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Manufacturing Suppliers and Partnerships - Don't Get Too Cozy

In a paper with my colleague, Professor Thomas Choi of Arizona State University, we pooled our knowledge of supplier relationships.

Warehouse conversation between Suppliers and Manufacturers

The quality movement of the 1980s led many companies to imitate aspects of Japanese supplier partnerships for quality and just-in-time manufacturing—outsourcing more, reducing the number of suppliers to those on a preferred list, offering longer contracts, and treating the suppliers more like partners.  A recent study by Veronica Villena and her associates sends a shocking message. Treating suppliers as partners helps to a point, but to much coddling of suppliers actually reduces their performance.  They did find an outlier company that deeply partnered with suppliers without suffering the ill effects of too much partnering, and this company had more of the characteristics of Japanese supplier relationships.

In a paper with my colleague, Professor Thomas Choi of Arizona State University, we pooled our knowledge of supplier relationships.  He had studied Honda in depth, while I focused on Toyota.  We found the similarities far outweighed the differences and their approach was quite more rigorous than what we witnessed at other companies seeking to copy supplier partnering.  We developed a supplier partnering hierarchy that ranged from foundational elements to higher level tools, starting from the bottom level working up to the result of kaizen and learning are:

• Mutual Understanding—Mutual Trust and commitment to co-prosperity

• Interlocking Structures—Interdependent processes, alliance structure

• Control Systems—measurement, feedback, and parallel sourcing

• Compatible capabilities—engineering, operational, and continuous improvement

• Information sharing—open books, common language, timely

• Joint improvement activities—Value engineering and analysis, supplier development, supplier associations

• Kaizen and learning—shared lessons, annual cost reduction, meeting improvement targets through plan-do-check-act

The point of the article was that all of these elements are necessary, or you can get trust and good feelings with weak performance.  Yet, copiers of the Japanese partnering model often miss critical elements.  For example, there arose a myth that Japanese companies sole source to one supplier, while they in fact never want to do that.  They “parallel source” which means ideally three suppliers who know each other and are in intense competition like sibling rivalry.  As another example, companies that make some progress on lean implementation discover a weak link is the quality and reliability of supply delivery and launch supplier development programs.  Unfortunately, the customer company often lacks the expertise to truly teach the suppliers much of value irritating the suppliers and eroding trust. And while using lean methods to “help” the suppliers, purchasing puts pressures on price with little understanding of the true circumstances faced by the supplier.  Supplier partnering is a complex mosaic and selecting isolated pieces will have little positive impact, and may even hurt both businesses.

Click to read more about lean supply chains.

Dr. Jeffrey Liker is professor of industrial and operations engineering at the University of Michigan and author of The Toyota Way.  He leads Liker Lean Advisors, LLC and his latest book (with Gary Convis) is The Toyota Way to Lean Leadership.


    December 03, 2012

    Some opinions expressed in this article may be those of a contributing author and not necessarily Gray.

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