How to manage your suppliers for a competitive advantage

For decades, Ford, General Motors and Chrysler had been the beneficiaries of a post-war boom, basking in near-monopoly market dominance – a combined market share of more than 85%. But rising prices driven by the 1973 oil crisis marked a sudden shift in consumer preference – fueled by the squeeze on consumer pocketbooks. 

For the first time since the late 40’s, US car manufacturers found themselves fending off competition, principally from Japan. Vying now for consumer attention were the likes of the Honda Civic and the Toyota Corolla – compact and fuel-efficient models that provided a reliable and economical alternative to the Model T or the Chevrolet. By the early 70s, US manufacturers were facing a crisis. Surging demand for Japanese vehicles saw the American market share plummet to less than 65% by 1979, with Ford, Chrysler and General Motors obliged to enact a significant gear shift –from proprietary manufacturing to joint ventures with Japanese companies; from complacency on quality and efficiency to innovation in design, engineering and performance.

The so-called Malaise Era spotlights critical differences in the way that competitors approach the design and manufacturing of their products in response to changes in the market or environment. But it also sheds interesting light on how organisations manage relationships within their ecosystems.

Toyota, Nissan et al were strategically poised to ramp up production of their cars in the 70s to meet demand. Why? Partly because they had adopted and mastered lean production principles to drive efficiency and eliminate waste. But that’s not all.

Unlike their US competitors, Japanese car manufacturers favoured closed relationships with their suppliers – deeper, collaborative ties with a small group of trusted suppliers. These suppliers over time had also learned the techniques of lean manufacturing, had built deep expertise in terms of the complex specifications of the products, and were able to offer fast, efficient and customised services to ensure Nissan could meet rapidly increasing demand. American manufacturers, in contrast, operated spot supply chain systems – arm’s length relationships with suppliers whom they would pit against each other to make the best bid, with no promise of allocating their next order to a long-term and trusted partner.

Closed versus spot: which is best?

Organisations today are faced with critically important choices in how they manage their supply chains. Is it better to commit to fewer suppliers and forge long-term, non-adversarial relationships, that can see you learn from each other, tailor and innovate as you build mutual trust and expertise? Or are there advantages to shorter-term transactions that leave plenty of scope for competition and the space to pivot if market conditions suddenly change?

In our US car manufacturing analogy, relational supply chain management clearly favoured the Japanese. But in a world where circumstances can change on dime – where geopolitical uncertainty, trade tariffs, acute competition and quicksilver tech disruption can reconfigure the playing field in real time – the spot system has real advantages for organisations too. Inviting competitive bids and retaining the ability to shift or pivot as needs dictate can afford you valuable options and agility.

Optimising production, leveraging opportunities, managing and mitigating risks means making clear-headed assessments and decisions about how you source your materials, components, products and services. And there are important trade-offs to consider.

Relational management is built on the promise of collaboration and loyalty. But it’s costly. You may end up paying prices that are higher than the market rate or giving your business to your long-term suppliers even when better alternatives are available. You might also want to diversify your supply chain to limit your exposure to the risk of crises – trade wars, geopolitical conflicts, climate or health crises like Covid19. But diversification is hard to enact in relational supply systems, and promises are harder to keep which can make it more costly. A certain extent of “lock-in” might be needed for relationships to be sustainable.

That said, it’s precisely in times of crisis that your trusted supplier will likely prioritise you and your needs over others. The same trusted supplier will also be more likely to pivot and adapt to your changing needs and create space at the table for you both to figure out solutions in real time. When shocks happen, tightened relationships are more rigid and offer less pliancy, but they are also harder to break apart.

It’s also worth remembering that in a world where sustainability concerns and requirements around due diligence and environmental responsibility are only set to become more acute, requirements are very likely harder to meet unless your ties with your suppliers are essentially relational.

Supply chain management: strategic decisions and an eye to the future

How you approach sourcing involves complex strategic decisions. It requires that you think deeply about the distinct nature of your product or service and integrate the full spectrum of variables and exigencies in your scenario planning.

Say you are an H&M or a Levi's. Women’s fashion is typically prone to fast change and dynamic shifts in demand. In this scenario, a relational system that favours expertise, loyalty and wiggle room to accommodate changing needs is probably going to suit you best. Menswear on the other hand is likely to be more stable, more predictable, with tastes, styles and demand less likely to change overnight, so the spot system will afford you benefits in terms of competitive bidding, cost saving, greater efficiency and flexibility.

The way that you interface with your suppliers cannot be decoupled from your other strategic and managerial decisions. 

Nissan has long cleaved to the relational model of supply chain management – a model that enabled it and other Japanese car manufactures to forge ahead in the 1970s. The organisation has historically helped its suppliers as a group, undergirding the long-term, stable production of its cars, in sickness and in health. Yet in 1999, Carlos Gohn’s massive restructuring of Nissan’s supply chain realised massive financial benefits and new flexibility in the short term – a shake up that also saw Nissan enter the zero-emission electric car market. Under Gohn’s helmsmanship, Nissan broke with and then reinstated closed relationships with is suppliers, and while his subsequent downfall certainly rocked the boat for Nissan, in the longer term, it’s quite likely that the shakeups unlocked a new capacity for pivoting and restructuring that the company has gone on to leverage.

In June 2026 I will be exploring this and more in my new programme, Supply Chains Leadership. The programme will dig deep into different approaches in managing your suppliers, risk, using data, governance models, leadership and much more and we’ll be extracting lessons from Toyota and other world-leading organisations. Click here to find out more.