Supply Chain Management

A presentation to the International Association of Jesuit Business Schools Forum 2001

June 25, 2001Detroit, Michigan, USA

by Larry HiggasonPresident, Productivity Action Associates

Presentation Outline

Purpose of PresentationRecent & Past Supply Chain Practices in the US Auto IndustryBest PracticesFuture Directions Forecast

Recent Supply Chain Practices in the US Auto Ind.

1970’s - Material Rqmts. Planning (B) & Robotics (C)

1980’s - Electronic Data Exchange - AIAG (A) & Lean Manufacturing (B)

1990’s - Enterprise Resource Planning (D) & Computer-Aided Design and Manufacturing (A) & the Internet (?)

Source: Business2.com

Ford Practices in 1920

Focus on waste reduction - source of Toyota’s ideas in 50’s

48 hours from iron ore to completed vehicle

Wood boxes became frame Moving assemble line in 1914

550% productivity improvement$2.40 to $5 per day wagesReduce price of car from $800 to $500

Source: Today and Tomorrow - Henry Ford

What is AIAG?

Automotive Industry Action Group Founded in 1980 after study at Ford Non-profit, collaborative 1600 members, OEM’s and Suppliers International more and more. Similar organizations in Europe,

looking at it in Japan.

AIAG Study in 1980

Dealers

Assembly Plants

Customer

Suppliers

16 Weeks from Order to Delivery16 Weeks from Order to Delivery

AIAG INITIATIVES

Electronic Data Interchange Bar Coding Lean Manufacturing Cad-Cam NAFTA ISO/QS-9000 Quality Requirements E-Business

Honda Supply Chain Management

1995 study of 26 Major Companies - Ranked #1

1999 Study of 162 Major Companies - Ranked #1

Most companies don’t have detailed analysis of purchasing costs

Can provide 30 to 40% savings first year

Source: David Nelson, VP of Purchasing

John Deere Supply Chain Management

80% of manufacturing costs come from suppliers, but had 600 internal engineers, only 4 external engineers.

92 supplier development engineers now versus 4 in 1996. Plan to add 75 more

Cost $7 Million, savings $22 Million in 1999 Savings to grow exponentially while costs

grow slowly. 3-fold payback today, expect 10-fold payback by 2008.

Source: David Nelson, VP Worldwide Supply

John Deere Supply Chain Management (Cont.)

2 year MBA program for 35 people at Arizona State University at cost of $1 M

One commodity had 1625 suppliers, now 20

Had only 5% of information to make decisions in 1999, now have 20%. Took Honda 15 years to get there.

Source: David Nelson, VP Worldwide Supply

Top 20 Best Practices

1. Cost management - What is the true value of best practice?

2. Supplier development3. Value analysis4. MRO (Maintenance and Repair)5. Supplier Quality Circles6. Training7. Supplier information sharing

Top 20 Best Practices (Cont.)

8. Supplier Conferences9. Supplier performance reporting10. Supplier surveys11. Delivery improvement12. Tool and technical assistance centers13. Supplier support teams 14. Loaned executives

Top 20 Best Practices (Cont.)

15. Early supplier involvement16. New model development group17. Written strategy for every supplier and

every part/commodity18. Strategic planning and administration19. Career path planning and academic

outreach programs.20. Purchasing systems.Source: The Purchasing Machine

Toyota Value Added

Value added per employee 16% in 1998

Best US value added per employee is 5% at Freudenberg-NOK

Toyota had only 215 suppliers in 1983, including non-production suppliers

Source: Toyota and F-NOK

Future Directions?

E-Commerce to front - with focus on process improvement through Lean

Continuing pressure on cost, quality and productivity

Knowledge Management More focus on business ethics