Supplier Integration

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Supplier Integration

• BUS 416
• Fall 2002

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Purchasing Linkages p 135

• Manufacturing
• Accounting
• Engineering - critical
• Marketing
• Suppliers
• Total Quality Management

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Engineering

• Short lead times
• Restrictive specifications
• Frequent changes
• Customized parts
• Lack of product knowledge
• Buy strictly on price
• Unwilling to try new suppliers

4
Collaborative Relationships

• Partners adopt a high level of purposeful
  cooperation to maintain a meaningful trading
  relationship over time.
• Balanced power relationship
• Mutual commitment to the future
• Conflict is managed

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Adversarial vs Collaborative

• Multiple sources vs Single source
• Buyer saves vs Rewards shared
• No Joint Impvmt vs Joint Improvement
• Minimal Comm vs Info sharing
• Buyer adapts vs Mutual adaptation
• Quality--Inspect at receipt vs Design
  into product

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Advantages

• Mutual benefits
• Supplier willing to invest
• Supplier expertise
• Help with product development

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Supplier Integration into New Product Development
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Objectives

• Introduce recent findings from an NSF-funded
  study of supplier integration
• Describe a process for integrating suppliers
• Present benefits and strategies for integrating
  suppliers

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Key Drivers
Cycle Time and Cost Reduction
Customer Expectations
Rapid Technological Change
SUPPLIER INTEGRATION INTO NEW PRODUCT DEVELOPMENT
Quality and Reliability Improvements
Core Competency Focus
Shortened Product Life Cycles
Global Competition
Corporate Downsizing
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Project Objectives
Explanatory Model for Successful Supplier
Integration
Project Objectives
Best Strategies/ Practices and Implementation Guid
elines
Development of Case/Educational Materials
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Product Development Process
2
4
3
5
1
Business/
Full Scale Operations
Technical
Idea
Engineering
Concept
Prototype/
Assessment
Generation
and Design
Ramp-Up
Development
(Preliminary)
Possible Supplier Integration Points
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Typical Results
OVERALL PERFORMANCE IMPROVEMENTS ACHIEVED THROUGH
SUPPLIER INTEGRATION
Improvement Performance Dimension Median
Range Purchased Material Cost 15.0 2.6 -
50.0 Purchased Material Quality 20.0 2.0 -
50.0 Development Time 20.0 5.0 -
50.0 Development Cost 15.0 -1.0 -
50.0 Functionality/Features/Technology
10.0 5.0 - 50.0 Product Manufacturing Cost
10.0 0.0 - 30.0 Compared to similar
projects in which a supplier was not
integrated. 80 of the responses fall in this
range top and bottom 10 omitted.
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DESIGN FLEXIBILITY AND COST OF DESIGN CHANGES
1
2
3
4
5
Idea Generation
Bus./Tech. Assessment
Concept Develop.
Eng. and Design
Prototype/ Ramp-up
Full Scale Operations
High
Cost of Design Changes
Flexibility in Design
Low
Time
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RESULTS BY STAGE OF INTEGRATION
MEDIAN PERFORMANCE IMPROVEMENT BY STAGE OF FIRST
INTEGRATION OF SUPPLIER Stage of First
Integration
Performance Dimension Early Middle
Late Purchased Material Cost 20.0
15.0 10.0 Purchased Material Quality 20.0
15.0 15.0 Development Time 20.0
20.0 10.0 Development Cost 20.0
10.0 10.0 Functionality/Features/Technology 20.0
10.0 10.0 Product Manufacturing
Cost 10.0 12.0 10.0 Compared to
similar projects in which a supplier was not
integrated.
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FUTURE TRENDS
OUR BUSINESS UNIT PLANS TO INCREASE THE USE OF
SUPPLIER INTEGRATION IN THE FUTURE
Percent Responding
Strongly Disagree
Strongly Agree
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FUTURE TRENDS
SUPPLIERS WILL BE INTEGRATED INTO EARLIER
STAGES OF DEVELOPMENT IN THE FUTURE
Percent Responding
Strongly Disagree
Strongly Agree
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BARRIERS TO SUPPLIER INTEGRATION
COMPANIES IDENTIFIED SEVERAL IMPORTANT BARRIERS
TO EFFECTIVE SUPPLIER INTEGRATION

• Not Invented Here syndrome
• Supplier concern over proprietary cost
  information
• Buying company concern over proprietary cost
  information
• Time required to identify and integrate a
  supplier
• Buying company concern over proprietary
  technology
• Lack of processes for integrating suppliers

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INTEGRATION TIMING
INTEGRATE DIFFERENT SUPPLIERS AT DIFFERENT STAGES
1
2
3
4
5
Idea Generation
Bus./Tech. Assessment
Concept Develop.
Eng. and Design
Prototype/ Ramp-up
Full Scale Operations
Earlier
Later

• Suppliers of complex items
• Suppliers of systems or sub-
• systems
• Suppliers of critical items or technologies
• Strategic alliance suppliers
• Black box suppliers

• Suppliers of simpler items
• Suppliers of single
• components
• Suppliers of less-critical
• items or technologies
• Non-allied suppliers
• White box suppliers

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SPECTRUM OF SUPPLIER INTEGRATION
None
Gray Box
White Box
Black Box
No supplier involvement. Supplier makes to
print.
Informal supplier integration. Buyer consults
with supplier on buyers design.
Formalized supplier integration.
Joint development activity between buyer
and supplier.
Design is primarily supplier driven, based on
buyers performance specifications.
Increasing Supplier Responsibility
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PRODUCT DEVELOPMENT PROCESS
MEDIAN PERFORMANCE IMPROVEMENT BY LEVEL OF
INTEGRATION Level of Integration Performa
nce Dimension Gray Box Black
Box Purchased Material Cost 15.0 20.0 Purchas
ed Material Quality 15.0 20.0 Development
Time 20.0 20.0 Development
Cost 10.0 20.0 Functionality/Features/Technol
ogy 10.0 12.5 Product Manufacturing
Cost 10.0 20.0 Compared to similar projects
in which a supplier was not integrated.
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SUPPLIER INTEGRATION PROCESS
1
Establish internal core competencies
capabilities
Select supplier(s) build relationships
Align objectives technology roadmaps
Establish new product requirements
Jointly establish clear metrics targets
Share information openly extensively
Monitor learn from experience
Give supplier(s) an active role
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ESTABLISH CORE COMPETENCIES
High

Establish/maintain internal competencies that
create competitive advantage
Insource or Co-Design, Outsource Manufacture
Insource Design and Manufacture
Component/System Value for Differentiating Product
Outsource Design and Manufacture
Outsource Standardized Items
Low
Low
High
Component/System Cost/Technical Complexity
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ESTABLISH PRODUCT REQUIREMENTS
CROSS-FUNCTIONAL REQUIREMENTS
Product Line A
Product Line B
Product Line C
Product Line D

• Product Strategy
• Advanced Technology
• Design

Sales Marketing
Manufacturing
Procurement
Quality
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SUPPLIER SELECTION CRITERIA
SELECTION CRITERIA GO BEYOND THOSE FOR
SELECTING PRODUCTION SUPPLIERS

• Design and engineering capability
• Willingness to be involved in the design effort
• Ability to meet the development schedule
• RD capability and technology leadership
• Willingness to share cost and technology
  information
• Ability to reach agreement on risk sharing,
  intellectual property rights, confidentiality,
  and non-disclosure

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ALIGN TECHNOLOGY ROADMAPS
Planned New Product Introduction 2
Planned New Product Introduction 1
High
Level of Maturity (Market Readiness)
New Technology A
New Technology B
New Technology D
New Technology E
New Technology C
Low
Time
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ACTIVE ROLE FOR SUPPLIER
ACTIVE INVOLVEMENT MAXIMIZES THE SUPPLIERS IMPACT

• Supplier membership on the project team
• Selective use of co-location
• Design of complex items
• Short-term problem solving
• Ramp-up to full scale operation

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METRICS AND TARGETS
DEVELOPMENT EFFORT MUST BE TARGET-DRIVEN,
WITH WELL-DEFINED AND AGREED-TO TARGETS

• Market-based targets
• Clearly defined performance metrics and targets
• Cost
• Development schedule
• Product performance (weight, size, speed, etc.)
• Supplier input/buy-in
• Critical with a less-familiar supplier

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INFORMATION SHARING
EFFECTIVE COMMUNICATION AND INFORMATION SHARING
IS CRITICAL

• Confidentiality, non-disclosure agreements
• Trust development
• Direct function-to-function cross-company
  communication
• Open sharing of information
• Customer requirements information
• Cost information
• Technology roadmaps
• Linked information systems

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INSTITUTIONAL LEARNING
SUPPLIER INTEGRATION IS A DIFFICULT PROCESS
THAT MAY NOT GO RIGHT THE FIRST TIME

• Post-project review/audit
• Include supplier in evaluation
• Sharing of lessons learned
• Continuous improvement orientation

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CRITICAL ISSUES

• Correct choice of suppliers based on assessment
  of capabilities, risk and long-term leadership
  
• Correct technology on the bookshelf --
  product/process
• Technology roadmap sharing/influencing
• Speed/cost trade-offs
• Horizontal supplier integration
• Risk/reward processes, especially with
  competitors
• Organization strategy convergence -- process and
  structural interaction

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SELECTED KEY FUTURE DIRECTIONS

• Create a link between product level marketing and
  key suppliers
• Encourage qualified suppliers to specialize in
  specific areas of skill and competence to enable
  outsourcing of current in-house product
  development functions including component design,
  assembly and stocking
• Integrate EDI (includes CAD/CAM) across suppliers
  for faster communication of requirements and to
  increase visibility of the entire value/supply
  chain
• Involve more suppliers in the earliest stages of
  development, including idea generation and
  concept development. Give suppliers greater
  responsibility for requirements and specification
  definition
• Increase the use of joint goal setting and target
  costing, as well as joint problem solving

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Summary

• Supplier integration is a formalized process that
  requires in-depth understanding of suppliers
  capabilities and buy-in from in-house engineering
  personnel
• Suppliers integrated earlier in the NPD process
  generally produce better results