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Best practices from Motorola, Honda and Toyota
Keywords: Purchasing, Supply chain management
Lessons from the total quality management (TQM) movement and the implementation of just-in-time (JIT) logistics practices have long since taught strategists that in purchasing it really is about much, much more than the price. The prophets of quality rightly pointed to the massive costs to the organization of price-focused purchasing. In the West, Motorola were among the early adopters of TQM approaches in urgent response to the "Japanese threat". The JIT movement, spinning out of the Toyota production system highlighted the strategic impact of purchasing in an environment where inventory is kept low releasing cash and a pull system uses kanban processes to efficiently keep the whole value adding process lean.
Closeness to suppliers has become the not-so-new mantra as the rough and tumble of negotiation hardball has been replaced by deeper, more constructive supplier relationships, based on the Japanese keiretsu model. Unusually in business the very language used is something other than American English as managers borrow from Japan. The further benefit sought is collaborative, ongoing process improvement - kaizen.
There are dangers too in ever-closer relationships with suppliers. Familiarity can breed contempt. In this article current Internet-based practices at Motorola are explored, lessons in close supplier relationships from Toyota and Honda are distilled, and a generalizable approach to avoiding that await is proposed.
Motorola's $600m online bonus
The nature of competition in the telecommunications market being what it is, Motorola has simply had to reduce its cost base to remain competitive. Half of Motorola's costs are made up of direct and indirect purchases. Clearly this was an area on which to focus.
Motorola have established themselves as quality leaders over more than 20 years. They were early winners of the Malcolm Baldrige National Quality Award in the USA, and an exemplar for many. They have developed a "total cost of ownership (TCO)" process to awarding contracts that considers elements in four main categories:
1. purchasing policies (including budget limits, switching costs, etc.);
2. supplier ratings (considering quality, on-time delivery, etc.);
3. flexible requirements (examining quantity, proprietary attributes, etc.); and
4. supplier...