Jose Ignacio Lopez De Arriortua Case
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A buyer should be ultimately striving to maintain a dominant power leverage position over their supply base. It is never wise to allow a supplier to have more power or the dominance position. It is possible to maintain a buyer dominant power position and simultaneously build a collaborative alliance with a supplier. This is shown in the end of the case when VW builds the factory in Brazil. VW is still in the dominant power position and they are working side-by-side with suppliers in the factory building alliances and stronger relationships. By working together, on the same factory floor, VW is able to learn a great deal about how the suppliers do their work and give VW a chance to meet and know the actual employees of the supplier. The suppliers and their employees are able to meet the VW employees and work together to achieve a cost savings. Since other suppliers are also on the shop floor, the suppliers are able to see first-hand how VW treats other suppliers. With this much more open environment, collaborative alliances can form with VW still being in the dominant power position.
The Big Three failed where Toyota and Honda succeeded in terms of effective supplier relationship management because when copying they missed some of the underlying key issues. From the supplier’s perspective, Toyota and Honda were better communicators, more trustworthy, and cared more about their profitability. Toyota and Honda also use the six step process of understanding how the suppliers work, sharing information, and work together to supervise and develop the suppliers while gaining joint improvements. Focusing on price reduction only does not help supplier/manufacturer relationships. Toyota does not believe in bullying its suppliers but instead acts like the supplier’s parent. The biggest difference, I believe, is understanding how their suppliers work which leads to joint improvement activities. This shows the suppliers you understand how they do business and how it costs. Then the parent is able to help the supplier achieve more cost reduction by working together and then splitting the savings. I agree with the authors’ assessment since time has proven that the Big Three are having more difficulties than Honda or Toyota. It also makes sense to me that working together by understanding each other would gain insight into mutual cost savings and trust, which in turn can spur innovation. The only barriers to GM or Ford emulating Toyota or Honda’s approach to supplier relationship management is their past experience and culture. Since Toyota and Honda approached the suppliers initially by giving them small contracts and awarding them with bigger, long term contracts, they built trust with the suppliers. GM and Ford has to either find new suppliers and treat them more appropriately, or hope that the same suppliers will believe they will be treated different, especially for the long term.
I believe that sometimes Lopez used his supplier power appropriately and sometimes he did not. Lopez was able to get good results at each of his positions, showing he knew what he was doing. This is what kept him rising in the ranks of GM. Lopez did focus heavily on pricing, which does not lead to long term supplier relationships. When Lopez brought his people into the supplier’s workshops, they would help them find ways to be more efficient and save money, but did not share any of this savings with the suppliers. For some existing contracts, Lopez did abuse his power. Tearing up a contract and flaunting GM had deeper pockets than the supplier and they could see him in court is not acceptable. Intellectual Property rights were abused by sharing supplier’s proprietary information and using supplier’s plans for open competition. This is diffidently an abuse leading to suppliers not trusting the organization which would hurt innovation and cooperation. Even though GM was considered the worst in cost competitiveness and quality assurance before Lopez, it does not mean going to any means to achieve savings and profits. Another issue is the agency problem between Lopez’s interests and GM’s interests. Lopez’s cost cutting strategy might be good for his reputation and his compensation, but is probably bad for GM in the long term and for the stock holders and customers.
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