05 June 2003
Car giant Toyota is looking to close supplier partnerships to improve its performance. Now the government is backing such relationships to beat corruption. David Arminas reports
Supply chains are becoming more complex and require solutions that are just as sophisticated. No company operates in isolation from others, nor can it be separated from the society in which it is based.
There are many reasons for this increasing complexity - more accessible communication, easier and more frequent logistics to all parts of the globe, and the breaking down of political barriers to international trade.
For many companies, the result is that their supply chains now exist in an environment involving governments as well as pressure and lobby groups hitherto outside the procurement circle.
Toyota's move to round-the-clock working, for example, presents a challenge to its supply chain, and the car maker is determined not to lose suppliers in the transition.
Mark Adams, assistant general manager in the purchasing division, says Toyota will work with all its suppliers to make sure solutions can be found. He understands their problems with local authority by-laws. Adams will work with all organisations - suppliers and local authorities - in a partnership fashion to find ways around issues acceptable to all constituents.
On an international level, prime minister Tony Blair's scheme, the Extractive Industries Transparency Initiative (EITI), is an ambitious attempt to create partnerships where there has been little evidence of them.
Getting businesses, non-governmental organisations, professional institutions and governments in developing countries to sign his proposed document will be no mean feat.
For both Toyota and the UK government the key word is "partnership". The vital question for both organisations and their supply chains is how to create and manage partnerships effectively. It's all about knowing who you must deal with, then managing the process to the benefit of all parties. Toyota is ahead of the game because it already has a supply chain where partnerships are understood and in place. Nonetheless, the car maker will have to deal with local authorities, residential groups and environmentalists.
There are sceptics who say partnerships are unrealistic. Some consultants and supply chain professionals believe it is simply not in the nature of businesses to seek a win-win situation for themselves and their suppliers. In reality, most companies don't care what happens to their suppliers, short of their going bankrupt and leaving them lacking parts or services.
The debate will form the main theme of this year's CIPS Premier Conference in October in London.
But if Toyota can keep all of its suppliers and satisfy all stakeholders then it will prove the sceptics wrong. A success for the EITI meeting on 17 June will severely damage the anti-partnering arguments.
Governments in developing countries are fully aware of the problems of corruption, but there are government employees and companies that benefit from kickbacks and bribes. Oil, gas and mining companies are fully aware of the problem and to their credit have backed schemes to do away with it.
Importantly, the two sides have big stakes in the proposed agreement. The companies involved in EITI stand to get better investor ratings on the grounds of improved corporate social responsibility. The governments get more investment and greater legitimacy from their citizens.
But there will have to be something given by western organisations and businesses showing the governments that it is in their best interests to move on the issue.
Threats by businesses of non-investment will not work because there will always be groups that dodge any embargoes or sanctions. Blair and his advisers must be more creative than that to ensure the majority are of governments are on board.
The message from Toyota and the UK government is to understand beforehand who your business will affect as much as who affects your business.
Toyota's supply chain issues will have to solved in the short term, within months. Blair's initiative is different. If the partnerships are effectively managed, there will be more openness in business transactions and among governments in developing countries, resulting in less corruption. The timescale for this is years, if not decades. But at least a start has been made.