[Transcript]

[00:00:00] Jan Griffiths: This is the Auto Supply Chain Prophets podcast, and we are on a mission to bring you the latest insights and thought leaders leading the charge on supply chain transformation in our beloved automotive industry. This podcast is powered by QAD and AIAG. I'm Jan Griffiths, your host and producer. Let's meet your co-hosts.

[00:00:27] Jim Liegghio: I'm Jim Liegghio from AIAG.

[00:00:29] Terry Onica: I'm Terry Onica from QAD. Let's dive in.

[00:00:36] Jan Griffiths: Hello, and welcome to another episode of the Auto Supply Chain Prophets podcast. Let's check into my co-host Terry Onica. Terry, what you been up to?

[00:00:44] Terry Onica: Well, last Friday, I had a great opportunity to have lunch with Fred Coe from GM who's been on our podcast before, and Steven Song from Ford, and also Sava from AIAG. And we just touched base on the industry issues that are going on, making sure we were all up to date. There's lots going on, actually, believe it or not, with EDI Barcoding and some MMOG/LE issues.

It was really good to see OEMs getting together to inform each other, encouraging each other to do the collaboration and being so open to do that. And I thought back to early in my career, you know, how it was just the Detroit three that participated in AIAG. And it's so nice to see that now it spreads to Honda and Nissan and everybody else, and they're all just keeping each other updated and collaborating. So, it was great. I really enjoyed the lunch.

[00:01:33] Jan Griffiths: First of all, the idea that you had a GM guy and a Ford guy at the table is like, what? Okay, what's happening there? But I agree with you, I think there is so much collaboration that's taking place now. And in our last episode, we interviewed Tanya Bolden, who leads the supply chain initiative at AIAG, and she's tasked with bringing together all of the OEMs to define certain standards in whatever area of supply chain that happens to be.

And we know that is not easy, but we also know that the behavior of the tier ones and tier twos is directly impacted by the behavior of the OEMs. So, if the OEMs are more collaborative in their style and want to find resolution to something, then that's emulated by the suppliers. I can't tell you how many times I've been in rooms where somebody will say, "Well, GM did that, so we should be able to do that to our suppliers." So, this idea of understanding OEM behavior, I don't know sometimes if they realize how much of an impact they have on the entire industry.

[00:02:40] Terry Onica: I know exactly what you mean. I don't think they realize it either. And how much the tier ones, definitely like what you say, they're gonna do what the OEMs are doing, even if they don't like it. And they like to complain on both sides. They like to complain, they're getting mandated to do it. Yet, if it's really good best practice and they should be doing it, they'll say, "Well, if you mandate it, I'll do it." But I'm seeing glimmers of hopes, Jan, and so I'm so happy about that.

[00:03:04] Jan Griffiths: Yes, I do too. And in this episode today, we are gonna focus in an area that's near and dear to my heart, and we're gonna start to talk about negotiations. Because, as we've said many times, it's not about the what; it's about the how. And this behavioral aspect of how the OEMs negotiate determine how the rest of the supply chain goes.

And in the auto industry, we're famous for our tough negotiations. I mean, we are, right? We're known for that. The OEMs push on the tier ones, the tier ones push on the tier twos, and off it goes.

But here's the real question, and that is, is this adversarial style really serving us anymore? Because we often think that a sign of strength is how tough we are in negotiations, but my experience tells me that, hey, you might win that little battle for a day, but you sure as heck are not gonna win the war on that one.

I wonder if it's time for us to look at this a little differently. And if we look at the last WRI study, it shows that there are cracks in the supplier relationships between suppliers and OEMs. And we've got to talk about a different way forward.

And it's one thing to say, "Oh, well, we gotta be more collaborative." Try telling that to two people going into a negotiation head to head on supply of widget X for the next five to six years. You know, no, we're very much like, we know we gear ourselves up for battle and off we go.

So, that's why today I am thrilled, Terry, that we have on the show a global leading authority on this subject. It is Kate Vitasek and she has built her career on rethinking how companies work together. She is the force behind the Vested Model, a philosophy that turns win-lose negotiators into win-win collaborations. She is the recognized global authority in the field and the author of, not one, but seven books on the subject. So, does she know what she's talking about? Oh, yes she does. Kate, welcome to the show.

[00:05:15] Kate Vitasek: Well, thanks for having me, and I'm excited to share a little bit of our research. You know, I've been studying the art, science, and practice of highly collaborative business relationships for almost 25 years at the University of Tennessee.

So, it's always fun to get to share just a little bit of our research and maybe inspire people with the art of the possible when you turn from negotiating to collaboration.

[00:05:39] Jan Griffiths: Yeah, I love that. Now, Kate, you talk about the Vested Approach. For our listeners who may not be familiar with that, just give us a high level summary. What is this vested approach all about?

[00:05:50] Kate Vitasek: Well, the simple word vested, I think kind of gives it away just a little bit. Because when you think about the word vested, most people will say, it conjures up is I have a vested interest in your success. I have some skin in the game, a win-win type of a relationship.

And that's really what we do with the work, the process, the business model of Vested is we teach people how to, instead of negotiating, when you negotiate, you sit across the table, and when you're collaborating, you're on the same side of the table. And so, that's where it all starts, is by thinking about the process and just getting that mindset that, you know, if you're negotiating, your interests aren't aligned and you can go at it, like you said, Us versus Them, and try to hit harder and harder.

But when you actually stop negotiating and you use transparency and problem solving to co-create, magic starts to happen. Negotiation is ingrained, and especially the procurement people, the supply chain folks, they're used to getting their way. This term, this deal, this time, instead of how can we take a step back and lower total cost of ownership for the system, for the supply chain, that we can share success and share those rewards from collaboration.

[00:07:09] Terry Onica: Imagine for a second we could put you in front of an audience of OEMs, tier ones, tier twos, where we have these adversarial relationships down the supply chain. What would you say to them to get them to embrace more of a collaborative style?

[00:07:25] Kate Vitasek: Well, it's interesting because I always say you can't just change a policy or go, "Oh, I'm gonna be collaborative today." It really starts, I'm just saying, "Change the world, one relationship at a time." So, I would tell them, pick your most strategic relationship. One that isn't working but should be working. And it doesn't have to necessarily be adversarial or toxic or horrible, but it's just not as collaborative, it's not as innovating. Innovating, as it should be.

And so, give it a try. And so, the vested process really is a methodology. And so, you come to the mindset that, you know what? We were negotiating, and I wanna put that old school way of negotiating. Even if it was more modern, interest-based approaches. You can get to yes, but you are still back at the negotiating table. And so, let's put the concept of negotiating away for this one relationship. Give it a try.

[00:08:26] Terry Onica: What do you see once you start, a company starts to embrace this collaborative relationship with their suppliers? We know culture is really important. I know Jan loves to talk about culture, but how long does it typically take somebody to kind of get that into their culture?

[00:08:42] Kate Vitasek: Well, and again, this is why I say, "Pilot it. Change the world one relationship at a time." But I'll give you an example from the Canadian governments between the Island Health Authority and their doctors. Toxic, even bullying, right? And so, it was very much Us versus Them in how they got to their contract, and it was very frustrating.

And so we sat down for three days in an offsite. There's five rules in the vested methodology. So rule one is about alignment, outcomes, a shared vision. What they do is we create what's known as a statement of intent, and we do something similar to the WRI Study. It's called a compatibility and trust assessment. So we put that trust score front and center for that relationship.

When I look at the WRI study, it's collective. We are like, this is your relationship front and center. You can't hide from that. And so, we challenge them. Do you want this relationship to work or do you wanna continue negotiating to get your contract?

And so, if they're willing to change their mindset. And we go, you know what? When you leave here, but for the next three days, we're gonna use some tools and tricks and tips to help us rethink this relationship. And the physical act of working together to come up with a statement of intent. Using collaborative tools instead of negotiating tactics, starts to get people to walk down the path and they like what they see.

They walk outta that meeting going, you know what? This collaboration thing, now that you've kind of taught us and given us some tools, I kinda like where it goes. And then if they like that, then they go to rule two, to rule three, to rule four, to rule five, and voila, at the end of the process, they have a contract that really is win-win. So you're not just saying win-win anymore, you're actually becoming vested in each other's success through alignment of interest.

[00:10:53] Jan Griffiths: Yeah, I like that. And I like your idea of co-creation, right? This co-creating the agreement, 'cause so often in automotive, the way that it goes is, "I want this. You are the supplier, you will give me that, or I will take the business away." I mean, that's simplified, but that's what happens.

But I think the OEMs have learned, and even the tier ones for a certain extent, that if you come in like that with the bully, like, "Do what I want or I'm gonna punch you in the nose." They've learned that you could do that, but suppliers end up going outta business. They end up going bankrupt. So, who's winning at the end of the day? Nobody's winning in that kind of scenario. So I think there is some sensitivity now that, hey, maybe we better figure out how to collaborate and how to work together.

But the one thing that I have heard several times in the last two to three years, and actually the first time I heard this was from John McElroy, who's a well-known thought leader in the auto industry, and he said, the OEMs often align on the senior level with the tier one senior level CEOs, right? And they are, yeah, yeah, we're gonna work together, we're gonna be collaborative, where it all breaks down is the buyer level. By the time it filters all the way down, the behaviors on the front line are very different because we reward that sort of tough guy behavior. How do you get people off that Kate? I mean, give us an example. I know some of the companies you work with are not automotive, but they're pretty significant companies.

[00:12:26] Kate Vitasek: Yeah, so BP, EY, Leidos, in the defense sector, so usually some big, big companies. And the way that you get people to change is to change one step at a time, right? And so I like to use this analogy of going to Mount Everest. You don't get to Mount Everest, just snap your fingers and you're at the top. Instead, it's one step at a time.

So you have this intent, as you mentioned, the leaders at the top wanted to be collaborative and it breaks down when you go further down the organization. And so, this is where we would take and create a two in a box deal architect team. So that buyer is tagged to the salesperson, and that happens all the time naturally, but usually it's stuck there. But we go deeper with that and we create what's called a deal architect team. So, operations to operations, planning to planning, right? Leader to leader. And so you create this two in a box deal architect team, and you challenge them to look at the ways that they're working.

And there are five rules and 10 contractual elements to vested. And what you see is when people can step out of the negotiation mindset and start to look at the relationship, they're cheating on the rules, not because of a lack of intent, but a lack of the organizational reward structures.

For example, procurement, one of the absolutely horrible, horrible metrics that procurement people have is called purchase price variance. And so, if I get rewarded, if I bought something for a dollar, Terry, I can come back to you, and if I can get the same thing for 97 cents, then I get rewarded. My metric is on PPV, and I may even get a bonus. So it's now in my best interest to go beat up on you, Terry, even though the bosses said you need to be more collaborative.

So we have people go through the two in a box deal team, right? That isn't just at the leaders, but it's at where the work gets done. They go through each rule and they challenge how they're working and going, well, that metric, that just creates a perverse incentive, doesn't it? Well, okay, well, you can throw that metric out. And so, the team then is empowered through guardrails. And so the bosses at the top set the guardrails, and as long as they stay in the rails, they can change the processes.

So, gosh, you know, now that metric, purchase price variance doesn't make sense. And so I'm empowered then to not have that metric, to replace it with other metrics, such as total cost of ownership. When we collaborate and we reduce cost structure, that's how I'm rewarded. Cross organizational supply chain efficiencies.

[00:15:23] Jan Griffiths: The first reaction to that is I wanna say to the OEMs and the tier ones out there, who's on your deal architect team, right? Because normally, it's just the purchasing person that's responsible for it. So I love the deal architect team approach.

But I can't tell you how many times in my career, Kate, I've said to somebody, "You want PPV? Oh, I'll give you PPV, but I'll bring every plant to its knees with cheap quality, or I'll bury them in inventory. So what do you want?"

And then the whole idea, we've been talking about total acquisition cost in the auto industry for some time, but we don't really have the systems in place to be able to measure it properly. So it comes back to the silo way of thinking again. And it comes back to purchase price variance because that's the only metric that's easy to relate to the finance community, 'cause the finance community they don't wanna talk about anything else. They just wanna talk about, did you save the cost or not?

[00:16:24] Kate Vitasek: And this is why I say you have to change the world one relationship at a time, because I'm not gonna change that organization system right away, but I can get a pilot, I can get a permission to do something different with something that's strategic. And so now I set up a different process. It may even be awful and manual, or it may be using AI and big data to look at whatever it is, right? But the team says, "Here's how we're going to follow this rule." And you empower them to say, "I don't have to get stuck using those old, functional, siloed metrics. I don't have to get stuck doing things the way they've always been done." You're giving them guardrails and say, "You get to go create the system, a pilot system. Let's just see how it works." And it works brilliantly when you align the interest and you take out the perverse incentives.

And Jan, this is why I laugh, but I have this saying, "If you're negotiating, you've gone down the wrong path." Turn around and ask a different question. How do I optimize? How do I collaborate? How am I transparent? How am I working together to share data to lower the TCO, to speed the market?" Let's change out our metrics. And if that means you have to have some rudimentary Excel spreadsheet to track your metrics, you track the right things in your little pilot and it will work, then you can go back in and start to change your systems, 'cause it's those systems, those institutional systems, the transactional ways of working that are holding us back.

[00:18:07] Terry Onica: So, to that point, when you look at technology today and you look at the data that you can have and the supplier relationship management tools, what types of data do you think is the most important out of these tools or data that you can have that really helps you to accelerate decision making and make better decisions?

[00:18:26] Kate Vitasek: Well, I think it's really powerful if you can get all the way down to the end user type thing. So the closer you can get to where the real information is happening, the better. And I'm going to give you two examples here. One of the companies that has done a vested agreement is Deweysoft, and I don't know if that rings a bell, they're just a little, tiny Slovenian company, but they actually have the telemetry for NASA.

So when those rockets go and like go in the air, they're measuring and taking all of that data. So they have the sensors and the data, and it's amazing what you can do with the sensors and the data, right? But they also work with most of the automotive manufacturers, putting in the telemetry and stuff like that. And so anytime you can get the data on where the work is done. That's awesome.

The second example that I'm going to give you, actually it was just on, I write for Forbes Magazine on collaboration. We're just doing an interview with the CEO of a company who's rethinking clinical trials. And so they're giving all of the patients — and her work that she started is around ALS — so they give all the wearables and the sensors to the patients. They're taking, looking at that big data now, taking it going back to the researchers. And they're connecting the researchers with the data.

So anytime that you can get the operational type data in real time, very transparent, and it's not just within my four walls. It's cross information, right? It's cross organizational. You're going to be able to optimize more.

And I'll give you a third example, 'cause this one's really fascinating, I wrote about this in Harvard Business Review. Walmart Trucking, kind of boring, right? Transportation, go pick up the stuff, drop it off at your Walmart. And so, they use, in Canada, 80 different trucking, very transactional trucking organizations.

So they created, with the carriers, not big Walmart, going on Walmart, but they took their ego out and said: You know what? There are over 250 data points in a transportation movement. The temperature, the fuel charges, you wouldn't think there's all this. And it was very inefficient in how they were working. And so they built a blockchain with their carriers. So they took one of the carriers, not all 80, they pulled out one, they had a neutral person that was a specialist in blockchain, and they said, let's co-create a blockchain that will make how we collect data in transportation more effective. They reduced freight claims 97%.

[00:21:23] Jan Griffiths: Wow. And you know what? And I didn't know this is where our discussion was gonna go, but one thing I think I've caught, Terry, with some of the QAD information, don't you talk about the source of truth or one source of truth.

[00:21:37] Terry Onica: Right. Yes.

[00:21:38] Jan Griffiths: And as I think about that, so you are working more on the technology side to provide that source of truth. Did I get that terminology right? Source of truth? Is that it?

[00:21:47] Terry Onica: Yes. Yes. One source of truth. Yes, absolutely. That means between the customer and the supplier, you're looking at the same data. You're not looking at separate data.

[00:21:54] Jan Griffiths: Yes. Because I can't tell you, so many times I've been in a room with a supplier and it's like, well, look, you know, you've got 45 quality issues and here's why. And then, they go, no, it doesn't. Look, here's our data. And then you go, uh! You're going back and forth.

So having that data and having it being recognized by both sides as being true and correct, even though — the people who are not familiar with auto, if they happen to be listening to this, they're going, well, surely, you have that right? Well, no, we don't. But getting that data, getting that data clean and transparent first time is a critical step. I never realized how important it was until this very moment.

[00:22:36] Kate Vitasek: I'd almost rather have a more rudimentary way to have the data, less data that has one source of truth, than have this complicated, you know, this, "Oh, I'm gonna put in the perfect system and it's gonna do this," Whatever, or be a one-sided system. And so, we actually, when we are helping teams design the vested way of working, we challenge them, where can they get one source of truth?

And so, sometimes that means, well, this data, we're gonna use the suppliers. So even though I may have something, I'm not gonna use mine, I'm gonna use the supplier's. But for this particular data, we're gonna use the buyer's side. And so, they choose.

So if they can't get to the same unified data point, they choose which system they wanna use. One system of record, regardless of who it's comes from. So you're building up the data that you're gonna use. Your data, my data, for this. Your data, your data, my data. And this way it eliminates that Us versus Them.

[00:23:40] Jan Griffiths: Yeah.

[00:23:40] Kate Vitasek: And then I can look at the root cause analysis, and if I don't like your data, then I'm looking at root cause. How do I make it better? Again, we're not negotiating. We're just saying, you know what? It's so important to have common data. We're gonna share and we're gonna stop bickering as it yours is better than mine and it's not the same. I'd rather go and improve, Terry, your bad data. I'd rather work to improve it, 'cause we're gonna get so much better than the bickering.

[00:24:06] Jan Griffiths: Yeah. And then once you start off down that path of arguing over the data, it just goes downhill from there. You can't make any progress. You can't move forward. So it really is an important step in any negotiation is to make sure that that data is one source of truth and people agree to it.

[00:24:25] Kate Vitasek: And that means I might walk away from your system of record for that particular item.

[00:24:30] Terry Onica: Yes. And I think it's important, you may walk away from it, but I think it's also important to try to put all that data in one spot. Whether you say for the supplier, we're gonna put your data in here in my system for that instead, because then, when we say one version of the truth, everything's in one spot for us both to see, right? We easily have that access. So yeah.

[00:24:52] Kate Vitasek: Agree.

[00:24:52] Terry Onica: That's really important.

[00:24:53] Kate Vitasek: But I'm pulling your information. And this is where, today, the technology is APIs and different things are making it so much easier when it was really hard in the past. Now, you can have an AI overlay on top of some of that, and it's gonna just go, yep, I'm pulling from here. I'm pulling from here. Here's how we do that.

And so, we find that when you put smart people in a room and they're in a two in a box, peer to peer, right? They design a better way of working, and that's what we call the vested way of working. Let the people design. So if your system, and I use that word system, your institution, your policies, your processes, or maybe it is your actual IT systems is holding you down, let the team decide a better way.

Like I said, I'd rather have a rudimentary Excel spreadsheet that has one version of the truth than some fancy something else that is we're Us versing Them. And the people solve it. Every single time we see that it's stunning. When you give people a set of guardrails and some new rules, and the rules are based on collaboration, they always rise to the occasion.

[00:26:07] Jan Griffiths: That's good to hear. You've been doing this for 25 years, and the companies that you've worked with, you've seen successes time and time again. Kate, you are facing an automotive audience here in automotive supply chain. So if you could challenge them to make one change in their negotiation or collaborating style, starting right now, right after they listen to this podcast, what would that be?

[00:26:35] Kate Vitasek: I would say bring two to three people from their company, two to three people from their most strategic relationship that they wanna work better, come to my executive education class with an open mind.

[00:26:48] Jan Griffiths: Yeah. And that's a great start.

[00:26:50] Kate Vitasek: And don't send one person, because then they'll go back, and they'll go, "Wow, that stuff is different." Like, come as a team and you work as a team. You bring your relationship to the class, you walk out understanding how you would approach that differently.

[00:27:07] Terry Onica: You said bring three people or four people. Who would you recommend? So people know the type of people that should attend a workshop?

[00:27:13] Kate Vitasek: Well, when we're actually doing a deal architect team, there's at least four roles that we want. Now, sometimes those people play multiple roles, but it's procurement and sales, right? But it's at least one person in operations because they're the ones that feel the pain.

[00:27:28] Jan Griffiths: Yes.

[00:27:29] Kate Vitasek: Right? And then, if not to the class then but later, your lawyers have to get involved. Because even if you can get procurement and sales and operations, you're still dealing with a contract. And so, what we don't wanna do is have people go down a bath, and they're going, "Oh, I'm gonna create a vested relationship." And the lawyer's like, Yeah, I've never heard of that. A formal relational contract? What is that? Never heard of that before.

So one of my success stories — and I don't have a formal case study on it — but they just pitched by Southwest is IBM and Securitas. And they did a podcast on that, and they sent 10 people. So they actually sent a group of five, two in a boxes. And out of that, they challenged and said, "You know what? We are not thinking about this right. We're thinking about security as man guards, right?" That's actually the term they use. "Oh, it's just a transactional man guard. How much does it cost your man guard cost?" Right?

And the Chief Security Office, Robin, his head was exploding and he is like, "No, look at everything we could do with how we rethink security." And it's like, there's so much. The cameras, the intelligence, the monitoring, and there's like tons here that we could be creating value.

They sent 10. Now that's a big group. We like to see at least two on each side. Three on each side would be really good, but at some point you are gonna have to get your lawyers involved because the business people can't just go away, recast how they work, and then have the contract anchor them in their old way. And so the contract has to follow.

I mean, this is one of the things we teach. If this is the intent of the relationship, it goes through procurement and it loses value, then it goes through legal, it loses value. Well, no wonder these relationships don't work, right? Because this is what you wanted on the back of the napkin, and this is what you contracted for.

You know, I always say, you got what you paid for. Turn around and ask a different question. And when you put those smart people in a room, you give 'em some guardrails and five high level rules that they have to recreate their relationship, following these rules, magic happens.

[00:29:34] Terry Onica: You know what I love about your process as another side benefit to it all is, often at the customer, you've got four or five different departments, engineering, like you said, purchasing, quality, all of that. And on the supplier side, you have the same thing. And what I love about your process, you bring 'em all together.

If I'm a customer, we're all on the same page. We all know what we're telling the supplier. If I'm a supplier, I know now what I'm getting myself into to talk internally to the team. Because often you hear on the supplier side like, well, I'm on the supply chain side or at the plant. I never heard of what they were negotiating. So I think there's just that other added benefit of what you're talking about, just getting both sides on the same page, forcing that issue, and I can't imagine that doing anything but creating tremendous value.

[00:30:21] Jan Griffiths: I'm so excited, right? Listening to this conversation. I mean, I'm excited about changing the industry. It's what I wake up to do every single day of my life. But this conversation is, it's so inspiring and I wanna just make sure that everybody in automotive hears it and does something about it.

But here's one way that our listeners can start to do that. Obviously, connect with Kate and read her articles and her books and attend her education center. Of course, that's one thing. But the other thing is AIAG is an organization that's out there ready to receive people, members, to get on the supply chain steering committee, to start to look at these things.

You know, maybe this is something that should be on that agenda, I don't know. But to our listeners, if you're not on there, contribute, get involved, get engaged, and let's turn this industry around. We can do it. Ford announced today their new building, it's called The Hub. And one of the reasons they're doing it is because they want everybody working together in the same building in a different way. This is a classic example of how you could do that Ford Motor Company.

[00:31:32] Kate Vitasek: Co-location can get you so far, 'cause it's an enabler that you can at least have proximity, but if you don't change the rules of how you work,

[00:31:42] Jan Griffiths: Yes.

[00:31:42] Kate Vitasek: You're gonna put people in a room together and say, "Go collaborate." At least I'm in the same room, but they're gonna be anchored. It's almost like cement is around their feet, right? So they're anchored in their old rules.

And so the vested way is really about five rules that when you say collaboration, when you say strategic partnership, it forces you in how you come together and changing those rules and people love it.

And so we did mention on the WRI study, but we do something similar in a one-to-one relationship called the compatibility and trust assessment. And you see the words changing from transactional Us versus Them to collaborative, total cost of ownership, win-win. And that's exciting because, Terry, you mentioned culture. You're changing the culture, but you don't go out and change the culture by saying, "I'm changing the culture." You go out and change the culture one relationship at a time.

[00:32:42] Jan Griffiths: There it is. One relationship, one deal at a time. Well, Kate, thank you so much for joining us today. It has been a pleasure.

[00:32:50] Kate Vitasek: Awesome. Well, thanks for having me. It's always a pleasure to share our research.

[00:32:54] Jan Griffiths: We love to hear from our listeners, reach out to any one of us, our contact information is in the show notes. And if you want to dive deeper into our content, check out our website at autosupplychainprophets.com.