Supplier Relations in Japan and the United States: Are They Converging?

Supplier-customer relationships in the United States are changing rapidly. Where once contracts were short-term, arm’s-length relationships, now contracts have increasingly become long term. More and more, suppliers must provide customers with detailed information about their processes, and customers talk of “partnerships” with their suppliers.

Such close relationships between customers and suppliers have had beneficial effects on performance in several areas. Clark found that early supplier involvement in product design was key to Japanese automakers’ edge in introducing new models both faster and with fewer total labor hours than their U.S. and European counterparts.1 Noordeweier, John, and Nevin found that more “relational” purchasing arrangements reduced acquisition costs during uncertainty.2 And Heide and John found that mutually dependent customers and suppliers invested more in specific assets.3

Despite the movement toward closer supplier relations in the United States and evidence that such relationships improve performance in a number of ways, there are contradictory trends. Helper’s 1989 survey of U.S. auto suppliers found that customers had increased the length of the contracts they offered, and suppliers were more likely to provide process information.4 However, suppliers still felt a lack of customer commitment, since their level of trust in the customer did not increase. Performance improvements often came at the suppliers’ expense. For example, JIT delivery was not matched by JIT production, so in 1989, 48 percent of suppliers ended up stockpiling inventory to meet their customers’ delivery demands, compared with 20 percent in 1984. In addition, customers often obtained price reductions by reducing supplier margins rather than supplier costs.

To see if a clear trend had emerged from these conflicting patterns, in 1993, we surveyed U.S. and Japanese automotive suppliers (Helper, in the United States, and Sako, in Japan). The surveys yielded an unusually comprehensive database. In the United States, 675 responses came from Japanese transplants and vertically integrated divisions of U.S. automakers as well as independent U.S.-owned firms, for a response rate of 55 percent. In Japan, we received 472 responses from vertically integrated divisions of Japanese automakers and a few foreign-owned companies as well as independent Japanese-owned firms, for a response rate of 30 percent (see the appendix for a description of our survey methodology).<

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References

1. K. Clark, “Project Scope and Project Performance: The Effect of Parts Strategy and Supplier Involvement on Product Development,” Management Science 35 (1989): 1237–1263.

2. T.G. Noordeweier, G. John, and J.R. Nevin, “Performance Outcomes of Purchasing Arrangements in Industrial Buyer-Vendor Relationships,” Journal of Marketing 54 (1990): 80–95.

3. J. Heide and G. John, “The Role of Dependence Balancing in Safeguarding Transaction-Specific Assets in Conventional Channels,” Journal of Marketing 54 (1988): 20–35.

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

5. O. Williamson, Markets and Hierarchies (New York: Free Press, 1975).

6. A. Hirschman, Exit, Voice, and Loyalty (Cambridge, Massachusetts: Harvard University Press, 1970);

S. Helper, “Strategy and Irreversibility in Supplier Relations: The Case of the U.S. Automobile Industry,” Business History Review, Winter 1991, pp. 781–824; and

Helper (1991a).

7. M. Sako, Prices, Quality and Trust: Interfirm Relations in Britain and Japan (Cambridge: Cambridge University Press, 1992).

8. Unless otherwise noted, all comparisons reported are statistically significant at the .05 level or better according to the Kruskal-Wallis test (a nonparametric version of the t-test). See:

W.J. Conover, Nonparametric Statistics (New York: John Wiley, 1971).

9. M. Lieberman, “The Diffusion of ‘Lean Manufacturing’ in the Japanese and U.S. Auto Industry” (Los Angeles, California: University of California, Anderson School of Management, working paper, 1994).

10. A percentage point change measures the difference between one rate and another rate. For example, the change between a 6 percent margin and a 4 percent margin is 2 percentage points.

Acknowledgments

The International Motor Vehicle Program at MIT sponsored the surveys. The Sloan Foundation and the Ameritech Foundation provided a large part of the funding. Helper did the North American survey with support from the Center for Regional Economic Issues at Case Western Reserve University. Sako did the Japanese survey with support from the Japan Auto Parts Industries Association (JAPIA) and the Economic Research Institute of the Japan Society for the Promotion of Machine Industry. The authors thank Mike Fogarty, Pat Coburn, Ardith Fogarty, Sylvia Brandt, Michele Lachman, Richard Parkin, Janine Dukes, Jennifer Redman, and Godfrey Chua in the United States; Akio Suzuki and members of the International Committee of JAPIA, Katsuji Ishiro and others at Kikai Shinko Kyokai Keizai Kenkyusho, Mamoru Hoshino of JAMA, and Hiroki Sato in Japan; and Karen Dennison in Britain.