Katsuki Aoki

Thomas Taro Lennerfors

Some of Japan’s most dominant companies owe their success not only to technology and process expertise but also to an often-overlooked factor: During the past decade, they’ve been quietly turning their supplier relationships into a tool for innovating faster while radically cutting costs. Welcome to the new keiretsu—a modern version of the country’s traditional supply system.

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Reprint: R1309J 
During the past decade, some of Japan&#8217;s most dominant companies have been quietly turning their supplier relationships into a tool that helps them innovate faster while radically cutting costs. This is the new keiretsu&#8212;a modern version of the traditional system in which buyers formed close, collaborative associations with suppliers. 
Toyota provides a compelling example of how keiretsu, which lost luster during the cost-cutting of the 1990s, is being revived and reinvented. The company today has vendor relationships that are more open, more global, and more cost-conscious than traditional keiretsu ever were and that provide even stronger bonds of trust, cooperation, and educational support. 
The authors examine the evolution of Toyota&#8217;s keiretsu and explore the numerous lessons for developed-world and emerging-market companies seeking to improve their supplier relationships for lasting gain. Such companies should think short-term and long-term; know their suppliers well and develop trust with them; balance implicit and explicit communication; identify the suppliers most worth improving; and involve suppliers in developing new products. 
Those elements are critical even in a hypercompetitive, cost-obsessed environment, because as they speed production and boost innovation, they reduce the hidden costs of the arm&#8217;s-length supplier relationships prevalent in the West.

The New, Improved Keiretsu

Reprint: R1309J During the past decade, some of Japan’s most dominant companies have been quietly turning their supplier relationships into a tool that helps them innovate faster while radically cutting costs. This is the new keiretsu— a modern version of the traditional system in which buyers formed close, collaborative associations with suppliers. Toyota provides a compelling example of how keiretsu, which lost luster during the cost-cutting of the 1990s, is being revived and reinvented. The company today has vendor relationships that are more open, more global, and more cost-conscious than traditional keiretsu ever were and that provide even stronger bonds of trust, cooperation, and educational support. The authors examine the evolution of Toyota’s keiretsu and explore the numerous lessons for developed-world and emerging-market companies seeking to improve their supplier relationships for lasting gain. Such companies should think short-term and long-term; know their suppliers well and develop trust with them; balance implicit and explicit communication; identify the suppliers most worth improving; and involve suppliers in developing new products. Those elements are critical even in a hypercompetitive, cost-obsessed environment, because as they speed production and boost innovation, they reduce the hidden costs of the arm’s-length supplier relationships prevalent in the West.

The New, Improved Keiretsu

Summary.

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