6/1/2005 | 2 MINUTE READ

Treat Your Suppliers Well

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When all else is equal, John W.


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When all else is equal, John W. Henke, Jr., president of consulting/research firm Planning Perspectives (Birmingham, MI; www.ppi1.com), and associate professor of Marketing, Oakland University (Rochester, MI), the company with the best supply chain wins.

The rationale is simple. End product producers—vehicle manufacturers, in this case—depend on suppliers for components to a significant degree. If the suppliers determine that working with a given customer can be remunerative and otherwise satisfying, then those suppliers are likely to do their best to satisfy the customer. This satisfaction can take many forms, from assigning the "A Team" to a program (rather than the ones who aren’t at the tops of their games) to offering the latest technology to the customer (remember: part of this is about returning the favor of feeling special) to providing faster deliveries and fixes. All of which works to the benefit of the OEM. And that, in turn, more than likely allows that OEM to produce better vehicles at a better cost. And that means success in the market.

Contrast this, Henke suggests, to a situation where the relationships with the suppliers are based on less mutually beneficial arrangements. While it is exceedingly unlikely that a supplier that feels it is being unfairly beaten down by its customer is going to proclaim it is putting the "B Team" on the assignment and offering blunted-edge technology, or work to deliver without haste, face it: human nature is involved in these relationships, spreadsheets notwithstanding. Henke states: "People matter." And he’s a man with degrees in physics (as well as marketing), so the acknowledgement of the human factor must be taken to be writ large.

Henke observes that General Motors and Ford, in particular, have not, in general, been doing a good job working with their suppliers (Planning Perspectives has codified an OEM-Supplier Working Relations Index (WRI), so this is a data-based observation, not something pulled out of the proverbial hat). As a consequence, the two companies are, to state what is apparent to those who read the daily papers, struggling in their markets. Henke is concerned (after all, anyone who makes his or her living in the metro Detroit area is affected by the fortunes of those two companies) that in 10 to 15 years GM and Ford could be "shadows of what they have been." He contrasts their general approaches to those of Toyota and Honda, which have measurably (i.e., WRI) superior supplier relations. He points out that those latter two companies, like the former two, expect annual cost reductions from their suppliers, but there is a difference: Toyota and Honda expect them to be achieved via productivity improvements, not fiat. "It’s not the pressure," Henke observes, adding, "It’s how it’s applied."

He maintains that there is a need for top executives at GM and Ford to clearly instruct their people in purchasing that good relations are what’s key, not trying to get every nickel out of the supplier. If they are measured on how well they perform in relation to some "world price," then the combative relations are likely to occur. To be sure, Henke points out that there are different types of suppliers and that not all should be treated alike. But to have uniformly bad supplier relationships means a less-than first-rate supply chain. And that means an under-competitive capability.—GSV