The other day Mathew May mentions an article found in Strategy and Development (free registration). This article was titled Win-Win Sourcing by Jackson and Pfitsmann. It mentions how companies like Honda and Toyota “collaborate openly on lowering costs and raising overall performance, with the expectation that this mutuality will continue over many years, benefiting both companies.”
This contrasts with the alternative method they mention:
“…this approach pits the interests of the supplier against those of the manufacturer. Each side reveals as little information as possible, for fear of giving the opposing side an edge. Components, parts, raw materials, and finished goods are purchased through competitive bidding, with specific volumes and deadlines spelled out in advance…The primary cost-cutting option available to manufacturers is to squeeze every possible cent out of procurement contracts. Purchasing managers focus exclusively on attaining cost savings greater than those of the previous year; their compensation hinges on it. Suppliers, in turn, focus on calculating bids that will win them the jobs.”
If your organization is guilty of this practice Jackson and Pfitsmann recommend a four step approach to supplier relations:
“1. Establish suppliers as strategic long-term partners.
2. Set up an ongoing system to eliminate waste through collaboration across the supply chain.
3. Get it right the first time.
4. Respect and develop human capabilities.”
It is the 4th bullet that most interests me. For the last ten years in one way or another I’ve been in the business of developing human capabilities. I find it interesting that companies spend millions of dollars annually to improve their supply chain which primarily provides durable goods that are depreciating the second they leave their facility. Contrast that with the amounts spent by companies on preparing their human supply chain which primarily provides a product that appreciates over time so long as you provide it learning opportunities.
This is like being on the wrong side of compound interest. I can either give 10%+ per year to a credit card company or I can earn 10%+ per year in a wise investment. Over time one is likely to destroy my family and ruin my life and the other is likely to bring me peace of mind and increase my ability benefit society.
“The Toyota experts introduced Scott County educators to the Japanese Quality Circles method of problem solving in which a group of employees who perform similar duties meet at periodic intervals, often with management, to discuss work-related issues and to offer suggestions and ideas for improvements, as in production methods or quality control. Then Toyota executives showed educators how to adapt the concept into teaching methods.
The program is called QUEST.”
Dallas Blankenship, the Schools Superintendent describes the purpose of the QUEST program:
"The mission of the program is to provide students the opportunity to develop and apply their behavioral skills in a problem-solving team environment."
According to the article even the Toyota Executives were happy with the results:
"The ultimate goal of education should be to prepare individuals to be productive, contributing members of their communities," said Masamoto "Matt" Amezawa, president and CEO of Toyota Motor Manufacturing Kentucky, at the time the program began.”
Would you say your company spends more time developing the physical supply chain or the human supply chain? My guess is that most of us could use some work on both.