A Leveraged Learning Network

  • Ian Stuart, Paul Deckert, David McCutcheon and Richard Kunst
  • July 15, 1998

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.