Leveraging the Supply Chain for Competitive Advantage

Gary S. Vasilash

Cisco does it. Dell does it. Garrett is starting to. Your company can, too. "It" is leveraging supplier resources for productive benefit.

The last thing that anybody wants to hear right now is another acronym. But here goes: SRM. That's "Supplier Relationship Management." One could (rightly) be skeptical about how SRM would make any difference in organizational performance (outside of, say, providing management with an excuse to attend an SRM conference). But then we talked with Jerry Rockstroh, vice president, World Wide Supply Chain, Honeywell Garrett Engine Boosting Systems. He's deploying an SRM solution from Apexon (San Jose, CA).

Garrett's customers are wide ranging, from Caterpillar to Volkswagen to independent aftermarket shops. Garrett's suppliers are numerous—there are approximately 350 vendors—and the number of individual parts involved is on the order of 90,000. Rockstroh says that they separate the incoming orders into two categories: discrete and steady state. While there is expected fluctuation in the former, he acknowledges that there are swings within what might be thought to be the predictable, swings can be 20% up or down.

One of the issues that they're facing is the difficulty of determining whether a supplier is capable of providing the quantity of products on a specific date so that they can meet their customers' orders. While negotiations are occurring with its suppliers (e.g., "Well, could you at least get us 400 by the 22nd?"), it may be that there has been a line disruption at its customer's site, which means that the customer's demand is now changed (e.g., "Ah, we'll only need 200 by the 22nd.").

Although there is constant change on either side of Garrett (customers/suppliers), to say nothing of what goes on within the organization itself, one of the things that Rockstroh is working on is acquiring the ability to gain as much visibility as possible into the customers' demands and the suppliers' resources. As he points out, without this visibility it is necessary to act in a reactionary mode. And that's expensive. What's more, they want to have the ability to expand the amount of business that they're able to handle—without adding headcount. Which means that they're looking for a way to leverage the supply base.

Essentially, what happens is that an order comes in. The order is transformed into a bill-of-material (BOM). That, then, is sent to the Apexon system so that by simply using an Internet browser, the appropriate supplier(s) can see the portion of the BOM that is relevant. The supplier can make the determination whether it can fulfill the requirement. Response times can be exceedingly fast. Because of the web-based approach, the com-munications can occur (or at least messages can be exchanged) 24 x 7. As in any manufacturing operation, much of what's required is rather simple and repetitive. Still, there is a human involvement in the approval process; it is not an automated setup. But the Garrett planners, Rockstroh explains, can spend more time working on the exceptions than they had in the past.

"We want to stay lean as complexity increases," Rockstroh says. And one way of doing that is through better integration with suppliers.


The Cisco Approach.

When it comes to dealing with complexity while staying comparatively lean, there is probably no better industrial example than Cisco Systems. One of the tools that it uses to great advantage is the Internet, which it deploys to facilitate communications with both its customers (many of whom actually go online to configure their orders) and its suppliers. Much of what Cisco "manufactures" is actually produced by some other company, such as Solectron or Jabil. In fact, often what Cisco "produces" is shipped directly from its suppliers to its customers.

R.S. ChandraSekaran worked at Cisco prior to March, 2000, when he founded Apexon. He is currently the company's chairman. ChandraSekaran is exceedingly familiar with the challenges that Cisco head John Chambers put in front of that organization as regards fast, profitable growth with minimal additional internal infrastructure. One of the things that ChandraSekaran thinks is important about the new manufacturing landscape, not only in the world of electronics but also in automotive, is that suppliers are becoming increasingly important. Heretofore, a given company would own 100% of its productive assets. To leverage them, management installed the realm of other acronyms: MRP, ERP, PDM, etc. But now, companies are working to have suppliers do more of the actual production. While that is well known, what isn't, perhaps, fully understood is the way that Cisco works with a supplier, which is significantly different than the automotive status quo.


Supplier As Extension.

"The context here is that you no longer treat your supplier as a ‘supplier' but as an extension of your enterprise. You don't own the assets of the supplier, but you want their assets to follow your processes as if they are yours," ChandraSekaran says. While many of the aforementioned systems aid in improving, say, the efficiencies between a company's own wide-flung plants, there isn't necessarily a good way to deal with the suppliers. Which has lead to the development of the planning, procurement, production, quality, and supplier assessment suite of products that is being offered by Apexon. The goal is to move from a situation where there is an arm's length between the manufacturer and the supplier to the supplier actually serving as the manufacturer's arm.

When many people in auto think about the Internet and suppliers, the word "auction" springs to mind. But ChandraSekaran believes that this is missing a larger point. He thinks that while many managers are fixated on cost, as in price-per-unit, it is perhaps more important to think about meeting quality and on-time delivery metrics. After all, he notes, the indirect costs associated with not having the level of quality or of being available when it is desired can be much higher than that piece-part savings. By having one's supply base integrated to the level of test and engineering data visibility through the Internet, achieving these quality and timing goals can be facilitated. And since the equipment is owned by the supplier, one's return on net assets (RONA) can be exceedingly good, to boot.

But then there is the issue of getting a system (1) up and running and (2) to pay for itself. About implementation, ChandraSekaran, who notes that there are differences related to specific in-stances, says that it should typically happen within three months. As for the ROI, he believes it can occur within a year.