The Myth of the Cooperative Single Source

The Myth of the Cooperative Single Source INTRODUCTION The flood of Japanese goods that engulfed the West in the seventies and early eighties was accompanied by waves of "new" management practices. Many of these novel techniques have since been revealed as cleverly implemented versions of ideas originating in the West in earlier decades. Reinventing the wheel is one fault that cannot be laid at the door of Japanese management, and their skill at translating other peoples' good ideas into successful working practices is enviable and beyond dispute. However, among the revitalized old ideas were a handful of genuinely novel approaches to business problems. Perhaps none was more startling, yet less noticed, than the large Japanese corporations' habit of developing long-term, cooperative, single-source relationships with their suppliers. This is a truly remarkable feat. Conventional Western wisdom suggests that the use of single sources is a high risk strategy that severely restricts a buyer's freedom of action and thus the power and ability to influence his or her company's profits. Western sourcing strategies tend to be openly adversarial in nature, relying on multiple sources to provide an insurance policy against supply interruptions, and to allow the buyer to develop power through competitive pressure. Power through competition is at the heart of the Western approach. Power struggles are the accepted mechanism whereby buyer and supplier try to control their respective profit levels. The Japanese have apparently developed a trading system that dispenses with the need for competition or the manipulation of power entirely. Mutual benefit through cooperation seems to be at the heart of their system. Financial prosperity without competition seems to be the promise they extend. How have they achieved this? Can a fundamentally noncompetitive technique really be effective? With manufacturing industry allocating an average of 60 percent of total costs to purchased materials and services, a technique as radical and spectacularly successful as this Japanese innovation deserves close attention. THE ISSUES Much of our understanding of Japanese management practice comes from reports of the behavior of Japanese auto companies. Nissan and Honda, in particular, have been held up as examples of the benefits that can be achieved through long-term deals with suppliers. In purchasing circles this information has filtered through a variety of different channels and has colored opinions to such an extent that the traditional competitive Western approach to sourcing has taken on an old fashioned, wasteful, inefficient and primitive image. The perceived Japanese image is one of successful long-term, single-source, egalitarian, power-sharing relationships between equals. If this image is accurate, then the abandonment of current Western practice is well justified. However, evidence concerning the accuracy of the image is ambiguous. The Japanese auto manufacturers, for example, do indeed have a large number of single sources with whom they have long-term arrangements. Direct discussion with the staff of such suppliers confirms the way in which the security offered by long-term joint forward planning between customer and supplier drastically reduces the degree of competition in the market. Fear of competitors is not high on the list of corporate anxieties found in single-sourced Japanese car company suppliers. Nevertheless, few of these deals can truly be described as egalitarian power-sharing contracts between equals: Each major Japanese enterprise swims in the economy like a shark with its cloud of pilot fish, surrounded by subcontractors, sub-subcontractors, sub-sub-subcontractors, and so on down the line. [1] The result is that every large firm is the center of a constellation of small and medium firms which are, in greater or lesser degree, dependent on it for business. …