I recently wrote a piece about the GM total supply chain, pointing out their business philosophy of shoving costs back on suppliers, and out onto a bloated dealer network. The problem is a lack of consideration for the customer. I wrote, "From the eyes – and wallet – of the customer, the corporate borderlines between supplier and manufacturer, and manufacturer and dealer, and dealer to customer, are distinctions without differences. The price the customer pays is largely a function of the total cost, regardless of which entity in the chain incurred the cost." I was surprised at the number of comments and emails I received questioning the logic.
The use of the word 'partnership' is bandied about liberally in the business world – a buzzword that has endured much longer than most. I looked it up to be sure I wasn't the one who is missing the point. Sure enough, the definition is pretty much as I expected:
part·ner·ship
(pärt'nər-shĭp') A relationship between individuals or groups that is characterized by mutual cooperation and responsibility for the achievement of a specified goal.
The part about"mutual cooperation and responsibility"seems to have been missed by many managers. Even more so, the part about a "specified goal".
In most companies I suspect the bulk of the responsibility in the 'partnership' with suppliers is on the shoulders of the supplier. Even more so, the "specified goal" is the increased profits of the buying company without regard to the supplier … and I doubt that many suppliers in such partnerships really signed up for that "mutual" goal.
That Toyota has a financial interest in many key suppliers is widely known – and widely misunderstood. We tend to look at that through our 'every man for himself – survival of the fittest' business lens and assume that Toyota uses their position to dominate the supplier for the sole benefit of Toyota. The reality never occurs to us. That is, by having a financial interest in the suppliers, Toyota can better know the intimate details of their business and processes and thereby optimize the overall process – which pays off handsomely for everyone in the supply chain.
The original kanban team Taiichi Ohno deployed at Toyota was actually comprised of industrial engineers from supplier companies. He brought them in, had them assist in developing the kanban concept, then had them implement it at Toyota, and then sent them back home to implement kanban in their own companies in a manner that improved the supplier's flow, reduced their costs, and better linked all of them together.
Eli Golratt's Theory of Constraints principle that local optimization does not lead to global optimization applies to supply chains as well as to factories. A collection of companies, each selling at arms length to the next guy, each one looking out only for himself, is not a supply chain with prospects of providing superior value to end customers, and as a result succeeding and growing market share. It is a collection of mercenaries only as good, and only as secure, as their next purchase order.
Tom Palmitesta says
You are perfectly right. First and many second tier suppliers to the automobile industry are required by their customers (GM et al, including Toyota)to implement a quality management system based on the ISO ISO/TS 16949 standard. This standard is based on 8 quality management principles – one of them being “Mutually beneficial supplier relationship”. One of the requirements of the standard is “Supplier quality management system development” (clause 7.4.1.2). The intent odf the standard is, with the above QM principle in mind, for first tier suppliers to help second tier suppliers develop a good QMS, first by complying with ISO 9001 and eventually with ISO/TS 16949. Sounds like the Toyota way? But in all my years as a QMS auditor I have never seen a company complying with the intent, only with the letter!
George Gregory says
Up until recently, before I left a job teaching at a
German business university, I introduced topics such as
Operations Management, Marketing and even Financial
Controlling with the remark, “I will use two main
examples to illustrate the main points here: GM, which
is the example to illustrate how to do almost
everything wrong almost all the time, and Toyota, which
does almost everything right (except when it buys
Delphi parts) almost all of the time.”
If you talk about the nitty-gritty of the car industry,
it’s easier to get into trouble the more nitty-gritty
you get. Every problem is “secret.”
GM allowed a DSE position (Design Systems Engineer) to
be set up in Rüsselsheim, Germany, only a little more
than a year ago. Opel does not design its own diesel
engines (its first own design is in the pipes for 2013)
and it is successfully figuring out how to design and
produce top-notch transmissions. It does not design or
produce its own clutches. Up to a little more than a
year ago, the clutch department was an “applications
department,” which means it had to adapt off-the-shelf
clutches from suppliers to engines that had not been
developed with a specific transmission or clutch in
mind at the outset. AT GM, “Application engineering” =
take parts not designed for each other and try to make
them fit. A typical problem for a “global
sourcing-system” company.
Now, the DSE has nothing to do with “design,” and he
actually has little to do with the “system,” and his
“engineering” work is pretty much exhausted in
identifying out-of-specification problems at an early
stage of the development of the
engine-clutch-transmission system. He can identify and
report problems, but he has no power to see to it that
they are fixed. That, in any case, is the work of
supplier companies (names left out to protect the
innocent).
Given the dramatic increases in engine-torque over the
past several years, current designs for clutches, even
modern high-tech clutches with self-adjusting functions
that compensate for clutch-pad wear, are at or beyond
their limits. One supplier dropped its contract with
GM/Opel because GM was not willing to pay for the real
development work to cook up clutches that really work
with the new, high-torque engines (lower displacement,
better emmissions, longevity). The other supplier did
not drop the contract, but, on the money GM/Opel was
ready to pay, could not fund the necessary work. So
there was no fix. Given that GM/Opel had only invented
the DSE position for clutches late in the game, there
was and is no know-how in-house to do the work
themselves. But cars are being build and sold. One
gimmick is to calibrate the torque downwards in the
hope that the critical limit for the clutches can be at
least skirted. I suppose we have to conclude that a lot
of money was spent uselessly on engine and transmission
development if the yield on that development cannot be
deployed.
These issues are not “technical secrets.” They are only
an illustration of a systematic management failure. No
amount of money, bond or share shuffling is going to
cure that failure.
Tombs of “lessons learned” that cannot be heeded
because “purchasing” says any applied lessons would be
out-of-budget; teams of engineering and manufacturing
staff who “do their assigned job” knowing the result
will require costly retro-fixes (contrary to “design
for six-sigma” and other nice things in place);
senseless model-intro schedules because GM allocates
money based on its own priorites, not very successfull
on the US market, to a European market it does not
understand. Etc., etc.
Really looking beneath the market figures will probably
only happen as an autopsy-report, but it cannot be done
now, because it’s all “secret.”
David says
You are 100% correct. But GM is only one example. In my May 22 SinoFactory post “Dumping your waste upstream isn’t LEAN!” I give another real life example of how pushing the cost of muda onto your “partners” still leaves muda in the supply chain.
From that post:
“LEAN is about reducing waste and adding value. Adding value for shareholders and customers is important, but to be truly successful in the long run, an organization should strive to add value to all of its relationships, benefiting its employees, its community and, of course, its vendors.”
OK, sounds a bit poly-anna, but I do believe in it. In the end making money for shareholders at the expense of those on whom you depend (employees, vendors, etc.) is a losing game.