IE 466 Concurrent Engineering Sourcing and Supply Chain Management Presented by: Bill Lindquist and Felicia Lim Ingersoll-Rand Company

Topics Evolution of Supply Chain Management Overview of Supply Chain Management (SCM) Market Forces and Emerging Trends in SCM What’s Hot in Supply Chain Management? Suppliers and Sourcing Functions in Product Development How can engineers be valuable in these areas? (Live Testimonials via Teleconference) Reference list of magazine sources and websites

Evolution of Supply Chain Management Pre-1980: Clerical/Transaction Focus 1980-1990: Price/Quality Focus 1990-2000: Inventory/Productivity Focus 2001: Strategic Focus using the firm’s supply function as a competitive tool Evolution not yet complete

Overview What is Purchasing? An organizational function that is responsible for acquisition of required materials, services, and equipment. What is Procurement? An organizational function that includes specifications development, value analysis, supplier market research, negotiation, buying activities, contract administration, inventory control, traffic, receiving, and stores.

Overview What is Sourcing? The process of identifying sources that could provide needed products or services for the acquiring organization. What is Strategic Sourcing? An on-going analysis to evaluate the right mix of products and services, determine the appropriate suppliers and terms and conditions to balance cost, quality, and risk.

Overview of Supply Chain Management What is Supply Chain Management? “the identification, acquisition, access, positioning, and management of resources the organization needs or potentially needs in the attainment of its strategic objectives”

Overview of Supply Chain Management Strategic Contribution to the Firm Low High Traditional Purchasing Process Orders Bidding/Negotiation Expediting/Tracking Procurement/Sourcing System Efficiency Plan Volumes Cost Management Leverage Buying Power Supply Chain Management Shape and influence the supply market and inbound chain Analyze and suggest supply opportunities/options Provide the firm with access to what it needs but cannot develop New revenues are as important as cost savings 1970’s 2001 and beyond Timeline

Shared Information and Processes The Supply Chain Shared Information and Processes Suppliers’ Suppliers Assembler Suppliers Issues: Inventory Visibility Communication Collaboration Overlap Conflicting Objectives Logistics Providers Distributors Customer

Market Forces and Emerging Trends in SCM Greater emphasis on communication and collaboration Global competition and global sourcing Transportation improvements eliminating the need for regional sourcing Integrated systems are being procured instead of parts and services Transformation from piece-price to total-cost solutions Auctions and market exchanges on-line Drive towards making products “commodities” where possible More outsourcing allowing a focus on core competencies Outstanding quality is expected and not a discriminator

What’s Hot in SCM? Web-based procurement tools Outsourcing E-Procurement Third-party auctions Consortiums for buying leverage Buyer and seller exchanges Outsourcing Third-party logistics (3PL) providers Use of Integrators and Distributors Supplier Relationship Management Strategic Supplier alliances Collaborative design Supplier managed replenishment On-site supplier representatives

Case Study Cessna Deere & Company Problem areas: Solution: Improved on-time delivery from 45% to 95% Reduced % of department working on tactical issues from 99% to 29% Inventory reduced from 30 days of supply to 10 Cessna Problem areas: supplier on-time delivery redundant inspection and rework price and cost escalation fragmented organization and strategies Solution: Integrated Organization Structure/Process Sustaining Production; Strategic Sourcing; New Product Development Automate repetitive tactical activities Implement Six Sigma and VE/VA programs Supplier rationalization and development Include suppliers in design, manufacturing, e-business and product support Strategic Make vs. Buy process Deere & Company

Case Study Harley-Davidson Problem areas: Solution: Inventory reduced 25% Costs of Purchased Goods reduced 10% Supplier quality levels improved from average of 10,000 PPM to 48 PPM Harley-Davidson Problem areas: Poor relationships with suppliers Lack of coordination with Engineering Sporadic quality problems Weak product development Solution: Restructure Purchasing operations Dedicate half to product design and half to development Co-locate Engineers with Purchasing 80% of Purchases concentrated in 70 suppliers On-site Supplier Representatives

Importance in Product Development New Product Development Teams Suppliers participate in design reviews to ensure feasibility of design based on capabilities. Sourcing function is responsible for supplier identification, cost containment, and managing lead time constraints. Value Engineering/Value Analysis (VE/VA) Sourcing function evaluates products, initiates improvements with engineering and suppliers to increase function while decreasing cost, and manages implementation of improvements.

Product Development Tools Used in Sourcing Design For Manufacturing (DFM) Collaboration between engineering and manufacturing functions prior to design release that ensures that the product design meets manufacturing capabilities and considers ease of manufacturability. Failure Mode Effects Analysis (FMEA) Risk assessment process during the design phase that evaluates all potential failure modes, their effects on the product’s performance or quality, and develops control plans to reduce these risks of failure.

Engineers in Sourcing and SCM Brian Grev “I learned that sourcing is more than just purchasing. It involves strategic alignment of supply chains, supply chain management, negotiation tactics, and more. Through my projects I have become more informed about different manufacturing processes: forging, stamping, deep drawing, screw machining, injection molding, fine blanking and more. I have also developed relationships with suppliers that will continue to benefit my projects.” Jessica Rosenberger “While at my current assignment I have been involved in many diverse projects. I have participated on the supplier development council for a new product that will change the way the golf car industry does business both internally and externally. My primary responsibility is the design, implementation, and documentation of an integrated supply program which has resulted in cost reduction and inventory reduction, contributing not only to our business until goals, but also to the goals of IR.”

Engineers in Sourcing and SCM Mihyar Mohamed “I see this as an opportunity to pursue a career that rewards you for your technical background, while at the same time allowing you to use skills in personal interaction, relationship management, and strategic thinking that are all necessary to excel in this field.” Craig Smith “My assignments have gone beyond buying and purchasing ‘widgets’. I have been involved with teams that find, select, and manage business relationships that enable IR to strengthen its position in the marketplace. The business unit I work for does very little manufacturing, so the sustainable growth of the business depends heavily on new product launches and service initiatives. Therefore the sourcing team works very closely with the marketing team and takes on a much more important role in the strategic plan of the business unit.”

References Strategic Supply Chain Management James P. Morgan and Robert Monczka

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