1. Supply Chain Management A presentation to the International Association of Jesuit Business Schools Forum 2001 June 25, 2001 Detroit, Michigan, USA by Larry Higgason President, Productivity Action Associates

2. Presentation Outline uPurpose of Presentation uRecent & Past Supply Chain Practices in the US Auto Industry uBest Practices uFuture Directions Forecast

3. Recent Supply Chain Practices in the US Auto Ind. u1970s - Material Rqmts. Planning (B) & Robotics (C) u1980s - Electronic Data Exchange - AIAG (A) & Lean Manufacturing (B) u1990s - Enterprise Resource Planning (D) & Computer-Aided Design and Manufacturing (A) & the Internet (?) Source: Business2.com

4. Ford Practices in 1920 uFocus on waste reduction - source of Toyotas ideas in 50s u48 hours from iron ore to completed vehicle uWood boxes became frame uMoving assemble line in 1914 ä550% productivity improvement ä$2.40 to $5 per day wages äReduce price of car from $800 to $500 Source: Today and Tomorrow - Henry Ford

5. What is AIAG? uAutomotive Industry Action Group uFounded in 1980 after study at Ford uNon-profit, collaborative u1600 members, OEMs and Suppliers uInternational more and more. uSimilar organizations in Europe, looking at it in Japan.

6. AIAG Study in 1980 Dealers Assembly Plants Customer Suppliers 16 Weeks from Order to Delivery

7. AIAG INITIATIVES uElectronic Data Interchange uBar Coding uLean Manufacturing uCad-Cam uNAFTA uISO/QS-9000 Quality Requirements uE-Business

8. Honda Supply Chain Management u1995 study of 26 Major Companies - Ranked #1 u1999 Study of 162 Major Companies - Ranked #1 uMost companies dont have detailed analysis of purchasing costs uCan provide 30 to 40% savings first year Source: David Nelson, VP of Purchasing

9. John Deere Supply Chain Management u80% of manufacturing costs come from suppliers, but had 600 internal engineers, only 4 external engineers. u92 supplier development engineers now versus 4 in 1996. Plan to add 75 more uCost $7 Million, savings $22 Million in 1999 uSavings to grow exponentially while costs grow slowly. 3-fold payback today, expect 10-fold payback by 2008. Source: David Nelson, VP Worldwide Supply

10. John Deere Supply Chain Management (Cont.) u2 year MBA program for 35 people at Arizona State University at cost of $1 M uOne commodity had 1625 suppliers, now 20 uHad only 5% of information to make decisions in 1999, now have 20%. Took Honda 15 years to get there. Source: David Nelson, VP Worldwide Supply

11. Top 20 Best Practices 1. Cost management - What is the true value of best practice? 2. Supplier development 3. Value analysis 4. MRO (Maintenance and Repair) 5. Supplier Quality Circles 6. Training 7. Supplier information sharing

12. Top 20 Best Practices (Cont.) 8. Supplier Conferences 9. Supplier performance reporting 10. Supplier surveys 11. Delivery improvement 12. Tool and technical assistance centers 13. Supplier support teams 14. Loaned executives

13. Top 20 Best Practices (Cont.) 15. Early supplier involvement 16. New model development group 17. Written strategy for every supplier and every part/commodity 18. Strategic planning and administration 19. Career path planning and academic outreach programs. 20. Purchasing systems. Source: The Purchasing Machine

14. Toyota Value Added uValue added per employee 16% in 1998 uBest US value added per employee is 5% at Freudenberg-NOK uToyota had only 215 suppliers in 1983, including non-production suppliers Source: Toyota and F-NOK

15. Future Directions? uE-Commerce to front - with focus on process improvement through Lean uContinuing pressure on cost, quality and productivity uKnowledge Management uMore focus on business ethics