Corporate Template

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Welcome Supply Chain/Purchasing Seminar
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Please silence cell phones and pagers during this
program
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James Tarabori Caterpillar Inc. Chair, Supply
Chain Management Committee
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David Nelson HTC Global Services Chief Supply
Chain Strategy Officer
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Association of Equipment ManufacturersTrends in
Supply Chain ManagementJune 5, 2007

• R. David NelsonRetired Delphi, Deere Co.,
  Honda TRWVice President

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Lean Best Practices

• Toyota and Honda
• Reduce waste
• Reduce expenses
• Best product for the best cost

Across the entire value stream!
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Vision

• Be Recognized By Our Customers
• As Their Best Supplier!

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Right Direction
Trust and Collaboration
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Mutually Beneficial Relationships
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Extended Lean Enterprise

• For most, an opportunity waiting to happen
• Not about squeezing suppliers margins
• Not about getting prices down
• ALL about
• Getting costs out of processes
• Getting costs out of parts
• Resulting in
• Reduced prices
• Strong, competitive supply base

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Becoming a Lean Leader

• Focus on total cost
• Improve processes
• Improve trust
• Elevate financial performance

Partner participation is the key!
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Cost Management Vision

• Game Changers
• Cost Standards
• Creative Improvement Plans
• Master Supplier Agreements

• Old
• Multiple Rounds of Bidding
• Poker-Playing

Modern Agriculture
Hunting Gathering
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Reality Change
Who is Involved in Cost Planning?
Cost Planning Involves Business
Line Engineering Mfg. Engineering Finance Supply
Mgt. Sales Marketing PCL Suppliers

Current Cost
Cost Planning
C
Thru SE VE
O
Pre
-
Selection
Yesterdays
S
Through
Sourcing Process
70
Supplier
T
Evaluation
Cost Reduction
effort
Thru VA Mfg.
Improvements
Design Target Cost
30
effort
SOP
End of Production
Start of PDP
Cost Planning
PROGRAM LIFE
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Global Supply Management
Strategic Intent To achieve competitive
advantagethrough extended value stream
Excellence!
Supplier Relationships
Supplier Development
People Development
Systems Infrastructure
Strategic Sourcing
New Model Launch
Quality Improvement
Communication
Cost Management
Need all nine elements to work in an integrated
way to deliver results
Current Processes Current Team
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Strategic Sourcing
High

• NEAR CORE
• Unique systems/modules
• Less tailored than core

• CORE
• Strategic systems/modules
• Long-term relationships
• Early involvement
• Cost/technology sharing

COMPLEXITY

• COMMODITY
• Generic commodities
• Traditional sourcing approaches
• Competitive tension

• SMALL NICHE
• High-value, low-risk commodities
• Traditional sourcing approaches
• Cost sharing

Low
VALUE
Low
High
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Cost Management
Supplier Relationships
Supplier Development
People Development
Systems Infrastructure
Strategic Sourcing
New Model Launch
Quality Improvement
Communication
Cost Management
Need all nine elements to work in an integrated
way to deliver results
Current Processes Current Team
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Developing Cost Targets
gt
Future Market Price Desired Profit Target
Cost
Adjust for Spec. Differences
Current Profit
Desired Profit
Internal Costs
Model-to-Model Change
Current Cost
C
Target Cost
Part/System Price
Purchased Component Part Level Costs
B
A
Current Price
Verified By Cost Standards
Component Target Costs
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Cost Management Gap Examples

• Rubber Grommet
• Supplier Price Cost Standard Gap
• 1.28 0.77 40
• Electronic Assembly
• Supplier Price Cost Standard Gap
• 78.00 60.00 23
• Lead Conversion
• Supplier Price Cost Standard Gap
• 0.17 0.15 12

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Lean Supplier Development

• Effective Supplier Development requires Supplier
  and Customer to
• Share technology
• Share risk
• Share benefits
• Share accountability

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The Power of Lean!Percentage Improvements
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Lean Supplier DevelopmentDouble-Digit Supplier
Improvements
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Metal Stamper Example
Center Stack Bracket
Spider Bracket
Assembled Part
L Bracket
Studs
Velcro
Clips
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Floor BracketImpressive Improvements

• Lead time reduced 28
• Productivityimproved 98
• FTQ improved 17
• OA improved 15

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Power of Integrated Lean Strategies

• Early design involvement
• Used cost management standards and lean tools

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Value Stream Costs
Toyotas winning ways bring success in the US
Financial Times, Jan. 20, 2004
3,500.00 - 1,500.00 2,000.00 x
80 1,600.00
US
Pension, health care
Purchased goods
Global Competitor
1,600 opportunity to reduce value stream
inefficiencies
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Relationships Count
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Trust