Toyotas Purchase Philosophy.

Toyota believes at quality at source.

Quality at source includes quality of the original plan when it comes to
corporate goals. Which includes Marketing plan and therefore the product
and the pricing strategy.
To meet their price points Toyota works with their RM sources to get the specs
and the price right.
This is usually done through resource and process partnering.
Vendors are evaluated and taken onboard with pre determined margins on
which they have to work to make a reasonable profit.
Once the margins are agreed Toyota never squeezes the supplier to cut the
margin. And if there is a pricing issue they partner with the supplier to see
whether their process has wastes which can be eliminated or Toyota looks at
its process to see whether the specs are over engineered.
With this process of reverse or Value engineering they hit the target input
prices w/o compromising on the margins of the supplier.
This also will mean that the supplier should be transparent not only in
costings but also in working with its customer to meet the customers
strategic objectives.
Tier I vendors participate in Toyotas annual strategy meets and work
together to meet the market demands. For Eg: if it warrants a 15% cut in
sales price of the car then Toyota not only puts the target of input cost
reduction by 15% but it goes about working with the vendor base to achieve
the same which in case of Tier I vendors may include plans for OH reduction,
to reduction of process waste or Value engineering. Thus the supplier is a true
Value Chain Partner. Toyota just does not demand reductions but works
together to achieve the same and select vendors who are transparent and
open to these ideas.