The Importance of Working with Suppliers Over the Long Term
End the practice of awarding business on the basis of price tag. Instead, minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust.
Point 4 in W. Edwards Deming’s 14 points for management
Even today many organizations treat suppliers as adversaries to beat at the negotiating table. Dr. Deming explained that the organization was a system that included the suppliers and customers. You need to manage and continually improve that entire system.
And to do so most effectively you need to partner with your suppliers over the long term. You need to treat them as partners. Saying they are partners is nearly worthless. What matters is how you operate. Toyota, Honda and others have taken this message to heart. Many others still have not.
I wrote about this on my personal blog in 2005, Ford and Managing the Supplier Relationship
Nothing has changed from 1990 to today that explains why Ford saying they are going to deal with suppliers differently now should work any better then such statements 15 years ago. Until they acknowledge what problems in their management system have caused them to fail to use sensible management practices that have been well know for decades I see no reason to believe there claims that they will behave differently this time.
The difficulty is not in reducing the number of suppliers. The difficulty is that you must change the nature of your relationship with the suppliers. And that will require changing the nature of the management systems within Ford. The various factors involved are interdependent.
You cannot expect to achieve success by adopting an individual component of an interdependent system of management.
A recent study says that Toyota and Honda lead USA manufacturers in supplier relationship management. The same study claims Toyota and Honda are far ahead of the others and the benefits to Toyota and Honda are in the hundreds of millions (or billions) a year and the costs to the others are as large).
Toyota was the tops in supplier relations, followed closely by Honda. Ford Motor Co was a distant third, followed by Nissan Motor Co. General Motors Co and Fiat Chrysler Automobiles NV were tied for last place.
Toyota and Honda improved their scores by an average of 8.7 percent over the year, the study showed.
If the other four had improved their relations by as much they collectively would have added $2 billion in 2014 operating profit, Henke said.
Suppliers have become more discerning about which companies they serve, said Henke, who has produced a study of relations of automakers and their Tier 1 suppliers for 15 years. A supplier will show its best new technology to the automaker that treats them best
I don’t take the study very seriously. They don’t even publish the study openly, there is a paywall to view it (for academic research this is an outdated concept). But even beyond that I question that these studies can provide accurate data on the costs and benefits of good supplier relationships. I do believe these types of studies can provide value, it is just the measures have large degrees of uncertainty.
Toyota still has very high expectations for suppliers. But they work on continually improving the value suppliers provide to the system in a way close to as if the suppliers were part of Toyota. They entire system is seen as one and expected to stay as one. Toyota will help suppliers improve, they are seen as part of the Toyota team.
Working together in partnership is a much more complex matter than saying you will cooperate. Sadly many companies are willing to say they will cooperate with suppliers over the long term, many fewer companies are willing to follow through with the actions needed to make that a reality.