Buildling Agile Relationships with Suppliers: A Lesson from Toyota

Toyota didn't start making cars until the 1930's. Now they're the biggest car company in the world.

I just recently read a Boston Consulting Group white paper about the way that Toyota treats its suppliers which I think is really interesting. It's not easy to become a Toyota supplier. They have very exacting standards and expect to be given very deep access to the inner workings of any company that wants to become a supplier. Toyota's goal is to avoid "information hiding" allowing information that is useful to Toyota to flow from the supplier and vice versa. Once a company is a Toyota supplier Toyota work very hard on two things. They work very hard to improve the design and production of whatever components a supplier makes for them. As a result of this, they also seek to share the benefits of these productivity increases between Toyota and the supplier and maintain the suppliers profitability.

The relationships between customers and suppliers, especially for IT services is often very fraught. It's quite usual for "information hiding" to be built into the way that work is bid for and commissioned. A client asks suppliers to pitch for a piece of work and very often, price is used as the sole piece of information on which to make a decision. It's easy for the seeds of future disaster to be sown at this point. The client has just commissioned a piece of software that they don't fully understand from a supplier who has either bid so low because they have no idea of the full costs of implementing what the client wants, or they are "low-balling" to get the work with the hope that they can ask the client for extra money for changes further down the line. This isn't a good basis for a successful project.

Agile methods can get round this problem. Agile methods encourage information sharing between client and supplier. By delivering software in small iterations, Agile methods allow the suppliers to get paid a reasonable rate for what they do at a low risk to the client who gets to see working software early in the process. Once they see some software working, they have a chance to change their mind before it's too late.