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“Reducing Costs and Lead Time with E-Sourcing”

By Gene Brockmeier, CFPIM, CIRM, Terry, Johnson, CPIM

Executive Overview

The challenge for today’s supply chain executive is to reduce cost and lead time while bringing new, more complex products to market. Reducing sourcing and quoting costs in a competitive market requires an analysis of the time and resources required throughout your supply chain. Simplifying the process to identify and communicate with approved suppliers can provide significant time and money benefits. Having visibility of the capabilities and capacities of your approved supplier base across the corporation can result in significant time and cost reductions. It may not be as hard as you think!

The Challenge for Supply Chain Management

In this age of globalization and competitive/complex sourcing, the ability to quickly identify and select quality suppliers is crucial. The amount of time spent by engineers, procurement specialists and quality assurance employees adds to lead time and sourcing costs and reduces the ability to quickly introduce new products. Having access to supplier capabilities and capacity is critical to shorter new product introduction time and reducing procurement costs. Having the right tools and information can significantly improve “make vs. buy” analysis. Areas of time and money wasted are:
  • Identifying all approved suppliers with a specific profile which may include material specialties, processes provided and perhaps certifications
  • Phone calls Communicating specifications and drawings

Much sourcing time is spent researching approved company suppliers and reviewing the processes and services they provide. An additional challenge is determining what material specialties and product lines they produce and which certifications they have achieved. When researching potential suppliers, a sourcing specialist might need to know any or all of the following:

  • Supplier location
  • Industry specialty
  • Material specialties
  • Product Lines produced
  • Processes and or services they perform
  • Certifications that they hold

The challenge for a sourcing specialist is to quickly identify and communicate with all of the approved suppliers who have a specific profile. This includes finding support organizations such as transportation, customs and brokerages. This can be a daunting task in today’s business environment.

Multi-tier supply chains are complex with numerous suppliers of assemblies, components, materials and services. The ability to manage and communicate with your approved supplier base is crucial to reducing product introduction time and reducing costs. As a product integrator in a multi-tier supply chain, it may be important that you provide process and product visibility of your approved suppliers downward throughout your supply chain. Availability of supplier capability and capacity enables lead time reduction throughout your supply chain.

Many companies are moving toward a multi-tiered supplier environment and moving more towards product assembly thus complicating the management and approval of suppliers throughout the supply chain. Another difficulty is the visibility of your approved suppliers throughout the supply chain. Lower tier suppliers may need visibility of corporate approved suppliers, again, causing product sourcing delays and increasing costs. Many companies have a need for confidentiality of their supplier base providing another delay in a multi-tier or multi-divisional sourcing environment. Providing visibility of your approved suppliers and distributors to Tier 1/2/3 suppliers can reduce delays and costs throughout your supply chain.

Multi-division companies are likely to have numerous suppliers with duplicate capabilities. There is also the opportunity to reduce supplier approval time by having visibility of the capabilities of all corporate approved suppliers. Large corporations most likely have numerous suppliers with similar profiles but do not necessarily have visibility of those profiles across the company. Capturing the profiles of all suppliers across the corporation can have substantial benefits.

Many companies may have numerous suppliers with like capabilities. However few companies have gained control and visibility of supplier capabilities. Controlling the cost associated with maintaining supplier capability is important. Processes need to be implemented which provide accurate information with a minimum of company administrative overhead required to maintain the information. A complex supply chain with numerous suppliers of assemblies, components and materials demands speed and confidentiality. Visibility across the corporation of the capabilities and capacities of approved suppliers can reduce time, effort and costs in the supply chain.

The Challenge for Sourcing Specialists

Buyers & sourcing specialists spend a great deal of their time researching suppliers for the production capability and capacity required. Buyers and engineers seek suppliers with a variety of capabilities and certifications. The tools they use identify suppliers with a specific profile significantly reduces sourcing costs and lead time.

Consider the following scenario when sourcing new products: “Locate all of the suppliers who have the following characteristics: specialize in machined aluminum parts who have 3-axis machining, horizontal milling, stretch press, heat treat, paint and assembly processes who are ISO9001 and FAA certified”.

How much time would this typical scenario require in your company? Phone calls, emails, researching and waiting consume a great deal of sourcing resources and lead time. Buyers, engineers and quality assurance specialists spend an excess amount of time locating and communicating with suppliers. The ability to quickly identify and communicate requirements with all approved suppliers (& distributors) with the needed capabilities is a key to reducing time and cost. What sourcing specialists need is better and more visibility of the detailed capabilities and capacities of suppliers & maintaining supplier profiles.

Leading edge e-sourcing strategies require visibility of both supplier capability and capacity to slash procurement and supplier selection time. With a database of supplier capability and capacity, procurement specialists can quickly identify potential approved suppliers in a make vs. buy analysis for new and existing parts. And there is the case where, due to limited supplier information, some suppliers may be overlooked in the bidding process. Objective bidding is supported by the availability of supplier capability information.

By having detailed supplier profiles available, new buyers and engineers can quickly become more productive. The capability of quickly identifying suppliers who have the needed capabilities, capacity and certifications can significantly reduce sourcing time and cost for new products.

The Technical Challenge

No matter what solution you develop, it should be easy to implement, easy to use, easy to maintain. Most corporations have a database with supplier contact and credit information. The challenge is to add more detailed supplier characteristics to this database. Another challenge to ensure that supplier capability and capacity information stays accurate. Most companies have a supplier database containing basic supplier information such as company name, location, and sales contact. Integrating supplier capability and capacity information requires that a few additional data tables be designed and implemented.

The availability requirements of supplier capability and capacity information suggest that the system be available worldwide. A supplier capability solution should be linked into your company’s website or integrated with existing open architecture systems. Eliminating redundancy within existing supplier information will require the solution to be integrated with existing systems.

To reduce sourcing time and cost, sourcing specialists need to be able to simultaneously search on multiple supplier characteristics. Locating a supplier with multiple machining or forming processes requires complex search logic. Simultaneously searching on material specialties, product lines and certifications adds complexity to the design of systems solutions.

Another issue is to provide the sourcing specialist with the tools to easily communicate with all approved suppliers with the required profile. The internet provides the ability to rapidly communicate with required suppliers once they are identified. E-mail provides the ability to send drawings and specifications with approved suppliers once they are identified.

The process and tools to control and maintain system access to the capability and capacity profiles of your approved suppliers is important. Processes must be implemented and responsibilities assigned to maintain supplier capability information. This process is important in order to have up-to-date supplier profiles in the system.

It is a benefit to both the company and the supplier to have current and correct information in the system. From the companies perspective, having accurate supplier capability profiles supports the reduction of sourcing lead time and cost. From the suppliers point of view, having an accurate profile gives the supplier more credibility and more opportunity for business.

The administrative overhead required to monitor and update supplier profiles can be expensive and perhaps limiting. By implementing processes and systems that require the supplier to maintain their profile in the company supplier database, much of this cost can be eliminated. It is to the advantage of the supplier to keep their profile accurate!

Closing Points

By maintaining detailed supplier capabilities and capacities in your company ERP system, significant sourcing & quoting cost and time reductions can be achieved. Sourcing experts can be more efficient and new product introduction time can be reduced. With better visibility and communication with suppliers, the time and cost of sourcing can be significantly reduced and reductions in material and component costs can also be realized. Supplier capability management is a key component of supply chain effectiveness and its benefits are substantial!

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