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

3. 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

4. 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

5. 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.

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

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

8. 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

9. 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 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

10. 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

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 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

15. 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