Supplier Base Rationalization

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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
Al

• AlliedSignal 10,000 to 2,000
• Supports 6? Program
• Separate productivity improvement initiative

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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Supplier Characterization Matrix
High
Critical 2 Special Situations Low spend - high
risk
Critical 1 Long-term Relationship High spend -
high risk
Risk
Non-Critical 2 Transactional Low spend - low
risk
Non-Critical 1 Contractual High spend - low
risk
Low
High
Annual Spend
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Supplier Characterization Matrix
High
Critical 2 Special Situations
Critical 1 Long-term Relationship
Risk
Non-Critical 2 Transactional
Non-Critical 1 Contractual
Consolidate
Low
High
Annual Spend
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Supplier Characterization Matrix
High
Critical 2 Special Situations
Critical 1 Long-term Relationship
Consolidate
Risk
Non-Critical 2 Transactional
Non-Critical 1 Contractual
Consolidate
Low
High
Annual Spend
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Supplier Characterization Matrix
High
Critical 2 Special Situations
Critical 1 Long-term Relationship
Consolidate
Risk reduce Consolidate
Risk
Non-Critical 2 Transactional
Non-Critical 1 Contractual
Consolidate
Low
High
Annual Spend
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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
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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.