It wasn’t that long ago that Toyota overtook GM to become the world’s largest car manufacturer with a brand associated with quality and impeccable green credentials. But no more. So what went wrong, and could supplier relationship management (SRM) have saved the company?
Several months before the first recall Toyota’s president, Akio Toyoda, admitted it was on the verge of “capitulation to irrelevance or death”. This was in response to quality and safety problems that had already hurt Toyota’s reputation. At the latest count Toyota has recalled 8.5 million vehicles and, to add to its woes, troubles with its suppliers are being aired in public. Last month a representative from supplier Sankyo Seiko appeared on television in Japan to announce that he would no longer accept orders from Toyota or its affiliates – a move previously unseen in Japan. Suppliers are feeling aggrieved at price cuts (30 per cent in the past 10 years) and believe the relationship they have with the company is one-sided.
So are we looking at a situation where the desire to keep costs down combined with increased demand led to compromises on quality and poor SRM? Is it inevitable that driving down costs will lead to issues in the supply chain? A lot of companies are facing similar issues, in particular on driving sustainable costs out of their business and finding the right supply chain talent for their organisation.
But is failure inevitable? I don’t believe so. I do think that it highlights the value SRM and supplier development has, particularly when the customer or supplier organisation is going through change. Suppliers will always point to aggressive price-cutting by a customer as a catalyst for poor quality. If prices are cut without working with the supplier to identify how these can become sustainable, disaster is almost inevitable.
Of course, designing the perfect supplier development programme is the aim of many procurement departments. Consultants hover on every corner with shiny processes that can be implemented in your company and it’s a consistent theme of procurement workshops and seminars. The easy bit is getting your hands on a good process; the hard bit is aligning your organisation to make it a success.
For me the biggest barriers to implementing decent SRM and supplier development programmes are organisational. Establishing these programmes requires four key factors to be in place: commitment from senior management to resource it appropriately; a willingness to look frankly at what needs to be changed within the customer organisation; an understanding that this isn’t a short-term play; and that people within procurement will work with the supplier development team.
In my experience this latter factor causes the most problems. It feels wrong to many procurement professionals to hand over key aspects of their supplier relationships to others. The challenge is getting all parts of the procurement team to see that by working together they can deliver an outcome that is better than just the sum of the parts.
Everyone wants to cut costs with suppliers, but handing them an “instruction for reduction” without working with them to achieve it is just asking for corners to be cut. Nobody was standing up in Congress or the media condemning Toyota's suppliers – it was Toyota they had it in for.
Sam Covell is head of IS procurement at AstraZeneca (email@example.com