The Japanese pattern of supply chain

Dave Nelson C.P.M.
CEO and Senior Advisor
Supply Chain & Procurement Specialist
Dave Nelson Group, INC.

Nelson started his career at automotive supplier TRW where he worked for 30 years. In 1987 he joined Honda of America, where he worked for 10 year, eventually winning Purchasing's Medal of Professional Excellence. He later signed on as vice president of worldwide supply management at Deere & Co. where he won Purchasing's Medal for a second time. From 2002 to 2006, he worked at Delphi Corp. as purchasing editorial advisory board member and vice president of global purchasing.


Gasgoo.com: We notice that you have worked for the OEMs, and the Tier-1 suppliers, based on your experience, who do you think are more active in global sourcing?

Dave Nelson: that's an interesting question, I have never thought about that except I could give you real life experience, Delphi, here in China, in 2006 has a total revenue of 2 billion dollars, but for 2008, just two years later, we already have six billion dollars booked, so we are going to three times in two years, here in China. We need to buy our stuff here in China.

Gasgoo.com: For local production?

Dave Nelson: Yes

Gasgoo.com: And also supply for global market?

Dave Nelson: Some, not so much, but some. For a company like Delphi, a little bit like Honda, a little bit like Toyota, they like the suppliers close. If there is a problem quality or something comes up, they can jump right on it and fix it before it's a big headacake. By working together with those suppliers, even they are more close, they can find ways to reduce the cost. Even in the United States, they can compete with China. The fact is some suppliers that work with Honda knew too in suppliers forum, and they help them take out the cost, and now they ship stuff from America to China.

A lot of people would think mistakenly 02:08 that all these American companies coming here in buying stuff cheap, and send back home, but the balance trade that Delphi has with China is unbelievably much more stuff come from United States and Europe to China, than it does from China back to the United States. When you're building these new products, and then you have a ramp like this and you have those parts and production some place in the United States and Europe, you start to send to them when production starts in China, and we still import more to China maybe by two or three times, then we ship the other way.

Gasgoo.com: Delphi is a major Tier-1 supplier, they build the factories here

Dave Nelson: Many

Gasgoo.com: Yes and some joint ventures maybe at the first phase when they enter the China market. So they start global sourcing very early and actively, compare with the OEMs, who will be more active？

Dave Nelson: I'm not so sure about that, probably the large Tier-1, maybe, I'm not so sure, I haven't thought so much about that question, so I don't have any research and I don't know, but my feel maybe it's the large Tier-1 suppliers like Bosch, Siemens, Delphi.

Gasgoo.com: I also think so. We notice that, in recent five years, the Japanese Tier-1 suppliers make much better performance than the American Tier-1 suppliers. What's your opinion on that?

Dave Nelson: The great companies like Bosch or Siemens, the European companies that have deep engineering know how and experience and have a very solid foundation for their business, they just keep getting better. There are very formidable competitors too, a lot of American companies. That is what makes the world go around. Competition is a good thing.

Gasgoo.com: Until you win

Dave Nelson: Yes, until you win, then there is only one way to go – down.

Gasgoo.com: Obviously

Dave Nelson: That's a concern for Toyota, big concern for Toyota, because there is like a lot of physics or something that says, even you are a country, a sports team, or a business, no matter what, if you are the king in the hell, then there is something that happened, where you get full of yourself, you think like General Motors today, you think everything you do is right, everything everybody does is wrong. Then you…

Gasgoo.com: On the top, it's a turning point, maybe you go up, maybe you go down, and academically we call it S-curve. Some successful companies go up. Toyota definitely keeps winning all the time,

Dave Nelson: They do, but, 100% for sure, not for ever. Show me one company that has ever done that forever, and what happens is competition, it's a great leveler of source. If you are the best, then there are a whole bunch of people that wants to exceed you. Sometimes if you get thinking that you are too much the best, then they do go by you.

Gasgoo.com: So what do you think the major reason for their success?

Dave Nelson: Major success for Toyota's success and Honda's success is because they have a better way of managing the companies, a much better way, not just a little bit better, a whole lot better 07:17 The depth of learning is like the depth of the buyers, I use an example in the talk about. If I take a look at buyers, on a scale of one to ten, who was everybody, Toyota is a 10, Honda is 9.5, Nissan is 8.5, and the very best GM, Ford, Chrysler, Fiat, any of the others include Mercedes Benz, Volkswagen, maybe 1.5, in my opinion. The reason is it's like the Toyota and Honda people are like PhDs, and the other people are like third graders in the depth of their knowledge of about what they do, and it's a way which they have been taught, and it's very different. What's the sport that you know most about? Soccer?

Gasgoo.com: Tennis.

Dave Nelson: Tennis. You have the top professional tennis players, and they play the very best university teams, a thousand times, this teams wins all thousand times, because they are a whole lot better, So Toyota and Honda are so much better, so much for capable, in their individual job particularly in the world of purchasing? perticing. There is no comparison, an 8.5 compared with 1.5, My judgment. And I know because I worked for three American companies, and work for Honda for ten years. So I don't have the guess, I know.

Gasgoo.com: But do you think the culture is one of the main reasons for their success? The Japanese wants the suppliers together, more tightly, and maybe they show less activity than North American companies in global sourcing. They tend to find those long-term relationship, is that a reason?

Dave Nelson: They will always find a long-term relationship

Gasgoo.com: Do you think this also make some contributions?

Dave Nelson: Big contribution. Honda never changes the suppliers. If we get a supplier for a particular part, and the supplier says, I'll make your cost down 100% of time, I'll give you a 100% delivery, I'll give you a 100% quality, and my engineering and R&D stay in front of all my competitors. Why would you go anywhere else? So these companies that have those kinds of relationships in those kinds of commitments, they are the best, so Toyota is going to buy from them. Maybe if that company has new management, the new management is not the same as the old management, so all of a sudden, they start to missing their commitments, and they don't maintain the perfection, stable, then Toyota has to make a decision, do we go there and help save them from themselves, or if there are somebody over here that are much better to work with, but the problem is always the suppliers, starts to failing to meet their obligation, to Toyota, otherwise, they have their business forever, 100 years from now, they will have the business,

Gasgoo.com: I guess the Japanese culture, they tend to build the trust,

Dave Nelson: They do, yes, but that is a human nature, not just Japanese culture, Japanese maybe better at it, but where do they get it? They got from America, Doctor Deming, he came and taught the Japanese this particular style of management

Gasgoo.com: And you will set up a price, for Dr. Deming for these companies 

Dave Nelson: Yes. Right after the second world war, Japan is stagnate, so there are six large companies, the head of these companies came to see General MacArthur, and they said we need help, everything is stagnate, and we need to rebuilt, and we are not so good at management, we are not so good, in fact, in those days, everything from Japan is Junk, big time Junk, not just a little bit junk, but big junk. So MacArthur called the Pentagon, said the Japanese leadership and six large congolomo, wants some help, so the Pentagon said, oh, there is a big tall lanky guy PhD. running around here, he'got a particular philosophy in driving everybody crazy, we'll be delighted to send him over there.

Gasgoo.com: American is delighted, at that time

Dave Nelson: Dr. Deming only packed a small suitcase, because he was sure that he'll go to Japan and they would chasing him off back to the United States in a very short period of time.

Gasgoo.com: He was wrong

Dave Nelson: But he was wrong, because these companies were so much needy of some one or any one, who could give them the types of direction that they needed, so he did, and they adopted his theory. It's very interesting. The Americans did not adopted

Gasgoo.com: Then they try later on, many years later.

Dave Nelson: Many years later they try to adopt it, because otherwise they cannot compete,

Gasgoo.com: especially Toyota enter America very successfully

Dave Nelson: yes, very successful

Gasgoo.com: it's so interesting stories 

Dave Nelson: it is so interesting, life is interesting.

Gasgoo.com: For China's local suppliers, there are many many local suppliers

Dave Nelson: Many many many

Gasgoo.com: While just considering the OE side, OE field, including factories, less than 3000 local, not including those joint ventures and wholly foreign owned, just the local suppliers, and some of them already did a very good job, with the joint venture of Shanghai VW, Shanghai GM, or Dongfeng, these kind of, but some are still working very hard for surviving. For those kind of suppliers that are fighting for their future development, any good suggestions for them?

Dave Nelson: It's like any kind of competition, almost always those are the best winners. These guys needs to get better, they don't have to be big, to be best, but they have to understand the game, and they have to be better than the competitioners, and in the competition they wins. So it's kind of simple. There are many many small companies that are great, because they have know-how, they have pens or they have a variety of different things costs them to be,

Gasgoo.com: Invisible winner, some of them,

Dave Nelson: Invisible winner, yes. So the advice is just to be better than the next guy

Gasgoo.com: That's very simple, and a universal rule. While we contact many of those suppliers, they have their intention to become better, to make achievements everyday, but when they really do those kind of things, like they want to get the VDA, the TS, or the QS, a lot of certificates to show they have the ability to do the stable production, the quality, things like that, but some just wants the certificate, the paper

Dave Nelson: Not caring what they

Gasgoo.com: When they got it, it's ok

Dave Nelson: But that's not being the best. Being best is: someone changes the processes till they build the good quality, wonderful products, and a reasonable cost. Also in the United States, they have those same kind of supplier, they just want them on the wall, also in Europe, there are the same, same, same. So not just China, it's everywhere. But those suppliers are very good, they have internalized best practices, they just get a certificate put on the wall.

Gasgoo.com: For the suppliers, if they want to do a better job, they become a supplier of automotive OEMs, then they got the opportunity currently, more opportunities to do, maybe the parallel development with the clients, including the design, and the production of the new products. So they will make them even stronger.

Dave Nelson: That's right. They are going to get stronger and stronger, and the weaker ones can get weaker and weaker somehow, and the strong ones hate the weak ones up.

Dave Nelson: For those people maybe struggling a little bit, they need a plan, an action plan, they need a leadership, and develop one step at a time, and get better and better and better…and they will be a big guy.

Gasgoo.com: And the leadership can change their mind, first of all, totally accept the agreements, these idea, these concepts, not just to do the decoration.

Dave Nelson: And today the buyers particularly the Toyota and Honda buyers, can evaluate that quick the suppliers' capability. A Honda person can walk through factories, and set down and write a detailed report on 72 different elements of what they saw, and how good each of the 72 elements are, they are very very well trained, so can Toyota, but there won't be any GM person, can do that, or any Chrysler person, or any Volkswagen person, they are not trained to do that.

Gasgoo.com: Maybe they are just wants to grow faster, expanding all the time, so they have not much emphassis on efforts 20:20 much investment on their education to train the people.

Dave Nelson: Maybe, I think though, it's a little bit like the greatest tennis players are the greatest tennis players, because they are better than the other people

Gasgoo.com: It always happens

Dave Nelson: It always happens. So if the little guy talking about what's to be the winner, then he needs to get better, not just put some certificate on the wall.

Gasgoo.com: To do some real things

Dave Nelson: Do some real things, make it happen. That's much more fun actually to manage your business like winner.


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