Supply chain and Keiretsu

This reminds us of phenomenon Keiretsu in Japan. Keiretsu is a group of business companies that are mutually dependent. It is like a large joint family having a head of the family and other members of different generations. Family implies that there is much empathy for each other. One tries to understand the other. Each has his own ‘goods’ to deliver in such a way that ultimately the family’s objectives are achieved. In a family the persons of senior generation may exercise much control over those of the younger generation, but the former are quite sensitive to the latter’s needs and provide for them. Same is true of the Keiretsu the needs here being the business needs. That keeps every unit within the Keiretsu healthy. Being a group of healthy organizations that are well directed and coordinated makes the group capable of being very competitive. An industry group that coordinates the design production distribution of parts and products for the final market can complete better than other industry groups that are not coordinated. United we stand, divided we fall is an old adage. Supply chain is a similar concept applied in a very positive manner. The objective is to provide more and more service and value to the customers in the final market.

Keiretsu had seen much maligned, particularly in the West. It was thought of as a cartel several sharks ganged up by a big shark amongst them so that they beat the international competition by unfair means. It was seen as anti-ethical to laisse faire or the concept of free market and pure competition which is known to be the basis of capitalism. The Japanese Keiretsu appeared akin to oligopoly which, in the west, was a much despised restrictive trade practice. During the 1970s and 1980s, Japanese goods swamped the American and European markets. They offered much better quality at significantly lower prices and where very popular among the consumers. For a while one could not understand as to how one could offer better quality, variety and lower prices consistently year after year.

There is a thin line between ganging up and teamwork. The major differences is that in the former the intention of the gang is to reap undue benefits, while a team the benefits accrue to it because of its efficiency and the superior performance and advantages delivered to the customer. Authentically generated benefits due the synergy and economy of a team are shared with the customer. This sharing is what makes the differences. It is a system of sharing between the business partners and with the customers as well. It is a benefit-benefit situation and not ‘benefit-loss’. Supply chain management is a concept of team working and sharing.

Core Competence of Companies, Comparative Advantages of nations and outsourcing:

The reason as to supply chain management has become popular during the past decade is the phenomenon of globalizations. Increased competition has made businesses look for core competencies for enhanced performance. If a particular organization in some country has the core competence for a certain product/component/ service, it will get the business for that product/s service. This is called global outsourcing. For instance, a substantial amount of software service work is outsourced from USA to India because several Indian companies have the core competence in providing those services. However, when the work is outsourced to several locations in the world, a high degree of coordination becomes imperative between them and the parent organization and also between themselves. For instance, suppose an American company out sources its software services needs to India, Greece and China. There is need to coordinate between the work being in India and that in USA, similarly between Greece and USA and China and USA. Also, there may be a need to closely coordinate between the work done in India, Greece and China. Thus, global outsourcing has compelled business organizations to look for more effective ways of coordinating the flows of materials/information/services into and out of the organizations. The appropriateness of supply chain management is accentuated when outsourcing globally.