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Insight: Supplying the New Domestics: What You Need To Know

A quick look at market share data is enough to explain why the task of increasing business with the New Domestics is on the “to-do” list of so many automotive suppliers.

A quick look at market share data is enough to explain why the task of increasing business with the New Domestics is on the “to-do” list of so many automotive suppliers. New Domestics (i.e., foreign-owned automakers with North American assembly operations), now account for about 48% of U.S. light vehicle sales. The bulk of that comes from the Japanese Big Three—Toyota, Honda, and Nissan. Establishing the objective of winning business with the New Domestics is a worthy goal, but what many suppliers fail to realize is the extent to which selling to the Japanese-owned OEMs requires a completely different process. Past success in selling to the Detroit-based automakers is not an indicator of future success with the Japanese, because the Japanese automakers approach each prospective source as a potential partner in a long-term relationship, not as a vendor for a single job. Suppliers that do not know how to prepare and position themselves for the review process are unlikely to get very far.

The best Japanese automakers have some basic principles that they apply to a broad set of decision-making situations. Two of these are: (1) go and see, and (2) get the facts. The best way to become informed is to go to the source yourself, enabling you to make decisions on the appropriate basis, which is a full set of facts. In evaluating a new supplier that appears to have some potential to fill a need, the Japanese follow these principles by conducting a thorough probe in the areas that they see as essential to mutual long-term success. These areas include the usual criteria of financial stability, past performance on quality and delivery, etc. But they also include items such as business behavior/practices and safety.

One illustrative example of this difference is that it would not be unusual for a Japanese automaker to be interested in the way a supplier runs meetings. They will certainly observe this in their interaction with the supplier, but they will also want to see evidence of how internal meetings are managed. What are they looking for? Indicators of discipline and efficiency, for one thing. Do meetings start on time? Are participants always prepared? Is an understanding reached at the end of every meeting? The Japanese also care about the style of meetings because of the high value they place on communication and its role in eliminating waste and disseminating lessons learned. By routinely making customer requests completely clear through meeting minutes, sketches, and part mock-ups, the chance for incorrect or incomplete understanding of the requirements is greatly reduced. By asking the “five whys” in a meeting format, the entire team will understand and support an idea. By adopting the Japanese practice of “bad news first” reporting, the supplier will show that it is committed to open communication and honest evaluation to diagnose and correct problems.

Another example of an area that the Japanese will evaluate in a particularly rigorous manner is safety. They will want to know through what means the importance of safety is emphasized to the workforce and how the results are broadcast. How are safety/risk issues identified and communicated? Who is empowered and how do they act on these issues? How is the supplier’s supply chain involved in safety? What are the goals and results? How frequently are they reported, and to whom, at what levels? In all of these areas, the Japanese will expect to see meaningful activity by the supplier, with a vigor that shows the message on safety is coming from the top of the organization. In the case of one of IRN’s clients, its widely recognized safety program brought it visibility with Toyota engineers, who were then willing to relay contact names for purchasing, so safety opened the door to what became a significant amount of business for this supplier. The Japanese emphasis on safety is significantly greater than what you will see in North American firms.

The point of all this activity is not to put the supplier through a stress test, but to determine whether there is a good “fit” that will enable both parties to work well together and work through any future issues. In the event that the company under review does not measure up, the Japanese believe there is value in causing a prospective supplier to be aware of the essentials to being in control both now and in the future with growth. This reflects another simple rule, the ‘pull’ system of using inputs to force outputs, so that when you get the knowledge and understanding (inputs), and communicate it throughout the organization, you can develop countermeasures (outputs) in any areas where you are falling short.

If you want to sell to the Japanese, you need to be prepared to meet their expectations, before you even begin to approach them. In IRN’s experience working with suppliers on this preparation, it is clear that there is often a gap in understanding what the Japanese consider to be important and why. With some guidance, a supplier will learn that: (a) the Japanese process involves some categories of information that you might not ordinarily associate with supplier qualification, and (b) there are specific indicators of performance that tell the Japanese automakers what they want to know. The old saying “forewarned is forearmed” is certainly true in the case of suppliers that are trying to win business or grow with the Japanese automakers in North America. 

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