Supplier Base Reduction

1. Supplier Base Reduction Nashville Chapter - NAPM October 13, 1998 Kimball Bullington, Ph.D.

2. Supply Base Consolidation • What is supply base consolidation? • Why consolidate? • How can I be successful?

3. What is supply base consolidation? Consolidation: A reduction in the number of suppliers.

4. Why Consolidate? Cost Reduction • Cost of Procurement • Price Decreases through Consolidated Purchases and Increased Negotiating Power

5. Why Consolidate? Supplier Development • Cost reductions • Lead time reductions • Quality improvements

6. Why Consolidate? Supplier Development • Supplier design support • Time to market • Inventory reductions

7. How Can I Be Successful? First Steps • Evaluation of Current Supply Base • Determine the Type of Supply Base Needed • Plan the Project

8. How Can I Be Successful? Evaluation of Current Supply Base • Number of Suppliers • Breakdown by Commodity • Skills / Process Evaluation • Performance Evaluation

9. The Ideal Supply Base

10. The Ideal Supply Base • Powerful improvement engine • Fast • Flexible • Innovative • Good communicators

11. Supply Base Fitness • NUMMI: 3 Product Lines - 84 to 140 direct suppliers • Increasing domestic content • Long-term relationships

12. Supply Base Surgery AlliedSignal: 10,000 to 2,000 • Supports 6 Program • Separate productivity improvement initiative Al liedSignal

13. Supply Base Renewal - Tiering • BASF - 10,000 suppliers to 14 • Lowered internal costs • Leveraged position with suppliers • Bypassed IT problems • VMI

14. Supplier Characterization Matrix High Critical 2: Special Situations Low spend - high risk Critical 1: Long-term Relationship High spend - high risk Risk Non-Critical 2: Transactional Low spend - low risk Non-Critical 1: Contractual High spend - low risk Low High Annual Spend

15. Supplier Characterization Matrix High Critical 2: Special Situations Critical 1: Long-term Relationship Risk Non-Critical 2: Transactional Non-Critical 1: Contractual Consolidate Low High Annual Spend

16. Supplier Characterization Matrix High Critical 2: Special Situations Critical 1: Long-term Relationship Consolidate Risk Non-Critical 2: Transactional Non-Critical 1: Contractual Consolidate Low High Annual Spend

17. Supplier Characterization Matrix High Critical 2: Special Situations Critical 1: Long-term Relationship Consolidate Risk reduce & Consolidate Risk Non-Critical 2: Transactional Non-Critical 1: Contractual Consolidate Low High Annual Spend

18. Barriers to Consolidation • Fear of loss of competition • Doubtful savings • Dilbert • Lack of commitment to the selection process

19. How Can I Be Successful? Keys to a Successful Plan • Plan with your customers in mind (QFD) • Transaction costs • Leverage • Supplier development • Design support

20. How Can I Be Successful? Keys to a Successful Plan • Sell consolidation • Top management • Customers • Participants • Suppliers

21. How Can I Be Successful? Keys to a Successful Plan • Develop a supplier evaluation / selection process & implement it • defendable (key customer input) • flexible

22. Structured Supplier Evaluation

23. How Can I Be Successful? Keys to a Successful Plan • Implement meaningful measures • Focus your efforts (commodities) • Staff for development • Publish successes

24. How Can I Be Successfully Consolidated? Keys to a Successful Plan • Tier 1: Integrate • Tier 2: Make services, savings quantifiable

25. Supply Base Consolidation: Summary • Consolidation can yield savings in: • transaction costs • leverage • inventory reduction • supplier development • It is a key enabling strategy to other supply improvements.

26. Supply Base Consolidation: Summary • Keys to success: • planning with customers in mind • selling the plan • selection / evaluation • focusing improvement • staffing for success • measurement • publishing results

27. Supplier Base Reduction Nashville Chapter - NAPM October 13, 1998 Kimball Bullington, Ph.D.