Building Deep Supplier Relationships

More and more, businesses are counting on their suppliers to lower costs, improve quality, and develop innovations faster than their competitors' suppliers can. To this end, many experts agree that American firms, like their Japanese rivals, should build supplier keiretsu: networks of vendors that learn, improve, and prosper in sync with their parent companies. As history has shown, however, that's easier said than done. Some U.S. corporations created supply chains that superficially resembled those of their Japanese competitors, but they didn't alter the nature of their relationships with suppliers. As a result, relations between U.S. manufacturers and their suppliers have sunk to the lowest levels in decades. But reports of keiretsu's demise are overblown. The Japanese supplier-partnering model is alive and well--in North America as well as Japan. During the past 10 years, automakers Toyota and Honda have struck successful partnerships with some of the same suppliers that are at odds with the Big Three and created effective keiretsu across Canada, the United States, and Mexico. So how do Toyota and Honda do it? The authors, who have studied the American and Japanese automobile industries for more than 20 years, found that Toyota and Honda have built great supplier relationships by consistently following six steps: they understand how their suppliers work, turn supplier rivalry into opportunity, monitor vendors closely, develop those vendors' capabilities, share information intensively but selectively, and help their vendors continually improve their processes.

• Supply chain management
• Outsourcing
• Suppliers
• Competitive advantage