Schlagwort-Archive: Supplier

SSS – Supplier Satisfaction Survey

Henry Ford emphasized on mastering the entire value chain. He ran a rubber plantation to ensure the raw material for the tires. In northern Michigan he operated mines and shipped the iron with his own freighters in order to produce the required steel in his own smelting plant. This gave him 100% vertical integration. Today’s car manufacturers have reduced down to twenty percent. These companies have evolved into integrators, initially assembling their products on platforms and now out of modules. OEMs (Original Equipment Manufacturer) are still in the driving seat, but with suppliers of increasing size and influence, which are gaining more and more room to act. This will foreseeably turn the balance of power upside down and the OEMs will depend on the goodwill of their suppliers. By then, at the latest, SSSs will have evolved that will find out, what the suppliers value most, in order to continue delivering to the OEM.

This reversal of the relationship between manufacturer and supplier requires a new, or at least a different interpretation of the satisfaction criteria.

  • Adequate performance
    Ever since López de Arriortúa contaminated GM’s and later VW’s cooperation with suppliers, his legacy has continued to impact in the form of one-sided advantages of the OEMs. At the latest, when supplier satisfaction in terms of the ratio between expenses and earnings regains importance, the purchasing departments will return to old values – cooperation based on partnership, win-win, and mutual support.
  • Future prospects
    The upfront services that are tailored for the customer, need good prospects for the vendor, otherwise the investment will be at the expense of the suppliers. The orientation of the deliverer towards the most promising companies ultimately forces the non-cooperative customers to take care of the external services themselves. The winners are the companies that perform their role as integrators to the satisfaction of both sides – e.g. by sharing and jointly developing long-term forecasts.
  • Smoothness
    An important factor is easy cooperation. This is disturbed by exaggerated administration in the form of complex processes and lack of provision of required data. Every manufacturer has its own requirements, a huge army of contacts and compliance rules that prevent trusting cooperation. Frictionless and simple procedures would help both sides.
  • Relationship quality
    It has been a long time since the Extended Company was proclaimed. Today, we are talking about platforms. The boundaries of the company no longer determine the relationships, but the respective task. For this reason, the employees must find ways to work in the steps of the process in harmony, trustingly and openly together with the partners – respectfully, promptly, and bindingly.
  • Image
    In the past, it was important to be a purveyor to the court. This created a reputation that influenced all other businesses. The former “courts”, today’s corporations, have lost this reputation, because they squeeze out their suppliers to the last drop in favor of their own balance sheets. In order to survive in the future with module-based approaches, it is important to regain the former image so that it is something special to work together again.

Bottom line: SSS will place the cooperation between manufacturers and suppliers on new pillars. In the long term it must be worthwhile for suppliers to work again for certain companies. The avoidance of any kind of waste through formalisms will make the difference. In the end, cooperation does not take place between companies, but between people. And there the quality of the relationship must be moved again into the foreground, without pulling the Compliance card in each step. If the suppliers get some more of the manufacturer’s image, SSS will probably be so favorable that the future is secured for everyone.

P.S.: Those who cannot or do not want to think in this direction will sooner or later have to rebuild their modules themselves.

Cooperative Metamorphosis

Henry Ford introduced that assembly-line. He was inspired by Taylorism and also made efforts, to get all levels of value creation under his control. For this purpose his enterprise had temporarily one hundred percent depth of production – plantations for rubber, glass factories, steel plants and power stations for the required energy. The automotive depth of production is on average approx. 20 percent. Thousands of suppliers share three quarters of the value of a car, from simple rotary switch to complicated injection or navigation systems.

Now, for the first time, this decrease of production depth has to be paid for. It took the small supplier’s years, but now they seem to be on eye level with those, who ruled the prices for years with their market power. At VW the production lines stopped, because obviously purchasing gambled away. Are we standing in front of a cooperative metamorphosis between manufacturers and suppliers?

Monopolist

After VW sound the bell for the last transformation, when they hired José Ignacio Lopéz and brought suppliers a new role, VW can not do other than delivering a reorientation concerning the interdependence between manufacturers and suppliers. The stop of Golf production in Wolfsburg that presumably creates for 20,000 employees short-time work is the wake-up call for the entire industry. The following mechanisms burdened the harmonious cooperation over the years.

  • Adjustment of the supplier portfolio
    After the internal improvement efforts and due to the low depth of production, there are not so many opportunities for reducing the expenses. All that remains is reducing the costs for the externally delegated 80 percent. In the absence of monetary incentives, the outside vendors could only be provided a benefit with the privilege of being part of the supplier circle. This means sometimes that they can participate to bid and to receive the traditional title purveyor to the court, as so-called strategic suppliers.
  • New pricing models
    Only the enormous quantities offer a large lever that result in favorable conditions and prices. The huge numbers of items are the incentive for the suppliers. Simultaneously the timely and variant-oriented deliveries require further resources that additionally diminish the yield.
  • Exhausted terms of payment
    The payments are not aligned to the need that the suppliers receive their money quickly, but they are based on the financial reporting dates. Consequently, the supplier carries the expenditure of the financing. This means that we talk about six months of prefinancing in the case of the procurement of material. However, there is no payment after delivery, but manufacturers wait, based on agreed payment targets for over three additional months to eventually pay their dues. The bridging of these time spans has to reproach the supplier – beside the raw materials, the wages and salaries, the storekeeping, the operation of the infrastructure etc.
  • New forms of negotiation
    The personal negotiations in private that were the basis for trusting cooperation, are replaced by formal tender procedures and electronic forms of negotiation. The personal contact is removed from the businesses. This leads to quasi-automatic decisions based on good value for the money and general quality standards without personal impressions.
  • One-sided contract terminations
    In many purchase departments still prevails the illusion to sit at the longer lever, since there are world-wide enormous amounts at suppliers, who seem to be ready to deliver at lower costs. This results quickly in the fact that a supplier, who falls in disgrace, will be eliminated in the blink of an eye.
  • Risk delegation to the suppliers
    The upstream procurement of material and the stand-by resources increase the risk unilaterally to the disadvantage of the suppliers. If a contract expires or the manufacturer terminates a running contract, this can quickly lead to insolvency.

The possibilities to reduce the costs at the expense of the suppliers reached their limits. Also suppliers use outsourcing into country with low-wages. However, considering the narrow margins and the interdependence, new models for cooperation have to be found. The required exchange of information must take place mutually and count on Win-Win. In the future it will be essential that the buyers will be in personal contact with the suppliers, in order to get a local impression and to get in such a way to realistic estimates. The persistent compliance that was introduced particularly in the interest of the shareholders did not prevent abuse by particular people and harms cooperation.

Bottom line: Interaction between manufacturers and suppliers must be brought to a new level of confidence and joint benefit. The distribution of the value creation needs a reorientation in the economy and even for the politicians, who nowadays stand up for VW although they silently sat out the precarious situation of the suppliers for years. At the end of this phase the industry will be empowered, since the current inclination will be balanced out. This metamorphosis will again weld together manufacturers and suppliers, since the one cannot without the others.