Supply Management

1
Supply Management
2
Old Model

• Based on price
• Pit suppliers against each other
• Adversarial relationship

3
New Model

• Awareness/acceptance of new model
• Raising the Material Management function
• Management commitment to forging a
  customer-supplier partnership

4
Dramatic Results Possible

• Quality Improvement
• Delivery Improvement
• Cost Improvement
• Cycle Time Improvement
• Profitability Improvement

5
Objectives

• Reform the supplier
• Improve quality
• Improve delivery
• Improve cost
• Improve cycle time
• But, first customer must put own business in order

6
Objectives (continued)

• New approach by immediate supplier to their
  subtier and sub-subtier suppliers

7
1945 Era Model

• Specialized labor
• System is number 1
• Quality is expensive
• AQL dependency
• Economy of scale important

8
1945 Era Model (contd)

• Optimum order quantity (EOQ)
• Optimum build quantity (EBQ)
• Reduce direct labor
• Optimize all subsystems (keep people, machines
  busy)

9
The New Model

• Labor flexible
• People are number 1
• High quality, low cost - synonymous
• AQL driven toward 0
• Flexible manufacturing is low-cost drive toward
  smallest production
• EOQ driven toward 1
• EBQ driven toward 1
• Reduce cycle time

10
Current US Practice

• Only supplier strategy -- drive price down
• Large number of suppliers
• Mutual distrust, little loyalty
• Price, price, price
• Buyers tend to be expeditors
• Short-term relationships

11

• Suppliers tend to be independent
• Suppliers have many customers
• Almost no subcontract work
• Quality, AQLs, LTPDs
• Incoming inspection is a crutch
• SPC is just being implemented

12

• Cost reduction by direction
• No supplier training
• Unilateral, vague specifications
• Long cycle time
• No contract beyond immediate needs

13
Buyer - Supplier Partnerships

• Relatively few suppliers
• Trust, loyalty, responsiveness - key words
• Partnership, the key
• Buyers are professionals
• Long-Term marriage

14

• Suppliers depend on buyers
• Suppliers have few customers
• Much subcontracted work - shock absorbers
• Quality to zero ppm
• Almost no incoming inspection
• SPC/DOE a way of life

15

• Cost reduction based on process improvement
• Intensive supplier training
• Clear, mutually agreed upon specifications
• Technical assistance to improve quality and
  productivity
• JIT
• Strong influence on 3 to 4 levels of subsupplier
  chain

16
Purchasing - Historically

• Not considered to be a profession
• Perception Anybody can be a buyer
• An Early retirement home
• Not in the main stream

17
Going Forward - Management Action

• Elevate the material management function
• Buy based on total cost, not purchase price
• Set stretch goals for quality, cost, delivery,
  cycle time
• Measurement system for progress towards goals

18

• Allocate manufacturing O/H to D/L based on cycle
  time
• Centralize the material management function
• Make supplier QA part of material management
• Promote company-wide SPC cycle time reduction
• Initiate continuous improvement process

19
Strengthening the Material Management Function

• Comprehensive buyer-supplier partnership
• Relatively few suppliers
• Trust, loyalty. Responsibility - key words
• Partnership, the key
• Buyers are professionals
• Long-term marriage
• Suppliers - dependant on buyers
• Supplier have few customers
• Much subcontracted work - shock absorbers

20

• Quality - move to zero ppm
• Almost zero incoming inspection
• SPC a way of life
• Cost reductions based on process improvements
• Intensive supplier training
• Clear mutually agreed-on Specifications
• Technical Assistance to improve quality and
  productivity
• JIT
• Strong influence on three to four levels of
  subsupply chain

21
Buyer Responsibilities - Supplier Benefits

• Longer-term contracts
• Larger volume
• Fewer suppliers
• Consultation in design
• Technical help
• Quality assistance
• More stable forecasts
• Fair dealings, fair profits, fair ROI

22
Supplier Responsibilities - Buyer Benefits

• Excellent quality
• Lower prices
• Early delivery
• Reduced cycle time
• Ideas for improvement
• Design assistance
• Standardization assistance

23
Mutual Responsibility

• Trust, loyalty
• Win-win relationship
• Mutually acceptable specifications
• Financial incentives/penalties

24
Elements of Supplier - Customer Partnership

• Reduced supplier base
• The preferred supplier list
• Supplier - customer conferences
• The supplier council
• The supplier account executive program
• Benchmarking - selecting the best-in-class
  suppliers
• Measurement of partnership effectiveness

25
Buyer - Seller Advantages

• Higher levels of technology
• Mutually agreed upon specifications
• Blanket orders

26
Buyer Advantages

• Improved quality, delivery, price
• Greater span of control
• Reduced purchasing administrative costs
• Management concentration

27
Preferred Supplier List - Escalation Factors

• The proliferation of
• New part numbers
• Models of equipment
• Product lines
• Customer options

28
Preferred Supplier List - Advantages

• Slows supplier proliferation
• Disciplines engineering and purchasing
• Encourages early supplier involvement
• Target cost, quantity and specifications reviewed
  early in design cycle
• Ready guide for supplier selection
• Optimization of quality, price, delivery

29
Supplier - Customer Conferences

• Customer business overview
• Technology projections
• Issues from Supplier Council meetings
• Discuss mutual concerns, reduce friction
• Supplier awards

30
The Supplier Council

• Partnership policy formulation
• Buyer-seller expectations
• Measure partnership progress
• Remove misunderstandings and roadblocks
• Buyer- seller product plans
• Technology exchanges
• How to share innovations

31

• Financial sharing idea incentives
• Financial sharing performance, quality, delivery
  improvement
• Design assistance
• Supplier training
• Extension of partnerships to subsuppliers

32
Measurement of Partnership Effectiveness for
Customers

• Quality
• Cost
• Delivery
• Cycle Time
• Best-in-class

33
Measurement of Partnership Effectiveness for
Suppliers

• Contracts
• Quality
• Cost
• Cycle time
• Forecasts
• Technical assistance

34
Self Assessment

• Management commitment to partnerships
• Reduce supplier base benchmarking
• Partnership with subtiers
• Material Management Function
• Cycle time reduction

35
Self Assessment - Partnership in Design

• Reduced parts list/preferred suppliers list
• Cost targeting experience
• Early supplier involvement
• Technology/cost information exchange
• Supplier FEMA/FTA/Stress tests

36
Self Assessment - Quality Programs

• Incoming inspection
• Elimination/Certification
• Supplier DOE/SPC
• Supplier teamwork/training
• Next operation as customer

37
Self Assessment - Supplier Evaluation/ Inventory
Control

• Customer evaluation and survey of effectiveness
• Critical component control
• Idea/delivery/quality incentives
• Supplier lead time reduction
• Supplier cycle time reduction
• Cycle time reduction subtier/sub-subtier