Shift toward less integration among manufacturers and their suppliers and customers needs to be reversed.
At a time when it's become increasingly evident that collaboration with customers and suppliers is critical to global success, more U.S. manufacturers are becoming less integrated with their partners, according to findings of the 2005 IW/MPI Census of Manufacturers. Could it be, as the recently released executive summary states, that, "In an era of relentless price chopping, long-term relationships may be taking a back seat to dollars."?
Associate Editor Jonathan Katz explores these findings in "Drifting Apart" and identifies what appear to be perfectly rational reasons for the drop. However, lest we confuse logical and even understandable reasons with good reasons, it's useful to remind ourselves of the benefits of collaboration.
Most of the IW research that seeks to uncover best practices and beneficial strategies finds collaboration to be among the top most effective. For example, for the 2005 IW Value Chain Survey, conducted in partnership with IBM Corp., we asked purchasing executives which procurement strategies are most effective at contributing to increased profitability and reduced cost. Their answer? More than 62% of respondents said supplier collaboration, more than the 51% that chose global sourcing of direct materials and the 34.2% that cited spend analysis. (The amounts do not add up to 100% because respondents could check all that apply.)
See The Manufacturer's Agenda: Pat Panchak's new blog about public policy issues.
Likewise, IW's Best Plants research shows that winning plants tend to extensively collaborate with suppliers and customers. Among other integration, they report having resident suppliers; delivering just-in-time, at point-of-use, and in-sequence; and sharing cost-savings.
Further, interviews conducted with winning plants illuminate the philosophy and depth of commitment these successful plants have toward such collaborative practices. Said one: "We were 'old-school' beat-up-the-supplier-and-get-the-best-price. That's not the case anymore. More than 80% of inventory is managed by the suppliers and delivered daily. The plant is shifting all material to daily delivery, and 'happier' suppliers will be freed from consignments and able to improve their cash flow."
Finally, if hard research and testimonials aren't enough to make you rethink the degree to which you're collaborating with your suppliers and customers, consider the stark contrast between the fortunes of Toyota compared with those of Ford and GM. Granted these companies differ in many ways, but most everyone agrees that Toyota has built a sustainable competitive advantage with its suppliers-as-partners philosophy, while Ford and GM are suffering as a result of their transaction approach to supplier strategy.
It's clear collaboration with suppliers and customers can help manufacturers achieve a wide variety of strategic goals that benefit the top and bottom lines. If you haven't considered it, or if you're among those who've moved away from collaboration, you might want to take another look.
Patricia Panchak is IW's editor-in-chief. She is based in Cleveland. Also see The Manufacturer's Agenda: Pat Panchak's new blog about public policy issues.