"Building Deep Supplier Relationships"

Jeffrey Liker and Thomas Choi

Harvard Business Review

December 2004, pp. 104-113

A recent survey of suppliers to US automobile industry manufacturers found that Toyota and Honda were the most preferred companies to work with. Nissan was third, while Chrysler, Ford, and GM were way behind in fourth, fifth, and sixth places. Suppliers especially appreciated that Toyota and Honda were better communicators, more trustworthy, and more concerned about supplier profitability than the other manufacturers were. Most vendors have stated that Toyota and Honda are simultaneously their best and their toughest customers.

The authors of this article identify six specific steps that both Toyota and Honda have used to build great supplier relationships: All six steps are used together as a system, and the authors arrange them in a hierarchical order, since some of the steps support others. The steps are:

1. Understand how your suppliers work
   • Learn about your suppliers' businesses
   • Go and see how your suppliers work
   • Respect suppliers' capabilities
   • Commit to co-prosperity of both the supplier and your own organization
2. Turn supplier rivalry into opportunity
   • Source each component from two or three vendors
   • Create production philosophies and systems that are compatible between the two organizations
   • Transfer knowledge and maintain control by setting up joint ventures with existing suppliers
3. Supervise your suppliers
   • Core suppliers should be sent "report cards" on a monthly basis
   • Immediate and constant feedback should be provided to suppliers
   • Senior managers should be involved in solving problems
4. Develop suppliers' technical capabilities
   • Work with your suppliers to build their problem-solving skills
   • Develop a common technical language
   • Hone suppliers' innovation capabilities by use of guest engineer programs; this and other methods will help suppliers innovate in ways that will be of help to you in turn
5. Share information intensively but selectively
   • Set specific times, places, and agendas to meet for information sharing
   • Use highly specific formats to share information
   • Insist on accurate data collection
   • Share information in a systematic and structured manner
6. Conduct joint improvement activities
   • Exchange best practices with suppliers
   • Engage in kaizen projects at the home facilities of suppliers
   • Create supplier study groups to learn about the customer production system and other matters

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