BRIEFLY, discuss your takeaways from the specific section assigned per the first letter of your last name. Find the relevant Reply section, and share about one thing that impressed you. For example, if you were assigned to read "Supervise Your Supplier", enter comments there. Major article points and examples encouraged along with your thoughts (this is discussion, not just repeating article). Okay to respond to others but not inane stuff like "I agree". Provide substance. rities The anies Understand How Your Suppliers ingly Work pha "Whenever ask lexecutives in the Big Threel e. but how they developed a target price, the answer great is: silence. They base the target price on noth tinct ing. The finance manager just divvies up the appli available money: Here's what we normally valry spend on braking systems here's what you their get this year they have no idea how we'll get liers' those cost reductions. They just want them infor -Senior executive, brake lining supplier to Sixth, US automakers February 2002 Unlike most companies we know, Toyota and Honda take the trouble to leam all they can hout about their suppliers. They believe they can cre that ate the foundations for partnerships only if they know as much about their vendors as the plier vendors know about themselves. They don't cut the comers while figuring out the operations and not cultures of the firms they do business with. Toy ments ota uses the terms genchi genbutsu or gemba a sys (actual location and actual parts or materials) ering to describe the practice of sending executives to see and understand for themselves how suppli- onda ers work. Honda uses a similar approach, and both companies insist that managers at all lev pect els-right up to their presidents-study suppli- ever, ers firsthand to understand them. The process can take a while, but it usually max proves to be valuable for both the suppliers their and the manufacturers. In 1987, when Honda of America was toying with the idea of using leve Atlantic Tool and Die as a source for stamping arent and welding jobs, it sent one of its engineers to spend a year with the Cleveland-based com- Sys- pany. For 12 months, the middle manager stud- par- led the way the organization worked, collected that data and facts, and informally shared the find- the ings with his counterparts at Atlantic. Over pline time, they agreed with the Honda engineer's and conclusions and implemented many of his sug gestions, which led to marked improvements on the shop floor. About six months into his re stay, the Honda engineer asked Atlantic's top the managers to show him the company's books, wehi which they reluctantly agreed to do. By the ven time the Honda engineer left, he knew almost everything about Atlantic's operations and cost is it structure. hem That knowledge proved useful when the ctur two companies started doing business together ota's in 1988. Japanese companies traditionally work peti backward when setting prices for the compo- nents and services they buy. Instead of follow- - Toy truc Cene they PAGES ing the American practice of calculating costs, adding a profit margin, and setting the prod- uct's price, Japanese executives start with the price of the product they believe the market can bear. Then they figure out the costs they can incur to make the desired profits on that item. That practice allows the executives to set target prices: the amounts they can afford to pay suppliers for components and services given the budget for the product. Accordingly, when Honda submitted the target prices for the first jobs it gave Atlantic, both firms knew the supplier would make a profit. It would be a small profit, though, because Honda expected Atlantic to increase its profit margin by cutting costs over time. A little empathy breeds a great deal of mu- tual understanding. Atlantic signed on partly because it believed Honda was acting fairly by allowing it to make a profit on the first deals. Because of the Honda engineer's visit, the sup- plier also felt confident that, with Honda's assis- tance, it would be able to reduce its costs. Once Atlantic had displayed its ability to handle Honda's orders, the automaker recommended the company to its other suppliers. As a result, Atlantic's business rose steadily during the next five years. It's interesting to note that around the same time, Atlantic attained the coveted Spear 1 supplier status at GM. That designation, GM claimed, would surely lead to more busi- ness with the manufacturer and its suppliers. But soon thereafter, GM reduced its orders with Atlantic without explanation. The supplier didn't get more business from GM during the next two years, and the partnership implied by the Spear 1 status never came to fruition