ACTIONABLE ADVICE FOR FINANCIAL ADVISORS: Newsletters and Commentaries Focused on Investment Strategy

Shoulder Pads and Supply Chains

January 22nd, 2013

by Mariko Gordon

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Mariko Gordon

I'm not quite sure how I found myself watching the first few episodes of Star Trek: The Next Generation over winter break with my older son Haden. For all I know, he might have been feigning an interest in order to con me out of something later on.

In any case, I hadn't watched the show since… did that show really first air in 1987?! I actually remember how excited all of us Star Trek nerds were about the show, and how cool we all thought everything was - the costumes, the sets, the new improved Klingons. It was so much less cheesy than the original show.

Except, with the benefit of 25 years of hindsight, it really wasn't.

The 80s are writ large all over the futuristic costuming, not to mention (for those characters who had any) the hairstyles. Somehow, futuristic imagining can't ever seem to achieve escape velocity from the present in which it's being imagined.

But it did remind me of something. Just a few weeks earlier I had another brush with the late 20th century, this time in the guise of a company we were visiting. Apparently, one of its vendors had observed that striking a deal with them was, "like doing business in the 80s." Here, and unlike my Star Trek experience, it was meant as a good thing.

Let me explain.

Right around the time Next Generation premiered in 1987, a man named Jose Ignacio Lopez took over parts purchasing for Opel, one of General Motors' European brands. He was hired because he was a change agent, as you can see here in this excerpt from The Independent from July of 1993: Lopez's innovation was to turn the pricing principle on its head. Prices were no longer to be set by production costs. Rather, production costs had to be tailored to the prices that clients would accept. Having established such a price, he would then take a margin for the supplier - 'since obviously they must make a profit' - and whatever is left is production costs plus the car company's own profit. This did not imply a drop of 5 or 10 per cent, but 20 to 30 per cent or more.

'I do not want to hear any more that prices are already down too far and you are making no profits,' Lopez told suppliers. 'We have to change our attitudes. No more excuses. (…) The Spaniard was unforgiving - either his exacting requirements were met, or the suppliers were cut off.

Lopez became the symbol of a new paradigm between vendors and customers, one that spread like a pandemic across businesses worldwide.

To put it very simplistically, something that had been largely an amicable partnership of a vendor marking up its costs and passing them along to its customer, who did the same all along the supply chain, became ruthless and antagonistic, seemingly overnight. This included not just the cost to manufacture, but other costs to do business, as well. Things like electronic data interchanges (EDI) or just-in-time supply management. (Wal-mart was another big player in the "squeeze your vendor" movement.)

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