End-to-end supply chain management is a balancing act involving security of supply, inventory control and cost efficiency. Any deviation from the right balance can cause a chain reaction where the situation gets out of control and puts customer satisfaction at risk. Chains are only as strong as their weakest links, and if a chain fails, it does not matter to the customer which link failed. The supply chain may have failed early on, when a component supplier had problems, or in the logistics of the delivery shipment.
Toyota is a pioneer in developing supplier partnerships. They rejected the approach of constantly competing for everything and short-sightedly driving suppliers’ prices as low as possible; their strategy is for the long term. By creating long-term partnerships and supplier agreements, they can ensure that suppliers remain profitable while focusing on their customers and securing the necessary capacity to deliver. These partnerships bring predictability to the supply chain, which in turn provides such benefits as reducing the need to increase the size of the component inventory and enabling a just-in-time supply chain and a steady cash flow.
Close supplier relationships can also improve quality. The customer can make their quality metrics and requirements clear when they have a reliable relationship with their supplier. The supplier and customer work together to develop such a relationship, as it is in the customer’s interest that the supplier is efficient and the quality consistently high. Improvements in the component supplier’s production cycle time affect the customer’s overall delivery time and free the customer from needing to have large quantities of components or supply stocks. Such an enduring and effective partnership is not easy to achieve, but it is something to aspire to. When a supplier’s business is cost-effective, it makes a profit and can pay better wages and provide future security for its employees. Motivated employees in turn ensure that deliveries are on time and of high quality.
Supply partnerships should also be as transparent as possible. For example, customers should communicate clearly what their key issues are and how they measure achievement. Communicating that information is the best way to guide suppliers in setting their own strategic priorities to improve their performance. The customer’s voice should be heard throughout the supply chain, influencing companies’ priorities at every link in the chain, including services, spare parts sales and maintenance. Every link in the World Class supply chain is strong.
Stay tuned. Our story continues next month.
