IE673Session 9 - Supply Management1 Supply Management

IE673Session 9 - Supply Management2 Old Model Based on price Pit suppliers against each other Adversarial relationship

IE673Session 9 - Supply Management3 New Model Awareness/acceptance of new model Raising the Material Management function Management commitment to forging a customer-supplier partnership

IE673Session 9 - Supply Management4 Dramatic Results Possible Quality Improvement Delivery Improvement Cost Improvement Cycle Time Improvement Profitability Improvement

IE673Session 9 - Supply Management5 Objectives Reform the supplier –Improve quality –Improve delivery –Improve cost –Improve cycle time But, first customer must put own business in order

IE673Session 9 - Supply Management6 Objectives (continued) New approach by immediate supplier to their subtier and sub-subtier suppliers

IE673Session 9 - Supply Management Era Model Specialized labor System is number 1 Quality is expensive AQL dependency Economy of scale important

IE673Session 9 - Supply Management Era Model (cont’d) Optimum order quantity (EOQ) Optimum build quantity (EBQ) Reduce direct labor Optimize all subsystems (keep people, machines busy)

IE673Session 9 - Supply Management9 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

IE673Session 9 - Supply Management10 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

IE673Session 9 - Supply Management11 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

IE673Session 9 - Supply Management12 Cost reduction by direction No supplier training Unilateral, vague specifications Long cycle time No contract beyond immediate needs

IE673Session 9 - Supply Management13 Buyer - Supplier Partnerships Relatively few suppliers Trust, loyalty, responsiveness - key words Partnership, the key Buyers are professionals “Long-Term” marriage

IE673Session 9 - Supply Management14 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

IE673Session 9 - Supply Management15 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

IE673Session 9 - Supply Management16 Purchasing - Historically Not considered to be a profession Perception: Anybody can be a buyer An “Early retirement home” Not in the main stream

IE673Session 9 - Supply Management17 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

IE673Session 9 - Supply Management18 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

IE673Session 9 - Supply Management19 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”

IE673Session 9 - Supply Management20 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

IE673Session 9 - Supply Management21 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

IE673Session 9 - Supply Management22 Supplier Responsibilities - Buyer Benefits Excellent quality Lower prices Early delivery Reduced cycle time Ideas for improvement Design assistance Standardization assistance

IE673Session 9 - Supply Management23 Mutual Responsibility Trust, loyalty Win-win relationship Mutually acceptable specifications Financial incentives/penalties

IE673Session 9 - Supply Management24 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

IE673Session 9 - Supply Management25 Buyer - Seller Advantages Higher levels of technology Mutually agreed upon specifications Blanket orders

IE673Session 9 - Supply Management26 Buyer Advantages Improved quality, delivery, price Greater span of control Reduced purchasing administrative costs Management concentration

IE673Session 9 - Supply Management27 Preferred Supplier List - Escalation Factors The proliferation of: –New part numbers –Models of equipment –Product lines –Customer options

IE673Session 9 - Supply Management28 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

IE673Session 9 - Supply Management29 Supplier - Customer Conferences Customer business overview Technology projections Issues from Supplier Council meetings Discuss mutual concerns, reduce friction Supplier awards

IE673Session 9 - Supply Management30 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

IE673Session 9 - Supply Management31 Financial sharing: idea incentives Financial sharing: performance, quality, delivery improvement Design assistance Supplier training Extension of partnerships to subsuppliers

IE673Session 9 - Supply Management32 Measurement of Partnership Effectiveness for Customers Quality Cost Delivery Cycle Time Best-in-class

IE673Session 9 - Supply Management33 Measurement of Partnership Effectiveness for Suppliers Contracts Quality Cost Cycle time Forecasts Technical assistance

IE673Session 9 - Supply Management34 Self Assessment Management commitment to partnerships Reduce supplier base; benchmarking Partnership with subtiers Material Management Function Cycle time reduction

IE673Session 9 - Supply Management35 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

IE673Session 9 - Supply Management36 Self Assessment - Quality Programs Incoming inspection Elimination/Certification Supplier DOE/SPC Supplier teamwork/training Next operation as “customer”

IE673Session 9 - Supply Management37 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