The Impact of Lean Manufacturing on Sourcing Relationships

By Klier, Thomas H. | Economic Perspectives, July-August 1994 | Go to article overview

The Impact of Lean Manufacturing on Sourcing Relationships


Klier, Thomas H., Economic Perspectives


During the last decade, U.S. manufacturing has experienced various changes in its cyclical and structural environment. Among them are the severe back-to-back recessions of the early 1980s and the widespread restructuring efforts undertaken in its wake, as well as increased foreign competition, great exchange rate volatility, and most recently, the build-down in the defense sector. In addition, the very core of manufacturing has been changed by the introduction of a new paradigm, the so-called lean manufacturing system. It deserves special attention because of its potential long-term effects.

Since the early 1980s, manufacturers have moved away from the traditional Fordist system of mass production toward a system of lean production.[1] Fordism separated intellectual and manual work and broke down the latter into easily learned, repetitive steps. Based on a continuously moving assembly line, Fordist manufacturing could mass-produce a limited number of models at very low cost and therefore came to dominate most of the world's manufacturing from the mid-1950s through about 1980. Lean manufacturing, by contrast, emphasizes quality and a speedy response to market conditions, using technologically advanced equipment and a flexible organization of the production process. By all accounts, lean manufacturing is a more efficient system of production. Aoki (1988) suggests this is because its methods of organizing and coordinating production allow a speedier and more timely horizontal coordination between different manufacturing operations and a subsequent reduction in costly inventory.

Lean manufacturing was pioneered and first applied successfully by Toyota Motor Company in the 1950s; since then it has become the practice of many Japanese manufacturing companies.[2] Recently American manufacturers have adopted it in order to compete effectively both at home and abroad. Adopting lean manufacturing also affects the way a company is managed and how it structures its relations with customers, employees, and suppliers; the ramifications of this change extend far beyond the shop floor of the assembly plant.[3] U.S. automakers introduced lean manufacturing rather quickly. In turn, they greatly influenced the way many other businesses organized their factories, especially auto suppliers. The Midwest felt the greatest impact from these developments since it is the center of automobile assembly in the U.S. (see figure 1).[4] Complementing recent work by Ballew and Schnorbus, this article examines how the introduction of lean manufacturing affected the structure of the auto supplier industry and the relationships between assembler and supplier companies.[5]

The changing structure of the automobile supplier industry

The U.S. automobile supplier industry is large and diverse, encompassing firms that produce thousands of different parts, from a simple gas cap to a complex engine. Table I outlines the recent trends in the motor vehicle parts and accessory industry as defined by standard industrial classification (SIC) 3714, "motor vehicle parts and accessories." The establishments in SIC 3714 account for about two-thirds of all shipments of automotive parts and stampings.(6) As it is almost impossible to describe the industry by means of published census data, the following analysis draws on other sources of information.(7)

[TABULAR DATA 1 OMITTED]

The structure and development of the automobile supplier industry must be analyzed in the context of developments in the automobile industry, since the demand for suppliers' products is derived from the demand for automobiles. Cyclical and structural conditions of the auto industry also tend to shape the supplier industry.(8) The major recent structural change to affect the auto industry has been the implementation of lean manufacturing techniques. Lean manufacturing is characterized by an emphasis on product quality; quality controls are incorporated into the production process, for example through the use of "lean" inventory stocks for intermediate and finished goods, and through including multiple responsibilities in individual job descriptions and encouraging worker participation in production management. …

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