Supplier Development Prepared By Alicia Dillon Boise State

Supplier Development Prepared By Alicia Dillon Boise State University October 8, 2003

Objectives of the Training b Learn about supplier development approaches b Differences between supplier development approaches b Why should an organization utilize to supplier development programs

What is Supplier Development? Definition: Working with suppliers to help increase efficiency and decrease costs for the benefit of both supplier and buyer

Why Develop Suppliers? b Increase Quality b Increase Supplier Reliability b Reduce Costs/Price b Increase Efficiency • By decreasing number of suppliers • By improving supplier performance

Brainstorm b How can supplier development programs help your organization? b What are methods to helping your suppliers improve quality/efficiency?

Overview of Approaches b Single Sourcing b Dual Sourcing b Supplier Evaluations b Sourcing Filters b Supplier Certification/Qualification b Supplier Development Programs b Supplier Audits

Approaches to Developing Suppliers b Single Sourcing • Use only one supplier per component b Pros: Strong relationship and supplier becomes an expert at providing the quality product your company expects at a low cost b Cons: Any disruption in the supplier’s production could leave you shorthanded

Approaches to Developing Suppliers b Dual Sourcing • Number of approved suppliers is limited (generally 2 -3) b Pros: Reduces risks of having a sole supplier b Cons: Reduces amount of specialization of suppliers

Approaches to Developing Suppliers b Supplier Evaluation • Rates suppliers on quality, technical capabilities, and abilities to meet scheduled requirements b Pros: All suppliers are evaluated on same basis b Cons: Minimal hands on with no focus on improvement

Approaches to Developing Suppliers b Sourcing Filters • External Validation of Quality Programs – ISO 9000: 2000 – Malcolm Baldrige Qualified b Pros: Gives customers comfort; “Seal of approval” b Cons: Qualifications do not necessarily guarantee quality product

Approaches to Developing Suppliers b Supplier Certification/Qualification • Inspections performed by company to evaluate suppliers b Pros: Thorough understanding of suppliers strengths/weaknesses b Cons: Time consuming; focused entirely on evaluating supplier, not improvement

Approaches to Developing Suppliers b Supplier development programs • Hands on work with suppliers to continually improve quality b Pros: Develop suppliers to meet your exact needs b Cons: Very time consuming to groom suppliers to meet your needs

Approaches to Developing Suppliers b Supplier Audits • Team of auditors examine supplier’s performance and procedures b Pros: Clearly identifies if supplier is meeting performance objectives b Cons: Lacks developmental component

Supplier Development in the Real World b Honda Motors • Partnered with Parker Hannifin Corp – Honda engineers worked over six Parker plants making basic efficiency changes saving Parker over $1. 6 million a year.

Supplier Development in the Real World (Continued) b Improvements in Parker products directly related to Honda’s developmental help -Decreased cylinder line travel from 19 days to 5 minutes -Reorganized production process to decrease scrap from 5% to 2% and increase output per man -hour by 30%

Supplier Development in the Real World (Continued) b Areas Honda helped to improve do not all involve parts supplied to Honda b Why help suppliers improve areas that do not directly affect the company? • “We want suppliers to be better companies because, ultimately, that makes us a better company, ” Richard Mayo, Honda purchasing executive

More Supplier Development in the Real World b Dell and Wal-Mart both use exclusive collaborations with suppliers to optimize efficiencies and cost. b In particular, they share proprietary information (confidential financial data) to help improve their suppliers ability to meet future needs

Exercise b Break up into teams b Identify a current supplier where developmental approaches could be effective • • • What type of approach would be most appropriate What types of results would you expect to see What area would be most improved (i. e. efficiency, costs, quality)

Exercise (continued) b What have we discovered? b Is it practical? b Can your company utilize this process? Why or Why Not?

Conclusion b Supplier Development Approaches: • • • Partnering Audits Evaluation Single or Dual Sourcing Filters or Certification/Qualification Programs

Conclusion (continued) b Developing suppliers can improve competitiveness b Supplier development is a program that focuses on continual improvement of the supplier in order to provide quality products at low prices

Works Cited Agrawal, Mani and Pak, Minsok. “Getting Smart About Supply Chain Management. ” The Mc. Kinsey Quarterly. 2001, Numer 2: On-line Tactics. Pg 22 – 25. Foster, S. Thomas. Managing Quality: An Integrative Approach. 2 nd Edition. Prentice Hall, 2004. Palmeri, Christopher. “A Process That Never Ends. ” Forbes ; Dec. 21, 1992, Vol. 15, Issue 14, P. 52. Rusiniak, Stan. “Maximizing your IE Value. ” IIE Solutions. Jun 1996, Vol. 28 Issue 6, Pg 12.