Keiretsu : A Japanese concept

Keiretsu is defined as a system, series, grouping of enterprises, order of succession) is a set of companies with interlocking business relationships and shareholdings. It can be briefly described as a long continual business relationship, and has been a significant force in the Japanese economy for over sixty years

Keiretsu relationship can be defined as a series of repetitive transactions that occur long term between two or more entities in an asymmetrical relationship where one entity uses its position to govern the relationship. A Keiretsu relationship is based on close and stable business collaboration between affiliated entities. This can be especially useful in company’s supply chain management to get a competitive edge.

• ·    long-term trade relationships that often prevent third parties from participating freely in the market : This can create excellent economic efficiencies and make sense among companies that specialize in a particular product
• ·    companies often hold significant amounts of each other's stock to prevent other companies from acquiring shares; This can create stability in the stock market  and provides protection against hostile takeovers
• ·    fixed non-symmetrical trade between companies

Furthermore, Keiretsu is often established to

• ·    move low-value-add production to subsidiaries
• ·    ensure continuous high quality production capability to avoid excess production and consumer problems
• ·    improve risk management, especially with regards to variable or uncertain demand
• ·    ensure that increased sales mean a corresponding increase for subsidiaries
• ·    prevent technological information from being disclosed to competitors through close continuous relationships

A close examination of each of the above points is based on an underlying idea that can improve your supply chain. Specifically:

• ·    strategic long-term trade relationships with key partners with a long-term focus on process improvement can generate excellent efficiencies
• ·    a minor position in your key partners demonstrates commitment, and it can help provide financial stability in unstable times
• ·    non-symmetrical trade stabilizes the relationship
• ·    seasoned executives have a lot to offer, and should consider consulting beyond retirement from full time positions
• ·    companies with more resources and established processes should transfer those capabilities to their strategic suppliers to improve processes and reduce costs
• ·    a company should be focused on high-value-add production, and since value-add production is relative, low-value-add production for one company might be high-value-add production for its supplier
• ·    the best way to maintain quality is to maintain relationships with suppliers who consistently produce quality
• ·    risk can be shared among partners and reduced
• ·    strategic relationships can insure that your key suppliers succeed and remain stable
• ·    forming key relationships with key suppliers that can adapt to changing demand minimizes the spread of trade secrets

Thus correctly applied Keiretsu teachings can rejuvenate your supply chain, and eventually your business.