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

Presentation Outline Purpose of Presentation Recent & Past Supply Chain Practices in the US Auto Industry Best Practices Future Directions Forecast

Recent Supply Chain Practices in the US Auto Ind. 1970’s - Material Rqmts. Planning (B) & Robotics (C) 1980’s - Electronic Data Exchange - AIAG (A) & Lean Manufacturing (B) 1990’s - Enterprise Resource Planning (D) & Computer-Aided Design and Manufacturing (A) & the Internet (?) Source: Business2.com

Ford Practices in 1920 Focus on waste reduction - source of Toyota’s ideas in 50’s 48 hours from iron ore to completed vehicle Wood boxes became frame Moving assemble line in 1914 550% productivity improvement $2.40 to $5 per day wages Reduce price of car from $800 to $500 Source: Today and Tomorrow - Henry Ford

What is AIAG? Automotive Industry Action Group Founded in 1980 after study at Ford Non-profit, collaborative 1600 members, OEM’s and Suppliers International more and more. Similar organizations in Europe, looking at it in Japan.

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

AIAG INITIATIVES Electronic Data Interchange Bar Coding Lean Manufacturing Cad-Cam NAFTA ISO/QS-9000 Quality Requirements E-Business

Honda Supply Chain Management 1995 study of 26 Major Companies - Ranked #1 1999 Study of 162 Major Companies - Ranked #1 Most companies don’t have detailed analysis of purchasing costs Can provide 30 to 40% savings first year Source: David Nelson, VP of Purchasing

John Deere Supply Chain Management 80% of manufacturing costs come from suppliers, but had 600 internal engineers, only 4 external engineers. 92 supplier development engineers now versus 4 in 1996. Plan to add 75 more Cost $7 Million, savings $22 Million in 1999 Savings to grow exponentially while costs grow slowly. 3-fold payback today, expect 10-fold payback by 2008. Source: David Nelson, VP Worldwide Supply

John Deere Supply Chain Management (Cont.) 2 year MBA program for 35 people at Arizona State University at cost of $1 M One commodity had 1625 suppliers, now 20 Had 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

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

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

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

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

Future Directions? E-Commerce to front - with focus on process improvement through Lean Continuing pressure on cost, quality and productivity Knowledge Management More focus on business ethics