Executive report of key results of recent research on supplier development strategies and outcomes
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- Supplier’s Top Management is Critical
- No Financial Investments
- Supplier Involvement in New Product Development
- International Supplier Development
- Information Systems in Supply Base
- The Formalization of Supplier Development
- Justifying Supplier Development
- Automotive Industry Action Group (AIAG)
- Work with External Parties
- Best Case 3: Supplier Development at Honda
“Looking in the Mirror”Chrysler also needs to take an introspective approach every now and then, and identify ways to improve our communication processes. This is a form of “Buyer Development”, in that in 40-60% of suppliers’ problems have been contributed to by Chrysler. This involves things such as changing requirements and not telling them, making design changes at the last minute, etc. The question then becomes, what can Chrysler do to help the supplier? In other cases, it is not the supplier, but their second tier suppliers who are at the root of the problem. They are receiving poor products or later deliveries, but are “letting it ride”. Chrysler needs to go in and provide training in such cases on supply base management, even though they are already getting training in advanced quality planning. Suppliers must understand that they are responsible for developing their supply base in order to sell to Chrysler. This may involve sending the supplier to classes in Chrysler Quality Institute. Gary has a fair amount of leverage internally. His people try to correct problems within Chrysler in a non-threatening way. The internal assessment is shared with no one else in Chrysler, so that it cannot be used in future price negotiations. At best, other Chrysler purchasing people may see an “Executive Summary” of the situation which has been edited so that it is “politically correct”. In this way, Supplier Development can work with the supplier to understand what Chrysler people are doing that may be causing problems. By approaching the supplier in a reasonable manner such as this, the supplier can understand why the development team is there, and can also understand why change is important.Supplier’s Top Management is Critical Over the last 18 months, 2-3 supplier interventions have failed (out of a total of 35 suppliers). Gary maintains that the key to success is top management at the supplier. If the supplier’s top management is willing to listen and understand, than a major part of the problem will be eliminated, and the intervention will work. This is similar to an intervention with an alcoholic – if they listen and are willing to admit there is a problem, there is a chance it will work. Some of the problems may be simply that they are not measuring their performance internally (on cost, quality, delivery, etc.). At the larger suppliers, when they talk to the people at the Director level, they often find that they don’t measure the right things. For instance, perhaps they are measuring the number of parts made today, but not the number of defective parts made. Generally speaking, what gets measured gets managed. This is a major insight to many Directors! In some cases, the PASS reports (supplier evaluation reports) provided by Chrysler to the supplier has never been seen by the Director of the supplier! No Financial Investments Chrysler provides almost no financial investments in suppliers, except in cases of a dire emergency. An emergency might be, for instance, a minority supplier who is facing financial distress. Some indirect financial assistance may be provided. This policy is a function of the price of entry in the auto industry as a whole: it is a capital-intensive industry, and through a process of natural selection, only those companies who can make the financial thresholds have a chance of surviving. Almost all of Chrysler’s suppliers are US-owned and operated companies – (non-transplant). Human Resource Issues In some cases, Chrysler will help suppliers with their HR issues. For instance at one supplier, there were too many contract people, and an excessive high turnover of salaried employees. It turned out that the pay levels for these people was too low for the region. In general, Chrysler does not however get involved in union negotiations. Supply Base Reduction Chrysler has undergone a significant reduction of its supply base to date. The late 80’s and early 90’s were a period of high supply base rationalization. This is an on-going strategy today (but at a lower rate), with the goal being to single source by part number, but with at least two suppliers per commodity. The business is then shared across platforms. However, the business for a model within a commodity group will not be shared across suppliers. This is intended to maintain/foster competition among suppliers, yet get the benefits of single sourcing. Supplier Involvement in New Product Development The technical people at Chrysler now understand the importance of making sure that the latest technology is being introduced into new models from the supply base. Gary is involved in ensuring that suppliers are capable of meeting Chrysler’s technology requirements, and that they have the capability before they become involved in the new product development process. For example, suppose a new supplier to the auto industry is being considered for sourcing a new technology. Gary’s group will work with the supplier to help them understand how to do business with Chrysler and to shorten the learning curve. One way this is being done is through the development of a book that documents how to do business with Chrysler, and covers such details as quality requirements, engineering, supply policies, etc. “We often assume that everyone knows these details, but a new supplier does not!” International Supplier Development This learning book will be especially useful as Chrysler begins to produce and source in Europe and South America. For instance, Chrysler will be building a Jeep in Beijing China, and is establishing an assembly plant in Gratz, Austria and Stire, Austria. It also has facilities in Venezuela, Argentina, and Brazil, and is establishing a joint venture with BMW in Brazil to have local assembly of 6 cylinder engines. However, the involvement in supplier development to date has been 100% North American suppliers (including Mexico). Gradually, this will change, as the supply base is expected to move into Eastern Europe and Latin America. Supplier Dependence There is no formal cap on supplier volume, but for smaller suppliers, Chrysler keeps an eye on their total volume to Chrysler. If it begins to rise over 40-50%, they need to ask themselves if this is wise as it may foster too much dependence. At this point, the supplier may be encouraged to get more business elsewhere. Gary also notes that loading up a really good supplier with too much work can cause additional problems. The supplier may lose their enthusiasm, which is something that Chrysler wants to keep in a learning organization. Chrysler also has a finance group within procurement that evaluates suppliers’ financial health. It is also important to understand what the second and third tier suppliers are doing and what is going on. For instance, one second tier supplier selling to a first tier was also selling directly to Chrysler. Although the quality to Chrysler was acceptable, the quality to the first tier was no good, and the supplier eventually went out of business. This makes the Extended Enterprise all the more important. Breadth versus Depth In corroborating the BMW benchmarking study, Chrysler has a wider scope of breadth than BM., but less depth than Toyota and Honda. This is primarily because these companies have more dedicated resources in supplier development than Chrysler. Information Systems in Supply Base A major issue here is whether suppliers have effective measurement systems to gauge performance (especially quality), and whether they communicate effectively between their functions. This is important, because 12 months from now, all suppliers are going to have to have EDI to effectively supply Chrysler. Chrysler recently benchmarked 8-9 suppliers, including 2 Pentastar Platinum Award suppliers. These best in class suppliers in general had the absolute essentials in place: top management was committed to excellence, and the measurement systems were complete and measured all of the critical areas, including process, inventory, quality, and delivery. Further, these measures were reviewed every week for at least 2 hours every week by the entire team, and were updated on a daily basis. However, they also uncovered a number of problems, even with these suppliers. The suppliers had no Cpk (process capability indices) being tracked in their system, and although they tracked SPC charts, they were not effectively being used. Suppliers’ communications with Chrysler are a big problem in information systems. Suppliers are not clearly establishing clear contacts within Chrysler with respect to information on quality, purchasing, etc. Part of the problem is that Chrysler is also not clearly identifying expectations, requirements, deadlines, and late design changes. This latter issue is an especially big problem. To remedy this situation, Chrysler has instituted a new policy called “4-Ever Requirements:
This policy has been instituted, because even an innocuous change to a material/process can have disastrous consequences. In one case, a supplier moved an entire supplying process to a different plant, and did not tell Chrysler! At that point, they did not know who their primary contacts in engineering, purchasing, and quality was anymore! Supplier Councils This is headed up by Thomas Stallkamp, Executive Vice President of Purchasing at Chrysler. Stallkamp meets with the Supplier Executive Roundtable every 2 months. The Roundtable is composed of senior executives from 15 direct suppliers, 1 raw material supplier, 1 tooling supplier, and 1 indirect material supplier. Under the Executive Roundtable, there also exists a Supplier Management Roundtable (led by Senior Procurement Executives), and a Quality Roundtable (led by Supplier Development and quality executives). The structure of these roundtables also mirrors the Executive Roundtable. Every year, 1 – 2 suppliers are rotated in/out of the Roundtables. Suppliers are selected for inclusion only if they are key suppliers of key technologies, high volume items, etc. Inclusion on the Roundtable is by invitation only. Unfortunately, there is little cross-fertilization across the different Roundtables. At the Supplier Development Roundtable, Gary works in running by suppliers some of the different approaches, techniques, and tools that will be used in the future to get their feedback. Twice a year, Chrysler also runs “Supplier Events”, in which the top 130 suppliers are invited to get the best of them involved. At this meeting, the Executive VP of Purchasing talks with suppliers on industry trends and Chrysler’s needs. The Formalization of Supplier Development The impetus for a formal supplier development program at Chrysler began 2 years ago, which was when Gary’s supplier development department was originally started. Procurement executives came to the realization that they had a lot of catching up to do in the quality area. Chrysler has significantly raised their internal and external quality benchmarks, and the company realized that suppliers are incapable of doing this on their own. This was both a top management and purchasing realization. “Some suppliers need a lot of help, and we don’t have the time to help them! Yet we realized that if we don’t do it, nobody will. Helping suppliers thus just made good business sense.” This resulted in the formation of a formal Supplier Development group headed by Gary. New headcount was added – instead, several departments had to provide some of their best people, in order to create a vested interest. Now however, Supplier Development is in the process of adding people because of the enormous demands. Justifying Supplier Development In order to justify the formation of this group, some key measures needed to be established. Performance of the group to date has been impressive: 35% of suppliers have increased quality, etc. by more than 70% 35% of suppliers have increased quality, etc. by 40-70% 20% of suppliers have increased quality, etc. by 1-20% BUT 10% of suppliers have actually gotten worse! In working with downstream carriers, the group has been successful in reducing damage to vehicles being transported, reduced the cycle time required to get vehicles to customers, and increased the number of “delighted customers” at the dealerships by working to better manage diagnostics and faults. They have also worked more closely with suppliers to improve delivery of aftermarket warranty parts (this group also reports to the Supplier Management group.) Customer Advocate Group This group is chartered to listen to the dealerships and bring the voice of the customer back to Chrysler (BEFORE the warranty reports start rolling in). In 1996, Chrysler established a Warranty Reduction Program that involved 14 suppliers initially, and which has 60 suppliers today. The focus of this program has changed from blaming suppliers for problems, to encouraging suppliers to take the lead in assessing warranty issues and getting them resolved. They are given warranty targets in order to get SCORE credit. Suppliers’ leadership is incited to resolve warranty issues, and Chrysler gives these suppliers on-line access to warranty data. Currently, 175 suppliers have access to this data. The focus of this program is on reducing warranty costs. No finger-pointing is involved, but suppliers are expected to just fix the problem. Automotive Industry Action Group (AIAG) This group was formed by the Big Three and its suppliers in an effort to get together and resolve issues of a common nature (such as EDI standards). Most recently, it has developed a common quality standard called QS 9000. This has also proven to be a significant supplier development technique, as it provides a common language and system for managing quality. To date, a significant portion of the supply base is registered to this standard. However, the standard represents only a base from which to begin quality improvement. The real challenge is to maintain the discipline needed after the initial QS 9000 certificate, and adhere to processes. QS recertification occurs every 6 months. Work with External Parties Chrysler has most recently been working with the Edison Welding Institute in Ohio to help provide technical assistance to suppliers. The Institute is half funded by the government, and half funded by Chrysler. The objective of the institute is to improve Chrysler’s welding/joining capabilities, by developing a set of procedures to follow in welding processes. So far, five suppliers have adhered to the new process, while a sixth supplier is NOT following the process, but wants to go outside of it. . Gary has emphasized that the supplier MUST follow the process. Mentoring In some cases, suppliers have undergone mentoring by other suppliers in the supply base. “Future”: This is a relatively new program that may be formalized in the For instance, one supplier has had problems with managing the level of torque required in their processes. This supplier has since undergone a “mentoring” process by another supplier, who is considered a good supplier to Chrysler, but not a competitor to the supplier experiencing the problem. The technically proficient supplier’s supplier from a different commodity group has stepped in and helped advise them on how to manage torque, acting as a “mentor.” Best Case 3: Supplier Development at Honda Honda began in 1948 in Hamamatsu, Japan, as a manufacturer of war surplus generators attached to bicycles, thus creating a crude form of motorcycle. The company thus began very modestly, but by 1954 had adopted the following motto:
The company was not allowed to produce cars, but early on Mr. Honda began hounding a government official to allow him to produce cars. It first entered the automobile market in 1964, when the official finally gave Mr. Honda the permit after he camped out outside his office for several weeks! However, upon getting the permit, Honda found that few suppliers were willing to provide parts to the company. Thus, the few suppliers who were finally convinced to supply the company were instrumental, and Honda has maintained closeness with its suppliers. These initial suppliers are still supplying Honda today. Currently, Honda of America has 322 domestic suppliers, of which 50 are raw material suppliers. The company has only separated from 12 suppliers since 1958, in cases when the suppliers refused to improve their quality. Process/quality improvement is a major factor evaluated in supplier relations. A supplier evaluation generally consists of a senior level meeting, followed by visits and evaluations. The idea is to seek mutual dependability with suppliers. Eighty percent of the value of Honda’s products comes from suppliers, so purchasing holds a very strong position in the organization. The VP, Dave Nelson (now exec VP of HAM) reports to the CEO, and 2 / 8 members of the Board of Directors came from purchasing. Eighty percent of items are single sourced with one set of dies (but dual competition by platform. An example of this strategy is as follows: Supplier A sources steering wheels for Civics, and Supplier B sources steering wheels for the Accord. Either supplier can make either part, but each is a single source by platform. When a new model is introduced, both suppliers may bid on the extra volume, with the best price and best performing supplier likely to get the business. The basic objective of Honda is to manufacture throughout the world: “You must build where you sell, and buy where you build.” Thus, Honda seeks to develop local suppliers worldwide. Marysville is now a “mother plant” for other “children”, namely the plant in Guadalajara, Mexico. The East Liberty plant produces the 2 door and 4 door Civic, the Acura (on-line in 1995, and 100% designed in the U.S.), while the Marysville plant produces the 2 door, 4 door, and station wagon Accords. Honda is today the largest exporters of cars in the U.S. The pattern of domestic supplier development for Honda is remarkable: 27 in 1983 51 in 1985 216 in 1990 322 in 1995 350 in 1997 In the early stages, Honda would not take on suppliers until they were ready. Today, the 96 Civic has 92% domestic content, the Accord 90%. Honda Supplier Support The Honda supplier support infrastructure is vast. 11,000 employees work in Ohio, of which 1000 work with suppliers. Currently, 310 people work in purchasing, of which 50 are engineers that work exclusively with suppliers. Several examples illustrate the extent of this support function. In one case, a small plastics supplier did not have the capacity to keep up with volume, resulting in quality deterioration. Honda sent four people to the supplier for 10 months at no charge, with services offered on a voluntary basis. The supplier improved, and is a major supplier still today. A key part of the supplier support / development function is to ensure that everyone within the supplier organization and within Honda understands the philosophy. Tier one suppliers are expected to be self-reliant and responsible for working with their suppliers. Top management support is absolutely necessary within each supplier. The premise of mutual dependability is a cornerstone of this program. Honda can be up to 50% of a supplier’s business (maximum of 3% for steel), but in general, there is no set percent of business that Honda wants. BP Program A major part of Honda’s supplier development strategy is its BP program. BP can stand for a lot of things, including Best Position, Best Price, Best Productivity, Best Products, and Best Partners. In general, it signifies any type of joint improvement activity between Honda and its suppliers. BP Teams initially look at a particular model line, and work with a supplier to teach them tools for continuous improvement over a 3 month lead-time. This serves to build a momentum, and deliver some “quick hits”. Goals and objectives are then set and a plan developed. If the goals are not met within the given time frame, the development initiative is considered a failure. In some cases, suppliers may resist development efforts. For instance, in one case a 2 week situational analysis was presented to top management when a given supplier was not implementing their strategy. This presentation led to increased awareness on the part of the supplier’s president, who did not realize they had so far to go! Subsequently, Honda worked closely with them over a 5 month period, with 3 full time people assigned to their staff. They improved quality from 700 PPM to 46 PPM per month. “Best Quality” is now a full time department within this supplier. The BP supplier development process goes through a series of stages. Phase 1 is a “soft program”, done at the production stage, focusing on process improvements. Phase 2 is a more detailed strategy which occurs at the product planning stage. This is an important difference in level of development: phase 2 actually involves developing suppliers for new product development prior to concept development. At this stage, the potential for reducing cost is the highest, but the cost of change is relatively low. This contrasts to Phase I, where the cost of change is significant, with relatively minimal effect on cost reduction determined at the design stage. The supplier integration process into planning, concept, and design is shown in the “Global Purchasing” handout.
  
Cost of change Potential for cost reduction 
Phase II
Phase I As such, there is no formal supplier certification process, but rather certification of parts. Once a part is certified, there is no inspection, but rather a complete review of every operation and process associated with producing that part, which avoids the need for inspection. An Initial Production Part tag is used, and put on any time there is a design engineering change. The line people at Honda generally use this any time they discover errors. A Supplier Conference is held annually. A number of awards are presented, including awards for quality, delivery, production support, and production improvement. These awards are very hard to get, and reflect Zero PPM in quality and delivery. Not many of them are given out. The prevailing wisdom at Honda is that “it is okay to make mistakes, but you must share what you learn from your mistakes with your peers, so they can learn as well.” A big part of this process is Supplier Quality Circles, which are encouraged throughout the supply base. Honda provides facilitators to help create a program that fits their environment. The company started with 700 circles in 1989, and now has 4500 circles (1995). With each quality circle having 5 - 10 people in them, this represents approximately 20,000 people who are all working to make Honda’s products better. A big part of Honda’s strategy is Target Pricing (see notes from GEBN presentation). Honda organizes Purchasing into some very non-traditional areas, including supplier development (SD), and Prototype, and Sales Engineering and Design. The latter group is responsible for taking sales costs and breaking it down to the component level. It is required for suppliers to provide a detailed breakdown of price, including raw materials, labor, tooling, required packaging, delivery expenses, administrative expenses, and other expenses. The breakdown of costs is helpful in suggesting ways that suppliers can seek to improve and thereby reduce costs, especially for mass production. Cost Tables are jointly developed with suppliers, and used to find differences (line item by line item) across all elements of cost. A big negotiation point, of course, is profits and overhead. A fair profit is required, but may be dependent on the level of investment. No fixed profit level is used in negotiations. Purchasing must then roll up all of the parts costs and compare them to the target costs. If total costs exceed target costs, design must either change the design or try to meet cost objectives. Honda also has a “Guest Engineer program, wherein supplier’s engineers involved in product development may be asked to participate and work at Honda R&D hand in hand with Honda engineers. This helps local procurement efforts and spurs the development of new technologies by both suppliers and Honda. This also helps support potential exporting of components in later models, but first the supplier must prove himself domestically with local procurement offices. Purchasing people at Honda get over 420 hours of training over a 3-4 year period. Training is also offered to suppliers. Honda routinely sends out surveys to suppliers to ask them “how are we doing?” The results are summarized and passed out to department heads. It is also interesting that Honda uses no formal contracts with suppliers, but uses a purchases and sales agreement with boilerplate terms only. No costs, volumes, length of time, etc. are ever used. The American plant is relatively low volume and small, and contains only 1/2 to 1 day of inventory. To facilitate JIT delivery, suppliers often have multiple deliveries per week. In cases when they are far away, offsite storage is used to receive parts and sequence them into a “set” which is delivered multiple times per day. The parts are either put into a “marshalling line” or are received directly. Marysville gets between 50 to 100 deliveries a day. Deliveries are sequenced to their “body on-line sequencing assembly area, which occurs after paint. A ticket on the body specifies the model, color, etc, and is printed on-line and also distributed to suppliers. Seats are loaded based on sequence, go onto a conveyor, and marries up to each unit as they arise. A great deal of trust exists between Honda and its suppliers. Trust develops through supplier support and continuous development, and often takes a long time to develop. A good example is the case of a fire at a supplier which caused Honda to lose 29% of their production. Fortunately, a similar part was produced by a supplier in Japan, who was able to source it short term. However, a number of unique tools were destroyed, but since they were a key supplier, they built back their tools. The company had lawyers, engineering, and everyone involved in modifying the parts! Honda did all the repairs on the tools based on “what is best”, and helped them build up secondary features (as their engineers were tied up with other issues). Other suppliers in the supply base saw what happening, which developed greater trust throughout the supply base. Nevertheless, Honda sets very clear expectations - suppliers MUST meet demands, especially during new model year changeovers. Suppliers receive a monthly performance report, which uses an index system to rate performance. Production meetings are also scheduled regularly to share production plans and other detailed information. This helps supplier prepare their schedules, and manages expectations regarding new models, prototypes, etc. Directory: scm scm -> The petition and case system scm -> Coastal zone region / estuaries and tidal flats index Map to Study Sites scm -> Section 1 south carolina's intriguing landscape (statewide overview) Index Map to Study Sites scm -> Section 5 coastal plain region / overview index Map to Study Sites scm -> Thirty-sixth regular session oea/Ser. P june 4 6, 2006 ag/doc. 4634/06 re scm -> Scm-061 -confCall6-Summary Source: 3gpp – 3gpp2 scm ahg co-Chair Date scm -> Description scm -> Title: Spatial Channel Model Text Description File: Source scm -> Junior Umpire of the Year – Marcus Kouri • Senior Umpire of the Year – Wendell Kehler scm -> Course Code Course Title Download 295.54 Kb. Share with your friends:
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