ABSTRACT
Toyo Radiator Company, Ltd. (Toyo) was founded in 1936 as a radiator supplier to the fledgling Japanese automobile industry; it was independent from the major keiretsus. Komatsu, Ltd. was one of Japan's largest heavy industrial manufacturers. It was the world's second-largest manufacturer of a complete line of construction equipment. In 1995, Komatsu manufactured about 30% of its products, designed and subcontracted another 50%, and purchased the remaining 20% from outside suppliers. Komatsu realized it needed a new approach to supplier relationships when the improved performance that it demanded for its A20 and A21 power shovels would have required an increase in radiator size of approximately 36%. This increase would have pushed Toyo's costs above far their target levels, resulting in losses for the firm. Toyo and Komatsu used two cost management techniques to create internal cost reduction pressures: target costing and cost balance verification. Both techniques were applied during the product design stage.
