How About Partnership Instead?
New Detroit Woe: Makers of Parts Won't Cut Prices – WSJ.com
Wah, the latest complaint from the “Detroit Three” (formerly known as the “Big Three”) is that they are having trouble squeezing and stomping on their suppliers for lower prices. Because so many suppliers were beaten up over time, they have consolidated, have had plants closed, and/or were bought by private equity firms. Seems like a natural response for a part of the industry that has been abused by many OEM's for a long time.
The WSJ article talks about the trend toward shorter and shorter contracts with suppliers, as opposed to long-term partnership and collaboration.
Principle #11 of The Toyota Way says:
Respect your extended network of partners and suppliers by challenging them and helping them improve.
Toyota treats suppliers much like they treat their employees, challenging them to do better and helping them to achieve it. Toyota provides cross functional teams to help suppliers discover and fix problems so that they can become a stronger, better supplier.
Does this type of interaction sound like respect? From the WSJ article, describing the negotiating practices of the Detroit Three:
…says auto makers and large “tier one” parts makers continue to ask Bluewater to accept business under terms that cover just labor and materials, with nothing left over for overhead or profit. “We are constantly getting calls asking, ‘Can you take on this or that business from another supplier?'” says Mr. Lord. “We tell them, ‘Here is our price,' and many times they get offended and say, ‘We won't be doing business with you.' That threat hasn't proven valid.”
The Curious Cat blog has a nice summary of the Detroit Three's supposed attempts at “partnering” with suppliers, including a recapping of Deming's attempts to push Ford toward partnering with suppliers, not just demand price reductions.
What Deming tried to re-introduce to Ford [in the 1980s] was a more modern and refined version of what had made Ford great.
Here's what I mean – During the early days, Ford and his associates were dissatisfied with the price that an auto body manufacturer was demanding.
They wanted him to get his price down, just as today's Big Three want their suppliers to reduce prices.
The difference was that Ford and his co-workers didn't just tell the supplier to cut his price.
They looked at the supplier's product and taught the supplier how to make it more efficiently.
The supplier's production costs dropped so far that the supplier could not only give Ford the price he wanted, but also make more money for himself.
When will the Detroit Three ever learn? Instead of whining about “legacy costs,” why not change the way you are doing business??
Chrysler supposedly made the most progress in this areas, in the 1990's, under the leadership of Thomas Stallkamp. After Stallkamp left with the Daimler merger/acquisition, those partnership practices went away. I saw Stallkamp give a talk once in an academic setting where he seemed near tears that all of his work had been done away with. Sad. Stallkamp is now, ironically enough, working with private equity firms and the supplier base, including one possible attempt by a supplier (Magna) to purchase an OEM (Chrysler).
I wonder if Magna will use Detroit Three tactics to beat the Chrysler price down??
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What really made the ideal of supplier development click for me was an article by Mari Sako, “Supplier development at Honda, Nissan and Toyota,” http://icc.oxfordjournals.org/cgi/reprint/13/2/281?ijkey=34SkQxoyccdAE&keytype=ref
The link opened the article for me, if you have trouble, go to her page at Oxford (http://www.sbs.ox.ac.uk/faculty/Sako+Mari/) and look in the list of papers.
The focus of her work has changed in the last few years, and the paper is a couple of years old, but I recommend reading it closely, twice. In fact, maybe I’ll read it again.