SPORTSCAR – Best Practice – Global Supplier Development Overview This enterprise is a large European company that has located its operations in the United States, and is devoted to the production of a new model roadster. For purposes of this report, the enterprise will be referred to as “SPORTSCAR”. This is an entirely new product for SPORTSCAR, and has been an enormous success. Demand for the product has escalated, with a majority of sales going back to Europe. Many of the components for the product are localized. The plant was originally intended to produce another platform as well, but production was stopped to focus on the roadster platform, which was encountering capacity problems due to the success of the product. The plant has been working on 2 shifts for about 18 months, with a large time gap between each shift. Production of the other platform has moved to Europe (since it was already produced there). This year, the plant will sell 61,000 roadsters, which is its maximum capacity. Recently, the plant is being expanded to begin production of a new sports utility vehicle as well. The approach to globalization in this company was discussed by the Vice President of Procurement: “Our original strategy was to start with purchasing everything locally, which resulted in some successes but also some failures. Since, then we have started by asking the question ‘What are the strengths of the North American component industry?’, and getting buyers to fully understand the markets. Only then did we discover how to encourage engineers at our European parent to source in those commodities. For the company as a whole, about 20 commodities have been the focus for North American sourcing. Some of these include the following: Electronics (entertainment, in-car modules, and safety airbags), which are all in a high-growth mode Other low-tech electronic components Traditional commodities such as leather and seating, which has traditionally been a North American strength with high exports Alloy wheels – high customization in North America, which is not as strong as in Europe Stampings and pressings and other items that cannot be transshiped easily All powertrain systems are still imported to North America, and this is not anticipated to change until volumes increase significantly. Moreover, it is estimated that at least 5000 similar engines would be required to justify localization of the engine. The powertrain is considered the “heart” of the engine, and is imported from Austria. However, a lot of “ancillary” add-ons to the powertrain system are sourced in North America, such as the manifold, catalytic converters, starters, and generators. A major trend driving this is that suppliers are becoming more global, and can find ways to mutualize currency differentials. Currency differences are therefore not as important as they once were. SPORTSCAR had a procurement office here 10 years before the sod was turned on the new manufacturing plant. Today, it has offices in Japan, South Africa, and Europe, and is developing relationships with suppliers everywhere. This is helping them to better identify the strengths and weaknesses of local auto suppliers. Many automotive suppliers are becoming more globalized in order to better follow their customers. For instance, Bosch manufactures a variety of different products in different plants, and is thus able to move business around to different locations without moving suppliers! The Roadster An interesting aspect of the roadster product is the number of different varieties available. In addition to being available in the left-hand and right-hand drive models, a number of different powertrains are available. SPORTSCAR made the decision to build a “world car”, but wanted to allow customers the maximum amount of customization possible. Today, a total of 1500 associates work at the plant, and 60% of the product value is outsourced. Of that amount, a combination of both NAFTA (60%) and European (40%) suppliers are used. Because of this product structure, the Vice President of Procurement acknowledges that there is a high interdependence on suppliers, which requires a high level of integration. Historically, SPORTSCAR insourced a considerable amount, including brakes, transmissions, etc., and has a glorious manufacturing history associated with production of these parts. In Europe, many castings are still produced internally, as well as other items such as instrument panels, bumpers, etc., which are produced on inhouse pressing operations. Supply Base The US plant, however, has much less insourcing than traditional SPORTSCAR locations. They outsource all body stampings to the subassembly level. Production of hoods, doors, and final assembly are done internally. A number of suppliers have colocated and constructed plants in the state (e.g. a stamping supplier), but this was done in some cases to provide access to other business with GM and Ford. Other examples of colocated suppliers include a supplier of interior linings and instrument panels, and a supplier of bumper trim, grills, plastic parts. A large seating supplier has also established a local plant “up the road”. Such co-locations were done to support SPORTSCAR, as well as to expand opportunities for doing more business in the US. SPORTSCAR currently has 22 first tier suppliers located in the state. One of the few exceptions is a sunroof supplier which produces the soft top. In this case, the fabric is produced in a northern state. Local suppliers receive sequence build orders, and manufacture components in the same sequence. Other suppliers of the front frame and steering assembly), and also receive sequencing schedules, and sequence the parts in the correct order before shipping them to the facility. To facilitate sequence, a distribution center receives parts that are shipped to the center. SPORTSCAR then calls the DC on a rolling hour basis and releases schedules. There is very little inventory at this location, and deliveries are made on a 2 hour horizon (except for small bulk parts). There are a total of 72 first tier suppliers located in the NAFTA region. Other examples include a supplier of wiring harnesses who produces them in Mexico and bring shipments in to the DC. Other suppliers include lightbulbs, electrocoat, and paint suppliers. The latter two companies helped install SPORTSCAR’s advanced paint system, which employs a water based primer which is also very environmentally sound. SPORTSCAR purchases the different modules (seat, panels, etc.) and fits them in. The instrument panel goes to the highest level of assembly, and it is received with the different ducts, etc. and assembled here. A Changing Design Environment There is a big thrust in the automotive industry to reduce complexity and customization, but SPORTSCAR has been bucking this trend! The adopted philosophy has been to develop an “individual car”, and the focus was on offering a “spoke” concept to any particular customer. This was to be accomplished by offering different interior style items and exterior colors/features. The idea was to do this, but be able to achieve compressed time-to-market, and utilize speed and nimbleness to bring additional features and innovation in the hands of customers. SPORTSCAR is able to offer engineering excellence which is focused to individual customer needs, within a short leadtime. Up until a few years ago, the company was had a largely localized European supply base. There was an implicit understanding with suppliers that required very little communication. Suppliers had a “second nature” regarding what was required of them. Thus, when the company expanded its suppliers globally, dealing with a new suppliers was a shock. One of the biggest problems in dealing with new suppliers was related to the design process. Most US automotive suppliers have adopted the Japanese approach to product design and process control, which requires a regimented stage-gate approach with measures and targets that leads to a quality product. SPORTSCAR, however, still has a philosophy that change is constant and cannot be confined. Change must naturally be allowed to occur throughout the development process. Part of the reason behind this is that a SPORTSCAR platform remains in the market for 7-9 years, and undergoes only moderate refinement during this time. A Japanese model will be replaced every two to three years. Thus, the SPORTSCAR process takes more time, but the outcome lasts longer. Consider that when another Japanese competitor goes through a new design, 70% of the engineering changes must be completed during the period from prototype to manufacture (with the exception of safety and quality issues). To ensure that this happens, they even go so far as to take away the engineer’s from the process after this period! By adhering to this process, greater process stability is introduced into the design process. At SPORTSCAR, however, change is allowed to occur all the time, requiring continuous communication. The design is being refined even when the tooling is being built. This trend is diametrically opposed to the majority of the automotive industry, and makes dealing with suppliers more difficult. Adding Complexity An additional layer of complexity is added by the very nature of the product itself. As a basis for comparison, a Japanese competitor has a total of 29 different make-to-order models on any single platform. On the Roadster alone, SPORTSCAR has 500,000. Thus, suppliers who are used to working with a high volume product with low change and low complexity, are clearly going to experience problems. The Vice President of Procurement believes that the trend of mass customization in the automotive industry is associated primarily with highly developed countries. While customization can be done in the aftermarket, it is difficult to customize vehicles without making significant changes at the design stage. Simply adding “modules” is difficult to do. The real challenge is that to have a mass customized car, one needs an agile supply base who can provide variety at a reasonable cost and with high quality. He also believes that the trend of mass customization will occur more in the future, especially in Europe and Japan. In any case, there exists an on-going potential conflict between short leadtimes and increased complexity. For example, SPORTSCAR is currently producing only 50 cars in 5 special colors, which also have special leather in the door linings, etc. The bumpers for these cars also have to be painted in the same different colors by suppliers. In the future, SPORTSCAR hopes to be able to supply an “individual car” in “individual colors”. They are approaching this goal. For example, a competitor’s model offers 29 make-to-order options, whereas the SPORTSCAR model offers 500,000 possible combinations of 60,000 different cars. This includes different suspensions, axles, colors, electronics, trim colors, leather instrument panels and armrests, 4 different soft tops, manual vs. electric softtops, wheel styles, tires, headlamp washers, traction control, and many other features. Supply Chain Metrics – F2 Adherance One of the most important metrics used to measure supply chain performance at SPORTSCAR is called “F2 Adherence”. This is essentially the percent of vehicles shipped in accordance with all sales orders in the system within a given timeframe. The F2 Adherence Goal is 95%. The timeframe in this case is 2 weeks of orders plus one week of manufacture. This has recently been modified to one week of orders plus one week of manufacture. For instance, starting on Monday AM to next Monday PM, all orders placed a week prior to Monday AM must be shipped by next Monday PM. (Next year, they are going to ship by Friday PM, which will eliminate the weekend buffer overtime). Up to that 5 day period on Monday AM, sales can make any changes to an order. That gives them a total of 2 weeks leadtime from the time an order is placed to the time it is shipped. Given the complexity of the vehicle, this seems like an exceedingly difficult task. However, simulation studies have revealed that the total percentage change in items produced should not exceed 10%, which can be accommodated within the current production systems. At first, it was believed that extra stock would be required within the system, but with the current window, it will not be needed. It is anticipated that as this Adherance window continues to shrink, strategic stocks may be needed. Also, if the level of market change increases above the historic levels used in the simulation, extra stock may also be required. Finally, it is not clear whether customers even need the vehicle in a 2 week leadtime. Currently, customers can order their vehicles via an on-line system at dealers. Purchasing Organization The Vice President of Procurement has been at this location for two years. He was formerly at another European operation. The plant was set up by European managers initially. These managers have progressively been returning to Europe over the last 6 months, and more Americans have been hired. This transition between European and American managers has been progressing steadily. Purchasing is organized around several different commodity teams, as follows: NTM-1 Investments and consumables (buildings, capital equpment, support requirements, logistics, etc.) NTM-2 Electronics / Electrical NTM-3 Exterior powertrain (chassis and power train) NTM-4 Interior and bumpers, mirrors, soft top, etc. NTM-5 - planning / control / supplier development / systems support Each team is run by a manager, with buyers responsible for specific commodities and suppliers. For instance, the organization of the different commodity teams for interior and exterior is as follows: Interior Sunroof St. Wheel Carpet / NVH Safety restr. Seats Materials Plastic Inst. panels Cost Engineering Exterior Body Bumpers Plastics Windshield Assigned to GRM plant (3 years) SPORTSCAR network Another team of buyers is located in Mexico City at a plant, which focuses on paint and development opportunities. Another small team of buyers is located in Canada. There are also 4-5 people in another state, who support the sales and marketing functions. This includes specialty requirements, such as car entertainment and other “add-on” items. The manager of this support function represents a liaison with colleagues in Europe, and is acting as a managing/strategic force to provide North American suppliers with access to future business in European plants. SPORTSCAR currently ships the same value to Europe as it imports from Europe, to meet NAFTA requirements which stipulates equal shipment arrangements. However, this involves getting “buy-in” from line buyers in Europe, as well as influencing R&D people to use North American suppliers. The SPORTSCAR Board has set targets for NAFTA suppliers to manage currency variations. (This is part of a longterm plan for NAFTA requirements). The supplier development part of the organization is organized as follows: Supplier Development Acting Manager Planning / Control Systems Support Admin. Supplier Development Activity New Model Development Parts planning Interior Exterior Temporary Support costing unit Interfaces / coordinate with SQA Note that procurement is not responsible for Supplier Quality Assurance. SQA fits into the Plant Quality / Audit group. However, the Quality VP, Logistics VP and Procurement VP meet weekly to coordinate activities. The supplier development people are on projects and are catalysts of all supplier development activity. However, they rely on specialists in engineering, manufacturing, logistics, and supplier quality assurance to help them in their endeavors. They also rely on specialists from SPORTSCAR Headquarters to aid in development. Supplier Risk Assessment Supplier development also runs an on-going risk assessment of its critical current and future suppliers. The risk assessment is done via a questionnaire carried out by a Supplier Development person, who spends 2-3 days at the supplier’s site speaking with different people, ascertaining their knowledge and processes in different areas. The questionnaire spans a number of different areas, and is structured as follows: Interface with Supplier Supplier Interface - Supplier/ Subsupplier Project Management Development Production Planning Production Planning Quality Assurance Logistics This provides a clearly visible assessment of the entire business chain for the entire supply base. At the end of the visit, the supplier is given the results of the audit, and follow-up visits are scheduled as necessary. Each areas is classified using a “Traffic Light” system of “Red”, “Amber”, or “Green” for each of the major attributes. The table is also set up to show new suppliers/processes that are highlighted red, and help focus attention where it is most needed. The checklist then results in a chain of events, including a report, action plan, and control tool report. High-risk components are followed-up on a monthly basis. This assessment has only been in place for one year, and 40 suppliers have been assessed. This has produced a detailed risk assessment for each major component, and everyone is aware of where development needs to occur. In such cases, it may be decided to intervene and go on-site immediately. The process is important, as it also provides a “mirror” for SPORTSCAR to assess how good a job they are doing at communicating requirements to suppliers. For instance, a supplier was asked if they were given an Engineering Release specification, and the answer was “no”! In such cases, procurement personnel can use the “red lights” to understand those areas where they are not providing information that will allow the suppliers to be successful. In other cases where the supplier is at fault, different functions will come in as needed and spend time at the supplier’s facility (in some cases for extended periods of many weeks). Staffing the Supplier Development Group The Ideal Development Person has very “hands-on” - good technical skills good people skills and interaction, (not just “I’m the customer - do as I say!”) ability to convince people Motivator - must be able to push people to exceed their perceived capabilities Good project management skills One of the reasons why these characteristics are important is because of the need to truly get suppliers to become motivated. It is easy to show results, but suppliers may be “forced” into showing these results, and they may not continue in the long term Major Differences between European and North American Supplier Development Approaches SPORTSCAR tends to not just look at one area, but instead focuses on the entire business chain. This is because of their belief that all processes are closely intertwined. For instance, a PPM problem might be related to training of associates, environmental factors or equipment. Quality problems are often related to many different possible causes, including mixed expectations. As such, the focus is on analyzing the entire business chain, not just individual processes. As such, they have developed the following twopronged approach: Process Optimization Supplier Support Initially, the focus is on process analysis, and documentation. In the design stage, questions include “what are the hidden non-visible problems that may exist. This is followed up by an intervention phase, which is a very methodical all-encompassing approach. The primary focus at SPORTSCAR in supplier development is through a program known as “Process Consulting”. This process was developed originally in Europe, but required modification before it could be adopted in North America. The revised approach is “more suited to North American conditions, which are substantially different than the relatively well-developed supply base conditions in Europe. Many supplier development efforts in Europe were established primarily with the objective of reducing cost as early as 5 years ago. Lately, however, the focus has been more on process optimization, as opposed to cost. Process optimization refers to the practice of stabilizing processes and reducing parts per million defective, and the methods to achieve these objectives. Process Consulting The primary tool applied in Europe is called “Process Consulting”. Process consulting involves having a group of SPORTSCAR engineers visit a supplier’s facility, and explain to the supplier how to improve their process (e.g. in a consulting role). Because of the cohesiveness that exists within the European culture, such recommendations are easily adopted by suppliers. A supplier development manager admits that this is an excellent set of tools, but that the manner of applying it in the US had to be modified significantly for the US supply base. Because many of the US suppliers were “not mature”, the process consulting concept had to be modified significantly. In Europe, the majority of suppliers are very mature in terms of their process capabilities, and so Process Consulting involved really just “tweaking” the supplier’s processes. In addition, the cohesiveness that exists between Europeans in the same country, and the length of the relationship between SPORTSCAR and its suppliers meant that most suppliers understood SPORTSCAR’s expectations very well. However, the US suppliers supplying the US plant have relatively new facilities, and consist in many cases of fewer than 200 employees. The development effort has focused on helping supplier optimize their systems. The “Process Consulting” approach involves analyzing and telling suppliers what is wrong with their process. This works well in mature supplier environments, where the supplier really understands what the customer wants. Because the customer and the supplier have worked together over a number of years, a type of “sixth sense” develops, wherein the supplier intuitively understands the customer’s problems, which precludes the customer from having to explain their detailed expectations. In such situations, a supplier can almost “predict” what the customer’s objections will be. In the case of SPORTSCAR in the US, a very different approach was required. In Europe, the plants are established, and they have a group of suppliers who have a given level of understanding with respect to what we want. Here, however, communication with domestic suppliers requires sharing and a “hands on “ support attitude . The VP of Procurement noted the following characteristics of applying a “European” approach to supplier development in the US: “We have to spend time asking them ‘What is your corrective action plan, and we will check on you from time to time. We need to suggest possible ways to put solutions in place - Which actions are more beneficial in a startup phase?’ When we came here, the management teams at the new plant underestimated what support was needed, and also underestimated what our quality requirements would be. As a result, we were unprepared to focus our attention on SPORTSCAR’s quality standards. The supply base really did not understand what would be required of them. This resulted in a number of “strained relationships” with our supply base. Consequently, we ended up spending a lot of time communicating and showing them what was needed. This also led to a major effort to get “buy-in” from these suppliers. The major difference between our approach and that used in Europe was that we could not simply act as a “prop” for their improvement, but the challenge was to get them to see it as a “two-way street”. In many cases, they needed support or needed us to make it happen - we had to make them undnerstand that it was not simply a matter of “you need support” or “you need us to make it happen”, but rather that “your problems are our problems!” “You have good products, bur you have to do better, and we are here to help you!” For example, a typical objective is to be 20% over the industry average, plus beat our competitors. Development is therefore a key impetus to make our suppliers better than the competition. One of the most important ways to achieve this is to communicate expectations. We have recently published a document that clearly delineates supplier responsibilities, process maps, and all expectations. Such a manual has also been published for our logistics, quality, and engineering functions. Moreover, you must be able to clearly communicate to people what you want, before you can expect it from them. To aid in this objective, we also regularly give seminars in which we present our “Roadmap to Quality”. This is made all the more difficult because we are a relatively low volume product (60,000 units per year). At the time that suppliers were nominated / evaluated, some of their processes were based on a low volume approach, and were not as robust as our requirements demanded. As a result of the combined effect of new people + capital equipment problems + low volume processes, the result was many, many problems! To combat these problems, we worked on process capability (Cpk’s,), training and capital equipment problems. A good example of the type of problem encountered was a supplier’s conveyor that was constantly breaking down, primarily due to poor design, and a temperature controlled environment that was exceeding the specification level. These two issues results in (1) shutdowns, and (2) product performance problems. In the first case (1), the reaction was panic! Above all else, the supplier sought to keep production going, which in turn affected problem (2). We needed to fix problem (1), before attacking problem (2). Resource Availability SPORTSCAR does not provide financial support other than owning production tooling at the supplier’s location. They have provided the services of several people over a few weeks, and have also offered suppliers support any time they request it. For example, maintenance engineering people, and procurement / logistics / quality people have been sent as needed to help suppliers. The current focus is that they no longer have problem-driven projects, but are paretodriven in the last 4-5 months to identify problems and prevent them from getting any worse. The Importance of Communication A major challenge that exists at SPORTSCAR involves standardizing expectations between here (the US) and Europe, as well as between purchasing and quality. SPORTSCAR in the US currently has 70 people in Supplier Quality Assurance. Their intention is not have increase inspection, but they invariably require inspection for new suppliers. An important lesson learned by SPORTSCAR is for a supplier who is qualified and considered excellent in Europe, their subsidiary in North America may not be capable of meeting the same standards. Globalization involves more than just bringing in equipment and standards from Europe. Moreover, there are often problems in enforcing expectations, and increased training is often required. One of the biggest problems involved the surface of bumpers and body panels, which often had scratches, etc. In setting expectations, it was important to communicate that it was not just a matter of right vs. wrong, but a matter of setting objective criteria. For instance, setting the standard might involve telling the supplier to hold the part under a light, and examining it at a certain angle to look for marks. For suppliers to understand these expectations, face-to-face discussions and communication and training is required. This discrepancy was also confirmed in discussions with a supplier for SPORTSCAR. Engineers at the supplier confirmed that SPORTSCAR placed a strong emphasis on physical appearance of body parts, but that such expectations were not clearly communicated in the blueprint design. Moreover, it was often difficult express physical appearances / finish on a blueprint, meaning that face-to-face meetings were necessary. As a result, the supplier development organization at SPORTSCAR now emphasizes that the most important and primary task with suppliers is to set standards that everyone understands and agrees to. This is not so much a problem in electronics, but involves a huge problem in bodywork. Because SPORTSCAR pays a lot of attention to detail, a big challenge is to reduce cost and reduce over-design, with the objective of competing with the “same product” from the customer’s perspective, even though it is built in the US, not Europe. A key concept involves having supplier understand where they are in their growth and development curve. For instance, many suppliers needed help initially just to get product out the door. In such cases, the emphasis was on solving the big problems that might lead to parts shortages, before attacking the big problems. In the first year of production, suppliers experienced severe ramp-up problems in response to the increases in production demands. In this phase of development, SPORTSCAR weeded out 50% of the supply base if necessary. Some suppliers had gone through setup just a few months before, but because of their inability to ramp up, were shut out of the supply base. For example, one supplier set up a paint line, but was unable to meet the different set of environmental standards imposed by SPORTSCAR. They had hired a group of people who hadn’t worked with paint processes before, and simply had no idea of cleanliness and environmental standards. In such cases, although the supplier had good methods, they required significant amounts of “massaging” before they could be used as a supplier. In some circles, the level of “hands-on” support is viewed as “doing suppliers’ job for them” - in reality, this level of support actually involves training the supplier to become self-sufficient. In this respect, supplier development can be very tricky. One manager noted that “when our people leave, the supplier cannot “fall apart” again. We need to come back in some cases and help them get back on their feet again.” Supplier Responses In some cases, suppliers have very emotional responses, and object outright to these efforts. A supplier development manager emphasizes that in such cases, it is important to dig in and understand the root causes of such objections: “You need to understand their particular situation, and customize your approach to their way of thinking, in order to get them to improve in the manner that you want. SPORTSCAR’s approach is methodical, but flexible enough to allow customization to a particular supplier. For example one supplier had very a very different understanding of SPORTSCAR’s expectations, because the supplier was interpreting what we said differently based on what other car companies (in this case, Ford Q1’s program) wanted. One SPORTSCAR manager conceded that “This was our fault - we were communicating expectations with too many implicit assumptions. For instance - what is an FMEA? We needed to go through this process in detail.” The task of getting suppliers to comply is made even more difficult by the low leverage SPORTSCAR has, because of their lower volumes. However, because they are a “prestige” customer, many suppliers have used the business as a vehicle for improvement. Many have viewed it as a challenge to their quality standards which is forcing them to reexamine their boundaries. As a result of their efforts, suppliers have developed ways to increase speed and responsiveness. Results The results to date have been excellent. SPORTSCAR’s cost reductions to date have been 3% annually, which has exceeded expectations and indeed has surpassed that achieved in Europe. The F2 Adherence has routinely been 90-91%. The goal of 95% has been hit only once in the last 9 weeks (since going from 3 to 2 weeks), but is improving. PPM has been reduced by 60% in the last year. In the case of one supplier, they went from 20,000 PPM to 232 in one year. Conclusions Managers at SPORTSCAR feel that most of the barriers to successful supplier development are primarily “soft” issues. Technology and engineering are usually not the problem. One cannot “buy” management skills, attitude, and acceptance, and that these elements are therefore the most important when selecting/qualifying suppliers. Although SPORTSCAR is a prestigious customer, it is not a big one, (compared to Ford, Saturn, GM, Chrysler, etc.) When it comes to crunch time, these customers inevitably get priority. Therefore, SPORTSCAR needs to further develop the relationship, and get suppliers to understand the value of the relationship. The most important pr in successfully deploying Supplier Development is to state “Let’s look at where we will be down the road”. Do you want to be the sole source for most of our parts, or not? Currently, SPORTSCAR has 60-70 sole source tier one suppliers, and hopes to increase this number in the future.