What Westerners Don’t Know About Keiretsu

Many U.S. executives believe that the keiretsu system is inefficient and inflexible. So what do Toyota and Honda understand that you don’t? An excerpt from Harvard Business Review.

by Jeffrey K. Liker and Thomas Y. Choi

Editor’s note: No one has missed the recent news headlines detailing the flat tires being experienced by the American car industry, even as Japanese competitors continue to thrive. One enduring key to the success of Toyota, Honda, et al. has been the keiretsu model, which leverages shared business interests among a tight network of suppliers.

In their study of how Toyota and Honda built their innovative supplier networks, published in a recent edition of Harvard Business Review, researchers Jeffrey K. Liker and Thomas Y. Choi found that the carmakers followed six distinct steps: understand how their suppliers work; turn supplier rivalry into opportunity; supervise their vendors; develop their suppliers’ technical capabilities; share information intensively but selectively; and conduct joint improvement activities. Our excerpt looks at how Toyota and Honda fired up competition even with a limited vendor list.

Full Story: http://hbswk.hbs.edu/item.jhtml?id=4791&t=operations