The secret of success: while plenty of tier one suppliers complain about OEMs, how many of them listen to their suppliers?

Obviously the market is tough right now--no real news in that statement! Suppliers are struggling as a result of poor performance, lack of strategy and vision, poor choices and decisions they've made themselves, and some of the poor decisions at the domestic OEMs that have caused a loss of market share in North America. But many suppliers are also thriving in this market and growing their market share, and not just with the Japanese as their customers.

There are many keys to their success, including very strong operational performance; experienced and mature program management skills; a stronghold on their financial performance including costing on a part by part basis; customer diversification; and outstanding leadership that makes decisions and focuses on continuous improvement. But one key to successful suppliers that is not talked about much is supplier development.

Supplier development between OEMs and suppliers is talked about sometimes ad nauseam. Purchasing czars discuss what needs to be done to improve tier one performance and become a supplier of choice to their company. On the other side of the equation, often times the tier ones complain about the treatment they get from the OEMs and what decisions were made to adversely affect their business and their performance. Recently, I sat at an automotive conference for suppliers and all I heard for three days were speeches about how bad the OEMs were and what the negative consequences were to the suppliers. The fingers were pointing back and forth like children telling their parents whose fault the accident was. However, in addition to the tier ones railing about the OEMs, there was another set of suppliers complaining, too: the tier two and tier three suppliers, who also experience the same sort of treatment from their customers. It was almost comical. We've found in our research in recent months that the same tier one suppliers that are treated poorly by the OEMs are the ones that inflict similar pain on their suppliers. It has become a domino effect of pain down the line.

Supplier development is one of the most important aspects of a good, solid supplier to ensure their place in the future. There has been much discussion about "coopetition" in the industry and this is the foundation of that. At the 2007 SAE World Congress the president of Denso North America talked about this topic and provided the analogy of a baseball and its threading. True success in the supply value chain would have the OEMs, tier ones, twos and threes working in unison together. Not one of these participants is larger than the other in terms of control or the infliction of pain. The key is that they are interwoven together to accomplish long-term success for each of them and the programs they support. It shouldn't be surprising that Denso provided this analogy: It is one of the most successful suppliers in North America.

How do we get companies to work together in this type of environment? It's never an easy task and it really starts with all the players in the game accepting the challenge and becoming part of the solution rather than pointing fingers. OEMs have to engage suppliers sooner in the process in order to provide suppliers the opportunity to share their ideas and bring forward innovation. Along with that, tier one companies need to involve their suppliers early on so that they, too, can be part of the innovation process. Communication is ultimately the key to all parties working together. Quite frankly, it has been one of the most difficult processes to maintain. Even with the same company--be it at an OEM or supplier--it is easy to find situations where people aren't communicating with one another even though they are both related to dealing with the same issues.

Technology solutions are important to aid in improving communications, and there are many great systems that can and should be adapted to each companies infrastructure. For example, Dassault Systemes has numerous solutions that allow companies to communicate in product development, manufacturing simulation and program management. With these tools tied into the OEM and tier one communication efforts become dramatically easier.

I'm continually amazed in my travels around the globe at the number of people I talk to today that struggle with this concept of improving communications. The culture of many of our companies is still one of denial about what kind of change is needed to be successful in today's environment. Everyone spends time reading books and articles about the Toyota Production System to learn more about how to implement the tools. But there has not been a lot written about the culture at companies like Toyota that drive them to be so successful. The secret ingredient is the culture--including the communications, both internally and with customers and suppliers--and until companies grasp hold of this concept and focus on developing leaders that work this communication into every interaction they have, achieving success will continue to be challenging, if not impossible.

Laurie Harbour-Felax

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Laurie Harbour-Felax, President, Harbour-Felax Group