1 supplier base rationalization kimball bullington, ph.d
TRANSCRIPT
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Supplier Base Rationalization
Kimball Bullington, Ph.D.
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Supply Base Consolidation• What is supply base consolidation?• Why consolidate?• How can I be successful?
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What is supply base consolidation?
Consolidation: A reduction in the number of suppliers.
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Why Consolidate? Cost Reduction
• Cost of Procurement
• Price Decreases through Consolidated Purchases and Increased Negotiating Power
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Why Consolidate? Supplier Development
• Cost reductions• Lead time reductions• Quality improvements
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Why Consolidate? Supplier Development
• Supplier design support
• Time to market• Inventory reductions
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How Can I Be Successful? First Steps
• Evaluation of Current Supply Base
• Determine the Type of Supply Base Needed
• Plan the Project
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How Can I Be Successful? Evaluation of Current Supply Base
• Number of Suppliers• Breakdown by Commodity• Skills / Process Evaluation• Performance Evaluation
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The Ideal Supply Base
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The Ideal Supply Base
• Powerful improvement engine
• Fast• Flexible• Innovative• Good communicators
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Supply Base Fitness
• NUMMI: 3 Product Lines - 84 to 140 direct suppliers– Increasing domestic
content
– Long-term relationships
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Supply Base Surgery
AlliedSignal: 10,000 to 2,000– Supports 6 Program
– Separate productivity improvement initiative
Al
liedSignal
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Supply Base Renewal - Tiering
• BASF - 10,000 suppliers to 14 – Lowered internal costs
– Leveraged position with suppliers
– Bypassed IT problems
– VMI
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Critical 2: Special SituationsLow spend - high risk
Critical 1:Long-term RelationshipHigh spend - high risk
Non-Critical 1:Contractual High spend - low risk
High
Low High
Ris
k
Annual Spend
Supplier Characterization Matrix
Non-Critical 2:TransactionalLow spend - low risk
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Critical 2: Special Situations
Critical 1:Long-term Relationship
Non-Critical 1:Contractual
High
Low High
Ris
k
Annual Spend
Supplier Characterization Matrix
Non-Critical 2:Transactional
Consolidate
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Critical 2: Special Situations
Critical 1:Long-term Relationship
Non-Critical 1:Contractual
High
Low High
Ris
k
Annual Spend
Supplier Characterization Matrix
Non-Critical 2:Transactional
Consolidate
Consolidate
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Critical 2: Special Situations
Critical 1:Long-term Relationship
Non-Critical 1:Contractual
High
Low High
Ris
k
Annual Spend
Supplier Characterization Matrix
Non-Critical 2:Transactional
Consolidate
ConsolidateRisk reduce &Consolidate
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Barriers to Consolidation• Fear of loss of
competition• Doubtful savings• Dilbert• Lack of commitment to
the selection process
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How Can I Be Successful? Keys to a Successful Plan
• Plan with your customers in mind (QFD)– Transaction costs– Leverage– Supplier development– Design support
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How Can I Be Successful? Keys to a Successful Plan
• Sell consolidation– Top management– Customers– Participants– Suppliers
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How Can I Be Successful? Keys to a Successful Plan
• Develop a supplier evaluation / selection process & implement it– defendable (key customer input)– flexible
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Structured Supplier Evaluation
Evaluation Criteria
MaterialsMethods
TechnologyPeopleMoney
Environment
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How Can I Be Successful? Keys to a Successful Plan
• Implement meaningful measures• Focus your efforts (commodities)• Staff for development• Publish successes
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How Can I Be Successfully Consolidated?
Keys to a Successful Plan• Tier 1: Integrate• Tier 2: Make services, savings
quantifiable
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Supply Base Consolidation: Summary
• Consolidation can yield savings in:– transaction costs– leverage– inventory reduction– supplier development
• It is a key enabling strategy to other supply improvements.
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Supply Base Consolidation: Summary
• Keys to success:– planning with customers in mind– selling the plan– selection / evaluation– focusing improvement– staffing for success– measurement– publishing results
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Supplier Base Rationalization
Kimball Bullington, Ph.D.