Daily Archives: August 14, 2006

Strategic Supply Management at Japanese Companies

Yesterday in What can we learn from Keiretsu? we outlined methods in which correctly applied Keiretsu teachings could rejuvenate your supply chain, referencing a report released by the CAPS Center for Strategic Supply Research Supply Management Research Group last year titled Japan’s Keiretsu as a Strategic Relationship with Suppliers . However, the teachings do not end there. This year, the CAPS Center for Strategic Supply Research Supply Management Research Group released Strategic Supply Management at Japanese Companies.

This report, which starts off by chronicling the impact of Nissan CEO Carlos Ghosen, the shift to strategic purchasing and the rise of the concept of supply management (primarily in the US and Europe), the enhancement of business competitiveness through strategic purchasing, and the evolution of the purchasing function in Japanese companies describes the challenging issues in the shift to strategic purchasing, offers a perspective on strategic purchasing from the Japanese perspective, and ends with a case study that demonstrates the beginning of strategic purchasing in proactive companies that are seriously considering moving forward the status quo that is the result of traditional Keiretsu practices focused on strong ties with traditional partners and not necessarily the best partners.

It points out that in recent years, the goal of Japanese manufacturing corporations has been to build an efficient supply chain that decreases lead time, improves quality, and reduces inventories and costs associated with the logistics process. After all, improving the logistics supply process reduces lead time and improves inventories, even if actual transportation costs are not decreased. Furthermore, whereas purchasing has always played an important role in cost reduction, there is also a new, and increased, emphasis on quality control, supply management, and accurate, quick deliveries from suppliers.

Purchasing is also taking on more of a research role, as its close contact with external resources puts it in a strategic position. In some engineering companies, purchasing is responsible for:

  • giving advice on potential new contracts
  • exchanging engineering information with suppliers
  • participating in design review, facilitating supplier decisions, and leading cost reduction and value analysis efforts
  • cost research for marketing requests

It also outlines the major competencies that are required for strategic purchasing:

  • intelligence and the ability to identify what information is needed and how it will help them attain their goals
  • IT literacy and competence
  • supply chain knowledge

and how Japanese companies are embracing these competencies.

So what does all that mean? In addition to holding on to the best practices of the east, Japanese companies are embracing the best practices of the west. Maybe we should latch on to their best practices as well.