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Finance GreenWatch » unclassified » TEPCO likely to emulate Toyota to slash spending(Yomiuri)

TEPCO likely to emulate Toyota to slash spending(Yomiuri)

Tokyo Electric Power Co. wants to adopt cost-cutting methods developed by Toyota Motor Corp. to reduce its procurement outlays in materials and services as part of an effort to slash spending by at least 100 billion yen per year.

The troubled utility hopes Shoji Konda, former Toyota managing director and former president and chairman of Hino Motors Ltd., will join its procurement committee, which comprises outside experts and is scheduled to be launched in November.

Kondo, 69, is an adviser to Hino Motors and had a long career in parts procurement as a purchasing manager at Toyota.

TEPCO hopes to learn from Toyota’s methods, as the carmaker has a reputation for being able to procure standardized auto parts at the lowest prices possible. The utility said it would include principles on procurement reform in its midterm management plan to be compiled in November.

The so-called comprehensive cost method, under which electricity rates are calculated by adding a certain amount of profit to costs, deterred the firm from grasping the need for cost-cutting measures. Standard practice at TEPCO has been to purchase the latest equipment for its power plants.

But the new committee will be tasked with examining individual procurement plans worth more than 1 billion yen for equipment such as turbines and transformers, and attempt to train its workers to be more frugal. The firm also plans to review repair costs and capital investment plans.

The committee is to be headed by Sakon Uda, a former McKinsey & Co. consultant who promoted cost-cutting efforts at Japan Post Holdings as an executive officer. Other members are to include TEPCO’s vice president in charge of procurement and other executive officers, as well as former employees of JFE Group, a major steel company that has gone through cost-cutting drives over the years.

TEPCO hopes the restart of the Kashiwazaki-Kariwa nuclear power plant in Niigata Prefecture in April 2013 will give it more financial room, but it remains uncertain if the plant will go back online soon.

TEPCO’s goal is to reduce costs by more than 3.37 trillion yen over 10 years from fiscal 2012. It wants to use Toyota-inspired methods to further slash spending to minimize future hikes in electricity rates.

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