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The Old Way |
The New Way |
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Subcontractors and suppliers are expendable. |
Subcontractors and suppliers are partners. |
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Objective |
To control costs by squeezing the best price possible out of subcontractors and suppliers. |
To enlist the collaboration of subcontractors and suppliers to enhance quality and increase value added. |
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Method |
The establishment of a competitive bidding process which pits various subcontractors and suppliers against one another. Purchasing decisions are based on low sticker price. Subcontractors and suppliers are "traded in" when a cheaper source emerges. |
The establishment of long-term, close, mutually beneficial relationships with trusted subcontractors and suppliers who can demonstrate the ability to continually improve their operations. Purchasing decisions are based on the firm’s quality. Subcontractors and suppliers are only dropped when they demonstrate an inability to progress and improve. |
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Reasoning |
Subcontractors and suppliers represent costs that should be minimized. |
Subcontractors and suppliers are network partners whose contributions must be maximized. |
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Internal Systems |
Very elaborate internal systems are required to hunt for the best price, and to manage a large number of small component parts suppliers and restricted task subcontractors. Short-term contracts further add to this complexity and workload. |
Subcontractors, suppliers and buyers work together on an operational level, while administrative tasks are kept to an absolute minimum. Longer-term contracts are awarded for larger components and bigger tasks, to a smaller number of trusted sources. |
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Frame of Action |
Hire and fire subcontractors and suppliers as necessary to achieve lowest cost. Do not get too cozy with any of them and certainly do not trust them with strategic information. |
Cement ties with valued subcontractors and suppliers so the relationship may provide all parties with much needed opportunities for collaborative innovation. |
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Subcontractor/ Supplier Outcome |
This system makes it impossible for subcontractors and suppliers to deliver consistently high quality. Low profit margins doom these companies to a slow and painful decline. |
This system requires that subcontractors and suppliers deliver consistently high quality, as well as periodic innovations that enhance their quality or lower their costs. Advances made through joint problem solving benefit all partners. Decent profit margins allow real reinvestment in operations. Success through progress. |
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Market Outcome |
This company’s market share erodes as it develops a reputation for low quality, and poor service and support. |
This company’s market share grows as it develops a reputation for high quality and excellent service and support. |
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Results |
This company’s efforts to get the "best" price, actually sabotages the reliability of their supply. Suppliers and subcontractors look out only for themselves. |
This company’s efforts to work collaboratively with its subcontractors and suppliers improves the reliability of their supply, and the quality of its products and services. The innovative power of all parties is enhanced. |
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