For the production of substitute components, equipment, advertisement with the fair market price within the limits determined by technical standards and specifications, purchase executives face the necessity of choosing a vendor of uninterrupted supply of feedstock in their everyday activities.
As weird as it may seem, these are suppliers who determine the success of a company project and your own efficiency as a purchase executive. This is why building effective relations with them plays and essential part. There exist two diametrically opposed approaches to building this kind of relations: strategic partnership and fierce competitive procedure.
For giving better characteristics on the mentioned approaches, let’s have a look at American car industry in early 90’s of the 20th century and the two antagonists: Thomas T. Stallkamp and Jose Ignacio Lopez.
In the late 80’s of the 20th century, there was a decay of consumers’ demand for the car manufacturing, and, consequently, the return on sales and profit margin. The leaders in the car industry were forced to minimize the expenses in order to reduce the negative impact of economical conjuncture on companies’ activity.
GM management went to personnel changes in management of global purchase office of the company, appointing Jose Ignacio Lopez, who used to work for Opel, as a vice-president of world-wide distribution of the company. The first measure to be taken by Lopez was implication of an optimization program for the concept of suppliers’ participation (Purchased Input Concept Optimization with Suppliers, PICOS).
Purchase executives were supposed to review the terms of contracts and to analyze, at least, 10-12 commercial proposals which should include not less than 1-2 non-American suppliers. Lopez has issued an instruction concerning 50% growth of productiveness within the next 3 years with an expense reduction not less than 10%. These measures resulted in the economy in the amount of $300 000 000 within 3 months of the year 1992. In order to reach this number, the feed base of that time has been changed essentially.
Stallkamp applied a completely different approach. In Chrysler, there has been a system created which was based on mutually beneficial co-operation with suppliers and known as Extended Enterprise.
«Extended enterprise»program of the Chrysler Corporation was based of the following principles:
- Centralized and integrated structure of supply;
- Long term relations with suppliers;
- Strategy development is carried out between cross-functional teams;
- Complex approach to the cost control;
- Development of suppliers;
- Utilization of suppliers’ technologies.
As part of the proposed program, there have been the goals set for the suppliers of Chrysler, concerning both long term and short term projects. The aims for the new projects were based on the market price regarding the supposed prime cost of a new car. If suppliers agreed to take part in new project development, the long term contact was concluded with them. The contract duration and reliability of Chrysler as a partner influenced the stability of purchasing price for components within the validity of a contract despite negative changes of the market conjuncture.
The amount of investments to Chrysler products grew up due to the “principle of stability” followed by enterprise. Chrysler got an opportunity to pay more attention to the innovations investing some insufficient funds into it as the majority of suppliers relegated to the future profit.
As it has been noticed, business relations between the parties were based on strategic partnership.
An important result of Stallkamp’s program was not only savings in the amount of more than 5 billion dollars in the period of time from 1989 to 1998, but also building a new attitude to suppliers during the development of new production.
Summarizing the above said, I should say that in my opinion, Stallkamp’s approach to strategic partnership cultivation gives better long term effect comparing to the approach of Lopez and Ford Corporation. It may become an extremely powerful weapon of transnational corporations in global competition of the supply chain.
