Supply Management

1. Supply Management Session 9 - Supply Management

2. Old Model • Based on price • Pit suppliers against each other • Adversarial relationship Session 9 - Supply Management

3. New Model • Awareness/acceptance of new model • Raising the Material Management function • Management commitment to forging a customer-supplier partnership Session 9 - Supply Management

4. Dramatic Results Possible • Quality Improvement • Delivery Improvement • Cost Improvement • Cycle Time Improvement • Profitability Improvement Session 9 - Supply Management

5. Objectives • Reform the supplier • Improve quality • Improve delivery • Improve cost • Improve cycle time • But, first customer must put own business in order Session 9 - Supply Management

6. Objectives (continued) • New approach by immediate supplier to their subtier and sub-subtier suppliers Session 9 - Supply Management

7. 1945 Era Model • Specialized labor • System is number 1 • Quality is expensive • AQL dependency • Economy of scale important Session 9 - Supply Management

8. 1945 Era Model (cont’d) • Optimum order quantity (EOQ) • Optimum build quantity (EBQ) • Reduce direct labor • Optimize all subsystems (keep people, machines busy) Session 9 - Supply Management

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 Session 9 - Supply Management

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 Session 9 - Supply Management

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 Session 9 - Supply Management

12. Cost reduction by direction • No supplier training • Unilateral, vague specifications • Long cycle time • No contract beyond immediate needs Session 9 - Supply Management

13. Buyer - Supplier Partnerships • Relatively few suppliers • Trust, loyalty, responsiveness - key words • Partnership, the key • Buyers are professionals • “Long-Term” marriage Session 9 - Supply Management

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 Session 9 - Supply Management

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 Session 9 - Supply Management

16. Purchasing - Historically • Not considered to be a profession • Perception: Anybody can be a buyer • An “Early retirement home” • Not in the main stream Session 9 - Supply Management

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 Session 9 - Supply Management

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 Session 9 - Supply Management

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” Session 9 - Supply Management

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 Session 9 - Supply Management

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 Session 9 - Supply Management

22. Supplier Responsibilities - Buyer Benefits • Excellent quality • Lower prices • Early delivery • Reduced cycle time • Ideas for improvement • Design assistance • Standardization assistance Session 9 - Supply Management

23. Mutual Responsibility • Trust, loyalty • Win-win relationship • Mutually acceptable specifications • Financial incentives/penalties Session 9 - Supply Management

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 Session 9 - Supply Management

25. Buyer - Seller Advantages • Higher levels of technology • Mutually agreed upon specifications • Blanket orders Session 9 - Supply Management

26. Buyer Advantages • Improved quality, delivery, price • Greater span of control • Reduced purchasing administrative costs • Management concentration Session 9 - Supply Management

27. Preferred Supplier List - Escalation Factors • The proliferation of: • New part numbers • Models of equipment • Product lines • Customer options Session 9 - Supply Management

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 Session 9 - Supply Management

29. Supplier - Customer Conferences • Customer business overview • Technology projections • Issues from Supplier Council meetings • Discuss mutual concerns, reduce friction • Supplier awards Session 9 - Supply Management

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 Session 9 - Supply Management

31. Financial sharing: idea incentives • Financial sharing: performance, quality, delivery improvement • Design assistance • Supplier training • Extension of partnerships to subsuppliers Session 9 - Supply Management

32. Measurement of Partnership Effectiveness for Customers • Quality • Cost • Delivery • Cycle Time • Best-in-class Session 9 - Supply Management

33. Measurement of Partnership Effectiveness for Suppliers • Contracts • Quality • Cost • Cycle time • Forecasts • Technical assistance Session 9 - Supply Management

34. Self Assessment • Management commitment to partnerships • Reduce supplier base; benchmarking • Partnership with subtiers • Material Management Function • Cycle time reduction Session 9 - Supply Management

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 Session 9 - Supply Management

36. Self Assessment - Quality Programs • Incoming inspection • Elimination/Certification • Supplier DOE/SPC • Supplier teamwork/training • Next operation as “customer” Session 9 - Supply Management

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 Session 9 - Supply Management