building deep supplier relationships
TRANSCRIPT
Building Deep Supplier RelationshipsJeffrey Liker / Thomas ChoiUniversity of Michigan/ Carey School of Business
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Two Japanese automakers have had stunning success building relationships with North American suppliers – often the same companies that have had contentious dealings with Detroit’s Big Three.
What are Toyota and Honda doing right?
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Building Deep Supplier Relationships
Vs.
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Businesses increasing rely on their suppliers to……
• Reduce costs• Improve quality• Develop new
processes & products faster than rivals
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By the turn of the millennium..
• Global sourcing quite common• Internet based technologies > compete on
cost more efficiently
• Hence cost became very important.
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2003: OEM Benchmark Survey: Toyota & Honda most preferred co. to work with.
Sales/ mn cars
Mfd. In USA(%)
From Vendors
(%)Toyota/ Lexus
2.1 60 75
Honda/ Acura
1.6 80 75
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Time to Design New Cars
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Big Three Toyota Honda
Mon
ths
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US manufacturers copied Japanese counterparts superficially…
• Slashed no. of suppliers• Awarded survivors long-term contracts• Encouraged top tier suppliers to manage lower
tiers• Top tiers to produce sub-systems ilo components• And take responsibility for: quality, cost & delivery
just-in-time• Used reverse auctions
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Two Kinds of Relationships
Power-based Relationship Shared Destiny Relationships
Win-lose Win-winTransactional Relationship basedShort term Long termYour problem Our problemMy benefit Our benefitMaximize autonomy Maximize
interdependanceExamples:GM/ Jose Ignacio Lopez Unipart/ British LeylandKinetic Honda Hero Honda
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A: Suppliers Serving US auto plants (n=90)B: Suppliers Serving Jap owned auto plants (n=90)
A To US Plants
BJap Plants
Inventory Turns 25 38
Emergency Shipping Costs $/ mn sales $
700 370
Ann % of truckloads filled to capacity
68 47
Defective ppm 292 222
Early Delivery 63 34
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A: Suppliers in US Serving US auto plants (n=90)B: Suppliers in US Serving Jap owned auto plants ( n=90)
A To US Plants
BJap Plants
No. of trucking co.s 4.3 1.4
Loading time (mins) 58 38
% using side loading trucks 0 19
WIP ( work shift) 5.4 3.9
Fin Goods storage time (work shift)
5.5 4.4
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Research Background
• 20 years’ study of US & Japanese auto industry• Between 1999 and 2002:
– 50 executives of Toyota & Honda interviewed in Japan & USA
– 40 managers from North American auto industry interviewed
– Several plant visits conducted
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The Supplier Partnering Hierarchy(Japanese Model)
1. Understand how your suppliers work
2. Turn supplier rivalry into opportunity
3. Supervise your suppliers
4. Develop suppliers’ technical capabilities
5. Share information intensively but selectively
6. Conduct joint improvement activities
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1. Understand how your suppliers work
• Learn about suppliers’ businesses
• Go see how suppliers work
• Respect suppliers’ capabilities
• Commit to co-prosperity
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2. Turn supplier rivalry into opportunity
• Source each component from two or three vendors
• Create compatible production facilities and systems
• Set up joint ventures with existing suppliers to xfer knowledge & maintain control
Johnson Controls
Trim Masters
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3. Supervise your suppliers
• Monthly report cards to core suppliers
• Immediate & constant feedback
• Senior managers involved in solving problems
Monthly Report Card• Quality• Delivery• Quantity delivered• Performance History• Incident Report• Comments
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4. Develop suppliers’ technical capabilities
Toyota & Honda don’t source from low-wage countries much; their suppliers’ innovation capabilities are more important than their wage costs.
• Build suppliers’ problem-solving skills
• Develop a common lexicon
• Hone core suppliers’ innovation capabilities
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- Guest engineer programs
- Check lists (exhaustive)
• Gotsu Gotsu: low frequency, high impact motions tires transmit to passengers’ lower backs.
• Buru Buru: high frequency, low impact vibrations they feel in the belly.
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5. Share information intensively but selectively
• Set specific times, places, & agendas for meetings
• Use rigid formats for sharing information
• Insist on accurate data collection
• Share information in a structured fashion
Jikon
SimpleParts
Design-in
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6. Conduct joint improvement activitiesHonda’s Best Practice
Program for Suppliers:• Productivity up 50%• Quality up 30%• Costs down 7%------------------------------Suppliers have to share
50% cost savings with Honda
• Exchange best practices with suppliers
• Initiate kaizen projects at suppliers’ facilities
• Set up supplier study groups.
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The Supplier Partnering Hierarchy
1. Understand how your suppliers work
2. Turn supplier rivalry into opportunity
3. Supervise your suppliers
4. Develop suppliers’ technical capabilities
5. Share information intensively but selectively
6. Conduct joint improvement activities