Lean supply and price-based global sourcing — the interconnection

Just-in-time delivery, design for manufacturing, and early supplier involvement based on frequent and close interactions between buyers and suppliers are some of the basic conditions of lean supply in the automotive industry. Many of these conditions appear to be difficult to achieve in global purchasing. This is because global purchasing has mostly been seen as a means of putting price pressures on suppliers. The aim of this paper is to highlight the interconnection between global purchasing and lean supply. A strategic project “live or die” was chosen within a major global auto original equipment manufacturer (OEM) located in North America. To get as complete a picture as possible of the context and causal conditions, and to be able to make coherent benchmarks with objectives, global purchasing was followed across one major project rather than across different ones. The data was collected through interviews both in the OEM and in six suppliers and validated by triangulation and internal seminars. The analysis was done by screening data into some of the conditions identified in lean supply, which were observed to be the most relevant in the case company. We found that lean supply is affected negatively by global purchasing based on price and thus, price-based global purchasing should not be used for sourcing complex components that require early supplier involvement and intensive engineering collaboration between OEMs and suppliers. Instead, it could be proactively used in the sourcing of less complex modules and simple components.