Do Business Well

When your largest customer dominates its industry, you can expect to share in its good fortune. This is self-evident to the executives at Keystone Foods and J. R. Simplot, two privately held (hence unranked) companies that supply McDonald’s restaurants in the United States with, respectively, meat and potatoes. They are among the many suppliers whose fruitful collaborations with the fast food chain have lasted decades, after starting with nothing but a handshake agreement.

When customer and supplier interests are so intricately entwined, the concept of teaming up with customers assumes another dimension in addition to those we have discussed thus far. As a result, my fourth strategy for winning collaborator customers calls for more than specialized expertise and a close relationship. It entails a radical commitment—not easily reversed—to joint success. Here the primary emphasis changes to the physical and strategic interlocking of the supplier’s and customer’s businesses.

That extensive collaboration can contribute to the fortunes of both parties is clear from the now well known pact made between Wal-Mart and Procter & Gamble in 1985. With their contentious pasts behind them, they integrated their logistics andorder management processes into a highly intricate, extremely streamlined, efficient whole. In so doing, they learned how to enact similar collaborations with other suppliers and customers.

Through the lens of the buyer, Toyota’s style of cultivating its supplier base reflects how such collaborations come about. Though it had been selling cars in the United States since 1957, Toyota did not manufacture them here until 1984, when it formed a joint venture with General Motors. Today, annual production of Toyotas in its four North American plants exceeds 1 million vehicles.

As Dennis Cuneo, senior vice president of Toyota Motors North America, recalls, the Japanese company’s first task was to ask GM for a list of the best suppliers of various components. Selections were not based on who provided the initial lowest cost; instead, Toyota was looking for three nonnegotiable characteristics: management attitude, technical capability, and the willingness to meet its stringent standards and adapt to the Toyota production system. That production system, vaunted for its quality, efficiency, and responsiveness to customer demand, was far from easy to master. Toyota gave the selected suppliers as much coaching and encouragement as they needed to ease the stress of reorganizing. Indeed, it seemed that the supplier companies were adopted by Toyota and became an extension of its production line.

Against predictable resistance, Toyota asked the vendors for their cost data. Cuneo explained, “We want to know exactly what their costs are on a particular part. Then we’ll look for a way, together with them, to reduce the cost of the part and then we’ll share that cost savings.” In addition, the company had to assure its suppliers that it was committed to long-term relationships and had no intention of bidding out the business to the lowest-cost supplier every year.

Similar to the arrangements McDonald’s made with its suppliers, Toyota did not draw up any formal long-term contracts, yet fifteen years later, most of the initial suppliers are also the current ones.

Toyota hosts an annual business meeting for its suppliers to thank them and award star performers. At the event, it also shares how the challenges that lie ahead will translate into even higher expectations for improvement. What remains unspoken, but realized by everyone present at Toyota’s events or comparable meetings at other collaborating companies, is that winning once and maintaining that status are not the same thing. As we know, if you want to stay in the spotlight, you must continue to win. And that demands a concerted effort that stretches everyone involved.

The contemporary industrial world lends itself to new collaborative approaches that involve interlocking operations of one sort or another. Enterprise resource planning, focused on automating a company’s internal operations, is giving way to extended enterprise systems (EES) and similar-sounding acronyms, all aimed at coordinating and synchronizing the operations of buyers, sellers, and their business partners.

Entirely new forms of collaboration are emerging. While most are still at an embryonic stage, some will undoubtedly come to dominate the business agenda in the future. In many instances, the distinctions between these strategies and those previously discussed are blurring, and some collaborations may at first glance look askew. Think of IBM teaming up with Dell to provide maintenance and coaching services to the latter’s customers and, in so doing, adding sufficient value to Dell’s computer systems to make them a much more formidable rival to IBM’s own systems. Could their next move be to have Dell sell IBM’s computers, thus truly interlocking the two companies‘ fortunes in the personal computer market?

More than other buying patterns, the various forms of collaboration will continue to mutate, attributable in large measure to

the fact that collaboration feeds on complexity, which then spawns a new generation of more-elaborate complexity. The suppliers who recognize this and, in turn, understand how to provide the wedge between the level of complexity with which collaborators are comfortable and the next level, which will cause anxiety, will be the market leaders of the future.

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