Jose Ignacio Lopez De Arriortua Case

Jose Ignacio Lopez de Arriortua Case

General Motors is one of the world's most dominant automakers from 1931. After 1980s economic recession the main goal for automobile companies was cost reduction. Customers became more price-sensitive. Also Japanese competitors came into market with the new effective system of production. So market was highly competitive and directed toward price reduction. The case states that in 1991 GM suffered $ 4.5 billion losses and most part of the costs of manufacturing was due to purchased components. GM NA hired Lopez in order to find the way from "extraordinary" situation and reduce costs.

Answers to the case questions:

1. Andrew Cox states in his article that the ideal situation for buyers is logically to force all of their suppliers into the buyer dominance box (of his "Power Matrix" - page 13 of the article). Should a buyer ultimately be striving to maintain a dominant power leverage position over their supply base as Cox suggests? Is it possible to maintain a buyer dominant power position and simultaneously build a collaborative alliance with a supplier?

Dominant power is very tempting for the buyer since it provides some kind of control of quality and specifically drives price down. But, from my perspective, supply chain management is mostly all about cooperation in order to achieve success in every part of the channel and by this means get quality improvement and reduce costs throughout the supply chain so everybody is satisfied. The key here is definitely to establish long-term trusting and supportive relationships in which all members cooperate rather than dominate. For me it seems that interdependence box is better for such kind of relationships, where buyer and supplier are forced to work closely together and no one takes advantage of another. Such forces as high switching and search costs and attractiveness for both sides will motivate cooperation rather than pressuring one member by another. In many cases such cooperation could go even beyond the contract and provide creative inspirational environment. Although dominance by the buyer will force supplier to cooperate, it won't even be by its own will and the feeling of pressure is not what should be in trusting relationships. So I think it is possible to maintain both at the same time, but it will be rather strained than collaborative which is not recommended for long-term interaction.

2. "Despite the odds, Toyota and Honda have managed to replicate in an alien Western culture the same kind of supplier webs they built in Japan. Consequently, they enjoy the best supplier relations in the U.S. automobile industry...." (page 3 of the Liker & Choi article). Briefly describe the authors' explanation for why Toyota and Honda succeeded where the "Big 3" failed in terms of effective supplier relationship management. Do you agree with Liker & Choi's assessment? Please explain why or why not. Are there any barriers to prevent Ford and GM from emulating Toyota and Honda's approach to supplier relationship management?

Toyota and Honda succeeded in constructing effective supplier relationships because of the methods they used for it. In article they were the following:

* Understanding how suppliers work;

* Giving opportunity rather than setting against each other and encouraging the competition and creativity;

* Supervising (reports);

* Improving the technical ability of suppliers to develop products

* Intensive but selective information sharing, categorizing which components could be produced without help and which need collaboration

* Joint continuous improvement activities

Additionally those companies used six methods altogether as a system. They tried to maximize profits but not at expense for their suppliers and reach the cost reduction by not only claiming it but by improving the manufacturing process in suppliers' facilities. The main thing in all this process was definitely Japanese culture which implies family relationships but with high standards and discipline for mutual well-being.

I agree with authors' assessment about effectiveness of these methods compared to those used by Big Three American companies. Ford, Chrysler and GM used completely different techniques and did not value so much this type of collaboration. Their main goal was to get parts as cheaper as possible and not carrying about relationships. That's why Toyota and Honda grew very fast in the market and reached competitive advantage in pricing, reputation and supply chain management.

As for the barriers I think they already exist. They are reputation of American companies, low prices for Japanese cars, structure of supply chain itself, knowledge base they possess and rules they established. For American companies to change their current system will require huge investment in terms of restructuring the business, employing best practices and hiring best people as well as improve the reputation they have with suppliers. To reach the same level of pricing and reduce costs require long-term work with vendors. Discipline and knowledge base should be developed which also takes much time and efforts to do it. But Japanese companies still can hold these barriers high by continuously applying same techniques and developing new more efficient. Such tight collaboration and satisfaction throughout the supply chain will lead only to improvement of their competitive position in the market and won't let other companies to copy those methods.

3. A key point of the case is when and how power should be used in the management of suppliers. Regardless of how one views Lopez as an individual, he succeeded throughout his career in procurement by using dominance and power over suppliers to the max. Do you believe that Jose Lopez used his supplier leverage appropriately? Was Lopez abusive or appropriately utilizing the leverage that he maintained as the purchasing czar for one of the largest companies in the world under "extraordinary" circumstances? Explain and discuss your answer.

Even though Lopez was known as purchasing czar and succeeded in his work of cutting costs, I do not consider his policy