Editor's Page -- Supplier Partnerships Provide A Competitive Edge

Dec. 21, 2004
Why treating your suppliers as partners makes good business sense.

If you love watching great competition, as I do, you should catch up on a fast-changing cut-throat contest being waged in the global automobile market. The battle for market share, profits and bragging rights in the sector has it all: worthy competitors (indeed, the giants of industry), the thrust and parry of contrasting strategies and a variety of battlefronts. More important, like all great competitions, if you watch closely enough, you might learn something to use in your own situation. One aspect of the competition that interests me is the dramatic difference between how the U.S. and Asian OEMs work with their suppliers. Surely even the casual follower of the industry has noticed that, broadly speaking, U.S. automobile companies tend to take a transactional, even adversarial, approach toward working with their suppliers, while the Asian companies approach the relationship more as a partnership. The question left unanswered has been: Does this difference matter? IndustryWeek research suggests that it does -- and research results released in July show why. The 2004 IW/MPI Census of Manufacturers results show that 87% of the companies that have made significant progress toward world-class operations employ supplier integration strategies, compared to 70% of all respondents and 60% of those that have made no progress to world class. Also, of the IW Best Plants winners, clear majorities say their suppliers have contractually agreed to yearly cost reductions, have become resident suppliers and offer just-in-time delivery -- and 84% of the plants share cost savings with their suppliers. The recent study, the annual OEM -- Tier 1 Supplier Working Relations Study of the automobile sector, conducted by Planning Perspectives Inc., Detroit, confirms that the U.S. and Japanese auto OEMs approach customer relationships differently, and it shows more specifically how the Japanese OEMs are benefiting. Among other results, the study found that:

  • Suppliers are shifting resources (capital and R&D expenditures, service and support) to Japanese Big Three, while reducing these for the Domestic Big Three.
  • Suppliers are increasing product quality at a greater rate for the Japanese, while merely maintaining quality levels for U.S. automakers.
  • Suppliers, by a wide margin, prefer working with Japanese OEMs, and would even like to drop the U.S. automakers if they could.
Of course, not all the gains made by the Japanese firms can be attributed to supplier relationships. A few months ago, for example, I highlighted the car companies' differing approaches to gaining buyers -- contrasting Ford and GM's cut-rate financing and rebate offers with Toyota's more successful strategy of customer-driven product innovation (" Let's Stop Crying Over Costs," February 2004). And the final chapter has yet to be written. GM, Ford and DaimlerChrysler are great companies that have proven their ability to pull off big wins when threatened. Still, the growing research evidence makes me wonder how much better they could be if they worked closely with their suppliers to meet their customers' needs. Indeed, are you now wondering how much better your company would be? Patricia Panchak is IW's editor-in-chief. She is based in Cleveland.

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