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SUPPLIER DEVELOPMENT

SUPPLIER DEVELOPMENT. Objective.

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SUPPLIER DEVELOPMENT

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  1. SUPPLIER DEVELOPMENT

  2. Objective Develop a methodology to objectively evaluate service providers or products, ensuring that the best one is selected for a given situation. The intent is to consider all relevant factors and minimize the subjective issues that can potentially influence such a decision. 2

  3. THE NEED

  4. THE NEED • Decrease the number of suppliers in order to develop supplier partnerships. • Help improve competitiveness, • Lower costs • To increase quality and reliability of products. • The strengthened supplier/buyer relationships can also lead to improved trust which then can lead to more win/win team achievements through cooperative efforts.

  5. Vendor Definition A third party that performs functions on your company’s behalf or provides services to your company. Some examples include: • Core Processing • Information and Transaction Processing • Security Monitoring • System Development and Maintenance • Print and Reprographics • Strategic Alliances • Internet Services 5

  6. Indian Scenario • Competition is becoming increasingly intense • Manufacturing companies need to lower costs and improve quality • Materials are a significant part of cost of production for a majority of industries • Outsourcing of components is a means of lowering costs and reducing risk • Industry has developed in a protected and controlled economic environment • In the past, cost, quality and customer service were not critical parameters

  7. Indian Scenario (cont’d)‏ • Most suppliers are small or medium scale units • Small industry is defined in terms of investment in plant and building • Small industry has always been given special protection by the Government (reservation policy, excise concessions)‏ • Consequently, most suppliers did not grow or increase investments to improve technology, as well as production and quality control systems • In the past, pricing was only on cost plus basis

  8. Indian Scenario (cont’d)‏ • To reduce/avoid tax payments, most industries declared low profits • Consequently no internal resources were generated • There were no long term contracts or relationships with buyers • Now competitive environment requires suppliers to meet stringent quality standards, regularly improve technology and be cost competitive

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

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

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

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

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

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

  15. Supplier Development in the Real World • 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.

  16. Supplier Development in the Real World (Continued)‏ • Areas Honda helped to improve do not all involve parts supplied to Honda • 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

  17. Supplier Development in the Real World (Continued)‏ • 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%

  18. Vendor Development Policy • Technology, quality and manufacturing standards of vendors in 1983 were not of international standards • Most vendors were reluctant to make investments for Maruti • Not confident that Maruti could achieve stated volumes • First task was to dispel doubts and create confidence • Maruti assured vendors of long term relations • No annual tender system • Maruti normally limited suppliers of any component to two vendors • Good volumes thus assured

  19. Vendor Development Policy (cont’d)‏ • Prices fixed once a year on basis of cost of production • Transparent and quick payment system - no delays • Maruti provided financial help to vendors for tooling, payment of custom duty etc. • Maruti helped to identify sources of technology, and its transfer to Indian vendors • Maruti deputed engineers for introducing systems, improving manufacturing practices, trouble shooting • Suzuki provided opportunities for training to vendors

  20. Vendor Development Policy (cont’d)‏ • Where large and complex dies were required, Maruti imported and supplied to vendors • Line of credit for vendors arranged with FI’s to enable lease financing for purchase of equipment and tooling • Maruti assisted in bulking purchase of aluminium, steel, plastic materials, seat fabric to lower costs • Maruti provided feedback to vendors on their performance and monitored improvements

  21. Vendor Development Policy (cont’d)‏ • Annual awards were given to vendors to encourage them to improve • These measures and the sales success of Maruti made vendors willing to invest • Maruti participated upto 26% in equity of some vendors • Assisted in project formulation, implementation and management of these JV’s • Assured reasonable return on investment • Management control of JV’s left to Indian partners • 11 JV companies were established

  22. Lessons (Cont’d)‏ • For this, developed long term relationships and instilled confidence in small suppliers • Devoted resources to upgrade vendors in terms of technology, quality, systems, and management • Indian industry today needs to recognize the important of outsourcing and upgrading vendors • Since not many buyer companies have resources comparable to Maruti, important to build institutional arrangements to provide marketing and affordable consultancy services for small industry • This activity should be carried out by appropriate non-Governmental agencies

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