IE 466 Concurrent Engineering

Sourcing and

Supply Chain Management

Presented by:Bill Lindquist and Felicia Lim

Ingersoll-Rand Company

Topics• Evolution of Supply Chain Management

• Overview of Supply Chain Management (SCM)

• Market Forces and Emerging Trends in SCM

• What’s Hot in Supply Chain Management?

• Suppliers and Sourcing Functions in Product Development

• How can engineers be valuable in these areas?(Live Testimonials via Teleconference)

• Reference list of magazine sources and websites

Evolution of Supply Chain Management

• Pre-1980: Clerical/Transaction Focus• 1980-1990: Price/Quality Focus• 1990-2000: Inventory/Productivity Focus• 2001: Strategic Focus

using the firm’s supply function as a competitive tool

Evolution not yet complete

OverviewWhat is Purchasing?– An organizational function that is responsible

for acquisition of required materials, services, and equipment.

What is Procurement?– An organizational function that includes

specifications development, value analysis, supplier market research, negotiation, buying activities, contract administration, inventory control, traffic, receiving, and stores.

OverviewWhat is Sourcing?– The process of identifying sources that

could provide needed products or services for the acquiring organization.

What is Strategic Sourcing?– An on-going analysis to evaluate the right

mix of products and services, determine the appropriate suppliers and terms and conditions to balance cost, quality, and risk.

Overview of Supply Chain Management

What is Supply Chain Management?“the identification, acquisition, access, positioning, and management of resources the organization needs or potentially needs in the attainment of its strategic objectives”

Overview of Supply Chain Management

Strategic Contribution to the Firm

Low HighTraditional Purchasing• Process Orders• Bidding/Negotiation• Expediting/Tracking

Procurement/Sourcing• System Efficiency• Plan Volumes• Cost Management• Leverage Buying Power

Supply Chain Management• Shape and influence the supply market and inbound chain• Analyze and suggest supply opportunities/options• Provide the firm with access to what it needs but cannot develop• New revenues are as important as cost savings

1970’s 2001 and beyond

Timeline

Customer

Assembler

Distributors

Suppliers

Shared Information and Processes

LogisticsProviders

Suppliers’Suppliers

The Supply Chain

Issues:• Inventory• Visibility• Communication• Collaboration• Overlap• Conflicting Objectives

Market Forces and Emerging Trends in SCM

• Greater emphasis on communication and collaboration• Global competition and global sourcing• Transportation improvements eliminating the need for regional

sourcing• Integrated systems are being procured instead of parts and services• Transformation from piece-price to total-cost solutions• Auctions and market exchanges on-line• Drive towards making products “commodities” where possible• More outsourcing allowing a focus on core competencies• Outstanding quality is expected and not a discriminator

What’s Hot in SCM?

• Web-based procurement tools• E-Procurement• Third-party auctions • Consortiums for buying leverage• Buyer and seller exchanges

• Outsourcing• Third-party logistics (3PL) providers• Use of Integrators and Distributors

• Supplier Relationship Management• Strategic Supplier alliances• Collaborative design• Supplier managed replenishment• On-site supplier representatives

Case Study Cessna

Problem areas:– supplier on-time delivery– redundant inspection and rework– price and cost escalation– fragmented organization and strategies

Solution:– Integrated Organization Structure/Process

• Sustaining Production; Strategic Sourcing; New Product Development– Automate repetitive tactical activities– Implement Six Sigma and VE/VA programs– Supplier rationalization and development– Include suppliers in design, manufacturing, e-business and product support– Strategic Make vs. Buy process

• Deere & Company

• Improved on-time delivery from 45% to 95%• Reduced % of department working on tactical issues from 99% to 29%• Inventory reduced from 30 days of supply to 10

Case Study

Harley-DavidsonProblem areas:

– Poor relationships with suppliers– Lack of coordination with Engineering – Sporadic quality problems– Weak product development

Solution:– Restructure Purchasing operations

• Dedicate half to product design and half to development – Co-locate Engineers with Purchasing– 80% of Purchases concentrated in 70 suppliers– On-site Supplier Representatives

• Inventory reduced 25%• Costs of Purchased Goods reduced 10%• Supplier quality levels improved from average of 10,000 PPM to 48 PPM

Importance in Product Development

• New Product Development Teams– Suppliers participate in design reviews to ensure

feasibility of design based on capabilities.

– Sourcing function is responsible for supplier identification, cost containment, and managing lead time constraints.

• Value Engineering/Value Analysis (VE/VA)– Sourcing function evaluates products, initiates

improvements with engineering and suppliers to increase function while decreasing cost, and manages implementation of improvements.

Product Development Tools Used in Sourcing

• Design For Manufacturing (DFM)– Collaboration between engineering and manufacturing

functions prior to design release that ensures that the product design meets manufacturing capabilities and considers ease of manufacturability.

• Failure Mode Effects Analysis (FMEA)– Risk assessment process during the design phase that

evaluates all potential failure modes, their effects on the product’s performance or quality, and develops control plans to reduce these risks of failure.

Engineers in Sourcing and SCM

Brian Grev “I learned that sourcing is more than just purchasing. It involves strategic alignment of

supply chains, supply chain management, negotiation tactics, and more. Through my projects I have become more informed about different manufacturing processes: forging, stamping, deep drawing, screw machining, injection molding, fine blanking and more. I have also developed relationships with suppliers that will continue to benefit my projects.”

Jessica Rosenberger“While at my current assignment I have been involved in many diverse projects. I have participated on the supplier development council for a new product that will change the way the golf car industry does business both internally and externally. My primary responsibility is the design, implementation, and documentation of an integrated supply program which has resulted in cost reduction and inventory reduction, contributing not only to our business until goals, but also to the goals of IR.”

Engineers in Sourcing and SCM

Mihyar Mohamed “I see this as an opportunity to pursue a career that rewards you for your technical background, while at the same time

allowing you to use skills in personal interaction, relationship management, and strategic thinking that are all necessary to excel in this field.”

Craig Smith “My assignments have gone beyond buying and purchasing ‘widgets’. I have been involved with teams that find,

select, and manage business relationships that enable IR to strengthen its position in the marketplace. The business unit I work for does very little manufacturing, so the sustainable growth of the business depends heavily on new product launches and service initiatives. Therefore the sourcing team works very closely with the marketing team and takes on a much more important role in the strategic plan of the business unit.”

References

Strategic Supply Chain ManagementJames P. Morgan and Robert Monczka

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