The Tombow Pencil Co. established in the early 20th Centaury has survived many difficult times in Japanese history, including the Second World War, numerous recessions and fundamental technological changes affecting its market. However, profits have declined and remained low during the 1990’s despite efforts to modernise.
In reviewing this case it is tempting to view its current methods as inefficient, with an over-reliance on many subcontractors, with the temptation of following a Western European/USA model of centralising production and driving tighter Arms Length Contractual Relations (ACR) to drive efficiency and reduce costs.
However, the business system operating in the region is of great importance. There are many deeply rooted cultural influences which can affect the attitudes towards business, but by accepting and embracing the local business culture a smoother more successful and ultimately less risky path to success may be possible.
In this analysis, the fundamental Japanese principles of the Keiretsu, the close knit knowledge sharing manufacturing network, is seen as the main focus for improving the future prosperity of the company and its suppliers.
Table of contents
Analysis of Tombow Subcontracting
The Changing Business Environment
The Need for Change
Lessons from International Business Systems
The Western Approach
The Japanese Business System and Culture
Appendix 1 – History (taken from case study)
Appendix 2 – Tombow Case Study Exhibit 2-B
The Tombow Pencil Co. Ltd is a Japanese writing instrument manufacturer, enjoying sales in 1990 of 16,133 M Yen. Its largest competitor is Mitsubishi, with sales of over 41 M Yen. It is clear however that Mitsubishi are outperforming them in terms of profits, with Tombow demonstrating a worrying trend of increasing sales but reducing profits and margins in recent years
Analysis of Tombow Subcontracting
The supply network is set up such that Tombow is the core firm having established bilateral relationships with subcontractors. Some of Tombows subcontractors have in turn engaged with further subcontractors. The advantage of this set up is that Tombow does not need to perform all tasks but instead can delegate tasks to the subcontractors. The disadvantage is the extensive management that is needed to control the firms and to assign the tasks, e.g. a staff of 5 members has to coordinate 35 component vendors and 11 assembly subcontractors. Application of such a coordination process is complicated and might lead to some important tasks being overlooked. An advantage is that there is a team dedicated to trouble shooting technical problems all be it one that is limited in scope. In the true sense of the Japanese business system, Tombow is lacking in the influence and scope of its consulting functionality for knowledge acquisition, storage and diffusion within the supplier network (Dyer and Nobeoka) (1).
Applying a consulting team to the 7 cooperative factories and its subcontractors may help to increase productivity as the cooperative factories are working independently from each other. Taking the assumption that they are in competition with each other it would be counterproductive to bring them into direct contact with each other. From this perspective, having bilateral relationships established between the subcontractors and their subcontractors at an operational level is the right choice, but enhanced with top senior management contact between the key subcontractors and Tombow itself.
Two of the 6 vendors for Object EO production present more than 2/3rd of the Object EO’s costs. The company Nagano is located at a distance from the Tombow factory which will make trouble...
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