One of the most startling aspects of Nissan's management strategy is that, for many car parts, it has just one supplier. Whereas main contractors would be frightened that a sole supplier might hold it to ransom, Nissan has invested faith in its suppliers. It guarantees a fixed profit margin based on open-book accounting. If the price of raw materials rises, Nissan pays the supplier extra. If raw materials prices fall, Nissan expects to pay less, says purchasing manager Geoff Smith.
Despite Nissan's profit guarantees, the firm is no pushover, says Smith. "We have really tough terms and conditions in our contracts, but we never use them because as soon as we start talking terms, it's time to walk away." Nissan has 204 suppliers and spends £1.3bn a year. Even in a bad year, it spends more than £5m per supplier, so suppliers have a steady income – if they perform. In return for this stability and the elimination of tendering costs, Nissan insists on year-on-year cost reductions. "Our suppliers should be investing to make components cheaper or longer-lasting," says Smith.
Nissan runs a league table of suppliers, marking them on quality, cost, delivery time, development and management. For instance, one mark is awarded for each 1% of turnover spent on research. Bad performance means relegation.