10 RULES OF JAPANESE KEIRETSU CONCEPT FOR IMPROVING RELATIONSHIPS WITH SUPPLIERS

The Japanese automotive industry has benefited significantly from the 'Keiretsu' concept which Toyota is praised to be the inventor and leader in demonstrating the effective execution of the concept.  In a recent article by Harvard Business Review, the 'New, Improved Keiretsu' has been described as the most appropriate approach for reduction of costs and becoming globally competitive which has become a significant factor in today's turbulent financial markets.

The traditional Keiretsu concept is a type of relationship; between a buyer (Original Equipment Manufacturers in the case of automotive industry) and its key suppliers, on the basis of an obligational commitment between firms. High levels of trust and goodwill are the most important attributes that define relationships rooted in the concept.

By the new, improved Keiretsu, the article refers to the re-configuration the relationship strategy, strongly emphasizing cost-reduction for globally competitive supply chains.  In short, the article describes 10 rules for effective practice of the Keiretsu concept, which are;

1. Think short-term and long-term at the same when building relationships with suppliers;
2. Become globally cost-competitive by working on the basis of mutual-advantage;
3. Engage with suppliers early in the product development process;
4. Share benefits;
5. Know your suppliers, their processes and work places.  Establish Joint Ventures for key/critical items/commodities/services;
6. Develop trust, cooperation, goodwill and support;
7. Balance explicit and implicit communication with suppliers to avoid miscommunication and mistrust;
8. Know why you are doing business with a particular supplier. Develop a portfolio of suppliers with regards to their performance in:
• quality,
• cost,
• delivery,
• people,
• development,
9. Identify root causes of problems and do not just terminate and switch to another firm; 
10. Build personal relationships at all levels.

The Japanese Keiretsu concept would be a very good model for improving the transactional, short-term and adversarial relationships in the construction industry, however due to many differences in construction industry markets, projects and firms it is very hard to adopt this concept to construction supply chain relationships (See Figure below).

Besides the cultural differences between countries (the conduct of engaging in transactions is very different in the West compared to Japan), construction supply chains are generally characterised by lack of trust which is at the heart of the Keiretsu concept.  Without the trust and goodwill of parties engaging in relationship development process it would be extremely difficult to build long-term, collaborative and sustainable relationships within and between construction supply chains.

There are only a handful of studies which look into how to develop and maintain trust in construction supply chain relationships but more research is needed to investigate the ways in which trust can be built between firms.  Future studies should look at identifying trust from every angle possible in order to understand how to bring the Keiretsu concept to construction supply chains.  Hence the reason why it is very important to study TRUST from ESPIO (Economic, Social, Psychological, Inter-personal and Organisational) dimensions (which I introduced in my previous post, click to read)  for building appropriate trust development strategies for a mutually trusting relationships in construction supply chains.