it’s good business.’ That’s what makes us different. The endorsing of supplier diversity starts at the executive level all the way from our president down.”