I think we've all heard the saying, "What goes around comes around." If you work in this business long enough, you will come to find out what this really means.
The latest craze is for large corporations to reduce the number of suppliers. The rationale is that it's a lot easier to achieve engineering, quality and cost-reduction objectives when you're dealing with fewer suppliers.
This process we're going through is not new -- it's a part of an ongoing cycle, and it's completely different from what the Japanese companies have achieved.
The part of the cycle we're in now is when the purchasing departments decide they can better control costs if they just deal with a few larger suppliers. But the workload really doesn't go away; it's just transferred to the tier one supplier.
It's just a matter of time before purchasing puts pressure on the tier one supplier to reduce prices. You can only do this so long before the supplier on the end starts to go under. When this happens, the next-tier supplier often buys him out. As this process continues up the line, the tier one supplier becomes even larger and eventually itself becomes a large corporation.
It's no longer lean and mean competing with other suppliers for every scrap of business. It has become virtually a captive supplier. It's a lot easier now to pass cost increases along to the customer rather than aggressively fight to reduce them.
The large corporation no longer has the option to just find another supplier; at this point, most eligible suppliers no longer exist. By this time, the tier one supplier has become a big operation and likely is running at or near full capacity. Finding another supplier with enough open capacity would be unlikely, so you begrudgingly accept price increases and inefficiencies.
This is not the scenario that the masterminds of today's strategy will portray, but that's what will happen. You don't believe it? Remember Briggs, Murray Body, Fisher Body? Not long ago, they made just about all the stampings, assembled complete bodies and did most of the designs.
With no competition they became fat and inefficient. It got so bad that the Big Three finally had to buy them out.
These acquisitions were so successful that the Big Three went on a buying spree, depleting the number of outside suppliers. Suppliers that were left had to become lean and mean in order to survive. As a result, they became more competitive than the inside suppliers, and the process began to reverse itself.
All this shuffling can in no way be cost-effective, to say nothing of how disruptive this is to people's lives and the well-being of communities.