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Supplier Development Cases « Supplier Lifecycle Management供应商全周期管理

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Supplier Development Cases


(As part of page Supplier Development)similar to all the lectured business cases, success stories are majored in the book, as book writers always inspire the positive energy and encourage readers to try and explore. Supplier development is essential part of supplier management, and exclude the success stories, there are also many failure stories which may not be written and the articles talking about pitfalls to supplier development are also lengthy and cases supportingsimilar to all the lectured business cases[1]. Here are some success stories to share with you.

1.Nissan, for example, will look to send a handful of engineers to visit suppliers upwards of four-times a month. For critical suppliers, Nissan engineers may be permanently resident.

2.Allied Signal has a team of ‘on site development’ engineers who ‘live’ in 13-week visits in suppliers the aviation company is looking to development.[2]

3.Varity Perkins’ supplier-development efforts are closely integrated with “kaizen events” — focused shop-floor–based improvement projects designed to realize significant operational results in a short time at minimal expense. Perkins managers will not plan a kaizen event with a supplier unless the supplier is fully committed to the process. To gauge commitment, Perkins invites the supplier’s managing director to one of Perkins’ weekly internal kaizen events. If the director is enthusiastic after the event, Perkins arranges to hold a kaizen “awareness session” for the supplier’s senior managers at the supplier’s facility.

In general, commitment for supplier development at Perkins means:

1) the supplier is committed to continuous improvement,

2) both parties agree on cost-reduction targets, and

3) both identify specific opportunities for a kaizen event within the supplier’s manufacturing process. Perkins asks the supplier to commit its workforce to the project — typically eight to ten operators for 1 week.

Perkins also will not run a supplier’s first kaizen event until the supplier agrees on benefits sharing. Perkins no longer requires an equal split on savings, because true savings often cannot be determined for 6 months. Instead, Perkins requires that a supplier agree not to raise prices the following year unless it experiences an increase in raw material prices.

To foster supplier commitment, the teams generally choose a project that is fairly simple and likely to succeed for the first kaizen. Often, it is where they can obtain the “biggest quick fix” and the “greatest good.” To illustrate the potential benefits, in one unusual case, Perkins actually performed a kaizen assessment on a competitor’s area in a supplier’s plant.

4. Honda of America Manufacturing uses another approach to garner supplier commitment by illustrating benefits: target pricing to identify cost-saving opportunities. Honda breaks down costs to the component level, then asks suppliers to provide a detailed breakdown of their costs, including raw materials, labor, tooling, packaging, delivery, and administration. By comparing cost breakdowns, Honda suggests ways suppliers can improve performance and thereby reduce costs. Honda jointly develops cost tables with suppliers and uses them to find differences (line item by line item) across all cost elements. Potential “bones of contention” are generally the supplier’s profits and its overhead. Honda expects suppliers to receive a fair profit, of course, but the level may depend on the size of the purchase; no fixed profit level is used in negotiations.

The purchasing department then aggregates the costs and compares them to the target cost. If total cost exceeds target cost, the design requires change to reduce the cost. Although the supplier’s profit margins might be an easy place to look for cost savings, Honda realizes that doing so would squander any trust it may have earned. Therefore, Honda generally does not target supplier profits as an area for cost reduction.

Honda invested significant resources in its supplier-support infrastructure. Of the 310 people in Honda’s purchasing department, fifty are engineers who work exclusively with suppliers. In one case, a small plastics supplier did not have the capacity to produce the required volume, so the quality of their parts began to deteriorate. Honda sent four people to the supplier for 10 months, at no charge to the supplier; additional services were even offered as needed. The supplier improved and became a well-established Honda supplier. Although engineering support has played a large role in the success of Honda’s supplier-development program, the company generally does not invest directly in a supplier’s equipment. In some cases, however, Honda will own a percentage of a supplier’s equipment for capitalization purposes and allow the supplier to repay the investment over time.

Honda, for example, has stationed a number of engineers in the United States, and they lead kaizen (continuous improvement) events at suppliers’ facilities. While other automakers devote one day to a week to developing suppliers, Honda commits 13 weeks to its development program, which entails the creation of a model production line in the supplier’s factory. Honda’s engineers believe that the company’s goals extend beyond technical consulting; the aim is to open communication channels and create relationships. That’s why Honda’s engineers stay in touch with suppliers long after returning to their own plants. That dedication to follow-through pays off:

Honda’s Best Practices program has increased suppliers’ productivity by about 50%, improved quality by 30%, and reduced costs by 7%. That isn’t entirely altruistic; suppliers have to share 50% of the cost savings with Honda. The reduced costs also become the baseline for new contracts that suppliers sign with Honda. However, the suppliers benefit, too, because they can apply what they have learned to their other product lines for Honda and its competitors and keep all those cost savings.

5.Johnson Controls Inc. (JCI), an automotive interior components manufacturer in the United States, found that many suppliers attending its training sessions failed to implement the tools and techniques presented. Therefore, JCI initiated a Supplier Champions Program (SCP) to ensure that suppliers become proficient in areas important to JCI customers. In the SCP, one supplier employee is designated as the supplier champion. That champion’s job is to understand JCI expectations, demonstrate an acceptable level of competence in the tools and techniques, and be capable of disseminating that knowledge to the rest of the organization. If a champion moves out of his or her role, the supplier must designate a new champion, who trains with the outgoing champion and becomes certified in the appropriate training sessions. Certification generally requires a champion to submit several improvements undertaken by the supplier, such as process-flow mapping, failure-mode-effects analysis, quality-control planning, best-practice benchmarking, or process auditing.

To fulfill suppliers’ training inadequacies, JCI built a facility dedicated to providing extensive training to internal groups, suppliers, and customers. JCI requires that all potential suppliers take JCI’s Supplier Principles Program; hundreds of people have completed the program. During the first 11 months of 1997:

  • Suppliers spent 765 hours at Principles Program classes at the JCI facility.
  • JCI Supplier Development engineers spent 1,283 hours involved in management and process training at suppliers’ facilities.
  • Supplier-development personnel spent 573 hours solving technical problems at supplier sites.

6.Managers from National Computer Resources Corporation reported that timely and accurate information was critical to decision making and, ultimately, to improving supplier performance. Thus, an important focus of National Computer supplier-development efforts has been to persuade suppliers to commit to electronic data interchange (EDI — the electronic transmission of data between supplier and buyer using a strict format). National Computer has helped suppliers that produce lower-level components (but are without the resources to implement EDI themselves) by getting them online, providing training, and making hardware and software recommendations.

7.IBM managers reported in our interviews that, because of high risk and short product-development cycles, the company needed to expand its efforts to help suppliers ramp up for production more quickly. However, rather than use supplier-development intervention, IBM expedites support. For example, this means that it assists second-tier suppliers in reducing their delivery lead times to first-tier IBM suppliers. IBM even buys parts for first-tier suppliers and sells them to the suppliers at cost.

“…Statistica’l  process control  is  not  new  but  has  fallen into disuse inm  any places, so much so that many suppliers  do  not really understand  the  approach. To assist suppliers, IBM RTP (Research Tri- angle  Park)  and  another IBM location began  a training  program  in  statistical process control. Following an earlier successful approach, internal IBM training programs were held for the procurement quality engineers, for buyers, and for manufacturing engineers. The two-day training sessions were con- ducted by IBM quality engineers. The course was a simplified approach to statistical process control, emphasizing, the practical rather than the theoretical aspect of statistics.  Each attendee was given a manual and a hand calculator’ with all required statistical functions, and practical examples were used which related to a production work place.

At the conclusion of the interna1 IBM training sessions, supplier executives and their   quality managers were invited to attend the same two-day seminar at the RTP site. They were asked to agree that the statistical process control approach would be applied to parts being produced for IBM. As of this writing, 16 such sessions have been held, with very good acceptance.  Surveys reveal that at least half of the  major  suppliers  are  already  using  this  technique  on some, processes and  that  most  others have plans to do so. The instructors for the sessions have been the procurement quality engineers, with assistance in the classroom of others who have taken the internal classes. The intent is to continue the training seminars until at least all of them suppliers have been exposed to this most powerful quality assurance tool.

The use of statistical process control by suppliers was key to another IBM RTP program.  In the move from defect detection to defect prevention the additional role of receiving inspection needed to change. With  the  emphasis  on zero defects in  procured  parts,  it was no longer  reasonable to have  receiving  inspection spend  the  same effort as before in  checking  parts  that should be good when received. Consequently, a strategy was adopted to reduce receiving inspection to a mini- mum.  The objective is to do no receiving inspection on high-volume new product parts. This is accomplished by means of a part certification program. Under  this  program, selected part  numbers  at  participating  suppliers  are certified as  being  acceptable  with- out  further  inspection by IBM.”[3]

8.Solectron renegotiates contracts every 6 months because of rapidly changing technologies and a highly competitive environment, even though the firm considers suppliers long-term partners and they assume that their contract will be renewed. The renegotiation has two goals. One is to inform the suppliers of probable order quantities 6 months in advance; the other is to garner price decreases from them.

Solectron plans to write price-adjustment clauses into these contracts to capture supplier cost decreases automatically during the contract period, rather than at the beginning of each new contract. However, the firm has not implemented this change, because suppliers’ information systems are not integrated with Solectron’s. Therefore, Solectron is considering providing suppliers with access to its databases. By doing so, Solectron will be able to forego frequent renegotiations and will expect to receive real-time price reductions from suppliers.

9.Bavarian Motor Works (BMW), the car manufacturer, does not provide financial support to suppliers; however, it has provided the services of its employees when suppliers request assistance. BMW has sent maintenance engineers and procurement, logistics, and quality personnel to suppliers — sometimes for several weeks at a time. During its initial start-up in the United States, BMW had to focus on problem-driven projects. It still relies on a Pareto-driven approach to assisting suppliers. It identifies problems early and prevents them from worsening, which minimizes expending a supplier’s resources and the need for BMW to undertake supplier improvement efforts.

10.Hyundai Corporation, the large Korean automotive manufacturer, realized that smaller suppliers with limited resources could not consistently recruit and retain the most-skilled engineers. Therefore, most Hyundai kaizen processes focus on small suppliers. Hyundai sends engineers from its own shops to essentially “live” at supplier facilities, performing time/motion studies and teaching layout design to improve the supplier’s productivity. Hyundai encourages these suppliers to learn, apply, and eventually teach their own suppliers the knowledge that Hyundai transfers to them.

The cost of Hyundai’s training center (which provides specialized supplier training) is shared evenly between Hyundai and suppliers, but the Korean government provides tax benefits for building such centers and makes the shared training fees tax-deductible. The Korean government prohibits significant investment by a company in its supply base, so Hyundai only directly invests in supplier improvement in rare circumstances. However, the company is permitted to make machinery and equipment that it manufactures available to suppliers at a good price, facilitating the exchange of advanced technology.

11.Toyota Case (Investigating “The Way” for Toyota suppliers – A quantitative outlook on Toyota’s replicating efforts for supplier development)

Toyota teaches suppliers its famed Toyota Production System. The company has also set up jishuken, or study group teams, as a way to help the manufacturer and its suppliers learn together how to improve operations. Executives and engineers who work for Toyota and its suppliers meet under the direction of a Toyota sensei and go from plant to plant improving suppliers’ processes. These activities, which are orchestrated in some cases by the Bluegrass Automotive Manufacturers Association (BAMA), Toyota’s North American supplier group, give suppliers’ managers hands-on experience with the Toyota Production System in different types of environments. The activities also create bonds among Toyota’s suppliers because representatives of the vendors get together all through the year and share practices, information, and concerns.

In addition, BAMA provides support to suppliers that choose to help themselves. For example, in 2000, when Tenneco’s Smithville, Tennessee, exhaust-systems plant decided to initiate a lean-manufacturing transformation, it turned to BAMA for help. Through the association, Tenneco’s managers identified and visited some of the best lean suppliers in the United States. That experience helped them develop a vision. The managers then identified a lean-manufacturing expert within the company and went through a one-year transformation that included changing the plant layout. By 2002, the Tenneco plant had reduced head count by 39%, improved direct labor efficiency by 92%, eliminated $5 million of inventory, reduced defects in materials from 638 to 44 parts per million, and won a Toyota award for quality and delivery performance. Tenneco was a great student, but it also had a good mentor in BAMA.[4]


[1] Avoid the Pitfalls in Supplier Development, Robert B. Handfield, Daniel R. Krause, Thomas V. Scannell and Robert M. Monczka, Operations, Supply Chains & Logistics, Magazine: Winter 2000 January 15, 2000

[2] Jonathan Webb , Contributor, Follow on Forbes, https://www.forbes.com/sites/jwebb/2017/04/27/what-is-supplier-development-three-levers-to-get-the-most-from-the-supply-base/2/#7194bf663615

[3] An approach to Supplier Quality Improvement, J.E. Trent, August 1986-Vol. 24, NO. 8 IEEE Communlcatlons Magazlne

[4] Building Deep Supplier Relationship, Jeffrey Liker, Thomas Y. Choi, December 2004 issue of Harvard Business Review.



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