How to manage our supply chain---- from "Hunter" to "shepherd" mode

American suppliers, with new technology, were most eager to sell to Toyota, Honda, then Nissan, then Ford and Chrysler, and finally General Motors. How did GM, one of the world's biggest carmakers, get to this point?

The answer lies in its relationship with its suppliers: The United States has a company called Planning Perspectives, which for many years has counted the six largest American and Japanese car companies and their first-tier suppliers. With few exceptions, General Motors was ranked last. According to a May 12,2014 report in Automotive News, suppliers prefer doing business with Toyota over Detroit's big three, according to a survey of 362 suppliers Because of the way Japanese automakers treat their suppliers. For years, Detroit's big three could no longer design and build a car on their own. About 70% of their costs come from suppliers, which means about 70% of their value-added activities take place there. Without the cooperation of suppliers, there is no supply chain competitiveness, there is no future for the whole car factory.

Figure 91: Top six U.S. and Japanese auto suppliers

GM, Chrysler and others have traditionally pursued a "hunter's model" that focuses on short-term interests and has severely damaged relationships with suppliers. What is "Hunter Mode" ? Take an extreme example. GM designs a part, solicits bids from multiple suppliers, finds the right supplier (which often means the lowest price) , and gives the business to that supplier. After a year and a half, GM wants an annual price cut, give me x points, and it's up to you how. Because of the volume of GM's purchases in the auto industry, suppliers were forced to say Yes. A year and a half later, GM comes back, asks for another y% cut, and the supplier still says Yes. A year and a half later, GM to "cost reduction" for the third time, the supplier is "no money, no life, " no reduction, GM said: You do not want to do business with me? So they moved to another factory. GM is so big that some suppliers are willing to pay to get in, not to mention the number of suppliers in low-cost regions. But the original supplier was miserable: it was hard to find new customers for a company that had invested eleven million in the plant and had lost most of its money. They had to lay off workers and even close down the plant.

As far as GM is concerned, it's none of its business: market economy, every man for himself, God for all -- Survival of the fittest. You're out of my league, and I blame you for not being competitive. It's like hunting. You see something, you take it down. You can't run fast enough. As for who keeps the prey, and what to do when it's polished, God is naturally watching over it, not the hunter. WHAT GM forgot is that when you're one of the biggest buyers in the world, you have a lot of influence, you're the market, you're God, and what you do affects the industry, and ultimately you.

The traditional American idea is that the market is an invisible hand, that competition can solve all problems. As long as there is appropriate competition in the supply market, open bidding, low bid, signed a contract on the line. If not, regular (for example, annual) bidding and bidding should be enough, and buyers need not be deeply involved in suppliers'business, just as the market does not need government involvement. Therefore, the trading relationship is mainly a short-term relationship, with both sides maintaining a strict distance Arm's length relationship (arm's length relationship, the United States to an arm distance as a safe distance, within an arm is considered a private distance, between people to avoid entering an arm distance) . The result is a competitive relationship between buyers and sellers, clear-cut, less cooperation, less communication, joint problem solving, joint prevention of problems. Performance in the purchase cost reduction, that is, give me x points lower, how to lower your own business.

To cope with the cost pressures, GM required suppliers to cut prices by x percentage points (forget the exact number) , and there was no room for negotiation Automatically deducted from supplier's payment. GM's actions created a domino effect: to avoid being at a disadvantage, the other car maker followed suit (Chrysler or Ford, for that matter) , and the first-tier suppliers also took extreme "cost-cutting" measures against the second-and third-tier suppliers. It can be said that this "Hunter Economy" deducts to the extreme.

The Financial Crisis of 2008, along with the hunter model, was the last straw: by the end of 2009,27 US car suppliers had declared bankruptcy and half of the main primary suppliers were threatened with bankruptcy. GM and Chrysler went bankrupt, too, and were buried in what they called the "hunter-model" .

The "hunter mode" corresponds to the "shepherd mode" , traditional Japanese management (note that I use the word "traditional, " because over the past two decades, as the economy has stagnated, some Japanese companies have become more Western) . As far as the auto industry is concerned, under the "Shepherd Model" , the whole Japanese car factory is like a shepherd, the supplier is like a flock of sheep. If a shepherd wants to live, he will, of course, shear his sheep and eat their meat from time to time; but, instead of killing the eggs and killing all the sheep, he will find a way to keep them growing. Like Toyota and Honda, they have strict cost targets and consistent cost reductions. But unlike Toyota, they work more with suppliers to optimize production processes and product designs to drive higher cost reductions. Honda, for example, has specialist supplier engineers on site to help suppliers improve production and quality management systems, improve yields and eliminate waste, thus reducing production costs, and more than the "Hunter Model" . Toyota has cut costs by about 30 per cent on a new model, for example, by optimising production processes and product design.

Of course, "Shepherd Model" also has defects, such as new suppliers, new technology is difficult to enter, poor performance suppliers difficult to be eliminated, over time, the competitiveness of suppliers decline, affect the competitiveness of the main supply chain. Over the years, many of Japan's large enterprises in trouble, I think with the "shepherd mode" of supplier management is not unrelated. In addition, Japanese firms are generally less innovative than their American counterparts, and this has to do with the difficulty of getting new suppliers in. But in terms of continuous improvement, Japanese enterprises are generally better than American enterprises, for example, the lower the cost and the better the quality, it also benefits from a stable and long-lasting supplier relationship (think about how interested they would be in continuous improvement, better quality, and lower costs if the business might not be in their hands next month?) .

Figure 92: from "Hunter" to "shepherd" mode

What the customer does to the supplier, the supplier does to the customer. When GM set up shop in Shanghai, hoping that its suppliers would also set up shop nearby, the suppliers were hesitant -- After a few years when there was nothing to be done, you moved the business? When Honda set up shop in Guangzhou, suppliers quickly followed. In the introduction of new models, the Japanese car plant faster than the United States counterparts about two years, but also with suppliers depth, close cooperation is not unrelated.

Perhaps some people will say, "shepherd mode" is good, suppliers locked, will not quote high? In fact, on the contrary, take the car industry, the cost of Japanese cars than the United States better control: in the new product development phase, the Japanese car factory has a target cost, guiding the host factory and Suppliers Together Cost Reduction; The main engine factory knows the supplier's cost structure well, even better than the supplier itself, also decided that the supplier is unlikely to be able to act recklessly in the price negotiation.

There is a study in the United States that systematically compares the profit margins of Japanese and American suppliers. The study selected two groups of suppliers: US suppliers and US customers (a typical short-term relationship, the "Hunter Model") and Japanese suppliers and Japanese customers (a typical long-term relationship, the "shepherd model") . The conventional wisdom is that Japanese suppliers should offer higher margins to their customers in Japan because "competition" is more inadequate. It was the other way around. The reason for this is largely due to the fact that under the long-term cooperative relationship, the risk of Japanese suppliers is small and the uncertainties are few, and the suppliers prefer to sell at a low profit and high turnover; while under the short-term cooperative conditions, the suppliers in the United States have many uncertainties and high risks Need a higher profit margin to deal with. This is like bidding, if the sales feel too risky, the strategy is often quoted a high point, can get, do not get it.

Over the years, while I've gotten used to using GM as a "hunter" , I've come to realize that some local companies are worse than others. These companies belong to large companies in specific industries and regions. What they do has a great impact on specific industries and regions. What kind of management they choose not only affects many suppliers in the industry and region, but also directly determines their own fate. I often hear companies complain that their suppliers don't want to do business with them. Some suppliers even block their email and stop offering prices It is all the more common for them to be the object of reverse-engineered obsolescence by good suppliers.

It all has to do with the way these companies treat their suppliers: If we treat them like hunters, they will treat us like hunters. Just like when I first came to America more than ten years ago, I found that American dogs are friendly. Once told an American classmate, said that the Chinese dog bite, why the United States is so nice. He said jokingly, because you eat dog. That's a good point. We all deserve what we get.

Note: Many of the problems facing America's big three tend to be blamed on unions, such as high benefits and pensions. It seems to me that this has something to do with the big three's "Hunter Model" : Their approach to suppliers is an extension of their approach to their own employees. Tyranny against the mob: Union greed is the shadow of managerial greed. The management and the union held each other hostage, but unfortunately the union got the upper hand and wrote many harsh terms into the union contract. But as GM and Chrysler filed for bankruptcy and restructuring, the terms became worthless, a farce of win-win, win-win, lose-lose.

Note: After the bankruptcy of the old GM, the new GM is constantly improving supplier relationships and trying to start over. GM has also been on a roll for five years, according to the index of supplier relationships compiled by Planning Perspectives. But by 2014 it had started to slide again, dropping into a "bad-very bad" range (GM, incidentally, has failed a few times in its history) . The reason, it turns out, has to do with GM's latest target: a 10% cost reduction over three years. Driven by the zero-sum game's cost-cutting metrics, GM's purchases have reverted to their hunter-like ways, where certain animals can't change their eating habits.