Japan’s famous supply chains are under threat, and not just from Brexit and trade wars. One of the great strengths of Japan Inc, particularly in the automotive industry, was to build eco systems of long term collaborative relationships between the Original Equipment Manufacturers or “brand name” manufacturers and Tier 1 and Tier 2 suppliers. However the final product manufacturers were very much in the driving seat, pushing just-in-time delivery and constant pressure on cost efficiencies.
“In the past, when there was a delay in delivery the sales GM of the supplier would be on the phone to us to apologise”, says THK, a major manufacturer of machine components. “Now, we have to phone them, and they often won’t come to the phone.”
Nikkei Business highlights three reasons why this shift in the power balance has occurred:
- A decline in the number of smaller (less than 300 employees) suppliers in Japan
This was in part due to the final product manufacturers moving their factories overseas since the 1980s, which meant that many domestic suppliers could no longer stay in business. The remaining suppliers found themselves having to turn down orders from major manufacturers as they did not have the capacity.
2. Increased demand for high quality technology and components overseas
China in particular has been focusing on improving its hi tech manufacturing capability and has come to rely on Japan’s high quality, high performance components.
3. Increased demand domestically for highly specialised technology
It’s becoming clear that final product manufacturers cannot go it alone in developing highly specialised technology for Industry 4.0 so Japanese final product manufacturers are having to collaborate with specialized suppliers as equals, rather than sub contractors.
So what do suppliers need to do to cope with this new eco-system?
It is dangerous for suppliers to become too reliant on one industry or one customer. Technology developed for the automotive industry can now also be used for robotics or aerospace. There are risks to doing business with new customers. They might steal the technology and ask Korean or Chinese suppliers to imitate it. Which means Japanese suppliers have to make sure their technology is difficult to imitate. But new customers that suppliers can grow with are preferable to having to compete on lead times and cost in the automotive industry. It means Japanese suppliers have to become clearer on what their unique strengths are.
“You can improve your commercial appeal in ways other than technology. It’s important to focus your marketing on what your customer needs are” says Yuki Yamamoto, GM of corporate strategy at Hilltop.
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