1 chapter 10 supplier development idis 424 spring 2004
Post on 21-Dec-2015
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Supplier Development
An effort by a buying firm to improve the performance and capabilities of a supplier.
An effort by a buying firm to improve its supply needs.
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Why Supplier Development
Increased Competition Downsizing Outsourcing Cost of purchased items Easier to work with a “known” supplier
4Time
Supply Base Performance/Capability
Higher
TOTAL QUALITY
MANAGEMENT
SUPPLY BASE ASSESSMENT
SUPPLY BASEREDUCTION
REACTIVE SUPPLIER
DEVELOPMENT
STRATEGIC SUPPLIER
DEVELOPMENT
Lower
Evolutionary Strategies
Evolution of Supplier Development
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Early Stages
1. Identify Strategic Supply Chain Needs
2. Search for Competitive
Suppliers
3. Establish Performance Metrics and Assessment
4. Supply Base Rationalization
GOAL:Pool of
Potentially Capable
Suppliers
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Identifying key suppliers via Pareto analysis
Supplier PerformanceDefects/Total Cost/Late Delivery/Cycle Time/Service/Safety/Environment
CriticalCommodity
A
TOP TENLIST
TOP TENLIST
CriticalCommodity
B
CriticalCommodity
C
SUPPLIERS REQUIRING DEVELOPMENT FROM OPTIMIZED SUPPLY BASE
SUPPLIERS REQUIRING DEVELOPMENT FROM OPTIMIZED SUPPLY BASE
High Performance
Minimally acceptable performance driven by customer requirements
High
Low
Eliminate
Eliminate
Identify Candidates for Development
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High OpportunityHigher RiskCommodities
Low Volume Purchases
Substitution difficult Monopolistic markets High entry barriers Critical geographic/
political situation
Lower OpportunityLower RiskCommodities
High Volume Purchases
BOTTLENECK SUPPLIES
Strategically important Substitution/alternate
supplier difficult Major importance for
purchasing overall
CRITICAL STRATEGICSUPPLIES
Availability adequate Standard specifications
of goods/services Substitution possible
NON-CRITICAL SUPPLIES
Availability adequate Alternative suppliers Standard product
specifications Substitution possible
LEVERAGE SUPPLIES
TARGET COMMODITIES/
SUPPLIERSFOR
DEVELOPMENT
For Supplier Development
Commodity Portfolio
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Prerequisites for Supplier Development
Supplier performance measurement system accurate, quick, fair feedback mechanism
performance vs. goals / standard
Good internal processes Optimized supply base Good relationships with suppliers Resources Leadership
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5. On-site Risk Assessment by
Cross-functional Team
6. Problem-solving to Eliminate Suppliers’
Deficiencies
GOAL:Suppliers Meet
Current Production
Requirements
Reactive Supplier Development
•Reactive Approach to Development
•Single Supplier
•Remedial
•Ad hoc
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Problem-Solving Development
8. Establish open relationship through
feedback and information-sharing
9. SystematicSupplier
Development
GOAL:Self-Reliant Supply Base – Continuous
Improvement
10a. Direct Involvement
Activities
10c. Warnings& Penalties
10 a. Incentives& Rewards
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Warnings and Penalties
Verbal or written communication that supplier should improve performance
Keep supplier competitive by obtaining bids from others
Use multiple suppliers for a purchased item to create competition
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Incentives and Awards
Promise of higher purchased volumes of existing items if performance improves
Promise of higher purchased volumes of future items if performance improves
Recognition of supplier’s performance improvements with awards
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Measurement•Supplier Evaluation•Supplier Certification•ISO 9000 / QS 9000•Performance Databases
“Hands-on” Approach
•Supplier Engineers•Kaizen Breakthrough•5S Training•Total Preventive Maintenance
Threats (“Stick”)
•Alternative business•Fines / penalties•Late payments•Supply Base Reduction
Rewards(“Carrot”)
•Increased volumes•Cost savings sharing•Supplier Integration•Performance Databases
World Class Supply Base•Cost•Quality•Delivery•Technology
“Mix of SD Approaches”
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Kaizen Breakthrough
What is it? A short-term process improvement project
1-5 day event creativity instead of capital focused on a specific process participants: cross-functional
operators engineers managers maintenance workers
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The “Kaizen-Breakthrough” Process
Study the process Collect and analyze data Brainstorm and discuss improvement
options Implement changes
Modify or move equipment Measure improvements Show and tell
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Supplier Development ResultsSurvey of 527 firmsRespondents: NAPM members
Criteria
Before Supplier Development
After Supplier Development
Incoming defects
11.65 %
5.45 %
% on-time delivery
79.85 %
91.02 %
Cycle time (from order placement to receipt, inclusively)
35.74 days
23.44 days
% orders received complete
85.47 %
93.33 %
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Additional Results:
Respondents also indicated that . . .
The supplier development effort had resulted in: Lower costs An improved relationship with the supplier
Increased expectations for relationship continuity
Higher level of dependability / reliability
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Supplier reluctant to share information Lack of commitment on the part of supplier’s top
management
Top management agrees but fails to implement Size of purchase does not justify
Confidentiality
Lack of engineering resources
Lack of information systems
No immediate benefit apparent to our organization
Suppliers not convinced development will benefit their organization
Supplier lacks employee skill base
Top Ten Barriers For SD
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BARRIERS SOLUTIONS
Supplier is reluctant to share information on costs/processes
Lack of commitment on the part of supplier’s top management
Develop contracts based on cost savings/sharing which do not impact the supplier’s required margin. Only when all other avenues for cost improvement have been explored, discuss margin reductions as a result of incremental volume, confidentiality agreements
Detailed presentation to supplier’s top management, explaining the buying company’s vision and potential benefits to the supplier organization
Establish alignment objectives
Solutions to Barriers
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BARRIERS SOLUTIONS
Supplier’s top management agrees to our proposals but fails to implement them
Size of purchase from the supplier does not justify development investment
Confidentiality inhibits sharing information
Have supplier’s top management sign a letter of support, including objectives, timelines and resources, or
Seek alternative supplier
Drive improvement through performance measurement and feedback to supplier, or
Consolidate volumes within commodity family and leverage with supplier, or
Use major customer leverage to seek supplier improvements
Improve relationship management skills of key liaison, or
Sign confidentiality and intellectual property agreements
Solutions to Barriers
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Measurement Components
Supplier performance measures should have four key parts or components-- What we are measuring Performance objective Actual performance How to achieve the objective (action
plans) along with who “owns” the measure
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Supplier Measurement Systems
Categorical System Assign a rating (good, fair, poor) to a performance
category Weighted-Point System
Quantifies scores for different performance categories
Cost-based System Attempts to quantify the total cost of doing business
with a particular supplier Cost Reduction System
Amount of buying firm’s costs reduced by supplier
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Problems with Supplier Measurement Systems
Too much data Short term focus that fails to consider the
big picture Lack of detail Drives the wrong aspects Emphasizes behavior versus
accomplishment Creates Adversarial relationships