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Supplier Base Reduction

Nashville Chapter - NAPMOctober 13, 1998

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 Reduction

Nashville Chapter - NAPMOctober 13, 1998

Kimball Bullington, Ph.D.