I read this book recently “The Machine that Changed the World“. It is indeed a good book every businessman should read it. “The business is run on trust” or “the business will be run on trust”. When we hear this statement it seems odd, however it is true Trust is the factor. I wrote often about ‘interdependent co-arising‘ (Blog 1, Blog 2 and Blog 3). When I read this book I realized that it is practiced in Japan for many years. Toyota has substantial equity share in its suppliers and the suppliers of suppliers. This is a complete mesh of cross-locking equity structure. They trust each other decide a profit margins rather than hiding the cost structures. According to the book “…This system has replaced the vicious circle of MISTRUST into VIRTUOUS circle of COOPERATION…”.
The cross linking equity structure goes to a deeper level and different competitors also own each others share. This shareholding pattern is to help each other raise funds. Reference to this is – “The Machine that Changed the World” page 194 perhaps it is edition 1.
What I found interesting (page 151 of the book I think first edition) – when the volume of demand changes and assembler gives notice to the supplier and in case the volume (demand forecast) fluctuates “…The assembler will work with the supplier to look for other business…”. This is not only interesting but also a surprising and welcoming effort to build trust. One more thing I found very impressive and useful – “…we (suppliers) work without safety net, so we cannot afford to off the high wire…” and thus suppliers maintain the quality not only for their own sake but also for the assemblers.
The other interesting fact is not just production but also product development is done in cooperation. We hear “crowd-sourcing” as a means for innovation however, a crude system has been used by Toyota for years now. New product development at Toyota involves the suppliers and major work of NPD is done by the suppliers.
One more interesting factor I realized while reading the book. When we say “one customer at a time” and “managing customer relation in Marketing”, this concept was far more ingrained in the Lean system of sales even in 60s. So beyond Operations the Lean system has been a pioneer in Marketing and Sales too.
Still after praising the book I am of the opinion that there would be some method which will change the game even further. The question to ask is when and how (which I contemplated earlier)?
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