Originally published by Adrian Gonzalez on LinkedIn: When You Focus More on Getting the Best Deal Than Developing the Best Relationship
Earlier this week, Stephanie Gleason at the Wall Street Journal reported that "General Motors Co. is fighting to get equipment and inventory from a family-owned auto parts supplier that filed for chapter 11 bankruptcy protection last week, saying a contract dispute threatens to shut down 19 GM assembly plants in North American and lead to 'tens of millions of dollars in losses.'" The article goes on to say:
Clark-Cutler-McDermott Co., (CCM) a 115-year-old interiors supplier based in Massachusetts, filed bankruptcy Thursday and blamed the move on an unprofitable contract with GM that has drained it of $30,000 a day since 2013 [emphasis mine]. In responses filed Friday, GM accused the supplier of using the bankruptcy process and its position as a critical parts supplier to protect personal interests rather than honor contracts.
As is typically the case, both sides have to shoulder the blame for the breakdown of this relationship.
Why would CCM agree to a money-losing contract? Probably for the same reason so many suppliers accept money-losing agreements: it lacked the discipline to say no and walk away from a marquee customer dangling a very large revenue opportunity in front of it (emphasis on revenue, not profitability). They were like sailors lured by the Sirens' song, straight to a shipwreck.
And how can General Motors let this relationship with a single-sourced, critical parts supplier deteriorate and fail? Probably for the same reason so many 800-lb gorillas get themselves into this situation: instead of taking a Vested approach to supplier relationship management, they remained a penny wise and pound foolish.
Simply put, as I've written many times before (see links below), if you continue to use the same old same old approach to supplier relationship management, you will continue to get the same old same old results.
Coincidently, Yossi Sheffi at MIT published a post on LinkedIn yesterday titled Second Thoughts on Second Sourcing that relates to the GM situation. "Not keeping all of your eggs in one supply basket is an appealing strategy to increase supply chain resilience. But it's not always effective," Sheffi writes, and he goes on to outline five questions to assess the risks of multi-sourcing. He also states the following:
Multi-sourcing, of course, isn't the only way that companies can work to ensure a reliable flow of supplies. The main alternative to multi-sourcing is investing in key supplier relationships [emphasis mine]…But developing these kinds of deep relationships is expensive and time-consuming, and as a result they are typically confined to strategic and, sometimes, critical supplies.