ABB and Ford: Creating Value through Cooperation

More than three years ago, Thomas Lyons et al. noted that U.S. manufacturers and their suppliers were being pushed by world-class competition to develop new styles of relating to one another.1 This changing climate was manifest in:

  • The emergence of multifunctional teams for the development of cross-technological projects;
  • The reduction of the total number of suppliers;
  • The lengthening of contracts so that they spanned component lifetimes;
  • The increased reliance on suppliers for such services as design, research and development, and engineering; and
  • The acquisition of components and subassemblies rather than individual parts.

Lyons et al. portrayed manufacturers as generally enthusiastic about these trends and as initiators who looked for ways to improve quality, reduce project cost, reduce complexity in vendor relationships, and enhance R&D support. They stereotyped suppliers, on the other hand, as reticent and fearful of disclosing confidential information, of expanding services without compensation, and of losing operational autonomy. The authors challenged the industrial community to manage the evolution of these emerging relationships cooperatively, with the benefits shared equally among the participating parties.

A year later, on the basis of a survey of U.S. automotive suppliers, Susan Helper reported that the suppliers’ fears were justified.2 The old behavior of aggressive competition persisted. The large (and more powerful) manufacturers extracted concessions and achieved improvements at the expense of the smaller (and less powerful) suppliers. Through the eyes of the supplier, the climate of cooperation had not emerged; manufacturers reaped the gains, suppliers lost their margins. Helper argued that the future of cooperative buyer-supplier relationships was at a crossroads, and she believed that, in the extreme, suppliers might even withdraw from the automotive industry when faced with such inequitable conditions.

While adversarial practices are very tempting and commonly employed, they do present barriers to creating innovative solutions, to capturing embedded or process knowledge of suppliers, and to reshaping industry organization. These missed opportunities may dominate any incremental gains from squeezing purchasing costs. This article presents a case study of the Ford-ABB Oak-ville Paint-Finishing Project (hereafter called Oakville) that we hope will rekindle optimism for cooperative and innovative buyer-supplier relationships in the U.S. automotive industry and in other industries where adversarial practices are common. In Oakville, ABB and Ford have created a genuine, mutually beneficial, win-win relationship and have innovated beyond the current practices of the Japanese automotive industry.

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References

1. T.F. Lyons, A.R. Krachenberg, and J.W. Henke, Jr., “Mixed Motive Marriages: What’s Next for Buyer-Supplier Relations?,” Sloan Management Review, Spring 1990, pp. 29–36.

2. S. Helper, “How Much Has Really Changed between U.S. Automakers and Their Suppliers?,” Sloan Management Review, Summer 1991, pp. 15–28.

3. P.S. Ring and A.H. Van de Ven, “Structuring Cooperative Relationships between Organizations,” Strategic Management Journal 13 (1992): 483–498.

4. R.M. Axelrod, The Evolution of Cooperation (New York: Basic Books, 1984).

As observed by Ring and Van de Ven (1992), dynamic cooperation created by repeated encounters is a promising alternative to traditional but static transaction-cost analysis. See:

O.E. Williamson, The Economic Institutions of Capitalism (New York: Free Press, 1985).

Acknowledgments

This article has been written with the support of the Training in International Operations (TIO) and Darden-IFL Case Development Project. The authors thank the executives of ABB and Ford Motor Company who have helped develop this material, especially John Camardella, Krister Ericsson, Jim Dixon, and Tom Mark of ABB, Vince Coletta and Steve Roberts of Ford, and Anna Järkestig of IFL.