Companies in high-volume industries are making dramatic changes in supply chain management.1 Many factors, including the growing recognition of supply chain management’s importance and relevance, have prompted those changes. Firms in the automotive industry have reported startling results from seamlessly integrating suppliers into their operations, distribution, and new product development. These successes have established targets for other companies attempting to achieve world-class status by emulating best practice in the auto industry.
Two notable best practices are the development of tiered supplier partnerships and kyoryoku kai or supplier associations.2 Tiered supplier partnerships link automotive firms to their key subsystem suppliers, while supplier associations diffuse technological development back through the supply chain. The results from these approaches — including major cost reductions, improved product development speed and quality, and enhanced flexibility — have been well documented.3
However, while these supply chain management approaches have been successful in the industries where they were developed, they may not be applicable to all firms. The auto industry’s structural characteristics (highly concentrated, with high volumes, considerable component engineering input, and limited product life) are far from universal. These structural characteristics have shaped the assumptions behind these particular supplier partnership approaches but may limit the models’ applicability in other industries. Firms implementing the approaches may risk failure or severely limit the true potential of their supply bases.
We believe that managers need to look for alternatives beyond the well-known best practice models from the automotive and related industries. One possible alternative we describe here is a leveraged learning network, such as the High-Performance Manufacturing (HPM) Supplier Consortium developed by Allen Bradley Canada.
Next we discuss the tiered supplier partnerships and supplier associations in more detail. Then, in contrast, we follow the evolution of the consortium at Allen Bradley.
Tiered Supplier Partnerships and Associations
Advances in management practice, particularly in purchasing and supply management, within the auto industry have had significant impact on many industries.4 Dyer and Ouchi give managers a guideline for transforming suppliers into true partners and optimizing value-added activities.5 Their model recommends tiers of suppliers, with top-tier suppliers having increased roles as systems integrators. In the tiered approach, the auto assembler (i.e., the buying company) deals primarily with the top-tier suppliers, while lower-tier suppliers are managed by those above them in the pyramid.
1. For clarity, we use supply chain management, supply management, and purchasing interchangeably, although some authors use a broader, end-customer perspective when referencing supply chain concepts.
2. For references on the tiered, pyramidal, or network structures, see:
P. Hines, Creating World Class Suppliers (London: Pitman Publishing, 1994); and
M. Smitka, Competitive Ties: Subcontracting in the Japanese Automotive Industry (New York: Columbia University Press, 1991).
3. J.P. Womack, D.T. Jones, and D. Roos, The Machine That Changed the World (New York: Macmillan Publishing Company, 1990); Hines (1994);
J. Kluge, “Simply Superior Sourcing” (Eindhoven, Netherlands: Fifth International Annual IPSERA Conference, 2 April 1996); and
J.H. Dyer, “Dedicated Assets: Japan’s Manufacturing Edge,” Harvard Business Review, volume 72, November–December 1994, pp. 174–178.
4. There are a number of management articles related to supplier relations in the auto industry. They include:
R.R. Kamath and J.K. Liker, “A Second Look at Japanese Product Development,” Harvard Business Review, volume 72, November–December 1994, pp. 154–170;
M.A. Cusumano and A. Takeishi, “Supplier Relations and Management: A Survey of Japanese, Japanese-Transplant, and U.S. Auto Plants,” Strategic Management Journal, volume 12, November 1991, pp. 563–588;
M.A. Cusumano, “Manufacturing Innovation: Lessons from the Japanese Auto Industry,” Sloan Management Review, volume 29, Fall 1988, pp. 29–39;
K.B. Clark and T. Fujimoto, Product Development Performance (Boston: Harvard Business School Press, 1991);
S. Helper, “How Much Has Really Changed between U.S. Automakers and Their Suppliers,” Sloan Management Review, volume 32, Summer 1991, pp. 15–28;
R.C. Lamming, Beyond Partnership: Strategies for Innovation and Lean Supply (New York: Prentice Hall, 1993);
Dyer (1994); and
J.H. Dyer and W.G. Ouchi, “Japanese-Style Partnerships: Giving Companies a Competitive Edge,” Sloan Management Review, volume 34, Fall 1993, pp. 51–63.
5. Dyer and Ouchi (1993).
6. D.N. Burt and W.R. Soukup, “Purchasing’s Role in New Product Development,” Harvard Business Review, volume 63, September–October 1985, pp. 90–97;
Kamath and Liker (1994); and
Cusumano and Takeishi (1991).
7. D.N. Burt, “Managing Product Quality through Strategic Purchasing,” Sloan Management Review, volume 30, Spring 1989, pp. 39–48;
T. Davis, “Effective Supply Chain Management,” Sloan Management Review, volume 34, Summer 1993, pp. 35–46;
Clark and Fujimoto (1991); and Dyer (1994).
8. Kamath and Liker (1994), p. 156.
9. M. Kotabe and K.S. Swan, “The Role of Strategic Alliances in High-Technology New Product Development,” Strategic Management Journal, volume 16, November 1995, pp. 621–636.
10. B. Borys and D.B. Jemison, “Hybrid
Arrangements as Strategic Alliances: Theoretical Issues in Organizational Combinations,” Academy of Management Review, volume 14, number 2, 1989, pp. 234–249;
G. Bovasso, “A Structural Analysis of the Formation of a Network Organization,” Group and Organization Management, volume 17, March 1992, pp. 86–106;
R.E. Miles and C.C. Snow, “Causes of Failure in Network Organizations,” California Management Review, volume 34, Summer 1992, pp. 53–72;
R.E. Miles and C.C. Snow, “The New Network Firm: A Spherical Structure Built on a Human,”
Organizational Dynamics, volume 23, Spring 1995, pp. 5–18;
W.W. Powell, “Hybrid Organizational Arrangements: New Form or Transitional Development?,” California Management Review, volume 30, Fall 1987, pp. 67–87;
C.C. Snow, R.E. Miles, and H.J. Coleman, Jr., “Managing 21st Century Network Organizations,”
Organizational Dynamics, volume 20, Winter 1992, pp. 5–19; and
D.T. Wilson, “An Integrated Model of Buyer-Supplier Relationships,” Journal of the Academy of Marketing Science, volume 23, Fall 1995, pp. 335–345.
11. T. Nishiguchi, “Competing Systems of Automotive Components Supply: An Examination of the Japanese Clustered Control Model and the Alps Structure” (Cambridge, Massachusetts: MIT, International Motor Vehicle Program, First Policy Forum, 1–26 May 1987).
12. See, for example:
J. Levine and J. Byrne, “Odd Couples,” Business Week, 21 July 1986, pp. 100–106;
J. Mohr and R. Spekman, “Characteristics of Partnership Success: Partnership Attributes, Communication Behavior, and Conflict Resolution Techniques,” Strategic Management Journal, volume 15, February 1994, pp. 135–152; and
McKinsey & Co. Inc., “Succeeding at Cross-Border Alliances: Lessons from Winners” (London: working paper, 1991).
13. This approach was reportedly developed at Bose Corporation and is gaining prominence in the auto industry as firms adopt JIT II. See:
M.M. Stein, “The Ultimate Customer-Supplier Relationship at Bose, Honeywell, and AT&T,” National Productivity Review, volume 12, Autumn 1993, pp. 543–548;
S. Greenblatt, “Continuous Improvement in Supply Chain Management,” Chief Executive, issue 86, June 1993, pp. 40–43; and
L. Dixon and A.M. Porter, JIT II: Revolution in Buying and Selling (Newton, Massachusetts: Cahners Publishing, 1994).
14. Consortia are not new organizational forms.
They were common in previous centuries but have been associated with anticompetitive and collusive behavior between competitors, generally considered illegal. Trade and industry associations are other forms of consortia. Changes in legislation during the 1980s encouraged R&D consortia between competitors. It is the end state of Allen Bradley’s consortia that is unusual. See:
W.M. Evans and P. Olk, “R&D Consortia: A New U.S. Organizational Form,” Sloan Management Review, volume 31, Spring 1990, pp. 37–46.
15. The founding members of the supply consortia were Allen Bradley, Willow Manufacturing, Bolt & Nut Supply, Hammond Transformer, Colgate, Gerrie Electric, Ilsco, Samuel Son and Co., Multilin, Peckover’s, and Bird Packaging. Two original members have departed due to geographical relocations, three new members were added in 1993, including Gould Shaw, another three were added in 1996, and two were added in 1997.
16. The world-class audit is not strictly linear.However, in calculating a group percentage, we have treated it as such. Using levels as constants, the group average levels would be: 1.9 in 1991, 2.4 in 1992, and 2.8 in 1993.
17. Using levels as constants, the group average level would be: 1.9 in 1991, 2.4 in 1992, 2.8 in 1993, 3.1 in 1994, 3.3 in 1995, and 3.9 in 1996.
18. We conducted a series of semistructured interviews with key representatives from the supply consortium’s charter members. Since representatives had changed in at least one case, we needed many respondents to ensure accurate reflections. We asked each interviewee to comment on his or her perception of the network structure that most appropriately described the situation in 1990 (the founding year for the consortium), 1993 (when the new facilitator took over), and 1996 (currently), using six diagrams. In each case, we asked respondents why they chose that particular network, which provided the basis for the discussion of events leading up to the next consortium juncture point.
19. P. Senge, The Fifth Discipline: The Art and Practice of the Learning Organization (New York: Doubleday/Currency, 1990); and
P. Senge, “The Leader’s New Work: Building Learning Organizations,” Sloan Management Review, volume 32, Fall 1990, pp. 7–24.
20. D.K. Hurst, Crisis and Renewal: Meeting the Challenge of Organizational Change (Boston: Harvard Business School Press, 1995).
21. Subordinated power or the deliberate attempt to avoid the use of power during negotiation between two parties is considered important when the relationship and not the negotiation outcome is considered critical. See, for example:
R.M. Kanter, “Collaborative Advantage: The Art of Alliances,” Harvard Business Review, volume 72, July–August 1994, pp. 96–108;
R.M. Kanter, “The New Alliances: How Strategic Partnerships Are Reshaping American Business,” in H. Sawyer, ed., Business in a Contemporary World (New York: University Press of America, 1988), pp. 59–92;
R.M. Kanter, “Power Failure in Management Circuits,” Harvard Business Review, volume 57, July–August 1979, pp. 65–75;
R. Blake and J. Mouton, “The Fifth Achievement,”Journal of Applied Behavioral Science, volume 6, number 4, 1970, pp. 413–426;
R.H. Kilman and K.W. Thomas, “Developing a Forced-Choice Measure of Conflict-Handling Behavior: The ‘Mode’ Instrument,” Educational & Psychological Measurement, volume 37, Summer 1977, pp. 309–325; and
R.H. Kilman and K.W. Thomas, “Interpersonal Conflict-Handling Behavior as Reflections of Jungian Personality Dimensions,” Psychology Reports, volume 37, December 1975, pp. 971–980.