Industryweek 1656 Iwsmart06

Use Your Sales Skills To Get The Most From Asian Supply Chains

April 19, 2006
Trust is the "rule of law" in Asia.

In Europe and in the U.S., we have developed a system of laws and institutions which enables us to conduct business with complete strangers. We can go on the Internet, select a product and make a transaction with a credit card with amazing confidence that we will be satisfied. These types of transactions can occur with each party experiencing low risk, because there are laws and guarantees coordinated by multiple parties, including banks, CPA's, lawyers and Internet providers.

Industry in Asia and the Pacific Rim developed a "relationship-based" method of coordinating commerce. This relationship-based strategy enabled people to conduct business with confidence. For example, in Japan, companies have a method of co-ownership among suppliers and factories, which we call a keiretsu. The keiretsu system is often cited as one of the reasons that Japanese automakers have done so well in a global economy. In the age of globalization and the Internet, these "relationship-based" systems are changing. However, the influence of relationship-based transactions in Asia cannot be denied, and one cannot completely discount the benefits of relationship based commerce for those who have the relationships. This system however presents some challenges to supply chain development.

In Asia, you need to manage your supply chain in a manner not unlike managing a sales campaign. Potential suppliers are developed like sales leads. You learn their strengths and weaknesses and make a sales pitch to their strengths. In Asia, you want to "sell" the vendor on providing the best price and delivery at the best quality. How much effort you put into this process depends on the skills and capabilities you need within your supply chain. Not much energy needs to be put into relationships where you are sourcing relatively common goods in a hyper-competitive market, but you need to put energy into markets with constraints in things like material availability or production skills, where you need to react quickly to a market or if you need higher levels of quality. The vendor accepts more risks for these types of transactions, so they are more responsive to parties that they trust. The energy you put into the relationship builds trust, which is why relationship-based commerce is popular.

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One can predict how much trust needs to be developed for a transaction to be successful, because the level of trust needed often correlates to the amount of risk involved -- and I mean "social risk" in addition to "financial risk." In the U.S., we sometimes forget about social risk in business because so many business relationships are fleeting and temporary or even anonymous. Reducing risk often reduces the cost of doing business; this is why we have insurance companies. In Asia, if you want to reduce the cost of doing business, then you need to be willing to invest time and energy into relationships to build trust. Also, in this part of the world, one cannot always depend on the enforcement mechanism to work, so the best solution is to choose to do business with people that you trust until the enforcement mechanisms evolve.

One way that I build trust is to respect my vendor's time, because the pace of business in China and other Pacific Rim countries is very fast. I try to limit my request for quotation to very few suppliers, and I try to only ask for a quote on an order where they have the skills and where I can place the order within a short period of time. I have seen how not following these rules will lead to higher costs, because a rising price can be a polite way of saying please don't waste my time.

I work hard to avoid embarassing my supply chain members by collecting tacit knowledge on manufacturing processes and transferring this knowledge to them, and by communicating with product managers to help the factory avoid common mistakes of the past. I review the specifications and note the key areas that will take energy. In short, I go the extra mile to make sure they don't fail -- maybe this is the basis of trust for everyone.

In his breakout presentation at IW's SMART/mfg conference to be held June 14-16, in Las Vegas, Phillips discusses "Supply Chain Response To Global Relocation."

To learn more about the conference click here.

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