BUIILDING DEEP SUPPLIER RELATIONSHIP

This paper highlighted how Japanese car manufacturing company namely Toyota and Honda build an important relationship with their suppliers and gain competitive advantage from their suppliers.
Currently, businesses are trying to have better quality of their product, develop new processes and products faster than their competitors while reducing cost that force them to rely heavily on their suppliers. According to experts, American firms should learn from Japanese competitors to build supplier Keiretsu that is close-knit network of vendors that constantly learn, improve, and prosper along with their parent companies.
Although American companies have difficult time to implement the Keiretsu, the model is implemented very well by Japanese companies operating in the US, Mexico and Canada. Toyota and Honda has been able to reproduce the Japanese suppliers network system in US which is a Western culture and they are now having the best relationship with suppliers in the US automobile industry that allows them to reduce cost have the fastest product development processes while improving quality endlessly. Surprisingly, they even have better relationship that US companies with US suppliers.
Toyota and Honda set high standards in order to be very competitive and expect their partners to do just like them. The automobile company want to maximize the profit by helping their suppliers to fulfil their expectation but without more. The keyword is ‘partner’ as it shows that there is a will for long-term relationship between the automobile companies and the suppliers that involves trust and mutual well-being. This relationship indicates discipline and the expectation of improvement and growth. This paper mentions the six steps of supplier-partnering hierarchy with one leading next, used by Toyota and Honda to develop the partnership with American suppliers. The six steps shows how their supplier work, turn supplier rivalry into opportunity, supervise your suppliers, develop suppliers’ technical capabilities, share information intensively but selectively and conduct joint improvement activities.
This paper elaborate more on each element that starts from understanding how the automobile suppliers work. Toyota and Honda learned as much as they could about their suppliers. They believed that they could create the base for partnership only if they knew about their supplier as much about themselves. They sent their executives to see and understand how suppliers work and maintained that managers at all level up to presidents have to study supplier first-hand to understand them. The process was time consuming but it turned out to be valuable for both suppliers and manufacturers. The automobile companies used their knowledge gained from suppliers to set target pricing that would benefit both parties (automobile companies and suppliers) in terms of profit.
Second, is to turn supplier rivalry into opportunity for the company. American executives believed that keiretsu system does not work well and is not flexible, meaning that the automobile companies are buying their components only from specific supplier which lead to more costs and technological compromises. However, that was not the case as both Toyota and Honda did not depend only on a single source for any parts but both had two to three suppliers for every component or raw material they were buying. They encouraged competition between vendors right from the product development stage. Toyota required the sellers to design the component and award contract for the life of a model for best vendor. However, if the performance did not meet the expectation, Toyota would give the contract to a competitor. The supplier would have the chance to win another contract if their performance improved. This is different from American company where they set vendors against each other and then do business with the last suppliers standing.
Third, is to supervise your suppliers. US and Mexico had the misconception that Toyota and Honda trust their suppliers to the extent of letting them do everything on their own that was not how Japanese automobile companies found it. As Toyota and Honda believe suppliers’ roles are too vital, they used elaborate system to measure the way their suppliers work, set targets for them to meet and monitor their performance constantly. Controls are the other side of trust that Toyota and Honda had in their suppliers. In addition, Toyota and Honda expected their suppliers’ senior management get involved in any issues arise.
Fourth, develop suppliers’ technical capabilities. Toyota and Honda believe that suppliers’ innovation capabilities are more important than low wages cost and invested a lot of money to improve the ability of their first-tier vendors to develop products. First-tier sellers are asked to send their design engineers to work alongside for two or three year and eventually they will understand the development process and come up with design ideas for Toyota and Honda. Meanwhile, the automobile companies helped the suppliers by setting up learning links, forged by moving workers or launching transnational product development projects among others.
Fifth, sharing information intensively but selectively. Toyota and Honda believe in communicating and sharing information with suppliers selectively and in a structured fashion. Moreover, anyone can visit Toyota factory in Nagoya after making a reservation. Meetings have clear schedules and specific times and places and rigid formats for information sharing with each supplier. The automobile company share information carefully when developing new products with their suppliers and do not share all the information but only the relevant information to each suppliers who they think are important.
Sixth, conduct joint improvement activities. Toyota and Honda are models of lean management as they bring about all-round improvement in their suppliers. They lead studied and Kaizen (continuous improvement) at suppliers’ side that resulted in improvement of productivity and quality while reducing cost that benefit both parties.
By establishing the six levels of the supplier-partnering hierarchy, Toyota and Honda have created a base on which their suppliers can continuously learn and be more competitive. To be successful, an extended lean enterprise must have leadership from manufacturer, partnership between manufacturer and suppliers, a culture of continuous improvement and joint learning among the companies in the supplier network.