Wednesday, February 15, 2006

Supplier Abuse

Bill Waddell is very critical of the way Ford manages its supply chain, and praises Microsoft in comparison.
That's Henry Ford and Harvey Firestone, founders of the auto and tyre companies respectively. Two generations later, the Ford and Firestone families were joined in marriage, so Bill Ford is descended from both Henry and Harvey. Despite this, the partnership between the two companies has been very troubled, with especially bitter and public recriminations over the SUV disaster, which (if I've got the dates right) took place while Bill Ford was Chairman.

Bill Waddell writes
The fundamental problem with Detroit style purchasing - and Detroit hardly has a monopoly on it - is that each side thinks they are clever enough to avoid the fundamental economic principle of risk and return.

The net result of that supply chain was that all players - customers, us and our suppliers - viewed each other as the enemy - the competition. We devoted enormous time and mental energy at trying to skim a few cents from each other. We spent a lot of time looking for other suppliers and other customers. Nobody in the chain saw it as a cooperative effort to satisfy the end customer, with each of us entitled to reap a reward commensurate with our investment and risk in the supply chain. We took the end customers for granted, and saw getting the upper hand on each other as the key to becoming more profitable.
Bill Waddell contrasts this with the Microsoft's refusal to blame any of its suppliers for difficulties with the XBox 360.
That, to me, shows a level of class the execs in Detroit cannot imagine. And I think it has a lot to do with why Microsoft makes money, and Ford and Firestone do not.
I suspect some people within the software industry will dispute this analysis. And it's probably not fair to judge a company from a single incident, whether positive or negative. But if you are working on supply chain partnerships - or business partnerships in general - Waddell's analysis is worth reading.

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