Why supplier relationship is more important these days

In these days of turmoil and complexity, both in the global health and microprocessor stress scenarios, supplier relationships are getting strained beyond comprehension. While OEMs are facing variability of customer demand, the suppliers are getting a feel of this variability through stress on lowered cost and volume contracts and competition with a range of suppliers often competing on modern manufacturing processes and fast changing technologies.

It is in this context that the article by Prof. Willy Shih of Harvard Business School in HBR of April '22 "In uncertain times big companies need to take care of their suppliers", (click here) has great importance. He stresses that healthy and agile supplier relationships are the need of the hour.

Toyota, the world's leading manufacturer has realised this truth years back and has over the past eight decades of its existence worked its heart out to cultivate loyal supplier relationships that have stood the test of time. The Keiretsu programme, that binds all their suppliers and looks at improving supplier's involvement in the product assembly or manufacturing, has helped ensure very stable and forward looking supplier policies. 

Though of late, Toyota also had to feel the impact of microprocessor shortages and Covid, its healthy supplier relationships developed over the past decades reflecting on healthy quality and functional supplier relationships has helped it besides improving availability of end products, improved customer satisfaction and overall profitability. It also seen Toyota rise to being the numero-uno in in the global automobile sector, also global manufacturing. As per Fortune global rankings Toyota stands at #9.

For those companies who are hard pressed practicing Toyota's lean manufacturing, Prof. Willy has some cool tips like 

• forging strategic partnerships over transactional relationships, to 
• implementing more price flexibility in contracts to factor in the rapidly changing system parameters and 
• to embrace more of Lean principles and Toyota practices like maintaining Just in Time inventory.

These points are very much valid in these modern times of turmoil and disturbed supplier relationships. In the future we can look forward to the system being disturbed more from such out-of-control events. This all the more stresses on the need for more stronger OEM-supplier relationships and flexible cost contracts as everybody understands it is more costly vacillating between multiple suppliers than developing a limited reliable supplier base for the organisation in the long run.

In other words a reliable supplier base reflects on effective cost management and improved customer satisfaction, leading to overall better profitability.

George.