Keiretsu In Good Times and Bad

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Keiretsu In Good Times and Bad
STOC Supply Chain Seminar
February 2006 Kenneth M. Hooper CFPIM,
C.P.M. Executive Manager and Principal Consultant
www.ERMassoc.com 607-754-6404
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Innovation
Innovation is now recognized as the single most
important ingredient in any modern economy
The Economist
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Innovation Definition
People creating value through the
implementation of new ideas
Innovation Network
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Supplier Relationships Models

• Managing Vendor Partnerships Jeffery K.
  Liker, University of Michigan and Thomas Y.
  Choi, Arizona State University
• Selecting Vendors for Partnerships Douglas
  M. Lambert and A. Michael Knemeyer of Ohio State
  University

HBR December 2004
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Benefits of Keiretsu

• Cost reduction
• Improved quality
• Faster development of product and processes

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Keiretsu Definition
Close-knit networks of vendors that
continuously learn, improve and prosper along
with their parent companies
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Keiretsu Performance

• Parent rated most preferred to work with
• Faster product design
• Greater innovation with vendors
• Reduced cost
• Better initial quality and long term
  durability
• Greater reliability and fewer recalls

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GM Comeback Strategy

• Develop Winning Cars and Trucks
• Revitalize Sales and Marketing Strategies
• Achieve Greater Cost Reduction and Quality
• Significantly Reduce Health Care Burden

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Toyota Production System
The Achievement of Business Performance by
the Parent Company Through Bullying Suppliers is
Totally Alien to the Spirit of the Toyota
Production System
Taiichi Ohno
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Supplier Selection

• Do you want a partnership with every supplier?
• Which suppliers warrant the investment?
• Which supplier is a candidate for partnership?

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Partnership Preparation

• Focus your efforts
• Consolidate your suppliers
• Apply the Partnership Model

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Focus Your Efforts
Two by Two Matrix of what is Important to you

• Complexity versus Volume Matrix
• Potential for Cost Reduction versus
• Potential for Innovation Matrix

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Focus Your Efforts
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Focus Your Efforts
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Consolidate Your Suppliers

• Reduce supplier base
• Leverage your spend
• Reduce your workload

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The Partnership Model

• Target high-potential relationships
• Align expectations - Drivers -
  Facilitators

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Driver Categories

• Asset and cost efficiencies
• Customer service enhancements
• Marketing advantages
• Profit growth and stability

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Individual and Team Driver Goals

• Individual bullet point descriptions
• Metrics
• Targets
• Ratings
• Reassemble teams
• Team review and goal acceptanceDevelop
  partnership driver score

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Facilitator Evaluation

• Compatibility of corporate cultures
• Compatibility of mgt philosophy/techniques
• Strong sense of mutuality
• Symmetry between the two parties
• Develop Facilitator Score

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Additional Facilitators

• Shared competitors
• Physical proximity
• Potential for exclusivity
• Prior relationship experience
• Shared end users
• Determine combined facilitator score

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Propensity to Partner
Three by Three Matrix Facilitator by Driver

• Arms-length
• Type I, coordination limited
• Type II, activities of multiple divisions
  integrated
• Type III, each company views the other as
• an extension of itself

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Propensity to Partner
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Joint Activities and Processes

• Action plan to put partnership in place
• If decided not to pursue - success
• If decided to pursue - success

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When to Implement Keiretsu?
When you need

• Cost reduction
• Improved quality
• Faster development of product and processes

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Keiretsu In Good Times and Bad
STOC Supply Chain Seminar
February 2006 Kenneth M. Hooper CFPIM,
C.P.M. Executive Manager and Principal Consultant
www.ERMassoc.com 607-754-6404