Many forget that “Made in Japan” once had very negative connotations. In the 1950’s and 60’s, Japanese products were perceived as cheap and poorly produced. Throughout the 1970’s, Japan successfully turned that image around, mainly through the electronics and automotive sectors, by instituting new, higher standards of quality and innovative management techniques. They were so successful, in fact, during the great quality ramp-up in our own country in the 1980’s, many American companies mimicked the production and management philosophies of their Japanese counterparts.
One such philosophy, keiretsu, focuses on building a great OEM supplier relationship with vendors. It is a philosophy many Japanese companies use to this day. These companies go so far as to become financially involved with many of their suppliers. This really gives the OEM a vested interest in the success of their supplier. Unfortunately, many American companies abandoned the practice when off-shoring became popular and manufacturers chased the cheaper prices of the Far East. Close supply chain relationships may be elusive, but they are valuable. We have been, and will continue to explore those in this series on OEM supplier relationships.
The Value of a Solid OEM and Supplier Relationship
Great relationships between an OEM and its suppliers have real value. While it may not be necessary to own stock in each other’s organizations, sharing revenue goals can increase profits, for everyone. Sharing aspects of your revenue goals, especially when it come to the production and/or assembly of specific parts, builds trust and understanding. It also conveys an understanding of the mutual goals of the entities involved. It transitions a relationship from a potentially adversarial one, to a mutually beneficial partnership.
Fallacies of Lowest Bidder Relationships
Building a supply chain of “lowest bidders” is time consuming, potentially volatile and may be short-lived. OEM suppliers who are working on a razors edge of profit will struggle to maintain expected quality, deliver on-time and perhaps even survive. Focusing on a single criteria like price per unit is simply dangerous.
A Far Better Way to Partner
It is far better to build a supply chain with OEM suppliers you can trust and who can deliver. It can then be extremely valuable to have limited, but frank discussions on revenue goals. After all, it shouldn’t be a surprise to anyone that both OEM manufacturers and their suppliers are in business to make a profit. Sharing and recognizing these goals better assures the manufacturer that a supplier knows and understands their goals, and can be a better resource in helping achieve them. From the supplier’s standpoint, it assures them a reliable customer who understands their needs.
Improve Profits with Shared Revenue Goals
There are far more ways an OEM supplier can help a manufacturer increase profits than just reducing the price of a widget. At Wiley Metal, for example, we offer partner companies access to our engineers. We can provide assembly services and can even direct ship to customers. When we better understand the goals of our partners, we are in a better position to help them achieve them in ways that go far beyond price. It works in reverse as well. A manufacturer can help a supplier in more ways than paying more. They can allow a supplier to produce more products or commit to a longer term relationship. This may even allow suppliers to make facility upgrades to better serve the manufacturer in achieving their goals.
Just because many American manufacturers gave up on building supply chains built on trust, does not mean the practice is not valuable. Japanese companies continue the practice even in their American plants.
As more manufacturers begin to reshore with OEM suppliers, now is a terrific opportunity to explore keiretsu and how trust building through activities like sharing revenue goals can help improve profits for all involved.