WORLD CLASS SUPPLIER DEVELOPMENT
Stephen L. Starling - David N. Burt
University of San Diego, San Diego, California, USA
STRATEGIC IMPORTANCE OF SUPPLIER DEVELOPMENT
As manufacturing firms outsource more materials, subassemblies, and even complete products
and services to focus on their own core competencies, they increasingly expect their suppliers to
deliver innovative and quality products on time and at a competitive cost. When a supplier is
incapable of meeting these needs, a buyer has three alternatives: (1) bring the outsourced item inhouse and produce it internally, (2) re-source with a more capable supplier, or (3) help improve
the existing supplier’s capabilities.1
The Development Decision
The strategy of choice often depends on price, volume, or the strategic nature of the
procured item. For low-value-added, non-strategic commodities the cost of changing to a new
supplier is low and may be the best option. At the other extreme, when a poorly performing
supplier provides an innovative product or process technology that may provide a sustainable
long-term advantage to the buying firm, the supply manager may wish to protect this potential
advantage and bring the work in-house or acquire the supplier.
Today, however, most companies prefer to continue outsourcing in an effort to maintain
flexibility in meeting changing market demands. Thus, even critical A items may be outsourced.
This shift towards greater levels of outsourcing reinforces the need for strong supplier
development capabilities. Supplier development increasingly is becoming the best choice for
companies. Some scholars have concluded that the option of switching to another supplier should
be sought only when it is “absolutely” necessary.2
Supplier Development Defined
Supplier development can be defined as any activity that a buying firm undertakes to
improve a supplier’s performance and capabilities to meet the buying firm’s supply needs.
Buying firms use a variety of activities to improve supplier performance including: assessing
suppliers’ operations, providing incentives to improve performance, instigating competition
among suppliers, and working directly with suppliers, either through training or other activities.3
Supplier development may go beyond the first tier of suppliers to the second or third tier and
ultimately to “mother earth” if necessary.
Supplier development in world-class firms is proactive. Instead of working with suppliers
for quick fixes to problems, supplier development should focus on helping suppliers retain the
learning that occurs in the development process. Retained learning is critical for suppliers so that
they may continuously improve their own systems. Further, a supplier who has retained its
ability to improve then can work with its suppliers to help them improve. The net effect is a more
capable, more competitive supply chain.
1
Handfield, Robert B., Daniel R. Krause, Thomas V. Scannell, and Robert M. Monczka. “Avoid the Pitfalls in Supplier
Development,” Sloan Management Review, Cambridge, Winter, 2000, pg.2.
2
Cavinato, Joseph L., What to do When a Supplier is in Trouble NAPM InfoEdge, October, 1995, Vol. 1 No. 4 , pg. 9.
3
Ibid., Handfield, Robert B., Daniel R. Krause, Thomas V. Scannell, and Robert M. Monczka, pg.2.
Supplier development requires that both firms commit financial, capital, and personnel
resources to the work; share timely and sensitive information; and create an effective means of
measuring performance and progress. Executives and employees at the buying firm must be
convinced that investing company resources in a supplier is worthwhile. Executives at the
supplier’s firm must be convinced that their best interest lies in accepting direction and
assistance from their customer. The convincing may not be congenial at first, but eventually it
should evolve into collaboration based on mutual goals.
In a study of eight suppliers for the five largest American automobile manufacturers,
Hartley and Choi identified customers (the automobile manufacturers) can use supplier
development programs as catalysts of process change within their suppliers.4 Their study
identified that not only does a customer provide a fresh perspective that may challenge the
underlying assumptions in the supplier’s organization, but also that the customer legitimizes the
need for change is generally able to overcome the supplier’s organizational inertia.
As a colleague at Honda of America Manufacturing reported a few years ago, “If a supplier
has a problem that adversely affects us, we’ll help it to death!” What our colleague implied was that
Honda would help the supplier until it achieved and maintained world-class status.
The Supplier Performance Gap
Paraphrasing Dave Nelson and his co-authors, “There exists a “performance gap”
between what suppliers are capable of achieving and what they currently demonstrate through
their cost controls, quality performance, and customer responsiveness.”5 We believe that supply
management is responsible for closing this supplier performance gap.
Why has supply management not closed this gap at most suppliers? In the last two
decades, many original equipment manufacturers (OEMs) such as Sony, Toyota, Solectron and
IBM have closed their internal operations gap between what they thought they were capable of
achieving and their current performance. Managers of internal operations were successful at
convincing upper management of the benefits of investing in a variety of management
approaches such as Total Quality Management, Six Sigma, and Just-in-time. In contrast, supply
management was not very successful at convincing upper management of the benefits resulting
from closing gaps between existing practices and world-class ones within its supply base.
Support for developing a world-class supplier base remained a secondary priority or, at many
companies, was not even a consideration. According to Nelson, Moody and Stenger, “Drivers for
improvement have rippled out laterally to what may at the time have been considered the second
targets for improvement – “collateral” groups like purchasing, logistics, and order
administration. We think this priority for change is flawed.”6
Results of Supplier Development
When suppliers become proficient at new technologies, improve their quality or delivery
performance, or improve their own supply management systems, they create cost savings that
benefit both themselves and the end customer. The improvements also create an example for
other members in the supply chain that can stimulate improvement.
The best examples of savings from supplier development in the early part of this century
are coming out of Dave Nelson’s supply management operations at Deere and Company. Dave
Nelson is a visionary in supply management; in much the way Deming was in quality
4
Hartley, J.L., & Choi, T.Y. (1996). Supplier Development: Customers As A Catalyst Of Process Change. Business Horizon, 39
(4), 37-44.
Nelson, Dave, Patricia E. Moody, and Jonathan Stegner. The Purchasing Machine. New York: The Free Press, 2001.
6
Ibid., Nelson, Dave, Patricia E. Moody, and Jonathan Stegner, pg. 24.
5
1
2
management. Dave Nelson’s efforts and results in developing a world class supply management
organization at Honda of America in the 1990s and, more recently, at Deere and Company are in
a league of their own.
Dave and his Deere supplier development team expect 500 to 1,000 percent return on the
dollars they invest in supplier development. When this occurs, Deere knows that each supply
manager involved in supplier development earns five to ten times his or her compensation. Dave has
employed these numbers to obtain CEO support and expand Deere’s supplier support systems.7
As both Deere and Honda have demonstrated, rapid improvements in supply base
performance do not come without an up-front investment. In the late 1990s, John Deere added
175 new strategic supply management professionals; 100 for supplier development, 50 for cost
management and 25 for Best Practices. Similarly, at Honda, purchasing employs over 400
professionals, many of whom are dedicated to supplier development initiatives.8
WORLD CLASS SUPPLIER DEVELOPMENT
Before progressing further, we will outline the common best practices and characteristics of world
class supplier development programs. Figure 1, given on the next page, presents the progression to
world class supplier development in a step chart format. We urge the reader to look at Figure 1 and
rate their firm (or a firm that the reader is familiar with) using the scale from 1 to 10.
Best Practices in Supplier Development
• Create dedicated supply development teams (with no responsibilities or jobs other
than supplier development)
• Teach a supplier how to develop itself after initial guidance from the supplier
development team
• Focus on underlying causes of long cycle times
• Focus on wasteful activities in all supplier efforts
• Involve suppliers in new product and process development at the buying firm
• Provide training programs and training time to suppliers
• Provide education programs offline that go beyond training
• Provide improvement focused seminars for suppliers
• Provide tooling and technical assistance to suppliers
• Provide supplier support centers
• Loan executives, such as process engineers and quality managers
• Drive fear out that a supplier’s workforce may have towards supplier development
programs
• Set “stretch goals” to encourage radical change as well as continuous improvement
• Improve accounting systems to enable measurement of improvements
• Share the savings from the development improvements
• Encourage suppliers to contribute to improving processes at the buyer’s facilities
• Provide a feedback loop for suppliers to help encourage supplier development efforts
• Improve the supplier’s supply management system
7
8
Ibid., Nelson, Dave, Patricia E. Moody, and Jonathan Stegner, pg. 274.
Ibid., Nelson, Dave, Patricia E. Moody, and Jonathan Stegner, pg. 41-42.
3
World Class
Proactive
Mechanical
Clerical
• Supplier development as an entity
does not exist
• Supplier development is actually
focused on dealing with supplier
problems
• Fear drives supplier performance
• No upper management commitment is
provided from management
• Only true development occurs with
minority and women owned business
enterprises
• No dedicated or temporary teams exist
for supplier development
• No training programs/courses in place
• Focus of supplier development is on
the reducing the price from suppliers
• Relationships with suppliers are
transactional and lack trust
• Suppliers hide problems to improve
external assessment
• Supplier performance gaps are not
measured
• “Time and motion” studies are required
to gather accurate information about a
supplier’s process
• Data is not shared
1
• ” Kaizen events” are utilized to create
short-term gains in supplier
performance
• Supplier development teams primarily
address supplier failures
• Supplier development is an entity
within a department
• Department head provides
management support
• Rationale for supplier development is
to eliminate poorly performing
suppliers
• Supplier development creates short
term gains in supplier performance
• Supplier development teams’ core
member compositions fluctuate
• Supplier development teams consist
only of buying firm members
• Supplier development teams are area
centric – such as all engineers
• Training is provided internally only
• Bottom line impact expected through
price reductions for buying firm
• Failure and appraisal costs of quality
are the focus, prevention costs are not
measured or understood in impact
• Supplier performance gaps are
measured to decide which suppliers to
punish for poor performance
• Performance “scorecards” minus
accurate costs are utilized
• Selected performance data is shared,
but not cost data
• Focus on customer in terms of value
analysis/engineering
• Evaluation process aids in selecting
suppliers for development
• Teams are narrowly focused on
process mapping, cycle time and
quality
• Power is given to team to recruit
internal experts as needed
• Development is limited to first tier
suppliers
• Project management techniques and
tools utilized
• Management above the department
head is tangibly supportive
• Supplier relationship charters are
utilized and maintained
• Project champions are identified and
engaged in process
• Cost goal is to discover and develop
suppliers to improve bottom line
• Teams have core members from
buying firm are on team for long-term
• Teams consist of key buying and
supplying firm members
• Teams include relevant crossfunctional members
• Training is focused on internal
members with a few suppliers included
• Bottom line impact for the both firms
sought in the supply chain
• Prevention investments are measured
against failure costs
• Focus is on improving existing
processes (continuous improvement)
• Measurement: Gaps still measured,
but process focus using activity
measurement is utilized (ABC)
• Savings are shared with suppliers in a
fair and reasonable way
• Alliance and /or collaborative
relationships are understood as a
requirement
• Development is bi-directional, supplier
develops buyer where applicable
• Supplier development projects
encompass far more than process
improvement, to include all areas of
value added collaboration
• Focus shifts from first tier to include
second+ tier suppliers
• Measurement excellence enables
organizational sharing of executives,
capital and equipment
• Supplier support centers exist
• Tangible commitment provided by the
CEOs of participating firms
• Focus shifts to improving the “chain
versus chain” competitiveness
• Buying firm involves supplier in design
of processes and products
• Some teams consist of more than two
supply chain members
• Training and education programs
include chain members
• Learning extends beyond training with
courses focused on long-term returns
and retained learning
• Bottom line impact for supply chain
becomes the focus, not just two
members of the chain
• Stretch goals encourage radical
change (discontinuous improvement)
• Single portal online enabling near real
time dispersion of development data
• Cost data is accurate whether from
ABC point analyses or other methods
• “Open books” exist between
development collaborators enabling
specific savings sharing, enhanced
value, and fostering trust for long-term
relations and future development
projects
2
3
4
5
6
7
8
9
FIGURE 1: The Progression to World Class Supplier Development
10
Developing the Supplier’s Supply Management System
Experience demonstrates that supply management at most suppliers for improving the
supplier’s supply development capabilities provides an excellent opportunity to the buying firm.
Improving the supplying firm’s supply management system will reduce the supplier’s cost and
improve its quality, responsiveness, time to market, continuity and the inflow of technology from
the supplier’s suppliers. In our minds, no other area offers more opportunity for impact on both
firm’s bottom lines!
Collaboration is the Key
World-class supplier development requires a commitment to collaboration between
customer and supplier. The commitment must be approached with mutual benefit in mind.
Effective supplier development is more than getting cost reductions for a particular part; it means
helping suppliers remove wasteful costs from their processes. The strategic intent is to create
win-win opportunities wherein both the buyer and supplier gain. For collaboration in supplier
development to be successful, the collaboration must have commitment, communication,
measurement, and trust.
• Collaboration Requires Commitment. A supplier development initiative may require
supply managers to spend weeks or months in the supplier’s facility, working with the
supplying firm’s management and operating personnel. Commitment may require the buying
firm to provide financial assistance for needed equipment and/or training. Commitment
requires that the savings from supplier development projects be shared in an equitable way.
Effective supplier development looks at all of a supplier’s processes with the objective of
eliminating waste and gaining improvements in quality, delivery, cycle time, and costs. Such
4
action requires: supplier involvement at the earliest stages of new product development;
shared information, resources, and savings; and dedicated resources required to identify and
close performance gaps. In other words, it requires the buying firm’s personnel to treat
suppliers as if they were a department within the buying company.9
• Collaboration Requires Communication According to Forker, Ruch, and Hershauer,
“It is one thing to have a well-designed supplier development program; it is another thing
to assure that the program is well communicated and understood by the suppliers.” 10
Proactive collaboration in establishing the priorities, motives, and methods underlying the
administration of the supplier development program requires the highest levels of
communication.
• Collaboration Requires Measurement World-class firms want all members of their
supply chain to be strong and profitable. However, they must be sure that suppliers are
charging the right fees for their purchasing, processing, and conversion work. This
requires both parties to open their financial records to one another. To many supply
professionals the sharing of financial records and cost data may seem like an
insurmountable obstacle. If collaboration efforts are to succeed, sharing accurate costs is
a policy and cultural change that must occur.
• Collaboration Requires Trust When undertaking supplier development projects, a
tremendous amount of information must pass through both companies to enable the
necessary improvement efforts. In many cases, this information has never been revealed
outside of the company. Trust between the two organizations and the involved personnel
must be present before the necessary information sharing can or will take place.
All too often, supply departments do not have accurate cost information to share. Cost
management systems must allow appropriate personnel the ability to understand actual costs
incurred at the supplier’s facility. For example, most accounting systems apply overhead in an
inaccurate or distorted manner. This can be a problem in measuring the savings from supplier
development initiatives.
Despite problems in cost measurement accuracy, a simple quote form can provide the starting
point for sharing cost information. A quote usually requires suppliers to provide detail describing every
step and its associated cost in the processing of a part or material and/or provision of a service.11 The
quote provides the starting point for a thorough discussion of costs and measurement.
A solution to the trust problem, according to Handfield et al., is to delegate an
ombudsman to overcome a suppliers’ reluctance to share information. Honda has supplier
ombudsmen who deal with the “soft side of the business” – the human resource issues that are
not associated with cost, quality, or delivery. Honda has discovered that often suppliers are more
open with these ombudsmen who are not involved in the contract negotiations. 12
Twelve Generic Steps
No two companies approach supplier development exactly the same way. However, according
to Nelson, Moody and Stegner, most effective projects adhere to the following twelve steps.13
1. Identify and review performance gaps
2. Discuss specifics about how the project will be approached and implemented
9
3. Work to achieve mutual agreement on project focus
4. Identify processes that result in waste
5. Compare performance gaps with the desired state
6. Establish project metrics and metrics baselines
7. Gather and analyze data
8. Develop improvement strategies
9. Develop an implementation plan
10. Calculate the return on investment
11. Create and review a proposal with the supplier’s management
12. Execute the improvement plan
Handfield et al. recommend that the initial supplier development project be one that is
fairly simple and likely to succeed so that the “biggest quick fix” and the “greatest good” can
occur.14
Supplier Development at John Deere
The supplier development efforts led by Dave Nelson at John Deere provide the
benchmark in this aspect of supply management. Unlike many companies, John Deere has a very
open policy with respect to sharing information. This openness is consistent with Deere’s
supplier development approach of sharing information. Deere believes that the sharing of
information between all members of the supply chain is essential in order to spread best
practices.
Supplier Development History John Deere was incorporated under the name Deere &
Company in 1868 in Moline, Illinois. As of April of 2001, Deere was the world’s leading
producer of agricultural equipment and a leader in the production of equipment for construction,
forestry, lawn and turf care. The company had manufacturing facilities in Europe, Asia, and in
North and South America.15 Sales and revenue for 2000 totaled $11.4 billion dollars.16
Deere had an annual “spend” in 2000 of about $7 billion, which was approximately 62%
of total sales and revenue. According to Nelson, “We are aggressively pursuing our objective to
run lean.” In the movement towards lean production and supply management, “Deere is
committed to delivering the world’s finest solutions and genuine value in equipment, service and
support – on time, every time.”17
Supply Management Philosophy Bill Butterfield, Deere’s supplier development process
owner, believes that in the world of supplier development, “Things don’t change unless you want
them to. Part of the work of Deere’s new supplier development focus is to pick the right projects
that will produce the best and quickest results.”18
According to Butterfield, Deere believes that its customers deserve to buy the best
products made from the best component suppliers in the world. If Deere’s current suppliers are
not the world’s best, Deere believes that it must help them become the best. “We must view our
supply chain as our customers do. Whose parts are these? They are Deere Parts! John Deere is
anywhere Deere parts are being made!”
14
Ibid., Nelson, Dave, Patricia E. Moody, and Jonathan Stegner, pg. 136-137.
Forker, Laura B., William A. Ruch, and James C. Hershauer. “ Examining Supplier Improvement Efforts from Both Sides,”
The Journal of Supply Chain Management, Summer 1999, pp. 45.
11
Ibid., Nelson, Dave, Patricia E. Moody, and Jonathan Stegner, pg. 122-123.
12
Ibid., Handfield, Robert B., Daniel R. Krause, Thomas V. Scannell, and Robert M. Monczka, pg. 8.
13
Ibid., Nelson, Dave, Patricia E. Moody, and Jonathan Stegner, pg. 138.
Ibid., Handfield, Robert B., Daniel R. Krause, Thomas V. Scannell, and Robert M. Monczka.
John Deere corporate website, http://www.johndeere.com, April, 2001.
John Deere Factbook, 2000.
17
Ibid., John Deere corporate website.
18
Many of the quotes attributed to Mr. Butterfield are based on his presentation at The University of San Diego’s Supply Chain
Management Forum, November 14-16, 2001.
10
15
16
5
6
Mr. Butterfield continues, “The biggest success factor is whether the supplier wants to
change or not. We have to convince them that change is required. Even suppliers of the year can
find opportunities to improve.”
Six Sigma Deere knows that 70% of its improvement opportunities exist in its supply
chains in areas such as cost, quality, responsiveness, and value. To take advantage of such
opportunities, managers at Deere help a supplier achieve Six Sigma performance.
To reach Six Sigma goals, Deere assigns some 80 qualified personnel, called supplier
development engineers and specialists, from its own facilities to assist suppliers. A key focus in
Six Sigma is the assessment of supplier processes and the identification of performance gaps.
Selecting the Right Projects Deere engineers use a spreadsheet called Decision Focus as
a policy deployment tool that helps establish project priorities. The spreadsheet biases the
selection process toward suppliers that represent 80 percent or more of Deere’s total materials
spend. Deere wants to make it clear that any improvements need to have a significant bottom line
impact. “Choke point” suppliers (ones whose products are strategic regardless of dollar volume)
are also candidates. The projects must also focus on creating proactive systematic solutions to
problems and issues.19
Start with Mapping Process mapping is essentially sketching out the processes. The
most common approach in manufacturing is to sketch out where materials flow through the
enterprise and how they are moved and modified. Process mapping always results in a wealth of
process detail, as well as providing insight into throughput. Terry Maruo, father of Honda’s
kaizen methodology, told his acolytes, “Go to the floor. The answers won’t be found in the
boardroom. Go to the spot.”20
Supplier Motivation Deere provides a “simple value proposition” of splitting the
savings from improvement projects 50/50.21 If savings are realized, they go towards increasing
supplier profit and reducing John Deere’s prices. If no savings are realized, no price reduction is
expected as a result of the project. If implementation of the supplier development proposal
requires capital investment, Deere will defer its portion of the savings until the investment is
amortized through use in the production of Deere products.
Through these policies, Deere reduces financial barriers and risks for suppliers. When
Deere helps with the capital expenditures, suppliers may only be responsible for covering the
time and effort of their own personnel during the project. These “no risk” incentives greatly
improve supplier motivation to participate.
Focus on Lead Time According to Bill Butterfield, lead-time is a key topic addressed in
Deere’s supplier development projects. Suppose Deere must carry 60 days of safety stock
inventory due to slow response times from a supplier. The development project team focuses on
improving the supplier’s processes and reducing its response time. In turn, Deere can reduce its
safety inventory to 10 days. This change gives 50 days of inventory disinvestments that Deere
can apply to savings.
The following success story identifies the benefits to Deere of a development project with
a supplier of a hydraulic integrated circuit: reduced the supplier’s manufacturing lead-time from
155 days to 10 days, improved on time delivery from 68% to 98%, reduced quality defects from
14,400 to 300 parts per million, and reduced work-in-process from $9.5 million to $6 million.
Deere wants to build to demand; however, the seasonal nature of the demand for products
is a major challenge. Many suppliers have 40-80 days of lead-time, greatly lengthening Deere’s
19
response time. If supplier lead-times can be reduced to less than 10 days, then Deere can reduce
its investments in materials and related inventory holding costs. The improvements enable Deere
to better meet customer demands while simultaneously reducing inventories. The result? Deere’s
costs go down while sales go up!
Development Team Training Before sending a team into a supplier’s facility, Deere
requires all team members to complete a rigorous Six Sigma training program. Team members
must become certified as either a Process Pro or a Process Pro Master. The Process Pro level
under Deere’s Six Sigma program requires three weeks of training and six months assisting on
related projects. The highest level Six Sigma designation is Process Pro Master. This designation
requires ASQ Six Sigma Blackbelt certification and a minimum of one year of experience
working on relevant projects.
Some suppliers participate in the supplier development training with John Deere’s
supplier development teams, but most of the training for suppliers occurs during the actual
supplier development projects. A goal of the training is to develop the supplier’s management so
that they can train their own workforce in future improvement initiatives.
SUPPLIER DEVELOPMENT PROCESS
A generalized process for managing supplier development projects is presented in Figure 2. The
process has six phases: initiate project, map and measure, process development, achieve results,
control and team recognition.22
Initiate Project
Map & Measure
Develop Process
Achieve Results
Control Process
Recognize Team
FIGURE 2: Generalized Process for Supplier Development Projects
Before starting the process, the following individuals should be committed to the
development process: project champions, development team members, process owners and upper
22
Adapted from a presentation by Bill Butterfield of Deere and Company given at the Supply Chain Management Forum at The
University of San Diego. According to Mr. Butterfield, the supplier development process at John Deere is modeled after similar
approaches at Allied Signal and General Electric (GE). November, 2001.
Ibid., Nelson, Dave, Patricia E. Moody, and Jonathan Stegner, pg. 51-52.
Ibid., Nelson, Dave, Patricia E. Moody, and Jonathan Stegner, pg. 122.
21
According to Bill Butterfield, the 50/50 split is not true of all projects, but of most.
20
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8
management. A project champion should be designated from both the supplying and buying
firms. A project champion is the key liaison to upper management. He or she must have
sufficient power to provide resources and compliance by non-team personnel as needed for the
project to succeed. The development team members come from both the supplying and buying
firms. The primary goal of including the supplier’s personnel on the development team is to
create self-sufficiency in the supplier’s ability to develop its own processes in the future. The
process owners are the individuals that actually interact and operate the processes that are under
investigation for improvement. Finally, upper management from both the firms must be
committed to the project or failure is inevitable.
Initiating the Project
In the first phase, the main activities are to: develop and confirm a preliminary supplier
development charter, define the supplier’s processes, assess the customer’s needs and assess the
business environment.
The supplier development charter is described later in the section on supplier
development enablers. The supplier development charter is a firm definition of project scope and
expectations for both the buying firm and the supplier. It essentially serves as an agreement on
the expected deliverables. The terminology of deliverable is used to define the outcomes of each
phase of the project.
After developing the charter, the next step is to define the supplier’s processes. The
supplier development team narrows the project focus and further refines its understanding of
related processes. In doing this, the team assesses customer needs, expectations and requirements
for the areas of project focus and translates them into project metrics. Then the team assesses the
business environment surrounding the processes, and analyzes how it affects the areas of project
focus.
Mapping and Measuring
In this phase, the team maps the supplier’s process and determines the measurement
required. Deliverables from this phase include: process maps, a final project charter and baseline
of “before” process improvement status.
• Map / Analyze Supplier Processes The team maps the current and ideal processes for
areas of project focus. The process maps are usually time-based visual representations of
bottlenecks and capacity constraints within a process. This provides the team with
information used to target project activity.
• Identify Process Metrics Metrics that will be used to gauge progress towards project
goals are agreed upon.
• Collect Baseline Data Data defining the current process status is gathered. This data
helps establish baseline metrics and further verifies process map results.
• Analyze Baseline Data Gaps in the current process are identified through study of the
collected data. Opportunities for improvement of manufacturing cycle time, quality,
delivery, etc. are prioritized.
• Document the Baseline Baseline metrics are documented to establish the before project
status.
usually developed using project management software. The project implementation plan should
include: activities required to complete the project, expected completion time of the activities,
project milestones, resources assigned to activities, and the expected completion time of the
project. The plan is used to track and manage project progress, define the project’s critical
path(s) and detail the project’s activity interdependencies.
The following critical activities occur in this phase:
• Create Solutions The team brainstorms potential solutions and conducts benchmarking
analyses where applicable. The output from this activity usually results in more focused
process maps.
• Select Solutions The solution(s) that provide the greatest potential for reducing
manufacturing cycle times, improving quality and delivery, or reducing costs drives
selection of solution(s). For example, a typical solution in manufacturing environments is
to select reducing set-up times. Set-up times often result in large batch sizes and excess
work-in-process.
• Develop New Process Detail the new process further through study and brainstorming.
The outcome of this activity is a new process.
• Plan Implementation The team works with relevant personnel to develop and propose a
detailed implementation plan.
Achieving Results
In this phase, the project team executes the implementation plan, conducting any
necessary simulations, pilots, and releases. The deliverables from this phase are a new, lean
process that has been implemented, documented and is actually demonstrating results.
Relevant personnel, such as engineers or information technology specialists from the
buying firm are made available to assist the implementation team keep the project on schedule.
Direction and resources are provided as required by the project champions. Project progress is
communicated to upper management, champions and process owners at designated milestones as
defined by the supplier development team.
The process is documented for clarity and consistency. This documentation may include
procedures, maps, flowcharts and operational method sheets, as well as training plans, schedules
and periodic audit points. A process plan that diagrams the footprint of the process areas affected
is developed showing workstations, control points, and material movements.
Controlling the Process
In this phase, plans and documentation are created to ensure consistent implementation of
the process with minimized variation. Ongoing metrics are defined to allow review of the
process. A closed-loop corrective action procedure system is installed to review the process,
address gaps in performance, and continuously improve performance.
The deliverables from this phase are a process control plan and a corrective action plan.
The control plan is used to ensure that activities in the process are executed correctly at all times,
and that critical elements of the process are always addressed. The corrective action plan
addresses what occurs in the event of a non-conformance in the process so that the nonconformance is eliminated and recurrence is prevented, with verification that proposed
corrections are effective.
Developing the Process
Deliverables from this phase include a project implementation plan that addresses
performance gaps in current processes and drives results. The project implementation plan is
9
10
Recognizing the Team
The final phase provides team recognition. Activities are organized by the project team,
project champions, and process owners to promote the success of the project. In this phase, the
team shares the lessons learned and best practices with the supplier’s organization.
At Deere and Co., project results are published on the Deere Supplier Development
Homepage to share with the rest of Deere’s supply chain. If applicable, case studies are
published describing the project’s highlights and lessons learned. Employees and suppliers can
then use the case studies to foster future learning. The cases provide yet another way to
disseminate information and maintain the project’s gains. Learning experiences from completed
projects are shared within the suppliers’ organization and the Deere’s Supplier Management
groups. Process owners use best practices to refine key processes, such as charters, process
mapping, setup reduction, cost, strategy, training, and information systems. Formal events are
organized to recognize implementation team accomplishments and share the team’s lessons
learned.
SUPPLIER DEVELOPMENT PROJECT CHARTER
The supplier development project charter is a dynamic document that is continually updated
during the planning, execution, and completion of a supplier development project. It generally
consists of the following sections: business case, situation and goals, mission or vision, project
scope, and signatures.
• Business Case The business case is a financial assessment of the project. In the
assessment, the supplier development team documents the estimated savings from the
development project along with assumptions used to create the estimate. The initial draft
of the estimate will never be completely accurate, which is why the estimate must be
updated as better information becomes available.
• Situation and Goals In this section, a qualitative and quantitative description of the
current situation and the goals for improvement are documented. Baseline date should be
accumulated on the quantifiable metrics that will be used to gauge progress towards
project goals. A description should be included describing how the supplier can track the
improvements after implementation.
• Mission / Vision The project’s mission needs to be defined to be able to communicate
quickly to others what the development team is trying to achieve. The mission statement
should be short, concise and to the point. The mission provides a point of reference
against which team members assess activities. “Does a particular activity help to achieve
the project mission?” If it does not, then there is a good chance the activity is wasteful
effort or the group has strayed from its original goals.
• Project Scope In this section, the development team clearly defines the project’s scope.
Clarifying the project scope helps to assure that the team has narrowed the project focus
by refining its understanding of the activities required to complete the project.
• Schedule and Deliverables A common approach in this section is to provide a printout
of a PERT (Program Evaluation and Review Technique) or Gantt chart showing the
relationships and deadlines of the activities required to complete the project. Completing
this section of the charter reduces future misunderstandings and miscommunications.
• Assignments and Roles This section simply documents who is responsible for what
activities. The schedule created in the previous section provides a logical format for
assigning team members responsibilities for specific activities.
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•
Signatures Signatures are required from the upper management of all participating
companies as well as key participants when establishing the charter as an official
document.
BARRIERS TO SUPPLIER DEVELOPMENT
Handfield et al. observe, “One of the biggest challenges in supplier development is cultivating
mutual trust. Suppliers may be reluctant to share information on costs and processes; the need to
release sensitive and confidential information may compound this hesitation. Ambiguous or
intimidating legal issues and ineffective lines of communication also may inhibit the trust
building necessary for a successful supplier-development effort.”23
There are many barriers to effective supplier development: 24 25
• Poor communication and feedback
• Complacency
• Misguided improvement objectives
• Credibility of customers
• Misconceptions regarding purchasing power
• Lack of clarity and commitment
• Lack of a unified approach
• Misaligned sourcing and performance metrics
• Concealment of problems
• Initiative fatigue
• Resource limitations
• “Blame the supplier” culture
• Lack of trust
• Confidentiality issues
• Legal issues
• Imbalance of power in the relationship
The leader for the supplier development team must clearly delineate potential rewards for
the supplier’s organization during preliminary meetings with the supplier’s top management.
Otherwise, the supplier’s personnel may not become fully committed to the effort and remain
unconvinced that the development effort will benefit their organization. They may even agree to
initial proposals but fail to implement them due to insufficient dedication. 26
23
Ibid., Handfield, Robert B., Daniel R. Krause, Thomas V. Scannell, and Robert M. Monczka, pg. 8.
Lascelles, D. M. and Dale, B.G., The Buyer Supplier Relationship in Total Quality Management, Journal of Purchasing and
Materials Management, 1989, pgs. 10-21.
25
Southey, Philip J. and David Williams. “Supplier Development: Linking Performance to Capabilities at Jaguar Cars,”
Conference 2000, Richard Ivey School of Business, University of Western Ontario, London, May 24 – 27, 2000, pp 715-718.
26
Ibid., Handfield, Robert B., Daniel R. Krause, Thomas V. Scannell, and Robert M. Monczka, pg.6.
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