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Developing Suppliers' Capabilities7

In the early stages of new product development, a new product/commodity team may visit suppliers and find that they will have problems meeting performance expectations. It is definitely better to discover such problems before the product enters into the full production cycle. To deal with this issue, many companies are employing a strategy called supplier development. Leading organizations do not simply tell the supplier to improve, but are increasingly adopting a hands-on approach to improvement. This often involves working directly with the supplier to identify and resolve problems. Help may come in the form of process engineering support, financial support, or even support from within the supplier community itself. The following cases provide examples of how organizations implemented these approaches.

Process Engineering Support

One U.S. automotive company has used a group of 15-16 process specialists in supplier development for many years. These individuals specialize in areas such as castings and machining, and are typically in a "reactive" mode: they respond to quality or delivery issues when a problem is recognized. For instance, if a supplier is experiencing persistent process problems and the normal set of contacts cannot resolve it, then the process specialists become involved. In such cases, these individuals have the requisite skill set to watch a supplier's production line, talk to the supplier's production people, and subsequently understand the problem. They then work with the supplier to determine the root cause of the problem and potential solutions. This process may require several days and repeat visits. After the problem is resolved, they move on to another supplier, and often travel all over the world "fighting fires." Until recently, nearly 90 percent of the company's supplier development efforts were reactive in nature, and the remainder proactive. One of the company's objectives is to reverse this ratio.

Financial and Facility Support

Financial distress has been a common problem in the Asia Pacific supply base within recent years. A manager from a Korean electronics firm, Samsung, noted that most Small Manufacturing Enterprises (SMEs) in Korea are deficient in manpower capability, technology, and financial resources. The latter two are the primary focus of the company's improvement efforts. The company supports financial and technology initiatives by performing facility layout projects for suppliers, as it has expertise in the area. In the financial resource area, the company is able to assist by lending money at lower interest rates than financial institutions and waiving collateral requirements. Suppliers also may initiate supplier development assistance from the company by making a formal request. The electronics firm also employs specialists who assist suppliers in improving competency in areas such as supplier management and purchasing.

Another Korean company, Lucky Goldstar, emphasizes education as a key part of its supplier development program. The company also provides collateral for supplier's improvement projects, allowing the supplier to borrow funds at reduced rates for new equipment. The firm also helps suppliers purchase raw materials, and leverage steel prices from steel manufacturers.

Hyundai has begun to improve suppliers' technology and capacity through the creation of a Supplier Industrial Complex. This facility allows suppliers to work together in supplier clusters. This five-acre complex was purchased to help suppliers develop their own facilities, rent-free. The company envisions a joint plant, with joint painting and tooling facilities, to be shared by all suppliers in the complex. Currently, this concept is limited to domestic Korean suppliers, but may be extended internationally in the future.

Supplier Associations

Many organizations also are developing supplier support systems within their supply base, in order to concurrently improve the entire supply base. One of the largest such support systems is run by Toyota with operations in the U.S., which has formed a supplier association (kyoryoku kai) to support its objectives through its supplier members. In effect, the objectives are linked back to the company's internal policy deployment (hoshin) process, which ultimately dictates the real goals. These associations facilitate supplier development, by creating peer pressure with other suppliers in the tier, essentially creating a "shame factor" for low-performing suppliers.

This company has four supplier associations: three are regional and one is made up exclusively of tooling suppliers. First-tier supplier companies and the OEM buying company lead these associations. The association's strategy board generally consists of eight suppliers, whose membership rotates annually. This group defines what is to happen within the association. The primary meetings occur about twice a year, and include the presidents of all the supplier members. Together, the strategy board and the primary meetings constitute an extension of the hoshin process beyond the walls of the buying company. At a lower level, the parts and commodity groups meet approximately ten times per year to discuss evolving trends, technologies and new product requirements. However, the majority of the work occurs in the process group meetings. These groups are divided into three focus teams: Cost, Quality, and a group whose topic of emphasis varies every year according to Toyota and supply base needs. Possible topics for this group include automation, environmental issues, and cycle time reduction among others. Each of these groups meets approximately ten times per year. Although supplier associations were originally instituted in Japan, companies around the world are now using them.

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